Memorandum submitted by BERR (POS 1)
Memorandum from the Department for Business,
Enterprise and Regulatory Reform to assist the Business, Enterprise
and Regulatory Reform Committee's new inquiry into early experiences
of Post Office Ltd's network change programme for the sub-post
office network.
NETWORK CHANGE
PROGRAMME CONTEXT
1. The Government's statement, published
in May 2007, confirmed our commitment to maintaining a national
post office network, introduced a new framework of access criteria
to deliver this and committed funding of £1.7 billion up
to 2011 to restructure the network and place it on a sustainable
footing.
2. The funding commitment provided for continuing
annual payments to 2011 of £150 million to support the non-commercial
part of the network in recognition of its social and economic
role. It also provided funds for a restructuring of the network
with up to 2,500 compensated closures and 500 new Outreach access
points to put it on a more sustainable footing. Access criteria
were introduced to ensure national coverage and reasonable access
with particular regard to vulnerable consumers in deprived urban,
rural and remote areas. In applying the access criteria, Post
Office Ltd has also to take into account or consider a range of
factors relating to accessibility of service provision and the
local impact of changes to it.
3. A further key principle of the Government's
network strategy alongside the access criteria is that no country
within the UK and no group of people at the area plan level should
be significantly more adversely affected than any other. The aim
is to get the right service in the right area, to meet the access
criteria and to ensure national coverage. Post Office Ltd needs
to be able to make compulsory closures to ensure these objectives
are met. Closure decisions will not be determined by sub-postmasters'
preferences (though there will be cases where there is a strategic
fit between a closure proposal and the sub-postmaster's wishing
to leave the network). Equally, final decisions will not be a
purely commercial judgment but will need to reflect the Government's
aim of supporting a national network.
4. Having set the broad policy framework
within which the reshaping of the network is to be conducted,
Government has delegated detailed implementation of the network
change programme to Post Office Ltd. There is however significant
input from Postwatch, as provided for in its Memorandum of Understanding
with Post Office Ltd, both during the development of area plan
proposals for post office closures and other changes in service
provision and in the monitoring of local public consultation arrangements,
handling of responses and final decision processes.
NETWORK CHANGE
PROGRAMME
5. Following the announcement of the Government's
policy decisions on 17 May 2007, Post Office Ltd started to develop
detailed plans to implement and complete the network change programme
by December 2008. These detailed plans are based on a rolling
programme of area plans (based on groupings of adjacent Westminster
parliamentary constituencies) in which proposals for closures
and other changes in service provision will be developed and then
put to local public consultation for a period of six weeks. We
recognise that this is considered too short a period by some,
but the Government's conclusion was that it was important to minimise
further uncertainty for customers and sub-postmasters. The high
level of responses to area plan consultations to date suggests
that large numbers of people and organisations are not finding
the six-week consultation period unduly restrictive.
6. The early stages of the local process
involve detailed plan development discussions with Postwatch and
input from local authorities and from sub-postmasters in advance
of formal public consultation. To date, on average over 10% of
the initial area plan proposals have been changed before the plan
is published. This clear level of engagement with stakeholders
and willingness to modify initial proposals is welcome. When combined
with the subsequent six weeks of public consultation, we believe
that this enables sufficiently robust consultations to take place
at a local area level.
7. The local consultations are on how the
changes should be implemented (not on the principle of closures)
but allow for detailed consideration of local views and of local
circumstances which may not have been picked up in developing
the proposals. Final decisions on which post offices close are
taken by Post Office Ltd in light of responses to the area consultations
but there is provision for a review process to ensure that full
consideration is given to all relevant issues and information
in particularly contentious cases.
8. The review process for closure decisions
after public consultation has been agreed between Post Office
Ltd and Postwatch applies where Postwatch shows that, for an individual
branch:
— Post Office Ltd has not given due
consideration to material evidence received during the public
consultation in coming to its decision or;
— where evidence emerges from the consultation
that the proposal for the branch does not meet the Government's
policy requirements.
9. The aim of this review process is for
Post Office Ltd and Postwatch to reach an agreed way forward by
a bilateral review of individual cases with three stages available
at increasing levels of seniority of the respective Post Office
Ltd and Postwatch representatives. For very difficult cases which
remain unresolved after Stage 3, a further stage was recently
added whereby Allan Leighton, Chairman of Royal Mail Group, will
review the issues and reach the final decision. This welcome development
to Post Office Ltd's consultation review process ensures that
the most senior voice in the company will now act as final arbiter
in the case of particularly controversial and contested closure
decisions which Post Office Ltd and Postwatch cannot resolve bilaterally.
10. In July 2007, Post Office Ltd published
an indicative timetable of dates for the start of local consultations
on its network change programme proposals for each of its 46 area
plans. This timetable has subsequently been modified in part to
take account of "purdah" guidelines in respect of local
authority elections in England and Wales scheduled for 1 May 2008.
11. To date, 14 area plans have been published
and put to local public consultation. These consultations have
closed for 10 plans and final decisions announced for seven plans.
In aggregate, these area plans cover some 180 parliamentary constituencies;
have proposed over 650 closures and 120 new outreach sites. In
response to comments made during the public consultation all of
the seven area plans for which final decisions have been announced
to date have seen some closure proposals withdrawn, with a total
15 so far. Although many of the proposals have been contentious
at a local level, none has been escalated beyond the second stage
of the review process.
EMERGING ISSUES
Profitability and financial transparency
12. Concern has been expressed that, in
a number of cases, Post Office Ltd has proposed closing busy,
popular and allegedly profitable sub-post offices. It is, however,
the case that around 75% of sub-post offices are unprofitable
for Post Office Ltd because payments they make to sub-postmasters,
taken together with associated network support costs and central
overhead costs, are higher than revenues generated for the company
by those offices. Offices can therefore appear to be profitable
to sub-postmasters, particularly when any associated retail business
is also taken into account, but still be loss-making for Post
Office Ltd.
13. In order to restructure the network
in a balanced way and meet the access criteria, some busy offices
which make losses for Post Office Ltd but have alternative branches
nearby will have to be closed. Only in very exceptional circumstances
will Post Office Ltd close a post office branch which is profitable
to them, and then only if closure of that office, rather than
another, was required in order to optimise customer access. Post
Office Ltd will not pursue any closure which does not save money
for the company.
14. Running alongside such concerns has
been the issue of obtaining at local level sufficient financial
information about a branch proposed for closure to assess more
transparently the merits of the closure proposal. There are issues
of commercial confidentiality and financial confidentiality in
disclosing detailed financial information about the profitability
of an individual sub-post office, particularly without Sub-postmaster
permission. Following discussions between Government and Post
Office Ltd however, the company has agreed to information being
put on public record that the average saving for the company of
a branch closing is around £18,000 per annum and that typically
the closure of a rural office generates savings of £13,000
and an urban branch nearly £23,000. Post Office Ltd is also,
on request, prepared to share an estimate of the total individual
branch saving with the relevant Member of Parliament on a confidential
basis.
15. A further issue relating to financial
information and transparency has been the availability of cost
data in the context of expressions of interest in exploring the
possibility of local funding initiatives to maintain a post office
service provision. Post Office Ltd is putting in place a process
for responding to serious expressions of interest and where a
firm proposal for local funding emerges, Post Office Ltd will
delay physical closure of the existing branch in that locality
for a stipulated period to allow both funding and a contract to
be put in place. Two recent area plan decision booklets (for Hampshire
and Isle of Wight and Greater Glasgow, Central Scotland, Argyll
and Bute) include examples of closure decisions where implementation
of the closure will be delayed by three months to allow further
time to develop and assess the viability of a local funding proposal.
Programme flexibility
16. Concerns have also been expressed about
the circumstances where a closure proposal is withdrawn following
local public consultation and there is then an alternative closure
proposal substituted to ensure that a total of 2,500 closures
are achieved. In restructuring the network through a combination
of closures and new outreach service, Post Office Ltd is required
to reflect the principle of proportionality whereby no country
within the UK and no group of inhabitants at area plan level should
be significantly more adversely affected than any other by the
implementation of the network change programme. Therefore if,
in the light of new evidence from the local public consultation,
a closure proposal is withdrawn, Post Office Ltd may need to make
alternative proposals to ensure that these necessary checks and
balances are maintained.
17. The figure of up to 2,500 closures nationally
is not a target which Post Office Ltd must reach in all circumstances.
The key driver for Post Office Ltd is to stay within the funding
envelope for network change. If they leave more offices open,
their cost pressure will increase. However it is important to
recognise that, in addition to the funding constraints and the
proportionality principle, the future sustainability of many of
the remaining offices is closely tied to the migration of custom
from nearby offices which have closed. This is why Post Office
Ltd reserves the right to identify an alternative office for closure
where a proposed closure does not proceed in the light of responses
to the local consultation. But where an alternative closure proposal
is made, Post Office Ltd will hold a further six week local consultation
on the new proposal and there would not be more than one such
additional set of proposals in the area covered by each plan.
Such an approach is not however inevitable as Post Office Ltd
may, according to local circumstances, decide not to seek an alternative
closure or may, for example, propose an outreach service rather
than its original outright closure proposal.
OVERVIEW TO
DATE
18. With Post Office Ltd posting significant
losses for several years and losing some £3.5 million every
week last year, the position had become unsustainable. Action
was required to get the network onto a more sustainable footing
to ensure that it could continue to meet customers' needs in the
future. Tough and unpopular choices have been and continue to
be made in adopting and implementing the network change programme.
However even after the closure programme is over, Post Office
Ltd will still have a bigger network than all the banks put together.
It will be some three times bigger than the top five supermarket
chains combined. It will still have an unparalleled reach into
every corner of the UK, both urban and rural. It is also important
to bear in mind that over 80% of post offices will not change
as a result of the programme.
19. Inevitably proposals and decisions to
close post offices are unwelcome and unpopular within the communities
most directly affected. As we are now one third of the way through
the change programme there is a significant range of evidence
and information on which to form views of progress and experience
to date. There is no popular or easy way to close this number
of post offices and in the light of that our view is that, so
far, implementation of the programme is being generally handled
reasonably well within the Government's policy framework and the
specific criteria. Concerns and issues arising about or during
local public consultations are being assessed promptly and closely.
Where remedial action or some adjustment of processes or handling
procedures is appropriate, action is being taken.
20. There is clear evidence that initial
proposals for closures and other changes are significantly modified
(averaging about 10% per plan to date) in the light of input from
stakeholders and other checks before being put to local public
consultation. During the area plan consultations significant volumes
of responses are being consistently received and in reaching their
final decisions, Post Office Ltd has, in the case of all area
plans, withdrawn at least two of its closure proposals. In addition,
to date, Postwatch has not escalated any decisions for further
consideration beyond the second of the four stage review process.
Although this process is difficult, it is part of an overall strategy,
together with the development of new products and services from
Post Office Ltd, to put the network on a more sustainable basis
for the future.
21 January 2008
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