Memorandum submitted by Essex County Council
Essex County Council welcomes the opportunity
to contribute to this Inquiry into the future of the Post Office
network. As a leading upper-tier local authority and one that
is committed to achieving the best quality of life in Britain,
we are pleased that the Committee is reviewing the future of this
valuable service network.
We believe that local government has an important
role to play in the future of the post office network. We have
based this view on the experience we have gained in developing
our innovative approach to re-opening closed post office branches
in Essex and our experience of campaigning to save branches in
our county from closure.
We argue that if the post office network is
to become truly sustainable it must be recognised and run as a
community service—distinct from the commercial products
sold through branches. Many of the problems facing the network
stem from confusion between the role of the local branch as a
community service and status of Post Office Ltd as a commercial
enterprise. Thousands of branches have been closed in attempts
to increase the Post Office Ltd's commercial sustainability, while
our communities' needs have received markedly less attention.
We have concluded that a radical re-think is
needed. The post office network can combine profitability and
public service, but not in its current form. Changes in the scope
of services will be required, but further reform will be necessary
to bring true sustainability. Only by localising decisions on
the shape of the branch network can we secure a sustainable, accountable
and responsive post office service.
This submission can be read alongside our Counter
Measures pamphlet.
THE ESSEX
STORY SO
FAR
1. In September 2008, Essex County Council
became the first UK local authority to use local funding to reopen
a post office branch closed by central government. Since September,
two more post offices have been reopened in isolated rural locations
and the programme team are currently conducting negotiations with
a number of other potential sites across the county. A further
four post offices will be reopened using the locally funded Essex
Model by summer 2009, with potentially 10 more to follow
thereafter.
2. We are committed to this because we understand
the important role that post offices play in our communities.
The post office provides a service infrastructure allowing older
and vulnerable people to access services in their own community
and to retain greater independence. It provides a unique access
point for public information; increases opportunities for social
interaction and increases customer footfall for small retailers.
3. In Essex, where post offices have closed,
we are looking to re-build a local service network. Working with
a range of small, independent retail outlets we will provide "community
information points "—web-based service access points
and we will ensure communities have access to postal services.
This network is—in effect—a new brand on the high-street
providing services such as internet access; free cash machines;
bill payment facilities; postal services and banking services.
These services will be complemented by direct access, through
the community information points, to information about the local
community and signposts to services provided by Central Government,
County and District Councils, the Police and many other public
bodies. The service mix will vary in line with local community
needs. Indeed, postal services need not be provided at every branch,
in some instances a free cash point; an electronic payment terminal;
and mail collection facilities may be all that is required.
4. In building this network we have tested
independent retail outlets against a set of eligibility criteria.
We have then short-listed sites for community information points
based on consideration of issues such as local need, the availability
of alternative services, and even the physical accessibility and
the layout of the premises. Where postal services are to form
part of the offering, we have then negotiated the shape of the
local service with Post Office Ltd. Where Post Office Ltd are
happy to see postal services reopen (whether as stand alone branches
or under the auspices of an existing branch) they conduct their
own assessment of potential providers and subject their businesses
to detailed scrutiny.
5. Central to the success of this new service
is the simplicity of our funding model. We have based our approach
on time-limited start-up grants. These are paid to approved providers
based on likely numbers of customers, transactions and staff required.
Grant payments are made for the delivery of community information
services. The retailer must hold have a wholly separate contract
with Post Office Ltd for any postal services that are to be provided.
We have insisted that providers prepare a business plan and train
to deliver community information services. Over time, the business
plan has to demonstrate how the postal activities contribute to
overall trading profit.
OUR FUTURE
VISION
6. Looking to the longer term, a re-think
is required in the way the post office branch network is run.
Without substantial reform, the network will struggle to sustain
its operations in either commercial terms or as a community service.
7. The current Post Office network is run
as a commercial enterprise and supported by substantial public
subsidy. But subsidy will not make the branch network sustainable:
(a) commercial constraints are squeezing branches
out of their important community role, and
(b) services traditionally offered over post
office counters are increasingly provided through alternative
channels.
8. At present, local postal services are
delivered by franchisees under contract with Post Office Ltd.
Local branches are therefore forced to bear the costs associated
with national overheads. Overhead charges are allocated to post
office branches without negotiation to meet the costs of infrastructure
and support services. These can exceed the costs associated with
service provision (ie salary and commission paid to the postmaster).
The limited evidence available suggests that, in some cases, only
one-third of these overhead charges relate to the infrastructure
support costs of a particular branch. As more branches close (in
the name of greater sustainability), it is likely that overhead
charges will be shared across a smaller number of branches thereby
increasing the payments each branch has to make. This, together
with the incentive for Post Office Ltd to keep postmasters' commission
payments at a low level, has increased pressure on postmasters
and further squeezed branch numbers. Moves towards commercial
sustainability at the national level have undermined the sustainability
of local branches and the benefits they bring their communities.
9. We believe it is possible to secure a
sustainable future for post office branches, whilst allowing Post
Office Ltd to succeed as a commercial business. We propose a radical
division be established between Post Office Ltd's commercial assets—its
products (eg broadband, ISAs etc) and its national contracts—and
its community assets—the branch network. We propose that
local authorities become custodians of the branch network giving
Post Office Ltd the freedom to act as a purely commercial organisation.
10. We propose that local authorities take
responsibility for maintaining and sustaining a local branch network
in line with the needs of their communities. Upper-tier and unitary
authorities would take the lead in commissioning post office services
and managing contracts with incumbent sub-postmasters. The commissioning
of local services would follow the same rules that apply in commissioning
any other local public service. Local authorities would be responsible
for the sustainability of their own local networks, commissioning
new products and services and varying the mix of provision according
to local needs and circumstances. They could use their experience
as commissioners to innovate with contracts and create incentives
for local postmasters. This may mean negotiating more favourable
contracts to support sub-postmasters in areas where the social
benefits exceed commercial viability.
11. Councils have the depth of knowledge
required to understand the local benefits of post offices. They
can link decisions on the local network with decisions on care
provision, public transport and the local economy. Through their
existing partnership arrangements they could expedite the conversion
of expensive "Crown Offices" to cheaper franchises with
private partners and third sector bodies. They may also co-locate
Post Office services with other council services to reduce costs.
Perhaps most importantly, by bringing the post office network
into the family of local government services we will bring legitimacy
to the management of the network. Decisions on the future of this
community service will be taken by democratically elected and
publicly accountable local leaders, not analysts in Post Office
Ltd.
12. Post Office Ltd will be free to focus
on the profitability of their commercial operations—governed
by their success in marketing products and winning commercial
contracts. Post Office Ltd would also be expected, in consultation
with councils, to prepare competitive bids for national contracts
tendered by central government.
13. Transferring the branch network to local
authorities need not affect Post Office Ltd's retail opportunities.
The locally managed post office network should remain an outlet
for Post Office Ltd's products and (at least at first) a customer
for Post Office Ltd's infrastructure support. These agreements
would be defined in contracts specifying Post Office Ltd's commission
structure and the service standard required of branches.
14. In the short-medium term, we would expect
to see subsidies redirected to councils as part of their formula
grant package following assessments of need for post office subsidies.
But over the long term, the separation of commercial products
and branch network should improve financial sustainability and
reduce (to some degree) the need for subsidy. While councils can
make savings by experimenting with co-location, franchising and
commissioning arrangements, the separation will remove the need
for local branches to pay towards Post Office Ltd's overheads
and replace this with payments made, under contact, for infrastructure
services. By bringing these payments into the open, we can ensure
that every branch pays a fair price for the infrastructure services
they consume.
15. The downward pressure on infrastructure
support charges would be intensified as local authorities increase
the bargaining power of their local postmasters. At the moment,
Post Office Ltd allocates overhead charges on a branch by branch
basis. With councils overseeing their local network, they can
act as a single interface with Post Office Ltd (or any other provider)
negotiating terms on behalf of all their branches and achieving
more favourable terms. The success of Post Office Ltd's infrastructure
business services will, like every other private enterprise, depend
on their ability to provide the services demanded by the market
at a competitive price.
SERVICE DEVELOPMENT—PILOT
PROJECT FOR
ESSEX POST
OFFICE NETWORK.
16. One of the most significant challenges
local authorities face is ensuring that all residents regardless
of age, income, location and ability can interact and engage with
the services they provide. This can be achieved through a wide
range of channels whether through direct contact or through email
or postal services. Despite this, some residents still find it
difficult to interact with their local authority. A solution to
this is to use the presence of the post office network as a hub
for communications with the council.
17. Over the coming months Essex County
Council will be working in partnership with a district council
to pilot a project to use post offices as a new channel for county
and district transactional services.
18. The reach of the post office network
in both geographical and operational terms is considerable. Post
offices are locally convenient, offer a counter service five days
a week (and some on Saturdays as well) and use a highly flexible
IT infrastructure. Additionally, all Post Offices are secure,
have trained staff, and already offer cash transacting services
and bill payment facilities
19. The pilot aims to enable any payments
due from residents to the local authority or conversely from the
local authority to residents to be paid through the post office
using the Horizon system.
A list of potential transactions that could
be included in this pilot includes:
| |
| |
| Payments to the Local Authority
| Payment to residents |
| |
| |
| 1. | Benefit/Tax overpayments
| 1. | Uniform vouchers |
| 2. | Council housing service charges
| 2. | Council tax rebates |
| 3. | National non-domestic rates
| 3. | Housing benefit rebates
|
| 4. | Leaseholder payments |
4. | Concessionary travel schemes
|
| 5. | Building regulation fees
| | |
| 6. | Garage/allotment/hall hire rents
| | |
| 7. | Parking notice charges
| | |
| 8. | Leisure charges |
| |
| 9. | Care and support payments
| | |
| 10. | Certain grants |
| |
| |
| |
| |
| |
20. The operating model to enable such transactions is
cost effective, straightforward and user friendly. The only requirement
is to negotiate a contract with Post Office Ltd to add these services
to the Horizon system. Following this, the local authority to
add the appropriate barcode to the paperwork sent to the customer.
21. Services registered on the Horizon system can operate
across the entire post office network. Therefore, the operator
of each post office can undertake these additional transactions
as part of their normal business (without the need for Council
staff) and in return they receive "transaction related pay"
from Post Office Ltd based on the type and frequency of transactions.
No direct relationship is needed between the local authority and
any post office, meaning that overheads are minimal and there
is no requirement for local authority back-office support staff.
22. The benefits of this programme are significant. Using
post offices as an extra channel to deliver services gives local
authorities access to a low cost, community centric, trusted and
secure method of conducting business. The addition of a convenient
highly accessible channel would, we anticipate, have the additional
benefit of reducing congestion in council cashier offices or calls
to their call centres. Moreover, this pilot will increase the
footfall into the Essex post office network as a whole, supporting
post offices to generate more income and ultimately become more
sustainable.
23. We are currently talking to district councils who
would like to deliver the pilot and are in talks with Post Office
Limited on the contract. We estimate that this pilot will "go
live" during summer 2009.
24. Our intention, is to roll this programme out to the
entire county allowing all districts to benefit from the additional
channel. With Essex being one of the largest counties in the UK,
we would renegotiate the terms with Post Office Limited during
this expansion to pass on the efficiencies created through economies
of scale to all parties involved.
25. We would also like to expand the variety of services
available in post offices; as more and more services become available
online across the public sector, these could easily be integrated
into our community information points to allow people without
internet access at home to access these services. Furthermore,
with post offices already conducting a number of different document
checking and assessment services, we see potential for certain
assessments usually conducted by Local Authorities being conducted
in post offices such as eligibility for concessionary travel passed
and disabled blue badges.
QUESTIONS ASKED
BY THE
COMMITTEE:
What services should the Post Office network offer (a) from
government; (b) from local authorities, and (c) from other sources,
including services in competition with Royal Mail Group?
26. The Post Office network must continue to diversify
its product base if it is to become sustainable—this is
without question. Although we would anticipate Royal Mail Group
services continuing to be delivered through Post Office branches,
we would not artificially limit the menu of services to those
provided by this one company. However, our vision would see decisions
about the services local post offices provide, devolved to the
local level. While many services provided under contract with
national government would be available in any branch, other services
may vary as local authorities shape the service mix in line with
local needs and circumstances. In some areas a free cash machine,
banking facilities, electronic bill payment and a mail collection
service may suffice; in other areas specific local services offered
by public and third sector partners might be brought into the
mix.
27. There are however, clear opportunities for local
authorities to make greater use of post offices in delivering
local services. We would anticipate that our model would lead
to far greater use of post office counters for council tax payment
and benefit administration. We may also see local authorities
making greater use of some of more innovative products provided
by Post Office Ltd or some other provider.
28. For example, local authorities spend an increasing
amount of time and money trying to engage with their communities.
Response rates are often disappointing and many so called "hard
to reach groups" have stubbornly lived up to their name.
With a large retail network and high levels of trust in the Post
Office branch there is an opportunity for councils to use post
offices as front doors to local services and as points through
which to engage citizens. Pilots, such as those conducted in Sedgemoor
Somerset, suggest that the post office network can increase consultation
responses by a factor of 100. We would expect such opportunities
to be exploited as a result of local authorities becoming involved
in commissioning local postal services. To re-iterate however,
we would advocate that decisions over the use of such services
be taken by elected councillors at local level.
To what extent would these increase the network's commercial
viability? Is there a case for any service to be subsidised, and
if so, to what extent.
29. While diversification into new products and services
may go some way to increase the viability of Post Office Ltd,
this will not be enough to ensure the sustainability of the post
office network. There is little chance in the short-medium term
that Post Office Ltd's net losses (£184 million in 2007-08)
could be offset by revenues from new products and services. Indeed,
there is little chance that the network will become commercially
viable without further (and substantial) branch closures.
30. Given the vital role the post office branch plays
in its local community we could not advocate any further closers—whether
these are planned or forced on postmasters through punitive terms
of trade. We therefore recognize the need for continued subsidy
for the post office network.
31. But we also recognize the need to change the way
this subsidy is paid. Continued subsidies in their current form
will, at best, sustain the network in its current form. If local
authorities were to act as custodians of the branch network with
subsidies channeled through formula grant payment, there would
be a clear mechanism through which the branch network's reliance
on subsidy could be reduced over the long term without widespread
closers.
How much account should be taken of (a) costs to the taxpayer
in providing services through the Post Office rather than through
cheaper channels; and (b) consumer preference for alternative
channels?
32. In general terms, those responsible for spending
public money should maximise value for money in the decisions
they make. This must involve balancing financial costs with the
range of anticipated benefits and consumer preferences. Where
provision of services through alternative channels represents
better value for money then these alternative channels should
be used. The Post Office already receives substantial public subsidy
and there can be little justification for using still more public
money to provide services through the network when this does not
optimise value for money or align with consumer preferences.
33. By bringing the post office into the family of local
government services there is an opportunity to diversify the range
of local services provided through the branch infrastructure.
Although local decision makers should determine the particular
service mix in each locality, the Post Office could develop a
role as the front door to a range of local public services. Were
the branch network to be brought under local authority stewardship,
such a role could provide a sustainable future for the branch
network even if Post Office Ltd proved unable to win sufficient
business in the open market (whether this be on value for money
grounds or consumer preference for alternative channels).
To what extent would a desire for the presence of a Post Office
or Post Office services translate into actual use of those services?
34. Essex County Council has no specific view on the
extent to which desires for a local post office will translate
into actual service use. However, we believe that only local authorities
have the local knowledge required to judge where post office services
are genuinely necessary. Local authorities can shape the branch
network in line with local circumstances, residents' preferences
and genuine local need. Moreover, they can link this work with
decisions on the provision of other local services and can balance
these against alternative service priorities. Crucially, local
authority decisions to commission or not commission a post office
service within a particular locality will have legitimacy that
similar decision from Post Office Ltd's lack. They will be taken
by elected councillors, visible to their communities and responsive
to the preferences of local citizens as expressed at the ballot
box.
What are the impacts of the availability of post office facilities
for businesses, and local residents; and in particular how significant
is the network in aiding social and financial inclusion
35. The post office has a significant positive impact
on the whole community. Analysis from the Citizens' Advice Bureau
suggests that 59% regard the post offices as "centres of
the community" and cite this as fundamental to their local
value. More than eight out of ten see the local post office as
a place to get official information, while around two-thirds use
the post office as a source of local information and informal
advice.
36. The local branch also plays a vital role in promoting
financial inclusion; only 4% of villages have a bank while some
60% have a post office. This is a role particularly valued by
older people: many feel safer using the post office as a one stop
shop to collect benefits and pay bills, rather than carrying money
from one place to the next place. There is also a crucial social
dimension—more than a quarter regard the local post office
as a place to meet.
37. This social dimension should not be underestimated—particularly
in rural communities. Those rural areas threatened with post office
closures are among those who have lost bank branches, shops and
petrol stations in recent years. In many cases, the post office
is now the only remaining service—an estimated 57% of rural
postmasters provide the only retail outlet in their village. The
role these postmasters play in their communities—not least
in supporting older and vulnerable people—cannot be replicated.
38. In economic terms, Post Office branches can have
an enormous impact. Analysis from the New Economics Foundation
suggests that the closure of a post office branch has a dual impact
on the local economy. There is a direct reduction in the flow
of money through the local area as a result of the branch closure,
"for every £10 earned in income, the post
office generates £16.20 for its local economy—of
which £6.20 is direct spending on local goods and services."
39. And there is an indirect impact on the costs—and
therefore profitability—of local businesses,
"each post office saves small businesses in their
direct vicinity in the region of £270,000 each year."
40. This indirect impact is considerable. The evidence
suggests that 82% of small businesses think that the closure of
the local post office would adversely affect their business, increasing
travel time, queuing time, and even leading to business closures.
Local retailers may bear the brunt. The withdrawal of local branches
would increase costs, and can also cut sales through reduced customer
footfall.
41. But it is older and more vulnerable consumers who
will be most affected by post office closures. Post offices can
help older people stay active by providing an infrastructure that
allows them to access services in their own community. A poll
conducted for AgeConcern, suggests that 99% of older people consider
their local post office to be a "lifeline" and more
than half fear closures would leave them isolated. Indeed, Postwatch
Scotland—the consumer watchdog for post office services
in Scotland—has estimated that 86% of elderly rural residents
would lose their independence if their local branch were to close.
42. Taken together, the positive impacts of post offices
on their communities are considerable. Our own analysis suggests
that for every six post office branches, communities in Essex
enjoy benefits worth around £1 million per year. Across
the UK as a whole, this suggests the branch network could deliver
benefits worth over £2 billion per year—£2 billion
that will never appear in Post Office Ltd's trading statements.
What level of subsidy-if any-per Post Office would be reasonable
in the long term; for example, should it be £20,000 or
£200,000?
43. We would caution against establishing a rate of subsidy-per-post
office of this is to be delivered direct to Post Office Ltd or
to local authorities through revenue support grant. The crucial
metric concerns the level of subsidy required to sustain non-commercial
but socially necessary branches. Under our proposed model, such
branches could be identified within each upper-tier authority
area and additional revenue support grant provided in line with
the degree of need.
CONCLUSION
Essex County Council has led the way in identifying and applying
innovative ways to safeguard the future of the post office network.
We understand the value of post offices to our communities and
we have worked to create a model that not only saves this community
asset in the short term, but also establishes the foundations
to help ensure the long term sustainability of the network.
January 2009
| 
