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Mr. Lilley: My hon. Friend is absolutely right. The Government have created a black hole and are now creating a rather circumscribed mechanism--conditional and tentative--for filling it up. As I shall show in due course, even if they filled up every cubic inch of that black hole, they would still leave the network in difficulties. If they replaced every penny of revenues that the post offices and sub-post offices currently receive from the Department of Social Security contract with a subsidy, the sub-post offices would still lack the necessary footfall--that is, the trade generated by pensioners, young mothers, disabled people and others who collect their benefit and spend a little of it in the sub-post offices, which thereby generates additional income over and above the fees paid by the DSS for the task of distributing its benefits.
The value of that trade must be significant. I believe that my hon. Friend the Member for West Dorset (Mr. Letwin) will be discussing that issue. If so, I shall leave it to him.
Mr. Lilley: As we do not want to hold up the House unnecessarily by repetition, I shall leave that interesting issue to my hon. Friend.
My hon. Friend the Member for North Norfolk (Mr. Prior) questioned whether it is a permanent black hole. The alternative to subsidy is other sources of revenue. If the post offices can generate alternative revenues to replace the DSS fee, they might be able to restore viability. The question is whether they can do that. Is it realistic to suppose that they will be able to generate enough revenues to replace a third of their income by 2003-05, when this calamity will hit them? I think that that is manifestly impossible, as doing so would require a rate of growth in other revenues that would be extraordinary and unprecedented, and the Government have given no indication of where it would come from.
The Government have indicated that they are going ahead with the truncated Horizon project, implying that that has the potential to generate massive revenues. When we originally introduced the Pathway-Horizon project to automate the delivery of benefits, we saw one of the virtues of computerising all the sub-post offices as enabling them to build on that computer link to deliver other services. However, we never imagined that that was more than a by-product. The Government have cut away the core, central purpose of the project--the delivery of benefits--and left the by-product on a stand-alone basis.
It is a very costly project--the Secretary of State's estimate is £800 million to £900 million; so not until it has generated £800 million or £900 million worth of revenues will it be able to contribute a penny to filling the black hole created by the absence of the DSS contract. When will that be? When will that project have repaid £800 million and started filling the black hole that is created by the removal of the DSS fee?
I asked the Minister for Competitiveness that question in last Wednesday's debate in Westminster Hall, but he did not answer it. Apparently, it is the tradition in Westminster Hall not to answer questions from other people. It is not supposed to be a controversial, adversarial place in which people ask difficult questions, and I was out of order in doing so. Perhaps he will answer the question today. When will that project generate a penny of extra revenues? Of course, the Government say, "We are subsidising part of the contract and £500 million will come from Treasury machinations and will not be expected to come from the Post Office." It will still have to come from the taxpayer, so it is an alternative form of subsidy. Only £400 million will have to be paid off by sub-post offices to pay for the contract. It is a funny business to enter into a scheme that is designed to save money and then conceal the fact that it will cost money by subsidising half of the scheme.
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In any event, the Horizon project so far is primarily an internal accounting and management tool for sub-post offices. The existing functionality is designed--doubtless
it is useful--to improve the management of sub-post offices and to bring some centralised accounting and other functions to them. As yet, the functionality does not exist. It has not been written and it is not in place to engage in commercial business, particularly banking business, in which the Prime Minister and the Secretary of State have asked us to put much faith.
Mr. Drew: I think that the right hon. Gentleman is talking historically. I have talked to Post Office Counters Ltd., and I understand that it has a pilot project up and running, which means that it can do business with the banks. The issue now is negotiating rates, which is to be expected, but it is important to get it on the record that the scheme is feasible.
Mr. Lilley: Indeed, mechanisms and relationships exist between the existing sub-post office network and the banks, but that is not through the Horizon project. The Government will go out to tender later this year to seek companies that are willing to write the software and to produce a package that will enable post offices to receive and transmit money automatically from the banks, and carry out the banking function of Lloyds, National Westminster, Barclays and HSBC. They will act as a local link, and basically fulfil the Secretary of State's pledge that everybody having by compulsion had his or her money paid into a bank account, can have it transmitted to the local post office, from which he or she can draw it out. That system is not yet up and running. Indeed, it is not even out to tender.
I visited a post office in the constituency of the hon. Member for Stroud before he temporarily became its Member of Parliament. The early stage Horizon project is operating there, and 300 other post offices a week are coming online. It is essentially performing an internal management function. For the record, it does so using a smart card rather than a swipe card. The original project was designed for smart cards rather than swipe cards, but that is an aside.
It is unlikely that Horizon will enable extra revenues to be generated in the time scale that is being forced upon it by the Government through the abolition during 2003-05 of the Post Office contract. Subsidy is inevitable if the Government are to protect and preserve a national network of sub-post offices. However, will the subsidy necessarily go to post offices? The new clause allows the Secretary of State to make by order a scheme
- for the making of payments for the purpose of assisting in the provision of public post offices . . . or assisting in the provision of services to be provided from public post offices.
The Government propose to transfer the cost of distributing benefits from sub-post offices to banks. They have provided some misleading figures suggesting that it costs, on average, 49p per transaction to deliver a payment by the order book system through sub-post offices, but allegedly only 1p through the banks automated clearing system. The automated clearing system will charge the Government 1p for transmitting money from the Benefits Agency to a local bank. However, that is not the same as the cost of withdrawing money from a bank account or running a bank account. As I mentioned last week, the
Government--at least, another Department of this unjoined-up Government--have helpfully issued a report on the competitiveness of the banking sector. Members who have read as far as page 283 will have found appendix D4--
Mr. Lilley: My hon. Friend, like all my hon. Friends, has of course done so--[Interruption.] He has committed it to memory, as we may all be sure. Anyone who has read that far will know that the average cost of withdrawing money by cheque is £1.09 and that the average cost of drawing money from a hole-in-the-wall machine is more than 30p. The Government expect the banks to absorb the costs that will be incurred when people draw their benefits from the banks.
Banks, of course, will not bear the cost. Customers of banks always bear the costs of banks, and they, including benefit claimants, will do so. The Treasury proposes to transfer the costs from the taxpayer, who meets the costs of using the sub-post office system, to the customers of banks, who will meet the costs of using the banking system. Banks are not philanthropic organisations. They do not exist to deal with the problems of the general public, or even the problems of the Government--unless they are compelled to do so. Even if they are so compelled, they will be reluctant to take on people who represent an unremunerated cost.
If banks are unable to levy any charge on those who withdraw money from hole-in-the-wall machines or by cheque, they will be reluctant to accept as customers pensioners, disabled people and others who depend on benefit. The Government will be able to persuade the banks willingly to take on those people only if they are prepared to subsidise the banking system. When the Minister for Competitiveness winds up--[Interruption.] Apparently the Secretary of State will wind up: the big guns are before us, or at least the temporary pop guns.
In his wind-up, will the Secretary of State confirm that the new clause will permit subsidies that will effectively subsidise the banking system so that it may transmit money through sub-post offices? Only by that mechanism will the Government persuade the banks to take on such customers, let alone enable those customers subsequently to withdraw money from sub-post offices.
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