The Role of Government and the
future of the network
4. The Government is providing £1.7 billion
in funding for the Post Office, a significant amount of which
will be made available for the Network Change Programme, and has
set the access criteria for the network as a whole. The Network
Change Programme is designed to produce a sustainable network
which can be supported with the funding available from Government.
That funding is justified because the Post Office performs a
social function, as well as being a commercial operation. However,
there is uncertainty about the future of the network. As both
the Minister and Mr Clark made clear, changing consumer preferences
and new ways of providing services mean that Post Office Ltd is
running at a loss. The Government has provided funding for "up
to 2,500 compensated closures". Post Office Ltd told us that
although there was some flexibility around this, the minimum number
of closures would be 2,400.[2]
Post Office Ltd told us that it needed to reduce total costs by
£270 million over the next five years. Post Office closures
would account for £45 million of that cost. While £29
million of the savings would flow directly from the closure programme,
£19 million depended on making savings in the infrastructure
that supported those branches. Although £9 million of those
savings were clearly identifiable (e.g. maintenance of computer
terminals in closing branches), the other £7 million saving
would be harder to achieve.[3]
As long as those savings could be achieved, "this closure
programme should not beget another one".[4]
5. Although Government funding cannot be guaranteed
beyond 2011, the Minister has made it clear that "it is Government
policy to maintain a sustainable network of around 11,500 post
offices".[5] Post
Office Ltd told us that at the end of the programme there were
likely to be 12,200 post offices, of which 500 would be Outreach.[6]
Post Office Ltd told us it:
has no wish to see any reduction in branch numbers
beyond this level, providing that the overall network can be made
sustainable. Any instance of a branch closing in the future for
reasons beyond Post Office Ltd's control will result in a case
by case examination of the future provision of services across
the relevant local area and to meet the binding national accessibility
criteria.
Nonetheless, it remains the case that the majority
of Post Office branches are not commercially viable for Post Office
Ltd and require support through the structure of the Post Office
remuneration to make them viable for sub-postmasters, which provides
minimum income levels regardless of low numbers of transactions
in smaller branches. Post Office Ltd's ability to provide remuneration
at a level which enables these branches to survive is dependent
partly on the success of the company in marketing new services,
both through branches and directly, and, crucially, through financial
payments from Government in recognition of the social value of
the network of branches. Changes to Government's position would
require Government to review its decision on the size and shape
of network it wished to see.[7]
6. Mr Thomson of the NFSP told us that the "the
answer to the problems facing the post Office cannot continue
to mean every two or three years closing 2500 offices" and
that current closure programme "takes us to what I would
call the 'critical mass'".[8]
The replacement for Post Office Card Account is now out to tender,
as is required by European procurement rules; it is clear that
if the Post Office does not win this, it could have significant
consequences. We understand the difficulty for the Government
in announcing its future funding intentions, particularly when
there is so much uncertainty. We asked the Minister about the
review of Postal Services announced last month; he assured us
that this was more about mail services than the Post Office network.[9]
Although the Minister warned us that financial commitments could
not currently be made beyond 2011, we consider that Post Office
Ltd, and all those who supply or use Post Office services should
be given as much certainty as possible. As Mr Hayes reminded us,
there have already been suggestions that mail services should
be divided from the counter service;[10]
the Government may be forced to address the future of the Post
Office network as a consequence of its review.
7. While we accept that there is inevitable uncertainty
about the medium term beyond 2011, the shape of network before
that is also uncertain. As the Government said in its response
to the consultation on postal services "it is not possible
to maintain a static network"[11]
as there will inevitably be some natural exits of postmasters
from the network. Whatever the scale of such exits, and it may
be considerable over the period, it is likely that it will not
be possible to find new premises or replacement postmasters in
every case.[12] The Government's
access criteria provide a minimum standard for accessibility,
but that standard could be met with far fewer than 12,200 branches.
In answer to a Parliamentary Question, the Government said
a network of around 7,500 offices would suffice to meet the national
criteria. We do not think it is satisfactory simply to accept
that the network may continue to shrink in an unplanned way between
now and 2011; Post Office Ltd should be obliged to use its best
endeavours to keep the network at a minimum of 11,500 fixed outlets.
8. The new
National Consumer Council, which will take over Postwatch's functions,
will have a vital role in monitoring the adequacy of the network.
Earlier Reports were concerned that the merger would damage Postwatch's
ability to engage in the Network Change Programme process. The
evidence we received suggests this has not, so far, been the case,
and we congratulate Postwatch on the work it has done to improve
Post Office Ltd's proposals. However, although all agreed that
the National Consumer Council should monitor the network in future,
the way in which it should do so was felt to be a matter for the
new board. We urge the new National Consumer
Council to place continued monitoring of the post office network
among its highest priorities.
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