Examination of Witnesses (Questions 300-319)
BERR
5 FEBRUARY 2008
Q300 Chairman: Does it worry you
at all, as the shareholder—it is your business, effectively,
as the Minister—that you are transferring quite a lot of
business away from properties you own or on which you have the
freehold to the first floor or the basement of a retail chain
that may not be on the High Street in ten or 20 years' time.
Mr McFadden: I think that is inherent
in the franchising model. These contracts last for seven years
with WHSmith. As I say, franchising is not a new phenomenon—
Q301 Chairman: It went wrong in my
constituency, which is one of the reasons I am sensitive to this
point.
Mr McFadden: I have read your
questioning of other witnesses on this point. After this WHSmith
process I still think we will have a substantial network of flagship
Crown offices which are an important part of the network of Post
Office Ltd. Even though they will be a small minority in terms
of numbers of offices, because they do tend to be in town centres
and city centres and so on they will attract a substantial proportion
of the business carried out at the post office network as a whole.
They are absolutely crucial to the future of the network. Also,
I cannot answer this question without saying this: they have been
losing substantial amounts of money. In the last accounts I think
it was £70 million losses in the Crown network. It is quite
right that Post Office Ltd respond to those losses by trying to
put that too on a more stable footing.
Q302 Mr Clapham: Minister, we have
a network support package that is coming on of £1.7 billion.
We know that, of that, there is about £750 million that goes
towards the network subsidy package. Could you clarify how the
other part of that package will be used?
Mr McFadden: There are a few uses
we could mention. Some of it will be used to pay the compensation
payments to sub-postmasters for leaving the network. Some of it
is to fund some of the Outreach that we have talked about.
Q303 Chairman: How much on average?
Mr McFadden: I am not sure. I
will have to come back to you on the precise amount for Outreach,
but it covers the setting up of the Outreach. Some of it will
cover historic losses outside the subsidy, such as the Crown network
that we have just talked about. I suppose you can look at this
in two or three steps. It is money for the social subsidy for
the Post Office; it is money to compensate sub-postmasters leaving
the network; and the rest of it is different areas, some of which
are losses and some of which are new investments.
Q304 Mr Clapham: We are talking about
Crown post offices but what about the need to ensure they are
refurbished? Is there going to be money available within that
package for the refurbishment of Crown post offices?
Mr McFadden: I do not think there
is a specific amount in it for refurbishment of Crown post offices.
We would hope that Post Office Ltd would be able to improve the
look and feel of Crown post offices through not just the financial
support that they get from government but also the other savings
that they are endeavouring to make through their IT costs, their
cash handling costs and so on. I appreciate, again, Chairman,
that you are concentrating today on the process of the network
closure programme. That is just one part of what the Post Office
has to do to get on a more even keel. Another part is to reduce
its losses elsewhere in the business, and also, as I say, the
new business ideas.
Q305 Mr Clapham: It is important
that we are able to ensure that continuity and of course the subsidy
is going to be very important in doing that. Given the projection,
what is your view of what is likely to be required post 2011?
Mr McFadden: I do not want to
be evasive on this but I also have to be honest about my capacity
to give commitments beyond 2011. We have put in place a commitment
between now and 2011 through this Comprehensive Spending Review.
I am sure the Committee will understand that I cannot start giving
commitments to a particular level of subsidy in the next Comprehensive
Spending Review. That is something that would have to be decided
closer to that time.
Mr Clapham: We have gone through this
current closure process, we are taking 2,500 post offices out
in the current network, are you satisfied that the network is
going to be fit for purpose and it is going to continue into the
future?
Chairman: I am going to let you reflect
on that question and ask Mr Weir to ask you that towards the end
of the session, if you do not mind.
Q306 Mr Bailey: Having said we are
concentrating on the process, I just want to examine the potential
impact of the process on the future service. Between March 2007
and September 2007, the network shrunk by 101 sub post offices
even before the closure programme. I have done some very rough
and ready statistics: if we close 2,500 through the closure programme,
even on the basis of those that closed prior to that we would
be down to 11,618. There is the possibility that there will be,
if you like, further natural wear of the network between now and
2011. How many post offices do you think there will be come 2011?
What will be the level of commitment to them?
Mr McFadden: That partly relates
to the discussion we had a few minutes ago about Outreach. You
are right to say people outwith this closure programme will leave,
some sub-postmasters will die and it will be unclear what happens
to their business, or some might retire or sell up and so on.
There is a natural level of change in a network this size every
year. I would say that with the closure programme reducing the
size of the network, it makes it more viable for the network that
remains. There will always be some people who retire or leave
or sell the business and so on, but the propensity to want to
leave because they just cannot make a living at it any more should
be lessened by having taken the difficult decision to reduce the
size of the network in the first place.
Q307 Mr Bailey: You think the closure
programme could slow, if you like, the natural attrition rate
of the service that obtained before.
Mr McFadden: I think it makes
a more attractive and viable network for the sub-postmasters who
remain. There will always be a certain number of people who retire
or leave or sell up. Obviously that is going to happen, but I
think the potential for getting someone to come along to that
particular post office and take it over is increased by the fact
that the network is put on a more stable footing. Part of that
is about the closure programme, and, as I have said a few times,
part of that has to be about the Post Office developing what it
does to make more customers come through the door. That is an
essential part of this which I know we have not concentrated on
today but which I do not want to lose sight of as an integral
part of the Post Office's future. To be fair to Post Office management,
I think we have seen good innovation in terms of some of the products
and the services offered. One MP came to see me, Chairman, and
said, "I've got a great idea for the Post Office's future."
I said, "What's that?" He said, "They need to get
into selling foreign currency." When I explained to the MP
that they were the market leader in foreign currency, he just
would not believe me really. But they are. And credit to them.
On that front and the others we have heard about, around insurance
and other services, it is important that that kind of innovation
takes place.
Q308 Mr Bailey: Earlier you said,
quite reasonably, that you could not make any commitment beyond
2011, but can you assure us that this will be the final closure
programme at least until 2011?
Mr McFadden: I can certainly do
that. I do not want the Committee to get the wrong impression.
The Government have taken the view that this is not a purely commercial
service. That has been an important part of our view. I cannot
make financial commitments beyond 2011 but I doubt whether they
would take that it was a purely commercial service in the future.
I cannot put figures on this or say what level of subsidy there
might be, but I think there is a recognition that this is an important
service to the community.
Q309 Mr Bailey: Have you made an
assessment of the potential impact in the event of the Post Office
not securing the contract for POCA2 (or the son or daughter of
POCA)?
Mr McFadden: This is obviously
important to Post Office Ltd. It is important to the Federation
of Sub-Postmasters. About a month ago I spoke to their executive
committee and they were very clear that they saw this as very
important to their future. I think the Committee knows the position
with this. There will be a successor product, but legally it has
to go out to tender. I am sure the Post Office will put in a strong
bid and they are in a good place to do so, but I think you might
understand if I do not talk too much about this because this is
a bid that has to be conducted in a proper way. It has to be properly
assessed by my colleagues at the DWP and it has to be judged on
that basis. I understand that it is important to Post Office Ltd's
future. As I say, I am sure they will put in a strong bid, but
it has to be done through a tendering process and the decision
has to be made in a proper way.
Q310 Chairman: Before we move on,
we will just reconcile this. Losing the Post Office Card Account
would be disastrous to the post office network. You are very relaxed
and calm and measured—it is your admirable style—but
it would be a disaster, would it not?
Mr McFadden: It is very important
for their future.
Q311 Mr Hoyle: Would it not be fair
to say that it would be the end of the post office network if
you lost that card?
Mr McFadden: I do not think I
would go that far, that it would be the end of the post office
network. I understand that it is important to their future, I
understand they are putting a great deal of effort into their
bid. As I say, they are in a strong position, but I do hope the
Committee understands that this has to be done in a legal and
proper way and that maybe I should not talk too much lest I jeopardise
anyone's chances of securing the bid.
Mr Hoyle: Just make sure you get the
account!
Q312 Mr Bailey: Concerning the national
access criteria, we understand that only 7,500 post offices are
needed to meet that. Those we have on the projected numbers, whether
it is 12,000 or 11,500, are over and above those criteria. These
access criteria are only relevant in the event of the network
shrinking, so how useful are they?
Mr McFadden: I think they are
an important minimum, as I said when we talked about this earlier
on in response to a question from, I think, Roger Berry. They
are a minimum. The Government's commitment, through subsidy, allows
the post office network to operate a significantly larger network
than the access criteria require. That is because of the decision
we made to put that level of subsidy in. I think that was the
right decision. We did it for some of the reasons that people
have reflected on around the room, because we recognised the important
role that the Post Office plays in local communities. We have
funded the post office network to a level where we can have a
significantly larger network than would be required by the access
criteria, but I do no think that means the access criteria are
not useful. I have referred, for example, to the 38 postcodes
which did not meet one part of the access criteria and that problem
has been addressed. We have a use for certainly the most remote
and rural parts of the community, but I also think it is important
that we can get a clear picture of what kind of minimum access
we think is right, to give people some strategic view of the network
which takes into account urban areas, rural areas, and really
makes sure there is a proper footprint for the network across
the country, even though we are well above it.
Mr Weir: Minister, you said earlier that
the purpose of this programme was to create a stable network.
We would all agree, I think, that that is a good thing, but you
are talking about a situation where 12,500 will exist after this.
You have conceded there is the possibility of slippage outwith
this programme after it is finished and the minimum is clearly
7,500. What would be the position if a substantial number of postmasters,
particularly rural postmasters, decided after this programme was
over that they could no long continue and wished to leave the
network and give up the business? Would you see that as constituting
still a stable network?
Chairman: That is not a hypothetical
question, because there is quite a loss of morale in the network
and there is a real chance that they are holding out for the compensation
at present. There could be a rash of unplanned closures.
Q313 Mr Weir: Following on from that,
there is also the question of having a network that covers the
whole country for the universal service obligation. That is something
the union are deeply concerned with. There is a big concern in
rural Scotland that, if a lot of these sub post offices go, it
will impact upon mail deliveries and the universal service obligation
and people being able to post their mail.
Mr McFadden: On the universal
service obligation, after the closure programme we will be well
above the minimums required for access to mailing points for the
universal service obligation. It is an obligation the Government
take very seriously. It is enshrined both in European law and
in our own domestic law. You asked about people leaving after
the closure programme has been completed. As I said, by reducing
the size of the network it will be more viable for those sub-postmasters
who remain in the network. As I said to Mr Bailey, a certain number
of people will retire every year or choose to leave but, because
the network is more viable after the closure programme, I think
it will be easier for Post Office Ltd to find someone to take
up that opportunity where that happens. On an ongoing basis, the
network should be in a healthier position to replace sub-postmasters
who leave than it would be at the moment, where you have a network
which even the Federation accepts is too large for the amount
of business that currently comes through the doors and, therefore,
that is why they have reluctantly, I accept, accepted the need
for this closure programme.
Mr Weir: That does not really address
the point the Chairman made himself about the morale of many sub-postmasters.
George Thompson of the Federation told us very honestly last week
that he was getting more phone calls from people who were not
getting a compensated closure than those who were getting it and
did not want it. That does suggest there is a potential problem
there with people who say, "I'm not getting compensated closure
but I'm not particularly viable, I can't go on like this"
and an implosion in some areas. That may be wrong but there is
the suggestion of a slight problem there.
Q314 Chairman: The Chairman is getting
into the very bad habit of asking two questions at the same time
but I want to reinforce Mr Weir's point with a quote from your
response to the 12-week consultation process. You said, "It
is not possible to maintain a static network as new premises or
replacement sub-postmasters cannot always be found. But the access
criteria will replace the `no avoidable closure' policy and ensure
a national network of post offices is maintained." The access
criteria, which delivers 7,500 or 11,500, takes priority, so Mr
Weir's question is very pertinent.
Mr McFadden: The access criteria,
as I have said a few times, are a minimum.
Q315 Chairman: But it replaces the
`no avoidable closure' policy.
Mr McFadden: The post offices
have been funded through the subsidy that we have given and have
committed to fund the much larger network than the access criteria
minimum would state. The response is quite right to say there
will be some people who leave. I have said that several times
today. On morale and people who want to leave, I read the evidence
that George Thompson gave you last week and he has said the same
thing directly to me: the network should be in a better position
once this is over for those sub-postmasters. But in the debates
in the House, I am continually being told that all these sub post
offices that are closing are very profitable, that Members cannot
see why there should be these closures in their constituencies.
That does not quite fit with the questions being put which suggest
this is a business which has been suffering from a declining custom,
has been suffering from increased losses. That is the Government's
case for a managed process of reduction in the size of the network,
which compensates the hard working sub-postmasters who have served
the local community so well.
Q316 Mr Weir: You have mentioned
again the accepted postcode areas and the fact that there would
be no compulsory closures. You described them as in very remote
areas. I have two in my constituency which are rural but hardly
very remote. The existence of these, it seems to me, is determinant
on the existence of a sub-post office and, given that these are
areas that do not meet national criteria as laid down, I am a
bit worried that it is a slightly precarious existence. Do you
think there is at least an argument for the central post office
to take more of an interest in making sure these continue should
there be a danger to any of these sub-postmasters that are running
them?
Mr McFadden: We said in an earlier
response document, from which the Chairman quoted a few minutes
ago, that we did want to address this issue, and I have impressed
upon Post Office Ltd their responsibility for ensuring the requisite
level of service in those areas. Quite how they do that is obviously
an issue for them but I think that is an important responsibility.
Although the overall size of the network is reducing it is important
that it has a coherent national reach in both rural and urban
areas. Let us put this in some kind of context: even after this
closure programme is over, this will still be a network which
is larger than all the banks put together and, I think, more than
three times the size of the top four or five supermarket chains
put together. We will still have a very substantial and large
post office network which will be a real asset to the country.
Q317 Mr Weir: I appreciate what you
are saying but I do remain concerned. In answer to an earlier
question you said the Post Office would do their "level best"
to maintain these services. Given that they will not meet the
new national access criteria, do you not think that the Post Office
centrally has more of an obligation to ensure they continue? I
appreciate the structure of the current post office with the self-employed
postmaster makes it difficult, but if you are going to have reach
through all parts of the country there perhaps has to be more
central involvement in these Outreach services than merely leaving
it to a postmaster who may decide to give up.
Mr McFadden: To some extent we
are getting into hypotheticals and people leaving in these circumstances.
You are right, the model is a private business or semi private
business of a sub-postmaster. We now have Outreach as an additional
string to the bow. In a situation where somewhere fell below the
access criteria, the Post Office would have to look at these options:
Can we get another sub-postmaster to do this? If not, can we provide
an Outreach service through the core and Outreach situation? What
can we do to provide a service in those circumstances? I think
there is a responsibility to do that. Beyond that, I am not sure
there is much more I can say about that today.
Ms Hannat: In terms of those particular
38 postal districts, the Post Office are required as part of the
network change programme to bring up provision in those areas
so it meets the access requirements. If a sub-postmaster leaves
and that will mean the Post Office is going to dip below its access
requirements, they would be required to ensure that provision
was replaced.
Q318 Mr Weir: I understand that,
but, if we cannot find a local sub-postmaster willing to provide
these Outreach services, is there an obligation on the Post Office
nationally to step in and provide a service in these areas, and
to what standard would that service be?
Ms Hannat: Where it is required
to meet the access criteria, yes there is an obligation on the
Post Office to provide the service.
Q319 Chairman: Rather like a retained
dentist in the NHS. I see a nodding head from Mr Cook behind you,
so I think we will take that as an answer to the question. Perhaps
I could ask you one question of interest to Mr Bailey and myself,
and also to Julie Kirkbride if she were here. We are getting a
confusing message about how many post offices have closed so far
in the proposals for closure and whether they are meeting the
18% target overall or not. If they are meeting the 18% target
overall, give or take, it does not matter, but if, as we have
heard, it might be about 15%, there is a backlog building up.
As we come last in the closure process, we do seek a reassurance
that we will not have to make up the backlog by having a higher
level of closures in our constituencies than people who are lucky
enough to come early on in the process.
Mr McFadden: As you know, Chairman,
I will fall within the same area plan as you and Mr Bailey.
| 
