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POL00004418
Modernising The Post Office Network
Revol ution:
N Counter
FOREWORD BY THE PRIME MINISTER
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Britain's post offices are a vital part of the fabric of our country. While
28 million people are served every week at Post Office counters, post
offices are more - much more - than just businesses. Especially in rural
areas, and in disadvantaged parts of our towns and cities, post offices play
an important role in communities across the country: keeping services
going, supporting the vulnerable, acting as a focal point. The Government
values the Post Office network. We want to see it thrive.
But there are also challenges. The trend towards a cashless society,
including the payment of benefits directly into bank accounts, as well
as increased use of direct debit, the intemet and e-mail, means that the
traditional work of the Post Office needs to change and respond to the
service requirements of increasingly sophisticated customers in a
changing world.
That's why I asked the Performance and Innovation Unit (PIU) to look
ahead: to pinpoint the challenges, and to draw up a strategy for the
future of Britain’s Post Office network. What this report shows is a
network which has become over-reliant on a few lines of business.
And a network that has not kept pace with technological change and
which is in need of modernisation.
But the PIU has also found a network with real strengths: post offices
rightly enjoy high levels of trust with their customers, and local
communities; they reach into every urban area and every sizeable rural
settlement; and they represent a unique partnership between the Post
Office and the private business people who own and run local post
offices up and down the country, and who do so much for those they
serve and the areas in which they live and work.
I welcome this report which the Government fully accepts. Its
conclusions set out a programme of action both for the Government
and the Post Office. I am confident that by working together with
sub-postmasters and the private sector we can deliver a network of post
offices fit for the 21st century. A network which continues to occupy
the special place it has in Britain - in all our lives.
G/21/3
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Executive Summary =
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Modernising The Post Office Network
m® Counter Revolution:
(The Post Office network is a
unique and trusted British
institution
The Post Office has the largest retail network
in Europe. It has enormous reach, with over
18,000 post offices throughout the United
Kingdom. 94% of the population lives within
one mile of a post office. In urban areas,
people are on average a quarter of a mile
from their nearest post office. Two thirds of
urban residents live within half a mile of two
or more post offices.
The network represents a particularly early
example of a Public Private Partnership in the
UK. 97% of post offices, accounting for 80%
of Post Office tumover, are run by private
business people - sub-postmasters - often
alongside another retail business.
Post offices offer a range of 170 different
postal, government and commercial services.
And they are used by nearly everyone in the
country. 28 million customers make 45
million visits to post offices every week.
These customers hold the network in high
esteem - surveys show that sub-postmasters
and the Post Office brand enjoy high levels
of public trust.
Post offices are valued not
only for the business they do
but for the wider social role
they play
In rural areas and some deprived urban areas,
post offices play a crucial role in sustaining
local communities. In many areas, they help
to keep open the only village shop or other
retail outlets. They regularly provide support
and advice to vulnerable people. Indeed,
post offices can often act as a focal point for
the whole community.
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The importance of this social role of post
offices - alongside their commercial function
~ is emphasised by many local communities
across the country. Appreciating it is crucial
to developing policies for the network.
"The Post Office has been slow
to modernise the network in
the face of a rapidly changing
business environment
The Post Office network, like other industries,
needs to adapt to its rapidly changing
business environment. The lifestyles and
preferences of its customers have changed
enormously in recent years and will continue
to do so. Consumers expect high standards
of service and modem facilities. And
technological and other innovations (ranging
from direct debit to telephone call centres to
the internet) are opening up completely new
ways of doing business and leading to a
further transformation in lifestyles and
customer preferences.
The Post Office has been slow to modemise
the network in the face of this changing
business environment and to reduce its
dependence on declining traditional lines
of business.
The network has become increasingly reliant
on relatively few lines of business for the
majority of its revenues - for example, the
payment of social security benefits accounts
for 35% of network income. The people who
most use post offices tend to be older and
less well-off.
The Post Office’s Government clients are
modemising the way they provide services to
their clients. This is why the Benefits Agency
has decided to shift to the direct payment of
social security benefits into bank accounts
from 2003 and why, for example, the Driver
G/2115
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POL00004418
Modernising The Post Office Network
@ Counter Revolution:
Post offices would be extremely well placed
to act as ecommerce distribution centres
and pick-up points for goods purchased over
the internet. The Post Office needs to make
rapid progress in exploiting these
opportunities with private sector partners, as
part of the modernisation of the network.
One-stop shops for Government
information and transactions
Post offices offer tremendous scope to play
a role as one-stop shops for central and local
Government information and transactions.
Most sub-postmasters already provide many
of their customers with information and
advice of different kinds.
Working with partners in central and local
government and the private sector, the Post
Office needs to bring forward early plans to
pilot different options.
internet learning and access
Post offices are also well placed to help their
customers by acting as internet learning and
access points. Sub-postmasters could help
those unfamiliar with the new technology to
use the internet and/or to carry out intemet
transactions on their behalf, including
ecommerce.
Such a role would require investment in
new technology, building on the Horizon
infrastructure currently being installed, and
in the training of sub-postmasters. The Post
Office needs to work up a business case,
in partnership with the private sector, for
piloting this idea as soon as possible.
POL00004418
». modernising the network...
Many local post offices are in poor premises,
face declining traditional lines of business and
show the signs of years of under-investment.
In urban areas, the renaissance in
neighbourhood retailing offers the Post Office
and sub-postmasters the opportunity to
transform the quality of service offered to
customers and to generate new sources of
revenue. In many cases this would invoive
actively re-locating post offices with
convenience stores. In other cases it would
involve modemising existing outlets. These
larger and better quality offices would offer a
broader range of both post office and other
retail products and services; could be open
longer hours; and thus attract a broader
range of customers.
As well as helping to secure the commercial
viability of the network, these new offices
might reduce the need for such a large
number of outlets in urban areas. The.
responsibility for modernising the network
clearly rests with the Post Office. But the
Government may have a role to play in
ensuring that the Post Office has the necessary
resources to carry through the changes.
(a. and improving the efficient
running of the network
As well as maximising revenues from new
business opportunities, the Post Office needs to
improve the efficient running of the network.
In particular it needs to address the poor
profitability of branch offices, which currently
lose around £50 million annually.
The Post Office needs to proceed with further
conversions to franchise offices in line with
last year’s White Paper commitment. It must
also drive up the efficiency of the remaining
branch offices.
G/21/7
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POL00004418
Modernising The Post Office Network
om Counter Revolution:
of advice on developments affecting the
network.
The Postal Services Commission should be
responsible for:
* monitoring what is happening to the size
and shape of the network and with what
impact on local communities;
advising the Government on the
appropriate framework after 2006; and
* advising the Government on the best way
to channel any support that has to be
provided to sustain the network before
then.
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G/21/9
POL00004418
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POL00004418
Modernising The Post Office Network
Counter Revolution:
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This report:
® considers the potential impact of the
challenges to traditional lines of business
for the Post Office network;
* examines to what extent new lines of
business could replace declining revenues
from traditional lines of business;
® proposes Government objectives for the
network, and
® draws conclusions for future Government
policy.
22 The origin and remit of
the study
On 21 October 1999 the Prime Minister
announced to the House of Commons that
he had asked the Performance and
Innovation Unit (see Annex 1) to undertake
a project on the Post Office network.
The project team was asked:
# to identify the contribution made by post
Offices to the vitality of local communities;
to consider how the Post Office network
could best contribute to the Government's
objectives in the future; and
* to formulate objectives for the Post Office
network.
( 2.3 How the project was
carried out
A multi-disciplinary team, comprising a mix
of civil servants and secondees from outside
Whitehall, was assembled in October 1999
(details at Annex 2).
There were 5 phases to the project:
» developing a clear understanding of the
operation of the Post Office network;
POL00004418
* reviewing the contribution made by post
offices to the vitality of local communities;
® analysing how the network might change
in the future under different scenarios;
* considering what products or services the
network could offer in the future to
maximise its potential; and
» formulating Government objectives for the
network, and analysing policy options for
safeguarding it.
In carrying out the study, the project team
have drawn on the expertise of the project's
Advisory Group, made up of representatives
and stakeholders from inside and outside
Government. This group was chaired by
Charles Clarke MP, Minister of State at
the Home Office who was also the sponsor
Minister for the project (see Annex 2).
Assistance, advice and support from the Post
Office has been invaluable. From the outset,
the project team worked closely with Post
Office staff. Particularly important was the
willingness of the Post Office to share
detailed data on the transactions done in
every post office in the UK. This allowed the
team to develop an analytical model of the
impact of changes in Post Office revenues
on the size and shape of the network under
a range of scenarios (see Annex 3).
The project team visited post offices
throughout the United Kingdom (including
Scotland, Wales and Northern Ireland).
Talking to sub-postmasters about how they
saw their business was crucial to developing
an understanding of the economics of
running a sub-post office and of the
contribution that post offices make to the
vitality of their local communities.
The project team also consulted a wide
variety of other experts and stakeholders -
from the trade unions to the UK Passport
Agency, from the Countryside Agency to the
Association of Convenience Stores, from
G/21/11
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POL00004418
Counter Revolution: Modernising The Post Office Network
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3. AN OVERVIEW OF THE POST OFHICE NETWORK
(31 The business of the Post
Office network
The Post Office network, which comprises
the physical network of post office counters,
is part of the Post Office’ Group. The other
main businesses of the Group are mail and
parcel delivery and collection, through Royal
Mail and Parcelforce Worldwide. The Group
also has a call centre business - SSL - which
provides licensing and subscription services
(e.g. for the BBC). Figure 3.1 shows how
Group revenue breaks down between the
main areas of businesses.
The Post Office network receives income
from its clients (e.g. the Benefits Agency and
Royal Mail) to provide services or products
to its customers over counters in post
Offices. The Post Office network's customers
are mostly private individuals and small
businesses. Services range from the sale of
stamps, to handing out leaflets, to checking
passport applications have been completed
correctly, to cashing benefit entitlements.
The vast majority (97%) of post offices
are run by private business people (sub-
postmasters or mistresses’) under a variety
of agency arrangements. These outlets are
known as sub-post offices. The remainder of
the outlets - branch or Crown offices - are
staffed and managed by Post Office
employees.
* In this report the term ‘Post Office’ refers to the organisation as a whole, while ‘post office’ is used to describe an individual outiet.
° In the remainder of this report the term ‘sub-postmaster’ is used to describe both sub-postmasters and sub-postmistresses
G/21113
POL00004418
PLILZ/D
An Overview of the Post Office Network
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POL00004418
Modernising The Post Office Network
Counter Revolution:
&
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POL00004418
Box 3.1: continued
» The Post Office Savings Bank began in 1861, offering savings facilities for ordinary wage
earners. At that time there were few banks outside major towns. Initially 700 post offices
provided a place to save money, but within 2 years this had risen to 2,500 offices.
By 1901 there were over 8/2 million accounts with deposits of over £140 million.
* The monopoly of running the telegraph service was given to the Post Office in 1870 and
post offices were set up throughout the country to allow people to send and receive tdegrams.
®
The introduction of the parcel post service in 1883 meant that 15,000 post offices
had to be enlarged.
The National Federation of Sub-Postmasters was formed in 1897.
e
In 1900 there were 906 head post offices, 255 branch offices, 4,964 town sub-offices
and 15,815 country sub-offices. A total of 21,940 offices.
e
From 1 January 1909, Old Age Pensions became payable at post offices.
® The Post Office took over the National Telephone Company in 1912 to offer a unified
telephone system throughout most of Britain.
°
During both World Wars, post offices played a vital role displaying general notices
and instructions, issuing forms and ration books.
*
After the Second World War, state benefits (e.g. family allowance etc) became payable
nationwide via the Post Office counters network.
* The Post Office's new banking service, National Giro, (later called National Girobank)
began in 1968.
e
On 1 October 1969, the Post Office ceased to be a Government department and
became a nationalised industry. Control of National Savings Bank was lost when it
became a separate Government Department, but post offices continued to act as
an agent on its behalf.
® The Post Office was reorganised in 1986 into 3 separate businesses - Royal Mail Letters,
Royal Mail Parcels and Post Office Counters.
«
Post Office Counters Limited was formed as a wholly owned subsidiary of the Post Office
in 1987.
e
Girobank was sold to the Alliance and Leicester Building Society in 1990.
In July 1999 the Government published a White Paper on the Post Office (see Box 3.6).
The Postal Services Bill which enacts the changes set out in the White Paper is currently
before Parliament.
e
s
In October 1999 the Post Office Group restructured its businesses around units which
either generate business for the network (called market-facing units) or deliver services
to customers on behalf of the market-facing units (called service-delivery units).
The Post Office Network is a service delivery unit which looks to the market-facing
units to manage contracts with institutional clients (such as the Benefits Agency).
‘Source: Post Office
G/21115
POL00004418
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An Overview of the Post Office Network
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POL00004418
Modernising The Post Office Network
Counter Revolution:
ES
Table 3.3: The size of other networks in
the UK, 1999
Places of worship Up to 45,000
of which Anglican Churches 16,000
Pubs 41,800
Cash machines 28,200
Primary schools 23,100
Post offices 18,500
Banks and building societies 14,400
Petrol stations 13,700
General practitioners’ surgeries 11,000
Libraries 4,900
Police stations 2,000
Benefit Agency offices and
Job Centres 1,400
Hospitals with A&E
facilities 250
Source: PIU research
«and it is more extensive than most
other countries’ networks
The size of the UK Post Office network is
unique among OECD countries. Figures 3.2
and 3.3 show that the UK has the most
extensive coverage of offices relative both to
the size of its population and the surface area
of the country. It has more post offices per
100,000 population than all but a handful of
countries - 30% more than Germany and
10% more than France. Only the small island
countries of Cyprus, Hong Kong and
Singapore have more post offices per
100km’. Annex 4 provides further
information on post office networks in other
countries and how they have adapted to
changing economic, social and technological
environments.
However the network is not static...
Although the UK Post Office network has
maintained its reach, it is not static. For
example, around 10% of post offices change
Figure 3.2: Post office coverage per 100,000 population by country, 1997
120.0 4
100.04
80.04
60.074
40.05
post offices per 100,000 population
20.07
0.0
Hong Kong
Netherlands
Usa
Jepan
Poland
Australia
Denmark
Source: Universal Postal Union
ttaly
Germany
Singapore
France
Finland
Austria
Norway
Portugal
Ireland
Cyprus
Luxembourg
Great Britain
POL00004418
POL00004418
An Overview of the Post Office Network
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POL00004418
Wedernising The Post Office Network
EE Counter Revolution:
POL00004418
Table 3.4: Customer satisfaction levels after office conversion, 1997
Waiting time 58
Staff friendliness 45
Access 59
Speed of Transaction 58
Opening hours 68
Easy to get to 43
Staff politeness 46
31 1
50 5
26 15
37 4
31 1
4 16
51 2
Source: Independent research for the Post Office at 50 franchise offices 6 months after conversion; 1997
newsagent, or stationery business. In rural
areas it will typically be the village shop.
The age distribution of sub-postmasters is
shown in Figure 3.4. This shows that half
of sub-postmasters are aged over 50.
Sub-postmasters in rural areas tend to be older.
The Post Office estimate that 60% of
sub-postmasters are male, whilst 86% of
assistants are female. Where a couple run
a post office, the husband is often the
sub-postmaster, and his wife is counted
as an assistant.
In London and many other large cities, the
majority of sub-post offices are owned by
Asian families.
... whose investment in their business
will generally help to pay for their
pension
In general, a sub-postmaster will have
bought his sub-post office business from
an exiting sub-postmaster. Typically, the
amount he will have paid for the post office
business will be around 2-2" times the
annual payments that he would get from the
Post Office for running the office (although
this varies substantially between locations).
He will also have paid for any other business
and property. So a sub-post office business
which receives payments from the Post Office
of £40,000 a year would typically have cost
the sub-postmaster up to £100,000 plus the
Figure 3.4: The age distribution of sub-postmasters, 1999
14%
36%
Source: National Federation of Subpostmasters
xo
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50-59
60+
32%
G/21119
POL00004418
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POL00004418
Modernising The Post Office Network
POL00004418
Box 3.3: Main services available at post offices
Post offices offer over 170 services including:
» Banking services - Branch transactions for Alliance and Leicester Girobank, Co-op Bank,
Lloyds TSB, Barclays and National Savings.
Cash management for businesses - deposits, cash provision, 3rd party cheques.
® Bill payment, bureau de change and postal orders.
* Pensions and other benefit payments.
Insurance services.
® Car Tax, TV and Fishing Licences.
® National Lottery tickets.
® Mail and distribution - stamps, parcels, redirection, track and trace, special delivery.
* Passport renewal applications.
« Phone and Cable services - bill payment, pre-pay mobile phone vouchers.
Post offices also play an important role in circulating cash. Around a quarter of the cash in
circulation at any one time has originated through a post office. A similar amount will find
its way back into post offices in the form of cash deposits.
Reciprocal exclusivity means only Royal Mail
and Parcelforce can use the Post Office counters
network for express mail and parcels business.
The Post Office network is not able to accept
express mail and parcels for distribution by
competitors of Royal Mail and Parcelforce.
Similarly, Royal Mail and Parcelforce are
prevented from using other networks to
receive express mail and parcels for distribution.
«and business varies hugely from
outlet to outlet
There are great variations in the volumes
of business transacted at different outlets.
Figure 3.5 shows how the volumes of
business in the smallest post offices compare
to volumes in the largest. The largest 2,000
post offices account for around 40% of total
Post Office business whilst the smallest 2,000
account for less than 1%. The Post Office last reviewed reciprocal
exclusivity in 1994. This concluded that,
whilst relaxation of reciprocal exclusivity
would attract some new business from other
carriers, this would be more than offset by
the loss of Royal Mail and Parcelforce
There are restrictions on the business
activities of the Post Office network...
The mail and parcels business of the Post
Counter Revolution:
y
3
Office network is restricted by agreements
with Royal Mail and Parcelforce. These
agreements enforce an arrangement known
as ‘reciprocal exclusivity’.
business. This was because:
* most of the business gained from other
carriers would be at the expense of
Parcelforce;
G/21/21
POL00004418
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An Overview of the Post Office Network
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POL00004418
Modernising The Post Office Network
Counter Revolution:
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open. However, there are good reasons for
the restrictions:-
e Whilst some individual sub-postmasters,
might gain from a relaxation of the
restrictions, the Post Office network could
lose out. The Post Office pays some sub-
postmasters less per transaction than they
would get by negotiating directly with
lottery operators or other clients because it
uses the revenues it receives to make cross-
subsidies to less profitable parts of the
network. Without the restrictions, these
cross-subsidies could not be maintained
and it would be more difficult to sustain
the current size and shape of the network.
* They strengthen the Post Office’s
negotiating position with clients for the
network's services. This position might be
weakened if clients could negotiate directly
with each sub-postmaster.
For these reasons, the National Federation of
Sub-postmasters generally supports the Post
Office’s policy. However, the Post Office must
continue to keep its policy under review to
ensure the restrictions are no tighter than
absolutely necessary. Not to do so might
undermine the ability of sub-postmasters to
act entrepreneurially.
POL00004418
3.5 People using post offices
The Post Office network has millions
of individual customers...
The Post Office network serves an average of
28m customers a week who together make
45m visits. Although virtually everyone uses
a post office from time to time, post offices’
most frequent customers are older and
poorer people. This is mainly because a large
part of post offices’ business is benefits-
related but also because more affluent people
tend to use other delivery channels such as
the telephone, the internet or automated
credit transfer. Figures 3.6-3.8 show the
make-up of the network’s customers.
The Post Office network has high brand
recognition and it is highly trusted by
its customers. Figure 3.9 summarises the
findings of Post Office research on public
attitudes towards post offices compared
with other outlets,
».ut is also extensively used by business
Post offices are also used by businesses. For
example, 90% of businesses with under ten
employees use post offices. Amongst typical
business users are shops who use the post
office to deposit their takings through a
Girobank account.
Figure 3.6: Weekly Post Office network customers by gender, 1998
100
S3sses
50
40
30
20
10
o+t
Population
@ Female
Source: The Post Office
Post Office network customers.
Male
G/21/23
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An Overview of the Post Office Network
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POL00004418
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Modernising The Post Office Network
Counter Revolution:
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3.6 How has the network
changed?
The Post Office network has, of course,
changed over its history. But compared to the
environment in which it operates,
and compared to other physical networks, the
Post Office network has changed
remarkably little (see Box 3.4). It has failed
to take up new business opportunities quickly,
partly because of restrictions on its commercial
POL00004418
freedom, its social obligations and under-
investment in the network. But it is also
because the Post Office has not reacted
quickly enough to changing preferences
and new opportunities.
The Post Office White Paper (see Box 3.5)
set out how the Goverment plans to change
this relationship. The Post Office is also
automating its outlets under the Horizon
project (see Box 3.6)
Box 3.4: A slowly changing network
# More and more people expect to do business outside traditional opening hours. Other
services have responded by extending their opening hours into the evening and on
Sundays. But most post offices continue to open from 9 to 5 with a half day on
Saturday. Many also close on Wednesday afternoons.
* The majority of sub-postmasters still work under a contract which can be traced back
a hundred years. These contractual arrangements have played an important role in
maintaining the network. Newer contract types have been introduced in the last decade
which give greater emphasis to encouraging investment and higher service standards.
e
Many sub-postmasters see themselves as employees of the post office and have weak
associated retail business. The conversion of branch offices and the entry of multiples
running convenience stores into the post office business is changing this. In urban
areas the post office is increasingly becoming another service offering alongside a
successful retail business.
e
Other retail businesses have invested in IT to deliver service improvements and realise
efficiency gains. Until the Horizon project - in which the Government has invested
£500m and which will, by 2001, automate and link-up every office - information was
passed around the network using paper-based methods. This has limited the scope for
efficiency savings and the exploitation of new business opportunities which require
access to on-line databases e.g. network banking and one-stop-shop advice services.
e The Post Office has been slow to exploit new business opportunities and lines of
business have remained fairly similar. The network has increasingly found itself with
customers who are elderly or poor.
@
By and large the network has been preserved. Over the last ten years the number
of post offices has declined by 10%. Almost all closures have been in rural areas.
By comparison, the number of banks and building societies has declined by 25%
whilst the number of petrol stations has declined by 30%.
G/21/25
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Modernising The Post Office Network
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Box 3.6: The Horizon project
In 1996, work began on a project to automate all post offices. The project was based
around a magnetic swipe card that could be used to claim benefits and provided an
infrastructure which could eventually enable all the other Post Office products and services
to be automated. The project was complex and delays led to higher than expected costs.
In May 1999, with the project considerably behind schedule, the Government decided
to cancel the swipe card part of the contract, but continue with the automation of post
offices. Instead of benefit claimants using a swipe card, it was decided that benefits should
be paid directly into claimants’ bank accounts, and that the Benefits Agency would transfer
benefit recipients to this method of payment between 2003 and 2005.
The project will cost around £1 billion, around half of which will be funded by the
Government. By Christmas 1999, over 1,500 offices had been automated and since January
2000, 300 post offices a week have been automated. It is planned that the entire network
will be automated by early summer 2001. There will be 40,000 horizon terminals and
70,000 people will have been trained to use them
The computers used by the counter clerks have touch screens for easy use and the Horizon
project will allow the Post office to reduce its reliance on paper-based methods, streamline
its internal processes and offer a more modem service to its clients and customers. Horizon
will also help to enable the Post Office to extend its commercial arrangements with the
banks and to deliver electronic Government services by providing the ability to read smart
cards, magnetic swipe cards and barcodes. This offers potential clients maximum flexibility,
and the Post Office will need to work hard to exploit the potential benefits the automated
platform provides.
A Horizon terminal
G/21/27
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How ls the Post Office Network Financed
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Wedernising The Post Office Network
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&
@ Lottery ticket sales for Camelot.
e Other Government business, for example
passports (Home Office) and welfare foods
(Department of Health).
* Other commercial clients or services
for example the sale of mobile phone
vouchers or Bureau de Change services.
«and is dependent on two main
clients for its revenues
Figure 4.1 illustrates how total Post Office
network income breaks down between these
various sources, The Post Office network's
heavy reliance on Benefits Agency and Royal
Mail income is clear.
Although the overall income of the network
has remained broadly unchanged in real terms.
over the last five years, there have been sight
changes in its composition. For example,
whilst income from bill payment has declined
dightly as a result of greater competition in
the bill payment market, new sources of
income such as the National Lottery and
Bureau de Change have come on stream.
POL00004418
Paying sub-postmasters makes up
around half of the expenditure
Expenditure in 1998/99 almost equalled
income. The main sources of expenditure are:
® payments to sub-postmasters (45% of
expenditure);
°
the direct costs of operating branch offices
with directly employed Post Office staff
(19% of expenditure);
«
the costs of servicing and supporting
the network (e.g. transaction processing,
agent remuneration and contract
management, cash handling, distribution,
field management, and VAT and National
Insurance contributions associated with
sub-postmasters); and
*
corporate functions (e.g. marketing,
human resources, financial planning and
audit). The last two together account for
36% of total expenditure.
Over the five years to 1998/99, the Post
Office network made a small profit of around
£30m per annum. But future prospects are
less certain as the network is likely to face
Figure 4.1: Sources of income for the Post Office network by broad category, 1998/99
7%
4%
6%
15%
23%
Source: Post Office report and accounts 1998/99
© Benefits
Mails
36%
Bill payment
Banking
National Savings
Lottery
© Other Government
®% Other
G/21/29
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POL00004418
POL00004418
Table 4.1: The range of contract types used by the Post Office for sub-post offices, 1999
14,900
The fixed payment element is specific to each post
Office. The variable payment rates are the same for all
offices. The contract is based on 3 month’s notice on
either side.
Scale payment
Community 2,000 Similar to the scale payment contract, but the
fixed payment element is partly dependent on
opening hours.
The contract for branch office conversions. Its terms
are similar to those of the scale payment contract,
but all offices have a £15,000 fixed payment element.
Modified 660
Company franchise 225 Anew form of contract. It is a five year franchise
agreement aimed at muitiple retailers which requires
higher standards for capital investment and service
levels. Payments are made up of a variable element
plus a volume related premium. The result mimics a
fixed and variable payment structure.
Independent franchise 45 Similar to the company franchise contract, but aimed
Wedernising The Post Office Network
Counter Revolution:
w
3
at non-multiple retailers.
Source: The Post Office
buried within the history of the contract and
have continued because of the difficulty in
reducing payments to sub-postmasters
without threatening the viability of offices.
Whilst the UK network is centred around the
self-employed sub-postmaster who usually
runs the post office alongside another retail
business, many other countries’ networks
(e.g. Japan and France) are run entirely
or mostly by directly employed staff.
An advantage of the UK approach is that
sub-post offices are relatively efficient.
This is for two reasons:
# the overheads of running the post office
can be shared between the post office and
other business; and
» the presence of a post office pulls people
into a shop where they may spend money
on other products. That is, the post office
generates “footfall” or custom for the
associated business.
{t is the prospect of footfall that is most
attractive to multiple retailers. In terms.
of crude gross profits per square foot,
post offices can appear to perform poorly
compared to well-managed retail businesses.
But the attractiveness of the post office
business is that it brings in valuable footfall.
The sub-post office business model - using
agents or franchisees and combining the post
office with other businesses ~ is one to which
other countries are moving in order to
G/21/31
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How ls the Post Office Network Financed?
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Figure 4.3: Income generated for the network against the cost of maintaining outlets
by size of sub-post office, 1998/99
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
ie o oF
Income generated for network
#2 Cost of maintaining outlet
bottom 10-20% 20-30% 30-40% "40-50% 50-60% "60- 70% 70-' 80%" 80-90% top 10%
Sub-post offices ranked according to size (as measured by total income generated)
Source: PIU analysis of Post Office data
Office. In total these offices lose the Post
Office around £35-40m. The vast majority
of these are small rural sub-post offices
Rural offices are maintained through
the profit-making urban network
The urban network as a whole is profitable
(making over £100m a year) - with around
90% of urban post offices making money for
the network. By contrast, the rural network
loses around £25m a year - with around
60% of rural post offices losing money for
the network. Branch offices, run by directly
employed Post Office staff, also lose money ~
the PIU team estimate around £50m a year.
The precise amounts depend on how
central business overheads and exceptional
items are allocated.
For sub-post offices, cross-subsidy is
administered through the fixed and variable
payment system. An office which generates
avery small amount of income for the Post
Office (and consequently receives a very
small variable payment) receives a much
larger fixed payment. This is, in effect, a
“top-up” payment which serves to keep the
post office in business. On average, half of
rural sub-postmasters’ payments are derived
from the fixed element compared to a third
in urban areas.
Any reduction in overall network income
would increase the proportion of post offices
that lose the Post Office money.
Figure 4.4 shows the volume of sub-post
office business transacted by the urban and
rural networks and the costs to the Post
Office associated with these outlets. Whilst
the rural network transacts 25% of business,
it accounts for 30% of costs. Branch offices
transact 20% of business but account for
25% of the costs.
Figure 4.5 shows how the business of the
different parts of the rural network varies.
The busiest third of the rural network
generates 95% of the business but incurs
only 80% of the cost. The least busy third
generates just 1% of the business but incurs
8% of the cost.
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vElLZ/D
How ls the Post Office Network Financed?
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Modernising The Post Office Network
Counter Revolution:
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@ they do not fully exploit the additional
income generation opportunities from
footfall, though some minor footfall
benefits are gained from the 200 or so
Post Shops in branch offices selling
stationery and mail products; and
« they often have higher property costs
because they are in more expensive areas
in cities and large towns,
Figure 4.6 illustrates the income generated
by branch offices and their operating costs,
compared to converted offices. The largest
third of converted offices are, on average,
roughly the same size as the smallest third
of the remaining branch offices. But, as the
chart shows, they operate at around 60%
of the cost.
The PIU estimates that conversion of
all remaining branch offices would produce
recurring savings of around £80m a year.
In realising these savings the Post Office
POL00004418
would also incur one-off costs. The Post
Office White Paper, published in 1999
agreed that the Post Office should continue
to convert branch offices where this
produced economic and customer service
benefits, subject to at least 15% of the
network's overall business continuing to
be conducted in branch offices.
Within these constraints, there is still
much that the Post Office can do to improve
branch offices. Improving the retail business in
branch offices - perhaps forming alliances
with High Street retailers could help to exploit
the valuable footfall generated by post office
customers. And in some cases, it may be
sensible to re-locate branch offices to better
High Street locations. The Post Office have
taken the first steps to do this by relocating
branch offices into the Co-op in Sheffield and
Birthdays in Waterlooville. They are also
engaged in a review of branch office efficiency
with the Communication Workers Union.
Figure 4.6: Comparative income and expenditure for branch offices and converted
offices, 1998/99
600,000
500,000
400,000
300,000
200,000
100,000 E
Annual average (£)
0
, converted bottom © converted middle '
third third
converted top
branch bottom "branch middie I branch top
third
‘third third
Post offices ranked by income generated
Income generated for network
& Cost of maintaining outlet
Source: PIU analysis of Post Office data
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Fs}
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Post Offices at the Heart of Rural Britain
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POL00004418
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Modernising The Post Office Network
Counter Revolution:
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POL00004418
Figure 5.1: Percentage of settlements having a post office, by settlement size, 1999
100
90
80
70
60
50
40
30
20
10
0
Percentage of settlements having a post office
T T
100-300 300-500 = 500-1000
T —— T ——
1000-1500 1500-2000 2000-3000 3000-10000
Population of settlement
Source: Post Office (settlement pepulation figures are drawn from the 1991 census)
Table 5.1: Services in English parishes, 1997
Village hall/community
centre 72
Public house 71
Post office 57
School of any kind 51
General store 30
Petrol station 25
Greengrocer/Butcher/
Bakery 18
GP l7
Bank/building society
branch 9
Library 9
Citizens Advice Bureau 6
Cash machine 5
Police station 3
Source: ‘2997 Survey of rural services’, Rural Development Commission
Another way of looking at the coverage
of the rural network is in terms of the
proportion of the rural population living
within a certain distance of a post office.
85% of people in rural areas live within
a mile of a post office and 99% live
within three miles (see Table 5.2).
Table 5.2: Distance to the nearest post
office in rural areas, 2000
Within: 1 mile
85
3 miles 99
Source: PIU analysis of Post Office data
5.2 .. but the rural network
I is slowly contracting
The Post Office makes significant efforts to
maintain a large post office network. Unlike
other service providers, the Post Office has
not actively sought to close down any rural
outlets over the last decade. Rather, it has
seen its role as maximising the size of the
network. Whenever a sub-postmaster
decides to resign and is unable to find
someone to take over the post office, the
Post Office’s regional staff make every
effort to persuade others in the village
or elsewhere to take on the office,
G/21/37
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Post Offices at the Heart of Rural Britain
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Figure 5.3 Number of Rural Post Offices
12,000
11,500
11,000
10,500
10,000
9,500
Number of Rural Post Offices
9,000
8,500
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year ending 31 March
Source: Post Office
Box 5.2: The gradual attrition of the rural Post Office network
There has been a slow but steady contraction in the Post Office network. Virtually all of this
contraction is attributable to the closure of the smallest offices in rural areas. These closures
- often referred to as ‘force majeure’ closures - are usually the result of sub-postmasters
resigning or dying and the Post Office being unable to find a replacement sub-postmaster
to run the office.
‘Force majeure’ closures have occurred despite the Post Office having a policy which has
sought to keep such post offices open. Under the Post Office's remuneration system, most
of the payments to these small outlets have been fixed and are not dependent on volumes
of business. Given that this fixed element of pay has generally risen in line with inflation
in recent years, Post Office payments have usually protected sub-postmasters against
declining post office business.
Sub-postmasters running small offices resign for a variety and combination of reasons -
but predominantly as a result of their age. Other factors might include:
® declining financial return from the whole outlet;
« a desire to turn the premises back to purely residential use;
» reaction to an incident (such as a crime at the office); and
® major change which the sub-postmaster feels unable to cope with (such as the
introduction of Horizon).
G/21/39
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Post Offices at the Heart of Rural Britain
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POL00004418
G/21/40
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Modernising The Post Office Network
B counter Revol ution:
5.3 Why do rural post offices
matter?
The fact that the post office is often the only
service left in many rural settlements gives it
a special place in the community. Villagers
have seen shops, banks and petrol stations
close but have remained confident that the
post office will remain.
So even though an individual post office
may conduct only a very small number
of transactions, its perceived value to the
community may be out of all proportion
to how busy the post office is.
However, although there is a great deal
of anecdotal evidence on the wider social
benefits of rural post offices, there is little
systematic evidence of the magnitude of
these benefits in practice. Also, the extent of
social benefits from any single post office will
depend on local circumstances, such as the
availability of other services, and transport
links with nearby retail services.
The wider social role of rural post offices
There are three main ways in which post
offices in rural areas, in particular, can
provide wider social benefits for their
local communities:
* they help to keep open the last village
shop or other retail outlets;
* they support vulnerable people; and
® they act asa focal point for the community.
Table 5.3: Rural post offices and shops, 1997
POL00004418
Keeping the last shop alive
In rural areas the great majority of post offices
(80%) are run alongside a shop (see Table 5.3).
In around 2,000 rural settlements the shop
attached to the post office is the last retail
outlet in the village. The sub-postmaster/shop
owner relies on combining the income from
the post office side of the business with the
income generated by the village shop. Together
they are sufficient to give sub-postmasters
a modest living income. But with increasing
numbers of villagers preferring to visit the
nearest supermarket, village shops have been
squeezed in recent years - and are likely to
remain under pressure.
For those without their own transport, the loss
of the post office/village shop would mean
increased costs in the form of extra travel
time and transport costs to reach the next
nearest post office/shop. Post offices are thus
particularly important in deprived rural areas.
Even in those rural settlements where there are
other shops, the post office can make a special
contribution to the local economy, as it is
usually the only place to take out cash (unless
a local garage or pub does cashback). Once
people have cash in their hands, they often
spend it in other local shops. This footfall
effect from post offices to other retail outlets
helps to support local businesses in many
villages. Research carried out by ERM for the
Countryside Agency earlier this year (and to
be published shortly) found that in settlements
of between 1,000 and 5,000 people, residents.
spent up to £100,000 monthly in other shops
after withdrawing cash from the post office.
Post office with shop 6,400 2,000 8,400
Standalone post office 1,000 1,100 2,100
Total 7,400 3,100 10,500
Source: PIU estimates derived from the Rural Development Commission 1997 survey of rural services
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a
¢
Post Offices at the Heart of Rural Britain
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FS
N
While sub-postmasters in rural and urban
areas both perform this role of supporting
vulnerable people, it is particularly valuable
in rural areas where altemative sources of
advice and support are harder to come by.
A focal point for the community
Even in a large village, the post office can
act as a focal point for the community. Along
with the village hall and the parish church,
the post office gives members of the
community a place to congregate, and the
sub-postmaster is a respected member of
the local community. For many elderly
people, their weekly visit to the post office
is the social highlight of the week. It is their
one chance to meet and talk with friends.
Many arrange to go to the post office at the
same time as their friends each week.
It is also a place to access information. Post
offices are used by the police, local authorities
and tourist attractions to display information.
In Wales, the Post Office provides extensive
bilingual materials, and often bilingual
customer service.
A number of people have told the project
team that they believe ‘a village is not a
village without a post office’. Although some
of the smallest villages do not have post
Offices, it is certainly the case that any larger
village would see the presence of a post
Office as essential to its identity.
But these social benefits come at an
economic cost...
Post offices in rural areas contribute a great
deal to their communities - over and above
their function as a place to conduct
transactions. The Post Office has long
recognised this - and that is why they make
every effort to maintain as large a rural
network as possible.
But the Post Office’s response has not been
without cost. As chapter 4 has shown the
PIU team estimated that only around 40%
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of rural offices generate enough income to
break even. A commercially driven Post Office
which sought to close down loss-making rural
offices would realise savings of £60m a year.
(5.4 Rural Lincolnshire - a case
study of post offices
The only way really to appreciate the
important role that post offices play in rural
Britain is to look at some examples. The PIU
team visited rural post offices in Lincolnshire,
Gloucestershire, the Borders region of
Scotland, South Wales and County Armagh
in Northern treland.
Case Study
There are over 300 post offices in Lincolnshire,
of which over 250 are in rural areas (see Map
5.2). Map 5.1 shows the post offices in the
particular area visited by the PIU team.
Map 5.1: Gai
Source: Post Office
® - post office
Box 5.4 describes the post offices which
the PIU team visited along the road from
the small market town of Saxilby to the
village of Corringham.
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pvILZ/D
Britain
Post Offices at the Heart of Rural
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Revol ution:
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Box 5.4: Post offices along the road from Saxilby to Corringham
The small market town of Saxilby is about 5 miles north-west of Lincoln. It has a
population of 3,000. There is a large Co-op supermarket in the town and a number of
other smaller shops. The last bank branch closed six years ago, but a mobile bank visits
three times a week for one and a half hours.
The post office in the town is the busiest office in the locality - with more than 500
pensioners claiming benefits here. It has 4 counter positions, and is co-located with a
stationery shop which also sells cards and toys. There is a separate till behind the post
office counter for this secondary business
The sub-postmaster recently refurbished the post office at a cost of £11,000. Most of the post
Office’s customers live in the town. But a significant proportion of customers travel from nearby
villages - either because their own village does not have a post office, or because they happen
to be in the town for other reasons. Attached to the post office is a Royal Mail sorting office
which is also managed by the subpostmaster ~ and provides an additional source of income.
Following the road north from Saxilby, the next settlement is Sturton-by Stow - a
medium-sized village about 1'%e miles away. The post office is within a large well-stocked
general store - which is the only place to buy groceries in the village. It has two counters
and is used by almost 200 pensioners to collect benefits. There is another small general
store in the village.
‘Stow is a small village less than one mile further north. It has a pub and a church but
no shops. The post office serves around 75 pensioners, and does not stock any groceries.
It is run by an elderly sub-postmistress,
Normanby by Stow is the next settlement on the road - about a mile north of Stow.
It has a population of about 20 people, and does not have a post office or any other shops.
The next village on the road is Willingham which has almost 500 residents. The post
office here closed 3 years ago after the sub-postmaster resigned due to age and did not
offer his premises for continued use, The Post Office approached others in the village, and
found one potential applicant. But there were problems obtaining permission for the
change of use of the new premises, so the application fell through.
The small village of Kexby (located about a mile further north) has around 70 residents
and does not have a post office.
The next village is Upton (less than a mile north of Kexby) which has around 400
residents. It has a post office serving over a hundred pensioners, run by a couple, and
combined with a general store. There are no other grocery shops in the village, but many
of the village's residents opt to do most of their grocery shopping at a supermarket in
Gainsborough (about six miles away).
Going north from Upton, the next two villages are Heapham and Springthorpe -
both with about 100 residents and without a post office.
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Post Offices at the Heart of Rural Britain
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POL00004418
Modernising The Post Office Network
BR counter Revolution:
e Only the post offices at Saxilby and
Sturton-by-Stow are busy - the others
each do relatively few transactions.
®
Villages without a post office tend to be
hamlets - four of the five villages without
a post office have less than 100 residents.
2
Willingham is the only village with a
significant population without a post office
~ almost 500 people. But here the post
office closed when it proved impossible
to find a replacement sub-postmaster.
®
The five post offices and the mobile bank
which visits Saxilby three times a week
are the only places to take out cash along
this route.
This small stretch of road represents only a
tiny part of rural Britain, and the five post
POL00004418
offices only a tiny part of the rural post office
network. But this part of Lincolnshire is
typical of most parts of rural Britain. What is
most striking is the way that post offices
remain in villages which have very few other
services, giving post offices a special place in
the hearts of villagers.
(5.5 Rural post offices in other
parts of the country
Much the same is true throughout the United
Kingdom. Box 5.6 sets out examples from
Northem Ireland, Scotland and Wales.
Such post offices were featured in stamps to
commemorate the centenary of the National
Federation of Sub-postmasters in 1997
(see Box 5.5).
Box 5.5: Stamps issued on 12 August 1997 to celebrate the
centenary of the National Federation of Sub-postmasters
Haroldswick Post Office,
Unst, Shetlands
Ballyroney Post Office,
County Down
Source: Post Office
Painswick Post Office,
Gloucestershire
Beddgelert Post Office,
Gwynedd
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(5.6 How the Post Office and
rural communities are seeking
to maintain rural post offices
The difficulties encountered by the Post
Office in attracting new sub-postmasters has
led it to think creatively about post office
provision - developing new models which
can function in smaller settlements in order
to provide as broad a coverage as possible.
Community offices
Community offices are post offices which
keep shorter hours - ranging from offices
which only open for a couple of hours a
week to those which open for half a day,
five days a week. Typically, the Post Office
seeks to convert full-time offices doing low
volumes of business to community status
whenever a sub-postmaster retires or decides
to move on. The shorter opening hours
of community offices often make it easier to
attract replacement sub-postmasters. The
Post Office is also able to reduce its costs by
paying remuneration to reflect the shorter
working hours. Typically, a sub-postmaster
running a part-time office would receive
around £3,700 annually, with the Post Office
incurring a further £5,000 to service the
POL00004418
outlet. The overall cost savings from
converting offices to community status are
small but the real value of the change is the
ability to maintain an outlet where otherwise
the post office might close. Box 5.7 gives an
example of a community office.
Mobile offices
The Post Office has been examining the
contribution that mobile post offices might
make. So far, they have run two pilots - one
in the Lake District and one on the Devon-
Cornwall border. The former is run from the
Carlisle branch office and the latter by a sub-
postmaster. Because of travelling time,
mobile post offices tend only to visit each
village for a short period every week - for
example, 30 minutes each in the case of the
Devon-Cornwall pilot, which has to cover
30-40 villages. There is also a significant cost
in maintaining a vehicle for mobile provision.
Given the large amount of cash which post
offices need, there are additional costs in
ensuring that the vehicle is secure. So,
moving to a mobile office, saves the Post
Office little money over a normal post office
facility. But it can help to provide post office
provision for those who have lost their local
post office.
Box 5.7: An example of a community office
Rudry Post Office, near Caerphilly
Rudry post office is in the middle of the
village and is combined with its only shop,
which sells basic groceries. Most of the
customers are pensioners and mothers
collecting child benefit payments. The
sub-postmaster helps them by running a
Christmas saving club. This was a full time
office, but was reduced to a community
office five years ago. It is open 0900-1300
and 1400-1700 on Monday and
0900-1300 Tuesday to Friday.
Rudry Post Office
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=
Post Offices at the Heart of Rural Britain
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Box 5.9: Unusual rural offices
® Torksey Post Office, Lincolnshire is in the
hallway of the sub-postmistress's home -
with a specially adapted front-door which
also serves as the post office counter. The
Office is open standard hours.
*
Stanton-by-Dale Post Office, in
Derbyshire, is based in a converted World
War Il air-raid shelter, located behind the
POL00004418
Torksey Post Office
former school. The sub-postmistress leases space for the office from owners of the building
to which the shelter is attached. It is a community office open every week day moming.
Space is also leased to a small food shop.
e
Oulton Post Office, in Staffordshire, has been transformed from a public toilet situated
on the premises of a garage. When the previous sub-postmaster resigned the village was
without a post office for some time and many people switched to using another nearby
office. Not all of them have switched back to use this office, although the office is open
standard hours and is easily accessible,
e
Wentbridge Post Office, near Pontefract, is run from the dining room of a guest house
located in the centre of the village. The proprietor took on the role of sub-postmistress
following the closure of the village’s two shops. It is a community post office, open each
weekday morning.
Box 5.10: Voluntary support for the post office
Brook, Isle of Wight
This office was situated in a caravan without electricity. It could not therefore have a
Horizon IT terminal installed. In 1999, the Post Office arranged a public meeting to try to
find a solution. Isle of Wight council donated a Portakabin, the sub-postmistress paid for this
to be fitted out, and the local community raised £1,400 for landscaping the site, installing
the Portakabin and having an electricity supply installed. The office can now be
computerised later this year.
Denston, Staffordshire
In Denston each villager bought a brick for the new post office.
Local authorities also have the power to make
grants to sustain post offices. Box 5.11
illustrates an example where one has done so.
Local councils can also help by ensuring that
bus routes allow communitites without a
post office to get to a nearby post office
easily. In some cases, this may be a more
cost-effective solution for the council than
supporting a post office.
The Countryside Agency supports what is
often the retail side of sub-post offices
through its Village Shops Development
Scheme, which offers grants to improve
village shops. In 1998/9 it made 254 grants
totalling £600,000.
G/21151
POL00004418
Pt
a
Post Offices at the Heart of Rural Britain
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POL00004418
G/21152
POL00004418
6. URBAN POST OFFICES - THE NEED FOR
MODERNISATION
6.1 Post offices within easy Urban offices account for 75% of Post Office
reach of all transactions and the same proportion of the
network's revenues,
More than 99% of people living in towns
and cities (with more than 10,000 residents) On average, people in inner-city areas live
are within a mile of a post office. But for closer to post offices than people in suburban
most people, their nearest post office is much areas. This is because whilst the number of
closer ~ on average, about a quarter of a mile —_ post offices per 10,000 population is roughly
from where they live. And almost two-thirds the same, population density tends to be
of those in urban areas live within /e mile of higher in inner-city areas.
more than one post office.
Counter Revolution: Modernising The Post Office Network
G/21/53
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POL00004418
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POL00004418
Modernising The Post Office Network
BF Counter Revolution:
POL00004418
This ubiquity of post office coverage is not small newsagents, or perhaps a grocery store
restricted to London - it is repeated in towns (see Box 6.1 for typical local offices).
and cities across the UK.
in the High Street...
c 6.2 Where are urban post Around 1,500 post offices are located on
High Streets, alongside major retail chains.
These offices tend to be busier than smaller
local offices - providing services for local
offices?
f Aopping par
in local shopping parades... businesses as well as residents. These are also
Most are located in local shopping parades - the kind of offices which people visit during
in general, sharing their premises with a their lunch-hours ~ as they are generally
Box 6.1: Typical local offices
The PIU team visited a number of local post offices. We have anonymised the examples.
below as sub-postmasters were concerned that if their offices were named in the report,
it might make it harder for them to sell them or could make them a target for criminals.
Unfortunately this means we cannot include pictures of these offices.
A post office in North London
This post office is in a relatively deprived area of North London. It is located on a busy road
and is near a number of convenience stores and other shops. It is run by an elderly Asian
sub-postmaster and his wife, with the assistance of a younger man at busy times. Its frontage
is glass in an aluminium frame, but unlike many other local shops it does not have a roll
down metal grille for security. Its fascia is painted and shows the old Post Office and
Girobank logos, both of which are faded. it has three counters and its interior is panelled in
veneered wood. The counters and interior appear not to have been refitted for over twenty
years and reflect the wear and tear they have had in that time. It has a few shelving units,
which hold some yellowing battered cards, and padded envelopes. The area behind the
counter appears disorganised.
A post office in South London
This post office, in a deprived area of south London, is in a shop selling a few stationery
products set amongst a small parade of shops. The sub-postmistress would like to diversify
the retail offering but cannot because the lease on the premises restricts what can be sold
in the shop. She bought the business with her husband, but he has not worked in the post
office since he was injured in a criminal raid on the post office a few years ago.
A post office on the outskirts of Leicester
This small post office, a few miles west of Leicester city centre, is in a shop selling sweets,
newspapers, cigarettes and a few grocery items. The current sub-postmistress bought it
recently. The post office is in a side street close to a busy dual carriageway. There are no
other shops in the immediate area and there is little passing trade. Most customers come
from a small set of surrounding streets. The sub-postmistress has started to sell sandwiches
to people who work in the vicinity, to boost retail business.
G/21155
POL00004418
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POL00004418
Modernising The Post Office Network
BF Counter Revol ution:
Box 6.3: Post office at Curleys, Belfast
The Kennedy Centre on the Falls Road in
Belfast has a post office located beside
its anchor store, Curleys Supermarket.
The post office initially had five counters
but two more are being added to meet
increased demand. It includes a dedicated
bureau de change.
in shopping malls and
supermarkets...
Asmaller number of urban post offices are
located in larger shopping malls or in major
supermarkets (see Box 6.3). But, in general,
as these locations can be relatively hard
to reach on foot or by public transport,
the Post Office has tended to find that
customers prefer to use offices which are
easier to get to.
in all sorts of other places...
There are also post offices in a variety of other
places where people need access to their
services. They vary from university campuses
(e.g. Surrey, Sussex, Lancaster and Warwick
Universities) to airports (e.g. Heathrow,
Gatwick, Manchester and Glasgow) and
tourist attractions (e.g. the Dome}. Each of
these offices serves a different group of
customers, and as a result do a very different
mix of transactions.
Curleys Post Office
- 6.3 Retail and other trends
affecting urban post offices
Competition from supermarkets has
put pressure on local post offices
While the incomes of urban sub-postmasters
from their post office businesses have
remained relatively steady over the past five
years, incomes from their ancillary businesses
have been squeezed by trends in retailing
(see Box 6.4).
Local grocery stores and newsagents have
found it increasingly hard to keep their
customers. This loss of income has hit local
stores - and meant that their owners have
struggled to make ends meet. The result has
been a vicious circle - falling demand has
meant that shopkeepers have been unable
to find the funds necessary to invest in their
upkeep, resulting in a greater fall in demand
(see Box 6.5).
POL00004418
G/21/57
POL00004418
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POL00004418
Modernising The Post Office Network
BY Counter Revol ution:
Those smail retailers who have had a post
Office have had something of a cushion. The
post office side of the business has provided
a steady source of income. And the fact that
the post office has continued to attract large
numbers of people into the shop has helped
to keep up income from impulse purchases.
Urban post offices have found it hard
to respond to this challenge...
In general, the quality of post offices
has failed to keep up with modern trends
in retailing. While there are notable
exceptions, post offices have become less
appealing places to visit. Affluent customers,
in particular, have tended to use local post
Offices less frequently. This is a trend that the
Post Office needs to reverse by meeting the
service needs of increasingly sophisticated
consumers.
As a consequence, urban post offices have
become increasingly reliant on serving the
poorer and more vulnerable members of the
community. Sub-postmasters told the PIU
team that they have found that their main
customers are either pensioners or people
on benefits. Their main business is to collect
benefits and to pay towards utility and other
bills over the counter.
+» but new neighbourhood retailing
opportunities are emerging
Though supermarkets have captured an
increasing share of the retail market, there
are opportunities for neighbourhood retailers
in urban areas that the Post Office needs to
POL00004418
exploit. The most successful are likely to be
local convenience stores. Such stores can:
* provide a locally accessible place to buy
essential groceries which run out before
the next visit to the supermarket or the
next order over the internet; and
* open the hours that customers want, often
into the evening and seven days a week.
These stores thrive on the ability to offer local
residents all the services they want under the
same roof - bringing together the services of
independent specialist shopkeepers such as
greengrocers, newsagents and off-licences.
The overwhelming majority of convenience
neighbourhood stores are currently operated
by independent retailers. Over time, this is
likely to change given the efforts of the
supermarket chains (such as Budgens and
Sainsbury's) to expand their market share
into this segment of the market. But well run
independent stores will continue to have a
place alongside these multiples. What each
of them will require is the ability to invest
in high-quality premises which customers
find appealing.
And as these stores need to attract as many
customers as possible, many of them will
want to provide post office services ~ since a
post office will provide valuable footfall for
the business. These stores will also attract
customers who might not otherwise use post
offices, so locating post offices in convenience
stores may help to boost the number of more
affluent people using post offices.
G/21/59
POL00004418
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POL00004418
Modernising The Post Office Network
Counter Revolution:
a
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either have to use these poor quality shops
or travel some distance to get to their
nearest supermarket.
Unlike other retail chains, the Post Office has
not taken action to withdraw from these areas.
Asa result, the density of post offices in these
areas is often greater than in other urban areas.
But, as in some rural areas, the existence of a
post office in deprived urban areas can provide
an anchor for the local store. The post office
side of the business provides an additional
source of income for the sub-postmaster/local
retailer - and helps them to sustain a living.
Some of the best examples of vibrant shops in
deprived neighbourhoods are run alongside a
post office. Box 6.9 describes a post office
on a peripheral estate in Leicester - where
the post office is truly at the centre of the
community. By providing a range of services,
the sub-postmistress and her husband have
made a successful business in one of Britain’s
most deprived neighbourhoods.
But, there are also examples of post offices
which are unable to break out of the vicious
circle faced by many local retailers. The
additional income from the Post Office
helps to stop the store going out of business.
But the outlet remains poor and in need of
more investment. The outcome is a less than
satisfactory experience for customers ~ in
many cases, a narrow product offering with,
for example, few fresh fruit and vegetables.
Often the sub-postmasters running these
outlets are keen to get out of the business but
are unable to find a purchaser (see Box 6.10).
Research commissioned by the PIU from
Christie and Co. found that the level of
interest in buying sub-post office business
has declined significantly over the last year.
The challenge for the Post Office and for
other players is to shift the balance between
outlets which are struggling and vibrant local
stores such as the one in Leicester. Achieving
this re-invention will require an effort over
and above that necessary for the rest of the
POL00004418
urban network. It may be more difficult to
lever in the necessary investment for renewed
retail outlets in particularly deprived
neighbourhoods.
Box 6.9: Post office on a
peripheral estate in Leicester
Guthridge Crescent Post Office
Guthridge Crescent is located on the
Braunstone Estate and is approximately
2'V%e miles from the city centre. The area
comprises mostly council accommodation
and is made up of low income families.
There is unrestricted car parking available
outside the outlet with a bus stop only a
few metres away. The office serves mainly
residents from the estate - there is little
passing trade,
Guthridge Crescent post office was
completely refurbished during 1998/99.
Prior to the current sub-postmistress
taking up her appointment, the office
was located within the shop next door.
To provide additional space for customers
and to encourage retail sales, the
premises were knocked through to
make one much larger unit.
The shop sells newspapers, stationery,
sweets and groceries and has an
off-licence. The sub-postmistress is
popular locally and regularly raises
money for the local hospital. The recent
installation of an online lottery terminal
will help to bring in more customers.
Guthridge Crescent Post Office
G/21/63
POL00004418
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Q_ Counter Revolution: Modernising The Post Office Network
7. CHANGING LINES OF BUSINESS
POL00004418
_ 7.1 The network has new
_ opportunities, but faces
challenges to existing lines
. of business
The Post Office needs te pursue
vigorously replacements for
traditional lines of business
Historically, people have seen post offices as
places to do Government business. The post
office has been the natural place to buy
stamps, pay utility bills, access benefits
and post letters and parcels.
But this is changing and the Post Office must
do more to change with it. Increasingly
people are choosing to do these traditional
transactions by other means - buying stamps.
in shops or paying utility bills by direct debit.
The Post Office network has begun to respond
by diversifying into new lines of business.
Selling lottery tickets, offering currency
exchange facilities and selling pre-paid
vouchers for mobile phones are all examples
G/21/65
POL00004418
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POL00004418
Modernising The Post Office Network
@ Counter Revol ution:
POL00004418
Box 7.1: Postal Services over the Internet in the USA
In August 1999, the US Postal Service (USPS) introduced PC Postage”on its website. This
allows customers to purchase and print postage stamps at home. Each stamp has a unique
barcode. The website also allows customers to order postal merchandise, calculate rates,
download software to expedite mailings, track Express Mail and confirm delivery of Express
Mail and Priority Mail. USPS also allowed three private companies to offer similar services
(Stamps.com, E-Stamp.com and Pitney Bowes).
» and decline in the number of letters
posted will reduce revenues from the
letters market
With growth of email, and internet-based
services, the Post Office predicts that the
overall letters market will remain static or
decrease over time. The impact on the
network will be a declining share of a
shrinking letters market.
7.3 New opportunities as a
result of e-commerce
The exponential growth of e-commerce is
going to transform the business of the Post
Office Group. The effects will be felt most by
Parcelforce - which will see seismic shifts in
the nature of the parcels market. But the Post
Office network will also be affected - with
ecommerce offering significant opportunities
for new business lines. The Post Office must
make sure it is at the forefront of responding
to people’s changing needs. it needs to
position itself quickly in this market.
Getting e purchases to consumers
and dealing with returns
The Post Office predicts that the market for
parcels will grow rapidly over the coming
years, as the number of purchases made
over the internet grows.
Post offices have traditionally played an
important role in the mail order industry.
While most mail order companies have not
tended to use post offices to send parcels -
shipping products directly from warehouses
instead, they have often used post offices as
places where consumers can take products
they wish to return. E-commerce is likely to
dwarf the traditional mail-order market,
substantially expanding the market for
returns. Post offices will not be the only
players offering a retums service. But the size
of the Post Office network - and its reach
into remote areas where there are few other
facilities - makes it ideally placed to compete
strongly for a share of this growing market.
Another significant opportunity for the Post
Office network is the need for companies to
get internet purchases to consumers at a
time they find convenient. Parcel delivery
companies have always struggled to find
a means of getting products to people's
homes when there is someone there. All
too often, people come home to find that a
parcel company tried to deliver a product
unsuccessfully - and that it is now waiting at
a depot some distance from where they live.
The growth of internet purchases will lead
to improvements in the quality of parcel
delivery services. Some parcel carriers will
deliver goods during a narrow time slot
which is convenient to customers - for
example between 7pm and 9pm in the
evening. But while this delivery mechanism
will be convenient, it will also be expensive.
Many consumers may be happy to have
their parcel delivered to their local post
office - picking it up either on their way
G/21/67
POL00004418
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POL00004418
Modernising The Post Office Network
@ Counter Revol ution:
Contracts with the Benefit Agency and the
Social Security Agency in Northern Ireland
(SSANI) currently account for over £400m or
around 35% of the overall annual revenue
of the Post Office network. But paying benefits
by order books and girocheques at post offices
is expensive - the Benefits Agency pays the
Post Office up to 79 pence per transaction.
Paying benefits at post offices is also less
secure than direct payment into bank
accounts - and results in estimated fraud of
around £140m annually. The overall cost to
the Government, once Benefits Agency
administrative cost have been taken into
account, of paying benefits by order books
and girocheques is over £600 million annually.
The Benefits Agency has been keen for some
time to reduce these costs and move to a
more modern, secure systern. The Horizon IT
project, as originally constituted, would have
done this through automation of all post
offices and a benefits payment swipecard.
However, this project had to be restructured
when it became seriously delayed. The
swipecard element of it, which had become
outdated in any case, was dropped in order
for the project to proceed.
The Government had to find another
solution. The most effective one was to pay
benefits directly into recipients’ bank
accounts. This method of payment costs 1p
per transaction, so direct payment of all
benefits into bank accounts would cost less
than £10m pa. The Government could save
over £600 million annually if all benefits
recipients had a bank account, and recipients
were able to withdraw money without paying
any charge. The Government plans to make a
concerted effort to move as many benefit
claimants as possible over to direct payment
into bank accounts between 2003 and 2005
(though it has also said that those benefit
recipients who wish to access their benefits in
cash at post offices will continue to be able to
POL00004418
do so). It is envisaged that this will become
the normal method of payment by 2005.
To date, although the option of direct
payment of benefits into bank accounts is
drawn to the attention of benefit recipients,
it has not been positively promoted.
Nonetheless benefit recipients have
increasingly opted to have benefits paid
directly into their bank accounts. Last year,
over half of new pensioners and new child
benefit recipients, for example, chose to have
their benefits paid directly into their bank
accounts. The effect of this has been a
gradual increase in the proportion of benefits
paid straight into recipients’ bank accounts
(see figure 7.1). If the Benefits Agency or
SSANI had taken proactive steps to migrate
their customers to the cheapest method of
paying benefits, the rate of change would
undoubtedly have been significantly quicker.
However, many benefits recipients will wish
to continue to use their local post office to
access their benefits. For many poorer
people, the weekly collection of benefits at
the post office assists with the budgeting of
their out-goings - they use the visit to the
post office to pay a little towards their bills
(see Box 7.2). For many elderly people it is
almost a social event - an opportunity to
meet friends and chat. For many child benefit
claimants it is a way to keep this money
separate from other household income or
save it up.
Although the number of people who will
continue to use post offices to access their
benefits is uncertain, it is likely to fall
significantly. This work would have declined
over time anyway as people switched to
having their benefits paid directly into their
bank accounts. Unless the Post Office takes
action to increase its income from new
business, the loss of order book and
girocheque payments work will have a
G/21/69
POL00004418
Changing Lines of Business
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POL00004418
Modernising The Post Office Network
Counter Revolution:
3
« The High Street banks have been
rationalising their branch networks in the
face of changing consumer preferences, the
widespread installation of cash machines
and competition from telephone and
intermet banking. Over the past decade the
number of bank branches has fallen from.
over 17,000 to just over 12,000 (a decline
of 30%) and further closures are expected.
The Post Office has reached agreements
with a number of High Street banks to offer
their customers basic banking facilities at
post offices. There is clearly scope to extend
these arrangements to cover a greater
number of banks and to offer a broader
range of transactions.
@ The Government has placed significant
pressure on the banks to reduce the number
of people who do not have bank accounts.
New banking services are required for the
“unbanked”. And, once benefits are paid
electronically, the Goverment will need to
find a replacement for order books for
those who do not have bank accounts.
In partnership with the private sector, there
are significant business opportunities here
for the Post Office.
Offering simple banking services to
customers of High Street banks
Recent years have seen customers of High
Street banks making less use of branch
outlets. But many customers still rely on
branches for basic transactions ~ especially
in rural areas where there are few cash
machines. Banks are left facing a conundrum
POL00004418
~ falling demand for transactions at a bank
branch makes it difficult for them to justify
maintaining a large branch network, but they
still need to provide banking services for
those customers who do use branches -
especially in rural areas.
The Post Office has concluded deals with
a number of banks including Barclays and
Uoyds TSB to offer basic banking services to
their customers. This makes it easier for the
banks to rationalise their networks in the face
of competitive pressures; maintains services
for bank customers, particularly in rural areas,
who wish to conduct transactions over a
counter; and represents a new source of
revenue for the Post Office. Separately, the
Post Office is in negotiation with a number
of potential partners for the provision of
around 3,000 cash machines across the
Post Office network.
Once the Horizon IT platform is in place
across the network, the Post Office has a
good chance of extending the scope of its
existing agreements with banks, and of
increasing the number of banks with which
it works in this way.
This will help to replace some of the lost
revenue from declining traditional lines of
business. In total, it might contribute up to
£50m annually.
Banking services for the “unbanked” -
helping to reduce financial exclusion
There is no precise figure for the number of
people who do not use banks or building
Box 7.3: Financial Services and the French Post Office, La Poste
The French Post Office's second biggest source of income, after mail handling, is the provision of
financial services. Over the last few years it has built up this income stream, so that by 1998 it
was the third largest provider of financial services in France in terms of assets under management.
It has 28 million customers with 44 million accounts and nearly 6,000 financial advisors. This
growth was made possible by the computerisation of the 14,000 main offices in the French
network in 1993 and later years.
G/21171
POL00004418
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POL00004418
POL00004418
Box 7.4: High Street bank accounts versus a post office product
Most people have a good relationship with their bank but some have a difficult relationship
or fear they would do so. The quotations below are drawn from research to look at the
attitudes of the latter group.
Attitudes to banks
“If you’re on income support and benefits and things, there’s no way of travelling to a
bank, because for me to get to a bank, its either a 30 minute walk ... or go to town”
(Single mother aged 16-20 with bank account)
“You see them [banks] as a massive big giant, don’t you, who are going to stamp on you”
(Single mother aged 16-20 without bank account)
“2s soon asI went on the sick, I went over my overdraft by about £2, and they called me in and
had my card cut in half.” (Long term unemployed male aged 25-45)
“We're non-entities to a bank” (Long term unemployed male aged 25-45 without bank account)
“I don’t know the first thing about them. I wouldn't know what the hell I'd done with my
money, but I think they’re just a lot of bother and then they charge you for this and that.”
(Male pensioner aged over 70 without bank account)
Attitudes to a Post Office bank
“The Post Office don’t judge you” (Female aged 25-40 collecting child benefit and with
bank account)
“They're not some big flashy bank... just them doing their job” (Unemployed male aged
16-19 without bank account)
“It’s [the post office] synonymous with reliability and well established and that”
(Male pensioner aged over 70 without bank account)
“A friendly face when you go in ... not trying to take money off you all the time”
(Single mother aged 16-20 with bank account)
“We know the Post Office ...1 would be very happy to have my money in their hands
for the good of the country” (Female pensioner aged over 70 with bank account)
Source: independent research done for the Post Office and Alliance and Leicester Girobank
Modernising The Post Office Network
Counter Revolution:
~
iy
expressed an interest in entering into a
partnership with the Post Office, and the
Post Office needs to seize this opportunity,
«and to give people access to cash at
post offices
The Universal Bank could also help to meet
the needs of those benefit recipients who do
not have a bank account into which benefits
could be paid directly. From the perspective
of benefit recipients, this would minimise the
impact of the change. They would still be
able to use post offices to access their
benefits in cash, But if they wanted to, they
could use the other features offered by a
Universal Bank account - taking out money
at cash machines, or making purchases over
the telephone. They would still be able to let
benefit payments build up in their accounts
if they wished - as many Child Benefits
claimants do at present.
In short, they would have something which
had the flexibility to be little more than a
replacement for order books at one end of
G/21173
POL00004418
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POL00004418
Modernising The Post Office Network
Counter Revolution:
z
able to pay for goods electronically from their
benefits account - for example, paying for
shopping at supermarkets. But the virtual
benefits account would not have all the
features of a bank account - crucially it
would not be possible to pay other income
into the account. So it would not help
unemployed benefit claimants who find work
and need an account into which their salary
can be paid. Nor would it give them access
to direct debit facilities.
(7.6 A changing relationship
with Government agencies
Apart from collecting benefits, post offices
have traditionally been places where people
can do a range of other Goverment
business. Getting a fishing licence, renewing
a car tax disc, obtaining an E111 form (for
reciprocal health care in other European
Union countries), picking up a form to renew
a passport and submitting the application are
all transactions which people associate with
post offices. Over the next few years, the role
of the Post Office in relation to Government
business is likely to change - with much
more scope for advice and support, in
addition to transactions.
Vehicle licences and national
savings...
The renewal of vehicle licences (or car tax
discs) is the most significant area of
Government business for the Post Office
network after benefits work, accounting for
around 5% of the network's income. It has
provided the Post Office with a steady source
of income, as motorists have had to rely on
post offices to renew their vehicle licences
quickly. There has been no means of
renewing over the telephone or by direct
debit. This is because it has not been possible
to build in the necessary authentication -
POL00004418
checking for valid insurance and (in many
cases) for MOT certificates.
Over time, with increasingly sophisticated
databases, this will change. Major insurers are
already working on systems which will make
it possible to combine online checks for valid
insurance with vehicle licence renewals over
the telephone or over the internet. Another
innovation, which the Driver and Vehicle
Licensing Agency (DVLA) have been exploring,
is renewing vehicle licence discs at other
physical locations which motorists might find
more convenient. Car dealers or MOT testing
centres would be potential candidates
These innovations would give motorists more
choice. But, as a result, the Post Office
network's share of this market seems certain
to diminish.
Similarly, income from the Post Office's
traditional banking and financial services
client, the Department of National Savings
(DNS) will fall. In the past, DNS has used
post office counters as its ‘front office’ to
attract customers and to conduct
transactions. Now, it is offering an increasing
number of products over the telephone or on
the internet. With many new customers
choosing to purchase products in this way,
only a small proportion of the funds invested
with DNS now passes through post offices.
Although there remain a large number of
customers with National Savings Ordinary
Accounts, most of whom use the traditional
blue passbook at their local post office for
their transactions, as the use of conventional
bank accounts increases, the number of
people who use post offices for DNS.
transactions will inevitably decline.
G/21175
POL00004418
9L/LZ/D
Changing Lines of Business
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POL00004418
Modernising The Post Office Network
Revol ution:
Counter
3
POL00004418
Figure 7.2: Public Opinion on Interacting with Government, 1999
The People’s Panel asked how attractive people would find each of the following as places
to access Government services and undertake transactions
Unattractive Attractive
Post Office 20%
Bank 21%
Library 24%
Local Council Offices 27%
Supermarket 35%
Source: Cabinet Office
Post offices as Government General Where transactions are too complex for a
Practitioners purely electronic channel - perhaps requiring
a higher level of authentication (such as
While the number of people who choose to renewing a passport or driving license) -
interact with central and local Government the Post Office would be well placed to
face-to-face may decrease, the Post Office provide this service. And the Post Office
could become a niche player ~ acting as the network could provide an alternative channel
first point of call for information on a far wider of provision if other channels fail - as the
range of services than it does at present. Passport Agency's problems last year
demonstrated (see Box 7.7).
Box 7.7: Experience of the Passport Agency
During the Summer of 1999, there were considerable delays in processing passport
applications. At worst, in June, processing a passport application was taking 10 weeks.
These delays became widely known - and as a result, there was a sharp increase in
applications and enquiries about them. Ministers were under considerable pressure to take
action to address the ongoing problems.
In July 1999, the Home Office decided to introduce emergency measures ~ including
allowing free two-year extensions to passports at 1,500 post offices.
The Post Office was able to get the service up and running within a matter of days. And
between 7 July and 30 September 1999, post offices extended 473,000 passports. It also
served to reassure the public, who were comfortable with using post offices.
By the end of August, the Passport Agency was again within its target of processing
applications within 10 working days.
G/21177
POL00004418
8LILZ/D
Changing Lines of Business
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POL00004418
Modernising The Post Office Network
Counter Revolution:
3
POL00004418
Box 7.8: continued
Post offices are ideally placed to undertake this role. Their customers tend to be those who
this service would be aimed at - the poor and the elderly - and installing internet terminals
would help to bring new technology to them. Sub-postmasters already spend a great deal
of time helping their customers to deal with central and local Government. Making them
into GGPs would formalise and recognise this role and give them additional training to
allow them to do it with more confidence, along with some reward. They are also trusted
and experienced in accepting payments and authenticating identity. The new Horizon IT
platform can be used as the basis for the GGP.
Once intemet terminals are in place, customers could also use them to access the rest of the
world-wide-web or as Internet Leaming Access Points (ILAPS) providing access to fearndirect
and local college and community learning provision. And the Post Office could develop a
new set of business propositions based on sign-posting customers to particular websites.
The GGP service needs to be piloted to find out if it would work. One key question would be
whether there was enough demand in small villages to merit the same level of service which
would be sensible in larger settlements. Pilots might include trying GGP in other outlets, such
as supermarkets, banks and libraries. Pilots would also include a training programme for
sub-postmasters to make sure that they have the necessary skills The Post Office needs to
take forward urgently this opportunity alongside other new business opportunities.
Box 7.9: Japan Post and access to electronic Government Services
and the internet
Japan Post has been conducting pilots since 1997/8 on ways for local post offices to
become centres of information exchange for local communities, such as being one-stop
shops for local government services. In March 1999, the pilot was expanded with IT
terminals being installed in post offices in 12 municipalities. People access the IT terminals
using smartcards and can then access multiple local government services and the internet.
The thinking behind this is that it will reduce administrative costs for local government and
improve IT literacy. Japan Post has aimed to introduce terminals which are easy for the
elderly and disabled to use, It has trained its staff to provide support for those using the
terminals. Japan Post recognises that not all of its offices are large enough for terminals to
be installed and plans to use miniaturisation to solve this problem.
Post offices as internet learning and 700 Information Technology access centres
access points across the country.
The Government is making a major effort to
help people learn how to use the internet.
All schools and libraries will be on-line by
2002, and the Department for Education
and Employment (DfEE) is setting up over
With 28 million people visiting a post office
every week - including a high proportion of
poorer and elderly people, post offices are
well placed to help people become more
familiar with and confident about using new
G/21179
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POL00004418
Modernising The Post Office Network
® Counter Revol ution:
Box 7.12: Glosnet
Ten post offices in Gloucestershire offer unsupervised taster sessions on the Internet. Each
of them has a computer that may be used at any time during opening hours to search the
intemet and GlosNet, send an email or word process a document.
queues to access the terminal. Post offices
located in neighbourhood stores would also
be well placed to provide this kind of
personal service - as these are unlikely to be
very busy, and sub-postmasters often know
many of their customers. But those on urban
High Streets may need to employ staff who
act as assistants if they are to provide an
effective supported service.
Both opportunities require urgent work
The propositions of Government General
Practitioner and Internet Learning and Access.
Points sit well together. They both require
sub-postmasters to become IT-literate (for
which investment in training and support
may be necessary), and they both rely on
using the communications links which are
being put into post offices under the Horizon
project. But there is a real prospect that
customers, who ask sub-postmasters for
advice, migrate to gathering information for
themselves over the internet, and in the
process acquire additional IT skills.
At present, these are both embryonic
propositions, Although the Post Office has
been developing ideas in this area - particularly
around using the network in the GGP role -
there remains an urgent need for them to
work up a formal business case. The Post Office
must take responsibility for pursuing lines of
business, and make sure it has the capacity
to do so.
VI A declining share of the
bill payment market
Around 15% of the network's income comes
from bill payments. Almost all utility bills and,
in many areas, local authority bills can be
paid over a post office counter as well as TV
licences and car tax.
In recent years, there has been a significant
shift to direct debit as a means of paying
bills. The costs of accepting a direct debit are
considerably lower than the costs of taking in
payment over a post office or bank counter,
and the savings are increasingly shared with
the customers of utilities through discounts.
The Post Office network has also faced
increased competition in the over the counter
bill payment market. Since 1997, PayPoint
has become a major new player and
competitor to the Post Office. It has set up a
network of over 7,000 bill payment terminals
- largely in urban areas - located in
newsagents, supermarkets and convenience
stores and captured market share from the
Post Office. Some institutional clients (such
as London Electricity) no longer offer their
customers the option of paying bills at post
offices, relying entirely on direct debit and/or
arrangements with PayPoint.
The Post Office must face up to this
competition. But it must also grasp new
opportunities. This is another reason why the
Post Office needs to diversify from traditional
lines of business.
POL00004418
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POL00004418
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8. FUTURE GOVERNMENT POLICY FOR THE POST
OFFICE NETWORK
G/21/83
POL00004418
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POL00004418
G/21184
POL00004418
Modernising The Post Office Network
®@ Counter Revol ution:
Box 8.1 The Government's objectives for the Post Office network
Objective 1: Convenient access for all to post offices
The Post Office network should offer people in all parts of the country convenient access to
the services available in post offices. The Government needs to establish a framework
which ensures that the Post Office maintains a network which meets this objective.
Objective 2: Maximising the potential of the Post Office network
The Post Office network has great potential - with its reach into over 18,000 localities, it is
by far the largest retail network in the UK. But in recent decades, the network has suffered
from under-investment and neglect. The installation of the Horizon IT platform opens up a
host of new opportunities for the network. Some of these are purely commercial, others
more social in their nature. But, together, they have the potential to replace most, if not
all, of the revenue from declining traditional lines of business. However, they will not be
realised unless the Post Office makes a concerted effort to seize new lines of business, and
to put in place a framework which encourages sub-postmasters to use their entrepreneurial
POL00004418
skills to the full.
(8.2 Delivering objective 1:
_ Convenient access for all to
post offices
Post offices contribute a great deal to their
communities over and above their function
as a place to do transactions. This is
especially true in rural and deprived urban
areas where post offices, which are loss-
making from the perspective of the Post
Office group, often serve an invaluable social
function. In an increasingly commercial
world, there is pressure on the Post Office
to close down these post offices,
notwithstanding their wider social value.
The Government recognised this tension
between an increasingly commercial Post
Office and the need to protect the social role
played by post offices in last year’s Post
Office White Paper. It said that the
Government would set criteria for access to
Post Office counters’ services to protect those
post offices which would otherwise be
vulnerable in a commercial world, despite the
best endeavours of the Post Office.
Maintaining access in rural areas
Post offices in rural areas! play a particularly
crucial role in sustaining rural communities.
In many villages, while other services such as
banks have slowly withdrawn, post offices
have remained in place.
This is a result of the Post Office’s long-held
policy of maximising the size of the rural
network. It has meant that even where post
offices are loss making, the Post Office has
not sought to rationalise the network.
Indeed, where a sub-postmaster departs, the
Post Office has made every effort to recruit
another sub-postmaster. In many cases, this
has required the Post Office to relocate the
post office into unusual premises ~ for
example, in a villager’s living room. In some
cases, however, post offices have been forced
to close as it has proved impossible to find a
replacement for a departing sub-postmaster.
Over time, there is a risk that the Post Office
would change its stance on rural post offices
- seeking instead actively to rationalise the
network on purely commercial grounds.
1 The commoniy used definition of rural areas is settlements with a population of less than 10,000. Thisis the definition used in this
report.
G/21185
POL00004418
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POL00004418
G/21/86
POL00004418
Modernising The Post Office Network
® Counter Revol ution:
jusion 3: The Government’s
requirement in relation to the rural
network should apply - in the first
instance - until 2006.
This would set the Post Office a demanding
task - requiring it to maintain post offices
in rural areas except where it is impossible
to find replacements for departing
sub-postmasters. While some closures
of post offices will remain unavoidable, the
Government will need to be sure that the
Post Office is doing all it can to avoid
preventable closures.
At present, although ail post offices do not
offer all services, most services including
postal services and access to benefits remain
available across the entire network. The next
few years should see radical shifts in the
services which are available over post
office counters - with the Universal Bank,
Government General Practitioners,
Internet Learning and Access Points and new
ecommerce related business propositions
all in the pipeline. For many of these services,
local access will be particularly important.
Against this, however, there is a risk that an
increasingly commercial Post Office will seek
to limit the range of services available in
uncommercial outlets.
These two monitoring functions are best
handled by independent expert bodies who
would be responsible for advising the
Government.
Conclusi : The Postal Services
Commission, informed by the
Consumer Council for Postal Services,
should report annually to the Secretary
of State for Trade and Industry on the
shape of the rural network and any
developments which affect it. in
particular, the report should assess
whether the range of services across
the network remains relevant and
POL00004418
meets the needs of rural communities
and any relevant regional disparities.
To date, the Post Office has found it possible
to finance a largely uncommercial rural
network through a cross-subsidy from profit-
making urban post offices. The next few
years will be a time of opportunity for the
Post Office with the real prospect of
diversifying into new business areas as
traditional lines of business decline. In
particular, automation of the Post Office
network will open the doors to a series of
new banking, internet-related and other
business propositions.
In the long term, concerted action by the
Post Office to seize new business
opportunities should be able to replace most
if not all of its lost income from traditional
lines of business. But it is impossible to
predict how quickly this diversification will
occur. It may be that new income streams do
not come on stream sufficiently early -
leaving a period when the Post Office is not
able to sustain an uncommercial rural
network.
Although it would be wrong to assume that
financial assistance will be necessary, the
Government should be prepared to provide
such assistance, The Government has ensured
that there is a power in the Postal Services
Bill which allows it to provide financial
assistance to post offices. in addition, the
Government will need to make sure, through
its spending reviews, that it has the necessary
budget provision for financial assistance to
protect rural post offices for the period from
2003 to 2006, should such assistance prove
necessary.
Conclus In order to plan for the
possibility that financial assistance
might be necessary, the Government
should make provision to support the
rural network.
G/21/87
POL00004418
nb
6
Future Government policy for the Post Office network
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POL00004418
G/21/88
POL00004418
Modernising The Post Office Network
® Counter Revol ution:
an improved level of service. Many local post
offices are in poor premises and show the
signs of years of under-investment.
By taking urgent action to modernise and
re-invent the network in urban areas - in
particular, by re-locating post offices with
convenience stores - the Post Office should
be able to provide a better quality service for
many of its existing customers. Post offices
which are well presented, open longer hours
and are co-located with shops which sell a
wide range of products will also attract a
broader range of customers.
The current renaissance in neighbourhood
retailing offers an ideal backdrop for the Post
Office to modernise the urban network. In
doing so, its aim should be to improve the
quality of urban post offices by levering in
new private investment for the network.
The PIU believes that such a programme
would place the urban network on a sound
footing for the future - whilst ensuring
continued convenient access for all in urban
areas to post offices.
A commercially run Post Office should
develop a strategy to deliver a network of
this nature. There is no need for the
Government to intervene explicitly in this
area. On the contrary, it is essential that the
Government does not constrain the Post
Office’s commercial freedom - otherwise
there is a risk that the outcome of bigger and
brighter post offices providing better services
might be undermined. It would, however, be
useful for the Govemment to send a clear
signal to the Post Office that it should
embark on such a programme of change.
Conclusion 7: The Post Office should
embark on a programme of
modernisation of the urban network
in partnership with sub-postmasters
and other stakeholders, including the
National Federation of Sub-postmasters.
POL00004418
Relocating post offices into busier stores may
mean that the Post Office is able to capture
more of its customers in one place -
reducing the need for such a large number
of outlets in urban areas.
There will also be other costs associated with
a modemisation programme - for example,
in terms of putting in place the necessary
management capacity to deliver change. The
Post Office network has historically operated
at a low profit, and it may not find it possible
to finance the entire costs of a major
reinvention of the network.
Conclusion &: If the Post Office does
decide that it needs fewer outlets
than at present in some urban areas,
then it will need to ensure that sub-
postmasters who are affected are
adequately compensated for the loss of
the value of their asset. The Government
may also need to consider providing
financial assistance to the Post Office
for this purpose, if necessary.
There should be special m res for
deprived urban areas
Post offices in deprived urban areas often
serve a similar function to those in rural
areas. The work of the Social Exclusion Unit
has shown that in some deprived areas there
are few remaining retail or other facilities -
especially for purchasing basic groceries. Post
offices can often act as an anchor for the last
shop in these areas.
In some cases, post offices already play this
role well - vibrant local post offices can truly
serve as the focal point of the community.
But in many cases, the quality of post offices
and their associated retail business has
declined in deprived urban areas over the
years ~ as a result of the pressures faced by
local neighbourhood shops from major
changes in the pattem of retailing.
G/21/89
POL00004418
2
@
Future Government policy for the Post Office network
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POL00004418
G/21/90
POL00004418
Modernising The Post Office Network
$ Counter Revol ution:
example, the Local Strategic Partnerships
proposed for England in the Social Exclusion
Unit's National Strategy for Neighbourhood
Renewal consultation document.
Conclusion Li: The Code of Practice
should require the Post Office to
consult additional stakeholders in
deprived urban areas (such as the
proposed Local Strategic Partnerships
in England, and corresponding bodies
in Scotland, Wales and Northern
ireland) as a condition of closure and
relocation of post offices in these areas.
Similar to rural areas, the Government will
want a source of advice on developments
affecting the urban post office network. in
particular, the Government will want to
satisfy itself that people in deprived urban
areas where there are few other facilities
continue to have easy access to high quality
post offices (preferably co-located with
good shops).
Conclusion 12: The Postal Services
Commission, informed by the
Consumer Council for Postal Services
should report annually to the Secretary
of State for Trade and Industry on the
urban network. It should, in particular,
report on post office provision and
access in deprived urban areas.
A framework for the future
The role of post offices in society has been
changing rapidly over the past 10 to 20 years
- as a result of changing consumer lifestyles,
and in particular the impact of technology.
The Post Office has been slow to respond to
this changing world. In part, this is because
Governments have not set out clearly what
they expect from the Post Office network The
result has been a network which is only just
catching up with trends in technology and
consumer preferences. And in urban areas,
the signs of under-investment are apparent.
POL00004418
The framework set out in this report for the
future of the Post Office network should
ensure that everyone in Britain continues to
enjoy convenient access to a post office. It
will hasten the modernisation of the network
~ and in doing so, improve the quality of the
customer experience.
However, it is essential to prepare the ground
for the policy framework which will apply
beyond the period covered by this report.
Conclusion 13: The Postal Services
Commission, informed by the
Consumer Council for Postal Services,
should work with key Post Office
network stakeholders, including the
National Federation of Sub-
postmasters, over the next five years
to develop a shared understanding of
the role that post offices should play in
the longer term and advise the
Government on the main options for
the policy framework after 2006.
83 Delivering objective 2:
Maximising the potential of
the Post Office network
In order to maximise the potential of the
network, the Post Office needs to:
® work with the private sector to develop
creatively new lines of business and
explore the potential for new partnerships;
*
exploit the reach of the network -
particularly for the distribution of
ecommerce orders;
«
work with the Government to maximise
the potential of the network as a channel
for Government services; and
e
work with sub-postmasters to ensure that
individual post offices are modemised so
that they are appealing places for
customers to visit.
G/21/91
POL00004418
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a
Future Government policy for the Post Office network
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POL00004418
G/21/92
POL00004418
Modernising The Post Office Network
Counter Revolution:
eS
N
positively support the Universal Bank
viewing it the best means to ensure
that benefit recipients can continue
to access their entitlements in cash at
post offices. Once the concept has
been developed further by the Post
Office, the Government will need to
assess the right level of public sector
contribution later this year.
Conclusion 16: The Government should
indicate to the High Street banks that
participation in the Universal Bank
would meet their financial exclusion
obligations.
Helping people to access and learn
about new electronic channels for
delivering services
There are opportunities for post offices to
act as “midwives” of the information age,
helping people to develop familiarity and
confidence with information and
communication technologies and the
emerging electronic channels for delivering
Government and other services. By installing
IT terminals in front of the counter, the Post
Office could help spread knowledge about,
and use of, the intemet to vulnerable groups
who do not have access at home and cannot
easily travel to commercial cyber-cafes.
Sub-postmasters could assist those who
were anxious about using the technology -
helping them through their first few sessions.
This infrastructure of Internet Learning and
Access Points (ILAPs) should be strategically
located to complement the facilities already
established in schools and libraries and those
being created in urban areas as a result of the
Government’s ICT Learning Centres Initiative.
Conclusion 17: The Post Office should
develop a role for the network as
internet learning and access points.
The Government should positively
support the development of this role.
POL00004418
One-stop shops for those whe want
face to face interaction
For those who still found it difficult to
interact with local and central government
electronically, IT-enabled sub-postmasters -
operating out of selected post offices - could
act as Government General Practitioners
(GGPs). They would provide information and
low-level advice on government issues and
help citizens to carry out routine transactions
with government bodies, both national and
local. In effect, these GGPs would become
one-stop shops for government - a place that
anyone could visit in their locality, which
would deal with any government-related
issue or be able to refer the citizen quickly to
the right part of government. While a range
of networks could perform this role, the Post
Office has the advantages of reach, trust and
staff experience and knowledge (since, on an
informal basis, many sub-postmasters
undertake this sort of work already).
Conclusion 16: The Post Office should
develop a role for post offices as
Government General Practitioners. The
Government should positively support
the development of this role.
It is difficult to predict the level of demand
for ILAPs and GGPs and hence their value-
for-money. The Post Office should therefore
draw up proposals for pilots in different parts.
of the UK (in both rural and urban areas) by
the beginning of September 2000. These
proposals need to be developed, however,
in close consultation with officials in the
Cabinet Office, DfEE, the Treasury, the
devolved administrations and other
departments with an interest and with
potential partners in the private sector and
local government. They will need to cover
the cost of setting up and running the pilots;
the contribution of the Post Office to the
costs of the pilots; how the evaluation of the
pilots will be undertaken; and how the pilots
could link into existing work of the Post
Office network in this area. 124/93
POL00004418
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a
Future Government policy for the Post Office network
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POL00004418
G/21194
POL00004418
Modernising The Post Office Network
Counter Revol ution:
With the completion of the Horizon project
due next year, now is the time for the Post
Office to ensure that it is doing its best to
maximise the commercial potential of the
network. At the same time, the Post Office
should conduct an audit of potential efficiency
savings in the operation of the network, and
the steps needed to ensure that individual post
Offices meet the standards set by the best.
Conclusion 21: The Post Office should
urgently take forward work to maximise:
» the commercial potential of the
network;
« efficiency in the operation of the
network; and
» the quality of individual post offices.
In particular, the Post Office will need to:
» develop viable business cases for new
opportunities for the network that the Post
Office is pursuing or plans to pursue in the
coming months;
©
ensure that it can realise these new
opportunities as soon as practicable;
e
take steps to ensure that the entire
network is well-placed to take on new
commercial lines of business ~ in particular,
its plans to attract more entrepreneurial
sub-postmasters and help others grow the
volume of post office and non-post office
business;
» for the urban network, to take steps to
reverse under-investment and develop a
network of bigger, brighter post offices
providing better services and located
alongside thriving retail businesses,
working with key Post Office network
stakeholders including the National
Federation of Sub-postmasters (NFSP);
POL00004418
e improve the efficiency of its operations,
e.g. by reducing corporate and operational
overheads; and by making greater use of
part-time offices, mobile post offices and
roving sub-postmasters where cost-
effective to do so; etc;
e
work with the NFSP to review its
restrictions on the private business
activities of sub-postmasters aimed at
ensuring that they are no tighter than
absolutely necessary to maintain the
integrity of the network, whilst giving
sub-postmasters maximum commercial
freedom;
°
convert more branch offices to privately-
run operations, so the proportion of
business transacted through branch offices
is reduced to 15% of the total (as set out
in last year’s Post Office White Paper);
«
work with the Communication Workers
Union and private sector partners to
ensure that the remaining branch offices
are run as efficiently as possible and
commercial revenues are maximised; and
review the costs and benefits for the
network and the Post Office Group of
the reciprocal exclusivity arrangements,
particularly in the light of developing
e-commerce business opportunities for
Parcelforce and for the network.
As a responsible shareholder, the
Government needs to satisfy itself that these
actions are being fully implemented.
Conclusion 22: The Secretary of State
for Trade and Industry needs to review
progress against the Post Office's plans
for exploiting new sources of revenue
and improving efficiency, taking action
as necessary in the light of this.
The way in which clients use the network has
an impact on the efficiency of post offices.
For example, state pension (and some other
benefits) become payable and are generally
G/21195
POL00004418
ry
a
Future Government policy for the Post Office network
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POL00004418
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G/21/96
POL00004418
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G/21197
0M 18N 8915J0 180d By, BUISIUJEPON cvoLynjoasy JaqUNED B
POL00004418
©
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Table 8.1 Implementation: conclusions, responsibility and timing (continued)
No. Conclusion
8 If the Post Office does decide that it needs fewer outlets than at present in some
urban areas, then it will need to ensure that sub-postmasters who are affected are
adequately compensated for the loss of the value of their asset. The Government may
also need to consider providing financial assistance to the Post Office for this purpose,
if necessary.
9 The aim of Government policy should be to provide a mechanism to ensure that
people in deprived urban areas continue to enjoy convenient access to a post office.
And that where post offices have the potential to anchor high quality shops, they are
able to do so.
10 A fund should be established to help sustain and improve post offices and retail
facilities in deprived urban areas. DETR and other interested departments should carry
out further work by Autumn 2000 to establish the exact size and operational details of
this fund. The devolved administrations will wish to consider whether similar
arrangements are necessary for Scotland, Wales and Norther Ireland.
11. The Code of Practice should require the Post Office to consult additional stakeholders
in deprived urban areas (such as the proposed Local Strategic Partnerships in England,
and corresponding bodies in Scotland, Wales and Northern Ireland) as a condition of
closure and relocation of post offices in these areas.
12. The Postal Services Commission, informed by the Consumer Council for Postal
Services should report annually to the Secretary of State for Trade and Industry on the
urban network. it should, in particular, report on post office provision and access in
deprived urban areas,
13 The Postal Services Commission, informed by the Consumer Council for Postal
Services, should work with key Post Office network stakeholders, including the
National Federation of Sub-postmasters, over the next five years to develop a shared
understanding of the role that post offices should piay in the longer term and advise
the Government on the main options for the policy framework after 2006.
YIOM YIU 92/440 ISOg BY} 304 AD1JOd JUMuLaAOD aingng
8L¥000010d
Lead
responsibility
Post Office, DTI
oT
DETR, devolved
administrations
Post Office
PSC
in support/ other
key players
HMT
Post Office
Other relevant
departments
CPS, DTI
cCcPs, DT
CCPS, key Post
Office network
stakeholders
including NFSP,
oT
Deadline
(where applicable)
Autumn 2000
Autumn 2000
Annually with first
report for year ending
31 March 2001
Annually with first
report in Spring 2001
G/21/98
POL00004418
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POL00004418
2
6
Table 8.1 Implementation: conclusions, responsibility and timing (continued)
No. Conclusion
20 Government clients of the Post Office network such as the DVLA, Department of
National Savings and the Passport Agency should be free to develop new channels for
delivering their services to citizens. But, in parallel, there should be a presumption that
they continue also to offer their existing services at post offices - so long as there
remains sufficient customer demand to make it cost-effective to do so.
21 The Post Office should urgently take forward work to maximise:
* the commercial potential of the network;
* efficiency in the operation of the network; and
» the quality of individual post offices.
22 The Secretary of State for Trade and Industry needs to review progress against the
Post Office's plans for exploiting new sources of revenue and improving efficiency,
taking action as necessary in the light of this.
23 The DSS and the Social Security Agency for Northem Ireland should carry out an
assessment of the costs and benefits of smoothing the payment of benefits by the end
of September 2000 and, if this shows that change would be both workable and
worthwhile, put in place new arrangements.
Overseeing and monitoring implementation of this report
24 — Overall responsibility for overseeing and monitoring the conclusions of this report
should rest with the Secretary of State for Trade and Industry who should report on
progress to the Prime Minister.
YIOM YIU 92/440 ISOg BY} 304 AD1JOd JUMuLaAOD aingng
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DT
DSS, SSANI
DT
In support/ other
key players
DT
Post Office, HMT
Post Office, HMT
Prime Minister
Deadline
(where applicable)
Autumn 2000
G/21/100
POL00004418
POL00004418
ANNEX 1: THE ROLE OF THE PERFORMANCE AND
INNOVATION UNIT
The creation of the Performance and
Innovation Unit (PIU) was announced by
the Prime Minister on 28 July 1998 as part
of changes following a review of the
effectiveness of the centre of government by
the Cabinet Secretary, Sir Richard Wilson.
The PIU’s aim is to improve the capacity of
govemment to address strategic, cross-
cutting issues and promote innovation in the
development of policy and in the delivery of
the Government’s objectives. The PIU is part
of the drive for better, more joined-up
government. It acts as a resource for the
whole of government, tackling issues that
cross public sector institutional boundaries on
a project basis,
The Unit’s acting Director is Jamie Rentoul
and it reports directly to the Prime Minister
through Sir Richard Wilson. A small central
team helps to identify new projects, and
manages the Unit's work. Work on projects is
carried out by small teams assembled from
both inside and outside govemment. About
half of the current project team staff are
drawn from outside Whitehall, including from
private sector consultancies, think tanks,
N.G.0.s, academia and local government.
Comprehensive information about other PIU
projects can be found on the PIU’s website at
www.cabinet-office.gov.uk/ innovation
Modernising The Post Office Network
Revol ution:
Counter
3
G/21/101
POL00004418
Pl
3
I
The Project Team Sponsor Minister and Advisory Group
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POL00004418
8 Counter Revolution: Modernising The Post Office Network
ANNEX 3: METHODOLOGY
The project had five main analytical strands,
which were conducted in close parallel with
each other. These were:
* developing an understanding of the Post
Office network's business;
reviewing the contribution made by post
offices to the vitality of local communities;
analysing the outlook for the network
based on current trends and continuation
of current policies;
« considering what products or services the
network could offer in the future to
maximise its potential; and
formulating Government objectives for the
network, and analysing policy options for
safeguarding it.
Many of the tasks, discussions and analyses
undertaken fed into more than one strand of
the project.
L Developing an understanding
of the Post Office network’s
business
In order to develop an understanding of the
Post Office network's business ~ including
the size and shape of the network, the
outlets and the people who run them, the
network's products, services and customers -
the PIU team:
« Had extensive discussions with people
within the Post Office, drawing on their
existing research and knowledge and
commissioning new analyses from them.
where necessary. These discussions took
POL00004418
place with field staff as well as headquarter’s
staff. The PIU team also undertook their
own analyses of Post Office data.
«
Visited post offices and talked to the
people who run them. The PIU team.
visited post offices in south and north
London, Leicester, Lincolnshire,
Gloucestershire, Scotland, Wales and
Northern Ireland.
Gathered and analysed information from
a variety of other sources. For example,
the PIU team gained an understanding of
other countries’ networks from information
held by the Universal Postal Union, through
correspondence with other countries’ Post
Offices and visits to France and Germany.
e
» Had discussions with a range of
stakeholders and experts.
A clear understanding of how the network is
currently financed was also needed. The PIU:-
e Obtained and analysed Post Office data
‘on sources of income and expenditure,
Obtained from the Post Office a database
of all post offices in the UK giving
information about:
*
~ location, including whether the office
is in a rural or urban area;
- type and size of office and any
associated business;
~ number of Post Office transactions and
the value of these to the Post Office;
~ fixed and variable payments to
sub-postmasters;
G/21/103
POL00004418
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POL00004418
Modernising The Post Office Network
Counter Revolution:
3
« how efficiency improvements and cost
savings would impact on Post Office
profits and on the size and shape of
the network; and
* how much, if any, Goverment financial
support to the Post Office would be needed
to achieve a network of a given size and
shape, all other things being equal.
The work of this strand is reflected in
Chapters 7 and 8.
(a, Considering what products
_ or services the network could
I offer in the future
The work for this strand required:-
* The identification and assessment of
potential new business opportunities and
understanding how they fitted into the
Post Office’s strategy for the network.
* Estimation of the potential income that
each new opportunity could generate.
« Understanding what needed to be done
by the Post Office to exploit the potential
of each new business opportunity.
PIU did this by:
* drawing on the Post Office’s existing
thinking on future strategy and new
business opportunities for the network;
® running a workshop with the Post Office
and others aimed at generating and
developing ideas for new business
opportunities;
® getting expert views on potential business
opportunities;
* discussing new business opportunities with
potential clients; and
# modelling potential income streams.
The work of this strand is reflected in Chapter 7.
POL00004418
5. Formulating Government
objectives for the network,
_ and analysing policy options
for safeguarding it
This strand drew on the work of the other
strands. The PIU team:
identified a number of reasons for
Government intervention;
e formulated objectives for the Post Office
network to guide Government intervention;
and
« in conjunction with key stakeholders,
generated and assessed policy options.
The work of this strand is reflected in
Chapter 8.
Box A3.1 gives a full list of all the organisations
and people consulted by the project team.
G/21/105
POL00004418
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POL00004418
confidential meetings; used computer
modelling patterns of counter usage to
reduce queuing times; updated computer
systems; introduced internet access at its
offices and installed a number of cash
machines. It is also committed to opening
new offices in urban areas to address the
disparity of provision between urban and
tural areas, Since 1998, 180 such offices have
opened - with around 10% in deprived areas.
A vital part of the French post office's
business strategy has been to expand its.
financial services business. It has been
successful, and by 1998 it was the third
largest provider of financial services in France
in terms of assets under management, and
had nearly 6,000 financial advisors. It is also
looking to expand its retailing business,
which at the moment is mainly post related
products. Another innovation is the Allé
Facteur service, which allows people to ring
their local Post Office to request the Postman
to provide services at home that are normally
offered at counters.
The French Government has not conducted
any major reviews of the post office, but
there have been two reports to the senate.
The most recent by Senator Larcher, entitled
“Sauver la Poste”, among other things
recommended a temporary rise in postage
prices to pay for investment in the post
office network.
“3, New Zealand - remodelling
the network
The story of how the New Zealand post
office turned itself around in the late ’80s is
told in Vivienne Smith’s book “Reining in the
Dinosaur”. As the title suggests, until the late
’80s, the New Zealand Post Office was seen
as old-fashioned, bureaucratic, inefficient.
It was also unprofitable. The New Zealand
Government changed its status to a
State-Owned Enterprise on 1 April 1987
Modernising The Post Office Network
Counter Revolution:
8
POL00004418
and put in place new management. It also
put aside NZ$40m (£13m) to subsidise New
Zealand Post for expected losses in 1987/8.
The new management inherited a network of
1,250 post offices, of which 900 were branch
offices with directly employed staff and 350
were franchised sub-post offices. 600 of the
branch offices were unprofitable. New Zealand
Post decided to close 425 of these offices -
one third of the network - and convert the
other 175 to franchises. A government
Minister announced this as government policy,
so that the plan could not be diverted.
There was a storm of public protest, but the
changes were pushed through between
October 1987 and February 1988. in 1987/8
the government paid NZ$19.5m (£6.5m).
In subsidy. Since then they have paid none
and the network has stabilised at about 1,000
offices. This is a much less extensive network
than the UK's. The Postal Services Act 1998
put some safeguards in place by requiring
New Zealand Post to provide 240 crown
offices and a total of 880 outlets, to be
reviewed in 2000.
The New Zealand Post Office has found other
ways to franchise out services. In February
1999, it launched a joint retail venture with
Blue Star Consumer Retailing called “Books
& More” selling books and videos, greeting
cards, stationery and postal services.
Customers in isolated rural areas have a mail
box which can be used both to receive and
to send mail. Deliveries and collections are
franchised to RuralPost drivers, who can also
make other deliveries, sell stamps and
provide other limited post products.
G/21/109
POL00004418
OLL/L2/S
International Comparl sons
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POL00004418
5 Counter Revolution: Modernising The Post Office Network
ANNEX 5: NUMERICAL ACCESS CRITERIA
Last year's White Paper on the Post Office
suggested that one way for the Government
to protect a nationwide network of post
offices would be by setting access criteria in
terms of a percentage of the population
within a certain distance of their nearest
post office.
The PIU team considered carefully whether
such numerical access criteria would be
effective in maintaining convenient access for
all post offices.
Currently, 99% of the rural population live
within 3 miles of a post office. Therefore, on
the face of it, setting access criteria at this
level would appear to provide significant
protection for the rural network. But the PIU's
analysis showed that it would be possible for
the Post Office to close down two-thirds
of its rural outlets whilst still ensuring that.
99% of people in rural areas lived within
3 miles of a post office.
The PIU’s view is that setting numerical
access criteria for rural areas would,
therefore, be of little value. tt would be
impossible to formulate numerical access
criteria which met the Government's aim
of maintaining the rural network and
preventing any avoidable closures of rural
post offices.
Similar problems arise in deprived urban
areas ~ where the Government's aim is also
to ensure that people continue to enjoy
convenient access to a post office (and that
where post offices have the potential to
anchor high quality shops, they are able to
do so).
POL00004418
Currently 96% of people in deprived urban
areas (as defined by the bottom 10% of
wards using the Index of Local Deprivation)
live within “/« mile of a post office. Setting
access criteria along these lines would appear
to provide protection for deprived urban post
offices. But it would be possible for the Post
Office to close around half the post offices
serving people in these areas and still meet
the criteria.
Nor do numerical access criteria necessarily
provide protection for the best offices. The
Government's aim should be to avoid the
closure of those post offices which contribute
most to their communities - for example,
the Leicester office featured in Box 6.9 in
Chapter 6. The protection afforded by
numerical access criteria would be too
arbitrary to be useful in this instance.
Numerical access criteria have other
problems. Distance-based access criteria take
no account of the ability to reach a post
office. A post office four miles away might be
relatively easy to get to if there was a
frequent bus service. In contrast, a post office
which is "/ mile away from a particular
village might be worthless if there was a busy
dual carriageway between them and no.
bridge or subway to cross it.
Numerical access criteria would also be
confusing. Would they mean that the Post
Office had the freedom to rationalise the
network so long as it met the minimum
network size implied by the numerical
criteria? Or, in rural areas, would the Post
Office also be required to make every effort
to prevent any avoidable closures.
G/21/111
POL00004418
ZLL/LZ/D
Wumerical access criteria
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