House of Commons - Post Offices - Securing their Future

Post Offices - Securing their Future - Business and Enterprise Committee Contents

Annex A - The development of the post office network

"'Unhappy is the village without a post office"[229]

1. There are three key themes in the development of the post office network. The first is that until quite recently, it lacked a separate history — post offices were an inextricable part of the entity now known as Royal Mail. The second is that from the start, post offices were a mixture of public and private enterprises, with the private predominating. The third is that their growth and development have always been a matter of opportunism: there has never been any grand plan or overarching principle. All three themes are highly relevant to any consideration of the future of the network.

2. Historians generally take the starting date of both the state postal and post office services as being 1635.[230] In that year, under a Royal Proclamation from Charles I, the royal domestic mail services were made available for public use, in order to raise revenue for the King. In October that year, Thomas Witherings opened the first post office, in Bishopsgate Street in London, to which the public could take mail for posting and collect mail sent to them. A struggle for control of this monopoly service led to the Post Office Acts of 1657 and 1660. The latter set out the duties and remuneration of postmasters throughout England and Scotland.

3. At this time, and for long afterwards, post offices were mainly based in coaching inns.[231] Part of the duty of the postmasters/innkeepers, alongside collecting mail from the public, was to provide fresh horses for the riders transporting the mail. Postmaster remuneration was dependent on the volume of mail handled, and the system was administered from a central office in Lombard Street, London.

4. Post offices began offering financial services more than two centuries ago: in 1792 a money order service was introduced. This allowed an order to be purchased from one office and sent to the recipient, who could then exchange it for cash at another post office. This was one of many developments which led to the growth of the network up to the First World War. Others included:

The introduction of the uniform penny postage in 1840. This greatly increased the volume of mail posted and the demand for post offices.
The introduction of the Post Office Savings Bank in 1861. The Post Office Savings Bank Act empowered the Postmaster General - the Minister responsible for mail services and post offices - to receive money on deposit, make repayments and pay annual interest of 2.5 per cent on depositors' balances. At that time there were few banks outside major towns; by 1863, 2,500 post offices were offering the service.
The coming of the telegraph - and the monopoly of running the service given to the General Post Office (GPO) in 1870.
The introduction of the parcel post service in 1883.
The introduction of Old Age Pensions in 1909, payable at post offices.

5. Until 1854, although mail and post office services were a government monopoly administered by a government department, all post offices throughout the country were private businesses. In that year, the first post offices operated by the GPO were opened, staffed by GPO employees and known as crown offices. But privately run post offices (sub-post offices) were and remained a large majority. Subpostmasters - mainly owners of small shops - 'were attracted not so much by the generosity of the payments as by the "ulterior consideration" of attracting customers'.[232] The total network grew from 9,973 offices in 1854 to 24,354 in 1913 - of which 23,326 were sub-post offices.[233] The total number of offices remained surprisingly constant for the next 65 years.

6. It was in the late nineteenth and early twentieth centuries that post offices came to be regarded as central to the life of a community: "If the place be a place at all, there we shall find a Post-office".[234] The fact that post offices were, in effect, providers of universal government services, but were mainly themselves small businesses was considered one of their strengths: "The sub-postmaster[…]has, as it were, a foot in both worlds, the commercial and the official, and he comes to his duties with the training not of a civil servant but of the local tradesman[…][Such people] are in close touch with the public, they know its peculiarities across the counter, and they are less likely to be strangled by red tape".[235]

7. Meanwhile, the range of financial services offered by post offices continued to grow: government stocks and bonds in 1880; insurance and annuities in 1888; and war savings certificates (later renamed National Savings Certificates) in 1916. During both World Wars, post offices became even more important as providers of wider government services, displaying general notices and instructions and issuing forms, coupons and wartime allowances. Throughout this period, the head of the service remained the Postmaster General. After 1934, the Postmaster General acted as Chairman of a newly created Post Office Board.

8. After the Second World War, there was a steady growth in the role of post offices as agents for the provision of government services and as providers of financial services on their own account.[236] To some extent, this was driven by a fear that new technology (such as the telex) and the growth of existing technology (particularly the increasing number of domestic telephones) would reduce postal traffic and thus mail transactions in post offices - a fear which proved not so much misplaced as premature.

9. In 1969, there was a major change in the status of the Post Office: from government department to nationalised industry. However, the Post Office Savings Bank remained (for a while) a government department, so from then on post offices handled National Savings transactions as agents rather than on their own account.

10. By the 1970s, the argument was commonplace that post offices were an effective and efficient means of delivering government services. In its 1976 report on sub-post offices, the Post Office Users National Council (POUNC) wrote: "From the point of view of Government, the long established system of agency services using the widely spread network of post offices is more convenient and probably cheaper than providing alternative facilities."[237] In the same report, POUNC provided a breakdown of post office transactions for 1974-75. In summary, they consisted of the following:

Agency work	%
Retirement pensions	20
Other pensions and allowances	14
National insurance stamps	6
National Savings business	11
Other agency business	2
Total agency work	53
Post office work
Postal work	26
Other (Giro, postal orders etc)	21
Total post office work	47

11. So in 1974/75, work as an agent on behalf of Government - mainly, at that time, the Department of Health and Social Security - was responsible for more than half of all transactions in post offices. The Post Office's own financial products and services, while lower in volume, were highly important to the sustainability of the post office network - and the Post Office Girobank was central to this.

12. From the start, the Girobank was seen as offering a complementary service to that of the clearing banks. It would be a simple and cheap basic banking service mainly for people without a bank account, which in the mid-1960s amounted to 75% of the adult population.[238] But it would also have advantages not available through clearing banks, given that the post office network was far more extensive (23,000 branches in 1968) and widespread than clearing banks, and offered longer opening hours, including Saturdays.

13. The Girobank opened for business in October 1968. Analysts argue that there were two main reasons for its failure to thrive. First, it entered an increasingly crowded market for financial products; notably, clearing banks improved their service, and credit cards began to be issued at around this time. Second, a large proportion of the target market stuck to cash transactions.[239] Within two years, Girobank's cumulative losses were nearly £20m. Its future looked uncertain, but the Government concluded that with a re-launch it could be viable. It did continue, with increased charges and some diminution of service.

14. By the late 1980s, National Girobank had managed to become Britain's sixth largest bank. It became independent in 1988, as the Post Office Savings Bank had done twenty years before. Unlike the Savings Bank, it became a public limited company, and was bought by the Alliance and Leicester Building Society in 1990.

15. Meanwhile, post offices developed for the first time as a separate entity, in management terms, from the rest of what is now Royal Mail. A 'Counter Services' department was established in 1981; in 1986, post office counters became a separate business, alongside the letters and parcels businesses; and in 1987, Post Office Counters became a limited company with separate audited accounts. Its successor, Post Office Ltd, was established in 2001, under powers granted to what is now Royal Mail in the Postal Services Act 2000.

16. It was also at this period — the late 1990s and early 2000s — that the largest ever collaborative project was planned between Post Office Counters Ltd (as it then was) and central government, in this case the Benefits Agency. This was the Horizon IT project, to design and install computers throughout the post office network. A core purpose of the project was to automate the payment of benefits at post offices, both to increase efficiency and to reduce fraud. It would be a serious understatement to say that the project suffered teething troubles. The delays, lack of clear focus and divided leadership of the project were severely criticised by the National Audit Office in 2000.[240]

17. By this point, the Government had already decided that the benefit payment card element of the project would not go ahead as planned. Instead, benefits would where possible be paid direct into bank accounts, which would lead to a substantial loss of business to post offices. Up to 2004-05, the provision of government services had been responsible for more than 40% of post office revenue; within three years, by 2007-08, this had slipped to a little over 26%. Post Office Ltd had to adjust to this loss of government business. To an extent it focused on its traditional core business. Over the same three year period:

revenue from mail, retail and National Lottery transactions (the vast majority coming from the contract between Post Office Ltd and the rest of the Royal Mail Group) rose from around 27% to 35% of the total;
revenue from telephony services rose from around 1% to 9%; and
revenue from financial services was fairly constant at around 29%.[241]

18. One point worth noting about these figures is that not all of this income was due to transactions actually taking place in post offices: an increasing proportion of transactions took place by telephone or online. The starker change over the past few years has been in the sustainability and size of the network.

229 Edward Bennett, The Post Office and its Story (London Seeley, 1912) Back

230 Postal Heritage Trust; Howard Robinson, Britain's Post Office (Oxford University Press, 1953) and Edward Bennett, The Post Office and its Story (London Seeley, 1912) Back

231 Including one in Slough operated by the Committee Chairman's great-great grandmother, Maria Luff, who succeeded to the position at the town's coaching inn, the White Hart, in May 1841 where her husband, Charles, and his father, Francis, had both been the town's post master. Maria Luff moved to dedicated post office premises in December 1841. Back

232 M J Daunton, The Post Office since 1840 (Athlone Press, 1985), p280 Back

233 Daunton Back

234 James Wilson Hyde, The Royal Mail (Harper & brothers, 1885), p 386 Back

235 Edward Bennett, The Post Office and its Story (London Seeley, 1912) Back

236 Source: Annual reports of the Postmaster General Back

237 Post Office Users National Council Report 14 Back

238 As set out in the 1965 White Paper 'A Post Office Giro'; British Postal Archive Back

239 Alliance and Leicester plc archives and British Postal Archive Back

240 NAO, The Cancellation of the Benefit Payment Card Project, HC: 857 1999-2000, 18 August 2000 Back