Draft Post Office Network Subsidy Scheme (Amendment) Order 2010

The Committee consisted of the following Members:

Chair: Mr James Gray 

† Brown, Lyn (West Ham) (Lab) 

† Coffey, Dr Thérèse (Suffolk Coastal) (Con) 

† Davey, Mr Edward (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

† Gapes, Mike (Ilford South) (Lab/Co-op) 

† Griffith, Nia (Llanelli) (Lab) 

† Gyimah, Mr Sam (East Surrey) (Con) 

† Hancock, Matthew (West Suffolk) (Con) 

† Jones, Andrew (Harrogate and Knaresborough) (Con) 

† Lammy, Mr David (Tottenham) (Lab) 

† McDonagh, Siobhain (Mitcham and Morden) (Lab) 

† Maynard, Paul (Blackpool North and Cleveleys) (Con) 

† Mowat, David (Warrington South) (Con) 

† Newmark, Mr Brooks (Lord Commissioner of Her Majesty's Treasury)  

† Pugh, Dr John (Southport) (LD) 

† Ruddock, Joan (Lewisham, Deptford) (Lab) 

† Sandys, Laura (South Thanet) (Con) 

† Sharma, Mr Virendra (Ealing, Southall) (Lab) 

Simpson, David (Upper Bann) (DUP) 

Annette Toft, Committee Clerk

† attended the Committee

First Delegated Legislation Committee 

Monday 20 December 2010  

[Mr James Gray in the Chair] 

Draft Post Office Network Subsidy Scheme (Amendment) Order 2010 

4.30 pm 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey):  I beg to move, 

That the Committee has considered the draft Post Office Network Subsidy Scheme (Amendment) Order 2010. 

It is a pleasure to serve under your chairmanship, Mr Gray, and to debate—again—issues relating to our post office network. A number of veterans of the Postal Services Public Bill Committee, which deliberated for a few weeks, are present, including my hon. Friend the Member for Braintree and the hon. Member for Llanelli. We had some stimulating debates and I have a feeling that we might go over some of the same ground today. 

The Bill was published in October, and it was followed by our post office policy statement, in which we made clear our strong commitment to a sustainable post office network. Moreover, our announcement on 27 October of £1.34 billion of funding for the post office network over the spending review period—subject, of course, to state aid approval from the European Commission—was indicative of the Government’s support of, and commitment to, the post office network. The policy statement “Securing the Post Office network in the digital age”, which was published on 9 November, sets out our plans and commitments in more detail. I will expand on them later, because I think they are relevant, but first I will address the substance of the order. 

The previous Administration introduced the Post Office Network Subsidy Scheme Order 2007 under provisions in section 103 of the Postal Services Act 2000, which allow the Secretary of State to make an order permitting payments to assist either the provision of public post offices, or the provision of services to be provided from public post offices. Under the terms of the subsidy scheme order, the Government can provide funding to keep post offices open or to enable the establishment of post offices in areas of the country in which, without funding, it is unlikely that they would be provided. 

The current scheme allows the Secretary of State to make payments of up to £160 million in any 12-month period beginning on 1 April. We want to provide more funding, so the order before the Committee will increase the limit to £500 million. For the next four years, the largest tranche of funding that we have committed in any one year is £415 million. Increasing the cap on the level of payments made under the subsidy scheme order to £500 million allows for some flexibility and contingency—for example in case of changes to the tax treatment of the funding. 

This is a large increase, but I am sure that every member of the Committee will agree that the Post Office is a valuable national asset. It is much more than simply a commercial entity, and it serves a distinct social purpose, which is why the Postal Services Bill ensures that the Post Office will not be for sale and that it will either remain under 100% Crown ownership, or will have the potential be transferred to a relevant mutual. 

The Chair:  Order. I wonder if I may be rude enough to interrupt the Minister for a moment—not for his benefit, but for that of the Committee. I wish to be strict about restricting today’s debate to the statutory instrument before the Committee. Wider policy matters in relation to the Royal Mail or the Post Office will not be allowed to be debated. 

Mr Davey:  Thank you, Mr Gray. That is a useful ruling, not least because it means that my speech will inevitably be truncated. 

The substance of the order is simple and I think that I have set it out in relatively clear detail. It raises the previous subsidy scheme order’s limit of £160 million to £500 million, which is important so that we can ensure that the post office network has the resources it needs. 

4.34 pm 

Nia Griffith (Llanelli) (Lab):  The order amends the 2007 order to increase the maximum amount payable by the Secretary of State to Post Office Ltd in a year from £160 million to £500 million. I understand that 48% of the funding package is to continue the subsidy of the current network that was put in place by the previous Labour Government. We set aside £150 million a year until 2011, and £180 million for the financial year of 2011-12. The subsidy was set up to maintain not simply the number of local post offices required to meet the access criteria for post offices that Labour introduced, but the current network of 11,900 post offices. 

Approximately half the subsidy—some 48%—will continue to subsidise the network from 2012 to 2015. We welcome that step because we know how much having a local post office matters to many people in our communities, particularly those who have limited mobility or transport options. For many of our communities, the post office provides not just vital services, as the Minister said, but a friendly face. We can all name sub-postmasters and sub-postmistresses who take a personal interest in the well-being of their customers. 

Moving on from the 48% for the network subsidy to maintain the current post office network, it is not clear to me whether the other 52% of the money will be used to make post offices more viable. That would surely be desirable, and the document to which the Minister referred mentions trying to decrease the amount of subsidy in the long term. What post offices need, and what the taxpayer wants to see, is good value for money. The purpose of investing in business is to create going concerns—successful businesses that are viable. That is particularly important if, as the Government seem to intend, the post office network should become a viable going concern before any plans are implemented to turn it into a mutual, as laid out in the Postal Services Bill.

The network has to be viable, otherwise no one would want to invest in the mutual. 

What will the remaining 52% of the money do to make post offices more viable? Paragraph 41 of the recently published document “Securing the Post Office network in the digital age” states: 

“Revenues from postal services will remain a mainstay of the Post Office. Proposed network changes, when allied with investments in technology such as fast self-service machines, will make the Post Office more convenient and an even stronger retail partner for the Royal Mail.” 

We all want to hear that the Post Office would be a retail partner for Royal Mail. However, in our discussions on the Postal Services Bill, the Minister insisted that he would not be able to influence an inter-business agreement between a privatised Royal Mail and the post office network. Furthermore, he steadfastly refused to specify in legislation a minimum number of access points for Royal Mail services—that is, a minimum number of places where one can post a parcel or send a letter by registered post. There is therefore nothing to stop Royal Mail from choosing another retail outlet for its counter services, thus depriving the post office network of a third of its income. 

The Chair:  Order. I was rude enough to interrupt the Minister, so perhaps I may be rude enough to interrupt the shadow Minister. We must restrict our remarks to the topic of the statutory instrument, namely the amount of subsidy allowable to the post office network. Anything else is outside the scope of the debate. 

Nia Griffith:  I am sorry, Mr Gray. 

If paragraph 41 of “Securing the Post Office network in the digital age” is about the post office becoming an even stronger retail partner for Royal Mail, will the Minister clarify exactly what he means in the document by “Proposed network changes”? Does that mean that post offices will close? Will any of the subsidy be earmarked for packages for sub-postmasters who finish, or employees who are made redundant? 

Returning to the detail of the subsidy, will the Minister confirm that the words 

“allied with investments in technology such as fast self-service machines” 

mean that some of the remaining 52% of the subsidy will be used for such machines? Would that be part of the 7% that is to be spent on technology, or the 37% that is to be spent on modernisation? 

If the installation of equipment makes it more likely that Royal Mail will wish to use the post office network as its outlet, that is all to the good. Staff and customers alike will appreciate an upgrading of premises with new counter and computer equipment, and that would be not unlike the initial post office development schemes set up by the Welsh Assembly Government. New counters may be welcome and may make a post office a more pleasant place to work. They may also initially attract new custom as word goes around the local community. However, by themselves, the new counters do not create any new business streams. More recently, the Welsh Assembly Government have changed emphasis. The latest funding that post offices may apply for is the post office diversification fund, and the emphasis is on creating new streams of business, such as a cyber-café or photo

booth. Will the emphasis of the UK Government’s new investment be on creating new business streams? What will the criteria be for accessing the additional money? Will post offices have to demonstrate that they are making themselves more viable? 

The recent document also mentions two areas with growth potential: the post office acting as a front office for Government; and boosting financial service revenues. Taking the first of those, will the Minister clarify what extra services have been agreed between the Government and the post office network? I am aware of the suggestions in the document, and I am also aware of the letter sent by George Thomson of the National Federation of SubPostmasters to the Secretary of State for Work and Pensions detailing the extra services that the post office network could provide. We see some of those details in paragraph 43 of the document, but will the Minister confirm whether any of those possibilities have been agreed? Will he give us an update on the renewal of the contract for benefit cheques—the so-called green giros—following newspaper reports that the contract might be awarded to a rival? Will he also explain how this new funding might make it more likely that post offices will secure additional Government business? Is there anything for which the money is to be used that would specifically facilitate the Government’s putting more business streams through the post office network? 

On the other area for potential growth identified by the document, what will the subsidy contribute to the aim of boosting revenues from financial services? The Government have abandoned Labour’s plans for a people’s bank operated through the post office network, and the document does not clarify how the Government intend to boost revenues from financial services. 

Although money is being put in, there is a missed opportunity for producing new revenue streams for the Post Office. What progress has there been, for example, on Post Office Ltd’s negotiations with Santander and HSBC on their agreement to provide access to all their current accounts through the post office network? 

I understand that some of the money is to be used to create post office locals. My concern is that they will offer only 86% of post office services, and it would be annoying if precisely the service that a customer wants is the one service that is missing. That could lead to people bypassing a post office local and going to a larger post office to avoid wasting time in the fear that the service they require will not be available, thus driving away custom. My hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) cites the example of Linlithgow bridge, where a local shopkeeper who had set up a post office essentials counter—that scheme is similar to that for post office locals—found that it was more trouble than it was worth and decided to abandon it and use the space for other purposes. Thus the community lost its post office and people now have to go to the other end of town to access services. 

The Department’s document states that the aim is to transform 

“the underlying economics of the Post Office network”. 

Dr John Pugh (Southport) (LD):  The hon. Lady makes a fair point, but is she suggesting that the grant should be somehow contingent on certain behaviours from sub-postmasters? In other words, should they be

incentivised to do things that are regarded as business expansion and the like? Is that the basic point that she is trying to make—she seems to have said as much? 

Nia Griffith:  My point is that a very large amount is being put aside. Some of it is to maintain the post office network as it is now, but the taxpayer will ask what the other part of the money is being used for. What are the criteria under which it will be given out? 

Dr Pugh:  What does the hon. Lady suggest would be the Labour party’s preference? I am not saying that it would be wrong to give the money with strings attached so that sub-postmasters or whoever are encouraged to expand their business, rather than simply to accept the subsidy and run their business as usual. 

Nia Griffith:  The main point is that the taxpayer will be wondering what the Government are doing to scrutinise the use of the money and how the Government are asking Post Office Ltd to explain its use of the money. Quite clearly, when taxpayers’ money is being used for something, the Government have to direct clearly what they want that money used for. There has to be accountability, and there has to be an evaluation of how well that money is used and whether it achieved the purposes for which it was set out. I feel at the moment that those purposes are not very clearly defined and, therefore, it will be difficult to evaluate the use of the money. 

Returning to our questions about transforming the underlying economics of the post office network, we want to know, as I have explained, the criteria that will be used for the allocation of the additional funding. How will it transform the underlying economics of the post office network and make post offices more viable? Will the Government place any restrictions on Post Office Ltd to regulate it and state exactly how it will be expected to spend the subsidy? What independent scrutiny is there to be of the Post Office’s plans to spend the subsidy and the way in which it does spend the subsidy? Who will ensure value for taxpayers’ money? How will the Government ensure that the Post Office does not end up cross-subsidising the parts of its business that compete with independent commercial operators? That is causing such operators concern, and the practice would not be within EU competition rules, so we would like the Minister to address that point. 

To sum up, it is important to put on record that we want to know exactly how the subsidy will be used, how it will be evaluated and what it will do to make post offices more viable. Our evaluation of the order will be based on whether it increases the viability of the Post Office. 

4.46 pm 

Mr Davey:  I welcome the hon. Lady’s welcome for the order, as she mentioned at the start of her remarks. It is good to know that we have the Opposition’s support for the legislation. 

The hon. Lady made a range of comments, starting with how the money will be used, which was a theme she carried throughout her remarks. She noted that

48% of the cash allocated over the spending review is for subsidy. As I pointed out to her in previous debates, page 19 of our policy statement sets out where the rest of the money will go: 37% will go to network modernisation; 7% will go to technology; 5% will go to project costs; and a small amount will go to a number of other items. Although we have set that out, it is true that the full modernisation plan—with details of implementation—is still being finalised, not least because the structured programme of conversions to post office local will not really start being rolled out in any dramatic way across the country until 2014, as the document says. Although we like to be far-sighted in the Department, planning everything in detail for 2014 in 2010 is not advisable. I can say, however, that the programme will recognise that many sub-postmasters have invested significant sums of money in their branches. If their contract changes in any way through the implementation of post office local, there may well be need for financial recompense. 

When asking about the post office local model, the hon. Lady said that only 86% of products and services that are available at a main post office will be available at a local. Although that is true, she did not point out to the Committee that by volume of transactions, 97% of post office transactions will be available at a post office local. It is only the less well-used services that will not be available. That figure shows that post office local will, I believe, be providing a lot of services. All the market research shows that it is a very successful model in terms of both customer and operator satisfaction and we will learn from those pilots before we go to a major roll-out. 

The hon. Lady asked about the extra services being provided by the Government, and she referred to the document, which gives quite some detail on those. She did not, however, really share that level of detail with the Committee in relation to the generic services that Post Office Ltd will be bidding for, such as ID verification projects, payment projects and document processing projects. 

Nia Griffith:  No, I did not repeat the whole list of services that the document mentions, but I did ask the Minister whether any agreement has been met on those services, and whether any of them have materialised as a bankable contract for the Post Office. 

Mr Davey:  The hon. Lady will know, from the document and our discussions, that we have announced a number of pilots—of course, you have to pilot something before a Department will tender a contract for it, and there are a number of opportunities available. She is absolutely right—and I do not wish to shrink from it in any way—that we have some way to go to ensure that more Government services are being provided by the Post Office. However, under the previous Government, we saw the number of Government services on a very steep downward trajectory, which was what caused many of the financial problems in the post office network. The Government are trying to make that an upward trajectory, and I will not apologise for the fact that it takes some time to pilot and contract such services. Given the previous Government’s shocking record in that area, I do not think that we have anything to apologise for. 

The hon. Lady has mentioned financial services, and she knows that we are looking at payment services, but she also knows that the Government helped Post Office Ltd

to negotiate with RBS, so that its customers could use the post office network to access their current bank accounts. That means that nearly 80% of current bank accounts can be accessed through the post office network, which is a big step forward in terms of getting footfall through the network and which is a very commercial approach. The hon. Lady has asked for an update on negotiations with Santander and HSBC, and I must tell her that it would be quite wrong for a Minister to give a running commentary on commercial negotiations between private banks and Post Office Ltd. All that I can say is that they are discussing the issue. 

Mike Gapes (Ilford South) (Lab/Co-op):  The Minister has referred to the record of the previous Government. To go back a bit further, will he confirm that more post offices were closed before the previous Government than were closed during the previous Government? The fact is that that is an exorable trend that has been going on for a long time. 

The explanatory memorandum, which has been circulated with the order, states: 

“This funding will ensure that the Post Office network will remain at its current size of around 11,500 branches”. 

For the benefit of the House and the public, will the Minister place on the record an absolute assurance that there will, at the end of the Government’s time in office in 2015, be 11,500 post offices still in existence? 

Mr Davey:  The deal that we have struck with Post Office Ltd runs for the next four years—the duration of the spending review—and, in that deal, we have said that we need a post office network of at least 11,500 post offices. I do not need to put that on the record today, because I have already done so on many occasions, which the hon. Member for Llanelli can attest to. 

The hon. Gentleman is completely wrong about the number of post offices that have closed. When we looked at this in detail, it appears that between 1979 and 1997—a period that I do not normally defend— 

Siobhain McDonagh (Mitcham and Morden) (Lab):  Well, you are now. 

Mr Davey:  No; I am just giving the facts. I think that the hon. Lady would like to deal with facts, and the fact is that fewer post offices closed during 18 years of Conservative Government than closed during 11 years of Labour Government. The hon. Member for Ilford South is wrong on that point. 

Nia Griffith:  Will the Minister acknowledge the anniversary of the start of the internet in 1990 and the effect that that has had on post office closures? 

Mr Davey:  Of course, the hon. Lady is right to say that the internet has had an impact on not only post offices, but Royal Mail and, indeed, many other parts and facets of our lives. The question is whether we have a Government who are prepared to grapple with that. She quite rightly said that the internet was started in the early 1990s, and I had to deal with that when I was a management consultant before being elected. As part of that, I looked at the impact that the internet would have on mail volumes, particularly in Sweden. Between 1997

and 2010, when her Government was in power and when the internet was in full force, we did not see a strategy to deal with the internet. We now have a strategy to deal with that challenge for both Royal Mail and the post office network. 

The hon. Lady has made some important points about how Parliament will be kept informed of how the money will be spent and audited, which is a fair question. I refer her to clause 11 of the Postal Services Bill, which requires the Post Office to produce an annual network report including details of everything from the number and location of post offices to the services that they offer and their accessibility. I am sure that she will remember that clause 11(4) permits the Secretary of State to require the report to include other information. Reporting is a statutory requirement, and those reports will be published alongside Post Office Ltd’s financial statement. There will be a detailed commentary on how post offices are progressing in implementing the strategy that lies behind the £1.34 billion funding package. 

Dr Thérèse Coffey (Suffolk Coastal) (Con):  I am a little surprised that the trebling of the subsidy to one of our most valued institutions has caused such controversy. 

Wangford currently has no outreach service. Will the order allow the Post Office some discretion in how it supplies outreach services to people such as the residents of Wangford, who have been deprived of their post office service for 10 months now? 

Mr Davey:  I confirm to my hon. Friend that Post Office Ltd has complete discretion in how it organises the post office network, save that it must meet any legal requirements in both the contract that we have for the spending settlement—which contains the provision for at least 11,500 post offices—and the access criteria, which we have kept intact from the previous Government. It must also meet the regulatory requirements for access points in the Bill, which are effectively very similar to the existing regulatory regime. Within that regulatory framework, Post Office Ltd has discretion, and therefore if a community wants to see outreach services it has every right to lobby. I am sure that with a very effective Member of Parliament we will be lobbied to ensure that those services are there for the public. 

The hon. Member for Llanelli has made a number of other points, including whether the programme would place Post Office Ltd in a better position to win more contracts from the Government. It will do so in a number of ways. The investment in main post offices will make them more customer friendly, and self-service technology will be introduced to reduce queues. The post office local programme, as it rolls out following our pilots, is geared to increasing the number of hours that local post offices are open. The hon. Lady knows from our many debates that the pilots in 52 outlets have shown that the opening hours increased by an average of six hours a day. That is a real improvement for customers and people who seek to contract with the Post Office have already noticed that improvement, which will put it in a strong position. Longer opening hours and shorter queues are the way to improve customer service and get people into the post office. That is the commercial approach that we are taking. 

I have dealt with most of the issues that the hon. Lady has raised, at least with respect to the order. I am proud that the Government want to put more money

into the post office network to ensure that we do not see closure programmes such as we have seen in the past. The previous Government put money in to fund the closures; this Government are putting money in to avoid closures. That is a distinct difference. Although we have had a little bit of partisan to-and-fro during the debate, I hope that the Opposition will support the order: it would be rather interesting if they did not. I commend the order to the Committee. 

Question put and agreed to.  

4.48 pm 

Committee rose.