Business, Innovation and Skills CommitteeWritten evidence submitted by the National Federation of SubPostmasters
1. The National Federation of SubPostmasters
1.1 The National Federation of SubPostmasters (NFSP) is the trade union and membership organisation which represents subpostmasters. Subpostmasters are independent business people who act as agents to Post Office Ltd (POL) and run sub post offices, which make up 97% of the national post office network. The NFSP is the only organisation recognised by POL to represent subpostmasters.
2. Background
2.1 The House of Commons Business, Innovation and Skills (BIS) Committee is conducting an inquiry into the UK retail sector. This is the NFSP’s written submission to the inquiry.
3. The Post Office Network
3.1.The post office network is by far the largest retail network in the UK. With 11,800 post offices it is bigger than the major bank and building society networks combined. There are also more post offices than hypermarkets, supermarkets and superstores in the UK.
3.2 Post offices offer a uniquely wide range of products and services under one roof—from postal services, banking, financial services, travel, telephony and bill payments to government services and the secure transportation of cash. Eight in ten post offices are run alongside a shop, and post office shops play important roles in providing local retail including stationery, newspapers, food and household goods.
3.3 The network provides easy public access to these essential services throughout the UK. Government access criteria require POL to maintain a minimum coverage. Nationally 99% of the population must be within 3 miles and 90% within 1 mile of a post office; specific criteria cover deprived urban areas and rural areas.
3.4 Post offices are extensively used, and used by all sections of society. Every week 20m people conduct almost 60m transactions. Research finds 98% of households use a post office, and 49% of consumers use a post office every week.1,2
3.5 A major report on the future of post offices by the then House of Commons Business and Enterprise Committee emphasised the importance of the post office as providing “services to the total community”; as “an instrument of social cohesion”; preserving “the fabric of our society”; and offering “a place where vulnerable and non-vulnerable people alike share services”.3
3.6 There is overwhelming evidence of the exceptionally valuable role played by the post office network in supporting local communities beyond that of providing Post Office and retail services. This includes providing assistance for vulnerable residents and acting as a focal point for communities.
3.7 Although all sections of society use post offices, certain sections of the population are more reliant on the network. Among the heaviest users of post offices are older people; those in the lower (C2 and especially DE) socioeconomic grades.4; disabled people5; and residents of rural areas.6
3.8 As detailed in our written and oral evidence to the BIS committee’s 2012 inquiry into the Post Office Network Transformation programme7, our national post office network remains under considerable pressure and is currently undergoing an extensive restructuring.
3.9 The scale of the problems facing the network is revealed by new NFSP research which shows that subpostmasters’ pay—from which subpostmasters must meet the running costs of their post office including overheads and staff wages, as well as taking their own personal drawings—has fallen in real terms by 9% in the last three years. This, coupled with an average 21% increase in overheads in the last three years, means that subpostmasters’ average personal drawings were £753 per month (the equivalent of an employee’s yearly gross income of around £9,600)—a real terms drop of 36% in the past six years.8
3.10 The NFSP remains very concerned that unless urgent action is taken to deliver new services (in particular government services) through post offices which will generate new customers and income sources, growing numbers of post offices will become unviable, their closure resulting in a knock-on effect on other local businesses and shopping parades.
4. Post Office Retail
4.1 Around 80% of post offices also house a retail business. These businesses are usually highly inter-dependent. Customers visiting one part of the business frequently also use the other part; income from one side of the business supports the running of the other; and overheads are shared.
4.2 The impact of this interdependency is that financial problems affecting one side of the business often has a knock-on impact on the viability of the other. For example, post office closures can lead to the only local retail disappearing or threaten the viability of other nearby businesses.
4.3 New NFSP research highlights the importance of post offices’ retail outlets to communities across the UK. Our research found that that 31% of sub post offices are the only retail outlet in their local area; while a further 58% are one of a small number of local shops.9
4.4 The same survey also found that two-thirds (66%) of subpostmasters say their attached business would probably not or definitely not remain open if the post office closed. Only 13% agreed that the attached business would definitely remain open if the post office closed. Therefore, support for post offices is also vital to support local retail provision.
5. Post Offices and Local Economies
5.1 A further reason why post offices are particularly important to the well-being of high streets and local economies is because they provide significant local sources of cash. For every £1 transacted in the UK, 14p is handled through post office network, and over £80bn of cash a year passes through the post office network.
5.2 The Post Office’s role in cash provision is likely to become increasingly critical as more and more banks close their branches. The post office network is already larger than all the retail bank branches put together. Furthermore, the spread of the post office network is far more geographically even—for instance, there are three times as many post offices as bank branches in rural England.10 With 55% of post offices based in rural areas, and 11% based in urban deprived areas, the Post Office is the only national network with the geographical reach and expertise needed to provide access to banking facilities in all communities.
5.3 Local access to banking services is not just a question of access for individuals; access to banking is key to the survival of retail in many communities. Cash is often spent near to where it is withdrawn—people who take out money from a bank or cashpoint spend 50–67% in nearby shops.11
5.4 A research study undertaken in 2011 by the New Economics Foundation (NEF) in conjunction with the NFSP analyses how the presence of a post office on the high street boosts the local economy.12 Looking at one post office in a large village in the Midlands, the study found 58% of the post office customers’ main reason for visiting the high street was to visit the post office. But seven in ten post office customers also visited other shops on the high street during their trip to the post office, spending on average £22.
5.5 The study concluded that between 1,200 and 1,700 people per week visit the high street with the post office as their main purpose. This results in about 100 extra shoppers per day—who might not otherwise visit the high street—frequenting other shops on the high street.
5.6 These findings support the conclusions of a previous NEF study which focused on post offices in Manchester. NEF concluded each post office contributes around £310,000 to the local economy each year, of which £120,000 is direct spending on local goods and services.13
5.7 A University of Chichester study also backs these findings, reporting that 44% of post office customers use other shops and businesses every time or most times they visit the post office. Following a post office closure, the study found that people spent between 17% and 49% less in shops in the vicinity of a closed post office, following the closure.14 Similarly Essex County Council reports closure of a post office resulted in nearby businesses experiencing a 25% decrease in turnover.15
6. High Streets
6.1. The importance of high streets is well documented, providing convenient access to goods and services that are needed on a day-to-day basis. This is particularly important for residents without a car, including older people and people with disabilities. With an increasingly older population, high streets are likely to become more vital rather than less.
6.2 Retail is central to the economy. In 2012 UK retail sales exceeded £311bn, with more than a third of consumer spending going through shops16; while the retail sector employs over 3m people, one in nine of the UK’s workforce.17
6.3 Small shops are a particularly integral part of the sector—as well as providing more jobs per sale than large retailers, independent outlets play valuable roles in promoting diversity and innovation. Local independent shops are particularly adept at adapting and meeting the specific needs of the local population.
6.4 At the local level, small shops clustered together rely on each other for survival.18 Outlets such as post offices, newsagents, butchers and grocery stores may all depend on each other to attract people to a location rather than any one specific shop. The loss of a few of these shops may render a local shopping trip unviable and lead to further closures—a domino effect. Post offices are particularly key because of their unique social value and sheer diversity and range of services which distinguishes them from other retailers. The post office is also highly valued and trusted compared with other retailers, especially in disadvantaged communities.
7. Current Issues for the High Street
7.1 The combination of the economic downturn, the growth both in supermarkets and in e-commerce, and rising operating costs has resulted in UK retailers facing severe challenges.
7.2 Research shows that the number of vacant shops in town centres grew to a record level of more than 11% late last year19. Colliers International warns that some of the UK’s high streets and shopping centres are “in danger of terminal decline”, with research identifying that 35% of the UK’s retail centres are either degenerating or failing.20
7.3 Online sales are expected to account for 12% of total retail spend in the UK over 2013, the highest proportion in Europe 21.Total online spending is expected to almost double between 2010 and 2015, 22 leaving many traditional high street retailers struggling to compete.
7.4 The swift and increasingly all-encompassing rise of the supermarket presents further challenges. In 1971 44% of groceries were sold by large retailers, whereas today supermarkets account for 97% of total grocery sales and 76% of groceries are sold by the four biggest retailers. One pound in every seven spent in UK retailers is spent in Tesco. In contrast non-affiliated independent shops are in “long-term collapse”.23
7.5 The big supermarkets’ expansion into the convenience store sector is also increasing pressures on the independents. The move to small format stores in local neighbourhoods, together with extended opening hours, has seen small retailers lose much of their previous comparative advantage in terms of location and opening hours.
7.6 Meanwhile, data shows a steady decline in town centre retailing and rise in out-of-town retailing over the past 15 years. In 1996 town centre retailing took 50% of UK retail turnover, but only 42% in 2011. However, out-of-town centres took 26% of retail turnover in 1996, and 32% in 2011.24
8. Impact of the Decline of the High Street
8.1 The expansion of out-of-town centres and the buying-up of independent local shops by large chains leads to a uniformity on our high streets. A recent study found most people believe there is less variety on the high street than there was 10 years ago; while 73% of people perceive no local identity or a poor local identity in their high street.25
8.2 Surveys show shoppers find there is a reduced range of things to buy when independent local shops are replaced by large chains.26; while the majority of shoppers also believe the decline of the independent shop results in a less friendly and personal service where you shop.27
8.3 Small shops and high streets are essential centres for social contact. Many groups in society, especially older people, rely on small shops to provide a hub for interaction with others, as well as the fulfilment of their day-to-day needs. A recent YouGov survey found that more than a quarter (28%) of British residents feel isolated, or have a friend or relation who does, because of difficulty accessing shops and services.28
8.4 Independent shops also sustain local economies. Over 50% of the turnover of independent retailers goes back into the local community, compared with just 5% from supermarkets.29 In contrast, Tesco’s payroll makes up just 7% of its total turnover; and the great bulk of the company’s retail profits flow from the stores back to the head office, and ultimately to the corporation’s shareholders around the world.30 Various studies have debunked supermarket claims that new stores create net additional jobs for local people.31,32
9. Recommendations
9.1 High streets and post offices
9.1.1 As well as being of enormous importance to the economy and to communities our, the decline of the high street is a critical issue for the post office network. Not only are high streets significantly boosted by the presence of a post office, but the post office network is extremely dependent on healthy high streets. The government is currently putting considerable resources into the post office network, including a major restructuring and a £1.34bn funding package. However, proposals for the Post Office will never fully succeed unless the government also deals with the problems facing the high street.
9.1.2 Demand is finite and the continual expansion of out-of-town shopping will inevitably lead to the decline of the high street. The decisions that government, local authorities and businesses make affecting the high street will determine not only the kinds of shops, goods and services that are available to people, but ultimately the nature of the very communities in which we live.
9.2 Planning
9.2.1 Effective planning is key to sustaining and developing thriving high streets. Planning processes need to ensure high streets become more diverse, bring in customers and increase the money that stays circulating in the local economy.
9.2.2 The disproportionate degree of influence and advantage in the planning system held by the biggest supermarkets is well-documented. The NFSP believes the UK’s planning system needs serious attention and that the many detailed recommendations made by various bodies on how to strengthen the planning system for retail in order to optimise the sustainability of local economies should be urgently investigated by government; and applied in the way that best supports our high streets.
9.2.3 Transport infrastructure is also key to the survival of the high street. High streets that are poorly served by public transport and have a lack of free or readily available parking will inevitably suffer. In contrast the majority of supermarkets have free and plentiful parking. As part of the solution to the high street’s problems, a tax could be levied on supermarket and out-of-town retail centre car parks, with revenues used to fund high street development and transport infrastructure; while local authorities should, when developing parking strategies, be alert to decisions which could disincentivise occasional short trips to local shops.
9.3 Competition
9.3.1 Local authorities need powers to enforce local competition limits, to ensure large retailers do not set up local monopolies. This could involve setting up a local competition commission and forcing retail developers to demonstrate they will improve economic diversity.33
9.3.2 The big supermarkets’ expansion into the convenience store sector is a particular problem that needs to be tackled. The NFSP believes this is anti-competitive as the supermarkets use their buying power to sell products at lower prices than other convenience stores and independent shops. This expansion should be curtailed as it leads directly to the closure of independent shops, and results in a swift reduction in diversity on the high street.
9.4 Pricing behaviour and buying power
9.4.1 The government needs to tackle the pricing behaviour of large retailers. This includes ‘below-cost selling’, in which large retailers lower prices and absorb the loss, which means competing retailers can only compete at a loss. Such practices should be banned, as they are in several other major European countries.
9.4.2 The government should also address ‘price flexing’, in which large retailers vary pricing in particular markets in order to exploit their local market share for additional profit or their national market share to weaken local competition.
9.4.3 A further problem for independent retailers derives from large retailers’ ability to dictate terms to their suppliers, resulting in suppliers passing the costs of doing business with large supermarkets to the small independents. ResPublica comments that this leads to a “perverse and unsustainable subsidy of supermarket profits and low prices, and exaggerates the disadvantages of scale to which independent shop owners and retailers are already subject.” 34
9.5 Large retailers’ levy
9.5.1 The NFSP would like to see a levy imposed on large retailers, and ring-fenced for high street development and support for small retailers. The levy could incorporate, or be based on, available car parking spaces assigned to the retailer. Ring-fencing would ensure that the sum was spent directly and transparently in local communities. For the government this proposal has the significant benefit of being cost-neutral.
9.5.2 The Northern Ireland Executive enacted legislation of this type last year 35, placing a business rate of 8.5% on large retail outlets with a rateable value of £500,000 or more; and for the revenue accrued to be spent on “promoting local economic activity, local services and facilities, social and community wellbeing and environmental protection. The NFSP believes this initiative could provide a model for the rest of the UK; and that devolved and local government should be enabled to implement equivalent schemes within their areas.
9.6 Business rates
9.6.1 For the average small business, business rates are their third largest overhead after rent and wages.36 In comparison with other types of small business, small shops suffer disproportionately from business rates because shops generally have much higher rates than other business properties. This threatens the economic viability of smaller shops as rates can easily be the equivalent of the cost of a member of staff.
9.6.2 Evidence suggests small shops are disadvantaged by the workings of the valuation process and pay far higher rates per square metre than supermarkets.37 This amounts to a hidden subsidy for the big retailers. The NFSP would like to see an equalisation of business rates to remove this discrepancy, so that out-of-town stores pay the same rate per square foot as smaller shops.
9.6.3 The NFSP would also like to see a 100% automatic reduction from the full rates bill for all essential outlets such as post offices. A Scottish Government evaluation of the impact of the small business rates relief scheme operating in Scotland confirms the importance of rates reductions in helping maintain “marginal retail enterprises”.38
9.7 Grants
9.7.1 Funds made available through a large retailers levy and the equalisation of business rates should be used to provide grants for shops deemed key for the survival of the high street. Grants could be used for shop refurbishment, equipment, security, training and business support. Again, this funding mechanism has the advantage of being cost-neutral to government.
9.7.2 The Welsh Assembly Government is currently operating a Post Office Diversification Fund, offering grants of up to £20,000 to post offices to diversify their retail business and thereby increase their sustainability. Since the end of the equivalent Scottish scheme in 2011, it is the only such grant scheme operating in the UK.
9.7.3 Analysis of the impact of previous post office grant schemes shows an overwhelmingly positive picture. Post offices have used grants to fund structural and aesthetic improvements, security measures and improving access or facilities for people with disabilities. Grants have also been provided to expand service provision by introducing new goods or services.
9.7.4 Evaluations of post office grants show the vast majority of recipients would not have undertaken improvements without the funding. Grant programmes have also levered additional money, either through business owners’ contributions or loans. Customer increases averaging around 26% were also reported following improvement work and sales turnover for the business increased by an average of 20%. Evaluations also show improvements resulted in additional jobs in the post offices and the creation of work for other local businesses such as suppliers of goods and services. One evaluation found 29% of customers spent more in local shops following grant-funded post office improvements.39, 40
9.8 Mutual association of traders
9.8.1 Traditionally grants and spending on maintenance and improvements to local high streets has been administered by local authorities and devolved and central government. However, it is worth investigating other models. Models could include the oversight of local funding by a board of local businesses. Alternatively funding could be administered by a ‘mutual’ organisation representing neighbourhood shops—comparable with a traders’ association with finance and the remit to act strategically at a local level.
15 April 2013
References
1 Postcomm/NERA, August 2009, The Social Value of the Post Office Network.
2 Consumer Focus Scotland, July 2010, Survey of Postal Users.
3 Business and Enterprise Committee, June 2009, Post Offices—securing their future.
4 Consumer Focus Wales, February 2010, Post Office Closures—impact of the Network Change Programme.
5 Postwatch/Commission for Rural Communities, June 2006, Future of the UK’s Rural and Deprived Urban Post Office Network.
6 See 2.
7 NFSP, written submission to Businessm Innovation & Skills Committee Post Office Network Transformation Inquiry 2012.
8 NFSP, to be published in April 2013, Sub Post Office income.
9 See 8.
10 Commission for Rural Communities, written submission to Business & Enterprise Committee Post Offices—securing their future inquiry 2009.
11 New Economics Foundation, 2003, Ghost Town Britain.
12 Postbank Coalition, July 2011, Sorted! Revitalising the Post Office through local banking.
13 New Economics Foundation, December 2006, The Last Post—the social and economic impact of postal services in Manchester.
14 University of Chichester, November 2009, West Sussex Post Office Closure Impact Study.
15 Essex County Council, written submission to Business & Enterprise Committee Post Offices—securing their future inquiry 2009.
16 British Retail Consortium.
17 Department for Business, Innovation and Skills, October 2012, BIS Retail Strategy.
18 All Party Parliamentary Small Shops Group, 2006, High Street Britain: 2015.
19 British Retail Consortium, November 2012.
20 Colliers International, July 2011, Midsummer Retail Report.
21 Verdict/SAS, November 2012, UK Retail 2012 & Beyond.
22 See 20.
23 ResPublica, April 2011, The Right to Retail—can localism save Britain’s small retailers?
24 Verdict, 2011, UK Retail Futures.
25 Association of Convenience Stores, April 2011, High Street Barometer.
26 Friends of the Earth, April 2007, Stopping the Bullies.
27 See 26.
28 Living Streets, 2011.
29 Federation of Small Businesses, July 2008, Keep Trade Local.
30 See 11.
31 Association of Convenience Stores, July 2010, Job Creation Claims in New Supermarket Retail Developments.
32 Friends of the Earth, June 2005, Good Neighbours? Community impacts of supermarkets.
33 New Economics Foundation, July 2011, Ten Steps to Save the Cities.
34 See 23.
35 Northern Ireland Executive, Rates (Amendment) Act (Northern Ireland) 2012.
36 London Assembly, July 2010, Cornered shops—London’s small shops and the planning system.
37 See 36.
38 The Scottish Government, 2004, Evaluation of the Impact and Effectiveness of the Small Business Rates Relief Scheme.
39 Office of the Deputy Prime Minister, December 2006, Evaluation of the Deprived Urban Post Office Fund.
40 Welsh Assembly Government, May 2006, Evaluation of the Post Office Development Fund.