APPENDIX 10
Memorandum by the National Federation
of SubPostmasters
1. THE NATIONAL
FEDERATION OF
SUBPOSTMASTERS
1.1 The National Federation of SubPostmasters
(NFSP) is the only body representing the interests of 14,500 subpostmasters
throughout the United Kingdom. Sub post offices make up 97% of
the national network of post offices and are run by private business
people, subpostmasters.
1.2 Of the three areas outlined as the focus
of the Committee's Inquiry, the NFSP's written submission will
largely look at "the future of the Post Office Card Account
and the effects on the Post Office network", as this is the
area of most direct relevance and concern to subpostmasters.
2. POST OFFICE
NETWORK
2.1 With 14,500 branches, the Post Office
is the largest retail and financial services chain in the UK.
This means it is larger than all of UK's banks and building societies
combined, with branches in locations where banks and building
society branches long since ceased to exist. 94% of population
lives within a mile of a Post Office branch and 28 million customers
visit every week.
2.2 As well as its unparalleled infrastructure,
the Post Office is a trusted brand. This is particularly the case
among marginalised or vulnerable members of society, which form
a disproportionately high percentage of the customer base. 1 According
to research among financially excluded consumers by the National
Consumer Council, "the Post Office is well regarded as offering
a good, accessible service", and is viewed as both better
trusted and more accessible than banks. 2
3. POST OFFICE
CARD ACCOUNT
3.1 The Post Office Card Account (POCA)
is a simple account which allows the receipt only of benefit,
state pension and tax credit payments. Account holders can access
their cash and make balance enquiries at any post office. The
card account is the only option for benefit receipt through which
claimants cannot get into debt. It is also the only option with
no restrictions on who may be able to open an account as long
as they are in receipt of a state pension or benefit.
3.2 It was introduced in April 2003 as the
sole Post Office based option for the receipt of pensions and
benefits within the Government's Direct Payment programme, wherein
traditional order books cashed at the Post Office were replaced
with payment of pensions and benefits directly into bank accounts.
3.3 Despite strong concern from our members
about the impact on their livelihoods, NFSP fully co-operated
with the Direct Payment programme, with subpostmasters across
the country at the forefront of enabling customers to make the
transition from order books to Direct Payment.
3.4 Post Office Ltd estimates that a £400
million a year loss was incurred by the network through the introduction
of Direct Payment of pensions and benefits, or around 40% of traditional
income.
3.5 Around 4.3 million benefit and pensions
customers regularly use their card accounts to access their benefit
payments. NFSP has regarded the POCA as a key product for sustaining
the post office network.
3.6 A further 750,000 customers use the
cheque-based exemptions service, for pensioners and benefit claimants
who cannot manage to use electronic payment. Cheques can be cashed
at any post office or paid into bank accounts.
3.7 That the Government has discouraged
Post Office Card Account use and encouraged bank account use has
been well-documented. Throughout the programme of Direct Payment,
the Government consistently presented the POCA as the third option,
after bank accounts and basic bank accounts, and the process for
opening a POCA was made extremely and unnecessarily complex.
3.8 Withdrawal of POCA. It emerged
in January 2006 that the Department for Work and Pensions (DWP)
does not intend to extend the Post Office Card Account contract
beyond 2010. The DWP now claims that it was always clear that
POCA would only run until 2010, as a transitional device following
the introduction of Direct Payment.
3.9 In reality, while the current contract
does indeed come up for renewal in 2010, NFSP had always understood
that the contract would be renegotiated during its lifetime, and
it was our intention to work with Post Office Ltd (POL) and with
the DWP to develop any future Post Office based product. It has
always been the understanding of NFSP that POCA or an equivalent
Post Office based scheme would be continued beyond 2010.
The Government stated at the time of the introduction
of POCA that the card account or an equivalent scheme allowing
customers to access their pensions and benefits through the post
office network would be guaranteed. A 2003 joint DWP/DTI statement
described the POCA as "the cornerstone" of new banking
products at the Post Office. POCA customers, the NFSP and Members
of Parliament were never at any stage informed that the POCA was
a short-term or temporary scheme.
3.10 Subpostmasters have invested around
£2 billion of their own money into their businesses and therefore
into the network on the understanding that the network would continue
to have a role in, and thereby receive income from, the provision
of Government pensions and benefits.
The NFSP is deeply concerned that there is currently
no clear proposal for any Post Office based successor product(s)
to POCA. We would ask for assurance from the Government that it
is working closely as a matter of priority with POL to develop
POCA successor product(s) to meet customer needs.
3.11 DWP Pilots. The DWP ran a series
of pilot schemes—scheduled to operate between 13 February
to 10 March 2006—with over 40,000 current or potential POCA
users 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.
3.12 The pilot schemes were introduced with
no consultation with account holders, Parliament or with other
stakeholders; the NFSP learned of the DWP's intentions less than
three weeks prior to the start date of the pilots. The nature
of the pilots suggest that by the time of the 2010 POCA contract
expiry, sufficient account holders will have been driven out of
POCA that the Government will be able to terminate the contract
without public resistance, while Post Office Ltd will not have
had time to develop an alternative Post Office-based product.
3.13 The DWP states that one of the objectives
for the pilots is to help them see how customers behave, including
how many people continue to use the Post Office, and to inform
future DWP policy on the payment of pensions and benefits. NFSP
believes that it is not possible to assess this when no Post Office
based product has been offered to customers within the pilots,
and therefore to a significant extent any findings are rendered
meaningless.
3.14 Furthermore, the DWP has yet to report
on the outcome of the pilots. The NFSP would ask when the findings
are to be made publicly available.
3.15 The NFSP has been concerned that the
DWP has been acting in isolation from other Government Departments
on the issue of the POCA and is failing to recognise the much
wider social and economic implications of withdrawing the POCA
without a Post Office based alternative in place. This lack of
coherent thinking within Government could prove fatal for many
post offices.
The ending of POCA—through the expiry
of the contract in 2010 or by its destruction through pilot schemes
such as those already run by the DWP—without an alternative
Post Office based scheme in place will inevitably lead to a massive
reduction in the network of several thousand offices. While this
may represent a short-term saving to the DWP, we have urged the
Government to instead take a more long-term and joined-up view
and consider the wider social and economic costs that such a move
would trigger.
The NFSP therefore welcomes the creation of
the new Cabinet Committee MISC 33, to be chaired by the Deputy
Prime Minister and to "consider issues relating to the future
of the Post Office network." The NFSP looks forward to working
with the Committee and trusts that its creation will lead to the
Government taking a longer-term and more holistic view of the
network and its purpose than has recently been demonstrated.
4. IMPACT ON
SUBPOSTMASTERS AND
ON POST
OFFICE NETWORK
4.1 NFSP believes that the Government's
decision to withdraw the card account from 2010, and to have already
begun migrating current and potential future POCA customers into
bank accounts, will inevitably lead to the closure of thousands
of post offices across the country.
4.2 Subpostmasters are paid transaction
payments which relate to the amount of money withdrawn from the
Post Office card accounts by account holders. Subpostmasters are
also paid a one-off payment for each card account opened.
Although the NFSP has always argued that POCA
should offer a more flexible, fully functional service, including
the ability for customers to make deposits as well as withdrawals,
we nonetheless believe that the card account has provided an opportunity
for the network to offset some of the losses incurred by Direct
Payment. In addition, the card account brings people into the
Post Office that may otherwise not have made that visit and thereby
provides additional custom.
4.3 Post Office Ltd recorded an operating
loss of £111 million for the year 2005-06. POL estimates
that the loss of the card account will cost the network £200
million a year up to 2010. 3 NFSP believes that the network can
ill afford a further loss of this nature and that for many subpostmasters,
already living on low incomes, the loss of the card account will
directly lead to the loss of their businesses.
4.4 Ipsos MORI 2006 Survey on Subpostmaster
Pay. NFSP recently commissioned Ipsos MORI to carry out a
survey4 looking at the major sources of sales-related income following
the introduction of a range of new Post Office products and services
by Post Office Ltd and the full implementation of Direct Payment.
The survey also looked at the profitability of post offices and
their attached businesses. This is the third phase of an NFSP-MORI
research project looking at subpostmaster income.
The survey looked at subpostmaster's income
in January 2006; payments from Post Office Ltd came from the January
2006 payslip which covers sales and transactions carried out between
27 October and 23 November 2005.
4.5 Ipsos-MORI found that Post Office card
account transaction were responsible for a higher proportion of
subpostmaster pay than any of the other products surveyed, at
10% of net pay (£249). Subpostmasters in urban deprived areas
are most dependent on card accounts as a source of income, as
card account transactions bring in £403 on average, or 12%
of net pay. Subpostmasters with non-deprived urban post offices
receive an average of £310 (9% of net pay) for card account
transactions. Rural subpostmasters receive an average of £158
(8% of net pay) for card account transactions.
4.6 After POCA transactions, the next highest
income source for subpostmasters was from bill payments. This
covers dealing with post office customers' payments for bills
ranging from electricity and gas bills to cable television, telecommunications
services and council tax, as well as savings stamps and the charging
of pre-payment cards for utility companies, local authorities
and a range of bill issuers.
However, this income source is also under threat.
Recently, alternative suppliers have developed bill payment services,
which are available in local shops, eg PayPoint. These alternative
suppliers have been awarded some of the contracts previously held
by Post Office Ltd. Most recently, in April 2006 the TV Licensing
contract was awarded to PayPoint.
On average, bill payments brought in £132
(5% of net pay). As with POCA, subpostmasters in deprived urban
areas are more reliant on bill payments for their income at £309
(9% of net pay).
4.7 In contrast, income from banking transactions
earned an average of £46 equivalent to 1% of net pay. Banking
transactions include current account banking transactions made
over the post office counter and payments for cash withdrawals
and balance enquiry transactions for basic bank account customers
using the post office. Subpostmasters are paid at fixed rates
per transaction.
Scottish post offices brought in particularly
low levels of income from banking transactions (£18 on average)—this
reflects the fact that the major Scottish banks have not signed
up to offer their services through the post office network.
4.8 Post Office financial services have
been available since March 2004 when, following encouragement
from the Government, Post Office Ltd introduced a range of financial
products designed to bring considerable new business into the
post office network, in part to offset some of the losses incurred
by the network following the introduction of Direct Payment. Post
Office financial services include personal loans, credit card,
instant saver account, guaranteed equity bonds, growth bonds,
child trust fund, car insurance and home insurance.
Ipsos MORI's survey found that income brought
in by sales of Post Office financial services was very low, with
subpostmasters earning an average of £5 for counter sales
of financial services. 58% of subpostmasters received no income
at all from financial services counter sales. In rural areas,
this figure was higher: 65% of subpostmasters received no income
from Post Office financial services.
Post Office Ltd's Home Phone service, launched
in January 2005, earned subpostmasters an average of £5.
A total of 83% of subpostmasters received no income at all from
Home Phone.
4.9 Ipsos MORI concludes: "This report
paints a bleak picture of subpostmasters operating on tight margins,
with decreasing personal drawings and increasing overheads. Subpostmasters
are heavily reliant on income from the Post Office card account
and bill payments, both of which are under threat; and the new
flagship products, intended to offset loss in pay from traditional
products, are bringing in low levels of income and in many cases
nothing at all."
4.10 In view of this, it is not surprising
that when asked about their single biggest fear for their post
office over the next six months, the most common concern, mentioned
spontaneously by over one third of subpostmasters (35%), relates
to the withdrawal of the Post Office card account. After this,
the highest figure was that of 23% of subpostmasters citing their
biggest fear as losing custom due to changes in the benefits payment
system. Other major concerns mentioned were loss or withdrawal
of Government work and a general decline in income.
4.11 Average personal drawings for subpostmasters
(that is, money taken as a salary) were £941 from the post
office part of their business. This is a 6% real terms decrease
since February 2004.
4.12 NFSP believes that these results demonstrate
the urgent need for the Government to work with Post Office Ltd
to develop products—and foremost among these a successor
or successors to POCA—to ensure any opportunity of securing
a viable post office network.
5. IMPACT ON
CUSTOMERS
5.1 NFSP believes that the Government's
withdrawal of the POCA will have grave consequences for the many
vulnerable groups who are dependent upon their post office as
the only place where they can gain free and local access to cash.
5.2 Basic Bank Accounts. The Government
cites basic bank accounts as an alternative means for POCA users
of receiving state pensions and benefits and managing their money.
However recent research by Citizens Advice (CAB) 5 demonstrates
the unsuitability of these accounts for many financially excluded
citizens. The CAB research finds that banks are able to take money
out of basic and current accounts to pay other debts to the bank
without checking the customer's circumstances, and that charges
levied by banks (for example, for failed direct debts) can cause
considerable hardship to financially excluded groups. In addition,
CAB found that few banks promote their basic account, while only
a few will allow people in debt to open accounts. CAB also found
that banks sometimes upgrade basic accounts to full current accounts
where this is not in the individual's best interests.
5.3 Access to Banking Services. The
Post Office is better trusted and viewed as more accessible than
banks by financially excluded groups. 6 NFSP believes that post
offices are ideally placed to provide the public with convenient
free local access to cash and banking services.
5.4 This is particularly true in rural and
in deprived urban communities; recent research from the University
of Nottingham7 found that it is poorest areas which suffer disproportionately
high rates of bank and building society branch closures.
5.5 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.
8
5.6 Meanwhile, most banks continue to deny
their current and basic bank account holders the opportunity to
access their accounts at post offices. POL estimate that only
40% of current accounts are accessible at the Post Office, with
Royal Bank of Scotland Group, HSBC and Halifax-Bank of Scotland
among those whose customers are unable to access their accounts
at post offices; while around seven in ten basic bank accounts
are not accessible at the Post Office.
5.7 NFSP believes that the Government must
take the lead in ensuring that all the major high street banks
offer free access to their bank accounts at the Post Office. We
also believe that POL should be permitted to gain membership of
the LINK network.
5.8 DWP Migration of POCA Customers.
The NFSP has been given several examples of POCA customers being
given as little as three working days notice in writing or less
than 24 hours notice by telephone that their benefit payments
were to be switched from their POCA to a bank account during the
DWP's pilot schemes; while another POCA customer received a letter
inferring that she has increased chance of being mugged as a POCA
user than if she had her pension paid into a bank account. 9 We
believe that such communications are wholly unacceptable, particularly
to often elderly and vulnerable individuals.
5.9 POCA customers have fought to exercise
their choice in obtaining their POCA. NFSP believes that rather
than force customers into banking scenarios which may cause them
hardship or inconvenience, Government should respect the customers'
choice and allow them to continue to use the POCA, at least until
a Post Office-based solution can be developed; and that if the
POCA is not to be extended beyond 2010, then ultimately the Government
should migrate POCA customers directly into Post Office based
successor products.
6. IMPACT ON
COMMUNITIES
6.1 NFSP believes that the withdrawal of
the Post Office card account and the consequent impact on the
viability of post offices across the country will have further
significant knock-on effects on the economic and social wellbeing
of communities across the country, the full cost of which the
Government must fully consider in its decision on the future of
the card account.
6.2 Post offices act as major sources of
cash within the UK's communities. Research strongly demonstrates
that people frequently spend cash locally to the place they access
it. In this regard post offices often act as the glue which binds
local economies together, providing access to cash to safeguard
or boost other local business, while the existence of other local
businesses is threatened when a post office closes. Countryside
Agency research found that in local shops and businesses with
a nearby post office, 15% of customers' expenditure is directly
due to the presence of the post office, amounting to £194,000
on average per year. 10 The postal services regulator, Postcomm,
estimates that in settlements with a population of 1,000-3,000
people, £417,000 per year could be lost by nearby shops following
the closure of a post office. 11
6.3 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.
6.4 NFSP believes that the post office closures
which will result from the withdrawal of the POCA will further
impoverish choice and access to goods and services in many communities
in the UK through the knock-on closure of other local business,
with socially and financially excluded groups the hardest hit.
7. ROYAL MAIL
REFINANCING PACKAGE
On 18 May 2006 the new Secretary of State for
Trade and Industry, Rt Hon Alistair Darling MP, announced a new
financing framework for Royal Mail Group. The two main aspects
of the new framework were the release of £850 million from
Royal Mail Reserve to help offset the company's estimated £4
billion pension deficit; and the provision of £900 million
for use by Royal Mail on commercial loan terms in order to help
modernise the company's infrastructure.
7.1 NFSP is interested in the impact which
the new funding arrangements will have on the financial wellbeing
of Royal Mail Group. With Royal Mail products and services a major
source of income for Post Office Limited, Royal Mail's profitability
in turn significantly impacts on the future of the national post
office network and of subpostmasters. NFSP therefore welcomes
any arrangements which better enable Royal Mail to achieve its
financial and other targets.
7.2 However, the only information within
the Government's announcement specific to the post office network
was that remaining Social Network Payments up to 2008 and any
future Government funding after 2008 will be met by the Government
rather than by Royal Mail reserves.
While this clarification is useful, it does
not begin to address future funding arrangements for the network,
a decision which we believe the Government must now prioritise
as a matter of urgency.
8. PROPOSED "SHARES"
SCHEME
Royal Mail Group's management proposes that
up to 20% of the company should be offered to employees as shares.
For NFSP, ownership of Royal Mail Group is of
secondary concern to ensuring a profitable post office network
within Royal Mail Group.
We do however acknowledge that it is motivational
for employees to have stake in their business. Therefore, NFSP
supports the proposed scheme in principle, and we have advised
our members to accept the option to take up any future share offer,
as subpostmasters are key investors in the business both in terms
of their time and their money.
9. CONCLUSIONS
9.1 Subpostmasters, particularly those in
deprived urban areas, are heavily dependent upon income from the
Post Office card account.
9.2 Without a full migration of POCA customers
to a Post Office based successor product or products, the NFSP
believes that the loss of the Post Office card account will result
in the closure of thousands of post offices through loss of income
to subpostmasters.
9.3 This post office closure programme will
in turn have a severely detrimental impact on the wellbeing of
individuals, communities and local economies.
9.4 The Government must therefore work with
Post Office Ltd as a matter of urgency to develop a Post Office
based successor product(s) to POCA and ensure that POCA customers
are migrated onto Post Office based alternatives, rather than
being forced to receive payments into bank accounts which may
not be accessible at the post office.
9.5 The Government must start to look at
the future of the post office network, including those products
and services available through the network, in a long-term and
joined up way, rather than permit individual Government Departments
and Agencies to make narrow self-interested short term decisions
which have a profound effect on the network's viability.
REFERENCES
1 Performance and Innovation Unit, June 2000,
"Counter Revolution"; and Post Office Limited estimates.
2 National Consumer Council, March 2003, "Everyday
Essentials: Meeting Basic Financial Needs".
3 Letter from Alan Cook, Managing Director, Post
Office Ltd, to MPs, 13 March 2006.
4 Ipsos MORI-NFSP, July 2006, "Subpostmaster
income Wave 3".
5 Citizens Advice, January 2006, "Banking
Benefits—CAB Evidence on Payment of Benefits into Bank Accounts
(Evidence Report)".
6 See 2.
7 University of Nottingham, February 2006, "The
Changing Geography of British Bank and Building Society Branch
networks, 1995-2003".
8 See 5.
9 Hansard, 23 March 2006, Column 405.
10 Countryside Agency, July 2000, "The Economic
Significance of Rural Post Offices".
11 Postcomm, December 2001, "Serving the
Community I—evidence of the community value of post offices
in rural areas".
July 2006
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