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Baroness Hollis of Heigham: The last suggestion of the right reverend Prelate is excellent and I commend it to my colleagues. Post offices play a vital role in the community, especially in rural areas where there may be few other shops or services. As the right reverend Prelate said, payments in cash may be essential in order to keep afloat whatever other services are available. They are also particularly important for elderly people.

The noble Lord, Lord Hylton, interlocked the debate with credit unions and made some interesting comments. My understanding is that in the UK about 500,000 people are involved in credit unions. That represents about 1 per cent of the population, compared with about 30 per cent in the United States. Credit unions tend to be based on the workplace; that is, people in work in a reasonably tight area. Therefore, perhaps they have not translated as well into rural areas. The noble Lord did not mention the alternative of LETS--labour or time exchange schemes--which may perhaps be more appropriate in rural settings.

To return to post offices, my noble friend Lady Pitkeathley made the point very well that the post office has been in decline for years. Over the past 25 years some 20 per cent of the network has closed. Each year some 500,000 people, either through a death or coming new to the service, choose not to be paid

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through the post office but by ACT; in other words, each year that number of people decide not to use the post office. One thinks of the two major universal benefits which reach almost all families, retirement pension and child benefit. Just under 50 per cent of new pensioners, who are obviously the backbone of the post office network, choose to be paid by ACT, and 54 per cent of new child benefit applicants receive their payments through ACT. That is not surprising because 93 per cent of those who are retired have either a current or savings bank account, as do 98 per cent of the employed, 84 per cent of the unemployed, 87 per cent of those who receive child benefit, and so on. I could continue the statistics.

This means that benefit and pension recipients already vote with their feet. Even if the DSS did nothing whatever the post office network would continue to shrink, and probably at an accelerating rate, across the country. That is why I hope the Committee will accept that this problem is independent of the actions of the DSS. It is important that whatever the DSS does in no way accelerates that decline but that post offices, it is hoped, see this as an opportunity which will keep them afloat for the decades to come. That is why we are taking steps to protect the network. For example, we are investing nearly £500 million in the Horizon system which will computerise post offices.

The noble Baroness, Lady Byford, asked whether it will be universal. Yes, every post office will be online over the next year even if they are not on electricity. We shall do more if necessary. For example, we have added a new clause to the Postal Services Bill in another place which would allow a subsidy to be paid should it be needed. That is the point of the word "may". It is an important move showing the good will of the Government towards post offices and a recognition by Government of the importance of post offices to rural and deprived inner-urban communities.

However, I should like to argue strongly--the more I engage in debate on the issue, the more persuaded I am of the Government's position on this--that we shall not do the Post Office or the taxpayers any favour by continuing with order books and giro books. They are outdated, expensive to administer and open to fraud. We have to find a new way forward. The Government will do what they can. But the Post Office also must take responsibility and help to find new business. It must stop treating this as a threat and start treating it as an opportunity. One such opportunity is the universal bank which I shall describe more fully in a moment.

In addition, post offices may well have, I hope, a role in delivering government services by becoming a government gateway for all central and local government services through a single point of access. There are many other opportunities for diversification.

Amendments Nos. 180 and 181 are designed to retain the current paper-based method of payment. It would mean that people would be able to continue to

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opt for payment by giro book and order book from 2003 rather than have benefit paid directly into their bank or building society account.

We have announced that payment by automated credit transfer will be the norm for paying benefits from 2003. The transfer to ACT will be completed by 2005. However, those who wish to continue to collect their cash at post offices will still be able to do so before and after the change in 2003. We should remember why we are making the change. The current system belongs to the days of ration books. If we were starting again today no one would invent a system where one has a book of paper which can be taken by anyone, changed by anyone, used at only one outlet--it cannot be used if an individual goes away on holiday, or stays with a daughter 50 miles away--and which can be easily mislaid and damaged. If we sought to change from a payment card of some kind--I shall describe it later--to a paper-based system which anyone can manipulate fraudulently, where one carries an order book and queues for an hour or 40 minutes waiting for it to be stamped--an order book which anyone can use and which can easily be lost and so on--and where one has to take out the entire amount whether or not one wants it, the Committee would be in uproar. No one would now invent that system as a method of paying benefit. Its days are long past. The issue should have been tackled a long time ago.

Peter Lilley stated on 12th April:

    "I recognised that the process of distributing benefits by order books was one of the most costly, inefficient and fraud-prone ways of delivering money".--[Official Report, Commons, 12/4/00; col. 62WH]

Across the world, the equivalent of the DSS is using ACT to deliver its benefits. France, Germany, Italy, Spain and other countries are either required or heavily encouraged to use that form of payment. It is safe, convenient and efficient. It uses tried and tested technology already chosen by over a third of recipients of benefits to access their accounts. It reduces the cost. We should not be embarrassed by that. Every ACT transactions costs only a penny compared with the overall costs of 54p every time an order book foil is presented and £1.36 per giro cashed. One cannot argue that we should continue to spend £1.36 as taxpayers rather than 1p a transaction in order to keep small businesses afloat. There may be need--we have the powers under the Bill--for a targeted subsidy, but not a generalised subsidy through an expensive method of payment such as we currently have. It also makes the system more secure against fraud.

Lord Higgins: I am grateful to the noble Baroness for allowing me to intervene. The noble Baroness refers to a targeted subsidy. It is implicit in that remark that the Government have in mind a certain number and spread of post offices; otherwise I do not see how they will target the subsidy.

Baroness Hollis of Heigham: By "targeted subsidy" I meant that if, for example, one has an expensive method of paying benefit, all post offices, postmasters and sub-postmasters receive some of that through

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form of income. They may need it or they may not in order to keep the system afloat. I repeat that the powers taken in the Postal Services Bill indicate that we recognise that some post offices may need particular help--and in that case, the Government and POCL will reflect on that--as opposed to the generalised help of paying through a costly, inefficient and fraud-prone system. I meant nothing more specific than that.

At this stage, I do not have information to show whether the subsidy may be necessary and if so what its size or criteria may be. Such issues will be developed in subsequent discussions with POCL if and when the need arises.

10 p.m.

Lord Higgins: Surely, when the noble Baroness uses the word "necessary" it is implicit that the Government have a view on whether they want to keep a certain number of post offices in business. I understand that that will be the object of the subsidy.

Baroness Hollis of Heigham: No Government can guarantee that any form of subsidy will keep all the existing network afloat. After all, each year we have seen the closure of 200 post offices. As the noble Lord will know, half of all postmasters and postmistresses are over the age of 50. Often, it is a late-stage career run alongside a pension. If when that person decides to take full retirement no one is willing to take over the post office, or if it has been cross-subsidised from the person's pension from a previous job, the post office may fold. It is not necessarily a responsibility of government to equate that.

The Government have made it clear that they want to see the post office network protected and, in terms of services, enhanced. I do not want to be drawn into a discussion on where, how much, if, when, to whom, what numbers and by what criteria any possible subsidy may go. I was trying to assure the noble Lord and the Committee that, by taking the power in the Postal Services Bill, the Government have gone a long way towards meeting some of the real, understandable concerns that have been represented to us by sub-postmasters.

A second advantage of the new system will be to tackle fraud. We lose more than £100 million a year from the instrument of payment fraud. Giro and order books are lost, stolen and manipulated. In 1998-99, there were some 800 million encashments by order books and giro. That is the size of the activity and it is easy to see how it can lend itself to simple forms of expensive fraud.

The move to ACT also helps to promote financial inclusion. That was mentioned by the noble Baroness, Lady Byford. Having a bank or building society gives people access to a wider range of services, such as direct debit facilities, which make it cheaper to pay bills. For example, you can save up to £50 a year on utility bills. It also gives people access to mainstream borrowing facilities.

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I ask your Lordships to take the point seriously. Encouraging people to remain with a ration-book system for accessing their benefits means that they can access almost no other financial services. If you want to write a cheque to pay a bill, you have to use a friend to do so. If you want to cash a cheque that has been sent to you, you have to go to a cheque changing shop and perhaps lose 5 or 10 per cent of its value. If you want to buy an item--perhaps to replace a bed or cooker--by instalments, you cannot use direct debit. You may instead have to buy through a catalogue at APR rates of 20 per cent or more. That is to say nothing about having to have recourse to pawn shops and money lenders.

I have seen all the research on this subject--there have been about four pieces in the past 18 months--and it shows a huge unmet need for secure, inexpensive and accessible financial services for those who are currently "unbanked", to use the noble Baroness's phrase, from paying bills to obtaining insurance.

On numerous occasions, we have made it clear that people will still be able to collect their cash at post offices both before and after the move to paying benefits by ACT in 2003. Three possible routes will enable people to collect their cash and they are not mutually exclusive. The first is network banking. Horizon, the programme to install online computer facilities, will be completed by the end of the year. It will offer potential for the Post Office to extend its arrangements with the high street banks. It has a solid foundation on which to build, only 5 per cent of rural parishes currently have a bank branch. Most major banks have between 1,500 and 2,000 outlets compared with the Post Office which has more than 18,000 outlets and in 50 per cent of parishes. The Post Office already has arrangements with Girobank, the Alliance & Leicester, Lloyds TSB, Barclays and the Co-operative Bank--and I believe that it is also talking to NatWest at the moment--to provide the banking facilities for them as their agent. That has enabled network banking, with all its associated services, to return to rural areas where the banks disappeared years ago.

The second mode of payment is cash machines. The Post Office has announced that some 3,000 cash machines will be installed by the end of 2001, many of them in rural post offices. In many rural areas, residents must now travel miles to the nearest town in order to draw cash and they spend it there, rather than, as the right reverend Prelate said, in the local village.

Thirdly, the development of a universal bank, which I mentioned earlier, could be available to all the 18,000 post offices currently in the network. Therefore, that is far more generous in its scope than the current banking facilities offered by the main clearing banks in this country.

The vast majority of benefit recipients--as I said earlier, over 80 per cent--already have access to a bank method and increasingly they are choosing that method for payment to be made. Equally, the development of a universal bank through the Post Office could offer an alternative. Effectively, it would

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be a post office bank for those who are apprehensive about using more traditional banking facilities. However, we recognise that some people will simply be unable to use ACT. For those people we are considering what alternative, simple, electronic money transition systems, which could also be accessed at post offices, may be commercially available.

The primary method that we are considering is payment through a universal bank by virtue, as the noble Baroness described, of the equivalent of what she and I might call a Switch card. A Switch-type card or a banking card could be used to access money at the Post Office's universal bank and, what is more, unlike now, to have access to it at any post office in the country. One could draw as much or as little of one's benefit as one wished, unlike the current order book system under which one must draw all the benefit. It would be infinitely more convenient, infinitely cheaper and infinitely safer.

The noble Baroness asked what would be the difference between a bank card and the original smartcard that was envisaged. As I understand it, the original smartcard had to be abandoned because it drew on expensive new technology, was three years behind contract and was many millions of pounds over budget. However, I believe that the proposals for it would have encoded, so to speak, the money available on to the card. It would have drawn money from the card rather than the card being used to gain access to a Post Office account.

How would such a card be acquired? As I said, we would expect people to use a bank card. If they did not already have one, they would obtain one by using exactly the same method of identification as they do now when establishing their entitlement to benefit in the first place. They might use information from a driving licence, a local authority red card, a passport, a birth certificate, a wage slip or trade union membership card; in other words, under these proposals the type of identification that sets up their benefit entitlement in the first place and delivers them the order book should be sufficient to establish their identity in order to acquire a bank card which will then allow them to access money from their account held by the Post Office into which their benefit is paid.

I hope that that answers the noble Lord's questions. As I say, many people will use the 3,000 machines; others will use their own banks through the Post Office's proxy; and others, I believe, will have access to or will use the universal bank.

I was asked about bank charges. We recognise that people expect to be able to withdraw their money without incurring charges for doing so. We are discussing that issue with the banks in order to ensure that that happens. I do not believe that questions were raised about payment patterns. Therefore, I shall leave that matter today.

Some Members of the Committee have been concerned about security; for example, when money has to be paid by a third party because someone is frail or disabled. As now, people can make power of

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attorney arrangements, they can arrange a third-party mandate with a bank, or they can provide another person with a signed letter of authority. That is not very different from cashing an order book now.

I do not deny that a number of details must be sorted out, but the move to ACT is still three years away. One reason that we have taken time on this matter is to ensure that all the necessary arrangements are in place and comfortable.

I was asked by the noble Lord, Lord Higgins, about the universal service obligation. As I understand it, the universal service obligation comprises daily mail deliveries to every postal address, a uniform tariff rate for inland mail and a nationwide network of post offices, but this has not been specified in terms of numbers. The Government will establish access criteria for post office counter services in the light of the PIU report and consultations with interested parties.

It has been accepted in the other place that ACT is an appropriate way forward or, as an alternative, a universal bank with access through a bank card or the equivalent to a switch type card, provided we can ensure that people can obtain cash as and when they need it in the way most convenient to them. I repeat that, every year, we are losing 500,000 people to ACT methods. ACT methods have been running since 1983. I am not aware that they have generated any problems. Post offices have traditionally relied on the elderly and so on for paper book, ration book payments. That generation is leaving us and the new generation coming through is preferring to use ACT. We have to move to an efficient and secure method of paying benefits. It is extraordinary that we would conceive that people would wish to continue using order books and Giros.

Part of the difficulty is that people who are not banked do not know what they lose out by not being banked. One of our responsibilities is to encourage post offices to take advantage of the opportunities that this will provide to meet their concerns.

I hope that I have answered all the questions that have been raised. If the noble Baroness wishes to intervene and press me on any questions that I have not answered, I am very happy to do so. This is not a party political issue, it is something that we are all concerned about. I have spoken with my honourable friend in the other place, Mr Alan Johnson, the Minister responsible for this provision in the Postal Services Bill. I have provisionally set up an all party peers' meeting during the afternoon of Thursday 7th June, which is in the week when we return after the Whitsun Recess, at which there can be a full and frank discussion before Report stage. He will be in a position to give far better reassurances to Members of your Lordships' House about issues associated with the post office network as we see it in the future. At that meeting--which I shall of course put on the all-party Whips and circularise to Members--Members of your Lordships' House will be able to press the Minister himself in far greater detail than I can possibly answer tonight.

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He will also give information about the PIU report. People will be paid in cash--they will have a very simple method of acquiring that cash if they do not go through ACT, existing banks or machines--through a universal bank. I hope that, as a result of what I have said, your Lordships will agree to withdraw your amendments tonight and seek to press my honourable friend at the meeting on the details. Of course, if, as a result of that, your Lordships are still not satisfied with the replies the Government are seeking to offer, then your Lordships will, I am sure, come back at Report and Third Reading. In the light of that, I hope your Lordships will feel able to withdraw their amendments.

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