The current tender process
6. The first contract for the Post Office Card Account
expires early in 2010. On 16 May 2007 the Government issued a
tender in the Official Journal of the European Community for "provision
of simple card based customer owned bank accounts similar to existing
card accounts. Also associated encashment services to allow access
to cash at ATMs and a national network of personal teller outlets".
In a more detailed section, the document specified that ATMs and
personal teller outlets should be "located throughout the
UK", and indicated that DWP was considering becoming a member
of LINK, the system which allows customers of one bank to withdraw
cash from the outlets of other banks participating in the scheme.
7. It is widely recognised that a decision to award
the contract to an organisation other than Post Office Limited
would have grave effects on the Post Office network. Even after
the network change programme, more sub-post offices would almost
certainly close. The General Secretary of the National Federation
of SubPostmasters has said "Losing POCA will deal a body
blow to every subpostmaster and I have no doubt it will directly
result in the unmanaged closure of at least 3,000 post offices".[7]
In our work on the network change programme itself we felt it
was inappropriate to comment on the tender process since the Government
had said it hoped to sign contracts in early 2008,[8]
Moreover, we had confidence that the Government would consider
all relevant criteria in making a decision. Several months on,
no decision has been announced. Moreover, there is speculation
that the contract could be split between Post Office Ltd and another
provider. This situation is destabilising for the Post Office
network, and we are disturbed that the Government has allowed
it to continue.
8. We accordingly sought an urgent meeting with the
Secretary of State for Work and Pensions to discuss these issues.
He was unwilling to meet us before a decision was taken, since
he felt constrained from commenting until the outcome of the bid
was known. Such a meeting would have allowed us to explore the
context of the bid, and to explore the Government's thinking about
the need to meet the needs of those who currently use POCA. Since
we have no opportunity to be sure that the Government has taken
full account of those groups, we have decided to set out our views
in this Report. We do not believe that doing so will undermine
the integrity of the tendering process. There have been many representations
about matters that should be taken into account in that decision,
and indeed it would be impossible to prevent such representations
being made. The decision must be made by the Secretary of State,
and we are confident that he will be able to weigh the points
put to him appropriately.
9. Although we recognise that the Secretary of State
has to take the decision about the successor to POCA, we wish
to put on record the matters we believe he should consider when
he is taking that decision. The Trade and Industry Committee recognised
that Direct Payment had reduced government expenditure: we believe
the focus should now be on meeting the basic financial needs of
consumers. The DWP has been clear about its preference for customers
to use basic bank accounts. Indeed, we have been given examples
of cases in which DWP communications either do not mention the
availability of the POCA, or imply it will be withdrawn in 2010
without indicating that there will be a successor. Despite this,
significant numbers of benefit claimants and pensioners choose
to use a POCA. Their needs should be paramount.
10. The Treasury Committee's Report on Banking
the unbanked concluded "that those without
access to a bank account are likely to be on a low-income, the
long-term inactive or unemployed, the elderly, lone parents and
council and housing association tenants."[9]
A system of basic bank accounts was introduced to help those without
access to banking services. Basic bank accounts allow a wider
range of services than the POCA. As the Treasury Committee said,
there is no single model, since the accounts offered by various
banks differ, but
Basic bank accounts enable people to pay in cash
and cheques, receive their wages or benefit payments, make cash
withdrawals and pay their bills by direct debit. Basic bank accounts
have no overdraft facility and there are no charges for day-to-day
banking, although some banks levy significant charges if there
is insufficient money in the account to pay a direct debit.[10]
It noted that some customers found it difficult to
open such an account.[11]
11. Despite the availability of basic bank accounts,
the Treasury Committee report noted take up for the POCA was far
higher than expected, "4.3 million people [are] currently
using the POCA to receive benefits, including 2.3 million pensioners.
This appears to reflect both the difficulties in opening basic
bank accounts and the perceived advantages amongst benefit claimants
of using the Post Office".[12]
12. In other words, the POCA caters for precisely
the people who do not want to, or cannot, use conventional bank
accounts: in the very nature of things, they are disproportionately
likely to be poor or elderly. Similarly, they are likely to live
in rural or deprived urban areas. They are less likely to have
access to private transport, and less able to afford the cost
of public transport. They need access not just to the underlying
finance provided by benefits, but to those benefits in cash form.
The OJEC announcement specifies both 10,000 outlets and that they
should be "located throughout the UK". The needs of
this group mean that the second criterionthat services
should be located "throughout the UK"is vital.
The government criteria for access to Post Office services were
a welcome step in safeguarding access to services for groups across
the United Kingdom. They provide a baseline against which any
tender should be measured.
13. A tender which offered far more teller outlets
than the 10,000 specified, but could do so only in urban or relatively
densely populated areas would not, in our view, meet the needs
of POCA users. As the Communication Workers Union told the Trade
and Industry Committee:
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.[13]
At the end of December 2007 the UK banking system
network contained almost 12,500 branches, including non-converted
building society branches.[14]
At the same date the comparable number of Post Offices was 14,219.[15]
The banking network will contain several branches of different
providers in one area, whereas Post Offices are geographically
dispersed. Obviously both networks will change over time, but,
given recent mergers in the banking system, it is likely the banking
network will also shrink.
14. Even the LINK ATM network of free to use machines
as it currently exists would not meet the criterion that there
should be access throughout the UK. Despite attempts to increase
the network of free ATMs, many urban deprived areas lack access
to such facilities. There are no geographical criteria for access
to free ATMs in rural areas. The LINK ATM locator shows there
are many villages where access to cash is provided by a Post Office
but the nearest free ATM (apart from any provided by the Post
Office) is several miles away.[16]
15. Moreover, the new service will have to provide
reliable access to cash for those using the card account.
No tender should be accepted if it cannot demonstrate that it
can meet this need, at the branch most convenient for users. It
is unreasonable to expect a disadvantaged customer to have to
travel to access cash, and possibly also to pay for such travel,
without the certainty that cash indeed will be available. The
Government cannot rely on the assumption that the LINK network
as a whole provides access to cash. Firstly, there is no guarantee
that an ATM will have cash available at a particular time. Secondly,
it would be imprudent to judge the viability of a bid on the existence
of facilities provided by third parties which may be withdrawn
for reasons beyond the bidder's control. If the successor to the
POCA is not awarded to Post Office Ltd there can be no guarantee
that the Post Offices currently providing access to free ATMs
will remain viable.
16. We are naturally concerned about the effects
of the possible loss of the contract on Post Office Ltd, and,
indirectly, on the taxpayer who may end up having to pay an increased
subsidy to maintain a national network of post offices, while
simultaneously supporting the commercial providers of the DWP
card account. Despite the rumours of solutions which would split
the tender, our advice is that this would only be possible with
the agreement of both parties involved. Moreover, it is perfectly
legitimate for the Government to take into account the extent
to which any compromise agreement would undermine the financial
viability of the organisation providing services.
17. In its Report the Treasury Committee said:
The Post Office's customer base, extensive branch
network and trusted role in the local community mean that the
Post Office can play a lead role in promoting financial inclusion.
The Government is not maximising the potential of the Post Office
in this area. The loss of the contract for the Post Office Card
Account, whether these customers are eventually transferred to
basic bank accounts or to an alternative Post Office product,
is likely to result in a loss of income to the Post Office. If
this income cannot be replaced by alternative services or products,
then either Post Offices will close or Government spending on
the social network payment will need to increase. This would result
in a saving to the DWP but a corresponding increase in expenditure
by the DTI. The Government needs to ensure a joined-up approach
by the DWP, DTI and the Treasury to funding and providing services
through the Post Office network.[17]
We are concerned that there is still little sign
of such a joined-up approach. The contract has been advertised
on the basis of the most economically advantageous tender. This
allows the Government to take a wide range of criteria into consideration.
It must do so, to ensure that easy and reliable access to cash
and access to benefits remains possible for those who currently
use the Post Office Card Account.
18. Although our primary concern is for those who
need access to benefits, we are also concerned that the delays
are destabilising Post Office Ltd, and for communities in rural
and deprived urban areas which rely on the Post Office for access
to basic services. The European Commission, the Government and
we are all agreed in believing the Post Office network provides
services of general economic importance, and plays a vital social
role. The longer uncertainty continues, the harder it is for the
Post Office to develop its long-term plans. The current contract
expires in April 2010. Whoever wins the contract, existing POCA
customers will need to be transferred to a successor account.
There is very little time for the Secretary of State to come to
a decision, but when he does so he must take the needs of POCA
users, and of the community as a whole, fully into account.
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