APPENDIX 5
Memorandum by the Department of Trade
and Industry
INTRODUCTION
1. The Government regards it as most important
that people have reasonable access to postal and Government services
and access to cash. We are committed to doing all we can to ensure
a viable Post Office network for the future. But ensuring that
is a massive challenge for everyone involved.
2. The Performance and Innovation Unit report
on "Modernising the Post Office Network", published
in June 2000 found that the Post Office had failed to keep up
with change. Dramatic improvements in technology, greater mobility
and changes in shopping habits have meant that people were simply
not using the post office in the way that they used to. The business
had lost touch with its customers' needs, which are very different
now to what they were a generation ago. Following years of under
investment the business was in a spiral of decline.
3. We have appointed a strong new management
team committed to turning the business around. They have our full
backing, underpinned with a £2 billion investment.
DIRECTLY MANAGED
(CROWN) POST
OFFICES
4. The Performance and Innovation Unit found
that almost all Directly Managed "Crown" post offices,
as they are often known, were loss-making and concluded that,
as a matter of priority, the Post Office should take forward work
to maximise the commercial potential of the network, the efficiency
of its operations and the quality of individual post offices.
In particular, the Performance and Innovation Unit recommended
that more Directly Managed offices should be converted to privately
run operations as a means of addressing the poor profitability
of the Directly Managed part of the network.
5. Directly Managed branches are typically
the largest post office outlet in a given area and in most cases
are prominently located in town centres. Due to the higher running
costs involved, Post Office Ltd's network of Directly Managed
offices continues to make substantial losses. In 2003-04 alone
losses were £71 million. Clearly that is unsustainable and
with Post Office Ltd projecting losses to increase, particularly
as property and staffing costs rise, the continuing losses of
Directly Managed post offices need to be addressed in the wider
interests of the business and its customers.
6. Post Office Ltd is taking action to reduce
these losses with the aim of retaining a core of Directly Managed
branches whilst bringing the network to breakeven point. Conversions
are an important part of the strategy, but Post Office Ltd is
also piloting new look branches and exploring ways of enhancing
the service provided by Directly Managed post offices.
7. The process of converting Directly Managed
post offices to agency or franchise status began in the late 1980s
as a means of strengthening the economic viability of the Post
Office network. Since then, over 900 Directly Managed branches
have been converted to agency/franchise status in a programme
that has been generally successful in maintaining service, whilst
reducing costs and enhancing sustainability. An agency post office
typically shares overheads with a vibrant retail offer—and
conversion often enables customer service improvements (such as
longer opening hours).
8. Individual conversion had been controversial
locally and the programme was opposed by the Communication Workers
Union. On taking office in May 1997, the Labour Government imposed
a moratorium on further conversions pending a review. This moratorium
was lifted in December 1998 following agreement on proposals put
by the Post Office to the trade unions on a future strategy for
the Directly Managed office network. These arrangements were included
in the 1999 White Paper on the Post Office.
9. There is an agreement between the parties
that Post Office Ltd will ensure that the total proportion of
business transactions carried out at Directly Managed offices
is maintained at no less than 15% of the total business transacted
by the Post Office network as a whole. The intention is that this
should ensure the maintenance of a core of Directly Managed offices
within the network.
10. There are some 550 post offices directly
owned and operated by Post Office Ltd, accounting for around 3%
of the total Post Office network of over 15,000 post offices.
Post Office Ltd employs around 8,500 staff at its Directly Managed
offices, and some 20% of total business volume is transacted through
Directly Managed offices.
11. Post Office Ltd's policy, which has
the Government's support, is to maintain a core network of Directly
Managed offices whilst continuing to drive efficiencies, with
the aim of making the business commercially viable.
LINK WITH
THE URBAN
NETWORK REINVENTION
PROGRAMME
12. The Post Office network has historically
been managed in clearly demarcated categories. Given Post Office
Ltd's intrinsically different responsibilities for its directly
owned and staffed branches—the management of Directly Managed
post offices necessarily stands separate from that of urban and
rural sub-post offices.
13. It is essential that Post Office Ltd
continues to consider the locations of all offices, urban, rural
and Directly Managed in developing proposed changes, so that customer
needs are reflected in these decisions. Post Office Ltd routinely
assesses the Directly Managed network and as suitable opportunities
have arisen has converted, and in some isolated cases, closed,
Directly Managed branches where this is perceived to be in the
wider business interest. Post Office Ltd has given assurances
that, wherever possible, changes to the Directly Managed network
have been considered alongside proposed changes to the network
of urban sub-post offices under the Urban Network Reinvention
Programme.
ROLE OF
GOVERNMENT
14. The Government is the sole shareholder
of the Royal Mail Group and has introduced reforms that allow
the company greater commercial freedom. The Government does not
seek to direct or micro-manage the company and has established
an arm's length relationship with them to ensure they have the
freedom to act commercially. Subject to agreeing its strategic
plan with Government, the Board is able, like any other business,
to structure the business as it decides best to meet the challenges
of market developments and changing customer needs, and has so
far made good progress in introducing new products and services
to attract new customers.
15. Other than in the context of the Secretary
of State's responsibility for approving the Post Office Ltd Strategic
Plan, which sets out plans for the Post Office network, the Government
does not and should not intervene in the implementation of the
current, approved policy or in the operational and commercial
issues relating to proposals for individual Directly Managed offices.
ROLE OF
POSTWATCH
16. Closure proposals for Directly Managed
post offices are subject to full public consultation with interested
parties, in accordance with the "Code of Practice on Post
Office Closures and Relocations' agreed between Post Office Ltd
and the independent consumer body—Postwatch. The service
implications, but not the principle, of the conversion of Directly
Managed offices to a franchise or agency with a private sector
partner are also subject to public consultation under the Code
of Practice.
17. Clearly, the implementation of the Urban
Network Reinvention Programme has given Post Office Ltd and Postwatch
significant additional experience of how to ensure that consultations
on proposed post office closures are inclusive and effective.
We would expect both parties to continue to work together to ensure
that the views and needs of customers can be fully considered
on proposals for Directly Managed offices.
ROLE OF
POSTCOMM
18. The independent national regulator—Postcomm
has an advisory rather than a regulatory role in relation to the
Post Office network. Postcomm monitors changes in the network,
liaises with key stakeholders, conducts research and provides
an independent view as the national regulator via reports annually
to the Secretary of State for Trade and Industry. These annual
reports are published on Postcomm's website and copies have been
placed in the Library of the House of Commons. Postcomm intends
to conduct research during 2005 on the effects of the Urban Network
Reinvention Programme.
HMG AS CUSTOMER
19. Post Office Ltd currently holds contracts
for a wide range of Government services including, benefits collection,
car tax, passport renewals, TV and fishing licences. Individual
spending departments negotiate the detail of contracts with Post
Office Ltd with due consideration for the need to balance convenience
for the customer and costs. None of these Government services
are restricted to Directly Managed outlets. For example, motor
vehicle licences are available at around 4,700 branches. Similarly,
none of Post Office Ltd's branded financial service products are
restricted to Directly Managed offices.
LOOKING AHEAD
20. Post Office Ltd faces an enormous challenge
to turn the business around, including getting to grips with the
escalating and unsustainable losses incurred by "Crown"
offices. Inevitably this will mean considerable further change
for the network, from which Directly Managed offices cannot be
immune.
21. The Performance and Innovation Unit
report recognised that if the Post Office network is to survive
and thrive it needs to change significantly. The Government accepted
all of the recommendations of the Performance and Innovation Unit
and wants to see a Post Office network that can prosper—on
the basis of future customer and client needs—not on those
of 20 or more years ago.
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