Examination of Witnesses (Question Numbers
140-159)
NATIONAL FEDERATION
OF SUBPOSTMASTERS
31 MARCH 2009
Q140 Mr Clapham: So the main feature
in terms of the subpostmaster really is the associated retail
business?
Mr Jones: I would not say it is
the main feature. I think what we need to recognise is that the
two income streams, there is a synergy between them, and that
as people come in to visit the post office, obviously they spend
money in the shop, and one of the big concerns we had over the
network change programme, and indeed what is amounting to, if
you like, an unstructured network change programme, in that people
are handing back the keys, we are particularly seeing where it
is the last shop in the village, that if the income stream from
the post office declines, the viability of the whole business
falls, and that service is lost to the community. That is particularly
true in rural areas, and there are many instances, particularly
in Scotland, in the Highlands, where if you take one strand of
this business away, then the other ceases to be able to generate
enough income for a family to make a living from, so it is a very
big problem.
Q141 Mr Clapham: Do you feel that
POL is doing enough to help and encourage subpostmasters? Is there
much more that they could do, and if so, what are some of the
things that they might be able to do to actually support subpostmasters?
Mr Jones: Well I think the biggest
issue for me is Post Office Limited's core expense, and the cost
of actually running the company. What we would like to be able
to do is be able to work with Post Office Limited to find a way
of trying to reduce those costs substantially, but also to ensure
that part of those savings flow down to subpostmasters, and are
simply not held in the centre. It is a major concern, but if Post
Office Limited is going to be compared to another franchise model,
I do not know of many franchisors who retain 55% of gross income
to maintain their service provision to the franchisees.
Q142 Mr Clapham: In terms of that
proportion, what discussions have you had at all with POL? What
is their view when you put to them that the proportion that is
taken actually sort of undermines the viability of the post office?
Mr Thomson: We have to be careful
here. Could POL run a more efficient ship? Yes, they could. However,
and it is a big however, they are a company that has to keep 8,000
branches open that lose money for them, only 4,000 branches make
money, so any company that has to keep 8,000 offices open for
a social aspect for the communities, then obviously there are
going to be income ramifications for that. I have been in the
post office industry, Royal Mail Group, for 30 years, and apart
from the fact that we used to have prefunded money from the DWP,
which made us tens of millions of pounds a year, Post Office Limited,
if you exclude that £20-30 million they made in those days
of the DWP money, has never made money in 30 years. It was only
because of the overnight cash loadings at the DWP, when they used
to have to prefund the benefit books, so POL have never been a
particularly successful company because we have to keep 8,000
offices open that any other company would close, but could they
cut back on their costs and give more to subpostmasters? In our
view, absolutely.
Mr Jones: It absolutely has to
happen. We need, as an organisation, to be in a position to co-operate
with Post Office Limited to ensure that that happens, and we probably
do not engage with them the way that we should on that particular
issue. We are not encouraged to engage with them the way we should
on that particular issue, I think it is fair to say.
Q143 Mr Clapham: Just looking at
that encouragement and thinking in terms of what you said earlier
about the post office and the associated retail businesses that
many of them benefit from, given that retail businesses are open
much longer than post offices are, has it ever been discussed
with POL about extending the hours of the post office to sort
of marry up the hours of the retail side of the business?
Mr Jones: To be frank with you,
I was in exactly that position in my own office. We had a situation
where a major supermarket chain actually put the post office out
in my local town, so as a result my business became much, much
busier, and I increased my opening hours substantially, and discovered
that although the post office income went up substantially, the
cost of delivering that service in terms of staffing hours meant
that I actually lost money and had to revert back to my original
hours. Now there are some solutions now in place, particularly
combi till, where you can multi-function your staff, and there
is opportunity to increase those opening hours, but the staff
have to be able to multi-function and do the shop and the post
office together. So we now have these what are called combi tills
which generally cost subpostmasters between £6,000 and £8,000
to install and can extend their hours. For instance, my convenience
store is open from 7.00 in the morning until 10.00 at night, but
we only offer a post office service between 9.00 and 5.30. Although
it is perfectly feasible to be able to offer it beyond that, but
the cost of the initial investment and then managing the staff
and making sure that it is run properly obviously are big issues
for subpostmasters.
Mr Thomson: Notwithstanding what
has been said, we have to be careful here, because running a post
office is very different from running a convenience store, and
Mervyn is quite right, many of us do both. However, post office
staff are trained to a far higher level, they sign the Official
Secrets Act, we make sure that there is cash delivered by the
post office, we have a secure professional environment where people
can be served at the post office, which goes way beyond being
served by the Saturday girl, a 15-year old in a convenience store,
who then finds out all your business, so I think we have to be
careful here. We still believe in big brand. What big brand means
in effect is a sub-postmaster can earn a significant part of his
income from running a post office, not all his income, and I am
concerned that in the future we try and go down this road that
a post office is just like another convenience store, it is not,
and that someone should maybe earn a small sliver of their income
from running a post office. That is not the way to have a professional
post office service in the UK. If we go down that road, it is
the road of dumbing down and it is the road of worse service,
so we have to make sure that the strengths of the post office
network are recognised. They are not just convenience stores,
they provide specialist help, specialist information, and a safe,
trustworthy environment for the general public.
Mr Jones: Perhaps I did not make
myself clear as well. The combi till service we would look to
offer as an extended service when the post office element of the
business was actually not operating, it would be the type of place
where somebody could come in, post letters, and conduct not every
type of service but perhaps 70% of services that were previously
available at the proper post office counter.
Q144 Mr Clapham: In terms of the
network subsidy payment, would it help if that was allocated in
a different way, for example if it was allocated to individual
post offices, would that be a benefit?
Mr Jones: I think it is essential
that there is a clear line of sight for what the taxpayer is actually
buying for its money, and this £150 million is in the post
office central accounts, and one of the concerns subpostmasters
had is they felt they did not see any benefit from it. Subpostmasters'
pay did not jump up £150 million when the subsidy kicked
in. It is all in people's perception. If there was, for instance,
a line on the sub-postmaster's payslip to say, "We, the taxpayer,
feel that the service you provide is of value to the community",
and the taxpayer is prepared to contribute this much, it is actually
a line on the payslip, this is what the £150 million is buying,
that illustrates to the government exactly what they are getting,
and it also says to the sub-postmaster, we value what you do within
your community, because that is very, very important, you know,
people often say they value what subpostmasters do, but actually
when it comes to paying for it they are very reluctant to stump
up any money.
Mr Thomson: The other point is
subpostmasters have always said that we want to be paid for work
that we do, we do not particularly want to be subsidy junkies.
I think one of the big issues that is going to come up in the
future in terms of new government work, and I know you are looking
at it, let us take the Post Office Card Account for example, this
is a perfect scenario where we want to be paid for the work we
do, and then you factor in the subsidy. The old contract for the
Post Office Card Account was £200 million per year. The new
contract, starting this year, 1 October, is £80 million a
year. Now you do not have to be a genius to work out that is £120
million a year less. How much more sensible would it have been
not to ruin either subsidy but for the government to pay realistic
rates for contracts that they give you? Now that is the reality.
That is taxpayers' money going round and round, and it makes no
sense. I could argue that in effect that one decision alone has,
if you like, done away with the SNP, that is the reality, because
that £120 at the moment is roughly equivalent to the social
network payment.
Q145 Mr Clapham: Just finally, Chairman,
the issues that we are now discussing, have these been raised
in your discussions with POL, and if so, what kind of response
do you get?
Mr Thomson: The one issue regarding
the Post Office Card Account contract, the tendering process was
scrapped, and of course being a Scotsman, I made the point that
we would like it still to be £200 million. We were told quite
clearly that although it was good news the government awarded
it to POL, that if it was not in the region of £80 million
then the contract would not have been awarded. So on that point
alone, there was very little that we could do. It was quite clear
that that was not if/or. It was: you are going to get it but you
are going to get it at £80 million a year, not £200
million.
Mr Jones: If I could just make
that live for you a little bit, sub-postmasters currently get
paid 15p for every £100 that they pay out in a Post Office
Card Account transaction. That means if they do 100 transactions
an hour, they are making £15. Well, it is a physical impossibility
to do that number of transactions in an hour. When you take into
account any staff costs and overhead that you have, it illustrates
the problem we have in terms of profitability. 15p per £100,
if a clerk makes a £10 mistake, then they are working for
the next hour and a half to try and recover that. So the margins
are so slim now in the profitability, without a strong associated
retail offer, it is extremely difficult for a postmaster to survive.
There is one other point that I feel I should make at this point.
The subsidy that exists, I prefer to call it a payment for services,
because any other commercial entity would close these 8,000 post
offices that lose money, and I do not believe that it is a subsidy,
I believe that the government, as they do with local GPs, are
saying this is of value in the community, this is how much we
are prepared to pay for this service, and it is a perception of
how it is presented. One of the key elements in subpostmasters'
pay structure is the busier that you are, the less money you make
proportionately. So if you take a subpostmaster who is doing,
for instance, work that generates £30,000 a year, a subpostmaster
who does twice that work would not generate £60,000 a year,
he would probably generate £45,000. So there is a bend in
the scale, and the higher up the scale you go, the less you actually
make proportionately. In essence, what is happening is that the
busy parts of the network are subsidising the loss-making parts,
so there is very little incentive for subpostmasters to want to
move up the chain and buy busy offices, because offices in the
middle and at the lower end of the chain actually are more profitable
than the very busy offices at the top in a lot of cases.
Q146 Mr Oaten: Can I just check a
figure? You said 8,000 are losing money, did you mean 4,000?
Mr Jones: No, 8,000.
Mr Thomson: 4,000 make money,
8,000 lose money.
Mr Jones: Two-thirds of the network
lose money.
Q147 Chairman: Can I just ask for
some additional evidence from you, please? The combi till, we
have heard about it, we have no evidence about it, we will ask
POL about it. I think it is rather an important issue, because
PayPoint, for example, make great play of the fact that they can
offer their full service of bill payment services throughout the
hours of the convenience store being open, whereas the post office
cannot, and therefore they say they offer a much better service
to disadvantaged customers, for example people topping up their
prepayment cards or their electricity meters, because they can
operate 365 days a year throughout the entire opening hours. This
combi till, I take the point George is making about not wanting
to offer a substandard service, but offering a core service in
core hours and a reduced service outside seems an attractive way
forward to square the circle.
Mr Jones: I absolutely agree,
and subpostmasters cannot bury their heads in the sand. Customers
are demanding, if we open our businesses, why on earth should
the post office not be open? The staff are there anyway. It is
a question of putting in place the necessary checks to ensure
fraud prevention, and to make sure that customer service is of
a level which is satisfactory when the sub-postmaster physically
cannot be there. Now internally for accounting processes, many
subpostmasters like to be there when the post office is open,
or when the service is being offered, because obviously there
is a high risk of theft and fraud, and it is encouraging subpostmasters
to be aware that if we are going to compete in the marketplace,
we need to offer these services on much longer hours, and to teach
them to manage their businesses rather than have their businesses
managing them.
Chairman: We will ask POL as well for
some additional evidence on combi tills, but it would be helpful
if you could give us a note about them as well and the role they
can play in extending opening hours.
Q148 Mr Bailey: Just further exploring
this relationship between the sub-post offices and POL, on the
basis of what I have heard from you so far, would it be reasonable
to say that you actually have a situation whereby POL is unprofitable
because two thirds of its sub-post offices are making a loss,
and you have sub-post offices making a loss or not doing so well
in part because of the restrictions placed upon them in their
contractual arrangements by Post Office Limited; not exactly a
happy sort of relationship, is it? Would you comment on that?
Mr Thomson: Well, on the restrictions
policy, I disagree that Post Office Limited are doing anything
wrong with the restrictions policy. I think it is important, let
us take the example of travel insurance. Travel insurance is one
of the biggest items sold over the post office network, and I
think it would be a nonsense, for example, if a subpostmaster
could source a third party travel insurance and sell it against
the Post Office's own brand, so I think it is important that there
are certain transactions that the Post Office tender for and win
contracts at a national level that they can then give to every
sub-post office. This goes back to when the Association of Convenience
Stores put a complaint in to the Office of Fair Trading, and on
22 May 2006, so about three years ago, the Office of Fair Trading
said that an investigation was unjustified, in other words for
reasons of general economic interest, that what the Post Office
do to win contracts to put throughout the national network is
important to make sure that subpostmasters can get an income,
to make sure that Post Office Limited can provide a nationwide
presence out there. So we think the restrictions policy is the
right thing to do. There have to be core products that Post Office
Limited use subpostmasters to sell, and that is fundamentally
important, because I think people have to be careful. It has been
said over the last three or four years that all the problems facing
the post office network could be resolved if sub-postmasters somehow
could access goods and services wherever they wanted to do that.
That would not solve the problems of the post office network.
In fact, let us take PayPoint, Peter alluded to PayPoint earlier
on, let us take a situation. Post Office Limited about three years
ago were seriously looking at coming out of the bill payment market.
At that time, we had 14,000 offices. Now bill payment pays subpostmasters
about £40 million a year. If the Post Office came out of
the bill payment market, PayPoint may have taken 4,000 of the
top offices and had them as their outlets, but that would have
meant at that time something like 10,000 post offices would not
have had bill payment. In other words, these offices would have
become less viable, their future would have been undermined, and
Post Office would have started to lose even more money; subpostmasters
would have lost more money, and there would have been big gaps
developing in the network. So I think politicians have to be very
careful. The restrictions policy is there for a reason, it is
to provide a uniform service throughout the UK, and the Federation
supports section 17, and we support the restrictions policy, absolutely.
Mr Jones: Can I also just make
the point that I have been a subpostmaster for 27 years and I
feel a tremendous sense of loyalty to the company. As sub-postmasters,
we have an integrity within our communities that is held in a
very high regard, and I think we all saw that from the last closure
programme, exactly what the public think when their local post
office closes. It is important that sub-postmasters recognise
that we have a role to play in making this company profitable.
The cost of the 8,000 loss-making offices is a service to the
communities that government have to recognise and be prepared
to pay for going forward. My major concern is now that because
the Government do not particularly like the idea that they are
paying £150 million a year, that sub-postmasters and the
profitability of the company is being squeezed, and that any resulting
profit that the company make will be offset against a reduction
in the social network payment. So, for instance, in two or three
years' time, if the company makes £40 million profit, the
SNP will fall to £110 million, and subpostmasters cannot
see any benefit going forward, because we are last in line to
see any profitability coming through. So again, this adds to the
uncertainties that sub-postmasters feel.
Chairman: I am going to extend this session
beyond 11.30, but not for too long. We are in danger of repeating
some of your earlier evidence, you have made that point already.
Q149 Mr Bailey: To summarise, in
effect, you do not think more commercial freedom for the sub-post
office will basically be of benefit, either to POL or ultimately
to the actual sub-post office itself?
Mr Jones: I think there are instances
where we could explore alternatives. I mean, for instance, we
have a sub-post office in Scotland where the subpostmistress is
also the local registrar and the local council trained her to
become a registrar, and she offers that service. We have post
offices that are police stations—
Q150 Chairman: We are moving on to
other services next, I would rather talk about the competition
here.
Mr Thomson: Can I read a little
bit from the Performance and Innovation report of June 2000? This
was about the restrictions: "While some individual sub-postmasters
might gain from a relaxation of the restrictions, the post office
network could lose out. The Post Office pay some subpostmasters
less per transaction than they would get by negotiating directly
with the Lottery operator or other clients because it uses the
revenues it receives to make cross subsidies to less profitable
parts of the network. Without the restrictions, these cross subsidies
could not be maintained and it would be more difficult to sustain
the current size and shape of the post office network." That
went back to the Performance and Innovation report in the year
2000.
Q151 Mr Bailey: Can we just move
on to a slightly different subject? The NFSP is the organisation
that negotiates on behalf of subpostmasters. Do you believe that
you can achieve the most appropriate payment structure for services
on behalf of sub-postmasters or is there a possibility of changing
that?
Mr Thomson: Well, we negotiate
with the Post Office every year both on pay and on conditions,
and obviously, negotiating with a company that is technically
or virtually insolvent, it is always difficult to get money from
them. I know there is a debate that Post Office Limited now make
money, but if you factor out the subsidy—so it is always
difficult. In fairness, I think we have found it very difficult
to get reasonable rises on people's remuneration over the last
two or three years, because the costs of running the business
are outstripping any rises you get, so there is not a magic wand,
we continually do the very best we can for sub-postmasters to
leverage as much as we can out of POL and Royal Mail Group to
make sure that they can run a business, but it is very, very difficult
and it goes back to people handing their keys in because they
can hardly make any living.
Q152 Mr Bailey: Can I just conclude:
what is your relationship with people providing partner outreaches
or franchises?
Mr Thomson: Well, the vast majority
of the people running the outreach services, which is the mobile
vans, it is the satellites and outreach, the vast majority are
members of the Federation. Virtually everyone has a core office,
their main office, where they are the subpostmaster, and they
maybe run one or two outreaches from that office or they may run
the mobile van which stops at seven or eight villages. So we spent
a lot of time last year on a contract to make sure that it was
worthwhile for our members, and we had difficult discussions with
Post Office Limited, and we enhanced what was on offer to make
it worthwhile for our members to run these satellite offices.
Mr Jones: But we remain unconvinced
about the commercial viability of the core and outreach model.
I am getting some anecdotal feedback from sub-postmasters who
are operating the model that would illustrate that perhaps it
is not as profitable as they initially envisaged.
Q153 Mr Oaten: I want to come on
to the kind of services you can run in the future, and I am fascinated
by the Scottish model of running weddings as well, the prospect
of the bride saying, "Till death us do part and can I have
12 second class stamps please" at the same time. First class.
They will be on honeymoon so they will not mind when the letters
get there. But let us just look at the existing service and how
you have quite a range of post offices in their size and what
they can actually deliver, and I think about some of the rural
post offices in my own constituency. What would you say is the
core bare minimum service that a small post office should actually
be able to run at the moment?
Mr Thomson: Well, very much what
we have at the moment. The Post Office Card Account, for example,
doing services on behalf of partner banks; the mail provision
is absolutely fundamental, doing the work for Parcelforce and
Royal Mail Letters, these are absolutely the key things that we
do. Some of the bigger offices—at the moment you have, for
example, DVLA, driving licences and taxing your car is only done
at 4,500 offices. Doing your passport is only done at about 3,000
offices.
Q154 Mr Oaten: It a problem that
you have, in a sense, customers going around not quite knowing,
when they go into a post office, whether it can do X, Y or Z?
Mr Thomson: It is a problem but
it lies with the clients. For example, DVLA will say to the Post
Office, we only want the service to be available in 4,500 offices.
Our policy in the National Federation of Sub-Postmasters, we believe
that every service should be offered at every post office, but
we do understand that for some of the new services that may be
coming on, for example doing the plastic driving licences, photographic,
that you may have to use some of your bigger offices to do that.
Q155 Mr Oaten: I am still not quite
clear—if I were to go to any post office, however small,
in the country, can I guarantee that I am going to get four things,
definitely know that those four services are going to be available,
however small it may be?
Mr Jones: It depends what the
four services are.
Q156 Mr Oaten: That is the problem,
is it not?
Mr Jones: There are services that
are available at every post office. The problem is that a lot
of this is client driven. For instance, with the passport application
process, the Passport Office will not supply passport forms to
every post office because it is too expensive. The problem is
that the customer does not understand that, and when he goes to
his local post office and asks for a passport form and cannot
get it, it leads to frustration and argument at the counter. There
has to be a recognition by the departments that while it may be
cost-effective not to supply them to every office, it is actually
what the customer wants, so where do you get that balance and
where do you draw the line? Because sub-post offices are like
every other business, they are customer driven and we cannot meet
the requirements of the customers because of the policy of the
client to Post Office Limited.
Q157 Mr Oaten: Let us put it another
way then. Can I at least guarantee that I will be able to get
some stamps in every single post office in the country?
Mr Jones: I would certainly hope
so.
Q158 Mr Oaten: That is one thing
then, is it not?
Mr Jones: Yes.
Q159 Mr Oaten: Can I at least guarantee
I will be able to send Recorded Delivery in every post office?
Mr Thomson: Yes, you would.
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