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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 292-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE BUSINESS, ENTERPRISE & REGULATORY REFORM COMMITTEE
Tuesday 5 February 2008 MR BILLY HAYES and MR ANDY FUREY MR ALAN COOK CBE and MS PAULA VENNELLS MR PAT McFADDEN MP, MS RUTH HANNAT and MR MIKE WHITEHEAD Evidence heard in Public Questions 140 - 323
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Business, Enterprise & Regulatory Reform Committee on Tuesday 5 February 2008 Members present Peter Luff, in the Chair Mr Adrian Bailey Roger Berry Mr Michael Clapham Mr Lindsay Hoyle Anne Moffat Mr Mike Weir Mr Anthony Wright ________________ Memorandum submitted by Communication Workers Union
Examination of Witnesses
Witnesses: Mr Billy Hayes, General Secretary, and Mr Andy Furey, Assistant Secretary, Communication Workers Union, gave evidence. Q140 Chairman: Gentlemen, thank you very much indeed for coming in today. I am glad that, contrary to my earlier indications, we are able to squeeze you into the programme. We are trying to do this as rapidly as possible because we want to be able, if there are things to influence, to influence the process and not come in afterwards when everything is done and dusted. We are adding you in as very valuable witnesses this morning. We are grateful to you for coming, for the constructive relationship we always enjoy with the CWU and for your excellent written evidence, thank you very much indeed. Please introduce yourselves. Mr Hayes: My name is Billy Hayes. Andy Furey is the national officer responsible for post office counters. First of all, Chairman, thank you for this opportunity. It is good to see that MPs can reflect on things, which has caught us a little bit unawares in terms of this opportunity to give evidence, but we understand that it is a tight timeframe. We have not had the time to give as much evidence as we would have liked. Obviously the whole question of post office closures is a big issue and it is a big political issue and I think MPs should reflect on that. It is the whole of the network that concerns us, not just where CWU members are affected. Q141 Chairman: I was going to ask you about that. How does this issue concern you, both franchising and network closures? Mr Hayes: It reduces the universal service. What people often forget is that a lot of these sub-post offices will sometimes have very small delivery offices at the back. It reduces the footprint of the network and that is of concern to us. Any network that is reduced obviously affects the whole of the service. The fact that there is a reduction in the universal service and provision is a big part of our concern. We think it is a funny consultation process that says there are going to be 2,500 post office counters closed at the beginning and at the end of the local consultation process says there are going to be 2,500 post offices closed. We do not think that the consultation process is as good as we would like. Q142 Chairman: We were told by the National Federation last week that they accepted, reluctantly, that these cuts were needed to sustain the viability of the overall business. Do you agree it is necessary to make cost savings in the system, and is this the right way to do it? Mr Hayes: In terms of the National Federation of Sub-postmasters and Mistresses, they are coming at it from a different perspective. In a minute we will touch on the whole question of how that is being dealt with in terms of the money some of their members stand to gain from a closure. They are looking at their own individual circumstances and their own individual sub-post offices, so they are coming at it from a different perspective. We are coming at it from the universal service aspect of it. There were 21,000 post office counters a few years ago and now there are 12,000. We are concerned that there is being a continuing running down of the network. Q143 Chairman: You do not accept there is a need to make cost savings at all? Mr Hayes: We are not saying that. We need to look at what is causing some of those problems in terms of what the Government is doing. Obviously we have to deal with cost savings year-on-year. The amount of subsidy that the networks get is £150 million a year until 2011. That is a pittance compared with what other institutions are currently getting. No one is suggesting that Post Office Counters be given £25 billion or £50 billion, as other institutions seem to be getting at the moment. Q144 Chairman: You mean Northern Rock? Mr Hayes: You said it! Q145 Mr Bailey: The Government has said that a network of around about 12,000 is adequate. Do you think that is so? Mr Furey: No, we do not. Our view is that the network as it currently stands is sustainable. There should be investment in that network. Only a few years ago there was a network reinvention programme by Post Office Limited which closed nearly another 3,000. Our concern is, once this 2,500 goes, what is going to happen next? The view is that the current plans could leave a network of between 6,000 and 7,000. In a previous Select Committee Adam Crozier said that the optimum for the network to be profitable is about 4,500. It is a question of this being never ending and it is a managed decline. If you are offering 28 months-worth of compensation, it is quite lucrative for some sub-postmasters and mistresses that are maybe relatively elderly to take that money and go. What it does not do is it does not take account of the public and the service to the public. Q146 Mr Wright: In your memorandum you say that "no post office network in the world makes a profit on its network operations". What information do you have as far as European countries are concerned as to what the state payment would be in those areas, if there is any? Mr Hayes: In terms of the general problem, Elmar Toime, the Deputy Chair of Royal Mail, said to me - and he had experience of post offices in New Zealand where it was in a liberalised environment - that there is no postal network in the world that is sustainable without some kind of Government subvention. Our experience at a European level is that there are similar problems in terms of post office networks across Europe. I know Ireland has similar problems in terms of sustaining the post office network. I think the plain fact is, if you look across the whole of the world, Government has to play its part in sustaining the post office network. In terms of the exact amounts of money, I do not have that information to hand. We could probably provide that to the Committee. Mr Furey: La Poste and Deutsche Post are very, very successful because there has been investment. What happened with the British Post Office is that Girobank was supposed to be the people's bank and it was sold to Alliance & Leicester for £1. The reality is that the Post Office should be the people's bank. That is what other European nations have done with their post offices and with big success. Q147 Mr Wright: What you are saying is, rather than direct state intervention, it was the creation of the banking system within the post office network that has given it that support, but we got rid of our one and that means it has lost one element of business which could have created that level of subsidy. So it was not a direct subsidy as such, it is a subsidy based on good business practice. Mr Furey: Absolutely. Q148 Mr Wright: Could you provide us with other figures in terms of the subsidies, either indirect intervention in terms of providing them with services or perhaps other areas? Mr Furey: Yes. Q149 Chairman: Have you seen the speculation in the media that the French postal bank is going to buy Société Générale? That is the bank that took the hit from the rogue trader. The French postal bank is being helped by the French state to buy Société Générale to get out of its difficulties. Mr Hayes: I have not seen that, no. Chairman: It might be something worth watching. Q150 Mr Clapham: I want to turn to franchising and accessibility as well as the continuity of service standards. In your memorandum you refer to franchising services to WH Smith and you are somewhat critical of that because you say that it has worsened access and the service. When we had Postwatch before us last week they took a different view. Have you any survey evidence that the services has worsened? Mr Furey: I think it is easy to identify that the service has worsened because effectively Post Office Limited in cahoots with WH Smith have avoided TUPE. The reality is that in the new WH Smith post offices the staff have no experience and no expertise and they have not had years of serving the public and the community like my members have in the Crown post offices. If you look at any Crown post office that is being franchised, there will be hundreds of years of combined public service that cannot be replicated overnight by people working in the WH Smith on significantly inferior wages. Q151 Mr Clapham: Could you tell us the kind of training that people get in the Crown post offices? Mr Furey: Crown post office staff get two weeks of intensive training away from the counter and then they have training directly on the counter in a live environment where they are overseen. They are constantly monitored, they have trial reports and performance development reviews. They are trained to a high standard. I suspect that the WH Smith staff will be trained to a similar standard, but the reality is that you cannot replace overnight years of experience and expertise. My members want to serve the public; that is why they joined the Post Office. What is happening is it is an inferior, poor replacement of an excellent service. Q152 Mr Clapham: In one sense there is almost a kind of community culture in the way in which the post office staff approach matters and are trained whereas it is purely the business culture of some of the franchising, is it, that causes you some concern? Mr Furey: WH Smith might beg to differ. Our view is that WH Smith wants the footfall from the post office into their shops so that money can be spent on their products and goods. Their primary concern is to sell newspapers and soft drinks. The primary concern of my members working in post offices is to provide a service to the public. They know the public, they know them by name and they meet them every single week of every single year. There is a relationship that has been built up there. That certainly will not be replicated in WH Smith. Q153 Mr Clapham: Within that service provision that has been built up, that community orientation, there is consideration given to disabled people and access. Is there any evidence that some of the franchising is given to people that do not have access in their properties for the disabled? Mr Furey: Firstly, the Crown post offices all have disabled access. Most of them are on the ground level. Where they are not on ground level there are resistance sand built ramps. There are also counters for people in wheelchairs, et cetera. I think post offices overall do a good job in providing facilities for the disabled to get their postal services. In WH Smith I think they are passing all the necessary legal requirements, but I think the concern that is being expressed by the community at large is that many of the post offices are being put either in the basement where you have to get a lift down to get the postal services or on the first floor where you might have to get a lift or escalators up. I have seen at first-hand evidence of that where people less sure on their feet might struggle in those circumstances. They are meeting the minimum requirements of health and safety legislation with accessibility, but the minimum is the minimum, whereas in post offices I think it is significantly better. Q154 Chairman: Whose fault was it that lengths of queues were so appallingly long in Crown post offices? They have got better. Even now in franchised offices queuing lengths and times are shorter than in Crown offices. That is the one reason I do not use the Crown office very much, the queues have been so long. Whose fault was that, your members or the management? Mr Furey: One of the problems is that the Regulator and Post Office Limited have no agreements to monitor or measure queue lengths in Crown offices. PostCom effectively agreed to do away with any monitoring and service obligation in terms of length of queues and time spent in queues and that is a regret. I think PostCom made a mistake there. I think it suited Post Office Limited for that to stop. Our view is that there have been cost-efficiency savings ongoing in Post Office Limited to make the Crowns more profitable or turn them back into profit. That has put pressure on the remaining staff because there have been job cuts. The reality is the public love the Crown post offices because they know they get excellent service in terms of the quality and the expertise and the accuracy and the information that is needed to be imparted to customers to make choices on what they are doing with mail services, et cetera. Q155 Chairman: You have seen the Postwatch survey. It endorses what you say about disabled access. Seven of the eight post offices where wheelchair access was deemed impossible were franchised offices. There was one Crown office that was deemed impossible too. The queue tends to be twice as long in Crown offices than in franchised offices and time spent queuing is not twice as long as Crown offices but still considerably longer than in franchised offices. The average wait in a franchised office is 3.7 minutes and in a Crown office it is 6 minutes. People are getting a better service in franchised offices. Mr Furey: When the Crown is franchised less customers migrate to the franchised office than to the Crown office. Effectively their customers look for alternatives because they are not satisfied with having to go into a WH Smith or another franchise of that nature. The customers do not move lock, stock and barrel into the franchised office. I suspect that is one of the issues. Crown offices are popular. Nobody likes to queue for a long time, but customers know they get an excellent service in terms of the quality of that service they are being provided with. Q156 Anne Moffat: It seems to me from your evidence that POL have refused to inform staff about their right to transfer under TUPE and have only given them the option of a simple internal transfer or redundancy. Could you outline the legal position of TUPE and tell us what information has been given to employees? Mr Furey: The CWU has submitted a tribunal claim, which is due to be heard in May for four days, for Post Office Limited's failure to consult with the trade union in relation to TUPE. Post Office Limited's position at the moment is that they are contesting that claim. We fully expect to have to go through with that claim. We are optimistic and confident of winning that claim because they have failed to consult. The reality is that Post Office Limited has managed to find significant sums of money to avoid their TUPE responsibilities. There was a £1,000 continuity payment designed specifically to encourage people not to put their hands up and say, "I want to move with the work," and retain their terms and conditions. There is also a compromise agreement being put to them stating that they cannot get redundancy unless they sign the compromise agreement and the compromise agreement means they cannot then submit a claim for TUPE thereafter. The Post Office has been very clever in finding ways and means of avoiding their TUPE responsibility, but most of this has come from Government money. The £1.7 billion subsidy that has been provided to 2011 has not only helped to pay for the redundancies of the sub-postmasters, it has also helped to pay for the redundancies of 1,300 of my members that work in the Crown post offices that are being franchised. We say this is an abuse of public funds. What should have happened is that, if there was a commercial agreement to move post offices, the staff should have moved with their jobs and retained their terms and conditions and then the excellent service that the public got would have continued. The reality is that WH Smith did not want my members and they did not want my members' terms and conditions because they want to pay barely above the minimum wage. Whilst my members are not paid a king's ransom, they certainly have trade union bargained pay rates of about £10 an hour. WH Smith offices are paying between the minimum wage and £6. That tells a story. Q157 Anne Moffat: Could you tell me what proper consultation there should have been between the employer and the unions and the employer and the employees? Mr Furey: They did not tell the employees that they had an entitlement through TUPE. All they were offered was redundancy or relocation to another Crown post office where somebody would be offered redundancy in terms of 'bumping' to make way for them. They have totally avoided giving anybody the opportunity to move with the work. In terms of consultation with CWU, I wrote to Alan Cook, the Managing Director, seeking consultation in relation to the franchising. He responded by saying to me that once the decision was announced to WH Smith he would be in touch with us. He failed to do so and that is the basis of our claim to the tribunal. Chairman: We have to be rather careful about mentioning tribunals because it is sub judice. You might prejudice your own action so be a bit careful. Q158 Anne Moffat: In terms of the £1,000 payment, is there anything in writing to prove that it is £1,000 to shut people up? Mr Furey: Initially it was billed as keeping up sales and service so that people that were not leaving on redundancy would keep up their game in terms of continuing to sell to people and keep the service provisions going. Regrettably, Post Office Limited sought last year, when we were in dispute with them, to badge it as a gagging order in that staff were told that if anybody did take strike action in a legal, legitimate ballot then they would lose that £1,000. Q159 Anne Moffat: How were they told that, in writing? Mr Furey: In writing and in communications. Common sense prevailed and we were able to reach an agreement at the end of the dispute that anybody that had taken strike action would not have forfeited the £1,000, but the threat was there throughout the whole of the dispute and it certainly discouraged some people from taking strike action because they were fearful of losing that £1,000. Q160 Mr Wright: In terms of the numbers of staff that are transferring to the WH Smith branches, how many are taking redundancy? Have you any figures on that? I spoke to one person in my branch who said that they were not moving across to WH Smith, they were taking the redundancy money, but they would not go into the details. Mr Furey: To the best of my knowledge nobody is transferring on TUPE to WH Smith. There are approximately 1,500 employees in the Post Office and that includes managers, cleaners and the counter staff. Each of the counter staff and the cleaners - this is about 1,300 of our members - has been offered redundancy on enhanced terms that is paid for from the Government's subsidy of £1.7 billion. Those enhanced terms are better than any that is agreed with the CWU. Those people that do not wish to take redundancy and wish to remain in employment are offered alternative jobs commensurate with their skills in other post offices and in order to make room for them effectively there is "bumping", ie people are offered redundancy in the receiving office to make room for those who want to remain in employment. The net result is there will be 1,300 less CWU members working in Crown post offices, either in the ones that are TUPE franchised or in ones where people are moving into. Q161 Mr Wright: You are saying WH Smith have got the market advantage in terms of being able to have a clean sweep and start from scratch with every single employee, are you not? Mr Furey: Yes. Q162 Roger Berry: Some Crown post offices have been franchised to the Co-op. Is the experience there any different either in terms of service provided, transfer arrangements and so on, or are your criticisms of WH Smith equally applicable to those transferring to the Co-op? Mr Furey: They are. What has happened pre-Alan Cook's reign within Post Office Limited is that franchising was done on an ongoing piecemeal basis with small companies, it was done over a period of time. What Alan Cook has done is he has done one big commercial deal with 70 Crowns to be franchised over a period of just under a year. That was different from any other franchise in that franchising was effectively done in dribs and drabs, ones and twos were announced on a rolling basis and nobody knew what their future was because they did not know whether the sword of Damocles was hanging over them or not. The difference on this occasion was it was one commercial agreement for 70. There were already six Crowns franchised to WH Smith and so at the end of it there would be 76. In essence, in terms of TUPE and terms and conditions, there is no difference. Q163 Roger Berry: What happens if a franchised office closes? What has been your experience of this if there have been any so far? Mr Furey: Thankfully it has not happened too often, but where it does happen the community loses a service altogether. One of our fears from the CWU's perspective is that where you have a Crown post office, it is owned by the Government ultimately and that provides a service that is guaranteed. When it is put into private hands, if that private company was to go bust, then effectively the post office would close and would not be replaced. That is a big concern. In relation to one of the earlier questions about Europe, France actually has the equivalent of more Crowns than private concerns. It is a complete reversal of the model that applies in the UK where the sub-post offices make up about 12,500 versus 400 plus Crowns. In France it is the complete reverse of that. That way, by being publicly owned, it preserves a service and gives a guarantee. If WH Smith was to go into liquidation and go bust then the post offices would be closed. Q164 Roger Berry: Could you give me a rough idea of what proportion of franchised offices have been closed? Secondly, in the cases where that has happened, does Post Office Limited not consider another franchisee nearby to carry on providing the service, or am I being totally naive? Mr Furey: The franchising programme has been going on since 1988. There were 1,500 Crowns then. So something like 1,000 Crowns have been franchised in the last 20 years. Some of those have been franchised and then subsequently closed because the sub-postmaster has then taken a package to go. In the previous network reinvention programme there were illustrations of that happening. There have also been companies effectively not being able to trade any longer because of financial problems. I do not think you are being naive. Where possible, to be fair to Post Office Limited, they will try to find alternative premises and another company to run the post office, but this is a wing and a prayer. Whether that can happen or not is debatable. There are no guarantees. Q165 Chairman: In my own constituency we did have a franchise which had to close, but they are under a commercial obligation - it was the Co-op - to continue to meet their contractual obligation to provide the postal services. They transferred it back to the old Crown office again which was still empty. In that case the company had not gone bust, but it had the financial resources to enable the service it was contracted to provide to be provided. Have you got much evidence of that happening? Could there be some sort of funding arrangement with WH Smith whereby if they did want to close offices there is an obligation to open up another one somewhere else? Mr Furey: We do not get to see the contracts because of commercial confidentiality. If I were to answer your question I would be surmising as to what I thought would happen. In previous franchising programmes the franchisee has been given a contract for five or seven years. If you take Wimbledon where our head post office is, the Crown post office in Wimbledon was franchised into a department store called "Elys". At the end of their seven-year contract they decided not to carry on operating the post office. For a long time, once the post office closed in Wimbledon, there was not a decent service. Post Office Limited eventually found another private person to run a post office and another sub-post office opened up not far from where the franchise was, but in the intervening period, something like two years, the service to the public in Wimbledon was atrocious because the franchisee had made a commercial decision that they wanted the space in their department store for selling their products rather than people queuing for postal services. It is very much a hit and miss affair. As to what the terms of the contract are with WH Smith, I would be delighted to see that! Q166 Chairman: We cannot separate these two themes. We will be talking mainly about sub-post office closures with our future witnesses but clearly there is a read across. Most of the sub-post offices in Worcester are delighted that the Crown offices are being franchised because they reckon there will be a large transfer of business away from the Crown offices towards the sub-offices. There is also the concern that the post office closure process is not taking account of the transfers of Crown offices to franchised offices, because often these are geographical moves of some significance as well that can impact on the viability of sub-post offices in the area. Have you any comments to make on the interaction between the franchising process and the sub-post office closure process? Mr Furey: We are very concerned that the franchising process has been a negotiation between WH Smith and the post office. I suspect WH Smith have got what they want from that negotiation. A good illustration of that is in Coventry. When the main post office in Hertford Street closes there will not be a Crown office in the eleventh biggest city in the UK. That is a big concern. The reality is that the franchise that is moving into WH Smith is moving closer towards where another franchised post office is and that franchisee is not happy because they are going to be competing for the same custom and trade. You can actually see the sign for the other post office outside the WH Smith indicating where you can get post office services. There is a lack of planning, there is no doubt about it. There are large parts of the United Kingdom where clearly there should be Crown post offices and there are not. Whilst the sub-postmasters are private businessmen and women, it is about being able to do postal services and post letters and recorded deliveries and registers and it is about undermining the whole universal ethos of the service, but also our postmen and women collect and deliver mail items to those post offices. It is an attack on the infrastructure of the whole of the Royal Mail group to close sub-post offices. I do not think there has been much analysis done of the interaction between a franchised Crown post office and the sub-post offices that are closing. Mr Hayes: When we had Sunday collections, which were taken out unilaterally by the business, the collection pillar boxes tended to be the sub-post offices. They tend to be where the phone boxes are because we were the GPO many, many years ago. It tends to be a focal point for the community and not just rural communities but urban communities. On a lot of council estates the only thing that is keeping the shopping arcade going is the sub-post office or the Crown office. There is a synergy there. Q167 Mr Hoyle: Can I just take you back over a couple of things that we have discussed? Something we talked about, and the Chairman was quite adamant about, was the queuing problem. Do you feel that the queues are being deliberately created? What I have heard from one Crown post office is that the queues are extended in order that you can be picked up while you are in the queue to offer to sell you services and if you go and listen to the services that are on offer you then only wait one minute in a queue. Priority is given to those people who may talk about insurance at the expense of everybody else who may only be queuing for a stamp. Mr Hayes: I think that gets in the way of the transaction. There is a point about buying another product whilst you are there. Mr Furey: The culture that Post Office Limited is trying to bring in is one of sales and trying to sell financial products. Three or four years ago that would have been fairly alien to post office counter staff in that they saw their primary role as serving the public. There has been a change there. They are encouraged to engage in customer conversations effectively to sell travel insurance, home insurance, car insurance, et cetera. There has been a move to put out on the public side of the counter what are described as "meeters and greeters" so that they can then engage in this sales culture. If somebody walks in with a car tax renewal they are an ideal person to identify for car insurance. The CWU has been supportive of trying to increase revenue via sales because we want the Crown offices to be turning back into profit so they are not at threat of further franchising. It is a bit of a double-edged sword for us because we want new revenue coming in to protect the jobs in the Crown offices but at the same time, the culture of having an interaction with the public about selling does take longer and undoubtedly will have a detrimental effect on the length of the queues and that is a worry for us. Q168 Mr Hoyle: I think that is right. You have Granny Smith who is coming in for her pension, but the person behind her is there to renew their car tax and is taken straight out of the queue and offered some services. They are served within one minute and Granny Smith has to stand on her feet for the next five minutes because she is not worthy of being offered any of those services. I think there is some frustration creeping in. Do you share the concern that Crown post offices are being closed even if they are valuable and it is about selling off the silverware? It is not really a justification about anything else but the fact that they can get a big cash receipt by moving it into a WH Smith. It is a double whammy. First of all, they can save on the TUPE transfer and, secondly, they have received a big lump of money by selling off the Crown post office. Mr Hayes: The Post Office has got one of the biggest real estate portfolios in the UK and they tend to be in prime locations. Q169 Chairman: Mr Hayes and Mr Furey, we have come to the end of our allotted time. Is there anything you would like to add? Mr Hayes: We have also got the Royal Mail review coming up. There has been some suggestion in some quarters about separating Post Office Counters from Royal Mail. We would be opposed to that. We see the synergy of the network in the universal service we provide. We would be opposed to any separation of Post Office Counters from the Royal Mail Group. Chairman: It is very likely, although we are not committing to this, the Committee will look at these issues later in the year. Thank you very much.
Memoranda submitted by Post Office Ltd Examination of Witnesses
Witnesses: Mr Alan Cook CBE, Managing Director, and Ms Paula Vennells, Network Director, Post Office Ltd, gave evidence. Q170 Chairman: Can I begin, as I always do, by asking you to introduce yourselves? Mr Cook: Alan Cook, Managing Director of Post Office Limited. Ms Vennells: Paula Vennells, Network Director. Q171 Chairman: Thank you for your written evidence and for coming before us. This is a slightly frustrating process today because we are trying to do this expeditiously because of the timetable in which you yourselves are pursuing your quota programme, which means we will not be able to pursue at length some of the issues we would have liked to have pursued. We will have to produce the recommendations, if there are any, very quickly so they can influence the process and not just be some kind of footnote in history. We can influence the end of the process if that is necessary. We are not intending to ask you many questions on the franchising process and Crown offices. I ought to give you a chance to respond, if you want to, either now or at the end of this evidence session, to any of the comments you have heard from the Communication Workers Union about the franchising process that you think particularly deserve note. It is unlikely our earlier report produced anything significant on the franchising process. There might be something later on. Alternatively, you can put some thoughts in writing to us to respond to what was said by the Union if you would find that helpful. How would you like to take that forward, Mr Cook? Mr Cook: I think probably perhaps it would be best to leave the franchising to the end. You did suggest that there would be an opportunity for me to say a few opening remarks, which I would like to do, to set the context for the network changing programme as a whole because I think that is what we are here to talk about. I felt greatly motivated to make some comments about some of the remarks that were made by the Union, but let us focus initially on the prime reason for the session. I have been with the Post Office now for two years and we are nearing the end of the second year of our five-year recovery plan. In recent years, prior to my joining, the losses that POL had experienced started to escalate dramatically and really government services have been increasingly withdrawn resulting in reduced incomes at post offices, the TV licences business was taken away, the driving road tax business went to the Internet and the benefits business is being paid directly into bank accounts. Government income has dropped by a little over £400 million per annum since this process began, over the last three or four years. We are expecting to see a further drop of £50 million-worth of income next year in comparison to this year and that is even while the card account is still with us, that is just a further decline in the existing business. Nevertheless, Government, not unreasonably, wants POL to act commercially and it wants it to be profitable and that is what I was hired to bring about. The one exception to their profitability point is the social network payment where they have agreed to make a payment of £150 million per annum for the next five years, through to 2011, to maintain the network size at around 11,500, as you heard in the evidence you received last week. So internally we are now talking about our aspiration of becoming a commercial business but with a social purpose. We have to behave and act commercially, but we have to recognise there is a strong social dimension to the business and that is what the Government is putting its share of the cash in to support. We have produced a five-year plan and on the back of that plan the Government supplied the funding of £1.7 billion, and I guess we will get into questions of what that is comprised of during this session. With losses at the current level and more to come it is clear that we need a dramatic turnaround. In my background in business dramatic turnarounds are normally achieved in one of two ways: they are either as a result of increasing revenue, ie selling your way out of the problem, or they are as a result of reducing costs and taking a tough line on managing costs down. The unusual thing about this challenge is it needs both. Typically you find the management team reflects the nature of the challenge. So if it is a revenue challenge then you will find it is a very entrepreneurial top team. If it is a cost reduction challenge it will be a hard nosed, tough minded team. Here we have to do both and that is a significant challenge. I have experienced both in my career but I have not experienced them both at the same time and that is the challenge, how do we get the mix between becoming entrepreneurial, commercially focused and aiming for profitability whilst still accepting that the cost base that this business generates is far too great? Q172 Chairman: This is quite a long statement, Mr Cook, and it is not really germane to what we are discussing today. Mr Cook: It is incredibly germane. Q173 Chairman: We are talking about the closure process today, not the future of the post office network. I would like you to draw your remarks to a conclusion, please. Mr Cook: Let me just focus on the cost portion. The revenue is important and that is where the sales come from, but we are seeking to take out £270 million of costs over the five years, that is about 25% of the total income. We know where £220 million of that cost is going to come from and £45 million of that £220 million is coming from this closure programme. That £45 million comes from the Government's decision that we should close 2,500 post offices. Inevitably the programme will attract a lot of publicity. We are here today to demonstrate our personal commitment and the business's personal commitment to finding a way of implementing these changes in a sensitive, caring and collaborative way. I think you received evidence last week to that effect. No doubt you will have your own questions to help determine and form your own opinions. Q174 Chairman: That is helpful. We do understand you are trying to build new business in the Post Office and we have a lot of respect for what you are doing. That is not something for today's session. We understand that you have a target of 2,500 offices to close. That has been set by the Government. We will be asking the minister about that later. Can you put on record what flexibility you have around this 2,500 number? Mr Cook: 2,500 is not an end in its own right. There certainly would not be more than 2,500 closures. We have been asked to develop a network size and implement up to 2,500 closures to produce a sustainable network of 11,500 branches against a context of a £150 million social network payment. That does not mean we have to shut exactly 2,500, but it would need to be pretty close to it. Q175 Chairman: What is the lowest figure for closures that is sustainable in your commitment to the Government? Mr Cook: It depends on exactly which post offices are closed and how much cost saving. We are trying to save £45 million out of this programme. If we save less than £45 million we would have to make those savings somewhere else. The number of closures is going to be close to 2, 500. It will certainly not be less than 2,400. Q176 Chairman: Thank you. We shall go into profitability issues at some length later. Can you just explain to me how closing individual offices impacts on your essential costs because I am very worried that all the branches that remain will be less profitable using the definition you are using? There could be a further round of closures flowing on from the logic that you are applying for this round of closures. Mr Cook: The £45 million saving from the closures really breaks down into two categories. About £29 of that £45 comes from direct Post Office costs, basically sub-postmaster pay, fixed pay and the costs of running the branches themselves. There is a further £16 million-worth of cost that we need to take out of the Post Office infrastructure that supports those post offices. If we do not take that £16 million out then your worry would be true. Providing we take that £16 out then the unit cost of running all the other branches would not go up. That £16 million really falls into two categories: £9 million of it is relatively straightforward to get out because it is a direct consequence of a post office closing. For example, if we take out the computer terminal, they are not tapping away and we do not have to maintain that terminal, so just by shutting the branch we save money. There is another set of costs which is much harder to get and that could be, for example, the cash in transit truck which turns up two or three times a week to deliver the cash. You cannot just get rid of the truck because he is going to visit the one down the road. It is much harder to get that cost down. I believe we can get it out from a national perspective and providing we do get that further £7 million out then there will be no unit cost increase of a post office branch. So this closure programme should not beget another one in its own right. Q177 Chairman: There has been a lot of pressure from communities to club together and save a post office. There have been discussions about access to information and so on in that process. Has there been an example so far of a community or a local council actually saving a post office in this closure programme and, if so, does that saved post office count against the 2,500 number or is that one in and one out somewhere else? Mr Cook: If a local authority or an organisation is interested in saving a post office, first of all, it would only be in the context of one that we were closing. So if we say this post office is closing then we have had an approach. We have not got to the end of the cycle yet on any of those approaches. It seems feasible that some of those post offices may well be separately funded. Q178 Chairman: Is there any risk that at the end of this process there will be too many post offices left open to meet the criteria? Mr Cook: Too many? Q179 Chairman: And having to revisit the whole thing all over again? Mr Cook: No. Q180 Chairman: Will you get your 2,500 closures inevitably as a result of that process? Mr Cook: I would have thought so, yes. Q181 Roger Berry: I want to ask about the Government's proportionality rule that no one place should be significantly worse affected than another. Does your approach to that take into account existing provision? Ms Vennells: The proportionality rules were put in place in terms of making sure that no one area across the country suffers more than another in terms of network closures. So we are working roughly to about 18% of closures in any one area. Because the network as it stands currently is actually a product of history and of geography rather than one that had been designed to date there are some areas, notably urban areas, where there are more post offices and in remote rural areas particularly where there are less. What we have in the Memorandum of Agreement with Postwatch is that we will go either side of that 18% by 1 or 2%. On the area plans to date, in the Highlands of Scotland for instance they have had 2% less than and in some of the urban areas, in Lancashire they have had 1% more than. We are managing that to try and take account of the fact that the country is not evenly spread in terms of post offices, but at the end of the day we have to stick fairly closely to that proportionality requirement because it is within the consultation document. Q182 Roger Berry: That will mean that areas of poor provision will continue to have that poor provision entrenched and areas of good provision will come out of it with continuing good provision. Ms Vennells: I suppose the answer to that is it depends on what you call poor provision. Our view would be that the provision already is adequate. This closure programme is in place because there is a requirement for us to meet those savings criteria. There is not any area in the country that is under the national criteria that have been set by Government. Q183 Roger Berry: The local plans so far have seen an average reduction in the size of the network by about 15%. That is below the 18% required to meet the 2,500 target. Does that not mean that subsequent areas are going to suffer a higher proportion of closures, for example London? Ms Vennells: It would if that was the case. There has been a confusion between figures. We are actually tracking at between 17 and 18% if you include outreaches. In an area where there is an outreach there is a closure and an outreach and that is the target we are working to, so we are on target. If you took the outreaches out that is where the 15% figure comes from. London would be treated in exactly the same way as any other urban area. Q184 Roger Berry: That is interesting. The difference between the figures is explained by the fact that you are including outreaches in your figure of 17% whereas the 15% figure, perhaps not surprisingly, does not? Ms Vennells: That is excluding the averages. We are actually bang on target. I think the worry for anybody, including us, in this process is that further down the line there is not a disproportionate impact and we cannot do that so we are closely monitoring this. Q185 Roger Berry: There has been a degree of confusion about targets. Clearly the Government has accessibility targets that relate nationally and a local target as well. The papers that you have sent us basically say that you are not measuring accessibility targets at a local level because the Government requires you to meet them at a national level. Is that how you see it? On the other hand, the Government is asking you to take into account local factors. Should we not be focusing very explicitly on local access criteria? Ms Vennells: The requirement for us throughout the programme is to achieve a nationally sustainable network and I imagine that is why Government set those criteria in the first place, so that is our primary deliverable. The secondary requirement that we have set ourselves, and again is also in the document, is that we do that with the minimum possible disruption in any area. So whilst national criteria are set, we then actually look locally and there is, again within the document, the provision for a postcode area level. There were 38 postcodes identified which were below the criteria and we are now required to go back and put in provision in those postcode areas. We try to work both, but the whole point about the programme is to get to a national sustainable network. Q186 Roger Berry: Local consultation documents contain very little information on why certain branches have been elected for closure, which was obviously a criticism made the last time round. Why not explain why particular branches have been chosen? Ms Vennells: We give the reason why branches are selected for closure once we get to the decision stage because at the consultation stage we are not consulting on a particular branch, we are actually consulting on a number of closures that need to be made. The Government requirement of us is not to find out whether we should or should not be closing particular post offices. We have to close 18% of post offices in a particular area. So what we are consulting on is our proposal that goes to a local community on the best way of achieving that aim. Also, up to that local consultation beginning we have actually collated an enormous amount of data which we use to shape the proposals that are put out there, but obviously the local consultation is important and can change those and indeed it does. That is why the data on particular post offices is given at the end of consultations rather than as we go into them. Q187 Roger Berry: How can people reasonably respond to a consultation which involves identifying specific closures without knowing the rationale for that decision about recommendations? Ms Vennells: The rationale for how post offices are chosen again is what is actually required of us in the consultation document. So the sorts of things we have to take into account, which are explained in quite some detail at the beginning of every consultation document, are to look at local transport, we have to look at access to the nearest branch --- Q188 Roger Berry: I absolutely understand that and that is true, but the way the principles are applied inevitably gives rise to the perfectly sensible question, "Why is it this particular sub-post office has been chosen for closure?" The last time round when it happened in my constituency I could not get a public answer. Privately I got some idea, but that seems to me a funny way to consult because you are not consulting just on the strategy for meeting the criteria, you are consulting on specific closures. For the life of me I do not know why the consultation exercise cannot say, "This is why we have chosen these particular post offices and this is why we have not chosen the other 80% or whatever." How can you have a proper consultation without providing that information? Ms Vennells: We provide within the document that goes into the consultation an absolutely huge amount of data. Q189 Roger Berry: Yes, but not the data perhaps that I am arguing is relevant Mr Cook: I think there are two important distinctions to create. Last time round the main criteria for whether or not a post office closed was whether the sub-postmaster wanted to call it a day. Q190 Roger Berry: That was kept reasonably quiet at the time. Mr Cook: I was not here then so I cannot comment on that. The primary driver was whether or not the sub-postmaster was happy to go. One of the reasons why we are experiencing more feedback is because this time round we are trying to plan an evenly spread network, which means that a post office may need to close even though the sub-postmaster would like to carry on, which creates more adverse feedback. We have a whole range of criteria that we use and we produce a tonne of documentation for people to see the proximity of the proposed closure to the two nearest branches, the transport facilities between those two branches, whether there is disability access on that transport, a whole range of things. When we go through the local consultation process one of the more common reasons for us overturning a proposed closure has turned out to be around the fact that the information that we received on the transportation was not as accurate as we had understood. So it might look like it is near another branch, but when you get into the detail of the local transportation it is a tougher proposition to travel from one branch to another than what you had first thought. So there is plenty of information out there to enable people to comment on and understand the implications. I believe that the consultation process is working when one sees that there are a number of consultations turning over the proposed closure. Roger Berry: For reasons of time I think I had better stop there, but I do not think that answers my questions. Q191 Anne Moffat: Maybe you can help by telling me what, within the consultation, would have to be kept confidential and what can be shared? It also seems to me that you are able to share more information now than you were at the outset of the consultation process. Mr Cook: I think there are two critical stages to the consultation. There is, as I think you heard last week, an 11-week period before the public local consultation starts when a lot of work is taking place in the area. So our team goes in and starts consulting with the local authority, the Postwatch representatives and indeed with sub-postmasters. At that stage it is still pretty hypothetical because we are going in with a set of ideas which are turning out not to be what we put into local consultation. There will be two types of sub-postmasters. We will go to one sub-postmaster and say, "We are proposing that your office is closed," but equally, we are likely to go to another postmaster and say, "We're proposing that your post office stays open, but the one down the road is proposed as closing and that being the case, it is going to produce additional work in your post office. We need to assess whether you can cope with that, whether you need a grant, whether you need an extra counter position or whether you would be prepared to run an outreach service." We are then discussing someone else's business with that sub-postmaster and so that needs to be in confidence because I cannot be discussing with postmaster A the fact that we are likely to close postmaster B. If postmaster A refuses to have that conversation in confidence then we just cannot have the conversation because it would not be fair. It does not invalidate the work we do. It probably makes it slightly more likely that a closure decision could be overturned because we have not had as good and as thorough a conversation as we would like with all the affected parties. It is hardly happening at all. All postmasters are happy to have that conversation. They all know one another in that area, they are all mates and they go to Federation meetings together. This is a difficult and sensitive issue for them. We are looking to try and find, within reason, where there are volunteers as opposed to people who do not want to go, ways that are compatible with the needs of that community. That is the confidence bit. Once it gets into a public consultation then obviously everybody knows everything then. It may have felt like that when we were doing the earlier processes, but now there are many more plans in public consultation I guess that gives a feeling of there being more openness, but it is pretty consistent to be honest. Q192 Anne Moffat: If you look back at the consultation process, is there anything that you would change or add? For example, Postwatch said that you should be able to participate in the consultation by phone. Are there things that you would do differently to enable more participation for a meaningful consultation? Mr Cook: I think it is important for us to try and provide a consistent experience throughout the nation. So it would be quite a big deal if we suddenly started doing it differently half-way through. I do not mean that to sound intransigent. We put a lot of effort into making sure that we had as robust a process as possible. We are pretty comfortable with how we do it today. You are already aware, as you have just highlighted, that Postwatch are uncomfortable with the fact that we are seeking a formal input from anybody that wants to make an input in writing rather than over the phone. We are still discussing that with Postwatch. I guess my going in position is I want to make sure that the person making the comments gets their comments reflected correctly. I am slightly uncomfortable about that being written down by some third party, however well trained or proficient. I guess at the moment we sort of feel comfortable that it is appropriate for us to say, "By all means you can talk to us over the phone, but when you're registering your formal input you should do so in writing." Postwatch is less comfortable with that and we are discussing that with them. I am not saying no. Ms Vennells: I should probably add that, from a disability point of view, there is already the provision of very highly trained people to take that evidence, the consultation submissions, over the phone and there is a dedicated team to do that, so we are not excluding that for the people who are not able to write in. Q193 Anne Moffat: Sir John Stanley MP has said that "no explanation was offered as to why, in a democracy, confidential pre-consultation should be granted to a quango and not to elected MPs and elected local councillors". Why not involve politicians? Ms Vennells: The pre-consultation phase is hugely important to us and we have written to all the local authorities, we have had meetings with some of them and we have amassed a significant amount of data. What is important to us in that phase is trying to get our proposals as right as we possibly can before they go to public consultation, so the data that is systematically collected is analysed and it is then validated and discussed locally with Postwatch because that is part of the process. When we go into public consultation, then all of the public elected bodies and elected representatives have that opportunity to comment. One of the reasons that is so important to us is that what we do not want, as has happened previously, is that post offices have been put into consultation and a prior requirement of the consultation process was to try and overturn them, so the success factor is to overturn as many as possible. That causes undue damage in cases where we then have to reverse decisions. If we had gone out there and said, "These post offices are potentially up for closure", it damages their business, it damages the associated business as well, so the whole point about this process is that we gather accurate data beforehand, and we try and be as close to the right solution as we can going into the local consultation so that more changes happen pre that rather than post. Then we get the opportunity for public comment during the consultation process and, if people are not satisfied with that, then they have the opportunity onwards through the role of Postwatch to escalate and to challenge that particular process, and I think the Committee heard last week from Postwatch that they felt that that was one thing that actually worked very well in the whole process this time as opposed to the previous time. Q194 Anne Moffat: So there seem to be different stages of the consultation process, depending on what outcome is wanted really. Ms Vennells: Sorry, there seem to be? Anne Moffat: It seems to me that the consultation process is designed for the outcome and not for meaningful consultation. Chairman: You see, I think you should be involving local councils much more quickly. Maybe Members of Parliament cannot be trusted to keep a secret, maybe that is it, but you should be talking to local councils, but we should be talking local councils up. I am teasing really. Mr Hoyle: I will give you the evidence where you should not give it to the local authorities. Q195 Chairman: But they need to know what their views are, the extent of the communities, what plans they have for a new house-building area. This six-week consultation, we think, is far too short, and we still think that, but at least it would have more value than ---- Mr Cook: The local authorities are involved throughout that 11-week period in advance. That is one of the first things we do, write to the local authorities and actually we have had pretty good engagement. Q196 Chairman: You have? Mr Cook: Yes. Ms Vennells: In fact where we have not had a response from local authorities, we have actually chased it, so we have had data from every local authority and it has ranged from masses of data in some particular areas to actually longer meetings and recommendations put from some, so they have taken into account exactly that. Q197 Chairman: When do you first approach a local authority, at what stage in the consultation process? Ms Vennells: We write to the local authorities at the very beginning of the process and, if we then do not hear from them as we get into the beginning of each area plan, we then follow up. Q198 Chairman: But they are only asked to submit data. At no stage do you have an iterative process of them commenting on the proposals? Ms Vennells: Yes, we do. Q199 Chairman: To discuss specific details as well? Ms Vennells: Yes. Mr Cook: Yes. Q200 Mr Clapham: Judging from what you have just said about how you try to get the proposals right, how there is a link in any proposal to other post office businesses that are nearer town, you can see why there is criticism about substitute post offices being chosen? On what basis do you choose the substitutes? Mr Cook: There is not an automatic assumption that we would choose a substitute post office, but I can think of, I will not say the town, but I can think of a town that is relatively near me where I can stand in the middle of the high street and I can see three post offices. Now, you could go through a process of analysis and convince yourself that the right one to close would be this one, but, if for some reason you have got that wrong, it does not mean that one of the others should not close because you do not need three post offices in that town. When we make a recommendation to close this particular post office, it does not mean that we have recommended, if you like, for every other one to stay open, it just means that, on balance, this looks the best one. What happens is that, when we go to local consultation, we find a lot more information out, more than I was expecting, I have to say, and it will be around issues like a housing estate that we did not know was going to be built, it will be around, as I mentioned earlier, transportation where you say, "Actually it doesn't make as much sense to close this one as we thought, but there is still over-provision in this area, so we'll find a substitute". Q201 Mr Clapham: So you would not find a substitute on the basis of a postmaster who was elderly who wanted to close his business down? You would not take that as being the criterion which would determine which one goes? Mr Cook: In that early 11-week period, we would have looked at that aspect, so, if you had two post offices really close by and there was not much to pick between them and this guy wanted to go and that guy did not, it would be perverse not to take that input, but that happens before we get to the public consultation. Q202 Mr Clapham: So, once we have gone through the public consultation, can you give us an assurance that we are not likely to see further substitutes so that we get substitution for substitution? Mr Cook: Definitely not. It is not in the interests of the Post Office to prolong the agony, to be honest with you; we just need to get on with the business in that area. Q203 Mr Clapham: So, when you decide on a substitute, you have already carried out the consultation, then you make your decision on the substitute and, as I say, you can see why there is much criticism of that in the community, but why not follow the same process that you would with the original decision, in other words, press releases, et cetera, communication with the council about the substitute? Why not do it that way so that you almost set the process of consultation off again? Mr Cook: Well, effectively we do. The press release point possibly not, which I think we need to put right, but bear in mind there is this 11-week process where we are looking at the area and right at the end pops out the agreed proposals. If you then want to substitute one, you have still got the benefit of that 11 weeks' worth of consultation, you have got all that information, you have got all that knowledge, so there is a two- or three-week period and then straight into the six weeks of fresh local consultation, so it is no less thorough for the substitute branch because the work was done on that substitute as part of the original 11-week period. Q204 Mr Clapham: Can I turn to the review. We heard last week that there was a lack of clarity about the grounds for review and that that to some degree inhibits the input from local communities. I think there are four stages to the review. Is there any way in which you could make that review process more clear and involve the local community? Mr Cook: The decision to put a proposed branch closure into review is Postwatch's, so they are the ones who say, "We want to review this one further", so effectively we are taking our proposals to the community and to Postwatch and, if they are not comfortable with them and we cannot satisfy them as to the fairness and the logic of the proposal, then they can start to escalate through a review process which, if you like, works up the chain of command on both sides of the organisation. I watched the video the other night and you did go through that last week with Howard Webber and it is his organisation that has to decide when to put the case into review. Q205 Mr Clapham: So the decision is Postwatch's, but you would be working very closely with Postwatch. Has there been any consultation about involving other people in the review, for example, MPs? Mr Cook: They are all intensively involved. I did a little check before I came here today and so far, of the 550 branches that have been through consultation, we have had 123 separate meetings with MPs. Now, there are days when I think that they have all been done by Paula and myself, but that is not the case ---- Q206 Mr Hoyle: I look forward to my meeting with you! Mr Cook: I am sure you will! Therefore, MPs and local authorities are fully involved and that is what really, I think, drives Postwatch to make the decision whether or not to put the case into review. Q207 Mr Clapham: There is just one other point I would like to know whether or not they are involved and that is the parish councils because in areas like mine, which is basically a rural area, we have got something like 13 parish councils. Do you involve the parish councils? Mr Cook: Yes. Obviously the local consultation is for everybody in the area. The level of activity of parish councils and their continuity varies dramatically, so, for example, if you were coming up with a local funding deal with a parish council, you would be slightly nervous about whether they were still going to be active and busy in three years' time and you feel more comfortable dealing with the local authority, but I have certainly dealt with, not particularly in the context of this closure programme, some very active parish councils who have had concerns about whether or not we are going to find a fresh sub-postmaster when one retires, for example. Ms Vennells: They can be very involved in organising public meetings, and we have had hundreds of those. Q208 Mr Wright: In terms of the effects that it might have on the community, last week Postwatch, in their evidence, suggested that there was a presumption against closing post offices that are attached to what could be the last retail outlet in a village. Is this the case and in what circumstances would you recommend such a branch for closure? Ms Vennells: When we look at post offices that are put forward for closure, we have to look at a number of factors and that is one of them. Others are accessibility to the nearest branches, transportation, road access, all of that, and we take it very, very seriously, so the sorts of things that we will look at in terms of impact on the community are, for instance, if we take that post office out, is there a cashpoint, so cash availability for the community and what is the question of availability of public transport to another area. Whilst it is not our responsibility to plan the sort of forward value of the local economic community, we have to take it into account, so we will consider it very carefully. For instance, some of the branches that go into closure and then into outreach have been done specifically because we have looked at that sort of thing. Q209 Mr Wright: So really what you are saying is that there is not a presumption against a closure, but you take everything into account, such as transport, such as a cashpoint? Ms Vennells: Yes. Q210 Mr Wright: So inevitably it could mean that the last retail outlet could close? Ms Vennells: It could, but what we will look at, if it is the last retail outlet, is what type of business it is as well because customers using the post office to get cash will in a number of cases be going somewhere else to do their shopping. If this is the last retail outlet in a village which is a widely used convenience store, the chances are the post office is probably very successful anyway, but we will look at that and we will be more likely to view that as more important than perhaps one that is a tourist outlet which sells cards or something like that, so we take the type of retail outlet into account. Q211 Mr Wright: You mentioned there that you do not really look at it as your responsibility to look at what the impact of a local closure would be on that economy where you have got other types of service provision. Ms Vennells: Yes, we take it into account. It is not a criterion for us to decide on whether to close a branch or not, but it is a factor that is taken into consideration and it is done quite frequently. As I say, a number of the outreach proposals have been in place specifically because of that because we have looked at it and actually realised that, if we took the post office provision away, the provision of cash and the provision of a service for elderly people, that might also impact on the adjoining business. Q212 Mr Wright: Would you enter into dialogue with the local parish council at that stage at the early part of that process or during the process? Ms Vennells: We would talk to the parish council during the consultation phase, so we would talk to them about that. Q213 Mr Wright: In circumstances where sub-postmasters are left with unviable retail businesses after their post office is closed, what compensation do you provide them with? Ms Vennells: That is a difficult one. As Alan said earlier, in some cases sub-postmasters actually are happy to take the compensation because, if a business is not working, a business is not working and, if it is unviable before we take the post office out, the chances are that it carries on being unviable. We do not compensate them obviously for the viability or not of their adjoining business. What we do have is a very comprehensive compensation package for them when they go and we have an enhanced one if there are particular areas of difficulty, and I think that was explained last week by George Thomson for the NFSP, so we work very closely with the NFSP, but, if there are particular cases of hardship, for instance, high staff costs or some of them may have had staff working for them in some cases a number of decades, so there may be higher staff redundancy costs and we would help in those circumstances, so help is available, but not to support a failing adjoining business. Q214 Mr Wright: So there is no account taken of the fact that a business may well fail because you have split one part of that away from them, so there is no extra compensation on offer other than for those who are in special circumstances? Ms Vennells: No. Q215 Mr Wright: One of the issues that the Federation talked about last week is that the compensation would be reduced if he or she did not agree to introduce a Paypoint for 12 months in their outlet. This would probably make sense in some urban areas perhaps where post office services may still be accessible, but in rural areas where Paypoint was not going to be accessible, to reduce their ability to earn money from having a Paypoint in their retail outlet surely is a step too far? Mr Cook: Here comes the commercial bit. We need to make sure that we end up with a robust, viable post office network and this network nowadays is under competition from all sorts of organisations, so there are two issues, I think, here. The first is one of equity which is, if we compensate someone for loss of income, it would seem perverse for them to continue to receive that income, and one example would be the Lottery. If they had a Lottery terminal through the post office and the post office closes, but they keep the Lottery terminal, it does not seem a good use of taxpayers' money to compensate them for the loss of the Lottery terminal, so we would deduct that from the compensation. Now, if they do not want to carry on with the Lottery terminal, they can lose the Lottery terminal and we will give them the full compensation. Another area where this applies is, as you say, bill payment. Now, it is a critical part of the success of this programme that the income that is being generated in a post office migrates as far as possible to the neighbouring post office and we are trying to encourage that to happen, we are trying to encourage the customers to go to their neighbouring post office, so we are not saying to a postmaster whose business is closing, "You can't do this", but what we are saying is, "We're putting a 12-month wait in if you want the full compensation", and that does not seem an unreasonable thing to me. Q216 Mr Wright: But in the case of the previous question regarding the sole retailer in the village, the last shop in the village, if they said, "Look, we would like to keep the retail option open, but an important part of that is retaining Paypoint ---- Mr Cook: Well, they would not be retaining Paypoint because they are not allowed to use Paypoint. If they want to go out and get Paypoint and try and do the business instead, they would have the income from that terminal and, as a result, they will not get the compensation. Q217 Chairman: How much of the compensation will they lose? Mr Cook: They get 28 months' pay, so they get 28 months' worth of whatever they were earning from their bill payment. Q218 Chairman: A post office in my constituency has made just this point, that there is a garage, there is a pub and other places, but not shops which will take these services, Paypoint, pay zone, stamps, collection points and parcels, so they will take those services if he cannot offer them, so, if you are saying that he loses an awful lot, then you are asking him to make a big sacrifice. Mr Cook: No, it would be 12 months' worth of the income from ---- Q219 Chairman: From that particular product? Mr Cook: Yes. Alternatively, he could take 28 months' worth of compensation, so it is a commercial decision for him to take, and it does not seem an unreasonable one to me. Q220 Mr Wright: Turning to the agreement, we know that the Co-op Retail Group note that they did not sign up to the Post Office Limited-National Federation of Sub-Postmasters agreement. Are they bound by it though? Ms Vennells: They do not recognise the NFSP as such, so the NFSP does not negotiate on their behalf and we have a very separate contract with the Co-op, but they are still covered by the nature of the agreement, so any of the compensation payments that we would pay out would be the same to the Co-op as to anybody else. Q221 Mr Wright: So, because they did not sign up to it, it still applies to them? Ms Vennells: Well, if they choose to take the compensation bit that applies to them, then the whole thing has to apply, otherwise, their contract, I think it is, has a three-month notice period. Mr Cook: The Federation represents all the independent sub-postmasters, but we have, as you heard earlier, many multiple chains and I think the Federation are keen on representing them as well, but historically they have not done so. We tend to negotiate with the Federation as the best available means of reaching a negotiated settlement and then offer that to all the multiple partners as well, whether that is pay on a routine basis, the annual pay round, or whether it is something like this compensation. Q222 Chairman: Just one question on profitability, and it was helpful the information you gave at the beginning, but are there any sub-post office branches which are profitable to you which are being closed? Mr Cook: I cannot categorically say no, but it is clearly pretty illogical that we would want to close something that is making a profit to us, unless it was really, really close to another one that was making even more, so you could say, "Is that a nonsense to have those two so close together?" so that is why I do not want to give you an unqualified no because I cannot tell you that we would not find that, but the essence is really that we need to be sure that every one we close produces a material saving to Post Office Limited and there will be no post office that closes that does not produce a material saving to Post Office Limited. Q223 Mr Hoyle: Obviously the local post offices are the big issue and you have mentioned Lancashire and what you are part of is trying to communicate with those post offices, but what do you think of this for hypocrisy: the (?) Post Office wants to close and yet the Conservative candidate or Councillor Smith has put a petition in there to keep the post office open and then we have got the sub-postmaster who is allowing people to sign a petition to keep it open even though they have applied to close, so what is your view? Mr Cook: I am not going to comment on people I have never even met before, so all I will say is that we are looking to get an evenly spread network and, wherever possible, we will try and match sub-postmaster preference to the community's needs, but it is not going to be possible all the time. Q224 Mr Hoyle: So you cannot sniff any hypocrisy there? Mr Cook: As I have said, I am not into commenting on other people I have not met before and I have told you my answer. Q225 Mr Hoyle: Are you responsible for post offices and shops? Mr Cook: I am. Q226 Mr Hoyle: Let us see if we can try it a different way, and I can see it is going to be easier for a dentist to draw teeth than me an answer. We are talking about post offices and you have decided, not me as the Member of Parliament, to recommend the closure of five post offices, three of which wish to close because you have been in communication, not me. You sent me a report that says, "This post office wishes to close". Is that fair? Mr Cook: It sounds okay so far. Q227 Mr Hoyle: So you think your letters and your details and your documents so far are okay. Okay, let us see if we can take it a bit further. Therefore, I am told that these wish to close and the other two do not, fine, so my view is that those who do not want to close who claim they are doing a very good job and a very good service, we ought to see how we can support them to keep open, whilst those who wish to close have got a petition on the counter saying that they wish this post office to stay open. Do you not think there is some hypocrisy because you sent me a letter saying that the post office wants to close, yet the postmaster is encouraging people to sign a petition to stay open? When is the truth going to come out? Mr Cook: You are not doing very well on getting these teeth out, are you? I am sorry, but I am not quite sure where this conversation is leading us. I could give you the same answer again, if that is what you would like. Q228 Mr Hoyle: Well, you are meant to communicate, so why do you not tell the people around that post office that the sub-postmaster wishes to close? Let us not kid the people because that is what is happening, the sub-postmaster is pretending that he wants to keep the shop open, but all the time he has sent you a letter, saying, "I want the money", so how is the communication with the public out there? Why do we not tell the public that this post office wishes to close? Let us not let them go through the process of this Conservative nonsense of how to retain a post office when all the time there will be a closure. Mr Cook: There certainly has been some history, even in the last programme, of individual sub-postmasters who, for their own personal preferences, wanted to close, but they are embarrassed in the community that they are in to own up to the fact that they want to go because they feel they are letting the community down by going. Q229 Mr Hoyle: I do not mind embarrassment, but what I do not like is to actually gather names on a petition that goes to a central office to say what a good job we are doing. Mr Cook: But you will not be luring me into saying nasty things about people I have not met before. Q230 Mr Hoyle: So you have not met the Conservatives! Mr Cook: I have not met those Conservatives or those three sub-postmasters. I have now met you though! Q231 Mr Hoyle: Right, so let us go on and you judge me as being Mr Nasty and I am standing up for the people I represent. Now, the council, you communicate with the council? Mr Cook: Yes. Q232 Mr Hoyle: Two of us got letters to say which post offices are closing and it ended up in the local newspaper, but it was not me that gave it, so prior there had been an embargo, by the Wednesday it had been released. The local councils are encouraged in here to set up council accounts in post offices. Has that happened? Mr Cook: Council accounts? Q233 Mr Hoyle: They are council counters in local post office branches. Mr Cook: We are certainly working very successfully with a number of local authorities now and Lambeth is a case in point. I think many local authorities have realised that they are losing branches because government services were not being used, as I said in my introduction, as much as was the case. It has created a climate for us where we can go to those local authorities and say, "Look, one of the ways that this could all be less painful is if you put more business our way", and that is becoming quite prevalent. Q234 Mr Hoyle: We are getting somewhere because the same councillor is part of the Tory-controlled Chorley Borough Council which does not allow you to pay any council bills in the post office. Do you think that might have a hint of hypocrisy about it? Mr Cook: It is very disappointing we do not have the business. I am not at all interested in which party they are in, I have to say. Q235 Mr Hoyle: No, you are not bothered. Mr Cook: No, I am not. Q236 Mr Hoyle: I think that is the problem, that you are not bothered and I think that is what is coming out loud and clear. You are not bothered and that is why I have five closures and the fact is that, when you meet local councils, who do you meet - the chief executive and all the political parties? Mr Cook: We usually meet the chief executive. Q237 Mr Hoyle: And that is it? What about the politicians? Mr Cook: Well, it depends if they are in attendance. Q238 Mr Hoyle: Have you met with Chorley Borough Council? Mr Cook: I have not personally, no. Q239 Mr Hoyle: Do you know if your organisation has met with Chorley Borough Council? Mr Cook: No, I do not. Q240 Mr Hoyle: Would you please send us that information of whom they actually met with? Mr Cook: Yes. Q241 Mr Hoyle: Now, what do you think I could do for the Bolton Road Post Office which wishes to stay open and has between 1,000 and 1,500 customers a week, that is in a deprived area which has a low car ownership and has a lot of elderly people, 500 new properties are being built within 1,000 yards of this post office, with good parking outside and yet it is down for closure? Where is the communication on this? Mr Cook: What you can do is represent those views to us and we will look at that in consultation with all the other post offices that are in that area. Do not forget, there have already been a significant number of post offices turned over for closure when more information has come to light, but I cannot possibly comment on one individual post office out of 14,300. Q242 Mr Hoyle: I am sorry, I would have thought you would have been well briefed about what I was going to ask you and it is funny that you are not, but let me take it a bit further because it was well known about the post office that closed across the lake. Do you remember that? It did have a road to it, but you closed it. The two post offices that were used as an example to close other post offices in your last review, Bolton Road and Coppull, were the post offices that said, "These will stoke up the business and that's why we're closing the other post offices". You have now come back and the ones that you used as a reason for closing the other are now down for closure. The whole thing is flawed. You have changed the rules and the whole thing is a disgrace. You need to consider your position. Mr Cook: Hopefully, you were listening to my introduction when I explained the loss of government services' income over the last three or four years. This business has £400 million less income than before, so arguments about the viability of post offices three or four years ago will not necessarily work now. If the area, as you have suggested, is a high benefits area, those post offices will be disproportionately impacted because their income comes off ---- Q243 Mr Hoyle: Do you take new build into account? Mr Cook: We take new build into account. Q244 Mr Hoyle: Because it is not in your review. Mr Cook: Well, that will be a useful piece of input. Q245 Mr Bailey: Can we move on to the management style for the process. It would appear that sub-postmasters are rather reluctant to discuss the programme and to speak to their MPs. Could this be the fear from the notorious 'intimidation letter' which I believe has been subsequently retracted and can you promise us quite categorically that compensation packages for sub-postmasters will not be affected if they do consult them? Mr Cook: I can categorically promise that and, as you well know, at the time I issued a personal retraction and it was unfortunate that the letter went out, or that is probably an understatement, to be perfectly honest. I think at the end of the day actions speak louder than words and six/seven months on no compensation has been docked and indeed I think we carry the process out in a very open and transparent way. As I mentioned earlier, 123 MPs have had meetings with us since the consultation process began. Q246 Mr Bailey: Who was responsible for that letter? Mr Cook: It was an administrative error inside the organisation and, I have to say, the fact that an incorrect draft of the letter was sent out, whilst it was unfortunate, it is actually disturbing that the draft was even produced in the first place, so this is not something that we are proud of, but I think we need to put it into perspective. It happened in the opening weeks of the programme, I issued a personal retraction and we have not exhibited any of those behaviours. Indeed, I think we have behaved very responsibly towards postmasters and I have explained earlier the question about confidentiality, but there is no linkage between confidentiality and compensation. All that it means is, if someone does not want to sign up to the confidentiality, then we cannot share the information about other postmasters, as I explained earlier. Q247 Mr Bailey: Would you not agree that somewhere within the organisation, for a letter like that to go out, there would exist a culture that was not perhaps, shall we say, conducive to good management and good relations? Mr Cook: It is a great disappointment to me that the letter went out. It should not have gone out. It was literally an administrative error where the wrong version of the letter was despatched and the letter had been corrected, but that is not an excuse. It is not acceptable, but, as I say, actions speak louder than words. Q248 Mr Hoyle: Whose name was on it? Who signed it off? Mr Cook: It was not in my name, I do not think, no. Q249 Mr Hoyle: Well, was it? Mr Cook: The apology was certainly in my name. Q250 Mr Bailey: Was any action taken against the person or persons who drafted the letter? Mr Cook: We had to put in place a different procedure to make sure that incorrect versions of letters could not be issued. If someone makes a mistake, if you are saying, "Should you run around firing people because they made a mistake?", only if it is persistent, only if it is negligent. The consequence was significant and we put lots of steps in place to make sure that that does not happen again. Q251 Mr Bailey: I am not in the business of recommending that you fire people, but I would expect, in the event of something that was so disastrous to the, shall we say, management relations in this process, that there would have been a proportionate response from yourself to the person or persons involved. Mr Cook: We took the necessary action. Roger Berry: If it had been a government minister, there would have been hell to pay. Mr Hoyle: They would have had to resign. Q252 Mr Bailey: I will move on to another point because we have made the point here. The CWU claims that you have not told the Crown office workers of their rights under TUPE, and they are being offered payments of £1,000 on condition that they do not campaign against franchising. Why is this? Mr Cook: The proposal was that we would make a continuity payment, and one of the concerns when we did the deal with WH Smith was that the elapsed time from when the deal was announced and the locations were announced to when a post office would actually convert could be quite some time because of the builds of the post offices in all the branches and it will not finish until June when they found out last May. What we wanted was to create an environment where people were happy to continue to work at the post office and provide the level of service that we felt customers were entitled to, so we call the payment a 'continuity payment' which basically was designed to create an environment where the post office would continue to operate normally in that intervening period. The definition at the time of "continue to operate normally" was to maintain the same level of performance in terms of queue times, sales, whatever, but also to provide a positive impression to customers when they came in so as not to bemoan their lot, as it were, at the counter because we wanted the post office to feel as good as it ever had done, ready for its transfer. We said that the redundancy payment would then be paid at the end, if that is what they wanted to do, or they would then relocate to another post office and we offered a further payment of £1,000 in recognition of that achievement for all individuals. Q253 Chairman: Can I suggest that we ask you for a written note of your assessment of the propriety of what you have done. I would have thought that this put you directly in breach of the TUPE Rules and I cannot be at all sanguine about this. Mr Cook: Well, we can do because, as you mentioned earlier, there certainly is a tribunal hearing planned and, I have to say, we are equally confident that we are within our rights. Chairman: Within the limits of sub judice, I think we would like further details on this because I cannot see how you are complying with the law myself, but I must be very careful about this because I will get myself into trouble with the Clerk. Anne Moffat: I would actually like to see the letter that was sent out to members of staff. Chairman: Yes, that would be helpful. Mr Hoyle: And the original letter sent to the post offices that was since withdrawn would be useful to the Committee. Chairman: Indeed, but we can talk to you afterwards about that. Q254 Mr Weir: I would like to ask you about Outreach arrangements. Can you tell us if these arrangements are only being considered where there are closures? Now, I noted earlier, Ms Vennells, you said that you are putting provision in postcode areas below the national criteria. Can you tell us a bit about how these are going to work and is it just where there are closures in this programme and in the excepted postcode areas or are you willing to look at other areas where there is an inadequate service, for example, villages that have previously lost their post office and have no postal services at present? Ms Vennells: I will take that in chunks, if I may. Are we likely to do them outside of the closure programme? Yes, because by the end of the closure programme we will have around about 1,000 outreaches and, in terms of the future sustainability of the network, it seems to be proving to be a very useful model for us and the communities they go into, so yes, we would look elsewhere, whether that is in urban or indeed where we already are in rural. There are different versions of Outreach and there are essentially four different ones, but one of the most popular one is the mobile version because actually one of the advantages of that is that it tends to bring more services to the communities it actually services than previously, so all of our mobile outreaches, for instance, do the vehicle licensing which many remote post offices actually do not have currently, so that is a real win for a community. The partner and the hosted outreaches tend to work very well also, but what we do as part of the consultation process now is we actually look at what type of Outreach will be the most appropriate for the community we propose to put it into. As I say, our experience to date is that they have been very well received where they are up and running. Q255 Mr Weir: Last week some of your colleagues brought one of the vans to the House of Commons and many of us went to see it, an impressive-looking van. I represent a rural community and I can see many of my communities being quite happy to see that coming where they have no service at present, but I am still not entirely clear. I have, within my constituency, two of the excepted postcode areas which have an inadequate service at present. I also have several villages that, under the old criteria, had an inadequate service because the post office closed and no one else would take it on. Under the new criteria, they no longer have that because they are within however many miles of a town, but would you be prepared to look at, if you were introducing a van into the postcode-excepted areas, for example, also extending its range to visit these other villages? Ms Vennells: I think that is something we would certainly look at because in those areas of the excluded postcodes we know that we have actually got to go back in and look at the provision properly, so yes, we would. Q256 Mr Weir: So you would extend beyond the excluded postcode areas? Ms Vennells: We would look at how feasible that was, yes. Q257 Mr Weir: As a matter of interest, how many of these vans do you anticipate introducing throughout the country? Ms Vennells: We have got six at the moment serving 80 communities and I think we have another 20 on order. It is difficult to forecast exactly because each particular Outreach is obviously viewed on an individual case basis, but they have proved extremely popular actually, better than the home delivery which is one of the other Outreach options. Q258 Mr Weir: Could you tell us a bit about how Outreach development is to be funded? It has been suggested to us that you are offering potential premises-providers £3 an hour to pay for the hosted service. I wonder if that is really enough and is anybody going to take it up at that sort of level? Ms Vennells: I cannot comment on the specifics of £3 an hour, but the way we pay the core sub-postmaster that runs the Outreach is on the cost of the premises they require, so, if it is a church hall or a village hall or something like that, the chances are in some cases they probably are around £3 an hour, but I know in some cases they are £6 an hour, so we would pay them whatever the costs are for the premises they need for the amount of time, we pay their travel costs and then also we pay them on a transaction basis for the services given, so I am not sure where the £3 an hour came from. Q259 Mr Weir: So it would depend on the premises that were being used? Ms Vennells: Yes. Q260 Mr Weir: The mobile ones you talked about, would they be funded centrally or would they be funded by a postmaster running an Outreach service? Ms Vennells: The mobile is provided by us and then the core sub-postmaster who runs that is then actually paid on exactly the same basis, so they are paid on the costs of running the service, but the van is kitted out by the Post Office and the service is still provided by us. The only difference really is that it is mobile. Q261 Mr Weir: What about local communities and their involvement in working out the best Outreach arrangements for their areas? Obviously, as I think you would appreciate, different areas will have different needs in Outreach services, but, given there is a six-week consultation programme and as part of that consultation, for example, there will be an Outreach service, is that really a sufficient amount of time for a local community to consider the removal of their services and whether that particular Outreach model is sufficient for them, and is there not a need for a separate consultation on what Outreach model particularly affects each community and how it is best delivered? Ms Vennells: A useful challenge, that, I think. At the start of the programme, and you will be aware that we have amended the Outreach process of consultation slightly from the beginning, we were worried about the point you make exactly, that it is quite difficult for groups of customers in a community to envisage what an Outreach may be until they have experienced it, so initially we went out to say that we would consult on the type of Outreach and get their suggestions. Postwatch felt, and I understand why, that it would be much easier if we were more specific about the type of Outreach that was provided, so that is now what we do, we recommend a particular type of Outreach. I think in most cases, because of the work we do with the communities and with Postwatch, we will get that right and, as I have said, we have already got several hundred working, but I think there is a commitment from us that these are important because, as Alan was saying, this is about the social provision of the post office and it is important that they are right, so, if we find further down the line that it is not the right model, there is nothing to stop us going back and making a change. Mr Weir: But on what basis do you recommend the type of Outreach? I can imagine, for example, if a village post office is closing that the postmaster may be able to say, "Well, these are the hours when I am busiest and this is the type of work I've been doing", but, if there is a postcode-excepted area which has not had a service for some time, how do you determine what sort of service is required in these areas and what consultation do you make within your consultation programme? It is a different issue from closing post offices. This is an issue about what services are not there now and may not have been there for some time and they are now required for an area. Q262 Chairman: Also, on the question about hours, do you really think that two hours in a community is enough, because I do not think it is, and how long are you committing to providing the Outreach service for? I have heard some reports that you are only committing for a year maximum to continue providing Outreach, but I hope that is not true. Ms Vennells: No, it is not. Those are two slightly separate points. There is no restriction on the amount of time an Outreach is provided for. On the two hours, actually there is a very small number of communities where we do that and the hours are calculated, and this partly relates to Mr Weir's question, on the number of customer sessions that there were in the existing post office. In the vast majority of cases where we have got a two-hour provision, the community have chosen to take two lots of one hour, so it actually makes it easier for them and they know that there are two opportunities during the week when the post office is available. Q263 Chairman: So that is Mr Weir's question really, that you are looking at what the local community thinks it needs to reach that? Ms Vennells: Well, I then come on to Mr Weir's question which is related to this which is how you decide if you do not have the number of customer sessions. We would do the same amount of data-gathering that we do in the current pre-consultation phase in terms of all the local communities, the demographics, and we would split that down, and then we would have to take an educated view on what the hours would be. The chances are in a number of these cases that there would be Outreach provisions as well, but clearly that would need to be part of the process. I cannot give you a more detailed response than that, but I am very happy to write to you on it. Q264 Roger Berry: The Government has committed to a network of 12,000 post offices or so to 2011 at least. Your own research found that you would only need 7,500 outlets to meet the Government's accessibility criteria as they currently stand. Do you think these criteria need to be strengthened then to preserve the Government's ambition of a universal network? Mr Cook: Well, whether the Government wants to strengthen them or not, I guess, is their call, but we do have a mutual understanding that we are going to run the network at that size through to 2011 and the funding of £150 million a year is adequate for us to do that, so that is the goal. Q265 Roger Berry: So, if you are running a network at that size, how will you ensure that the gaps which emerge can be filled? Mr Cook: Well, that comes back to the commercial challenge that we face because we have talked here about planned closures and we have talked about saying to some sub-postmasters, "We don't require your services". Where a sub-postmaster in two years' time retires, the challenge is always whether we can find another sub-postmaster to fill that slot. Now, the more successful the business is commercially, the easier it is to find someone to take up that post, so, providing we can make a success of this business financially, it should be easy. The will will always be there, but we have found that over the past six or seven years there has been an attrition of around, say, 150 a year where it has not been possible to find a sub-postmaster. At any given point in time, we have probably got 200 post offices where we have got a temp in covering while we are trying to find someone to replace a retired or resigned sub-postmaster. As I say, the more attractive we can make the post office business to a sub-postmaster, the easier that process will be, and one of the big things for us is to make sure that we retain the Post Office card account because that is a big driver of both usage of post offices and post office income, so it is much easier to contemplate being able to refresh the population over the years, providing we win that contract. Q266 Roger Berry: Lots of things will influence the amount of business that is flowing through the network, but the Network Change Programme itself will undoubtedly lead to some loss of business for the network as a whole and I wondered what recent analysis have you carried out on the amount of business that might be lost to the network as a result of the Network Change Programme? Mr Cook: Well, it is mostly only history and analysis because we have no actuals really because they have only just literally started to close, so I cannot give you any data in terms of what is the experience so far. History tells us that about 80 to 85% of income migrates to a nearby branch and clearly that will vary, depending upon the proximity of the nearby branch. What it does is it does make those branches, and I am talking now about the postmaster's balance sheet rather than mine, if you like, it makes their business more viable because they are then getting more customers and more income. Q267 Roger Berry: That figure is based on the Urban Reinvention Programme, is it not? Mr Cook: Correct, and experience of individual closures here and there. Chairman: I am afraid we are going to have to draw things to a conclusion. It is frustrating for all of us as we would have liked to have had longer, but we are up against the wire in terms of our time, if we are to produce some kind of report in some form in rapid time, which we hope to do, so there will be something coming out of this Committee, I hope, relatively soon. Thank you very much indeed, we are very grateful to you. If there are things you want to respond to on reflection, we will always welcome a letter, but that may not be reflected in our immediate report as it will probably be too quick for that. Thank you very much indeed. Witnesses: Mr Pat McFadden MP, Postal Services Minister, Ms Ruth Hannat, Director, Operations & Strategy, Shareholder Executive, and Mr Mike Whitehead, Assistant Director for Post Office Network and Urban Reinvention Programme, Postal Service Policy Directorate, Department for Business, Enterprise and Regulatory Reform, gave evidence. Q268 Chairman: Minister, thank you very much indeed. Unless my memory is playing tricks on me, this is the first time you have come before us as Minister. Mr McFadden: It is. Q269 Chairman: Welcome. We are a friendly committee really. Can I, as I always do, ask you to introduce not necessarily yourself, but certainly your colleagues. Mr McFadden: On my left is Ruth Hannat, who is the Director covering postal affairs in the Shareholder Executive of the Department, and on my right is Mike Whitehead, who is an Assistant Director in the same unit. Q270 Chairman: A very simple question, but one I still have not got to the bottom of in this whole business, because this is about the closure process we are discussing today, not the new business opportunities for the Post Office, but the process, and the single most important driver in the process is this magic figure of 2,500, and I just do not quite understand why we have even got the figure of 2,500. I have asked your predecessor and he could not answer the question. We have heard just now from Post Office Limited and they think they have flexibility in their funding arrangements to go down to possibly as low as 2,400, so the range we have is 2,400 to 2,500, but why? Mr McFadden: Well, this is to a degree led by the amount of government support that can be there for the Post Office as well as the efficiency savings that Post Office Limited themselves can make. If we took the view that we never wanted to close any post office in the country, the condition of that would have to be an open cheque book from the taxpayer, that no matter how much technological change you had, no matter how much custom declined, no matter what the losses were, the taxpayer would always meet them. If you took that view, you would not have to have any post office closures at all, but you would be saying, on behalf of the Government and the public, that you were prepared to pay an unlimited amount to keep the network as it is. The decision announced in May, but taken in principle before that, towards the end of 2006, was that that was not the road that we could go down, but what the Government would do would be to say to Post Office Limited, "We will continue to give you a network subsidy of £150 million a year and we need a plan to live within that number", and that is how we get to the point of 2,500 closures. That is the number that Post Office Limited and the Government came to as saying that, if we have that number of compensated closures, we will then have a network which, combined with the other changes Post Office Limited want to make, should be able to survive with a network subsidy of £150 million a year. Q271 Chairman: So it was a result of discussions between yourselves, the Treasury and the Post Office? Mr McFadden: That is my understanding. Q272 Chairman: The 2,400, if it worked out at 2,400 because that was the Post Office judgment of the new number they could deliver, you have no problem with that at all? Mr McFadden: We do not have a problem with that, except every one that is kept open, given that this is to reduce losses in the network and put it on a more even keel, if the figure was, say, 2,400, that would then lead the Post Office looking to find the funding to keep that extra 100 open, given that the overall direction of the programme is to reduce the losses. Now, the Government will not be coming in with extra funding for that extra 100 ---- Q273 Chairman: So it is a commercial decision for Post Office Limited. Mr McFadden: ---- but, if they think, "Well, we can make an efficiency gain over here to keep a few open here", obviously that is a decision Post Office Limited can make. Q274 Chairman: One of the things the union just said to us very strongly in their evidence is that they have related the sub-post office closure programme very strongly to the overall operation of Royal Mail and expressed concerns about the shrinking of the network and the overall impact of that on the universal service, so my question to you is: what relationship does the current closure programme have with your recently announced Postal Services Review? Mr McFadden: I think you should see these two as separate things. The review announced just before Christmas is really directed at the mails market and the liberalisation of the mails market that has been in place for two years now, and we thought it was timely to have a review of that, given the liberalisation has been in place for two years and a number of new players have entered the mails market, but I do not think that is directly related to the levels of custom in the post office network, other than both sides of this are affected by technology and lifestyle change, but there is not a direct link between the review and what we are doing on post office closures. Q275 Anne Moffat: Do you think it has been fair to pass the buck to the Post Office to make all these decisions about closures, particularly when, as part of the criteria, they were not able to take into account the local strength of public feeling and they are going to get blamed, they are damned if they do and they are damned if they do not, so they are going to get it in the neck from both sides? Mr McFadden: I do not think there is any popular or easy way to do this. If a decision is made to close 2,500 post offices, however we do that, it will meet with unpopularity in the local communities affected by that, and I do not think there is any getting away from that. I actually do think it is sensible, having made that overall decision, to say that the detailed implementation of this should be for Post Office Limited. Now, I have no doubt that the process that they are carrying through may not be perfect, but they are making a substantial effort to talk to people on the ground, to talk to the sub-postmasters, to talk to the local authorities, to talk to the public and so on about implementing that decision, and we have taken a view that it should not be for ministers to say that office A will close and office B will stay open or the other way round. I think the division, if you like, of responsibility between the Government having announced the overall decision last May and Post Office Limited implementing the decision at a local level is actually probably the right one. Q276 Anne Moffat: Would you agree that you are just externalising or privatising POL's losses, transferring costs to customers, including vulnerable people and small businesses that are going to be inconvenienced by the closures? Mr McFadden: Of course there is going to be some inconvenience with the closures. 80% of post offices will not be affected by the current programme and, where people are affected, there is very often another office that can be used either half a mile or a mile away. There may be some inconvenience in that, but part of the issue here is that we often have a number of offices relatively close to one another, competing for the same custom, so I do not deny that there is inconvenience, but most of the network will not be affected by this. I do not think we are externalising, if you like, all responsibility for this because the Government have accepted a role of government/public/taxpayer support, whichever phrase you want, for the network and that is why there is such a large subsidy that goes into it, so we have not said to the Post Office, "We're going to withdraw government support and you're going to have to run this purely on a commercial basis", because we do not believe that and that is why there is quite a substantial subsidy payment to the Post Office to maintain a much larger network than would be the case if it was run on a purely commercial basis. Q277 Chairman: Can I just ask you one question which I know the answer to before I ask it, but I have got to ask it: the six-week consultation period, it dawned on my last week that it suits the Federation very well, it suits their members very well, it suits the Government very well, it shortens the whole business, and it suits the Post Office very well, but it does not suit local communities and it is not long enough. It is in everyone else's interest, except the people the Post Office is there to serve, so is there any chance of discussing just a modest extension to, say, a period of eight weeks for the rest of the programme rather than six? Mr McFadden: I think the issue here, Mr Chairman, is actually the closure programme, and let me answer this in two parts. You know the reasons why the Government has settled on six weeks, that this was the consultation period under Urban Reinvention, and the Government had a 12-week overall national consultation on the wider decision about the closures, and it is also reflected in the Code of Practice between Post Office Limited and Postwatch from a couple of years ago on closures, and the other reasons that you mentioned about uncertainty for the network and that the programme is already going to last some 15 months from beginning to end. To go back to the central core of your question, the second part of the answer, I think, is this: that people have, including this Committee a couple of times, said, "We think the consultation period should be longer", and that is not the view of the Federation and of some others, but ---- Q278 Chairman: But it would not be. Mr McFadden: ---- the Committee have said this. I think the real issue of unpopularity locally is actually the substance of post office closures. I do not believe that, if the consultation period were longer, people would be saying, "Oh, that's okay. I'm happy with this decision now". I actually think that, even if people are using the post office less than they used to, which is the case, even if the losses have increased, which is the case, people locally, if they see their post office closing, they still do not like that, so I think the core of this ---- Q279 Chairman: So why bother consulting at all then? Mr McFadden: Well, that is a different question and I will come back to that. The core of this is actually the substance of a decision which is always going to be a difficult one. Now, you then asked, "Why bother consulting at all?" You have taken evidence from other witnesses who have taken you through this and Post Office Limited will not have perfect knowledge about an area before they begin, so they have this process of talking to the sub-postmasters, of looking at various local criteria, talking to the local authorities about maybe future regeneration plans that they were aware of and so on, and in that process quite substantial changes were made to the original first draft, if you like, of the proposals, so the consultation will never, I think, make the public think, "Well, now I am happy with the post office closures" because I always think they will be unpopular, but I think you can get to an outcome which better takes into account available local information through this process. Q280 Chairman: We have done a lot of work with colleagues in the House of Commons asking for their experience of the process so far and it is fair to say that there is a pretty universal raspberry from them about the consultation process. Indeed, Geraldine Smith in the House last week at Business Questions set out her concerns, which I will not recite for the Committee, but it is on the record of the House of Commons, and the Leader of the House, Harriet Harman, in my view quite rightly, said that the last thing people want is to be told they are being consulted and then not to be consulted at all. That is how a lot of colleagues in the House of Commons feel about the process. Mr McFadden: I think this is an important point and I think it is quite right that the Committee ask about this. When people hear that they are being consulted on a local post office closure programme, I think quite naturally they think, "I'm against this. I don't want to lose my local post office", but actually that is not quite the question that is being put, and this is why I think you have this frustration in some quarters with the consultation process. The question that is being asked is actually a different one. The question that is being asked is, "Given that we have to reduce the size of the network by 2,500 closures, or thereabouts, and given, therefore, that that means this amount of closures in your local area, have we got the right offices here and should it be office A or should it be office B?" That is actually a different question from, "Would you like to see post office closures in your area?" which I think some people think is the question, and that is why I think you have frustration about this. To be fair to Post Office Limited, in the letter that was circulated last July to MPs and to local authorities, setting out the timetable and saying this process was coming, that was made explicitly clear, so I appreciate the frustration that people have because it is interpreted that a consultation process is a sort of local referendum on whether you like this or not, but actually a different and more specific question is being asked. Q281 Roger Berry: Minister, central to the Network Change Programme or the framework for the programme is that closures should be proportional across the country. Now, on reflection, it would have been better to take into account existing levels of provision rather than to seek to apply proportionality for the obvious reason that the likelihood is that those areas that are currently poorly served by sub-post offices will continue to be poorly served by sub-post offices and those that are well served will continue to be well served. Is the principle of proportionality difficult to justify in terms of a universal network that is reaching the people who need it? Mr McFadden: You could interpret that question as saying that we should not start from here, but we have to start in a sense from the network that we have. We have tried to take a strategic view of this in terms of the overall coverage of the network through having the access criteria which, as you know, involve distances from the nearest office, depending on whether you are urban, rural and so on. You could do this in different ways. We could have said to the Post Office, "Here's £150 million subsidy. We want you to close all the least-used offices", and that would have had a very different impact because some of the least-used offices are obviously the most remote and the most rural and you would have had a different pattern of closures, but that would have been quite unfair to the most remote and rural offices, so what we have asked Post Office Limited to do is something different. We have said, "This is the level of subsidy that you have", and we talked about the 2,500 closures, "and here underpinning this are access criteria in both urban and rural areas and we want you to create a stable network that will be well within those access criteria", and I stress there that they are a minimum, not a target. That will mean that, for example, some plans may close a little more than the overall 17/18% and some may close a little less, but overall we want a network that has good reach in both urban and rural areas after this. There were different ways of doing this and I think the access criteria are actually important and, if the Committee were to go down the road of saying, "We don't actually think you should have access criteria, you should have some different way of calculating the number of offices and how they are spread around the country", I think that would certainly be a big departure, but that is obviously a decision for the Committee. Q282 Roger Berry: I am not sure that my colleagues would say it, but my immediate observation is that by applying the access criteria nationally, you could actually do that on far fewer sub-post offices than the Government is committed to, so it is hardly a binding constraint. The thing about proportionality, it seems to me, is that you are spreading the sorrow evenly, as it were, and that is basically what it is all about. No disrespect, but I find it difficult to understand that as a sort of strategic approach to a problem that would, I hope, identify some areas in need of more sub-post offices than others because of the accidents of history no doubt. Mr McFadden: Well, I think we have responded to the accidents of history, if you want to use that phrase. For example, I think it was highlighted in the response document that there are 38 postcodes which were not properly covered by the access criteria as they are, and 37 of those were in Scotland, if my memory serves me right, and I would imagine that those are some of the most remote parts of the UK. We have responded to that by saying that we want to redress that and deal with that problem, so we are not simply taking a snapshot of where we are and coming down by that amount, but there is within this some response to what you call the 'accidents of history' and how the pattern of post office coverage has developed over the years. Q283 Roger Berry: I do accept that, but, given your commitment to proportionality though, why not guarantee that the access criteria are proportional in the sense that you apply them at the regional level or the devolved administration level as well as the UK level? Mr McFadden: Well, I think we will be well above the access criteria. The access criteria are a minimum and we will be well above that after this closure programme is over. They are guaranteed to ensure a certain minimum national footprint for the network, but I think we will be well above that number after we go over, so I am not sure that doing it at a regional or a local level would have an effect on that. Q284 Roger Berry: If I can ask a final question on the access criteria, the Mayor of London has called, as you know, for another level of criteria for, I think he described them as, "dense urban areas", something close to that anyway, and he has talked about it being based on a 400-metres distance rather than a mile. Is that a good idea? Mr McFadden: Well, if you had an unlimited budget, maybe you would do that. I have no doubt that someone else in another local authority might say, "Actually, I think 400 metres can be quite a long walk for some people. I think the access criterion should be 200 metres", and we could all ask for an access criterion that meant that really there should be a post office on every street. On one level, that might be quite a popular thing to do, but at some point the number of customers, the level of losses and the changes in lifestyle, which are real and which all of us around this table are to a greater or lesser degree taking part in, and I gather that three-quarters of the country now have one direct debit or more in terms of how they pay bills, this is relatively new, a last-ten-or-15-years phenomenon, we have all got online services, and we could go through all these reasons, but, to come back to your question, 400 metres, 200 metres, 100 metres, all of these might be popular on one level or another, but at some point the overall cost of the network and thinking about those lifestyle changes and what you need to provide a good service has to shape our decisions on this. We think the access criteria that we have got provide a good minimum footprint, but we want to see a network which is comfortably above that. Q285 Mr Hoyle: I think the Chairman just made the point before, that the genuine belief out there, and my own belief, is that the closure programme consultation is a complete sham, that the danger is that you will be known as the Beeching of the moment where you are putting the cuts through. I just wonder what we can do to actually prove that it is not a sham and that Mr Cook is a genuine person, that he does understand what we are doing and that he ought to get down to the nitty-gritty of closures in constituencies, and I think we have to get that. If I can ask you this specific point, do you believe that the alternative Tory plans will keep the post office network open because that is what we are being told in all our areas at the moment? Mr McFadden: Well, I have seen a Conservative Party campaign document which has much criticism of the Government's plans. One of the points of course in the document is, "Get in quickly before the Lib Dems, otherwise they'll take it". Q286 Chairman: That is very good advice! Mr McFadden: But there are two points that are made and most of the document is given over to how you can organise and get petitions going and so on against the closure of your local post office, which is an easy thing for opposition parties to do, and there are two or three things I would point out. First of all, we had a substantial subsidy going into the Post Office of £150 million a year and I did not, if my memory serves me right, see any mention of that subsidy in that document and that would raise a question for me as to whether that was going to continue in the future. The second thing is that the document says the Conservative Party will not close any profitable post offices. Given that we know the commercial network is around 4,000, if I was confronted with that locally I would be asking whether that was the minimum network that the Opposition wanted to see. But perhaps, Mr Chairman, you do not want me to stray too far into it now. Chairman: I think, in the light of the specific circumstances and in the absence of my colleagues from the Opposition who have been put on Bill committees by the whips, it is probable that we have let you have your head. It is probably fair. Q287 Mr Hoyle: In my area, the post office's sub-postmaster has applied for closure and wishes to close yet there is a petition in on behalf of the Tory council to keep that post office open. Do you not think that is a huge whiff of hypocrisy? There is a deep concern, as the council will not put their services in and allow you to pay council tax there. Mr Cook did not have an opinion and I thought you might. Mr McFadden: I do not know if it is for me to comment on the actions of individual sub-postmasters. Q288 Mr Hoyle: But on the principle of the hypocrisy. Mr McFadden: In the evidence from the Federation last week, the General Secretary said that he had more sub-postmasters on the phone to him wanting to be part of the programme than those who are part of the programme who did not want to be. I would also say this: some local authorities have run vociferous campaigns and I have taken a look at a few of their websites. I do not see this as hypocrisy - that is not the word I would use - but, for reasons that I understand, nearly all of their websites or all of them offer mechanisms to pay your bills online and do your transactions online, and those local authorities are reacting in exactly the same way as the Government have to the change in people's lifestyles by allowing people to do things in a different way. I do not criticise them for that. All I would say is that they are making similar decisions to those which the Government have made in order to give people choice about how they pay bills and so on, all of which is part of the change in use patterns that we have seen in the post office. Chairman: I think that is enough of that. We will get back to the programme itself and the consequences. Q289 Mr Wright: In terms of Outreach, Minister, last week I visited the demonstration van outside the main entrance and one of the issues I raised was the question of the availability of outlets. They are talking about a two-hour service one day a week. Whilst that may replicate the amount of business that may well be transacted in one post office, the fact is it is not necessarily on one day of the week. I cited the issue of a pensioner on a very, very bad day, either weather-wise or because he was not feeling too well, or perhaps somebody with a disability, in icy conditions wanting to visit on the Tuesday, but the van is there on the Monday when they cannot do it, so they have to wait another week. Surely it is far better to have, say, three sessions of two hours during that period of time rather than one two-hour session. Why it is you did not put down a minimum standard under which these Outreach facilities would be made available to the general public? I also have to say that in areas where they do not currently have a post office, there is the consideration that they would serve those areas, which would be an added bonus as well. Mr McFadden: I have visited some Outreach projects myself. In some ways my reaction when I went to visit Outreach was: "Why didn't we think of this before?" The choice in the past has been that you have a full, permanent, freestanding post office or you have a closure. Here is a service that can be run at lower cost to Post Office Ltd. There is a cost - there is technology and there is security and a number of questions - but it can be done at lower cost and it can be done on a more flexible basis. In the example I went to see, the woman was there more than two hours a week: she was there a couple of days a week for a few hours, I think. She said the initial reaction had been, "We're disappointed with this because we need to have a full time, permanent, fixed building," but now that service, a couple of days a week for a couple of hours a week, has been in place for a couple of years, people have got used to it and it is very popular. I think Outreach has significant potential to bridge that gap between that traditional choice of a full-time post office and not. The specific question you asked is: Should there be some kind of minimum criteria which the Government set down about the number of hours? I am not sure there should be. First of all, Post Office Ltd have to make a judgment about the amount of business in that village or that location. Secondly, they need sub-postmasters to act as the core. It has to work for the sub-postmaster who might be doing this in two or three villages, so the amount of business that will be generated I think does come into it. In other words, Outreach is a lower cost model of providing the service but it still has to work for the sub-postmaster at the core who might be covering two or three areas, so I am not sure we should set that minimum criteria. I think Post Office Ltd will have to make a judgment: "If we are going to have an Outreach service in a particular place, should it be one day a week, two days a week or three days a week and for which hours should it be on?" If the demand is there and it works for the sub-postmaster, then it may be more than two hours a week. Q290 Mr Wright: Is that not the problem? You have mentioned that the one you visited was open for a couple of days a week. That is far better than one day a week. The problem I foresee is that the most vulnerable may well be affected by that. On a cold winter's day when it is icy, the post office van is going to be in such a place at a given time for two hours, and if I cannot get out there I then have to wait another week, until the weather is much better, rather than, say, a two or three day interval. Surely we still have an element of responsibility morally to look at this particular question and say, "Okay, it may well be minimal business but it's worth subsidising that little bit extra to make sure there is an element of service within that particular area." Whilst you are on that particular point, could you say whether it is guaranteed for a period of one year or for a longer period. Mr McFadden: On the point about one day a week, I can see that the situation you are outlining could arise but it could also arise if the van was there two days a week. A spell of bad weather could last for a few days. Wherever you set this bar, there will be probably someone who falls just the wrong side of it. You asked if we could subsidise this more. The subsidy that we have put in, the £150 million a year, if we were to put in additional to fund Outreach on top of that it would be very substantial It goes back to the question I had from Mr Berry about 400 metres as an access criteria. You could always add more to this by way of service provision and ask the Government to pay more and more subsidies, but I would argue that we have put in substantial subsidy and substantial support for the network. You asked about the moral obligation to people and I think that is right. Inevitably, for some of the public in the roughly one in five offices that are affected by this programme - and some of them will have alternative provision relatively nearby - there is going to be some inconvenience in closing this number of post offices, but the Government accept that there is an obligation to try to provide a more than commercial service to the public and that is why you do put in the subsidy. I agree with you on the obligation, but if you add and add to this, so that no-one is ever inconvenienced, you will end up with a completely open liability on behalf of the taxpayer for it. Could I come back to you or give you a note on how long Outreach lasts. Ms Hannat: Outreach is imposed for a similar length of time, as I understand it, as the network that is established through the programme. The network is guaranteed up to 2011, unless the particular sub-postmaster's circumstances change. Q291 Mr Wright: Is there a one-year guarantee? Or is it just an open book? In other words, are they going to look at it in terms of the business normally generated or is there a guarantee to support Outreach for one year? Ms Hannat: In reaching decisions on the network provision through to 2011, the Post Office is looking at up to 2,500 closures and replacements of up to 500 Outreaches. That will provide a network through to 2011. Q292 Chairman: So decisions on individual Outreach arrangements are entirely matters for the Post Office working within the financial envelope of support the Government has provided for the next three years. Beyond that, it is all up for grabs. Mr McFadden: And working with the sub-postmasters who act as the core. That is the critical element. Q293 Chairman: One of my colleagues said he had been told that Outreach would be in place for a year guaranteed. We heard differently from Post Office Ltd in their evidence just now. Mr McFadden: I am happy to check this for you, Chairman, in case there is some doubt about it. We are saying the system is in place until 2011, but in case that is not correct let me check that for you. Chairman: Okay. Q294 Mr Wright: Did you consider the option with Post Office Ltd about joining in with other services, such as the well established mobile library service which visits villages? Mr McFadden: I think Post Office Ltd should be open to any imaginative idea that works through providing a service. I do not see why we should not. Q295 Chairman: I was checking some facts during some of your questioning and I am not sure whether you asked this point. My concern is that the consultation on Outreach arrangements can be very short and there are some imaginative ideas about using mobile library services which might not have the time to come forward in the envelope. But I think we heard from the Post Office that they are prepared to take an evolutionary approach and look for new solutions in the future. That is your understanding too, is it not? Mr McFadden: Yes, I think it should be. Outreach itself is quite a new idea - partly influenced by the technology. I am sure Post Office Ltd would correct me, but I think an earlier phase of this was maybe not so technologically easy for Post Office Ltd to operate and for the customers, and it had to be a specific place where it almost had to be physically plugged in. I think the vans and so on can be more mobile now and that gives a greater flexibility to this. Therefore I think there is considerable potential in this to bridge that traditional gap that I was talking about. Chairman: The vans are not replacing everything that conventional sub post offices offered, but they are very impressive. I saw one last week and they are very good. Q296 Mr Weir: Minister, you said it would depend on the sub-postmaster who was operating the Outreach, but, just to clarify, if anything were to happen to that sub post office, if it were to close, would the Post Office still be under an obligation to provide an Outreach programme in those areas or would it go with the sub post office? Mr McFadden: They would obviously do their level best to replace that service if it was there. But with all these things this has to work for people. There is funding in place that helps to make it work for people with subsidies and government support and so on. Q297 Mr Weir: That is not really the point. My worry, from what you have said, is that it is all conditional upon the survival of a post office. You could have one sub post office running an Outreach in several areas and all of it could go if something happened to the post office. Mr McFadden: They would have to do their level best to get someone to take that over. But, in the end, the Post Office is not a press gang that can force people into doing this: it has to work for them. Having made the decision to have 500 Outreach outlets as part of the network change programme, if a change happens - if a sub-postmaster were to leave or had to go - obviously we want to see that replaced, but it is difficult for it to be 100% if they cannot find someone to do it within the envelope they have. They will have to try to do that, but it has to work for the sub-postmaster concerned. Q298 Chairman: Could we look briefly at the relationship of this whole programme to the Crown franchising arrangements. We have head from the union earlier today that they thought one of the reasons that the queues were not too bad and were better in the Crown offices than the franchised offices is because much of the business left the Crown office network and went for the sub post office network or elsewhere. Also, we have heard evidence from the National Federation of Sub-Postmasters, who are concerned that when franchised offices are moved they can be moved to very different locations from the original Crown office and start "cannibalising" - which I think was the word they used - the business of the local sub office. Are you happy that the franchising process is maintaining standards of service delivery in those old former Crown offices, and are you happy that the Post Office sub post office branch closure programme is taking sufficient account of the franchising process? Mr McFadden: Do you mean specifically the W H Smith franchise? Q299 Chairman: Yes, particularly in W H Smith. Mr McFadden: Some surveys of customer feedback have shown relatively high customer satisfaction. I think it is also worth saying that franchising is nothing new in the Post Office. There are branches of the Co-Op which run post office branches, there are other chains which run post office branches. The type of arrangement which has been reached with W H Smith is not a new departure; there have been franchise arrangements with other retail chains in the past. It is quite early days with this but the early surveys on the first half dozen that were carried out showed relatively high levels of customer satisfaction. The second part of your question relates to quite an important point, and it is often not seen because, quite understandably, the focus is on the impact of the closures on communities where post offices are closing. One of the outcomes of all of this is that it should be a more stable network for those sub-postmasters and those Crown offices, franchised or not, which remain in place after the closure programme. I know you want to concentrate on the process in today's session, but, if you go back to the rationale for doing this, the rationale overall for doing it was that you had a declining number of customers - by four million customers a week over a period of a couple of years - you had rising losses - going up from £2 million a week to £3.5 million a week - and you had the technological changes that I have referred to a couple of times. All of that means significant change in the pattern of customers for the Post Office. Part of the rationale for the closure programme is not just to respond to that but to make sure the network which survives is on a more stable footing. There is an issue about who is going to get the migration of business after sub post offices close. Are there going to be other sub post offices? Are they going to be Crown offices? Are they going to be franchised offices? The whole network should be on a more stable footing after it has reduced its size in line with the fall in customer numbers, and after other changes which we have not talked about from Post Office Ltd to attract more customers through the door. 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 W H Smith. 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 W H Smith 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. Q320 Chairman: Indeed. That is my reassurance! Mr McFadden: The figure so far is around 17% or 18%. I am not sure where you might get the idea it is 14% or 15%. Q321 Chairman: We received some new evidence late last night from Postwatch, which we have not yet had time to absorb. Mr McFadden: It will vary a little: some may be slightly over the 18%, some may be slightly under, but it is of that order. So we should not be in a position whereby we suddenly come to the final couple of area plans and say, "Oh, my goodness, we'll have to shut far more in these areas." That should not happen. The difference here may be about the Outreach services making the difference between the calculations. That is what it probably is. Q322 Chairman: As shareholder and Minister and constituency MP, you would not tolerate any requirement from our areas to make up a shortfall. Mr McFadden: I do not think there will be a need for that, looking at the percentage which has been picked so far. It is quite easy to do this: just go on the Post Office website and pick out some of the area plans that have happened and do the sums, and it is about 17% or 18%. Q323 Chairman: We are going to draw things to a conclusion here, because we are going to go back into private session now and reflect on what we have heard with the hope of producing quite a rapid report of some kind. If we do that, I hope we might look to you, as I indicated during a question on the floor of the House a few weeks ago, to be a little more rapid than the usual two-month response period to a select committee report. I hope you will at least consider that possibility. Mr McFadden: As I said when we discussed this on the floor of the House, obviously we take the reports of this Committee seriously. Chairman: I hope that was a sort of yes. It was a very skilful answer, Minister. We do hope so. We are grateful to you for the time and trouble you have given today. We hope to make a contribution to the ongoing smooth running of the process. |