Government responses
Government reply to Business and Enterprise Committee's
report 'After the Network Change Programme: the future of
the post office network' Sixth Report of Session
2007-08 published on 2 June 2008
Introduction
1. The Government welcomes the Committee's further
report on the Network Change Programme and consideration of the
future of the network after the change programme is completed.
It is useful to have the Committee's developing views on the
future nature and role of the post office network.
Responses to conclusions and recommendations
2. The Government's responses to the Committee's
conclusions and recommendations are set out below. We have listed
the conclusions and recommendations in the order followed in the
report. Our response is set out below each of them.
Conclusions and recommendations
Timeliness
The relative slowness of the Government and Post
Office Ltd replies would have been easier to understand if they
had been final statements of the position. In fact, there have
been further developments since then. We regret that the Government
and Post Office Ltd responses were neither speedy nor definitive.
(Paragraph 4)
3. The Government and Post Office Ltd responses
to the Select Committee report were submitted within the normal
two month period allowed.
Local Authority and MP involvement
Since the Government and Post Office Ltd responded
to our report on 3 April, Post Office Ltd has announced that in
future it will engage with MPs "10 days before the start
of the public consultation in their constituencies in relation
to the current Network Change Programme, rather than a few days
before the consultation begins as at present". While this
is welcome, we do not understand why it did not form part of the
response to our report, and consider it disappointing that the
Post Office took no steps to inform us, or seek to revise its
response. (Paragraph 7)
4. Post Office Ltd was keen to link the announcement
of the earlier engagement with MPs and the announcement of trials
of an urban outreach model, as both had been issues raised by
MPs more widely, but was not in a position to finalise this by
3 April. It was therefore decided not to delay the response to
the Committee further.
We note that successful dialogue requires both
parties to engage properly, and urge local authorities and Post
Office Ltd to work together as the programme continues. (Paragraph
8)
5. Post Office Ltd's working relationships with
local authorities have continued to develop positively as the
programme has progressed. To the end of June, Post Office Ltd
had attended 262 meetings with local authorities and 250 other
engagements with stakeholder groups which often included local
authority representatives In addition, Post Office Ltd participated
in a recent Local Government Association conference workshop to
launch the draft guidelines for local funding of continuing retail
and other service provision after the closure of a sub post office.
Post Office Ltd has sent these guidelines all local authorities
who have expressed an interest in such funding. The guidelines
are also available on the Local Government Association website.
Sustaining the Network
We accept that the Government has no desire to
see the network shrink below 11,500 outlets between now and 2011.
Indeed, it is investing £1.7 billion to safeguard the network.
However, there is no guarantee that there will not be further
closures after the Network Change Programme as a result of individual
postmasters' and postmistresses' decisions. We note that Post
Office Ltd itself does not believe "it is possible or desirable
to set a minimum number of fixed outlets." We expect Post
Office Ltd to share the Government's commitment to maintenance
of the network. (Paragraph 10)
6. In additional oral evidence given to the Committee
on 10 June, Alan Cook, Managing Director of Post Office Ltd, confirmed
the company's strong desire to maintain a national network of
around 11,500 post office outlets to 2011 after completion of
the network change programme. He also confirmed that the company's
business plan is predicated on that size of network.
Access Criteria
The Government has asked Post Office Ltd to work
with Postwatch to "develop a new code of practice covering
'business as usual' network changes to reflect the current policy
and lessons learned from the Network Change Programme," and
Post Office Ltd told us that it looks forward to working with
Postwatch and its successor body, the National Consumer Council,
to draw up such a code. In successive Reports we have expressed
our concern about the transfer of responsibility from Postwatch
to the NCC at such a critical time in the Network Change Programme.
We recognise that Postwatch is currently heavily burdened by the
need to monitor the Network Change Programme itself. However,
we think it is important that the Code of Practice is drawn up
speedily, and that the transfer of responsibility does not cause
delay. We urge Postwatch and Post Office Ltd to start work immediately.
(Paragraph 12)
The future shape of the network is a matter of
direct political concern and will be determined by the Code of
Practice. We wish to see a draft of the code before the summer
recess. Ultimately, Government, as sole owner of Royal Mail Group,
cannot duck responsibility for the shape of the network. While
we do not expect it to replicate other parties' monitoring, we
expect it to use those monitoring returns to ensure its considerable
subsidies are being used to secure a network which meets the public's
needs. (Paragraph 13)
7. The need to have a new code of practice in
place for business as usual changes after completion of the Network
Change Programme in the autumn is clearly recognised by Post Office
Ltd, Postwatch and the Government. Agreement in principle on the
form and structure of a new code has been reached between Post
Office Ltd and Postwatch. This includes a framework document setting
out the relationship with the new National Consumer Council, the
successor body to Postwatch from 1 October.
8. The Government is contributing up to £150
million a year to 2011 to maintain a national network by support
around 7,500 non-commercial offices. It will monitor compliance
with the access criteria by close scrutiny of the monitoring returns
from both Post Office Ltd and the new National Consumer Council.
Outreach
Although Post Office Ltd has told Postwatch they
believe relatively few customers will be affected by the inability
of some outreach services to handle packets weighing more than
2kg, it will mean considerable inconvenience for those who need
to send large packages, and could have an impact on local businesses.
We note that the universal service obligation extends to packages
of up to 20 kg. We consider that all Outreach services should
be able to handle packages of up to 20 kg. (Paragraph 16)
9. A key element in the rationale for an outreach
service is that it enables Post Office Ltd significantly to reduce
its costs in continuing to provide service at that location and
therefore allows service to be maintained there to an extent which
would not otherwise be viable. The business model for outreach
service requires significant cost savings to be achieved. Following
detailed discussions with Postwatch and consideration of current
and prospective usage levels and storage capacity, Post Office
Ltd has agreed that all outreach outlets will offer service for
packages up to 6 kg. Post Office Ltd calculates that currently
70% of post offices in the network are able to accept packages
up to 20 kg. It also calculates that across a sample of smaller
offices (up to 900 customer sessions per week) on average only
one parcel between 6 and 20 kg is handled.
Closure of profitable branches
The post office network is a social as well as
a commercial asset; as Postwatch says "profitable offices
are likely to be heavily used, and closures would therefore affect
many customers". We continue to believe there should be a
presumption against their closure. (Paragraph 18)
10. Post Office Ltd has confirmed that all individual
office closures will improve the overall profitability of the
network. In determining which post offices should close, Post
Office Ltd seeks to strengthen the sustainability of remaining
offices nearby. They also seek to minimise the impact on customers
and so, for reasons of accessibility and ensuring adequate capacity
for migrated business at remaining offices, there will, on very
rare occasions, be a closure of a profitable office.
Post Office Ltd's own figures leave significant
uncertainty as to where £57 million of savings will come
from. It is not surprising there are fears that as offices are
closed, overheads per office will increase, and decline will continue.
(Paragraph 21)
11. Post Office Ltd's business plan for 2006-11
is predicated on cost savings of £270 million a year being
achieved over the five year period. As Alan Cook, Post Office
Ltd's Managing Director, confirmed to the Committee in oral evidence
on 10 June, £270 million of cost savings will be achieved.
In addition, the company has also confirmed that the remaining
£7 million of operational savings to be directly derived
from closing offices under the Network Change Programme has been
identified and is on course to deliver the £45 million of
savings from the closures as required by the business case
Given the lack of transparency about Post Office
Ltd's finances, and the reported deficiencies in Royal Mail Group's
financial systems, it is impossible to be sure that the allocation
of costs to individual post offices is rigorous. Post Office Ltd
is a publicly owned monopoly, which provides many of its services
on behalf of the Government and receives substantial taxpayer
support; there should be far more clarity about such matters.
(Paragraph 23)
12. The Government notes the Committee's concerns
but also notes that Post Office Ltd operates in a commercially
competitive market. A balance needs to be struck to protect the
company's own competitive position in bidding for work and contracts.
Commercially confidential information relating to subpostmaster's
remuneration and transaction volumes also needs to be protected.
Government has encouraged more transparency on costs and Post
Office Ltd has, within these constraints, provided information
about the average level of savings achieved from post office closures
under the Network Change Programme and, on a confidential basis,
to share with MPs the annual savings to be achieved from individual
offices proposed for closure in their constituencies.
Closure Decisions
We understand why the Government is reluctant
to become directly involved in decisions on the closure of particular
offices. Closure proposals rest on a great deal of detailed local
and commercial knowledge, which central Government cannot replicate.
Nonetheless, it is not satisfactory that Royal Mail Group is left
to be the sole arbiter of the network. (Paragraph 28)
13. We welcome the Committee's acceptance that
Ministers do not have a role in deciding individual closures.
We note the Committee's view on the review process involving Postwatch
and Post Office Ltd but understand that, to date, there have
been only 2 cases referred to the Chairman of Royal Mail Group
for a final decision at the fourth and final stage of the review
process. In one case (Micklegate, York) his decision was that
the closure should not proceed; in the other, the Chairman modified
the proposal for Podsmead, Gloucester by deciding that the closure
should be mitigated by establishing an outreach service. All other
cases referred for review by Postwatch have been resolved bilaterally
at earlier stages in the process. To date, 59 closure proposals
have been withdrawn in the light of public consultation responses
and the review process.
The statutory framework
We would be concerned if regulators and consumer
bodies were not using their powers to the full. We are likely
to return to this in the autumn. (Paragraph 35)
14. We note the Committee's comments and the
likely further consideration they propose to give to this matter
later in the year. We understand that Postwatch has confirmed
that it would use its statutory powers, if necessary.
Wider responsibility
There appears to be little or no co-ordination
between regulators, between regulators and Government, or between
government departments about the social effects of withdrawing
payment services from the post office network. Given the grounds
on which state aid was granted, and the current tender for the
new Post Office Card Account, the loss of which could devastate
the network, we believe this needs further consideration. (Paragraph
36)
15. The Committee's comments are noted but, as
its report recognises, there is a growing trend for consumers
to be given a choice in how they access Government services. These
channels are proving highly popular. It is also a legal requirement
that Government and other public sector bodies and authorities
put all contracts out to competitive tender in accordance with
public procurement law. They cannot simply award contracts to
Post Office Ltd.
The reviews
We do not think it is reasonable or prudent to
conduct reviews of mail services without looking at the relationship
between Royal Mail Group and Post Office Ltd. Given the lack
of clarity about the finances of the network, and the apparent
disjunction between the Government's desire for a network of 11,500
offices, and Post Office Ltd's much more nuanced response, we
recommend that Postcomm and the Postal Services Review include
a thorough examination of Post Office Ltd as part of their work.
There should be as much clarity as possible about the operational
and financial relationship between the post office network and
the universal service provider, and about the potential effects
of changes in postal services on the post office network. We intend
to examine output from those reviews in the autumn. One thing
is clear—history has given us a network which remains among
the largest in Europe. The Government and the European Commission
accept the network provides a valuable service: all Government
departments should bear that in mind when they consider how to
provide their services. (Paragraph 39)
16. The Government agrees that it is important
and relevant for both Postcomm and the independent Panel reviewing
the postal market to look at the relationship between Royal Mail
Group and Post Office Limited. The post office network plays a
crucial role in the postal market providing access to postal services
including the provision and maintenance of the universal postal
service. This is Postcomm's primary duty and at the heart of the
Review.
29 September 2008Government reply to Business
and Enterprise Committee's report 'Post Office finance: matters
arising from the evidence taken on 10 June 2008' Tenth Report
of Session
2007-08 published on 25 July 2008
Introduction
1. The Government welcomes the Committee's further
report on its inquiry into the Network Change Programme following
the hearing held on 10 June. While the Committee's two recommendations
are not directed towards Government both issues are central to
our objective of a sustainable, national network with reasonable
access to post office products and services.
Responses to conclusions and recommendations
2. The Government's responses to the Committee's
conclusions and recommendations are set out below.
Financial Transparency
We repeat our earlier conclusion that it is neither
reasonable nor prudent to conduct the reviews of mail services
without considering the relationship between Royal Mail Group
and Post Office Ltd and urge those currently conducting reviews
to take this fully into account. Moreover, Royal Mail Group and
Post Office Ltd should provide clear information on: what services
Royal Mail Group expects Post Office Ltd to deliver for it; how
Royal Mail Group determines the price it pays for these services;
and how much it actually currently costs Post Office Ltd to deliver
them. (Paragraph 4)
3. The Government notes the Committee's call
for greater transparency. While the Government understands the
Committee's concerns, a balance needs to be struck to protect
the Post Office's ability to operate in a competitive market.
We will consider whether any further steps are necessary to address
the Committee's concerns in the autumn, taking into account any
relevant recommendations from the Hooper review of the postal
services sector.
Outreach
We remain concerned that the funding provided
for Outreach services may be inadequate. If this is the case,
Outreach services will fail and the network will be diminished.
We note that the adequacy of Outreach funding has been raised
by witnesses from several different parts of the country. However,
we are not the appropriate body to look at the detailed financial
arrangements for outreach, which will involve many different contracts.
A significant amount of public funding is provided to sustain
the network; we need to be confident the public receives the services
this is meant to secure. We recommend that the National Audit
Office investigate the financial arrangements for Outreach services.
(Paragraph 9)
4. The Government notes the Committee's concerns
about the viability of the business model for Outreach services.
Outreach is a key element of Post Office Ltd's overall programme
to put the post office network on a sustainable footing and to
ensure that there is reasonable access to post offices services
across the country. We agree that it is important, therefore,
that the business model for Outreach is robust.
5. The Government also notes that the Outreach
models are not new. The four models have been in development by
Post Office Ltd since 2004. In particular, Post Office Ltd piloted
outreach at 73 locations in 2005. The results of the pilots were
reviewed and assessed in the Rural Pilot Activity report (available
at:
http://www.news.royalmailgroup.com/news/Rural%20Report.pdf)
Using these and similar models, Post Office Ltd was
already providing services at over 400 locations before the start
of the Network Change Programme.
6. We understand that the National Audit Office
will consider the financial arrangements for the Outreach model
as part of its current value for money investigation into the
Post Office Network Change Programme. We look forward to receiving
their report in due course.
24 September 2008
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