UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 371-iii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

BUSINESS AND ENTERPRISE COMMITTEE

 

POST OFFICES - SECURING THEIR FUTURE

 

 

Tuesday 21 April 2009

MR ANDY FUREY and MR BRIAN SCOTT

MR ALAN COOK CBE and MS PAULA VENNELLS

Evidence heard in Public Questions 242 - 379

 

 

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Oral Evidence

Taken before the Business and Enterprise Committee

on Tuesday 21 April 2009

Members present

Mr Peter Luff, in the Chair

Mr Adrian Bailey

Mr Michael Clapham

Mr Lindsay Hoyle

Miss Julie Kirkbride

Mr Anthony Wright

________________

Examination of Witnesses

 

Witnesses: Mr Andy Furey, National Officer, CWU; and Mr Brian Scott, Assistant National Secretary, Unite, gave evidence.

Q242 Chairman: Gentlemen, thank you very much indeed for coming before the Committee for this session of the Committee's inquiry into the future of the Post Office network. Can I, as always, ask you to declare your souls for the record.

Mr Scott: Good morning. I am Brian Scott, the Assistant National Secretary of the CMA sector of Unite union.

Mr Furey: I am Andy Furey, the CWU National Officer, with responsibilities for the Post Office Limited.

Q243 Chairman: I think this is the first time we have taken oral evidence from Unite, is it not? I am sorry for the oversight, if that is the case.

Mr Scott: I am not sorry if this is the prospect! I can see Lindsay sharpening his pencil!

Chairman: Well, Lindsay is our first interrogator!

Q244 Mr Hoyle: First of all, I want to say I am a member of Unite, for the record. I would not like anybody to think that I am deliberately holding back, and I will not be. First of all, can I say thanks for giving your time. What do you think the Post Office network is for and how should it evolve for the future?

Mr Furey: I think, first and foremost, the Post Office network provides a fundamental social service that underpins the fabric of the United Kingdom, but it needs to develop beyond that, and I think our case for the Post Bank is part of developing its role for offering an alternative to what the public perceive as failed banks.

Chairman: We will obviously want to ask about the Post Bank at some length later on.

Q245 Mr Hoyle: I think that is a fair point and I do not want to touch on the Post Bank, but obviously it is something that everybody would like to see. Of course, what we have seen is a massive post office closure, network closure at crown level, at sub-postmaster level. We have just seen this huge massacre take place and nobody ever wanted to see that and, in some cases, we have seen post offices close which should not have closed, and I do not want to open up those old wounds, but of course it is where we are at now. What impact do you think that has had on communities, businesses, individuals, and what can we do to ensure that that threat does not return and that we have a healthy network for the future?

Mr Furey: The first thing, I would say, in terms of closures is that now that they are finished, we need to look forward to a period of stability.

Q246 Mr Hoyle: So you believe that it is now over and we will not be returning?

Mr Furey: I sincerely hope so. I think that a lot of pain and anguish was gone through by the public at large and by small businesses. That has taken place now, that chapter has finished and I think we need to move on. I think we have to look onwards and upwards, and hopefully we can have some continuity and some consistency going forward. In terms of future threats, we have an ambitious plan to see Post Office Limited develop and grow and it is imperative, we believe, that central and local government provide as much work as possible for the electorate and society in general to be able to access through the Post Office.

Q247 Chairman: Again, we want to look at that in some detail later.

Mr Furey: In terms of the impact of closures, I believe that the criteria that the Government laid down in terms of accessibility actually helped to reduce the impact, but nonetheless, there were some horror stories about some of the closures and the impact on, particularly, disadvantaged people in society, the elderly, the infirm, but, as I say, that is finished now and now we have to look forward to creating a long-term sustainability of the Post Office, full stop.

Q248 Mr Hoyle: Can I just push you a bit more on that because what about the future? What is its biggest threat?

Mr Scott: I think the biggest threat facing the Post Office network, with the crown network of 373 offices, or one of the questions for the future is: is it big enough and could it do more? The threat is removing further work away from the Post Office network. If you take the crown offices and other offices, in total, you have, what I would regard as, the physical part of the communications industry in the country, so the part where small businesses and consumers pass over items of mail into the Royal Mail network so that they can get it from A to B. Moving away from that, without the number of transactions that can actually take place, be it banking or financial services, it will erode communities, it will further impact on communities and just marginalise them from society even further. Four million people have not got bank accounts in this country, which presents other problems in terms of how they deal with other transactions, so I think it would erode the network further and be disastrous.

Mr Furey: I see the biggest short-term threat as being the potential separation of Royal Mail away from Post Office Limited.

Chairman: Again, that is the other big thing we want to talk about. Those are the three big things, so you have identified them all correctly, Andy; well done!

Q249 Mr Hoyle: So what you are saying is that you believe in one shareholder. I am with you all the way.

Mr Furey: Absolutely, Lindsay.

Q250 Mr Hoyle: That is good news. What I would say is that you have talked about the butchery and the blood on the hands of the post office closures which decimated rural and urban areas alike. Do you think there is a strong future for the rest of the crown office network?

Mr Scott: Absolutely. I think the crown network, one of our propositions or one of the three pillars of our paper is that we expand the services that are provided through the crown network and across the whole network, but how much of that expansion will concentrate in towns, first of all, and then perhaps go out to others remains to be seen, but the crowns are key to expanding the services available to ensure them securely for the future.

Q251 Mr Hoyle: So, just looking at it, I think there are mistakes by closing crown offices, running them in shops which then disappeared, so that we were left without that crown office in some towns. Do you believe that there is a rethink about that within the Post Office or they should rethink about the reopening of crown post offices, an expansion programme rather than contraction?

Mr Furey: Absolutely. I think it is imperative that Post Office Limited look very critically at where they do not have crowns. Worcester is a case in point where there is no crown.

Q252 Chairman: Thank you! Well done! It is a disgrace, and it has become a Tesco's to make it even worse!

Mr Furey: Also, places like Newcastle and Coventry, major cities in the United Kingdom do not have crown post offices, and that is a serious concern. As you know, we did not support the commercial franchising deal with WH Smith's and I think that has led to an under-provision of crown office services to the public at large, so yes, we certainly do see expansion. I am also bound to say that I think that some of the crowns are not necessarily in the right locations and that they need to be moved to where the customer base is within the town centres, and one of the problems is that the funding which the Government provided, the 1.7 billion, I think that not enough of that was used for the upgrade of crown post offices. Regrettably, only 40 million was provided to create better, bigger, brighter crown post offices, but that does not go far enough. If crowns are going to be able to punch their weight, then I think there needs to be significant investment in making sure we have got the crowns in the right locations in the city centres where the customer base is, but also that they look much nicer places for people to do business, to work in and to transact the needs of society. I think that a lot of work needs to be done on the crown office network, but it has huge potential.

Q253 Mr Hoyle: Because, interestingly, and I know the Chairman has had the bad experience of not having a crown post office, what I would say to you is that I am very lucky, we have got a crown post office in Chorley, but, I will tell you, I get more complaints about that crown post office now than I have ever had before, the reason being that they have closed all the sub-post offices around and now, with the crown post office, people are queuing to get in and they cannot deal with the amount of business that is coming in. That is the kind of thing that needs rectifying, needs further expansion within the crown post offices, and I wonder whether you agree with that, that we have to see that investment so that we can expand to actually meet the business requirements of communities like Chorley?

Mr Furey: Absolutely. I think we also need to upskill the workers for them to be able to take on a greater range of services in terms of financial services so that Post Office Limited can compete with the banks and the building societies, so I think service provision is acute. Certainly, with sub-post office closure, there was a migration, quite a healthy migration towards crown post offices, but there needs to be the right levels of resource to be able to deal with that increased custom certainly.

Q254 Mr Hoyle: Excellent! I think we have got the message across of greater investment for Chorley!

Mr Scott: Can I just respond to that?

Q255 Mr Hoyle: Of course you can.

Mr Scott: Expansion is one part of it, an important part of it, and that is key, but also improvements in efficiency in terms of the kit they are using, the Horizon Project, improving the effectiveness of that and perhaps simplifying some of the transactions that take place to speed up the queuing system, I think that would be key as well, so that would require some investment as well. Some of it is happening now, but we need some for the future as well.

Q256 Mr Hoyle: We are all there on that. I am sure that we must be knocking at an open door now! The Post Office network currently consists of franchises, crown offices, sub-postmasters as well as the Outreach and Essentials services. Moreover, most of the network is operated by individual small businesses. Do you believe that this variety of procedures gives the best outcome?

Mr Furey: Certainly, with the privately run sub-post offices and the crowns, there is a synergy between the two parts of the network, they both complement one another, and I think that that is the model which is there and needs to be built on and supported, and there needs to be investment in all parts of the network. I do not think it is right to just simply say that the crowns, in isolation, need to be profitable, but we need to look at the network holistically and what the network, as a whole, brings to society.

Mr Scott: I read that 89% of small businesses work from home and, if that home can be closer to a sub-post office, that makes an offering to them available through that network to get into the wider network, and I think that is important. You cannot be exclusive about this, it is the whole thing.

Q257 Mr Hoyle: So, quite rightly, invest in that case to ensure that we have a strong base of sub-post offices backed up by crown post offices, and that is the future vision that we want to see going forward?

Mr Furey: Without doubt.

Q258 Mr Wright: First of all, I also declare that I am a member of Unite. In terms of the crown post offices, I agree with what Lindsay has said that, when they close sub-post offices to a crown post office, people migrate to there, and I think that they have lost a lot of business because they have attracted businesses into the crown post offices, but the biggest problem, I think, is the question of that crown post office being at the back of a shop, in the WH Smith's. Would it not have been better for all of the crown post offices to have been stand-alone crown post offices where they could have probably kept a lot of those businesses?

Mr Furey: One of the problems with the franchising programme is that people were not TUPE-ed into WH Smith's, so effectively WH Smith's had to recruit new employees with no experience and no expertise. In Post Office Limited, something like 1,300 people took enhanced voluntary redundancy terms and some of them did end up working for WH Smith's, but they were very much the minority. If you walk into most WH Smith post offices, you have got an extremely limited expertise and experience there and certainly nothing like the years and years of service that aggregated across from directly employed people that provided loyal public service for many, many years. We know why the WH Smith model was embarked upon by Post Office Limited, ostensibly to save money, but it is not all about saving money, it is about the service to the public which is, rightly, important. We do not support what took place with WH Smith's and we think that, ultimately, the public are the losers in that because they get worse services. Let us be honest about it, WH Smith's want the footfall because they want the customers to buy their produce and goods, the newspapers, the soft drinks, so on and so forth. Our view is that the primary focus of Post Office Limited should be to deliver an excellent service through a combination of sub-post offices and crowns. A little-known fact is that, whilst there are only 373 crowns, something like 20% of volume and traffic is transacted by those crowns versus the 12,000 sub-post offices, so that is a significant amount of customers who are served in crowns every week. I think it is also fair to say that the greatest proportion of sales of financial services products is being done by directly employed people through the crowns, so I think the crowns are proving their worth, but they certainly need more investment.

Chairman: I am grateful to Mr Scott for emphasising in his evidence not just the effect on individuals of moving post offices to second floors of shops, but also the effect on businesses because I think one of the real issues there is the length of queuing time for everyone, but, for a small businessman, that can often be at a very heavy price to pay, so I think this Committee will be emphasising the role of post offices not just for individuals, but also for businesses, so thank you for raising that issue.

Q259 Mr Bailey: Earlier, you touched on this. In your evidence, you said that the Post Office network must remain part of the Royal Mail Group "in order to maintain the universal postal service and secure, and enhance, Post Office Ltd's revenues". Why?

Mr Furey: To the best of my knowledge, no postal administration, which includes the provision of accountants, has been separated anywhere in the world. Now, the Post Office, as CWU likes to call the whole of the Royal Mail Group, is integral to the provision of mail services; they go hand in glove and they are essential. The well-being of Royal Mail and of the Post Office are essentially linked together and there is a synergy. Many sub-post offices rely upon small businesses doing their mailings and the public need access to post offices to be able to do their mailings as well as small businesses; you have only got to look at the volumes of business and, in turn, money that is transacted via mailings in post offices. That is one of Post Office Limited's key pillars for work going forward. Now, if you were to separate the two, in time there would be a threat that a privatised Royal Mail could take that work away. Okay, there might be an inter-business agreement in the intervening years and the early years following privatisation, but all of those agreements would be up for renewal and a privatised Royal Mail could decide to take its business elsewhere, and that would have, I would suggest, a devastating effect on the livelihoods of many thousands of sub-postmasters, my and Brian's members in crown offices, but also on the public at large, so, if it is not broke, why does it need to be fixed, basically? I think there is a compelling argument for keeping the Royal Mail Group together where Post Office Limited and Royal Mail can complement one another.

Q260 Mr Bailey: Brian, do you want to add to that?

Mr Scott: Yes, just to say that Royal Mail (Letters), which actually I spend most of my time dealing with, is a network business, it is fully integrated, and it needs the outlets and the inlets of post offices of all sizes to get the traffic in and sometimes out as well. There are 640 million items transacted over a post office counter for Royal Mail delivery and there is 1.4 billion revenue it creates. It is, therefore, a lot of money, it needs to be together, and it is also the shop-front for Royal Mail. The Post Office is Royal Mail's shop-front and of course most of the public interlink them, call them the same name, different names and they mean the same thing. When you hear people talking about the 'post office', they are talking about Royal Mail and they are talking about Post Office Counters and they get mixed up, which is great, but they see it as fully integrated. The business depends on that financially and for being to able to achieve the targets which are set for mail delivery, et cetera, and it is vitally important that they stay together.

Q261 Mr Bailey: Could I just follow up a point Andy made. He, I think, emphasised that a privatised Royal Mail, in effect, could cause difficulties, but, even in the event of Royal Mail not being privatised, but Post Office Limited being separated, do you think the same problems could exist?

Mr Furey: No, I think that, if a private company owns a significant chunk of Royal Mail, our fear would be that, once they had got a foot in the door, then it would become a greater chunk in time and total privatisation in due course. I think that is the biggest threat. If the Royal Mail Group remains a wholly owned public entity, including Post Office Limited, then I do not see the threat, and I think that what needs to happen is that both Post Office Limited and Royal Mail need to work together better to provide better services to the public and ensure that both have got a prosperous and sustainable future, which I think can only happen with an integrated Royal Mail/Post Office Limited.

Q262 Mr Bailey: Do you have anything to add?

Mr Scott: Well, I would not disagree with Andy's point. I would be less critical of Royal Mail (Letters) not doing a deal with somebody else, if it suited them at that time, with a supermarket chain or whatever, which may save them a few pounds, but the overall Group impact it would have would be immense, but that is my cynical head about the letters business itself. It is integrated and it should stay together because they depend on each other and it is absolutely key to it happening, and I am actually not sure that privatisation will happen these days, fingers crossed, but, even in the Royal Mail Holdings Group as it stands at the minute, somebody may come up with some daft idea which will save them a few bob which would just blow another part of the Group out of the water. That should not, and cannot, be allowed to happen and the Government needs to make sure it does not happen.

Q263 Mr Bailey: Basically, what I am trying to tease out is that, notwithstanding the issue about privatisation or part-privatisation, if the two companies, in effect, were separated so that Post Office Limited could, if you like, be freer in its operations from Royal Mail, do you see a potential threat there?

Mr Scott: I think that is a different question, if I may say. A bit more freedom for Post Office Limited to introduce new services, to act more commercially, and it is acting commercially already, but to act more commercially and to take up the initiatives that are available to it, I think that degree of freedom should be available. I suspect that Post Office Limited is not always as high on Royal Mail Holdings' agenda as others, but, if you talk about giving them some freedom to increase revenue, therefore, ultimately reduce the subsidy, that may be a positive step, but I think that could happen without any separation whatsoever.

Mr Furey: We must not underestimate the importance of the volumes of traffic and revenue and the social activity link for the public at large and businesses that Post Office Limited does as the shop window for Royal Mail. A significant part of its revenue and its customer base comes through Mail's work and, if that were threatened in any way, that would be very, very damaging for the long-term sustainability of post offices in general, so I think that we need to ensure, the Government needs to ensure, that both parts of the Royal Mail Group complement one another and work together to ensure the better provision of services for the public at large and that the bigger part of the Royal Mail Group does not forget about the smaller part, which is vitally important.

Q264 Mr Bailey: Do you agree with the submission from the National Federation of Sub-Postmasters that, if you separate them, then any contractual agreement between the Royal Mail and Post Office Limited might then become subject to anti-competitive challenges in legislation? I am a bit surprised that you have not raised this as an issue.

Mr Furey: We would be very concerned about the long-term sustainability of an inter-business agreement if Royal Mail were partially privatised. I think it is important that Royal Mail and Post Office Limited do reach an agreement that is commercially binding or contractually binding and that that agreement ensures that the well-being of both Royal Mail and POL is catered for. Whether it would be open to challenge, I am not so sure, to be perfectly honest, and I do not pretend to be an expert on the legalities of that, but certainly I think that the possibilities of privatisation or the part-privatisation of Royal Mail will bring into question absolutely every part of the relationship between Post Office Limited and Royal Mail, and I do not think that can be good. Possibly, the National Federation of Sub-Postmasters might have got it right.

Mr Scott: I think the right to raise the debate is a question which needs to be asked and answered at some stage, but I think the regulatory regime which was developed would cover that off and I do not think it should be seen as anti-competitive.

Q265 Mr Bailey: Basically, what do you think of the Hooper proposals?

Mr Furey: How long have we got!

Q266 Chairman: Not in relation to the privatisation of the Royal Mail Group; we have got the report on that.

Mr Scott: I thought, in the words of Richard Hooper, that Post Office Limited had nothing to do with his report, but I do not want implications to be underlying that. I think the Hooper Report was a good summary of what is happening in Royal Mail.

Q267 Mr Bailey: I should have been a bit more specific, that I mean the organisational changes between Royal Mail and Post Office Limited as recommended in the report.

Mr Furey: Well, we are absolutely convinced that Royal Mail Group, as an entity, should be wholly owned by the Government for the people and that there should not be a separation. We do have significant concerns with setting up Post Office Limited as a sister organisation or a sister company to Royal Mail. Having then to have separate pension arrangements and a potential for TUPE-ing people out of the Royal Mail Group and into Post Office Limited, that does raise a lot of concerns for us. As I understood it, the Hooper Report did not look at Post Office Limited, but certainly its recommendations do have ramifications and implications for Post Office Limited and its workforce, and that worries us no end. Everybody in the Royal Mail Group is an employee of the Royal Mail Group at the moment and, if I have read the Bill correctly, it is suggesting that Post Office Limited people will be TUPE-ed out of the Royal Mail Group and into Post Office Limited and will have a separate pension fund, and I think that there are threats there, particularly with the sustainability of a brand-new pension fund, of Post Office Limited being separated away from Royal Mail.

Chairman: We will need to check that point about the employment status, as I had not realised that, of the staff transferred.

Q268 Mr Bailey: Brian, do you want to add anything?

Mr Scott: Only that at Post Office Limited and Royal Mail Group management grades, separation into a separate organisation could result in a loss of talent, a loss of diversity and development moving across the Group to new skills and to develop skills, therefore, losing expertise. The question of whether or not they would not have to resign from Post Office Limited and move into Royal Mail (Letters) seems a bit of a nonsense when it is part of the same Group, so we are concerned about that.

Q269 Chairman: I would just like to check one thing before I put my devil's advocate question. Actually, to me, it is very unclear what the status of POL will be in the new arrangements. For example, I think the Bill permits that the Chairman of the overall Royal Mail Holdings Company should be Chairman of POL as well. The extent of the relationship is, to me, very, very opaque. Have I misunderstood that and do you have information I do not have?

Mr Scott: I think it suggests that Post Office Limited will have a separate Chair. It could be the same individual, I suppose, and I suppose they would have an influence on how they approach issues, so I do not think it is necessarily someone separate, but perhaps later on Alan Cook will answer that question for you.

Q270 Chairman: I am just wondering to what extent the changes will be just on paper and to what extent they are real changes. Can I put a devil's advocate question to you about this issue about the separation. We have been told by Royal Mail that the big growth is going to be in parcel volume and there is possibly, and they are going to say this, but possibly a catastrophic collapse in letter volume because of e-substitution primarily, and certainly for the Royal Mail Group a large proportion of their profits come from parcel operations. That is where all the competition exists, not all, but a large part of the competition, and is there not a risk that actually Royal Mail could put such restrictive arrangements in place on POL in terms of ownership that actually it cannot take advantage in the growth of competitive parcel services, and actually we will see the Post Office network lose a large proportion of its mail volumes to competitors who are delivering parcels and cannot use post offices because of the anti-competitive arrangements between Royal Mail and POL? Is there not a danger that, if you do not separate, it could have precisely the risk that you foresee?

Mr Scott: I think it depends what you classify as a parcel. I think e-substitution, the impact of Internet shopping, et cetera, is on packages, so small items which can be dealt with through a post office counter and get into the system that way. In fact, many of these items which appear on eBay, for example, are small enough to be used on the new 'weigh and-pay-as-you-go' scales - that is not the correct title for it - which are available at post office counters now, the crown offices, where you weigh it yourself and you post it and never need to go to the counter; you weigh it, you stamp it and you post it. You will have seen them on your travels to Devon and wherever else it is. I think that the items are not what we would call 'large' parcels or heavy or near the 20-kilo limit, nowhere near that, but a lot of the items are much smaller and they can get into the network quite easily. The volume of that is still unknown, but certainly the trend is going that way.

Q271 Mr Wright: On the services, you have suggested that it is important to maintain a "consistent and acceptable level of service across the country", and I think everybody would agree that that should be the norm, but what would you consider is the minimum acceptable product line and hours of opening that customers should expect, irrespective of the size of the post office itself and where it is?

Mr Furey: Well, CWU, first and foremost, is very supportive of extending opening hours and providing the services to the public when the public want them. I think that, if we are going to develop and grow, then we need to ensure that, when the major high street shops are open, the crown post office is open as well in those major high street areas. In terms of services, there is a whole range of services, and there is some good news of the Driving Licence activity that has just recently been announced which is very good news in terms of the photographs being taken at the post offices, so that is a good arrangement, and I think there is the need to have a further link-up with the Passport Agency and more work can be done there. I think that, generally speaking, the Government should ensure that post offices can provide a General Practitioner Scheme. There was a pilot of it and it was looked at a number of years ago, but it was rejected by the Government on cost grounds, but I think that was short-sighted because I think the public are crying out for somewhere where they can go and do their business where there is trust and integrity, and there is all manner of things, things like registering for postal votes and for people to be able to have their identification checked at a post office because of potential fraud through postal voting, so there is a whole range of things. If there is a will from the Government to be innovative and put national, devolved and local government services into post offices, then I think that certainly is the way forward. I would like to see the TV Licence, for the BBC to give back the contract to Post Office Limited and take it away from Capita when that is up for renewal; I think that was a very, very disappointing move that the BBC made. I think there is great potential there and I genuinely believe that the employees of Post Office Limited have got the skill base, the commitment and the dedication to provide an excellent service, and I think there needs to be an expansion of financial services products, and you know our position on a state-owned Post Bank.

Q272 Mr Wright: Did you want to comment on that?

Mr Scott: Simply to say that it would depend what the demand for the services was. There is no point opening until seven o'clock at night if there are no customers coming through the door, but, if there were signs that there could well be a footfall available to make it work, serving the customers, meeting the customers' needs, but also making a contribution to the bottom line of the organisation, I think that is important.

Q273 Mr Wright: I have lost post offices in the last cuts which were open for two or three days a week and I am sure that my constituents there would rather have them open for two or three days a week than not at all, which is the current procedure. I am interested in terms of the service that you are looking at, the passports and obviously the Driving Licence, but of course a lot of the post offices have not got that technology. When you are talking about a network of 12,000, it would be ideal for every single one of those post offices to have the technology to actually provide the service to their customers. Who, do you consider, would have to pay for that technology to be put in? Should it be the customers, should it be the Government or should it be the Post Office?

Mr Furey: First and foremost, we must remember that 12,000 post offices are linked to the Horizon system and, as I understand it, that is the single biggest computer system which is linked across Western Europe. Every single counter position has a Horizon terminal and there is currently work being undertaken to upgrade that in a project called Horizon Online, which we are supportive of, so the technology is there for a fully integrated service, so it is about developing further automation, which, I believe, Post Office Limited have an aspiration for and certainly we are very supportive of new technology and automation. I am pleased to see that the new contract for the Driving Licence is going to mean investment in automation and new technology. I do not think it would be practical from a logistical point of view to have every post office being identical in the services that they provide because there just simply would not be the space in some of the sub-post offices, but certainly crown offices need to provide a Rolls-Royce service with all products and services. Unfortunately, some of the crowns at the moment are in old Victorian buildings and could do with a significant facelift and being moved to more user-friendly premises, but certainly automation and new technology are vitally important for the long-term sustainability of the Post Office.

Q274 Mr Wright: So, basically, you would accept that, in some of the post offices, it may not be feasible to have the new technology in those areas. Brian, did you want to add?

Mr Scott: Consistency is the key. Customers want to know when they can go, maybe which two days of the week they can go, for example, and, when they get there, that they can get that particular service. If you limit it to a number of office outlets or the number of offices that you can get the passport service, the Driving Licence service, or any other service for that matter, as long as the customers know that, when they go to that office, it will be available or not, they need to know, and consistency is the key, to make sure that the services are advertised. There will be a point when the technology will become too expensive for every office, and I do not know what that stage is, but as long as people know, if they want that particular service, that they can get it in that particular office at that particular time and they can rely on it.

Mr Furey: I think it is vitally essential that the Government do provide a further funding package beyond the current one and that, as part of that further funding package, integral to that is the provision of automation and new technology, where feasible, and better, brighter crown post offices. The current funding arrangement runs out in 2011, the 1.7 billion, and I think that it is incumbent upon the Government to start thinking about the five years beyond 2011 in terms of what support it can give, so the direct answer to your question is that I think the investment should come from the Government.

Q275 Mr Wright: Completely?

Mr Furey: Yes, or in partnership with potential clients.

Q276 Mr Wright: But, clearly, at the moment what you are saying is that there is not enough money there to actually provide the new technology that is required?

Mr Furey: No.

Q277 Mr Wright: You mentioned the provision of the TV Licence, for instance, and one of the issues that has come back is how local authorities could also use post offices for the payment of fines and the council bills themselves, but of course there is an additional cost to that and councils are saying that it is more expensive to do it through the Post Office. If we try to push government services, whether it is local or national government services, who should actually pay for that? Should it be the user, the council taxpayer or perhaps the taxpayer?

Mr Scott: I think it would be mixed actually because you cannot deal with each service at a time and I think that you have to look at the range of services that would be available and then develop a strategy that would have a range of services, given the volume of transactions, therefore, reducing the price of each single transaction to make it more viable and bring the costs down. If you start picking one here and one there and doing it very slowly without any clear strategy to it, I do not think that would work, but, if you develop a basket of measures, a basket of products that you could provide for local and national government and for other organisations perhaps, then you could bring the single transaction costs down. If you are putting infrastructure in, as long as the technologies all talk to each other, that is key and that is why you need a strategy, so I think you could bring the costs down, and actually it is not just about making it that bit cheaper for the local authority perhaps, but it is about making the service available and the offering available to the consumer locally instead of having to travel miles to get to a library, if that is where it currently is, or another local authority building, if that is where it is.

Q278 Mr Wright: In some cases, for instance, some of the other utilities, BT, for instance, have a charge on their bills being paid to get the money through, and the water companies as well will put an extra 2 or 3 on to the bill. Those in the more-remote areas, if they have only got a small post office there, they have got an extra service charge on that. Is that fair on them and should it not be down to perhaps the Government or indeed the business itself to take into account across the board?

Mr Scott: Let us be clear, I was not talking about an extra surcharge for people in very far-flung communities; far from it. Your example of BT who charge an extra 5 if you do not pay your bill by Direct Debit seems a bit odd, but that is a debate for another day perhaps. It is not about a surcharge because you are remote, it is about the same price across the universal banking obligation, which we can talk about elsewhere and which, no doubt, we will move on to.

Mr Furey: I do not think the cost should be put to the customer or to society in general, but also Post Office Limited is not a charity and they have got to get paid for doing the work, so I would see that coming from a commercial agreement with the local councils. What we would like to see is negotiations through the Local Government Association, the LGA, so that it can be done in a central way rather than on a piecemeal basis for each separate county council or metropolitan council. We think that what has happened is that each council has struck up its own arrangements and its own methods for revenue-collection and, if there were a UK-wide approach to that for all councils, then there could be economies of scale and it could be done. Nobody has proved that, by doing business via the Post Office, it is more costly than it is for councils currently to collect money, and indeed I think that, if there were a sensible approach to this, the councils and, in turn, the council taxpayers could benefit.

Q279 Chairman: I have just one question before we move on to the banking issue. I am just slightly concerned. I am very grateful for the list of services you provided in your written evidence, and I hope that this Committee will produce a list of services that could be offered. I think your list is one of the longest lists we have seen and I think there are things you could add to this, but thank you for that, for the Government to choose between and which, we will argue, should be part of the core service of the main Post Office network. However, some of these things in this list are a bit problematic. Tax self-assessment - in what sense can a post office help in tax self-assessment? Also, visas for foreign travel - we are not going to get foreign embassies allowing visas to be issued by sub-postmasters in Upton Snodsbury, are we? I think probably not now, but perhaps you want to flesh out some of the more challenging ones, such as repeat prescriptions because I think there would be quite big issues there about pharmacies handing over the dispensing of medicines over post office counters. They are interesting ideas, I welcome them, but you might perhaps just tease out how you think they actually might be practically offered and which ones you would put the greatest emphasis on in this very helpful list.

Mr Furey: Thanks very much for the invitation and we will flesh that out with a further submission and put in some ideas as to how those could be done. Some of them may not be practical ultimately, and we are not saying that our list is perfect, by any means, but we have tried to come up with ----

Q280 Chairman: It is the best one I have seen, frankly.

Mr Furey: I think that, if there is going to be an innovative approach, if there really is a will to really want Post Office Limited to be successful from central and local government, then I think that there is a lot that can be done. I think, with any of these things, that it is about potentially trialling these, piloting these and seeing if they are feasible, but where I would point to the expertise is in the passport check-and-send service, and that is so significant in terms of money, time and anguish to the public at large. The counter clerks have got the expertise to check the passport applications properly to make sure that they are filled in correctly and that there is all the necessary documentation to support them and then, once those forms are checked and sent off direct to the Passport Agency, the provision of passports is much quicker to the public at large. If we can deal with that nature of work, then there might be similar-type work that we can do. I am not suggesting that sub-post offices issue visas, but they might be able to check an application form to make sure that everything that needs to accompany that application form is there rather than it being sent off and the necessary authorities sending it back, saying, "You haven't provided us with such and such". I think there are degrees of work that could be done to support part of a process and these need to be looked at. I think what the CWU and Unite are saying is that we should have an open mind as to what can be done.

Chairman: I should make it clear that the sub-postmistress in Upton Snodsbury is an excellent lady, she is first-class. The Home Office is very inconsistent on passports, I think, in that it is only with a certain number of offices. A large number of offices do not even get passport application forms, you cannot even get a form at a large proportion of the sub-post office network, so the Home Office needs to do some thinking about that very carefully. Let us move on to banking.

Q281 Mr Clapham: Both of the unions are part of the Post Bank Coalition, which I think is a great idea. We are talking in terms of using the Post Office network, 12,500 plus 500, to provide banking services, but one of the things that is crucial is the area that the bank would operate in, and already we see that we have got, for example, the credit unions working in that area. What are the potential linkages between the Post Bank Coalition concept and, for example, the credit unions?

Mr Furey: I should say, first and foremost, that we see a Post Bank being operated on a commercial basis, and it is not just about the three to four million people in society that are 'unbanked', it is about the provision of a range of products. The main argument for the establishment of a Post Bank would be that it would, in turn, generate profits for reinvestment back into the Post Office network, as a whole, and it would actually help to ensure the long-term sustainability. In terms of linkages, yes, I think it is absolutely essential that credit unions form part of the future of that. We are not proposing anything that is new. Post banks of various degrees have operated on the Continent for many years and are very, very successful and do ensure that the post offices or the equivalent of Royal Mail in the continental countries are successful, and the German example and the French example are there to be seen. I think our view on the Post Bank is that we need to look at National Savings & Investments, we need to look at credit unions and to have an approach that looks at all the different component parts. Interestingly, Tesco's have announced the day that they are looking to establish a current account. Now, if Tesco's can do that, I do not see any reason why Post Office Limited cannot do that through a state-run Post Bank.

Q282 Mr Clapham: So you would see the actual concept as being operated commercially and you would expect at some time that it would be making a profit for the organisation?

Mr Furey: Absolutely. At its peak, Girobank was the sixth-biggest bank in the UK, and it was making money to generate for the Royal Mail Group as well, so I am not saying that we have an identical arrangement to Girobank, but there is proof and evidence there that a bank via the Post Office has, in the past, been successful and certainly, as I said, there are continental models. Wider afield, in Japan, the vast majority of bank accounts held by the Japanese population are run through the Japanese Post Office rather than all the commercial banks, so there are significant models there to prove that it can be successful, and we must not lose sight of the fact that 24 million people per week transact business via the Post Office, so there is a great opportunity there and I think that the time is right for this proposal.

Mr Scott: I would only say that in terms of credit unions, it would be working with credit unions locally, not in competition with them, and supporting those activities at the local level and, at the point where the Post Bank was covering its costs and making a contribution, a profit, some of that profit could be invested back into local communities also to support activities at the local level and helping to support credit unions being started up.

Q283 Mr Clapham: But your proposals are sort of aimed at the people who are financially excluded, on low incomes, et cetera. What research is there to suggest that there is a demand for the Coalition's Post Bank at a time when we see the POCA card provided for that group of people? Does the evidence show that there is a demand?

Mr Scott: Well, the POCA card could be part of it of course. It would sort of merge into the Post Bank activity. There are still three or four million adults without bank accounts in the country and they are probably the group of adults who end up paying the most for their electricity and gas because they have not got a bank account and cannot do Direct Debit payments and have to pay through the key or the card and they are paying the most expensive tariff. I think it is that sort of audience, but it is also wider and actually anybody could open up a Post Bank account or accounts and use them, and it would not have any toxic assets, it would not be looking to take any risky deals. We have still got a bit of work to do in terms of more details of the Post Bank. The Chairman will accuse us in a moment of being a bit light on substance in our submission, and that is something we are currently putting our minds to --

Q284 Chairman: Good, I am sure you are. I was always confident of that.

Mr Scott: ---- giving a bit more detail of how it would actually work, without trying to set up a bank ourselves, but of how it would work. It would be offering up services to the communities and using the facilities, services and the products that already exist, but bringing them into being provided through the Post Bank.

Mr Furey: It is not just aimed at the 'unbanked', but there are thousands of small businesses up and down the country which could avail themselves of the facilities of operating via a Post Bank, and not least of all could be the support and provision of paying wages to their staff because, as I understand it, and I am not a small businessperson, a headache for small businesses is the weekly wages for their staff, transacting that business, drawing the cash potentially if they are paid in cash, so I think there are great opportunities for all parts of society via a Post Bank.

Q285 Mr Clapham: So you would see the Post Bank actually sort of providing for most people's needs, for example, in the rural community we are talking in terms of small businesses, and the opportunity of people being able to obtain cash or put in cheques, et cetera, so you would see it generally providing, as we are saying, for most people's needs, not just a targeted group?

Mr Furey: Absolutely. The POCA in itself, and we are delighted that the Government saw sense and awarded POCA again to Post Office Limited and we thank this Committee for its involvement in that decision-making, but the POCA only goes so far because at the moment it is only designed for people who are drawing benefits of various natures, pensioners, those with a disability, et cetera, but it is limited in that you cannot do a Direct Debit from it. We are not putting all of our eggs in one basket behind POCA, we are looking for something that is significantly different and can appeal to society in general, all parts of society because, not least of all, there are 12,000 outlets where people can access the Post Bank and do business.

Q286 Mr Clapham: Andy, you were saying that you see it as being a commercial venture that would actually result in a profit for POL, but what about the sub-postmaster or sub-postmistress? Would it provide, for example, an opportunity for them? Would there be profit for the sub-postmaster?

Mr Furey: Undoubtedly. Whilst we believe society needs something like a Post Bank, we must not lose sight of the fact that any revenue that the Post Bank generates, and it would have to be incremental over time, it is not going to happen overnight, that that revenue is used for the greater good of sustaining the Post Office network as a whole. We do not want to go through further closure programmes like we have seen on two or three occasions in the last ten years when something like 2,500 post offices closed over the course of 18 months/two years. We want to ensure that the sub-post offices are viable. I genuinely believe that many of the rurals will never be able to wash their face or stand alone without government support and subsidy or, I think another way of putting it probably, without the Government paying for the services that they provide. Overall, if we can establish a successful Post Bank, and, as I say, it is not going to be like a light switch which you can start up overnight and expect it to make a living overnight, but in time we would see that the profit that was generated could be used for reinvestment rather than, and it might be a cheap shot, going to big bonuses for executives and shareholders, et cetera. If it is state-owned, government-owned, and it is for the good of the people, then any money that it would make, and clearly it would have to be run on a commercial because the purpose of it making money would be to ensure the long-term sustainability of postal services via post offices across the UK, it would help the sub-postmasters no end.

Q287 Mr Clapham: So we are talking about the establishment of the bank over a period of time, but there is clearly the need for the input of capital and training. Who do you see being responsible for the initial capital input and training?

Mr Furey: Well, many of our members at the moment are selling a lot of financial services products and they are not FSA-accredited yet, but certainly in time we would have an aspiration that they would be accredited, and we are pleased that the commercial arrangement with the Bank of Ireland is just about to roll out mortgages across the crown office network in the coming months. That is fine to a point, but we wish to see the ability for people, particularly young people, to be able to come and get mortgages via the State, so training, there would certainly have to be further and better training. I believe that the Post Office employees, our members, have got the inherent skills and the ability, but certainly training is a vital part of that. Our view would be that there needs to be support from the Government for that. After all, the Government have supported many of the high street banks to the tune of billions of pounds in the last year, so I would have thought they could find some money to support the development, the establishment and the infrastructure of a Post Bank, including training. I think this is all about the political will at the end of the day and I think that, if there is the political will, and I should say that we are very grateful to the 157 MPs who have signed EDM1083 in supporting the establishment of the Post Bank Coalition, and 157 in a short space of time is quite impressive, so I think there is certainly a will within the Palace of Westminster for it to happen and hopefully the Government and Cabinet will listen to the MPs who have signed that EDM because I think that, if there is the will, then it can happen, but that will need government support in establishing it, including the training.

Q288 Mr Clapham: Of course, you would have to persuade POL that it is going to be a better venture than the one that they are in at the present time with the Bank of Ireland.

Mr Furey: Yes. I think that, in the absence of a Post Bank, we would want to see the relationship with the Bank of Ireland grow and build and more services being offered, but we do not see that as necessarily the way forward. We see a state-run Post Bank as the much better option rather than a commercial arrangement with the Bank of Ireland and, we need to be clear, the Bank of Ireland have got that commercial arrangement because profits from those sales, or parts of the profits, are going back into the Bank of Ireland. The Bank of Ireland have not got that arrangement with Post Office Limited because of their character, they are doing it for very sound commercial reasons and a chunk of the profits is going back to the Bank of Ireland. If there were a Post Bank, it would not go to anybody else, no other commercial organisation or company. If there were profits from a Post Bank, it would go back into Post Office Limited for the long-term sustainability of the network.

Chairman: There are lots of things that we could talk about today and we did take the full hour in the end, contrary to my expectations.. So as not to go on to the next witnesses' time, we must draw stumps there. I have asked you to flesh out the list a little bit perhaps, if you would care to do that, and do not give us anything else we have not asked you for specifically, but, as always, if there is something you want to tell us in writing subsequently as a result of this session, we would love to hear from you. Thank you very much indeed.


Witnesses: Mr Alan Cook CBE, Managing Director, and Ms Paula Vennells, Network Director, Post Office Limited, gave evidence.

Q289 Chairman: Although you are both something close to serial witnesses before this Committee, can I begin by just asking you to introduce yourselves for the record.

Mr Cook: Alan Cook, Managing Director of Post Office Limited.

Ms Vennells: Paula Vennells, Network Director of Post Office Limited.

Q290 Chairman: Thank you very much indeed, both of you, for coming. Thank you for the note, which I have not actually had an opportunity to study in detail yet, but I have seen the appendix before, so we will look at that in detail and thank you for that. Can I ask you to flesh it out a bit, not at length because we could spend the whole of the next hour on this question, but just briefly could you tell me, Mr Cook, what you think the purpose of Post Office Limited is and its network and what it ought to be? What is it doing now and what would your vision be of its future?

Mr Cook: Perhaps I can include that in a very short introductory remark, and I know the Chairman welcomes brevity, so I shall make sure I make this as quick as possible. With the Network Change Programme, the closure programme, now behind us and the decision on the Card Account, very welcome as it was, and I would echo Andy Furey's comments about the support that we got from this Committee which was greatly valued, but, with those two things now behind us and a cost reduction process that is well under way and proving to be pretty successful, we are also successfully defending the decline in some of our more traditional business lines, like bill payments and the like, where we have come under competition in recent years. It feels like the basics are coming under control and I think the time is now right to look at what the revenue opportunities for this business are, and you have talked this morning about financial services and you have talked about government services, so we are delighted with this inquiry by this Select Committee, in particular, to identify how the Government could find more work that the Post Office could do for the Government. I think we have a vision that the Post Office could be a front office for the Government at the place at which UK citizens, particularly where they want to interact face-to-face rather than, say, over the Internet, could do so and to do so in a way which would be profitable for the Post Office. It would be, therefore, good for the network and good for the viability, for example, of a sub-post office, but it would be value for money for a government department, so what we are not looking for is charity and we are not asking for the Government to just pay us a subsidy to do this work, but actually we ought to be able to do this work and help them meet their own cost reduction targets. That is our objective, to provide a network which really has three core essential ingredients, a mails business, a financial services business and, what we call, a government services business where all of those ventures can be profitable in their own right and provide whatever partners we may deal with, whether it is the Government or Royal Mail or whether we partner with the financial services, but we can provide them with an effective and profitable partnership and provide UK citizens with a valuable service to boot.

Q291 Chairman: I should say, it is very likely, not necessarily inevitable, that we will ask you to come back for a second bash at some of these questions when we have had a chance to look at what we have heard and what you are going to say to us today, and that may give a second chance to the vision thing. You have no automatic right to exist. No organisation has an automatic right to exist and every organisation likes to protect itself and endure, and that is the first purpose of any organisation, but a lot of the things you say you would like to do other people could do. Banks can give financial services, Paypoint offers bill payment services, there are competing mail service companies and there are local authorities offering government services and government advice around the country, so what gives you the right to exist? Why is it that it is so important that we have a Post Office network?

Mr Cook: Well, no organisation offers all of those three things, and I think the thing that we have is a legacy and a history, a sense of trust that the British public has in the brand that is the Post Office. The trust actually lies with the individual sub-postmasters in the villages, it lies with the individual counter clerks in our crown offices. It does not lie with a faceless entity, it lies with the service that we provide to our customers. I think that, if I may speak on behalf of Paula, what attracted both of us to this organisation was that, with a brand like that, what we have to do is modernise the offer that is made. It is not possible to live off the business model that existed in the past because the world is moving on, but this business model, this level of trust, this type of service-delivery is not out of date, it is not out of fashion and these product areas seem to be good areas for us to focus on.

Q292 Chairman: We will not spend too long debating the philosophy, but it is helpful to hear you say that. Can we just look at the current background for POL. We have heard that, since the Network Change Programme concluded, we are still losing something like, I think it is, a post office a day. Now, can you explain to me what the situation actually is in terms of permanent closures, temporary closures and also, I believe, there is a status of officer in charge where a sub-post office is being managed through a difficult situation?

Mr Cook: Well, there has always been quite a turnover, not surprisingly, in the network just due to retirement, people moving on and change of circumstances or whatever. In the build-up to the closure programme, that turnover was suppressed because individuals were saying, "Actually, I'll wait and see if my post office is going to close". The closure programme is now through and, for many parts of the country, the closure programme has been over for quite some time, so it would appear that the rate of turnover has returned pretty much back to the levels that used to exist before, so, in a typical year, you will get a turnover which results in something like two post offices a week that are up for sale and being sold to someone else, so the ownership will change. It is not particularly visible to the customer, but that is just individuals deciding that they no longer want to run a post office and they put it up for sale and someone comes in and buys it. We obviously supervise that purchase process, we interview the incoming sub-postmaster to make sure they are competent and able, and we provide all the training to bring them up to speed. Now, in parallel to that, there is probably a post office every two days, something like that, about 150 a year, where the postmaster says, "I have now finished. I'm going to retire. I'm not particularly going to sell this business because actually this post office is in my house and I'm going to stop being a postmaster", and that presents us with a problem because we then have to find, for that village or town or whatever, a replacement postmaster to run it. Now, at any point in time, we would typically have about 200 outlets where we are hunting for an alternative site for that post office, but we are now completely back to business as usual in the sense that we have committed to 11,500 post offices plus 500 new outreaches and we are keeping it at that level. Now, inevitably, sometimes you can get a small village where you have got a real challenge because that premises is no longer available to us and it is quite difficult to find someone else who wants to be a postmaster in that village, but that is what the job is; the job is for us to find solutions to those sorts of problems.

Q293 Chairman: So you have no evidence that there is any increase in the loss of post offices?

Mr Cook: None whatsoever.

Q294 Chairman: And there is no evidence either that the loss of confidence in the Post Office network caused by the recent Network Change Programme is making it more difficult to sell post offices, because I can think of two post offices in my constituency which have not closed which just cannot find buyers and eventually they will retire, so there is no evidence of that either?

Mr Cook: Well, obviously, in the build-up to the closure programme, there was an element of blight because it was very difficult to sell your post office if you did not know whether it had a long-term future. That blight has gone and there seems to be a healthy market. This was one of the objectives of the closure programme, to improve the viability because the same amount of work, pretty much, is going through the network, but it is going through 2,500 fewer locations and it makes each individual post office more viable than it was before.

Q295 Chairman: I think I could pursue this at some length because I am still not entirely convinced by the answers. I still fear we may be actually losing post offices and I still have on my shoulder the view that the access criteria mean that you can close quite a lot of post offices and still meet the access criteria.

Mr Cook: Well, I would just repeat that we are committed to 11,500 post offices plus 500 new outreaches. We are not actually down to 11,500 in reality, but we are committed to receive them. I receive many letters from MPs, saying, "My local post office has just closed. You are going to replace it, aren't you?" and usually we are in the middle of so doing, so actions speak louder than words.

Q296 Chairman: Can I just ask you briefly about the Post Office's relationship with Royal Mail and, first of all, can I be clear what linkages exist at board level in the current structure and what linkages, do you think, will exist in the new structure if the current Bill passes through the House in its current status? Who will sit on which boards?

Mr Cook: Currently, sitting on top of the organisation is the Royal Mail Holdings Board and I sit on that Board, so I am a Director of Royal Mail Holdings. Currently, we also have a separate entity called 'Post Office Limited' which has its own Board, and obviously I sit on that Board, as does Paula. The Chairman of the Royal Mail Holdings Board is the Chairman of Post Office Limited, so that is the current situation.

Q297 Chairman: Do you think that situation will be replicated under the new arrangements with your more separate relationship from the part-privatised entity, if that happens?

Mr Cook: As I understand the proposals there will still be an entity at the top, Royal Mail Holdings, that will sit over both the Royal Mail Group as we understand it today and sit separately over Post Office Limited.

Q298 Chairman: Would you expect the Chairman to be the same as under the present arrangements?

Mr Cook: Effectively there would be almost three chairman positions and I do not know whether we are talking about the same individual or different individuals. The important thing is there is someone sitting in the chair of Royal Mail Holdings who takes that balanced decision that the previous witnesses talked about which says it would not make sense to make a decision going forward in the long-term that was good for one company but to the detriment of another. There would be an entity at the top which, to be frank, were I fortunate enough to still be running Post Office Limited I would expect to be sitting on, that would be taking a decision for the greater good of both entities.

Q299 Chairman: Could there be more tension under the new arrangements than there are under the current ones?

Mr Cook: No, not particularly. The proposals envisage a greater degree of practical separation between the two companies going forward. I do not think that is necessarily a bad thing but that is very operational, not decision-making.

Q300 Chairman: Let us look at some of the practical stuff at present. You get paid by Royal Mail for services provided. How is that done? Is it a straightforward payment? Are there exclusivity arrangements which are recognised in the compensation package? How are they costed? This Committee has expressed concern in the past about the nature of that commercial relationship.

Mr Cook: There is a long-term inter-business agreement in place which makes a payment for each different type of transaction. We have broadly flowed through the relative value of those payments to sub-postmaster pay, so more valuable payments received from Royal Mail attract more valuable payments to sub-postmasters. In that way Royal Mail can incentivise us to perform the transactions it wants us to perform. For example, a value-added service that we provide for customers is the Special Delivery product. Royal Mail would pay us more for a Special Delivery than a standard mail product and we would pay the sub-postmaster more. The product costs more so there is a certain logic to it.

Q301 Chairman: So it is a transaction-based arrangement, the more business you do for Royal Mail the more money they pay you?

Mr Cook: Correct.

Q302 Chairman: Are there any recognitions of exclusivity arrangements in that or financially?

Mr Cook: There are provisions in the inter-business agreement to encourage Royal Mail to stay with Post Office Limited. I think you had Adam Crozier before this Committee a couple of months ago confirming his personal commitment to the Post Office remaining in whatever organisation construct we end up with the front office, the shop office of Royal Mail Group. The inter-business agreement would not make it attractive for Royal Mail to run off and sign a deal with a supermarket and there would not be much point if we have got a post office just down the road, to be perfectly honest. I do not feel worried or concerned about the ongoing relationship with Royal Mail and our ability to handle their transactions.

Q303 Chairman: On that question of transaction-based payments, are you reducing the basic salaries of sub-postmasters and increasing the amount paid through transactions?

Mr Cook: Yes, directionally over the last few years.

Q304 Chairman: That has been a policy for some time, has it, and is continuing at present?

Mr Cook: Yes. One of the things it does is encourage sub-postmasters to understand how valuable that transaction they performed really was to them. For example, they may have looked at the amount of payment that PayPoint would make to one of their agents for a bill payment and thought, "That looks to be more money than I receive", but they were not necessarily appreciating that they had an element of their base pay that was supporting that bill payment business. So it might look like PayPoint was paying more but PayPoint pay no base pay, so it makes sense for the pay to be more variable.

Q305 Chairman: Can you explore the issue we were exploring briefly with the unions just now about the competition implications of separation. Are there any? The National Federation of Sub-Postmasters is worried about the impact of EU procurement law making it more difficult for this relationship to endure in its current form. Have you explored that concern?

Mr Cook: Yes. I do not think there are any competition considerations. We have a five-year inter-business agreement with Royal Mail.

Q306 Chairman: But that inter-business agreement will be renegotiated surely in the new world.

Mr Cook: The inter-business agreement that is now in place is robust enough for, as you call it, the new world.

Q307 Chairman: The new legal entity.

Mr Cook: Yes.

Q308 Chairman: Partly owned by someone else.

Mr Cook: If you were to make that longer than five years there could be competition law implications.

Q309 Chairman: When is the inter-business agreement renewed?

Mr Cook: We have only just done it.

Q310 Chairman: So that is for five years, but in five years' time if you are more separate from the mail service part of the organisation would there be a competition implication?

Mr Cook: It is difficult to predict what the market will look like in five years' time, but at the moment there does not appear to be a competition law implication.

Q311 Chairman: 900 mailwork post offices are linked with sub-post offices. This seemed to be one of the major oversights in the Hooper Review because here is a very physical relationship between the mail service and Post Office Limited. What is going to happen to the network if those sorting offices are closed, the mail service bit?

Mr Cook: We have had no proposals from Royal Mail to close them.

Q312 Chairman: Do you think those small sorting offices are at risk?

Mr Cook: It depends whether Royal Mail could find a more cost-effective way of providing the service. Inevitably, these 900 locations are not exactly in big locations, they are in out of the way places where it has been pragmatic in the past. This is the most practical solution and in a way the sub-postmaster acts as the line manager of a group of postmasters and the post is dropped off there. It may not look fantastically elegant because it is the more traditional way of sorting mail, but it is all low volume and it is a practical way of reaching more rural areas. It would be Royal Mail's call, but at the present time we are not expecting any change to that mailwork set-up.

Q313 Mr Bailey: It is very difficult for the outsider to fully understand the relationship between Post Office Limited and the post office network with sub-post offices. Obviously they are vital to your turnover and yet many of the business practices that you adopt are in competition with post offices, things like travel insurance, online and so on. How do you define your main aim? Is it just to make headline profit regardless of what happens to the post office, or do you temper that particular objective with consideration of your need to sustain that network?

Mr Cook: It is a bit blurred. We have two objectives. We have an objective to make Post Office Limited viable but we also have a requirement to retain 11,500 post offices and 500 new outreach, so we have to do both. Mostly those needs coincide but there will be occasions when they do not. The example you use of the extent to which we sell products on the Internet is the obvious clash. The trick has got to be to find a way of helping the Internet presence of the Post Office feed post offices and vice versa. It does not have to be an either/or. The answer to your question is we have to manage both.

Q314 Mr Bailey: The example you gave is interesting. Have you managed to do it in those two respects?

Ms Vennells: In a sense all sub-postmasters are able to be remunerated for direct sales if they have come in some way via a reference from the sub-postmaster. A customer may go into a post office, they may be interested in a travel insurance product but not have the time or desire to do it there and then. They can go onto the Internet or go through the call centre and they are prompted to give a reference for the post office so that the sub-postmaster then gets a commission on the sale. We have tried very carefully where we have a multi-channel offer to engage the sub-postmasters in that as well.

Q315 Mr Bailey: You probably will not be able to give a response off-the-cuff, but it might be helpful if you could inform the Committee by written submission. Have you any idea what sort of turnover that gives to the sub-postmasters?

Mr Cook: In the financial services business it is quite significant because our primary way of sub-postmasters selling financial services is to provide a leaflet and say, "Phone this number" or "Go onto the website and purchase the product", like car insurance, and the leaflet has the code number for their branch on it. They cannot actually issue the products in the branch.

Q316 Mr Bailey: No, I understand that.

Mr Cook: It is quite material.

Q317 Mr Bailey: I was intrigued to know what sort of level of remuneration that does provide.

Mr Cook: You are right, we cannot do it off the top of our head.

Q318 Mr Bailey: No, I would not expect you to, but it would be helpful if you could provide it.

Mr Cook: You used travel insurance as an example and they can actually issue travel insurance at the counter because it is a handwritten pad, but with most of the other insurances, because of the regulatory requirements of the FSA, the most compliant way of achieving the sales is to manage them remotely through a call centre or on the Internet.

Q319 Chairman: There is an underlying issue here which I am very anxious the Committee addresses, which is there are lots and lots of things that post offices could do but we have got to make sure they get paid for it. We cannot just use footfall as justification for a new service, so we have got to make sure they get paid.

Mr Cook: If they introduce the business they get paid.

Q320 Mr Bailey: Just moving on slightly, but it relates to profitability and remuneration, et cetera, Post Office Limited reports only 30% of the network is profitable. On that basis you would expect a lot of sub-postmasters not to be earning anything at all. How do you define it? Is it just profitable to POL? How is profitability calculated? This was a big issue in the debate about the closure programme.

Mr Cook: In the example you give we are talking about profitability to Post Office Limited. How a sub-postmaster will judge whether or not it is worthwhile having a post office in his shop is a different set of criteria. Only 40% of Post Office's cost base is driven by what we pay sub-postmasters. They look at that income and they will not have much cost associated with being a postmaster, particularly if they do it themselves. They might employ someone to man their post office, in which case they would have some salary costs. What might be profitable for us might not be profitable for them and vice versa. The comment you are quoting there is purely how many post offices are profitable for Post Office Limited.

Q321 Mr Bailey: It comes back to some of the inherent contradictions. How many of the 2,500 post offices closed in the Network Change programme were unprofitable to the sub-postmaster?

Mr Cook: I do not know, that would depend on their view and how they calculated what profit meant for them, so it is impossible to judge that. They were certainly all unprofitable from a Post Office Limited perspective.

Ms Vennells: Sub-postmasters are provided with huge infrastructure services from Post Office Limited, so things like cash logistics, cash delivery, the Horizon online system, the staff training, the recruitment. There is a huge amount of support and infrastructure that goes behind running a post office which they do not pay for at all. Sub-postmasters simply get remunerated on a revenue basis and that infrastructure is a cost that is part of POL and the cost of that is roughly 37%, so compared to the 40% agent cost the infrastructure cost is about 37%. The two are roughly equivalent. If you like, they get the support services almost on a kind of free issue basis.

Mr Cook: If we run a TV advertising campaign or marketing campaign, and we are currently advertising savings in the national dailies, they do not get charged for that, that is part of the cost of running Post Office Limited.

Q322 Mr Bailey: Could I try and pull it together. To a certain extent you have anticipated this question in your previous answer. Given the fact that your brand is delivered by a huge range of small businesses, how do you protect it? How do you provide the quality infrastructure needed to sustain that brand? How do you monitor the quality?

Ms Vennells: There are a number of different things. If you take the infrastructure first of all, we continually invest in it. At the beginning of September we will roll out a huge new IT system, the Horizon system is going to be upgraded to make it much more relevant to the kinds of services we would want to offer in the future. That would be one thing. In terms of recruiting sub-postmasters, which is critical because any service we offer through the Post Office is dependent on the quality and the calibre of them and their staff, so we have a very rigorous process in terms of recruiting and training sub-postmasters and their staff. In terms of some potential Government services, so passports, DVLA and certainly financial services, there are big compliance challenges and one of our responsibilities is to make sure that we have post offices staffed by people who are trained and competent in doing that. We monitor down to the last percentage the performance and compliance rates so that we protect as much as possible the brand that we have.

Q323 Chairman: Can I just ask one question relating to that last point. How good do you think the senior managers of Post Office Limited are sitting at HQ about understanding what it is like to run a post office? The reason I ask that is one or two of my sub-postmasters have been complaining to me about streams of memos from young managers who do not understand the realities of post offices. The particular one that amused me this week was I stopped at one sub-post office and he said they are allowed to do Turkish currency this summer to supplement their normal dollars and euros but they noticed the advertisement has come in a landscape format whereas all the frames you provided to put their posters up are portrait frames! That is just an indication that they feel the managers do not understand what it is like to run a post office. Do you have an induction training programme for managers just to spend time in crown offices, franchised offices, sub-post offices, to learn what it is really like to deal with customers?

Mr Cook: Every manager works on a counter at Christmas, trust me, so everybody is counter trained.

Q324 Chairman: Do you?

Mr Cook: Yes. I have got the pictures to prove it, sadly!

Q325 Chairman: Excellent.

Mr Cook: We have made a point of making sure people are connected. I do not know about the Turkish lira example but Turkey is where everybody is going this year so we have rushed out 2,500 post offices' worth of on-demand Turkish currency. It is spur of the moment but it is the dynamic sort of thing that one should do running a business like this.

Q326 Chairman: So every manager works every Christmas in a post office somewhere?

Mr Cook: Yes.

Q327 Chairman: For how long?

Mr Cook: Typically three to five days each.

Q328 Chairman: That is reasonable.

Mr Cook: Unfortunately, of course, there is quite a strong congregation around London and we really need to spread the effort, so some of them go to significant lengths in travelling to all sorts of parts of the country.

Q329 Chairman: Sub-offices too, not just crown offices?

Mr Cook: Wherever. It does not really make any difference where, whatever is local really.

Q330 Mr Wright: In terms of the opening hours, and we touched on this in the earlier session, there are concerns over the opening hours of the post offices, specifically of those post offices that are attached to a shop that may well be open until ten o'clock at night. What are the particular barriers, apart from the cost, of opening up to make it more accessible to your customers? Have you considered removing those barriers?

Mr Cook: The barrier has historically been cost, I believe. The demand to be open longer is growing all the time, so this is an area that we are looking at quite proactively. We have a little gadget which we call pay station, which is a small machine which is the same as PayPoint have for their bill payment. Bill payment seems to be one of the first things that are demanding longer opening hours. What we are doing is encouraging sub-postmasters to site those pay stations in the retail part of their store rather than in the post office, so it will be on their main counter rather than in the post office, and by definition the post office is open for bill payment for as long as the shop is open. That is just a small example. We can see increasing pressure developing. The Chairman talked about the growth of the packages business and the ability for people to be able to pick up packets in the evening on the way home from work is a growing phenomenon and over time I think we are going to have to provide the capability to do that. Certainly directionally we are heading along the lines of saying we need to be open longer. Quite a few are, but what we need is a structured formalised commitment as to how long we would be open. That is the direction we are moving in.

Q331 Mr Wright: You mentioned the fact that some of the shops can move across to their own area. The Post Office Essentials model relies on the use of the shop's tills and quite clearly that would be a way of providing an extra service for the customers when the shop is open. Is that going to be extended?

Ms Vennells: That was one of the points of doing the Essentials trial, to see how we could find ways to persuade sub-postmasters to open for longer because there is not a restriction imposed by Post Office Limited on opening hours, the sub-postmasters themselves decide how long they will be open for. The idea behind Post Office Essentials is to put together a range of products and services which are 85% of what a standard post office offers, to make them available for longer, which is better for customers from the service point of view but a more cost-effective way for the sub-postmasters. As you may well have seen, they actually operate from the same counter, so from a staffing point of view the sub-postmaster has much more flexibility in being able to use the same members of staff when it is very quiet and being able to flex much more easily as it gets a little bit busier. So far the feedback from the customer research and from the operators has been very good.

Q332 Mr Wright: Just picking up on an earlier point that you made, what you are saying is that if a sub-postmaster wanted to open later there would be no problem?

Ms Vennells: No, there is no problem at all. There is no restriction. It is simply what is cost-effective for them running their business.

Mr Cook: We stipulate minimum hours but the technology is available all the time, so the Horizon system is available. These Post Office Essentials branches are typically open seven days a week and they are open from very early in the morning until very late in the evening.

Q333 Mr Wright: You mentioned the question of the growing market in parcels. Why is it that Post Office Limited do not accept parcels from competitors such as TNT or DHL?

Mr Cook: As I have been asked this specific question I am happy to tell you that on Friday we signed a contract with the DX Group to provide a local collect service for the DX Group for parcel collection. I did not put him up to that question!

Q334 Mr Wright: Is this just contract specific or would you be open to other competitors as well?

Mr Cook: As I have always maintained, the licence does require the Royal Mail Group to make the Post Office network available to any mails competitor for this type of service. What is fascinating is obviously we have to charge any other provider the same as we charge Royal Mail and this organisation was happy to pay what we charge Royal Mail. This further vindicates this lack of transparency that has been alluded to by the Chairman in the past on the pricing and demonstrates that actually third party mail providers find the service of sufficient value. I have probably announced it today, but I did warn the DX Group that it might come up. I was not going to mention it if you had not asked.

Chairman: You can tell them the Committee is very pleased and congratulate them on their wisdom. I think I speak for the Committee when I say that.

Q335 Mr Wright: Another issue that has been raised on lots of occasions is the provision of Government services, passport applications, driving licences and services such as that. A lot of the sub-postmasters obviously resent the fact that they have to say, "Sorry, we can't provide you with that, you've got to go to the post office in the town centre or somewhere else" so they are losing an amount of business. How much would it actually cost to be able to allow all of the sub-post offices to be able to provide that service to their clients to stop them from having to go into the town or a few miles and who would you consider would have to pay for that?

Mr Cook: The first thing is that the number of branches that we allow these services through are not stipulated by us, they are stipulated by the relevant Government department. To be frank, whilst I understand their motivation, it would be much easier for us if we had them available in every branch because it would make it easier to manage the peaks and troughs, particularly road tax discs which all happen at one time of the month, so the more we could spread it across the network the easier it would be. I have to say, I do understand the DVLA's concern which is that represents quite significant cost. A road tax disc is like a piece of currency really, it has a face value, so controlling the stocks, managing the wastage and whatever is quite a significant task. They have taken the view that they would limit us to 4,600 branches. In the event of any branch closing under the closure programme that had road tax disc entitlement, we have very carefully reallocated that entitlement to another branch to keep the 4,600 entitlement going. It is not our call. It is something that I would welcome but it is something that the relevant departments would prefer not to happen, and that is the term of the contract we have got with them. I do understand their thinking, that there would be an increased cost, the question is whether individuals would want to pay more for that broader availability really. We do not make much of a habit of rationing products in the network, it is only where the supplier has a particular demand on us.

Q336 Mr Wright: Just moving on to the question of efficiency within the Post Office network, quite clearly the programme of cuts in the last round was talking about making a leaner organisation, but what are you doing specifically to become leaner and more efficient within the organisation? Have you got any figures that will stack up to prove the point that some of the impacts you have had in making it a more efficient organisation have proved successful financially?

Mr Cook: I thought you might ask. Because I cannot remember this off the top of my head, I have notes. Over the last five years, and these figures come out of Postcomm's report, not ours, so they are quite independently verified, our staff costs have fallen 22%. Our operating costs, those operating costs that Paula referred to earlier, have dropped 40% in real terms over the last five years. The cost of pay to agents has dropped 7% over the last five years, but remember there are 15% less branches than there were so that means individual postmasters will have seen an increase on average in their pay because the amount of agent pay has fallen by 7% but the number of branches, the number of sub-postmasters, has fallen by 15%. So far we are achieving quite a dramatic reduction in staff costs and operating costs and sub-postmasters are not seeing a reduction in pay. I do not know how long we can keep that up, but in my view that is not a bad result.

Q337 Mr Wright: The projection for the future is for much of the same and obviously most of the savings have come in the last five years because of the cuts in offices.

Mr Cook: We certainly have not finished on the savings front. For example, much of those savings do not include the infrastructure cost savings we can make as a result of having 2,500 less post offices. I need less cash in transit trucks because they are stopping at less points and that sort of stuff. You cannot take that sort of cost out until you get to the end of the Change Programme. I do not think we have finished on cost reduction, we can go further. As I said in my introduction, the cost reduction has gone well and can go further. I have said at this Committee before, you cannot cost-cut your way to greatness though, we also have to think about the revenue side of the thing, and in the last five years we have seen a reduction from Government in income of 400 million which was in our written submission. There is a dramatic reduction in the old traditional products and what we are trying to do is build revenue in new products but also take down the cost.

Q338 Mr Wright: Of course, efficiency is not just about making cuts, it can also mean taking business away from other sections.

Mr Cook: Correct.

Q339 Mr Wright: Thus creating more opportunity for sub-post offices and creating other opportunities elsewhere.

Mr Cook: A significant area where I think we have upped our game over the last two or three years is in competing for bill payment business. Putting it crudely, and I have a lot of respect for PayPoint, three years ago they were eating our lunch and were winning lots of business. Reference was made earlier to the TV licence. We have lost very, very few tenders over the last three years. We are pricing much more competitively, so we are not making as much money on those contracts but we are forcing our way into most of those bill payment contracts now. Interestingly, many of those utility companies are the very self-same organisations that are saying, "Look, we need you to be open longer, we need you to be open more days" and providing that pressure. As I say, I think we have got a robust story on costs, we have an okay story on revenue and now that we have done a lot of the tough stuff it is time to up the ante on winning more revenue.

Q340 Mr Wright: Part of this is the competition that you have got from PayPoint. Why is it that you are more expensive than PayPoint in terms of the contracts that they have got? Ultimately, has there been any move towards collaboration between Post Office Limited and PayPoint to try to join together?

Mr Cook: We are not more expensive than PayPoint now; we were a few years ago. We have done those cost reductions. The series of last big tenders have been very often awarded to both Post Office and PayPoint. We are in competition with them now on a number, but my guess is we will both be in the same ballpark competitively. It is becoming as important to compete on the number of outlets, the opening times, as well as just on the cost. That is quite important.

Q341 Mr Wright: Has PayPoint approached you for some collaboration and has it been rebuffed?

Mr Cook: We have talked on and off since I have been running the organisation about what opportunities there are for collaboration. There are opportunities for us to collaborate as fellow bill payment collectors in the marketplace in terms of what regulation exists and whatever. I have certainly met with Dominic and we have discussed those sorts of issues.

Q342 Mr Wright: The door is not shut for negotiations?

Mr Cook: No. The reality is the collaboration you are talking about would be quite tricky from a monopoly perspective because between us we have got a huge proportion of the market. There are other ways we can collaborate, not just in terms of with a client.

Q343 Mr Wright: The National Federation of Sub-Postmasters states that 80% of the work in the Post Office network is done by sub-post offices but they only receive 45% of Post Office's income. Is that statistic true or is it the way of how statistics work?

Ms Vennells: That goes back to the point that we were talking about earlier which is they receive payment from us for the transactional work that they do but they also receive the investment, the infrastructure and the daily infrastructure costs, and the two are roughly the same, but they do not pay for the costs of the infrastructure support.

Q344 Mr Wright: The fact is true that they do 80% of the work and receive 45% of the income?

Mr Cook: I did say this a minute ago. 22% of our cost base goes on directly employed staff, 41% on agents' pay and 37% on operating costs. They get the benefit of the operating costs and most of the staff costs. Obviously some of the staff costs are working in the crowns but we have 1,600 people running the cash in transit operation and that is sort of what they are paying for. It is apples and pears, it is not a relevant comparison to make, as I have pointed out to George since he appeared before this Committee.

Q345 Mr Wright: It appears to be relevant to the NFSP.

Mr Cook: It is bizarre.

Ms Vennells: It is probably worth pointing out that we have had agreement from the NFSP for every single pay round we have done with them. They make a point but actually they understand exactly how the economics work.

Q346 Chairman: You will have to start charging them for the cash in transit delivery at sub-post offices. That was a joke! Probably not a very good one.

Mr Cook: It would all net out. You could say if some sub-postmasters are heavier on the use of the cash in transit network should they pay more than others. The danger is you could create a complete industry of billing one another, but I think you would still get to the same answer.

Q347 Mr Wright: Some of the major retailers, such as the Co-operative, have been critical of Post Office's management certainly in specific terms about the sales campaigns being inappropriate for their particular retailers. How are you adapting business practices to take into account those claims because I understand the Co-op have got up to 500 post office branches, so it is quite a large number?

Mr Cook: If I could talk about the general and perhaps Paula could talk about the Co-op because Paula has spent quite a bit of time with the Co-op. Andy Furey in the last session highlighted the extent to which the crown offices have been significant, for example, in the sale of financial services. It is definitely the case that if you directly own and manage it is much easier to put in a strong and robust compliant sales infrastructure. We have had huge and willing buy-in from both the CWU and the staff to embracing a more sales oriented culture, but we have to be careful not to overdo it because it is part of an overall service proposition. We have had materially less success in convincing sub-postmasters and agents, and by that I mean franchise partners, to embrace the sales agenda in the same way. That said, we are running some very significant trials with groups of sub-postmasters now that are proving very successful. Paula, you might want to talk about quite an encouraging dialogue that we have been having with the Co-op over the last few months.

Ms Vennells: Yes. They made the same points to us six or nine months ago, so not just with the Co-op but with all of the major multiple partners, so the Co-op, WH Smith and some of the bigger groups, we have met with them and now we have in place development plans with each of those particular businesses. In the Co-op's case we have done a couple of things. We are looking at trials of Essentials in some of their stores in the smaller areas and we are also running sales incentive programmes that are targeted much more at the type of business they are doing. We are also looking at how we might develop the joint business together, so working on joint business plans with them. The point they make is right, they run their businesses very differently. They are very good retailers. They have much better retail standards than perhaps we get in some of the other post offices and for us that is a good thing in terms of protecting the brand, going back to the point earlier. We are very happy to work with businesses like the Co-op particularly in just pushing the business forward. Financial services is one area with the Co-op and with Smith's and some of the other bigger groups where we are starting to look at how we can put financial services specialists in along the models that we have been working in the crowns so we grow revenue in the areas of the business that are set to grow forward. We take the point they make and we work very closely with them.

Q348 Mr Clapham: Could I just ask a couple of questions on the use of the subsidy. We know from 2003-11 the Government has made very substantial amounts available of 150 million per year and that is used to ensure that the network continues. How is it distributed? What are the criteria that you decide on for distribution? Does it go on certain aspects to certain post offices or is it just distributed centrally?

Mr Cook: Effectively we book it as income and then we run the business in the most effective way possible. This will be the third time I have given these percentages, but it is relevant.

Q349 Chairman: You might remember it if you have done it three times!

Mr Cook: It does mean that 40% of our cost base goes on agents' direct costs, ie their pay, and 37% on the infrastructure. In broad terms that is where the Social Network Payment is going as well because it is underpinning the network as a whole effectively.

Q350 Mr Clapham: Have the figures that you have given been available normally because I note that Consumer Focus were quite critical that they felt there was not any transparency.

Mr Cook: Most of the numbers I am quoting are in the Postcomm report, the Annual Network Report.

Q351 Mr Clapham: So their criticism falls. One can understand the points that PayPoint make.

Mr Cook: It might amuse you to discover that I quite often refer to the Postcomm report myself. That has a lot of data in it and it is quite a useful source of metrics.

Q352 Mr Clapham: PayPoint make the point that it is a payment for inefficiency, although one could say they would say that, would they not.

Mr Cook: Interestingly, again anticipating a question in that direction, I asked for a piece of work to be done to try to find out how much of our cost base is actually supporting our bill payment business to try and compare like-with-like and from what I can see our fixed operating costs that support the bill payment business are not particularly dissimilar from PayPoint. What we then have is a load of other infrastructure that supports other product lines. We have got over a billion pounds' worth of turnover, so clearly there are lots of other things going on. It does not surprise me that it would be comparable otherwise we would be tendering much the same price and we are still be able to make not a great profit but a modest profit on bill payment business. I do not think our business model is any less efficient, it is embedded in something much, much larger.

Q353 Mr Clapham: Given that for the future there could be some change in the structure of POL could you see any circumstances in which, given structural changes, the subsidy may go direct to the postmaster or postmistress?

Mr Cook: I have a personal aspiration that what we need to do is to try and find a way of running this business within the current constraints, ie the number of post offices that I keep repeating, but without a subsidy. That is not going to be before 2011, but the aspiration has to be if we could increase the commercial viability and sustainability of this business we could eliminate the need for a Social Network Payment, so that has to be the aspiration. Just to be absolutely clear, I am not committing to that being achievable right now but that would be a better aspiration to have than spending a lot of time and energy finding a more complicated way, dare I say it, of distributing the current Social Network Payment.

Q354 Mr Clapham: Just as an aside, within that aspiration do you see banking services?

Mr Cook: Yes, I do.

Q355 Chairman: That is the next step. That is not an aside, Mr Clapham, that is the whole of the next area of questioning from Adrian.

Mr Cook: You are cheating and pinching someone else's questions!

Q356 Mr Bailey: Do forgive me, I have got to host a lunch fairly shortly so I will be dashing through these questions.

Mr Cook: That is a clue to be brief in the answer.

Q357 Mr Bailey: Yes. How does your existing relationship with the Bank of Ireland conflict with the vision of a Post Bank?

Mr Cook: Only in one relatively modest way really. If you look at post offices across Europe, and even into Japan, most post offices are embracing financial services in a big way. The model they use to embrace it varies by country. If you were to look at us or Ireland, for example, we have partnered deliberately with a bank that is not of the same country and it reduces a lot of competitive issues by doing that, so Ireland have partnered with Fortis, for example, in Belgium. Like Italy have done, you can have a series of relationships with a variety of different financial services companies and join that offering together, or you can do what Germany and France have done, which is become a bank in your own right, which is what the Post Bank Coalition is representing. I am pretty supportive of what the Coalition is saying because we are all aiming ultimately for the same thing, which is a very material financial services offering for the Post Office. The difference between what we are currently pursuing and what the Coalition are looking for is whether or not we are a bank in our own right or whether we partner to use another organisation to do it. That is the fundamental difference.

Q358 Mr Bailey: In many ways you would expect that post offices, particularly in areas where there are few other services, would have a natural synergy with organisations like Credit Unions that are catering for other communities that have bee marginalised. What do you think the potential for hosting Credit Unions is and what do you think are the barriers?

Mr Cook: We have started a dialogue now with the Association of British Credit Unions and it is a very productive dialogue. I am not quite sure I can articulate yet exactly what we would do but we would foresee the possibility of considerable collaboration between Post Office Limited and Credit Unions to produce an offer which is perhaps less upmarket and much more designed to tackle the financial inclusion agenda. I could still see the sort of thing that we do with the Bank of Ireland as a much more commercial financial services offer. It is almost like two sides of the same coin really. In no way by tackling or working with ABCUL do I see that threatening what we are currently doing on financial services, it would more be a supplement. Registering our interest to do the Government Savings Gateway Scheme is an example that is nothing to do with the Bank of Ireland but is something that fits our financial inclusion agenda.

Q359 Mr Bailey: Given the fact that obviously the more you expand the range of services of a Post Bank, the more physical capacity, more training and more security and so on that you have to have, have you given some thought to what sort of percentage of your network would have the capacity for delivering this sort of service?

Mr Cook: It will vary dramatically by product. Andy Furey made some reference to mortgages earlier. We believe any level of conversation about a mortgage is not easily done across a counter through a sheet of class or whatever, and we are likely to restrict real conversations about mortgages in a post office to those branches that have financial services specialists where you can sit across a table. That is largely restricted to the crowns at the moment, although it may go wider. On the other hand, we have an aspiration, and you heard it here first, that we will launch a current account next year and if we have our own current account I see no reason why that would not be in every single branch. It is no different from what we do for many other High Street banks today, which is we provide cash withdrawal facilities. That would be a very significant footfall driver for sub-postmasters and for the crown offices. It will vary by product, but one of the primary points that would make us decide on the availability would be these FSA compliance issues really.

Q360 Chairman: That is quite a big statement you just made.

Mr Cook: Yes, I thought I would slip it in.

Q361 Chairman: How is that being organised? Do you need a banking licence to deliver that?

Mr Cook: No, we will do that in our partnership with the Bank of Ireland.

Q362 Mr Bailey: Apropos that, have you explored the possibility of obtaining a banking licence?

Mr Cook: I have not. I do not know whether it was looked at before the original deal was done before my arrival. We are committed to the current model. The point is to have your own banking licence you would need significant capital and I do not have that capital. The only place I could get that capital would be from Government. My predecessors said, I imagine, "How can we then start a financial services presence off? Well, we will partner" and that is why so many other post offices across Europe have partnered. To become a bank in my own right, to have a banking licence, is not a call that Post Office Limited can make itself, it is not within its gift, and you would have to raise significant capital from somewhere. I have to say, to be successful in financial services distribution, which is I think what we have the potential to be in, you do not necessarily have to be either the owner of the banking licence or the underwriter of the insurance policy. I have been in financial services, dare I say it, since I was a boy and in insurance there are two things going on, those who underwrite the risk and take the financial risk of the event happening and those who sell the policies, and the latter is a much more secure model. When we sell car insurance and house insurance we are not vulnerable as Post Office Limited to a loss of profitability in those marketplaces because we just earn a commission off of selling the policy. It is not automatically the case that being an insurer or a bank in its own right is necessarily good but, if we did aspire to it, it would require significant funds.

Q363 Mr Bailey: Given the sympathetic noises that you have made towards Post Bank and working with other organisations, could you share with the Committee any research that you have done into the logistics of expanding financial services?

Mr Cook: I will just give you a few examples of what we have done already. One might say that I came to the Post Office in order to do this and this was my career prior to being at the Post Office. In the space of the last four years we have signed up two million customers. We now have two million customers who have financial services products with the Post Office. That is 50% more than the Bank of Ireland has customers back in Ireland, for goodness' sake. That is a very material book of business. There are 700,000 car and home insurance policies. We have rolled out 1,653 free to use ATMs and we are rolling out eight a week as we currently stand here. We have a foreign currency business which is turning over 3 billion a year of sales and we are doing typically a million travel insurance polices every year. We already have a really, really significant Post Bank, we just do not call it a Post Bank. It is growing very fast and it is very significant. It is still in some senses a bit of a niche player because we do not have every product that everybody else has and some of the bigger omissions are things like a current account, but we are addressing them. I have been here three years and two months now and we have launched 20 products since I joined, that is one every eight weeks, and you cannot go much faster than this. It is going well. As I said to our members of the Post Bank Coalition, although they are representing a slightly different model than we are currently adopting, I am very supportive because it is getting the nation talking about the Post Office as a provider of financial services, and that is what we want. The precise model that sits underneath is a bit more of a financial debate. Make no mistake, we have a Post Bank already, what we want is a much bigger, more successful one that drives income.

Q364 Mr Bailey: We have had demands for more business banking being delivered through post offices. Alliance & Leicester do so and others do not. What do you think the scope is for more business banking?

Mr Cook: I would like to expand it. I have a couple of comments. We are big with SMEs, and that was referred to in the previous session. We are big with SMEs naturally because of the mails business, so we should exploit that synergy. A year back we launched a surprisingly successful product which is what you might call "white van man insurance", just van insurance, and we have sold a phenomenal amount of van insurance which you would not necessarily have expected because these people are in with their mails business or their banking. Our legacy relationship is with Alliance & Leicester and that was what Girobank was, Girobank was sold to Alliance & Leicester and that was why we had that link. That is now Santander and we are working with Santander as we speak about could we make that a more successful business going forward. It has been a slowly declining business, business banking, but we see it as an area of potential growth going forward.

Q365 Mr Bailey: Given white van man's driving habits I must admit I am amazed that they take insurance, but I will conclude on that comment.

Mr Cook: As I pointed out earlier, we do not bear the risk.

Q366 Chairman: Can I ask one detailed question on banking and one underlying question I want to test with you one more time as we move on to the last area of questioning. I forgot to bring it with me but I picked up a leaflet on the banking services available through other banks in post offices when I was in the local post office in my constituency last week. It is an extraordinary patchwork of different products. Surprisingly, the Government owned bank, Royal Bank of Scotland/NatWest, is one of the worst at offering the full range of services through post offices. There are four basic categories: cash withdrawals, and every one does that for every bank; cash balances; paying in cash; paying in cheques. There is a range of yeses and noes across this leaflet and it is very bewildering. Is there any scope at all for rationalising that patchwork?

Mr Cook: It is not all banks that do cash withdrawals with the Post Office.

Q367 Chairman: Every bank that offers the opportunity of banking through post offices, every bank that offers a banking service, by definition offers cash withdrawal from post offices.

Mr Cook: No, only if they have a basic bank account.

Q368 Chairman: HSBC's only offer is of a basic account, is it not? HSBC's only offer is of a basic account, is it not?

Mr Cook: Correct, yes. To be frank, they are not widely available so it really does not account for that much. Currently we have 621/2% of current account holders in the UK who would be able to cash cheques at a post office counter. We are slowly adding to that. Last year we added HBOS. We are close to hopefully signing another bank. It is a matter of negotiation where we have to persuade the bank itself that they would value the additional service for their customers of them being able to withdraw their money at the post office counter. In parallel to that, you could say we have turned the heat up by rolling out so many free to use ATMs because by doing that if there is an ATM in that post office clearly it does not matter who you bank with, you would be able to get cash out through the ATM and the sub-postmaster does earn an income off that ATM.

Q369 Chairman: Is it a commercial relationship we are talking about here? Is there anything the Committee can do to encourage the banks to be slightly more open towards pushing services through post offices?

Mr Cook: You can certainly voice that concern and for those banks that are owned by Government there is probably more you could do to help there.

Q370 Chairman: Thank you very much indeed. I formed the very clear impression from listening to your answers to Adrian Bailey that although you are very grateful for the support of the Post Bank Coalition driving forward the idea of more banking services through post offices, at the end of the day you think your current strategy is going to deliver the goods and it is the Bank of Ireland relationship that you want to develop. That is the impression I have formed from listening to your answers.

Mr Cook: That is about it. It would be feasible to imagine that what the Post Bank Coalition is proposing could be a more profitable model for the Post Office to pursue than the current model because we would not be sharing the proceeds with anybody else, but you do not get to take over the half of it and do it universally without buying that half, for want of a better expression, in the form of putting capital in. It would be very difficult to say that would not work, I am just saying that given the amount of capital that would be required I need to carry on pressing the current agenda as hard as we can because that can deliver the goods. That is nearly what you said, but subtly different.

Q371 Chairman: I think I will leave it there for the time being but it is an issue to which I think we will need to return. You heard me say to Unite and CWU I love their menu of other services that could be provided and I am trying to develop this menu of other services, although there is a lot of resistance from local authorities who say it would cost them more to do it this way. My own local authority will not pay council tax through post offices because it costs more, although it is very supportive of post offices but will not support them with the business. There was a trawl of every permanent secretary that asked them what services they could produce through post offices and some of those responses are very good and constructive and others show they just have not thought about it. Driving that up central government's and local governments' agendas is really going to be important. Do you share that sense of frustration at that patchwork?

Mr Cook: Absolutely. This is one of the prime areas where I was looking for support from this Select Committee. If I could add to your concern. In England there are 450 local authorities and 312 of them do business of some sort with the Post Office, either council tax payments, rent payments or other types of payment, but of those 312 only 55 do all three types of bill payment. Some do council tax payment, some do rent payment, some do other types of bill payment, but they do not do all three. Even if they all did all three there are still only 312 out of 450. There is a huge opportunity, and you can repeat that story in Wales or Northern Ireland or Scotland.

Q372 Chairman: If you could share those precise figures with us that would be very helpful.

Mr Cook: This would not have us doing any work that we do not already do today. In the post office that I worked at, going back to our earlier conversation, you could go in there with a piece of plastic from your local authority and hand it over the counter and pay a twelfth of your council tax, but you can only do that in some local authorities, you cannot do it in others.

Q373 Mr Wright: Do you have discussions with the LGA?

Mr Cook: We have and we have presented our wares at the LGA Annual Conference. What we need to do is to try and create a much stronger framework that makes local authorities realise that this would be cost-effective. I go right back to my opening remark. I am not looking to do this and charge them more than it costs them to do it themselves today. We have to make this a profitable proposition for them as well. They will have their own cost reduction agenda and we can help fulfil that because logically we ought to be able to do it easier in one organisation than them doing it in 450 separate ones. On local authorities absolutely and we are also working our way round the permanent secretaries and director generals of the Civil Service and reminding them of the capabilities that we have. I am hoping that in tandem with your own review in this Committee and the Cabinet Committee that is sitting looking at additional work for post offices that we can create an environment where it is much easier to have a conversation about us taking on a piece of work that is currently performed elsewhere. As I say, it needs to be done cost-effectively and we need to tackle, as we have done in the past, exactly what sort of procurement framework would need to be followed.

Q374 Chairman: That is the question I want to ask you. If we say we have got to put all of government business through post offices you will become a monopoly provider and you can charge whatever you like and that is not very efficient, and that was one of the reasons you lost the TV licence because you did not put a competitive bid in. There is a tension, is there not, between saying you must be the central provider of government information and services and actually making sure it is cost-efficient for the taxpayer?

Mr Cook: And not taking advantage of the situation, correct. It requires us to find some way of setting benchmarks. If there was a benchmark price that represents a saving to the customer providing the Post Office was charging equal to or less than the benchmark it could be okay to provide the work to the Post Office, but once it goes above that benchmark, if I were a government department I would say, "I want to test the market. I want to go out and put it out to competition".

Q375 Chairman: Would there be any capital costs in providing these services that you would not be able to afford, do you think? Are there any issues of investment?

Mr Cook: No. For example, on those local authority points, we do all those transactions already, it would just be doing them in more places.

Q376 Chairman: And the new Horizon system would give you more flexibility as well.

Mr Cook: Correct. I guess the one area which was explored earlier is probably the biggest opportunity for us on the government services front is on identity services management. We have done the driving licence deal, which is only 750 branches, but that kit can be used for passports, ID cards for government and even in the private sector if you needed some form of ID card for something or other. That is quite expensive. Clearly the more business we win, the easier it would be to extend the range of branches that have it. That is one area where there would be significant investment.

Q377 Chairman: One last substantive question. You are not keen on the Essex model of buying out your franchise and operating post offices?

Mr Cook: There are many ways for local authorities or organisations to support the Post Office network and we have seen a variety. We have seen one model in Devon and another model that has particularly worked well in Wales where there is a Post Office Development Fund that has been set up by the Welsh Assembly.

Q378 Chairman: Which we found very attractive.

Mr Cook: It works fantastically well and we have a very collaborative relationship with them about working out which sub-postmasters are entitled to how much. If a body were prepared to invest in the Post Office Network I would prefer the Welsh model to the Essex model. That is not to say the Essex model is bad, but I think at the end of the day the benefit of the Welsh model is it will still retain a consistent proposition across the nation. The danger is that you would have an overprovision in one area of the country and an under-provision somewhere else if you localised the funding too much. One of the good things that came out of that closure programme is we have a very uniform network now evenly spread across the country.

Q379 Chairman: We may need to return to you when we have looked at the evidence, we may not, we will see what the situation is in the light of our wrap-up exercise. We got through a whole hour and a bit with you without me mentioning Bengeworth once, you see, so it is possible.

Mr Cook: Or, indeed, Bolton Road.

Chairman: As the Member for Chorley returns, I will say thank you very much indeed, we are very grateful to you and we may see you again. Thank you.