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Miss Widdecombe: I am grateful to the Minister for giving way, particularly as he is so reluctant to do so. Does he not accept that more people would be likely to use the sub-post offices for postal services if they were also going there for other services such as cash, euros and so on?
Barry Gardiner: There has been a long tradition of local grocery stores, card shops and so forth also having a post office counter located within them. That has increased footfall for such stores, and that franchise arrangement has proved very satisfactory for those local traders. The right hon. Lady might agree that it is a strange franchise where one takes the most respected brand in the market, which the Post Office is, and uses it to generate footfall in one's own retail outlet, be it a grocery shop or a card store, but is paid for, rather than pays for, that franchise.
Postcomm, in its advice to Government on the future of the rural network, made 19 recommendations. The major strands of its advice were: that Government needed to clarify their primary reason for maintaining a physical network of offices, that they should end the policy of preventing avoidable closures in the network, and that alternative means of delivery should be introduced to ensure continued access to services, particularly for vulnerable groups. While Postcomm advised that its recommendations should be enacted in relation to the network from April 2006, the Government decided that more time was needed fully to understand the impact of the pilots being trialled by Post Office Ltd. before coming to any final decisions. Accordingly, a two-year extension of the annual support of £150 million, subject to state aid clearance, was announced in Parliament in September 2004. The Government want to be sure that we have considered all angles before taking a decision about the future of the network.
Postcomm recommended that the Government should clarify their primary reason for wanting to maintain a physical network of post offices. I completely agree that it is of fundamental importance that we have a clear vision for the network of tomorrow. Without it, the network is likely to contract in an unstructured way, hitting the most vulnerable groups in our society the hardest. If we do want to maintain a physical network, over and above that which Post Office Ltd would run commercially, we must be able to justify the high costs that that would incur.
Postcomm also recognised that it was becoming increasingly difficult to find suitable people interested in taking on full-time post offices when they came on to the market. That is why it recommended the removal of the policy to prevent all avoidable closures. As a result,
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we will review that policy in light of the pilot report. In the meantime, however, we have adapted the interpretation of the policy to allow Post Office Ltd more flexibility to retain service provision in a location without the absolute need for that always to be on the same basis as that in relation to the departing sub-postmaster or mistress.
Inevitably, however, there are post offices that cannot be retained no matter how much effort is put into finding a new sub-postmaster or sub-postmistress. Increasingly, that is likely to be more common. Rural post offices must be sustainable. At present, however, the number of customers is simply too small to make such businesses attractive. One customer every hour and a half might give a whole new meaning to the phrase, "an unhurried retail environment", but it is hardly an attractive business proposition. That said, we must not make the mistake of believing that this is a problem only for the smallest rural outlets with high fixed costs and low footfall. In all but 1 per cent. of the 8,000 rural offices across the country, it costs Post Office Ltd more to provide the service than it takes back over the counter. Post Office Ltd loses money on the other 99 per cent. of those rural post offices. That indicates clearly that this is not simply a structural matter of outlets and fixed costs but equally about contracts and variable costs.
That is why I am pleased to tell the House that Post Office Ltd has been working closely with the National Federation of Sub-Postmasters to move
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sub-postmasters' remuneration to a more transaction-based and commercially-oriented structure, with the fixed payment element much reduced. It is important that a mutually beneficial relationship continues to develop between Post Office Ltd and sub-postmasters and mistressesa relationship that rewards delivery and thus incentivises a more commercial approach. The new contract has been implemented across the urban network, and in my view it will be important to maintain this impetus and to examine carefully the scope for further broadening the transaction-based contract structure to the rest of the network.
Post Office Ltd is at a key point in its development, particularly in relation to generating new income from the financial services and other products that it has recently launched. It has already had considerable success in showing customers that post offices are no longer simply places to visit to collect pensions or benefits, but now a good place to get foreign currency, ask about car insurance or top up credit on a mobile phone. All those services are being provided through Post Office Ltd. The company is working hard to build on that success, to ensure that post offices remain relevant and are not left behind in a rapidly changing marketplace. Looking ahead, the greatest uncertainty, I believe, is customer behaviour. It will be customersour constituentswho largely dictate the future of the business.