Select Committee on Trade and Industry Ninth Report

4  Post Office Card Account (POCA)

40. From April 2003, the Government began paying benefits and state pensions directly into customers' bank accounts (direct payment). The Post Office Card Account (POCA) was developed by Post Office Ltd[80] to act as a 'simple' banking vehicle whereby customers could obtain these benefits if they could not, or did not wish to, use any other kind of banking account. POCAs allow holders, or a nominated helper, to take cash out, free of charge, at any Post Office branch using a plastic card. It cannot be used for any purpose other than to receive benefit payments. For example, it cannot be used to obtain cash from ATMs or to pay bills, either directly or by direct debit, and it carries no overdraft facility. It is the electronic equivalent of the old benefits order book.[81]

41. Whilst the POCA offers very limited functionality, approximately forty percent of the benefit claimants converting to direct payment opened a POCA. The POCA helped Post Office Ltd retain some of the £400 million worth of transactions, which would otherwise have been lost when the Government changed to direct payment.[82] Around 3.7 million customers of the DWP currently have their benefit or pension paid into a POCA.[83] HM Revenue and Customs and the Northern Ireland Social Security Agency also provide some services through the POCA,[84] taking the total number of card accounts to around 4.3 million.[85] For comparison, just over 11.6 million state pensions were paid to recipients in February 2006.[86]

The cost of the POCA

42. The Department for Work and Pensions (DWP) has a contractual commitment to fund the POCA over the seven years of the contract.[87] The current POCA contract will cost the Government at least £1 billion between 2003 and 2010.[88] The precise value of the contract will depend on how many customers use the card account between now and the end of Government funding in March 2010.[89] The POCA is also partly funded by the main high street banks and the Nationwide Building Society, who together will contribute £180 million over the period 2003-08 on a voluntary basis.[90] Royal Mail Group earns around £195 million annually from the POCA contract.[91]

43. The Citizens Advice Bureau (CAB) considered that the reason for the termination of the POCA contract was "almost certainly financial, given that the cost per transaction to government for payments into a POCA is apparently £1 whereas payments into bank accounts cost just 1p".[92] The DWP confirmed that these were the relative costs of the POCA and added: "80 per cent of our payment costs go on the 23 per cent of customers who are paid by Post Office card account".[93]

44. However, we were informed by the NFSP that these figures were not entirely accurate: "The Post Office, we are led to understand, have got a rate card for their services to banks et cetera, and their rate is something in the region of £45 per year to the DWP for the Post Office Card Account. This figure has become loosely equated to being, with some minor additions to that which they might call VAT et cetera, around £52 a year, hence £1 a week".[94] If, as is likely, many customers receive one payment a week, this £1 a week would explain the £1 per payment figure given by the Government. The NFSP continued: "the one penny, I am led to understand, is the BACS cost of a transfer through any BACS system, and of course the banks then pick it up or the customer, of course, if they get into difficulties or if they are paying direct debits out or whatever else at their particular end. Going to your latter point about what do sub-postmasters get, there is an initial payment—or was an initial payment because there are not very many of them being opened these days—where a sub postmaster gets the equivalent of £2.60 for every account that is actually opened as a one-off payment, and currently sub-postmasters are paid 15p per £100 for monies drawn out of that card account".[95]

45. As we indicate later in this Report, the perceived financial benefit for the taxpayer from DWP's ending of the POCA is questionable if these revenues for Post Office branches continue to be found from the public purse in the form of increased subsidy payments to keep the network afloat—always assuming that the size of the current network be maintained.

Misleading information

46. In January 2006, it became apparent that the DWP would not be renewing its contract with Post Office Ltd after the end of the current contract, all but bringing an end to the POCA in its current form.[96]

47. While the current contract comes up for renewal in 2010, it has always been the understanding of the NFSP that POCAs would be continued beyond then. The NFSP suggested that the Government had stated at the time of the introduction of POCAs that the card account or an equivalent scheme would be guaranteed. The NFSP quoted a 2003 joint DWP/DTI statement, which described the POCA as "the cornerstone" of new banking products at the Post Office. The NFSP also maintained that POCA customers, the NFSP and MPs were never at any stage informed that the POCA was a short-term or temporary scheme.[97]

48. When our predecessors took evidence in the last Parliament on direct payments, they were led to believe by the Government that the POCA would replace the business that would be lost through the change in benefit payments arrangements. There was no suggestion it was temporary. We wanted to know what had changed since then. The Minister told us: "I do not think anything changed. The contracts that were signed and agreed were of seven years duration and those contracts are due to expire in 2010, therefore they have to be renewed, revisited or altered".[98] The Minister also claimed that all the parties involved in developing the POCA contract knew that the contract would not be extended.[99]

49. We asked our other witnesses whether they thought the Government had made the involved parties sufficiently aware that the POCA contract would not continue after 2010. Mr Cook, Managing Director of Post Office Ltd, told us that the Royal Mail Group organisation "had an expectation that there would be a continuing need for a method of providing benefit payment to individuals who do not have a bank account. My belief is that whilst this contract will end in 2010, there will still be a continuing need, maybe not on the same scale, for individuals to receive their benefit payment in cash in some mechanism".[100] The CWU were also unaware that the contract would not be renewed: "simply, no, we were not [aware]. The Post Office Card Account came into being in 2003 and was only fully rolled out to the whole of the UK from April 2005, as there was a two-year migration programme, so in reality it has only been up and running for just over a year. Our belief was that it was going to be extended beyond the life of the contract".[101]

50. The NFSP told us that during the monthly meetings it had with the DWP and Post Office Ltd drawing up the POCA, it was "not told that it was going to end in 2010".[102] It further claimed: "nor was anybody else. As you know, the customers had to sign up, although it was a convoluted process to sign up for a Post Office Card Account. None of those opened that card account thinking it was going to end in 2010, not a piece of mention was in that literature. You do not go and open a bank account, for example, and think the banks are going to close the account down, do you,"[103] and later "I believe that everyone thought, even those that knew that this contract was for a term—and I suppose if we had thought about it we would have expected that all contracts are for a term and do not last forever—there was an expectation on everyone's part that during the period between 2003 and 2010 we would be working together to find the 2010 equivalent of the Post Office Card Account, but in fact what happened, as we know, is less than a year after the last order book was cashed the account was called time on, which I think took everyone by surprise".[104]

51. We do not believe that the Government deliberately set out to mislead our predecessor Committee with regards to the longevity of the POCA. However, nor do we believe that the Government made clear the possibility that the contract would not be renewed. Most of the DWP's partners in the POCA assumed that the contract would be renegotiated after 2010. This has, quite understandably, led to a lot of bad feelings amongst these partners and a sense of betrayal amongst sub-postmasters. Sub-postmasters will have made business decisions based on the understandable, but ultimately false, expectation that the contract would be renewed. We note that the Minister is now holding out the possibility of a substitute for the POCA. We would welcome any clarification of what this would be.

The Post Office Network

52. With 14,500 branches, the Post Office is the largest retail and financial services chain in the UK. It is larger than the largest bank network (2,500 branches[105]) and all of the UK's banks and building societies combined, and it has branches in locations where banks and building society branches have ceased to exist. It is also larger than any of the major high street stores (2,000 branches).[106] 94 percent of the population live within a mile of a Post Office branch and 28 million customers visit one every week.[107]


53. As a company, Post Office Ltd depends on a small number of large clients for the bulk of its income. Just two clients—the DWP and Royal Mail—have accounted for around sixty percent of its income.[108] The Post Office network's income from Government—in the past one of its main sources of revenue—fell by £168 million in 2005-06, as more benefits were paid directly into bank accounts.[109] This trend is expected to continue: "in five years' time less than 10% of Post Office Ltd's income will come from the Government".[110]

54. NFSP research has found that POCA transactions bring in an average of £249 income for sub-postmasters per month, which amounted to 10 percent of their net pay. Sub-postmasters in urban deprived areas were most dependent on card accounts as a source of income, as POCAs brought them an average of £403 or 12 percent of net pay.[111] By contrast, the NFSP's research revealed that sales of Post Office financial services including personal loans, credit cards, instant saver accounts, guaranteed equity bonds, growth bonds, child trust fund, car insurance and home insurance generated an average of just £7 per month income for sub-postmasters, while 58 percent of sub-postmasters received no income whatsoever from such sales.[112]


55. The DWP's decision to discontinue funding the POCA is likely to have an impact on the viability of some individual Post Office branches. Royal Mail Group told us that one of the main purposes of Post Office branches was to get "the right amount of cash in the right town on the right day of the week so people can collect benefits, and that second part of the whole purpose of the Post Office is rapidly disappearing".[113] The CAB considered that "the great unknown is whether people will choose to undertake bank account transactions at Post Office counters or whether the business will be lost to the network altogether".[114] Use of POCAs not only results in a transaction fee for sub-postmasters, "it also brings in the opportunity for sales of other products, either at the Post Office counter or in the attached retail unit. Such sales help support the financial viability of the retail unit as a whole".[115]

56. The DWP told us: "there is no reason why the end of Post Office card account funding in March 2010, as always planned, should automatically lead to Post Office closures. There is also no reason why Post Office Ltd should not be able to retain the business of existing Post Office card account customers if it offers them the services they want, or, indeed, if it improves on what is currently available via a Post Office card account through its own new products".[116]

57. The DWP also stated: "there have been claims that there will be significant Post Office closures or that customers will no longer be able to collect their benefit or pension at the Post Office. Such claims are misleading, are worrying customers unnecessarily and are not in Post Office Ltd's own interests".[117]

58. However, we heard that, in light of the end of the POCAs Royal Mail Group wished to reduce the Post Office network to 4,000 offices.[118] We asked Royal Mail Group if there was any truth in these rumours. Alan Cook, Managing Director of Post Office Ltd, told us that "a commercially viable network would be around 4,000,"[119] but later added: "I do not have an aspiration to run a network on 4,000, but if you wanted the optimum commercially viable network, it would be 4,000".[120] The Minister agreed that the current network could not be maintained: "sadly, I do not think it is sustainable to be able to continue with 14,500 sub-Post Offices across the country …. people just are not using the sub-Post Office and the Post Office as they used to previously. There is a whole variety of different ways for people to be able to access services, and that is not to criticise, this is a modern age, we have got to equip the Post Office with the ability to go out into the market to provide services".[121]

59. We pressed the Minister further about the number of Post Office branches the Government thought would be optimal. He told us: "we have a starting point of at least 4,000 which would be able to survive in the hard-faced commercial world. The difficulty I have got, sir—and, forgive me, I would love to be more helpful—is if I were to put a figure anywhere between 4,000 and 14,500 to the Committee today that would almost automatically become Government policy and a Government statement".[122] The Government's stance over the future size of the Post Office network is something that we return to at the end of this Report.

60. We were interested in finding out if a Post Office network of 4,000 branches would be sufficient for the Royal Mail Group to fulfil its universal service obligation. Postcomm told us: "we have not seen any evidence to support the assertion that this is all that would be needed to meet the Universal Service Obligation. Our view is that such a reduction would break the terms of Royal Mail's licence, as it would not be serving the reasonable needs of customers in terms of access to postal services".[123]


61. The Royal Mail Group told us: "the most pressing issue for the Post Office network involves creating a sustainable future for the rural service, where the majority of the 7,854 branches are fundamentally loss-making and have depended on the £150 million of funding made available by the Government to stay open. The rural branches make up more than half the total number of branches in the network, but they account for less than 10% of total business. Some 1,000 branches serve fewer than 50 customers each week".[124]

62. Help the Aged, Postwatch, the CWU and the CAB were also concerned about the impact the closure of POCAs would have on the Post Office network, especially in rural areas. Help the Aged told us: "further Post Office closures will mean that vulnerable older people will have to increasingly rely on ATMs, some of which charge for access to cash".[125] Postwatch suggested: "customers are uncertain about future methods of payment for their benefits, and are concerned about the continuity of a valued local service".[126] Postwatch believes the Government needs to recognise the impact of its decisions on the viability of the Post Office network, and produce a coherent, cross-government strategy for the network's future.[127]

63. The CWU told us that the end of the POCA would "have a devastating effect on the whole of the network", particularly rural communities.[128] It further believed that the end of the POCA would impact on the wider communities: "customers living in a village or a more rural area are less likely to withdraw their benefits from a cashpoint or a bank or building society and they are more likely to withdraw their cash over the counter at Post Offices. The stats are that just 4% of rural areas have a bank, whereas 60% of rural areas have a Post Office, so it is a given that people in rural communities will draw their money at the Post Office".[129] However, it produced no further evidence to substantiate that conclusion. The CAB stated: "if the contract for the POCA is not renewed after 2010 it will remove another important revenue stream for sub-postmasters. This change will threaten the profitability of certain Post Office branches, particularly those in rural or urban deprived areas, at a time when the future of the subsidy for rural Post Offices is under review, and where the threat of a wave of branch closures cannot be ruled out".[130]

64. The POCA is the second highest earner for rural Post Office branches, second only to postage work.[131] NFSP's research found that rural sub-postmasters received an average of £158 per month (8% of net pay) for POCA transactions. After POCA transactions, the next highest income source for sub-postmasters was from services payments. On average, payments brought in £132 (5% of net pay).[132] This covered dealing with Post Office customers' payments for services ranging from electricity and gas to cable television, telecommunications and council tax and a range of bill issuers.[133] However, this income source is also under threat. Alternative suppliers have developed bill payment services which are available in local shops, for example PayPoint. These alternative suppliers have been awarded some of the contracts previously held by Post Office Ltd. The most recent example was when, in April 2006, the TV Licensing contract was awarded to PayPoint.[134]

65. The Highland Council were worried about the impact falling incomes for Post Office branches would have on the wider rural community: "With many of the services provided at Post Offices still remaining unprofitable it will be important that some public service subsidy is retained. This will be particularly important to remote peripheral and rural communities, where access to an adjacent Post Office could mean a round trip of over 30 miles. It must be recognised that Rural Post Office Services are not simply a public service in their own right. Many rural Post Offices exist as part of another private enterprise such as the running of a rural shop. The partnership approach is an essential feature of most rural Post Offices where the demise of one part of the partnership can undermine the profitability of the whole business enterprise. The subsidy to Post Office Ltd to continue the support of rural, and most likely unprofitable, Post Office services allowed many wider community services to be retained".[135]

66. The rural part of the network is currently supported by the 'Social Network Payment', a payment of £150 million a year that helps Post Office Ltd meet the cost of maintaining the non-commercial part of the rural Post Office network and to test new ways of delivering services into rural areas.[136] With 7,854 rural Post Office branches,[137] that amounts to an average subsidy of just over £19,000 annually. The DTI told us that, as part of the new financial framework, "expenditure for Post Office Ltd, including Social Network Payments of £150 million per annum for the next two years[138] and any funding after 2008, would also be met by the Government rather than from Royal Mail Group's reserves (the level of support after 2008 would depend on Government decisions on the future of the Post Office network)".[139]

67. The Government has committed itself to payments for the Social Network until 2008. It has also agreed to consult with regards to any decision it takes on the Social Network for the post 2008 period. We will watch with interest the form and outcome of such consultation, which must be conducted in the most open and thorough manner and with a reasonable period for interested parties to respond.

68. The rapid pace of change throughout financial services presents unavoidable challenges for Post Office Ltd. It is almost inevitable that Post Office branch incomes will fall over the coming years as customers become more financially aware and naturally graduate to bank accounts (including internet banking), which can offer them greater functionality, such as bill payment. We regret that Government policy is accelerating this process.

69. With the reduction in income for Post Office branches from the termination of the POCA, coupled with a fall in income from other sources, we are very worried about the future of the Post Office network as it stands today. We are especially concerned about the impact on the commercially unviable parts of the network, and the implications Post Office branch closures would have on their wider communities.

The future of the Post Office network

70. We asked Royal Mail Group what size of Post Office network it envisaged, given the falling demand for its services, such as the withdrawal of the POCA. Alan Cook, Managing Director of Post Office Ltd, told us it: "is really for government to determine. It is really clear that they have to decide exactly what scale of network, or, if you like, community provision they would feel appropriate".[140] When pressed on what he thought would be a viable network, Mr Cook told us that "a commercially viable network would be around 4,000".[141]

71. The Minister told us that the Government thought the final number of Post Office branches should be higher than 4,000 but that it was still deciding on the size of the network as it had "a community obligation as well as a commercial obligation and that is what is being examined at the moment".[142]

72. We asked the Minister whether, given the ending of the POCA and apparent lack of direction for the Post Office network, the Government had given up on the Post Office network. The Minister told us: "I do not think the Government is giving up on the Post Office Network. I referred earlier on to the commitment that the Government has demonstrated since 1999 where we have committed some £2 billion to the Post Office: £500 million helped fund the Horizon IT infrastructure which has had a direct effect on POL's [Post Office Ltd's] ability to secure and expand new business such as online banking facilities, and the E-top-up market which has generated revenue to POL of £340 million, we have committed £150 million per year, as you know, to support the rural network, we have spent £210 million to support the urban re-invention network and some £30 million of investment to modernise branches, as well as £25 million into pilots to examine how we can best deliver services in a different way to rural areas which might not be able to support and sustain their own sub-Post Office".[143] He added: "we are examining the future of the network at this very point. We know that we have got time-limited support for the rural network because we have committed ourselves to £150 million to 2008; we are of the opinion that that cannot continue".[144]

73. If the Post Office network were just a commercial entity, it would not deserve to be supported by Government. However, it fulfils a wider community need. In many places Post Office branches serve as the heart of the community.

74. Some Post Office branches, especially those in rural areas, will always remain unviable. We believe that it is vital that across the whole of Government there is a clear recognition of the role that Post Offices play in delivering Government objectives in the community. Decisions are needed by the Government now to plan the Post Office network for the future, taking into account postal services and the wider social functions provided by Post Offices in local communities. If the Government fails to act, the network and all the benefits it provides for communities could be lost forever.


75. The NFSP believed that Post Office closures, which it said would result from the withdrawal of the POCA, would further impoverish choice and access to goods and services in many communities in the UK through the knock-on closure of other local businesses, with socially and financially excluded groups the hardest hit: "as well as boosting local economies, Post Offices provide a well-documented and critical social role in communities across the country, providing direct support and advice for vulnerable local residents, including elderly and disabled people, and acting as a focal point for communities".[145]

76. Financial exclusion is one of the key factors in wider social exclusion: "in 2002-03 1.9 million households (which equates to around 2.8 million adults) in the UK were without a bank account of any kind".[146] A fall in the size of the Post Office network would reduce access to free cash withdrawals and banking for many customers at a time when the high street banks were reducing their networks: "the University of Nottingham found that it is poorest areas which suffer disproportionately high rates of bank and building society branch closures. Nearly 6,000 bank branches have closed since 1990, leaving 1,000 mainly rural communities bankless. Only 4% of villages have a bank branch, while 60% have a Post Office".[147]

77. The DWP told us that it aimed to reduce any impact the end of POCAs would have on financially excluded customers: "We want people to continue to access their cash at the Post Office and are working with Post Office Ltd and other stakeholders on what options will be available to customers after the card account ends, including the form of any alternative products to the Post Office card account. All existing Post Office card account customers will still be able to use the Post Office to collect their benefit or pension if they wish by using a bank account there and Post Office Ltd will still receive a payment for providing this service".[148] The Minister told us that this would be done as "the contracts that were signed were signed until 2010; we gave an assurance in the 1999 White Paper that individual citizens would be able, regardless, to collect their benefits at a Post Office or a sub Post Office, and we are holding to that".[149]

78. The Government is rightly concerned about financial exclusion. This is not just a question of encouraging participation in banking services, it is about access in some areas to the most basic of banking services: access to cash. The Post Office is often the only outlet offering free access to cash for people in deprived areas, be they urban or rural. For many their Post Office branch provides access to vital services, such as bill payments. We welcome the Government's agreement to make social network payments for the next two years. However, we recommend that the Government should now commit itself in principle to making social network payments for the period post 2008. This would reduce the anxiety currently felt by many customers and sub-postmasters.

Migrating customers away from POCAs

79. The POCA contract obliges both Post Office Ltd and DWP to help migrate customers to alternative accounts during the seven-year period of the contract.[150] The DWP ran a number of small-scale POCA pilots between 13 February and 10 March 2006 to test its various approaches to moving people from having their benefit or pension paid into a POCA to payments into a bank account: "our emphasis was on those bank accounts which can be used at Post Office branches."[151]

80. The pilots were designed to gather information about customer needs to help the DWP and Post Office Ltd plan the transition between now and when the POCA contract ends in 2010. The stated aim of the pilots was "to see how customers would react, including how many people would continue to use the Post Office, and how much we can contribute to the wider financial inclusion agenda by encouraging some people to open a bank account for the first time".[152] The DWP told us that the three pilots involved:

—  Pilot A: not promoting the option to open a new POCA for 3,000 customers making a new claim for Jobseeker's Allowance, State Pension or Pension Credit;

—  Pilot B: writing to 25,000 customers paid by POCA asking them to supply their bank account details. There were some follow-up telephone calls to check if customers had received their letter and if they had any further questions or needed help to open a new account; and

—  Pilot C: writing to 1,500 customers who had one benefit paid into a POCA and another into a bank account saying that the DWP intended to pay both their benefits into their bank account in future.[153]

81. The NFSP viewed the pilots very differently from the DWP. It argued, "over 40,000 current or potential POCA users [were] refused access to the facility without their consent. 3,000 new benefit claimants were not given the option to open a POCA; 35,000 existing customers received a letter from the DWP telling them to use a bank or building society account and demanding their account details; while 2,500 existing customers, without choice or consultation, found their benefits are no longer paid into their card accounts, but paid instead into a bank account, totally ignoring the preferences made when their benefit books were stopped".[154] The NFSP's figures are notably different from the DWP's figures. Given that it was the DWP who commissioned the pilots, it surprises us that the NFSP did not say whence their figures came.

82. We asked the Government when the results of these pilots would be made available to Parliament and the Royal Mail Group. The DWP told us, "we have already shared the key findings with Post Office Ltd to help them identify customer needs as they develop new savings and banking products which are likely to be more attractive to many of their customers than the current Post Office card account".[155] In July 2006, the DWP also placed a summary report of the key findings of the POCA pilots in the House of Commons Library.[156] These were that: POCA numbers fell significantly across all customer groups, with a reduction in customers wishing to be paid by DWP cheque as well; during migration the DWP will need to provide additional support and information to some customers about why they have to change; and of the 300,000 POCA holders who had one benefit paid into their POCA and another into a bank account, the majority would accept having their benefits paid into their bank account only.[157]

83. The DWP suggested that the key findings of its pilots would enable Post Office Ltd to "help them identify customers' needs".[158] We cannot see how this is so. The key findings give no indication of what customers want instead of their POCAs as they were refused the choice of keeping the POCA, or an as yet undeveloped alternative. Customers may have feared that if they did not comply with the DWP's requests they would have their benefits stopped. We are not convinced that these pilots were carried out in a methodologically sound way, and so we cannot comment on whether their conclusions were in fact valid.

An alternative to the POCA

84. We noted the evidence which suggested that there was currently no alternative product available to DWP's customers that would suit those who needed to retain an account such as the POCA.[159] We asked our witnesses if there was anyone who would still need a POCA, or its equivalent, once the DWP contract finished. Our witnesses identified three such groups of customers and the types of products or services which they thought would be required to meet customers' needs.[160]

85. Customers who could not open a bank account: These individuals would need a basic account which could be accessed in every high street and village. Postwatch suggested that a continuing partnership between the DWP and Post Office Ltd "appears the most suitable and sustainable answer to these customer needs—preferably with a product that offers greater functionality than the Post Office card account".[161] The CAB told us that for this kind of product to be successful, the process of opening basic bank accounts needed to be made easier, including greater flexibility over ID requirements.[162]

86. Customers who had a bank account but had chosen to have their benefits paid into a POCA: Although the motivation of these customers was not fully understood, their needs could be met through the development of a basic bank account as suggested above.[163] The NFSP suggested that this could be provided by outside banks but only if all bank accounts were made accessible at Post Office counters[164] (at present 60% of accounts cannot be accessed there[165]). The CAB told us that if banks were allowed to provide these services, "support should be available for people to open and use bank accounts".[166]

87. Customers who used their POCA as an easily accessible savings account, ring-fenced from their current account: These customers would benefit from a Post Office savings account which offered them interest,[167] such as the Post Office's new Instant Saver account.[168]

88. The Royal Mail Group suggested that there would be a need for a product that would enable individuals who, even after some further encouragement to open a bank account, chose for whatever reason not to do so.[169] The Minister believed that the creation of such an account would be possible: "There has been an examination going on since the arrival of POCA and if we can arrive at an alternative which meets the purposes of the requirement to make sure that anybody can get their benefits and cash at a Post Office then obviously we need to do that".[170]

89. The DWP told us: "Post Office Ltd has introduced one new savings account, and is developing other savings and banking products which are likely to be more attractive to many of its customers than the current Post Office card account. More can be done for financial inclusion if these new products are better targeted on the customers without bank accounts, and perhaps offer some services the Post Office card account does not—for example, the ability to pay in cash and cheques".[171]

90. We asked the Royal Mail Group about the products it was developing. It told us: "one of the suggestions …. we are now investigating jointly [with DWP], is that we create a new entry level savings account as a Post Office product where individuals then would have their benefit paid into that entry level savings account and I would pay them interest. The remuneration would be nowhere near as significant as I am getting today, because I would then just be running it as a savings account and earning a margin on the difference between the money I have got in the bank and the money that I pay the individual in terms of interest, but that would retain the footfall and it would retain some level of income".[172] Unfortunately, our witnesses were not able to indicate what sort of reduction they envisaged in the income of sub-postmasters with an alternative to the POCA. We are surprised that Royal Mail Group appears not to have investigated this matter further.

91. We are concerned that the DWP's pilot did not include a similar alternative to the POCA. We do not believe that it is beyond the Post Office and DWP to offer customers an alternative product which, while retaining the advantages of the POCA, would also offer the greater functionality of a mainstream bank account. The DWP has so far released just the preliminary findings of its pilots and we will watch its full conclusions with great interest.

92. Also, although it is accepted that an alternative is likely to be less profitable to Royal Mail Group than the POCA, we still do not know what impact it would have on the income of sub-postmasters. Indeed, an alternative offering with more functions, such as an ability to make deposits, might increase their income directly or indirectly, through greater footfall.


93. The NFSP and CWU were concerned that the DWP had been acting in isolation from other Government Departments on the issue of the POCA and was "failing to recognise the much wider social and economic implications of withdrawing the POCA without a Post Office based alternative in place".[173]

94. While ending the POCAs would represent a short-term saving to the DWP, the CWU was concerned that these decisions had been made without having joined-up government thinking in terms of the DTI and the wider social and economic costs that such a move would trigger: "We have a major concern here that one decision by one government body is actually impacting detrimentally on another government body, so the bottom line is that we have not been consulted on this".[174]

95. The NFSP also told us: "the Government have got to start to think of its departments (a) in a joined-up manner and (b) to some degree think Post Office first. It is an absolute no-brainer as you have already said: they are paying out money with one hand to keep the network going and taking the means of earning a living away with the other—the DVLA et cetera".[175]

96. We suggested to the Minister that there should be a more joined-up Government policy for the future of the Post Office network. He said: "we have to look at this as government across departments, identifying the need of each department and the role that it will play in being able to potentially assist the network and being able to survive, whether that is financially or with resources or with tasks or with contracts".[176] He also explained that a Cabinet sub-committee, Miscellaneous 33, had been set up and will be formally bringing Government departments together to examine the issue of the Post Office network.[177] We asked when this committee would be reporting its findings. The Minister replied: "we have not got a date for formal reporting back"[178] but that "given that the SNP [Social Network Payment] runs out in 2008 we clearly have a backstop. We do have the pilot evidence, which was only completed in March of this year, which is being examined, and we do have the commitment to a further consultation period because we are not going to make an announcement and say that is the conclusion, we are going to allow people the opportunity to express a view".[179]

97. Historically the UK has enjoyed the benefits of a comprehensive network of sub-Post Offices, often in very remote, rural locations, because of the wide range of services the Government chose to deliver through those Post Offices. On top of unavoidable technological and social change, which have reduced client footfall, the Government is now withdrawing services from the Post Offices. If the country wants a comprehensive network of Post Offices to continue, a more explicit funding mechanism must be put in place, together with product diversification and a replacement for the Post Office Card Account.

98. There has been a lack of joined-up thinking between Government departments, perhaps to be addressed, at last, by the Cabinet sub-committee. The DWP is undermining the Post Office network by removing the Post Office Card Account, although the Government now appears to be considering the need for a substitute. The end of the Post Office Card Account has been the most serious but not the only cause of the present difficulties, as decisions by the BBC and the DVLA (with respect to licensing) have also removed income from Post Offices. Given that the DTI then have to put money in to keep the network going, taxpayers' money is going round in a circle, while there is a climate of uncertainty for sub-postmasters. This makes no sense to us.

99. We are seriously concerned about the apparent lack of urgency in the remit given to the Cabinet sub-committee examining the future of the Post Office network. Sub-Post Offices have already lost sources of income, and postmasters will be making decisions now on whether they can sustain their business. There is a danger of seeing considerable closures before the Social Network Payment ends, unless postmasters are given a much better indication of future sources of income after 2008.

100. There appears to be widespread, if reluctant, acceptance among our witnesses that a network of 14,500 branches is unsustainable. Postcomm has said that a network of 4,000 Post Offices could breach the universal service obligation. We expect the Government to work with Royal Mail Group and the regulator to determine the size and shape of a network that would meet the universal service obligation. Once this is done, if some individual Post Offices which are judged to provide a valuable social service are still incapable of making a profit, then the Government should be prepared to continue a subsidy to parts of the network post 2008. It should make this commitment as a matter of urgency.

80   Offered by J. P. Morgan Europe Ltd through Post Office Ltd. Back

81   Appendix 5, para 2 Back

82   Appendix 13, para11 Back

83   Appendix 5, para 2 Back

84   HC Deb, 26 January 2006, c444W Back

85   Appendix 14, para 47 Back

86   DWP website (24 October 2006): Back

87   Appendix 7, page 2 Back

88   Ibid. Back

89   HC Deb, 26 January 2006, c444W Back

90   Appendix 7, page 2 Back

91   Q 63 Back

92   Appendix 2, para 3.4 Back

93   Appendix 5, para 2 Back

94   Q 209 Back

95   Ibid. Back

96   Appendix 10, para 3.8 Back

97   Appendix 10, para 3.9 Back

98   Q 165 Back

99   Qq 170-174 Back

100   Q 70 (Mr Cook) Back

101   Q 115 Back

102   Q 200 (Mr Baker) Back

103   Ibid. (Mr Peberdy) Back

104   Q 208 (Mr Baker) Back

105   Q 167 Back

106   Ibid. Back

107   Appendix 10, para 2.1 Back

108   Appendix 14, para 42 Back

109   Ibid. Back

110   Ibid. Back

111   Appendix 2, para 8.1  Back

112   Ibid., para 6.7 Back

113   Q 63 Back

114   Appendix 13, para 47 Back

115   Ibid., para 49 Back

116   Appendix 5, para 2 Back

117   Ibid. Back

118   Appendix 12, para 4 Back

119   Q 59 Back

120   Q 60 Back

121   Q 177 Back

122   Q 181 Back

123   Appendix 12, para 4 Back

124   Appendix 14, para 45 Back

125   Appendix 8  Back

126   Appendix 13, para 49 Back

127   Ibid., para 50 Back

128   Q 116 Back

129   Q 118 Back

130   Appendix 2, para 2.9 Back

131   Q 213 Back

132   Appendix 10, para 4.7 Back

133   Ibid., para 4.5 Back

134   Ibid., para 4.7 Back

135   Appendix 9 Back

136   Appendix 13, para 44 Back

137   Appendix 14, para 45 Back

138   Appendix 6, para 13 Back

139   Ibid. Back

140   Q 64  Back

141   Q 59 Back

142   Q 167 Back

143   Q 175 Back

144   Q 176 Back

145   Appendix 10, paras 6.3-6.4 Back

146   Appendix 5, para 1 Back

147   Appendix 10, para 5.4 Back

148   Appendix 5, paras 2-3 Back

149   Q 169 Back

150   Appendix 5, para 2 Back

151   Ibid., para 4 Back

152   Ibid. Back

153   Ibid. Back

154   Appendix 10, para 3.11 Back

155   Appendix 5, para 4 Back

156   HC DEP 06/1420 Back

157   Ibid. Back

158   Appendix 5, para 4 Back

159   For example see Appendix 10, para 3.10 and Appendix 13, paras 24-25 Back

160   Appendix 13, para 26 Back

161   Ibid. Back

162   Appendix 2, para 2.8 Back

163   Appendix 13, para 26 Back

164   Appendix 10, para 5.7 Back

165   Q 215 Back

166   Appendix 2, para 2.8 Back

167   Appendix 13, para 26 Back

168   HC Deb, 4 September 2006, c1997-8W Back

169   Appendix 14, para 49 Back

170   Q166 Back

171   Appendix 5, para 2 Back

172   Q 74 (Mr Cook) Back

173   Appendix 10, paras 3.15 Back

174   Q 119 Back

175   Q 216 Back

176   Q 178 Back

177   Q 182 Back

178   Q 184 Back

179   Q 185 Back

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Prepared 30 October 2006