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16 Oct 2006 : Column 617

Mr. Weir: I thank the Minister for giving way. He has given us a great list of things that post offices do, but does he not accept that the real problem for post offices began with the removal of benefits payments from them? Does he not also accept that although what he says about automated teller machines is all very well, in many rural areas people cannot get access to an ATM, or when they can, they have to pay to use it? If someone is existing on benefits or pensions, that can mean that a significant proportion of their weekly income is paid just to get access to their money. Does the Minister think that that is fair? Does he not accept that as well as operating in a commercial environment, sub-post offices have a social function, and that that must be recognised?

Jim Fitzpatrick: I totally accept that sub-post offices have a social function to perform, and I will come on to that subject later in my speech. However, I do not accept the entirety of the premise that the hon. Gentleman puts forward; for example, I know that Post Office Ltd will install 1,500 free ATMs in due course.

Mr. Kevan Jones (North Durham) (Lab): I thank the Minister for giving way. Does he agree that not only is the way in which people access services changing, but in rural areas the way in which post offices deliver services is changing? There are two excellent examples from my constituency: the post office in Sacriston closed, and there is now a counter in the local mini mart, and in Craghead, another rural village in my constituency, the post office counter is now located in the local village hall, with support from central Government. Does the Minister agree that it is important to look at possible alternative ways of delivering the same service, which people actually want—perhaps not as extensively as previously, but so that they can get access to that service?

Jim Fitzpatrick: My hon. Friend makes a very important point about how Post Office Ltd is trying to develop services, and some of its successes in meeting that aim. I shall come to that later.

Mr. Mark Todd (South Derbyshire) (Lab): Basic transactions remain among the key services. Does the Minister not share my concern that Post Office Ltd seems unable to tender appropriately to retain basic transaction services such as TV licensing? In my area it has lost the water business as well. Those services, if retained, would enable its sub-post office network to maintain footfall. If that does not happen, Post Office Ltd should at least allow sub-post offices to engage with PayPoint to offer that same service. At present, it will not even do that.

Jim Fitzpatrick: My hon. Friend makes an interesting point, and I will respond to some of the issues that he raises shortly.

The network’s strength is its unrivalled size, but the massive cost of supporting it also leaves it vulnerable to leaner organisations. Although the number of post offices has been reducing for decades, there are still 14,300 branches, which is almost more post offices than all the major banks and building societies combined. By way of contrast, Tesco, the most successful retailer in the country, has a total UK-wide network of just under
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1,800 outlets—less than a quarter the size of the network that Post Office Ltd supports in rural areas alone. As the Postcomm report recognises, a large part of the network is making a loss and is being supported by the social network payment—it is worth £750 million over the five years to 2008—for uncommercial rural offices.

Maintaining a network of such size is hugely expensive and the cost is rising: Post Office Ltd expects to lose £4 million every week during the current financial year. The reality is that too many offices are chasing too few customers to be viable. The smallest 20 per cent. of rural offices—some 1,600 branches—serve fewer than 100 customers a week and generate an average loss of almost £8 every time one of those customers does business such as buying a stamp. The 800 smallest offices, which have an average of 16 customers a week, lose £17 on each transaction. Over one third of business in the rural network is done in the largest 10 per cent. of branches.

There are some 6,500 rural social branches, which lose around £150 million a year. While these branches represent 45 per cent. of the network in total, they account for less than 7 per cent. of overall income. Having too many branches with too few customers is clearly the root of the problem across much of the network, so we need to strike a balance between meeting and funding the reasonable needs of people who rely on the post office, and making prudent use of taxpayers’ funds, on which there are competing calls.

Mr. Owen Paterson (North Shropshire) (Con): Adam Crozier, the chief executive, told the all-party group on sub-post offices that he needed 4,000 offices to run a physical mail network. Given what the Minister has just said—that there are 14,300 branches—how big does he predict that the network will be in five years’ and 10 years’ time?

Jim Fitzpatrick: I think that the hon. Gentleman and I had this discussion when I appeared before the Trade and Industry Select Committee. He is not going to tempt me —[Interruption.] Well, if we did not, other colleagues did, and I am afraid that I am not going to be tempted into a numbers game, because we have yet to arrive at such conclusions.

Michael Connarty: My hon. Friend is rattling out statistics, and sadly, he seems to be imitating the Post Office’s new attitude to its customers: unfeeling, lacking in compassion and fixated only on numbers. When the village of Standburn, in my constituency, lost its post office, it then lost its one shop. The people in that small community now have to make a four to five-mile round trip. There are no buses running directly from the village to other local communities, and they have been left stranded. Are the Government not prepared to recognise that isolated communities must be provided with some form of social service through a local post office? Will they not guarantee that where there are no other shops, post offices will be funded, and not closed?

Jim Fitzpatrick: My hon. Friend takes me to task for being insensitive and for rattling through statistics. I apologise if I am offending anybody, but I have to get
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on the record the counter to the Liberal Democrats’ challenge by explaining the nature of the problem that we face.

Mr. Philip Hollobone (Kettering) (Con): The Minister’s response to the question from my hon. Friend the Member for North Shropshire (Mr. Paterson) was understandable, but given that the rural funding mechanism is not going to last beyond March 2008 on current plans, and that the Post Office card account is due to go in 2010, does the Minister not recognise that the consequence of what he has not said is that every small rural sub-post office in this country faces the threat of closure within the next five years?

Jim Fitzpatrick: What I recognise, and what I and am saying—I shall try to deal with this point when I conclude—is that there is too much uncertainty out there, which has been the case for some time. However, we are trying to address that uncertainty and we are coming to conclusions. I shall explain in detail how we are arriving at those conclusions, but I should point out that in the past 12 months there have been the fewest closures since 1998, and fewer resignations than at any point in the past 12 years. I suspect that that is because sub-postmasters know that we are reaching a conclusion, and they want to see what that is.

Several hon. Members rose—

Jim Fitzpatrick: If hon. Members will allow me, I wish to make considerable progress now.

I do not want Liberal Democrat researchers to head for their computers to start drafting press releases about 6,500 closures. That is not what I am saying; it is not the message that I am trying to get across. The key challenge for the future is how best to address the needs of offices both in rural areas and in deprived urban areas where post offices play a key social role. If the network is to survive, it needs to meet the present and future needs of its customers efficiently and effectively so as to establish a long-term sustainable foundation. Both the Government and the Post Office are looking closely at service provision in the context of utilisation levels.

In the past year, Post Office Ltd has been piloting new service delivery channels with particular focus on the loss-making rural segment of the network. The pilot trials are based on a core and outreach principle and aim to provide delivery of value-for-money rural post office services that can be tailored to different situations, as my hon. Friend the Member for North Durham (Mr. Jones) described. In the trials, a core post office provides services to a number of outreach sites using one or more of the four outreach options being tested. In all the pilots, service hours have been set at a level much more commensurate with the level of business generated in that community, to eliminate the wastefulness of long opening hours with little or no custom. However, in many cases, although hours are reduced the range of services available is extended, and many customers in very rural areas have local access to motor vehicle licensing and passport check and send services for the first time. Encouragingly, once people get used to the
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new means of service delivery, levels of satisfaction with the pilots are, at 93 per cent., very high.

Post Office Ltd has selected the pilot sites to achieve regional and national coverage and broad representation of community and service profiles, while ensuring that they are of a size that can handle the additional work. The pilot sites are also located within a spread of communities covering a variety of sizes and seasonal or holiday destinations, and of varying degrees of remoteness.

We are of course aware that there has been a prolonged period of uncertainty about the future direction of Government policy towards the network. In recent weeks, I have met Colin Baker and members of the executive of the National Federation of Sub-Postmasters. Mr. Baker will be having further discussions with my right hon. Friend the Secretary of State for Trade and Industry later this week, as well as visiting No. 10 with his petition. In addition, and more importantly, a dedicated Cabinet sub-Committee, MISC 33, which was mentioned earlier, has been established specifically to consider the future of the post office network. Since the meeting in July there has been a series of interdepartmental discussions, and a further meeting of the Committee is expected to take place shortly.

Hon. Members will no doubt be aware of the wide range of research and reports published in recent weeks and months by Postcomm, Postwatch, the Commission for Rural Communities, the National Federation of Sub-Postmasters and others. The findings, conclusions and recommendations from that extensive range of work are being taken into account alongside our own analysis and assessment work in informing our thinking on forward strategy. There is an ongoing dialogue and we are not yet in a position where we can say that we have the answers, but people can rest assured that we are listening, and that we shall take account of their concerns in reaching our decisions shortly.

We recognise that we need to take some tough decisions. Because they will be tough, we have to be as sure as we can be that they are right ones, but I want the House to be absolutely clear that the Government’s forward strategy will continue to support the network to ensure that post office services will be maintained in rural or vulnerable communities, where they fulfil a key social and economic role and help to combat financial and social exclusion. We shall also seek to ensure that services are delivered as efficiently as possible and, where appropriate, utilise new and more cost-effective ways of providing them.

Mr. Russell Brown (Dumfries and Galloway) (Lab): I had a rural postal pilot operating in my area, of which I await the outcome. My hon. Friend the Minister mentioned the £2 billion investment made by the Government. Unfortunately, the Liberal Democrat spokesperson did not give enough information in respect of part-privatisation, but strangely, he quoted a similar figure of £2 billion that would be put in to prop up loss-leading sub-post offices. How long does my hon. Friend think that money would last? For ever?

Jim Fitzpatrick: My hon. Friend effectively makes the point that £2 billion does not buy an awful lot in modern business. He equally effectively makes the point that once the money is spent, it is no longer
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available to support the network, which in five, six or seven years’ time, would be confronting the same problems that we have today.

We have heard again today the concerns about the Post Office card account, but we must recognise that even before the Department for Work and Pensions’ decision to make payment into account the normal way for people to receive their entitlement, almost half of recipients had already made their own choice to have their pension or benefit paid into a bank account.

The Post Office card account is one of 25 different accounts that can be used to access benefit and pension money over the post office counter. Every bank, and the Nationwide building society, has at least a basic bank account that can be accessed in any post office. Some 70 per cent. of Post Office card account customers already have a bank account, and 20 million people could access benefits at a post office. However, only 10 per cent. of those people do so.

The Post Office card account contract runs until 2010, and its successor is still being decided. As Alan Cook, the managing director of Post Office Ltd, said of the Post Office card account at the Treasury Select Committee inquiry into financial inclusion on 9 May 2006:

Sir Robert Smith: Does the Minister recognise that there are people who like to budget through the safe and simple way that the Post Office card account operates? Will he give an assurance that such people will not face charges if they go overdrawn accidentally?

Jim Fitzpatrick: I apologise to the hon. Gentleman, but I shall respond to his point about customers going overdrawn later. I can assure him that we are in the process of devising a successor to the Post Office card account that will allow individuals to access their benefits at a post office.

Accordingly, Post Office Ltd is working on new products with significantly greater flexibility than the Post Office card account that will ensure that customers continue to have a range of choices in how they access their money over post office counters. Post Office Ltd recognises that there is an opportunity to provide simple good-value options for customers. It has already introduced one new savings account and is developing other savings and banking products that will be more suitable for many of its customers than the current Post Office card account.

Mr. Henry Bellingham (North-West Norfolk) (Con): The Minister kindly wrote to me the other day, and it seems to me that the Post Office is taking a few steps forward, but large steps backwards, including with regard to the point raised by the hon. Member for Cannock Chase (Dr. Wright) on the BBC licence fee.
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The Minister disavowed any responsibility for that, but what discussions did the Government have with the BBC about a vital matter, the effect of which has been devastating for post offices?

Jim Fitzpatrick: As I think I said before, that was a decision for the BBC, based on its need to protect the licence fee payer and get value for money in respect of the renewal of licences. It was not a matter for the Government to intervene in.

There will also be a new Government-funded product for those who, for particular reasons, are unable to operate any but the most basic form of account. If Post Office card account customers use a bank account or a new Post Office product at the post office instead, Post Office Ltd will still receive a payment. Exactly what accounts will be available after the card account contract ends is not yet settled, but it remains our intention to provide access to benefits in cash at the post office for those who want it.

In addition to benefit payment issues, the future of the Post Office is clearly a significant cross-cutting issue for the Government, with a number of different Departments delivering services through the network. It was, of course, disappointing that the Post Office failed to retain the contract for over-the-counter sales of television licences, but the BBC had a clear duty to act in the interests of licence fee payers and to ensure value for money for the public. It rightly put the process out to competitive tender, and Post Office Ltd was undercut by a significant margin.

Mr. Paterson: I am most grateful to the Minister for giving way a second time. On the point about delivery, what criteria do the Government apply to the quality of the service offered? I had a letter this morning from Mark Thompson, the director-general of the BBC, who states:

He freely admits that there will be an inferior service for large numbers of people in isolated areas.

Jim Fitzpatrick: If the hon. Gentleman will forgive me, I am obviously not privy to that correspondence, but the decision was a matter for the BBC, and one would expect that it would have examined the contract in all its aspects before placing it with whichever contractor won the contract, which I believe was PayPoint.

The Government, together with the Post Office, are urgently looking at strengthening the competitive position of the Post Office in ways that remain compatible with its social obligations. What people must recognise is that the huge costs associated with supplying cash, IT, marketing and training to such a large bricks-and-mortar network make it increasingly difficult for Post Office Ltd to compete commercially and effectively for Government and other business when faced with lower-cost competitors. We continue to look for ways in which we can use the network, but it is the duty of a responsible Government to provide services in a way that gives the public a choice of how to access them, and offers value for money.

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