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Another issue throughout the debate is the concept of closing profitable post offices. I think there is a misunderstanding at the heart of that. We were told that the process covered loss-making post offices, but in fact it is about reducing the cost to the Post Office of running the network. We know—the hon. Member for Sittingbourne and Sheppey (Derek Wyatt) raised this—that the way in which sub-postmasters are paid partly relates to the amount of business. The more business they do, the more they cost the Post Office to transact it, and there we have it.

The solution is simple. The system would work beautifully if it were not for the wretched customers using post office services. The easiest solution is to close the busy ones, because that provides the biggest savings in transaction costs, and the network will work smoothly. But that is not what the process should be about. It should be about looking at marginal post offices, and encouraging the busiest and most profitable ones to continue.

My right hon. Friend the Member for North-West Hampshire (Sir George Young) rightly said that the one thing that we should be able to expect in this debate is absolute clarity about how much is being saved with each proposed closure. We could then look to the parish or district council or somewhere else to try to obtain funding, but until we are given those figures, we simply do not know how much will be expected to be raised. Perhaps the Minister will confirm that the post office network is losing £4 million a week—approximately £200 million a year. He said that the Government’s network programme is putting in £160 million, so is it right to assume that we are trying to save £40 million in the process? If that is divided by 2,500, £16,000 per post office will be saved. Are we in the right ball park in saying that?

I hope that as a result of this debate and the concerns that have been expressed, the Minister will instruct the Post Office to explain how much it expects to save from the closure of each post office, so that we can consider how that shortfall can be made up. It is clear that what matters is not the network’s strategy, but geography. If a post office is in the wrong place, it must close. It is almost a Stalinist approach. The Prime Minister has moved from being Stalin to being Mr. Bean, and Postman Pat has become Stalin in his place.

Some postmasters run incredibly successful businesses, and have spent years investing their savings and building up those businesses, but someone can come along and, out of the blue, tell them that they will be closed down simply because they are in the wrong geographical location. We need a better and more thorough way of dealing with the matter, and only the Minister can make that happen.

We are seeing a gradual whittling down of both the Post Office and its parent company, Royal Mail Group. The problem is not just post office closures. We are seeing the end of Sunday collections, the reduction, and in some areas the extinction, of morning deliveries, the end of postbus services throughout the country, and the suggestion that two hours of outreach services are an adequate replacement for a six-day-a-week post office. As the hon. Member for Sittingbourne and Sheppey said, Crown post offices are being moved into inappropriate, unsuitable locations where people with buggies, pushchairs or wheelchairs simply cannot get to the counters.

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There is something perverse about a bonus system for Post Office managers— some are extremely able and outstandingly good business people—based on their success in dismantling a much loved national institution rather than on their success in building it up and making it a viable business for the 21st century.

Mr. Kidney: I mentioned W.H. Smith Royal Mail’s management is introducing commercial practices. Is it the hon. Gentleman’s party’s policy to go the whole hog and put it in the private sector?

Charles Hendry: Something we need to do at an early stage is to separate the Royal Mail and Post Office businesses. There should be much greater clarity about who does what. Some of the decisions are being made because of problems facing Royal Mail, and it is making up the shortfall in its funds by going through the process. That does not mean that Royal Mail should be in the private sector or the public sector, but there is confusion about how those businesses are run at the moment. My hon. Friend and neighbour, the Member for Tunbridge Wells (Greg Clark), brought that up particularly clearly when he described what is happening with the St. John’s road post office.

If someone is building up a business based on internet services, but is finding that that business will be more difficult because the post office he uses is being closed, Royal Mail may go to him and say that it will collect his packages every day, and give him a lower price than what the sub-postmaster would legally have been able to offer because postal prices for him are controlled, but Royal Mail can offer discounts. We could be in the absurd situation of Royal Mail undercutting post offices and offering prices that post offices could not legally offer.

The Government set the framework, put the financial package in place, and chose to spread the social network package more thinly, as my hon. Friend the Member for Beverley and Holderness (Mr. Stuart) said. The Government restricted the offering of new services, set the number of closures and have been responsible for every element of the package that the Post Office has had to put in place—they set the access criteria and everything else. Therefore, people who are unhappy have no one else to blame.

At the end of the day, the Government’s policy is to manage the decline of the post office network, but they have failed to understand the wider nature of the programme. The post office is not only a business; it is part of the social fabric of our communities and of the social network. If someone does not come in to collect their pension, the sub-postmaster will be the first to notice and raise the alarm. The programme has lost sight of the wider value of post offices to too many communities, and they are seen only in terms of their economic role.

The Minister will have seen that there is no support for the programme across the House. We have seen a significant amount of anger in the debate, but that will be doubled if people end up feeling that the consultation programme is just a sham. If at the end of the consultation the Government turn round and say, “We have consulted, we have spent six weeks on it, but we will simply go
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ahead as we planned and close every single post office on our list,” people will rightly feel that the programme was a sham and it should be exposed as such.

The Post Office cannot halt the programme—only the Minister can. He should go back to the drawing board, think again, create a better long-term vision for the Post Office, and bring more business into the unit, and not simply manage the decline. If he does not do those things, the lasting legacy of his time in office will be the irretrievable loss of services to our communities throughout the country.

5.21 pm

The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): Let me begin by acknowledging the strength of feeling on this issue. I have been the Minister responsible for this difficult issue for some months and I can inform hon. and right hon. Members that I am aware of their concerns and those of their constituents. For that reason, it is right, despite the concerns that have been expressed, to debate the matter at length. I thank the hon. Member for Mid-Worcestershire (Peter Luff) and the Select Committee on Trade and Industry for the constructive way in which they have engaged in the debate on what is a difficult issue.

In fact, there has been more than one iteration of the matter. We have had the report, the Government response, another report, a further Government response, and so on. The background to the Committee’s work was not blanket opposition to the Government’s proposals or opposition to the need for any restructuring of the network. The Committee stated:

That view was echoed by George Thomson, the general secretary of the National Federation of SubPostmasters, who said that the closures were “regrettable” but

I shall come to some of the individual points that have been made, but I would like to set out some of the context in which the decision was taken. As has been said, the May announcements were that there would be up to 2,500 post office closures; sub-postmasters leaving the network as part of the programme would be compensated for their service; alongside the closures there would be 500 new outreach services; Government funding for social network will continue to at least 2011; and that there would be new access criteria.

Mr. Weir: The Minister just said “up to 2,500”, but that figure seems to have become set. Will the Minister clarify that matter? Is it possible that there will be fewer than 2,500 closures?

Mr. McFadden: There has been a lot of talk about the figure in the debate. The figure is derived from our—the Government and the post office network— assessment of the level necessary, with the social network payment, to put the network on a stable footing. As the Chairman of the Committee said, some variance is possible, but 2,500 is around the number that ought to be closed to give the network the level of stability I mentioned.

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I urge caution on hon. Members who would say that a particular post office is profitable. There are two factors to take into account when assessing the profitability of a particular post office. First, we must consider the business done in a post office and the payment from the Post Office directly into that branch. Secondly, we must consider the central support costs from the Post Office to a branch. The costs of any particular branch are shared between the branch and the post office network. On that basis, three out of four post offices are not profitable. I therefore urge caution against claiming that particular branches are profitable. As my hon. Friend the Member for Dumfries and Galloway (Mr. Brown) said, busy does not always mean profitable.

Mr. Stephen O'Brien: I thank the Minister for giving way during an important aspect of his presentation. I have not been made aware that what he said has been presented in evidence or in a context in which we could test it. It is important that a Minister has made such a statement to the House, but given that the closures are in the end to do with individual post offices and businesses, it would be helpful if we had his remarks laid out in evidence. At the moment, we can go on only what the people we meet say, and they are the people who run the businesses.

Mr. McFadden: It would be difficult for an individual sub-postmaster to see the full picture because central costs must also be taken into account. My point is that one must put the two things I mentioned together to make such an assessment. Hon. Members have spoken about individual post offices in their constituencies, but perhaps they would understand if I am reluctant today to comment on those branches—I would like to say something about the broader picture.

Peter Luff: I must reflect on what the Minister just said. We might close post offices, but central costs could remain the same. What assurance can the Minister give the House and the Committee that central costs will be reduced at least in proportion to the branch closures? Otherwise, we would spread the same costs among fewer post offices, and the argument for further closures will increase rather than diminish.

Mr. McFadden: The central costs will be reduced as a result of the programme. We shall not have the same central costs for a little under 12,000 branches as we would for the 14,000 we have at the moment.

Mrs. Miller rose—

Mr. McFadden: I would like to make a little progress. I have been asked a lot of questions and I should like to answer them.

The overall record of the branches has been in the public domain for some time, but I shall briefly reiterate it. We have 800 post offices that serve fewer than 16 customers per week. In those offices, the subsidy per transaction is around £17. We have 1,600 offices that serve fewer than 20 customers per day—the subsidy per transaction in those offices is £8. There are around 1,000 sub-post offices in competition with six or more branches within 1 mile, and customer numbers have
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shrunk by around 4 million per week in recent years. That picture provides a significant challenge for the post office network, and those statistics give some of the background information and reasons why we had to come to our decision.

The other background factor is lifestyle change. My hon. Friend the Member for Dumfries and Galloway referred to people getting their pension paid into a bank account. Some eight out of 10 pensioners now choose to do so, even though the Post Office card account option is open to them. Among new retirees, the figure is nine out of 10. People are making more transactions online. We put the capacity to arrange car tax online recently, and use of the facility increased from around 0.5 million people per month to 1 million per month in the first six months of this year. Almost half of those people use the website outside nine-to-five office hours. There is an attraction in that kind of service being available. I do not believe that any Government should respond to how people do transactions in other spheres of their life by refusing to do so in the public sphere.

Are we driven by accountancy, commercial factors and so on? No, we are not. That is why a subsidy of £150 million is going into the network. We recognise the community value of post offices and the public concern to keep as many as we can, but even with £150 million a year we cannot sustain a network of the current size. I assure hon. Members that the Government do not view this as a purely commercial network. That is why we have introduced that subsidy and guaranteed it over the coming years.

Mr. Graham Stuart: We Conservatives are not suggesting that Ministers should bury their heads in the sand and ignore changes. However, I should like to say, as other hon. Members have, that if the Post Office could run full banking facilities, two thirds of people in rural communities, instead of one in 10 people, would have access to their banks and the Minister would be both living with the modern world and providing the outreach that only the Post Office can do. We are looking to get measures to make the Post Office really work in the 21st century from a Minister who will, hopefully, be visionary in his speech as he goes on.

Mr. McFadden: A number of banks already have an arrangement with the Post Office for banking transactions to be carried out. We work with the Post Office management, which is doing a good job—perhaps a better job than in the past, as the Trade and Industry Committee acknowledges—in coming forward with new commercial ideas.

The broadband service was launched recently and we know about the car insurance and foreign exchange, and so on. Topically, the Post Office has recently launched a secure Christmas prepayment scheme: not for this Christmas, but for next year, in time for Christmas 2008. We have to support those good, imaginative ideas, because the future is not about turning the clock back and stopping all the changes that we have made, with benefits payments, online services, and so on, and reversing them. I do not believe in doing so and I am not sure that any party would propose that. The future has to be about finding new reasons to bring people through the door.

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Even after the closures have taken place, we will still have a network that is bigger than all the banks and about three times the size of the five biggest supermarket chains put together. So we will still have something with significant reach throughout the country in both urban and rural communities.

I should like, in the time available to me, to attempt to answer some of the specific questions. The hon. Member for Mid-Worcestershire asked me about state aid approval. I am pleased to tell him that that has been given. The European Commission released a statement today, making it clear that approval has been given on the part of the public funding package for the Post Office that requires state aid approval. The Competition Commissioner, Neelie Kroes said:

that is, Post Office services—

I want to bring the Committee up to date with how the Post Office is dealing with the particularly controversial individual decisions relating to constituencies. As hon. Members know, Postwatch is involved throughout the process from the pre-consultation period. The process already had an appeal mechanism where Postwatch and Post Office Ltd could not agree whether the process had been applied properly in respect of an individual branch. Post Office Ltd announced yesterday that it will add a new stage to that appeal process so that in individual circumstances where Postwatch and Post Office Ltd fail to agree locally, then nationally and subsequently at a senior level, involving the chief executive of Post Office Ltd and the head of Postwatch, an additional level will be added and Allan Leighton, the chairman of Royal Mail Group, will take a view on the final decision. I hope that the fact that the chairman of Royal Mail Group himself will take the final decision gives hon. Members some confidence in respect of particularly controversial decisions where Postwatch and Post Office Ltd cannot agree that the process has been properly followed.

Peter Luff: Does that mean that Postwatch will endure until the end of the consultation process?

Mr. McFadden: Postwatch will become part of the National Consumer Council in October 2008, but the team working on this issue will carry through to the end of the process. I understand the hon. Gentleman’s point about continuity in this process.

Greg Clark: In Kent, 58 post offices are earmarked for closure. Suppose that 20 of those were in this category and were reprieved: what would be the consequences of that? Given that we would fall short of the target by 20, would there then be another set of post offices recommended for closure or would we get away with 38?

Mr. McFadden: I hope that the hon. Gentleman does not mind if I am not drawn into that kind of calculation, because we could go round the room. I stress that this part of the process is for post offices in respect of which Postwatch and Post Office Ltd fail to agree that the process has been properly followed throughout.

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