Examination of Witnesses (Questions 920-939)
MR JAMES
PLASKITT
22 MAY 2006
Q920 John Thurso: I think you would
probably agree that Post Offices—by that I mean the smaller,
sub-Post Offices in rural communities—are a pretty vital
part not simply of financial inclusion but also social inclusion.
At the time of the migration of payments from the old system to
the card system with the bank, the Post Offices suffered quite
badly in their footfall. What assessment has the government made
of the impact on Post Offices of a further migration?
Mr Plaskitt: The most important
thing for us to do on that is to listen to what the Post Office
themselves have to say to us about it. I now meet fairly regularly
with senior officials from the Post Office and we will continue
to meet regularly, working very closely together on this. What
the Post Office is looking for—I know their managing director
said this to you when he was before you giving evidence—are
the opportunities in all of this, because there are undoubtedly
opportunities here for the Post Office to bring forward new savings
products. They have just done one. The Instant Saver they launched
very recently and they are looking enthusiastically to migrate
some card account users to the Instant Saver account, a much better
account for them than the Post Office Card Account. They will
bring forward other products as well. The one area where I think
it is interesting for the Post Office to go after a huge opportunity—and
it already exists—are the 20 million people who today have
bank accounts, all of which have Post Office accessibility. Amazingly,
only about two million of those 20 million people ever use the
Post Office to operate those accounts so potentially there are
18 million account holders already out there today whom the Post
Office could be going for. That is additional footfall they could
be bringing into all of the Post Offices. My department is quite
ready to work with the Post Office in trying to reach out to that
huge potential audience, to try to get them to come through the
Post Office.
Q921 John Thurso: What, if any, research
has been undertaken with people who hold Post Office Card Accounts
as to why they want them, because there are nearly four million
people who have them. As many of my constituents told me, they
had to work pretty hard to get them. It was not the easiest option.
Clearly it is a product that is liked and clearly it works for
Post Offices. What, if any, research is being done on that?
Mr Plaskitt: We are researching
that. As you probably know, we have recently carried out some
pilots. The Post Office is about to carry out its migration pilots.
As part of that exercise, we have asked people why they made the
choice of a Post Office Card Account in the first place or indeed
if they engaged in our pilot exercises but still opted for the
card account why they did that. It is pretty clear what the reasons
are for people doing it. Some of the most dominant reasons that
emerge are people's recognition of the Post Office as a service.
It is a highly respected brand. People like using the Post Office.
It is highly trusted. It is local. It is in their community. It
is friendly. Those are all perfectly understandable reasons why
people want to go via the Post Office. This is an opportunity
for the Post Office. There is a lot of customer loyalty to them
and if they can bring forward accounts that offer functions in
addition to those of the Post Office Card Account but keep them
simple there is a very big opportunity for them to cement that
customer base and indeed grow it beyond where it is now, cashing
in, if you like, on the reasons why people do support the Post
Office.
Q922 John Thurso: Would you consider
a simple evolution of the account rather than its replacement
or withdrawal as one way forward that would both reassure those
people and deliver the developments that the Post Office and you
are looking for?
Mr Plaskitt: I would come back
to the theme of your inquiry which is financial inclusion. The
government is signed up for extending financial inclusion. What
we would clearly like as an outcome at the end of this is to see
as many more people as possible moving to a state of being financially
included. We do not know at this stage exactly what the structure
of a successor account to the card account will look like but
it is interesting to hear what the Post Office themselves have
said because they are looking to do something by way of a successor
account. They would clearly like to have more functionality. So
would we. Exactly what form that will take it is too early to
tell. We will find out more about that as the migration exercise
proceeds and we learn more about what customers want and expect
from that successor account.
Q923 Chairman: I have met with senior
executives of the Post Office myself recently. One of the issues
for them is the across the board impact. The DWP maybe get a credit
out of the Post Office Card Account which may be transferred but
the DTI get extra responsibilities as well as that and the Treasury
is involved. You mentioned that you have met with Post Office
senior executives. Do you and your ministerial colleagues meet
with them at the same time?
Mr Plaskitt: Yes.
Q924 Chairman: When was the last
time you met?
Mr Plaskitt: Several things happen.
Firstly, at official level, there are very regular meetings between
all the involved departments of government. In addition to that,
in the last six months I have been at three interministerial level
meetings and certainly one recently where all three departments
of government and the Post Office were in the same room at the
same time.
Q925 Chairman: We would encourage
that. We are also aware that the DWP has been undertaking three
pilot schemes to convert Post Office Card Account users into other
products. In answer to a parliamentary question, you said they
were scheduled to be concluded by mid-March. First of all, are
they concluded and, secondly, if they are, can you send us a report
of the pilot schemes?
Mr Plaskitt: Firstly, they are
concluded. They did conclude on exactly that date. We have now
just concluded assessing the results that have come from those
pilots. The first thing we will do with the assessment we have
arrived at is share it with the Post Office as we undertook to
do. Once we have done that, we will share it with yourselves and
Parliament as I undertook to do.
Q926 Chairman: As you know with our
Committee we have Reports that stay on the agenda so we will be
coming back to this issue.
Mr Plaskitt: I would be very happy
to share that information with you.
Q927 Mr Mudie: You said 200 million.
Is that a per year figure?
Mr Plaskitt: Yes.
Q928 Mr Mudie: That sounds like a
pound per transaction if you have roughly four million customers
and you are spending 200 million. That would be about a pound
a week, a pound a transaction. That compares with the banks' penny.
That rather suggests that the basis for this is understandable
savings which the taxpayers might thank you for. I will not use
the word "cuts" because that is emotive.
Mr Plaskitt: As I said earlier,
it is not a cuts exercise or a savings exercise. It is about honouring
the contract because the contract that we wrote and both of us
signed up to commits both of us—the Post Office and DWP—as
soon as the card account was up and running to do the migration
work, to get people into financial inclusion.
Q929 Mr Mudie: That contract in itself
was a saving because that contract was introduced when you withdrew
books, which were even more expensive. We had enormous savings
in the move across. We have this contract which runs at 200 million.
The Post Office find that 200 million very useful to keep 14,000
Post Offices together. I do not envisage you paying them 200 million
at the end of this exercise if, in your eyes, it is successful
because the Post Office Account will not be there. If you are
negotiating something, it will not be a pound compared to a penny
with the banks. Yes?
Mr Plaskitt: You have to look
at the numbers. First of all, let me reiterate again that there
is no rowing back on the contract at all. The contract will run
right through to 2010 across the life of the contract. It may
well represent about £1 billion of public funding supporting
the Post Office Card Account. It could well reach that level or
even exceed it. How much it will cost to run a successor account
at the moment I cannot determine. If we are successful, as I hope
your Committee would want us to be, in helping most of those 1.25
million people—somewhere in that range—into financial
inclusion, the number left who will want to persist with a Post
Office Card Account or a successor will be much smaller. It may
well be that the Post Office will have won a lot of the business
from people moving away from the Post Office Card Account. That
is what the Post Office management want to do. It is what the
Post Office Federation of Sub-Postmasters have said they want
to do, win that business. That is why they are in the business
now of bringing forward new accounts to attract that business
and that will be revenue for the Post Office. What they are interested
in of course is footfall and keeping people in and, once they
are coming into the Post Office, directing other products at them.
As I am sure you know, the Post Office is busy promoting a lot
of new product lines. That is to build its business.
Q930 Mr Mudie: Mr Cook, in his evidence
which you have read, said he did not think it would be too difficult
to produce a card account which went further than the present
Post Office Card Account. He does not see any difficulty. The
difficulty I presume will be in negotiating the same sort of figure
from the DWP for having their customers use this.
Mr Plaskitt: It will depend on
the size of the user base of that product. At the moment, we cannot
anticipate what that will be.
Q931 Mr Mudie: What was the individual
cost for the book compared to the pound for the Post Office Card
Account, compared to the penny for the bank? What was the cost
for a book?
Mr Plaskitt: That I cannot recall.
Some assistance may be arriving. You are right in assuming that
it does cost my department less to do the direct payment system
than it did with the book but let us also note that the direct
payment system is a lot safer and far more secure and has reduced
fraud.
Q932 Mr Mudie: I am just after the
figure that is on that piece of paper.
Mr Plaskitt: I am told it was
50 pence per book, per transaction, per week.
Q933 Mr Mudie: The Post Office Card
Account is twice as expensive?
Mr Plaskitt: No, because that
is per transaction. Let me disregard any note that comes my way.
My recollection is that the overall running cost of the card account
as opposed to the old payment book system is in the region of
about £100 million cheaper. Let us also note that we checked
with our customers to make sure that they are happy with a direct
payment system and it does have an approval rate of well over
90% amongst our customer base.
Q934 Mr Mudie: You have saved 50
pence per transaction?
Mr Plaskitt: In the move from
the old order book to the Post Office Card Account system we certainly
saved money but we also have a more efficient system, a popular
system, a more secure system, one far less open to fraud than
the old system was. It was a good move to make. I think that is
clear from all fronts.
Q935 Mr Mudie: Did the three departments,
the Treasury, the DTI and yourself, specifically come to a meeting
and agree this?
Mr Plaskitt: Agree what?
Q936 Mr Mudie: Agree to end the Post
Office Card Account. As it was your contract with the Post Office,
did you take the decision or did the three departments agree the
decision and then did you communicate it to the Post Office?
Mr Plaskitt: There is a false
premise there, if I may say so, because no decision was made to
end the contract. The contract was written with an end date in
it of March 2010 and we are honouring that contract throughout
its lifetime.
Q937 Mr Mudie: That is semantics.
At the end of the day the Post Office is a very important business
to millions of people throughout this country. They have had a
contract with the department for a long time. It was books; you
forced cards; they accepted the cards; they accepted the lowering
of payment. They were anticipating working with you to 2010 for
a successor. You indicated that at 2010 you were definitely finishing
Post Office Card Accounts. There was no successor in mind. That
was communicated to the Post Office. The Post Office told us they
were not very happy about it but that is the decision. Was it
a decision of the three departments that that be communicated
to the Post Office?
Mr Plaskitt: I do not understand.
There is no change in the contract. The Post Office's signature
is on the contract that says it ends in 2010.
Q938 Chairman: We are in fairy land
here. Baroness Prosser made an announcement in the Lords and that
caused a stuchie so do not tell us that everything is hunky-dory
in your land because in the outside world things are problematic
and that is the issue. We had the banks before us last week and
they said they were not going to help the Post Office because
they are competitors. They also say, rather softly, that they
gave you £182 million. They are not going to give you this
money again so there is a big issue of £200 million here
in terms of savings or cuts, whatever term George wants to use
euphemistically for that. There is a big issue here. What we are
saying as a Committee is that there is a political problem here.
We are looking for that to be addressed and, if it is not addressed,
it is not going to be good for training, the Post Office or individuals.
I think I am speaking on behalf of all my colleagues here. That
is the spirit of the message we are getting back from the banks
and others.
Mr Plaskitt: What we are interested
in is providing the best possible service for the DWP's customers
and clients at the end of the day. As you know, the Post Office
Card Account was part of the transition from the old book system
to the direct payment system but it always had the role of a stepping
stone and that is explicitly stated in the contract which ourselves
and the Post Office signed. The evidence that the Post Office
gave to you was interesting because they are clearly looking forward
to what happens after 2010.
Q939 Chairman: They are anxious.
Mr Plaskitt: They are up for bringing
forward or bidding for a successor account to the Post Office
Card Account. They can see the opportunity that is in this. The
Post Office have known right from the outset that this contract
concluded in 2010. The dialogue we are having now, which is absolutely
the right thing to do at this point with the contract still having
four years to run, is to start talking about how we do that migration,
how the Post Office can keep its business and what the successor
account will be.
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