Post Office Network Transformation - Business, Innovation and Skills Committee Contents

2  Proposed changes to the Post Office network


4. Since its inception in 1854—when the Royal Mail set up its own wholly-owned post offices—the Post Office has undergone a series of reforms. The Post Office was nationalised in 1969. In 1986, Royal Mail was split into Royal Mail Letters, Royal Mail Parcels, and Post Office Counters. In 1987, Post Office Counters Ltd became a wholly-owned subsidiary of Royal Mail and then in 2001, Post Office Counters Ltd became a public limited company and was renamed Post Office Ltd.

5. The Postal Services Act 2011 made provision for an unrestricted sale of shares in Royal Mail, and for Post Office Ltd to remain in full public ownership, with the possibility of a move to a mutual structure in the future.[3] The Government is the only shareholder of Royal Mail Holdings plc, and Royal Mail Holdings plc is itself the ultimate parent company of Royal Mail Group Ltd. Royal Mail Group is made up of four major operating businesses:

·  Royal Mail letters provides the nationwide delivery service;

·  Parcelforce Worldwide is an express parcels business;

·  General Logistics Systems, incorporated and based in the Netherlands, is Royal Mail's European parcels business (Parcelforce Worldwide is its UK partner); and

·  Post Office Ltd is responsible for the network of post offices, including sub-post offices, franchise offices, and the remaining Crown Offices.[4]

6. The Post Office remains an essential service which is extensively used. A third of the UK population—just under 20 million people—and half of all small businesses visit one of over 11,500 post offices every week.[5] The Post Office is one of the country's largest cash handlers, processing around £70 billion of cash and £636 million of coinage every year.[6] Post Office Ltd's written submission and the Government policy document, Securing the Post Office network in the digital age, gave the following snapshot of the activity of the Post Office and its value to communities:

·  In 2009 independent research estimated the social value of the Post Office to be at least £2.3 billion per year.

·  In 2010/11, Post Office Ltd made a profit of £21 million and in that year there was a Government subsidy payment of £150 million.

·  Of the current 11,500 post office branches, 373 are operated directly by Post Office Ltd; the remaining are agency branches, run by independent business people or multiple retailers, often as part of a retail business.[7]

·  Of these agency branches, some 4,000 are run by the four largest supermarket chains.[8]

The National Federation of Subpostmasters (NFSP) gave the following assessment of the services offered by post offices:

    Post offices offer a uniquely wide range of products and services under one roof—from postal services, travel, telephony and bill payments to government services, banking and financial services. Eight in ten post offices are run alongside a shop, and post office shops play important roles in providing local retail [facilities] including stationery, newspapers, food and household goods.[9]

7. Despite the range of services offered and their position as the social hub of many villages and towns across the country, over 8 million customers have stopped using the Post Office during the past 10 years. Post Office Ltd argued that this trend was "largely driven by the reduction in government services and a shrinking consumer mails market in an increasingly digital world".[10] This fall in customers has been accompanied by a steady decline in Post Office branches over the past 30 years. The graph below shows clearly that decline:

Number of Post Office Branches

Source: BIS, Securing the Post Office network in the digital age, November 2010, Chart 3

Carole Campbell, a subpostmaster, described this decline from a personal perspective:

    The loss of a rural sub-post office is very damaging to the community as a whole and I know my customers are very upset at the prospect of losing theirs.[11]

This decline sets the back-drop for the Government's proposals and demonstrates the challenge facing it in providing a secure and sustainable future for the Post Office.

Government proposals for reform

8. Securing the Post Office Network in the Digital Age sets out the Government's proposals for the future of the Post Office network. In its foreword, the Secretary of State for Business, Innovation and Skills, Rt Hon Vince Cable MP, describes the overall aim of the proposed changes:

    We believe in a Post Office with a public mission, and the Post Office will not be for sale. But we do not think that the current ownership arrangements, where Government acts as ultimate 100% shareholder, always serve the best interests of the Post Office. So we have put forward proposals in the Postal Services Bill that would, in time, allow the Post Office to be converted to a mutual. I want to empower those that know the Post Office best—the subpostmasters, the employees, and even communities—to have more of a stake in the future of the services that they value.[12]

9. The key Government commitments are described as follows:

·  the Post Office is more than a commercial entity and serves a distinct social purpose;

·  post offices remain a valuable social and economic asset for communities and businesses;

·  there will be no programme of post office closure under this Government;

·  the Post Office is not for sale;

·  there will be a provision of £1.34 billion for the Post Office to modernise the network and safeguard its future, making it a stronger partner for Royal Mail;

·  the Post Office will become a genuine Front Office for Government at both the national and local level;

·  there will be an expansion of accessible affordable personal financial services available through the Post Office;

·  the Government will support greater involvement of local authorities in planning and delivering local post office provision; and

·  the opportunity will be created for a mutually owned Post Office.[13]

Paula Vennells, Chief Executive of Post Office Ltd, supported the proposals and set out her ambition for the Post Office:

    If I have a vision, it is to have 30,000 post office outlets, not 11,500. It is to have standalone electronic drop boxes for mail packets. It is to have ATMs in railway stations. It is to have identity kits in town halls and libraries, all branded 'Post Office'. But until we transform the current network and make it more sustainable, that becomes just an ambition.[14]

In particular, she highlighted the financial commitment given by the Government which she described as "perhaps the biggest investment the Government has ever made in the post office network, certainly in living memory and possibly ever".[15]

10. We welcome the Government's drive to put the Post Office on a long-term sustainable footing and we support its commitments as set out in Securing the Post Office network in the digital age. The reform of post office network should be seen as more than just a consolidation of the existing network; it has the potential to deliver an expansion of the network's coverage across the United Kingdom. However, this will happen only if post offices are given sufficient flexibility to thrive. In particular, far greater attention needs to be given to the range of services post offices can offer. Equally, Post Office Ltd has to provide sufficient support so that post offices can meet the demands and social needs of the many varied communities across the country.

3   Explanatory notes: Postal Services Act 2011, para 16 Back

4   Royal Mail Group, Annual Report 2011 Back

5   Ev 42 Back

6   Securing the Post Office network in the digital age, page 10 Back

7   Ev 42 and Ev 44 Back

8   Securing the Post Office network in the digital age, para 1 Back

9   Ev 37 Back

10   Ev 42 Back

11   Ev 52 Back

12   Securing the Post Office network in the digital age, November 2010, foreword Back

13   Ibid, page 3 Back

14   Q 44 Back

15   Q 44 Back

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Prepared 17 July 2012