POST OFFICE NETWORK -— ISSUES
KEY POINTS & BACKGROUND INFO
TOPIC PAGE
17 May Announcement (HMG Consultation) 2-3
Need For Change (Outreach & Background Stats.) 4-5
Status of Closure Programme 6
Local Consultation 7
Funding of the Post Office Network 8-9
Funding Mechanisms / State Aid 10
Crown Post Offices 11-12
Local Authority Role 13-24
° MISC 33 Paper
. Handling of LAs during local consultation
HMG & Other Services at Post Offices 25-27
Post Office Card Account (POCA) 28-29
NFSP & Subpostmasters (inc. voluntary v. compulsory) 30-36
TIC (Response & BG on inquiry) 37-41
Postwatch (NCC) 42
HMG Contracts 43
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KEY POINTS: 17 MAY POST OFFICE ANNOUNCEMENT
e £1.7bn investment to 2011 (subject to EC state aid approval) on top of
some £2bn investment since 1999.
e Will enable the Post Office to modernise and reconfigure the network to
place it on a more stable footing by 2011.
e The exact breakdown of our investment is impossible to predict until Post
Office Ltd has completed detailed work to determine the shape of the
network to meet the framework set by Government.
e We have had to strike a balance between the social value of a national
post office network and costs to the taxpayer.
e Introduced access criteria to preserve a national network, and ensure that
rural communities and customers in deprived urban areas will continue to
have reasonable access to Post Office services:
o Nationally, 99% of population will be within 3 miles of their nearest
outlet and 90% will be within 1mile;
o Deprived urban areas: 99% to be within 1 mile;
o Rural areas: 95% of the total rural population within 3 miles;
o 95% of people in each postcode district within 6 miles.
e Post Office Ltd are required to take into account local geography such as
lakes, islands, valleys and mountains, motorways when drawing up their
area local plans.
e Post Office Ltd will also have to consider other factors including the
availability of public transport, alternative access to key post office
services, local demographics and the impact on local communities.
e Compensated closure of a maximum of 2,500 post offices.
e Now for Post Office Ltd to strategically plan the network change within the
framework set by Government.
e Post Office is developing local area implementation plans (around 50)
based on groups of parliamentary constituencies.
e Postwatch, local authorities and subpostmasters will have an input to the
development of local area plans.
e Local people will have an opportunity to give their views with a 6-week
period of local area consultation.
e Impact of natural attrition will be constrained by the requirement to meet
the Government's access criteria.
17 MAY ANNOUNCEMENT - BACKGROUND
1.
Government's public consultation on the network ran for 12 weeks from 14
December 2006 until 8 March 2007 and attracted over 2,500 responses.
The Department worked closely with Post Office Ltd in developing our
proposals to take account of the company’s investment case to us. It was
necessary to set tight parameters on what we consulted on in view of the
need to strike a balance between the social value of a sustainable national
post office network and the costs to the taxpayer.
During the consultation period and before it, Ministers and officials had
extensive contacts with key interested parties, including Postwatch and its
Counters Advisory Group (with its wide range of customer representative
bodies), Postcomm, the Commission for Rural Communities (and at
specifically convened focus group meetings in rural locations) and the
National Federation of Sub-Postmasters (at Executive Council and Branch
meetings).
Copies of the consultation document were made available to Members of
Parliament and sent directly to some 70 key stakeholder representative
groups. The document was sent to the National Federation of Sub-
Postmasters — but not to individual sub-postmasters — a decision which
later attracted some limited criticism which was robustly defended.
Responses were often critical of the need for closures — but there was
general acceptance of the need for action and key strands of our proposed
strategy.
Ministers initially intended to issue a response to consultation before the
end of March (within 3 weeks of the closing date for public responses).
However it soon became clear that the volume of responses would
preclude a HMG response before Purdah for local elections.
Some detailed changes to the application of the access criteria were
announced, in light of comments in the 2,500 consultation responses:
e the minimum access criteria will now apply to all 2,800 postcode
districts (38 postcode districts exempt under initial proposals);
e criteria protecting deprived urban areas will apply to the 15% most
deprived urban areas rather than 10%;
e Post Office Ltd will now be required to give consideration to specific
socio-economic and environmental factors when drawing up Local
Area Plans. These are the availability of public transport and
alternative access to key services, local demographics and the impact
on local economies.
e Application of the access criteria will be monitored by Postwatch and,
subsequently, the National Consumer Council;
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KEY FACTS: NEED FOR CHANGE
e Post Office lost £2m a week in 2005, rising to £4m a week in 2006.
e On average fewer than 16 people a week use the 800 smallest rural post
offices at a cost of £17 per visit to the taxpayer.
e 1,600 branches served fewer than 20 customers a day - losing £8 for
every transaction.
e Inurban areas there are more than 1,000 branches with at least 6 other
branches within a mile.
e Stamps may be synonymous with the Post Office but today they can be
bought in 50,000 other retail outlets.
e Some 4 million fewer people are using the post office each week than two
years ago.
e 5.3 million DVLA customers have renewed their car tax either online or by
phone.
e There are currently 14,200 post offices — 8 times the number of Tesco
stores.
e Widespread recognition that the current size of the network unsustainable,
including by the National Federation of SubPostmasters.
e Without continuing public support, a purely commercial post office network
would have fewer than 4,000 branches.
Key Quote:
Colin Baker — (then the) General Secretary of the National Federation
of SubPostmasters, 17 May 2007:
“[Government’s] announcement must be seen as an opportunity to take
the first vital steps towards building a post office network that has a
future, one that is viable and sustainable. It is time to look forward, not
back."
Background
POL loses money in all parts of the network as a result of the huge costs
associated with maintaining such a large network e.g. fixed payments to all
sub-postmasters, cash distribution costs, IT and HQ support. The Crown
Offices alone are forecast to lose some £70m in 2006/07 — Crown Offices,
mainly based in the High Street have large rents and employees costs that
are around 50% higher than those in comparable retail positions. The
network change programme aims to tackle both under use (in small rural
branches) and over provision (in urban areas).
As well as 2,500 compensated closures, Government will support the
introduction of some 500 innovative ‘Outreach’ locations operated in
partnership with other local services such as in pubs, village halls, churches
or in mobile post offices. Pilots throughout the UK are ongoing and centre on
a ‘Core and Outreach’ approach. Some 20 Core offices are providing services
to a total of over 60 Outreach locations. The ‘Core and Outreach’ principle
gives more local autonomy to larger, more successful agents and reduces the
burden of centrally-driven services on the network.
Stand-alone bricks and mortar branches with a full-time sub-postmaster are
expensive. Outreach services do not in themselves solve the economic
problems of the network but offer a more cost effective means of maintaining
widespread service provision.
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Status of Closure Programme
Timetable:
e First Local Area Plan to local implementation team 2 July.
e First Local Area Plan to local consultation early-mid September.
e First closures announced early-mid November.
e First actual closures January 2008.
e Programme complete by Dec 2008.
Background:
The programme entails a maximum of 2,500 compensated closures which will
be done through around 50 Local Area Plans on a rolling basis over the next
18 months. POL has 9 teams working at any one time. Timetable of Area
Plans (i.e. when each area will be subject to network change) will be made
public in early July with a letter to every MP (including DAs) and every local
authority.
Phase 1 of the closure programme started on Monday 2 July. The first Local
Area Plan produced by POL’s central Network Planning Team is now handed
over to the local implementation team and will be the subject of verification
and discussion with Postwatch and the relevant local authority. At this stage
no aspect of the proposals are in the public domain.
Following a 2 week verification of the Plan, POL’s local team then start the
process of engaging with sub-postmasters likely to be affected by their
proposals. This 6-week process is confidential but there is the possibility that
disgruntled sub-postmasters could make public that their branch is to close.
The Plan then goes back to the central team to be turned into a local
consultation plan to be made public. Local MPs are given 1 week advance
notice of public consultation. The first public consultation will start in early-mid
September 2007 and will run for 6 weeks. Following this, POL has a 3-week
period of reflection on responses to consultation and will then announce
closures; the first of these announcements is expected to be made by mid-
November. There is then a minimum 4-week notice period before any closure
takes place. In the first instance, with first closures due mid-December, POL
will extend the notice period to account for Christmas so no closures will
happen before January 2008. Closures will then continue regularly through
2008 with the programme due to be complete by the end of the year.
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LOCAL CONSULTATION PROCESS
e We believe in a national network accessible to all. The Government's
strategy delivers that within a framework of a necessary closure
programme of no more than 2,500 compensated exits over an 18-month
period from summer ‘07.
e At this point — no proposals have been made for individual post offices.
Post Office Ltd is working with Postwatch to develop local area
implementation plans within the framework set by Government which will
then be subject to local consultations.
e Post Office Ltd will shortly issue a timetable to show when they expect to
be in a position to produce and consult on proposals for changes in each
area. No areas will be subject to more than one round of closures.
e Post Office Ltd’s local decisions will not be a purely commercial judgment
but will need to reflect the Government's aim of supporting a national
network.
e Following the outcome of local consultation on Post Office Ltd’s proposals
— closures will be compulsory — and not based on subpostmasters
personal preferences.
e Members of Parliament will receive one-week advance notice of local area
proposals covering their constituencies once they have been drawn up.
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FUNDING OF THE POST OFFICE NETWORK
Key Points
e Government has provided funding of some £2 billion from 1999 to 2005.
e Government has decided, subject to EC state aid clearance, to provide
additional funding of up to £1.7 billion to 2011 to support the necessary
changes to the network to put it on a more stable footing and to provide
continuing support for the social network.
e Continued annual subsidy of up to £150 million until at least 2011 and
expectation of a continued subsidy beyond this.
e Without this investment, up to 10,000 offices could close. Funding
package will reduce losses and increase the network’s competitiveness
while ensuring that the social needs of rural and disadvantaged
communities continue to be met.
e Government considers that the overriding priority is to maintain a national
network with national coverage as set out in the access criteria. From
April 2008, the Social Network Payment will therefore also be available to
support non-commercial offices in urban as well as in rural areas.
Background
Despite considerable investment by the UK Government since 1999 in the
post office network, it remains heavily loss making. In 2005/06, POL made
losses of £111m and are expected to post losses for 2006/07 of around
£175m. New, more cost effective ways of delivering Government services,
such as the move to direct payment of benefits, from the outdated and costly
order book system, and the massive uptake in direct debit, e-mail and internet
sales have had a dramatic effect on POL’s finances and the anticipated uplift
from the introduction of new, mainly financial, products has so far failed to
bridge the gap. Indeed, it is increasingly evident that new products alone will
never be able to fully replace the contribution lost from customers moving to
cheaper and more convenient ways of doing business.
Alongside this there has been a significant move away from using the post
office to access traditional services such as television licences, bill payment
and motor vehicle licensing as these services move online or to other
providers. Customers, partially as a result of Government policy but more so
as people adapt to new technologies, have found new ways of accessing
these services. More and more customers are choosing to go online or pick
up the telephone to order things that in the past would have needed them to
visit a post office to access.
As a result of the above factors, the proportion of POL’s revenue accounted
for by Government business has fallen dramatically from some 46% in
1998/99 to 36% in 2005/06. It is expected to decrease further to 25% in
2008/09 and to be less than 10% in 2010/11 (in the event that POL was an
unsuccessful bidder for the successor to the Post Office card account
(‘POCA’).
Government support to date
Since 1999, Government has made an investment in the Post Office network
of some £2 billion to help it adapt to the changing needs of customers and to
the marketplace in which it operates. This included:
£500 million investment in the Horizon project to bring modern
computer systems into every post office in the country for the first time
- enabling Post Office Ltd to launch a range of new products and to
open its counters to potentially over 20 million bank customers.
Annual subsidy of £150 million since 2003 to support the rural network.
£210m to compensate exiting sub-postmasters during the urban
reinvention programme.
£25 million to enable Post Office Ltd to pilot innovative new ways of
delivering services in rural communities by testing the concept of
‘Outreach’ post offices.
£726m to cover historic debts.
Current Investment
Government has now agreed to invest up to £1.7 billion to 2011 in response
to the company’s request for funding. This covers the period from 2006
therefore, the £1.7bn figure includes previously announced support as well as
funding for the change programme and the continuation of the annual subsidy
to maintain loss-making branches:
Annual Network Subsidy to 2011 £750m (of which £300m for 06/07
and 07/08, only for rural branches, previously announced and state aid
approved).
Funding of debt: £145m in 2005/06 (paid in 2006/07)
£231m in 2006/07
Both of these payments were state aid cleared in
2003 alongside the working capital loan facility and
the rural subsidy.
Additionally, the EC cleared an extension of debt funding of £313m for
2007/08. This included around £100m for compensation to sub-
postmasters.
The final element of funding is a further £152m for 2008/09 to complete
the change programme.
The total funding requiring EC state aid clearance is around £600m.
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FUNDING MECHANISMS / STATE AID
Key Points
e The Funding package announced on 17 May is subject to EC state aid
clearance.
e Formal notification of our case is with the Commission following informal
discussion. We do not expect an easy ride from the Commission.
e The mechanism to fund the annual Network Support Payment (previously
known as the Social Network Payment) has been approved by Parliament.
e The mechanism to fund network change (including debt payment) is still to
be taken through Parliament. Funding will be made via Section 8 of the
Industrial Development Act and a SI and resolution is being considered by
the JCSI (Joint Committee on Statutory Instruments) on 4 July.
e The POL Funding Agreement contractually obliges HMG to make £313m
payment to POL by 31 July. Parliamentary approval must, therefore, be
received before summer recess.
Background
Both streams of funding need Parliamentary and EC state aid clearance. We
have already secured parliamentary approval for the ongoing annual subsidy
payment and are in the process of seeking approval for payments to be made
available for network change through section 8 of the Industrial Development
Act. A resolution of the House of Commons only is required but we have also
sought to use this opportunity to increase the IDA aggregate assistance
available as the post office funding requires more than is currently available.
We have been in informal discussions with the European Commission in an
attempt to ensure the smoothest possible passage for our state aid case. The
Commission has been paying particular attention to POL’s accounting
methodologies — to ensure that there is no potential over-compensation — and
we expect them to be rigorous in their scrutiny of our case. Postal issues are
quite sensitive in Europe currently. However, we have a good working
relationship with the case handlers and will continue to provide them all they
need in support of our case.
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CROWN POST OFFICES — KEY POINTS
« 458 of 14,200 post office outlets in the UK are Crown Post Offices, making
annual losses of £70m
« Some 20% of Post Office Ltd’s business is done through Crown post
offices but they are trading low value products in high cost locations and
clearly losses of this scale are unsustainable.
« To reduce the losses, Post Office Ltd announced on 19 April 2007 it will be
franchising 70 offices in a deal with WH Smith.
« For 15 Crown offices the future is undecided. The Post Office is expected
to pursue local franchise deals and announce decisions within the next
year for these 15 offices.
e There will be a 6 week consultation on service provision for each
franchised office. [Consultation does not include the principle of
franchising Crown branches — this remains an operational issue for Post
Office Ltd).
¢ The decision to transfer the operation of a Crown branch to a franchisee is
a commercial decision for Post Office Ltd.
« Post Office Ltd will retain a network of 373 Crown offices. There are no
strategic plans for further franchising or closures of Crown offices once the
future of the 15 is decided.
BACKGROUND
1. Government supports Post Office Ltd’s policy for reducing the
unsustainable losses of the Crown post office network. That policy
includes maintaining a core network of Crown post offices whilst
continuing to drive efficiencies and franchising of branches where suitable
opportunities arise. Almost 14,000 offices are already run by private
business — either individuals or franchise chains — including some 900 or
so of the 1,400 large, town-centre ‘main’ post offices. The network has
always relied on private business for the majority of its outlets.
2. The Post Office is pursuing link-ups with well established, respected
retailers that share their commitment to excellent customer service. Staff
at converted branches are trained by Post Office Ltd in exactly the same
way as directly managed staff. Franchisees are bound by stringent
contractual requirements to ensure that service standards remain at the
same high level after transferring from direct management of Post Office
Ltd.
3. The Post Office announced on 19 April 2007 that it would be franchising
70 Crown post offices in a deal with WH Smith. The deal follows trials of 6
pilot WH Smith franchises in 2006. Results of POL’s customer surveys
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from the six pilot franchises are overwhelmingly positive. The majority of
customers welcome the pleasant environment, excellent levels of
customer service, convenient locations and extended opening hours.
. The CWU oppose conversions of directly managed Crown post offices to
franchises as they see it as reducing staff benefits and pay and as
‘privatisation’. The CWU campaigns strongly against each conversion —
equating franchising to ‘closure’. They have called for customers to
boycott WH Smith stores in protest to the deal with POL.
. Post Office Ltd intends to avoid compulsory redundancies and staff
affected will have the choice of another role within Royal Mail or a
voluntary redundancy package. They will also be able to apply for roles
with the franchisee.
. We understand that the CWU have reservations about the application of
TUPE in relation to the Post Office staff currently employed at the
branches that are part of the WH Smith deal. TUPE applies automatically
as a matter of law unless individual employees choose to be redeployed
within the Royal Mail or decide to accept an offer of voluntary redundancy.
It is likely that many people will take one of these options and impossible
to say how many will seek employment with WH Smith. It will be for the
CWU to decide if it is in the best interest of its members to pursue those
concerns [which they might choose to do through the legal system], and
an operational issue for the Post Office to consider how to respond and
resolve the issue.
. The deal between Post Office Ltd and WH Smith is a purely operational
and commercial issue for the parties that does not impact on the
Government's recent consultation on the network. Government's
consultation document made clear that Post Office Ltd would work with
staff and Unions to explore a range of options such as franchising to bring
the network of directly managed Crown post offices back to profit.
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ROLE OF LOCAL AUTHORITIES
KEY POINTS
e The Government's response to the national consultation recognised
that it is the people “on the ground” who best understand the value of a
post office to its local community and that local government is well
placed to understand local concerns and needs.
e The Consultation response set out Govt’s intention to investigate what
role both local authorities in England and Wales and the Devolved
Administrations might play in influencing how postal services are best
delivered in the future.
e A paper exploring initial options was circulated to MISC33 Committee
members for comment on 26 June.
e Local Authorities are also being approached by POL for information on
future development plans to enable POL and Postwatch to draw up
accurate Local Area Plans detailing post office closures prior to local
consultations.
e Local Authorities will also be invited by POL to submit views about the
local area plans during the local consultation
e Some local authorities are likely to make offers of funding to POL to
retain post offices targeted for closure. It is highly unlikely that such
offers will be commercially acceptable to POL and, even if they were,
POL would be seeking to close alternative post offices to ensure that
the necessary restructuring takes place. However, rejection of such
offers will be presentationally difficult.
Background
Possible future role post-2011
1. The May announcement on the future of the Post Office network included
the continuation of the current annual subsidy of £150m per year through to
2010/11. During this period, it will continue as a direct payment from central
Government to Post Office Ltd to cover the costs associated with operating
the national network. The Government proposals also included a commitment
to investigate what role both local authorities in England and the Devolved
Administrations might play in influencing how the post office services are best
delivered after March 2011.
2. Initial discussions with DCLG and the Local Government Association
(LGA) have resulted in a number of options with varying degrees of devolution
to local authorities and the regions both in terms of the administration and
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flexibility of funding streams. All options involve a trade-off between greater
local engagement and the policy objective to maintain genuine national
coverage.
3. One emerging option worth exploring further is to maintain a centrally
funded national network meeting broad access requirements while devolving
some funding to local authorities and the devolved administrations who would
have flexibility around how it was spent on improving local services. This
could be by continued expenditure on post offices to top up the coverage
provided by the national network, increased use of outreach service delivery
or utilising non-post office solutions such as improving public transport links to
better access existing services.
4. The attached paper (Annex A) was sent to MISC33 Cabinet Committee
members on 26 June seeking responses by 10 July. It sets out the potential
options and the work needed to develop these ideas. As noted in the paper
this is likely to be complex area and involve a number of issues including the
impact on Post Office Ltd’s day to day management of the network, the
appetite of individual local authorities to accept devolved responsibility, the
mechanics of changing the funding arrangements, the possible need for
legislation and the extent to which any future expenditure in Scotland, Wales
and N Ireland is devolved or reserved.
Possible offers of local authority funding to mitigate closure programme
5. It seems likely that POL will receive some offers of funding from local
authorities to “save” post offices that would otherwise close as part of network
transformation. It is highly unlikely that POL will want to accept any such
offers. They will want to close the full 2,500 branches allowed under the
transformation programme in order to maximise the commerciality of the
remaining network. It is also unlikely that the scale and duration of local
authority offers would be sufficient to reverse POL’s commercial judgment
about a particular branch. The offer would have to include a commitment to
long term funding (at least 2011), cover the wider impact on network costs
such as cash distribution, and IT (Horizon) maintenance etc., ensure that
there was no adverse impact on other post offices and obtain state aid
clearance as it would still be a state subsidy. Even if the offer were
acceptable to POL they would want to shift the closure to another branch
rather than abate the total number of closures. However, refusing offers of
financial help to “save” post offices will be presentationally difficult.
6. Advice was recently submitted to previous DT! Ministers (copy of
submission at Annex B). Ministers took the view that Government should
make no formal announcement on such offers and that POL should indicate to
the Local Government Authority what would be required to make such offers
commercially acceptable in the hope that the obstacles faced would minimise
such offers.
[END]
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ANNEX A
CABINET
MINISTERIAL COMMITTEE ON THE FUTURE OF THE POST OFFICE
NETWORK
A FUTURE ROLE FOR LOCAL AUTHORITIES AND THE DEVOLVED
ADMINISTRATIONS IN MANAGING THE POST OFFICE NETWORK
Memorandum by the Secretary of State for Trade and Industry
Summary
The Government's proposals for the Post Office network include the
continuation of the social network payment at up to its current level until
2010/11. During this period, it will continue as a direct payment from central
Government to Post Office Ltd to cover the costs associated with operating a
large, national network. This paper examines the options for the ongoing
administration of the subsidy beyond 2011 and, in particular, what role local
authorities in England and the Devolved Administrations might play, which are
ideally placed to identify the needs of local communities.
There are a number of options post-2011, with varying degrees of devolution
to local authorities both in terms of the administration and flexibility of funding
streams. All options involve a trade-off between greater local engagement and
the policy objective to maintain genuine national coverage.
The involvement of local authorities in the forthcoming restructuring
programme will provide an opportunity to explore ways in which councils can
work with Post Office Ltd to help mitigate potential gaps in service and the
potential role that local authorities could play in future funding decisions.
The Committee are invited to consider and comment on the options.
Background
1. The Government has set out proposals to safeguard the future of a
national Post Office network. A £1.7bn funding package will modernise and
restructure the network over the next few years, with 2,500 compensated
closures, the introduction of outreach services and the transformation of the
Crown network. The funding package includes the continuation of the Social
Network Payment at up to its current level of £150m per year until 2010/11.
During this period, the Social Network Payment will continue to be
administered by central Government as a payment to Post Office Ltd to cover
the costs associated with operating a national network beyond that which
could be commercially provided.
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2. This package of support will help Post Office Ltd increase the size of its
commercially viable network and stabilise the losses generated by the
remaining offices. Inevitably, some non-commercial offices that play valuable
social roles will remain; these will need continued public funding. The
Government's proposals recognise this need for an ongoing subsidy beyond
2011.
3. The consultation document also recognises that it is the people “on the
ground” who best understand the value of a Post Office to its local community
and that local government is also well placed to understand local concerns
and needs. It set out Government's intention to investigate what role both
local authorities in England and the Devolved Administrations might play in
influencing how postal services are best delivered in the future.
4. This paper sets out potential options for greater devolution of Post Office
policy after 2011 and the work that would be needed to develop these ideas. It
follows discussions between officials at DTI and Communities and Local
Government and an initial exploratory meeting with the Local Government
Association.
The Current Role of Local Authorities
5. There are around 500 different local authorities across the UK made up of
single tier authorities (unitary, metropolitan and London boroughs) and, in
parts of England, two-tier authorities (County Councils and District Councils).
Funding is provided through a combination of central Government grants
(c.75%) and local Council Tax (c.25%). Below this tier of government there
are also town or parish councils.
6. Although the Social Network Payment is currently administered by central
Government, local authorities are playing an increasingly valuable role in
shaping Post Office policy. Councils are well placed to identify the needs of
local communities and can work with local people and businesses to meet
these needs. They also control a number of capital assets and public services
into which Post Office services can be integrated. There are several examples
where local authority intervention has helped to maintain access to Post
Office services. For example, Kent County Council have facilitated the
transfer of an under threat office into the local supermarket and Reading
Council have opened a sub-post office at the civic offices with the staff
employed by the Council.
7. Under the Government's proposals, Post Office Ltd’s local area plans for
restructuring the network will be broadly based on groupings of constituencies
and will be subject to a public consultation following initial input from sub-
postmasters, Postwatch and local authorities. This partnership approach will
allow Post Office Ltd to explore further ways that councils can help mitigate
potential gaps in service or explore alternative means of service delivery.
Options after 2011
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8. In the longer-term, there may be value in a more formal arrangement.
There are a variety of options for greater devolution along a spectrum from
the continuation of a centrally administered national network through to the
complete devolution of funding around a general output framework. The table
below illustrates four options along this spectrum:
Centrally funded
national network
A continuation of the status quo, with an ongoing
subsidy provided by central government to Post
Office Ltd to cover the expenses associated with
a larger than commercial network. Operational
decisions about the structure of the network
would rest with POL within the constraints of the
access criteria set out by central Government
and the mails regulator.
Centrally funded
national network with
greater consultative
input from local
authorities
The subsidy would continue to be administered
by central Government. However, operational
decisions — although ultimately for POL — would
be taken after discussions with the relevant local
authority best placed to assess the local impact
of closures. In essence, this would be a
development of the partnership approach that
will be a feature of POL’s local implementation
planning during the forthcoming restructuring
programme.
Devolution of Post
Office funding to local
authorities
The ongoing subsidy would be devolved to local
authorities, which would then negotiate the
structure of their local network with Post Office
Ltd. Although funding would be ring-fenced for
expenditure on Post Office services, Local
Authorities would be able to direct the long-term
balance between ‘bricks and mortar’ offices and
outreach solutions.
Complete devolution of
funding to local
authorities
Under this model, the ongoing subsidy would
also be devolved to Local Authorities. However,
rather than ring-fencing the funding for use
exclusively on Post Offices, it would be
accompanied by a broad output framework
based upon the provision of, and access to, a
defined set of services. In the long-term, the
local authorities would be free to decide whether
or not to continue delivering these services
through “bricks and mortar” Post Offices or
explore alternative solutions.
9. The Government’s general ambition is to provide greater flexibility for local
funding decisions around agreed output frameworks. The ‘New Burdens
Doctrine’ also states that the Government Department with lead responsibility
for the policy giving rise to the new burden (in this case currently the DTI) is
responsible for securing the resources needed to fund the net cost to local
17
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authorities. This means that before final decisions are taken on this policy, the
lead Department must ensure that the necessary funds are available.
10. It is not yet clear whether local government itself has a preferred option
on funding. For example, wholesale devolution of funding might equally imply
a wholesale transfer of risk. Initial soundings with the LGA suggest that local
government might be averse to such a transfer unless there were greater
clarity about the sustainability of funding and the sharing of risk between
central and local government. On the other hand the approach most
consistent with the recently published Local Government White Paper would
be to devolve the funding without any restrictions imposed upon its use.
Devolving the ongoing subsidy to local authorities in this manner would be
consistent with an approach predicated on the assumption that local
government is best placed to understand local concerns and needs. They
would be able to weigh expenditure on Post Offices against that on other key
services, such as local transport, ensuring better value for money. It is likely
that this approach would also result in a more regular appraisal of the level of
coverage that is needed to meet local needs.
11. Government's preferred vehicles for transferring funding to local
government are clear. Revenue Support Grants is the favoured option
followed by the single pot for Local Area Agreements (LAAs) and finally - and
only exceptionally - ring-fenced money for LAAs. In this case, it may be
necessary to consider a ring-fence in the short term to allow funding to bed in.
12. There are, however, difficulties associated with greater devolution. There
is an obvious tension between maintaining a national network with consistent
coverage and the greater application of local choice. Although a commercial
core would remain (managed and funded by POL), central Government would
risk losing control of the strategic vision for the network. With devolution of
funding based upon an outputs framework, there is a danger that different
policies from different authorities would jeopardise strategic planning for a
‘national’ network with contrasting levels of coverage emerging in different
areas. Ring-fencing the money would guarantee an overall level of national
network but would reduce the impact of tensioning continued expenditure on
Post Offices against other key local services. It may also be a less attractive
offer for Local Authorities.
13. A possible solution would be to explore a two-tier approach. A centrally
funded national network would remain, meeting broad access requirements.
Beyond this, funding could be devolved to Local Authorities who would have
flexibility around how it was spent on improving local services although we
would need to explore the legal and technical position further. This could be
continued expenditure on “bricks and mortar” Post Offices “topping-up” the
coverage that would be provided nationally, the greater use of outreach or
utilising non-Post Office solutions, such as improving public transport.
Next Steps
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14. This is a complex policy issue. If the Committee want to explore the
options for greater devolution, further discussions will need to take place at
official level around the practicalities, obstacles and benefits of the various
options. Key issues will be: the impact upon Post Office Ltd day to day
management of the network, the attractiveness of scenarios to Local
Authorities, the mechanics of any change to funding arrangements (how to
incorporate into funding formulas and/or Local Area Agreements and Local
Strategic Partnerships), the possible need for legislation and the extent to
which postal policy and social policy should be regarded as reserved or
devolved matters in respect of implementing any changes in Scotland, Wales
and Northern Ireland.
15. A key input into these discussions will be the lessons learnt from Local
Authority involvement in POL’s local implementation planning. This will
provide an 18 month opportunity to assess how Local Authorities can
effectively engage in Post Office policy and analyse how it may be improved
when the current funding arrangement ends in 2011. To allow sufficient time
for implementation in the appropriate funding round, an agreed way forward is
needed by 2009.
[END]
19
ANNEX B
To:
Jim Fitzpatrick cc PS/Brian Bender
Secretary of State Martin Bryant
Stephen Lovegrove
From: Liz Baker
Matthew Hilton
Nigel Smith Aileen Boughen
ShERMPS Martin Sheehan
POL Network Team
Pete Barnao
SPADs
20 June 2007
POST OFFICES — HANDLING OF LOCAL AUTHORITIES DURING LOCAL
CONSULTATIONS
There are indications that Post Office Ltd (POL) will receive some offers
of funding from local authorities (LAs) to “save” post offices that would
otherwise close as part of network transformation. It is highly unlikely
that POL will want to accept any such offers. They will want to close the
full 2,500 branches allowed under the transformation programme in
order to maximise the commerciality of the remaining network. It is
unlikely that the scale and duration of LA offers would be sufficient to
reverse POL’s commercial judgment about a particular branch and, even
if it was, POL would want to shift the closure to another branch rather
than abate the total number of closures. However, refusing offers of
financial help to “save” post offices will be presentationally difficult
particularly in the light of the Government’s stated intention to explore
the future role LAs might play in decisions influencing the shape of the
network and delivery of services beyond 2011.
We recommend that
e Government does not seek to intervene in POL’s operational and
commercial judgments about such offers;
e that DTI officials meet Local Government Association (LGA) and
DCLG officials to find out more about the extent and nature of any
such local authority interest;
e that we facilitate early contact between POL and LGA enabling
POL to explain why providing extra funding to retain a larger
network would limit POL’s ability to reduce their costs and
improve competitiveness and also to give an early public
indication of the ways in which they would welcome help and
support from LAs;
e that we deploy the lines attached in responding to
media/Parliamentary criticism that might arise.
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On timing, we are due to meet with the SoS on 26 June to discuss the
MISC33 local authority paper so that may be an opportune moment to
discuss this if he wishes. Any meeting with the LGA or correspondence
with them should happen by the first week of July.
Background
1. Following the SoS announcement on the future of the post office network
on 17 May POL will shortly be rolling out the first of the c.50 area plan
consultations showing which offices are likely to close. As part of this process
they will be writing to LAs in advance of consultation seeking relevant
information on regeneration and development plans. They will also follow this
up with detailed discussions shortly before the draft Area Plans are circulated
for the formal 6 week consultation.
Role of the local authorities
2. We anticipate that LAs will be keen to engage with POL during the local
consultations and be seen to be doing all they can to protect post offices in
their areas. Although POL can expect some pressure from LAs to change
existing policy (e.g. extend length of consultation, change area plan
boundaries etc.) we envisage 5 potential roles for LA involvement:
e filling gaps in service — either by funding offices that would otherwise
close or offering to host services in Council premises. However, LAs
would almost certainly view this as a way of reducing the overall
number of closures;
e influencing local area plans — by persuading POL to change their
plans at the margins to make more consistent with local redevelopment
plans or population movement;
e improving accessibility — by investing in local infrastructure and
transport links to make transformed network more accessible;
e improving long term sustainability — by providing more services
through post offices;
e ad hoc intervention — to prevent unplanned closures by, for example,
hosting offices in Council premises or supporting outreach solutions.
The Problem
3. It is important that local authorities are aware of the roles that most assist
network transformation so they can focus their resources on those areas.
4. The main issue is around the first of the roles above and whether it is
desirable to receive offers of funding to retain post offices that would
otherwise close under transformation.
5. POL have indicated that, during the network transformation, they might
receive offers of additional subsidy from LAs to retain post offices that would
otherwise close. We are already aware of one Council which has applied for
a £150k per year grant over 3 years to subsidise rural services including post
21
office. However, unless such offers are commercially viable, POL would have
to reject it. For it to be commercially viable LAs would need to:
e include a commitment to long term funding (at least 2011),
e cover the wider impact on network costs (cash distribution, Horizon
maintenance etc.)
e ensure that there was no adverse impact on other post offices and,
e obtain state aid clearance as it would still be a state subsidy.
6. This would make it very difficult to put together a commercially viable offer.
But, if they were to do so, LAs would be likely to see this as reducing the
overall number of closures. POL would want to resist this as closures are
required to put the network onto a stable footing for the future enabling them
to invest in new products and compete for contracts. It could also result in
local imbalances if some “better off” authorities were able to fund offices
compared to neighbouring authorities with less financial flexibility. There is
also a tension in urban areas where a bid to retain an urban office that would
otherwise close would not make commercial sense as the sustainability of
nearby offices might be reliant on the transfer of custom.
7. However, for POL to refuse such offers of funding is presentationally very
difficult and could be construed as part of Government's aim to precipitate a
decline in post offices at any costs.
Options
8. If we accept the fact that any such offer would have to be commercially
viable then we have two options:
e we publicly state that POL will be responsive to commercially viable
offers for funding or hosting an office while making it clear what this
would entail (e.g. state aid clearance, funding ongoing losses and the
wider impact on the network over x years). In addition, if we were
unable to argue that such investment would not reduce the number of
overall closures — and presentationally this would be very difficult —
POL would have to accurately forecast the marginal cost of keeping
open the additional office so that it had no impact on the long term
sustainability of the network. POL would have to buy-in to this
approach and initial impressions suggest that would be difficult. They
might even view it as HMG trying to retreat on the closure numbers and
thus the investment plan.
e alternatively, we could promote the remaining roles in discussion with
the LGA and LAs and rule out consideration of any offers of financial
assistance from the outset by stressing again that the long term
sustainability of the network is reliant on the network transformation
and closure programme that has been announced and that these are
deep-rooted problems which cannot be resolved by simply putting in
additional money to protect loss making or under-used offices in the
short term.
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Argument
9. There is a strong likelihood that no offers will meet the commercially
acceptable criteria outlined above and, even if they did, there are additional
problems. Extra funding from LAs could be deemed double funding by the EU
and be in breach of the state aid clearances we are seeking. Also, the
retention of some offices could never be commercially viable because the
sustainability of nearby offices would be reliant on the transfer of its custom
(e.g. in urban areas). The presentational difficulty of rejecting such offers
coupled with the problems associated with any acceptances suggests we
should limit the number of such offers received by making it clear from the
outset that such offers are unhelpful in the context of network transformation.
If we do not, we risk having to refuse offers and defend our policy of network
transformation in the face of potentially loud criticism.
10. In terms of relaying the message Government will want to be as removed
as possible from what are essentially commercial decisions for POL. While
DTI officials could meet with LGA and DCLG to assess the extent and nature
of any local authority interest in supporting transformation we feel that POL
are best placed to meet with the LGA to explain how LAs can help and why
direct offers of funding are unwelcome.
Conclusion
11. We conclude that the best way to deal with this is for POL to decline any
offers of funding to retain post offices that need to close as part of
restructuring. In order to minimise criticism officials will discuss with LGA the
extent of such offers and POL will meet with them to explain why they are
unhelpful to the transformation programme and then adopt this position in
their detailed discussions with local authorities. It should be noted that the
LGA covers Councils in England and Wales only so, as part of their
engagement UK-wide, POL will also need to deliver the same message in
similar terms to the equivalent of the LAs in Scotland and N Ireland. We
suggest that the attached lines are used in the event that questions are put to
DTI.
NIGEL SMITH
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LINES TO TAKE
Why is POL turning down local authority support that would save a post
office?
Government has already agreed to invest £1.7bn of public money to support
POL’s investment plan and enable them to make the changes necessary to
put the network on a sustainable footing for the future.
It has been widely recognised that the network needs to change if it is to
become competitive and survive. Reducing the size of the network is an
important part of that process and spending more public money on retaining
little used or loss making offices will not help deliver the sustainable network
we want.
What can local authorities do to help?
Local authorities can help in a number of ways such as ensuring that POL’s
area plans take account of local redevelopment plans, improving transport
links to post offices that will make up the new network, delivering more local
services through the post office and helping to mitigate unplanned closures by
offering to deliver the services through Council offices.
How is your refusal of funding consistent with encouraging greater local
authority involvement?
The immediate task is to get the network onto a sustainable footing. In
addition, Government is working with the relevant organisations and
administrations with a view to deciding, in the longer term, the extent that
funding and decision making on the provision of local services can be
devolved to local level.
24
HMG & OTHER SERVICES AT POST OFFICES
e The Post Office is one of a number of ways to deliver Government
services and still has an important role to play.
e Government cannot ignore that people increasingly want to access
services in different ways - using direct debits, ATMs, and the phone and
Internet.
e Post Office Ltd should be given every opportunity to pursue Government
business, but not at the expense of customer choice or EU law.
e Government Departments must live within their financial constraints and it
is only right that they ensure value for money in their delivery of services.
e We want the network to stand on its own two feet and become the
providers of choice — not of obligation.
e Any mail operator or online business seeking to use the post office
network can approach Post Office Ltd if they choose and if no commercial
agreement can be reached the interested party can take it up with the
Regulator, Postcomm, to consider.
e Availability of bank accounts at Post Offices are commercial decisions for
the individual banks and Post Office Ltd. It would not be appropriate for
Government to intervene.
DVLA - Car tax?
DVLA is not forcing customers away from post offices and continues to
promote the Post Office as an option to renew car tax discs.
BBC?
The BBC cited huge savings as the key factor in its decision to award the TV
Licence contract to PayPoint. No reference was made to lack of guarantees
on the future size of the post office network.
Credit Unions?
There have been some discussions between the Post Office and the Credit
Union body at a national level on whether there could be greater scope to
work together and there will continue to be regular dialogue between the two.
Longer opening hours?
Subpostmasters are free to open for longer than their contracted hours —
however, if they choose to stay open beyond their contracted hours they will
be remunerated based upon the value and volume of the products and
services they sell rather than through increased or additional fixed payments.
Sub-postmaster contract restrictions?
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Subpostmasters are free to develop their associated retail businesses and to
enter into contracts with anyone they choose as long as the products provided
are not in direct competition with key Post Office products.
Opening up the network to other mail providers?
Any mail operators and online businesses serious about using the post office
network should approach Post Office Ltd. If a commercial agreement cannot
be reached they can take it up with the Regulator, Postcomm, to consider.
PayPoint?
There is nothing to stop sub-postmasters having a PayPoint terminal as long it
is not used for key services offered by the Post Office. BBC licensing work
has never been covered by the restrictions
‘One-stop-shop’?
Previous pilot work in 2002 around ‘one-stop-shops’ for Government services
(Your Guide) concluded that a publicly funded national scheme would not
represent value for money.
Lottery tickets?
There are no restrictions on sub-postmasters asking to have a lottery terminal
in their store. But decisions on placing terminals rest with the lottery operator
Camelot who determine the geographical spread of their outlets.
Current accounts / LINK?
Access to bank accounts at post offices are commercial decisions for the
individual banks and Post Office Ltd.
BACKGROUND
1. It is often suggested that Government does not take a ‘joined-up’ approach
to delivering services through the network with Departments increasingly
looking to offer choice in how services are provided and find more cost-
effective ways of working. In particular the decision to make Direct
Payment of pensions and benefits into bank accounts has been criticised,
as has recent decisions by the BBC to award its TV licence contract to
PayPoint and the decision by DVLA to increasingly market its on-line car
tax renewal service.
2. Post Office Ltd has worked hard to develop its financial services offering to
replace the 40% of network income lost as a result of DWP’s move to
Direct Payment in 2003. The Government has supported Post Office Ltd’s
efforts to move away from declining markets and in 1999 with £500 million
for the Horizon project to bring computer systems into every post office
throughout the UK. The majority of new products result from a joint
venture with Bank of Ireland announced in December 2003 which has
seen some notable successes:
e Post Office Ltd is the largest provider of foreign currency in the UK,
e the third largest provider of travel insurance,
e also the UKk’s Sth largest fixed-line telephone service provider and,
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e opened 175,000 Instant Saver Accounts in the product’s first year.
3. The Post Office continues to develop more new services, in particular it
will:
e roll out of up to 4,000 free-to-use ATMs across the network.
e develop new market and business opportunities for the network among
Internet companies and other mail operators.
e introduce 4,000 automated ‘PayStation’ terminals helping Sub-
postmasters provide a range of services outside of traditional post
office hours, including mobile phone top-ups and meter key recharging.
4. There are frequent calls for the Post Office to work with mail providers
other than Royal Mail. The Government agrees with competition and is
clear that other mail providers are free to approach Post Office Ltd. Ifa
commercial agreement cannot be reached they can take it up with the
Regulator, Postcomm, to consider. Realistically, however, we think it
unlikely that any commercial deals between Post Office Ltd and other mail
providers would create significant volumes of new business and revenues
for sub-postmasters because it is likely to be a substitute for Royal Mail
business.
27
POST OFFICE CARD ACCOUNT
KEY POINTS
e The Post Office Card Account (POca) is used by some 4m benefit and
pension recipients to access benefit and pension money over the Post
Office Counter. In addition a further 24 accounts can be accessed over
the counter including basic bank accounts and some current accounts.
e DWP announced the start of the tendering process for a successor to the
POca on 17 May 2007 and expect to be able to announce the successful
bidder in early 2008.
e The intention is to award a single contract covering card provision, over
the counter and ATM payment and a help service. The Post Office is in a
strong position to bid.
e 8.5m out of a total 10.8m pensioners have their pensions paid into a bank
account. 2.2 million are paid into a POCA and 150,000 paid by cheque.
e 90% of customers making new State Pension claims choose Direct
Payment into a bank account. 8% choose a POca and 2% receive cheque
payments.
e Payment of benefits into a bank account was first introduced by the
previous administration in the early 1980s.
Background
1. There are currently c.4m POca users who are able to withdraw benefit in
cash over the Post Office counter. Post Office Ltd’s (POL) current contract
with DWP runs to March 2010 and currently costs DWP c.£180m pa of which
c.£120m directly supports the PO network. Similar contracts exist with the
Northern Ireland Social Security Agency, the MoD for payment of war
pensions and HM Revenue and Customs for payment of tax credits. Total
revenue to POL from all the paying Depts is currently c.£200m.
2. The functions of a POca are limited — it attracts no interest, it cannot be
used at ATMs - its sole function is to allow pensioners and benefit recipients
to withdraw their money in cash at post offices over the counter. However,
POca are valued by many users — particularly the elderly and vulnerable —
who find the post office the most convenient method of accessing their
money.
3. DWP are keen to reduce their costs during the current contract period by
migrating POca users to other cheaper methods of benefit payment e.g. basic
bank accounts. It costs DWP roughly 1p per transaction into a bank account
compared to 80p per transaction into a POca. DWP intend to write to existing
POca users in early 2008 inviting them to switch to bank accounts as their
preferred method of payment while making it clear that the POca is still
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available for those that wish to use it. Broad agreement has been reached on
the form of the letters that DWP will send although we have reserved the right
to review the precise wording nearer the time of issue. Government, and
particularly DWP, have been criticised in the past for trying to “force” people
off POca onto bank accounts and when DWP begin issuing their “migration”
letters we can expect further criticism. This can however be mitigated if the
DWP letters are “non-coercive” i.e. they make it clear that the choice of a
POca remains for those that want it.
4. The rate of decline of POca numbers has a direct impact on POL’s
business. Their business plan assumes some decline e.g. migration tactics,
natural attrition, from the current 4m down to 3m by 2010. However, the
Heads of Terms that underpin the investment case and agreed with POL,
include arrangements whereby if migration is greater than that estimated in
the business plan and revenue to POL is subsequently less then DTI is
required to make up the difference. DTI has no financial cover for this
financial risk. In the event that migration is less than estimated and revenue
to POL is greater then DTI will receive the difference from POL.
5. There is also a good deal of public disquiet about the ending of POca and
what might replace it when the existing contract expires in 2010. DWP have
begun a tender process for the replacement product. It will include a number
of new features including ATM access. POL are currently preparing their bid
and should be in a strong position to compete. DWP'’s intention is to
announce the successful bidder in early 2008. The transfer of existing POca
users to the new product will take place shortly before the end of the current
contract in March 2010.
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National Federation of Subpostmasters (NFSP) and Subpostmasters
As a trade union/trade association representing around 12,000
subpostmasters, negotiating their remuneration and contractual terms and
conditions with Post Office Ltd (POL) on behalf of all subpostmasters, the
NFSP has a clear agenda to protect subpostmasters’ collective £billions
investment in their businesses.
In recent years, the NFSP General Secretary and key NFSP officials have
maintained close and regular contact with Ministers over issues ranging from
the Post Office card account to the future of the network. In general they
have been supportive of change and reduction in the size of the network but
have been concerned about the limited potential to date for new business in
financial products and services to replace the much reduced income
subpostmasters are now receiving from traditional (government) business.
After 16 years as General Secretary, Colin Baker retired in May at the end of
the annual conference and was succeeded (following an election) by George
Thomson, former Edinburgh subpostmaster (and knows the previous SoS).
Alistair Darling attended and spoke at the last NFSP annual conference in
May. He agreed to follow up a number of points raised in a Q&A session
following his short speech. The submission and text of his letter are attached.
An additional point raised by George Thomson with the previous SoS was to
re-establish the link (broken in 1969) between National Savings and
Investments (NS&I) and the Post Office. He has suggested that this could be
a means of reducing the Network Subsidy Payment (NSP) for the non-
commercial network. At the previous SoS’s request, Alan Cook, Managing
Director of POL (and previously Chief Executive of NS&I) is working up a
paper. This is due shortly. In considering the possibility of 'reuniting' NS&I
and POL, there would need to be examination of the scope (and practicalities)
for changing NS&l's Executive Agency status and of ways of bringing NS&I's
profits within the business (currently the profit/benefit of their operations goes
to the NLF). NS&I does not currently identify a ‘profit’ as such in a
conventional sense, but suggestions are that were it to do so (eg if it operated
on a Trading Account basis), annual profits would be greater than the annual
level of NSP committed support the social network to 2011.
The NFSP and subpostmasters generally are supportive of the forthcoming
closure programme and its compulsory nature. The likelihood is that more
than 2,500 subpostmasters would be willing to retire on a compulsory basis as
the age profile of subpostmasters collectively is high. But the strategic nature
of the programme means that many of them will not be selected for
compulsory closure. Compensation terms negotiated between Post Office Ltd
and NFSP are based on 28 months remuneration for the post office part of the
business as in the Urban Reinvention programme in 2002-5.
ShE RMPS
July 2007
30
To:
Secretary of State
ci
Jim Fitzpatrick
Brian Bender
From: Stephen Lovegrove
Mike Whitehead Liz Baker
Sh E RMPS Donald McNeill
662 V/S Nigel Smith
i" Robert Shane
lain Banfield
Will Gibson
Aileen Boughen
Martin Sheehan
Spads
20 June 2007
FOLLOW UP TO NFSP CONFERENCE Q&A SESSION
In the Q&A session following your speech to the NFSP annual
conference, you agreed to follow up five of the points raised and
respond through the General Secretary. The points were:
e contractual constraints which limit spms’ options to grow their
businesses (e.g. offering competing banking and financial service
products).
e exemption from business rates for post office premises which
become vacant as a result of compulsory closure.
e scope for post offices to accept and process payments of fines.
e balanced promotion by DVLA of payment of motor vehicle tax at
post offices as well as online and by telephone.
« scope for providing Government funding to support investment
to improve sub post offices.
A suggested letter to George Thomson (recently elected NFSP General
Secretary) is attached. It has nothing very positive to offer and has been
drafted on the basis that it will be published in the NFSP’s monthly
journal.
Background
Contract constraints on range of products and services that
subpostmasters can offer
Post Office Ltd (POL) maintains that contractual restrictions on the products
and services subpostmasters can offer are essential to the survival of the
network and that these cover only the key products and services that
generate income for the network. Without them, POL would be unable to
negotiate new contracts/business on behalf of all branches. If potential
suppliers were able to cherry pick branches in which to sell their products, a
number of subpostmasters would benefit from such arrangements but the
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majority, particularly smaller branches, would be excluded from such
opportunities.
Traditionally the NFSP has recognised and accepted the rationale for POL’s
approach. There have been periodic joint reviews of the restricted products
and services contract terms, the most recent being 2 years ago when some
modest relaxations were agreed.
Currently POL’s contracts enable all branches to offer simple over the counter
banking services for holders of around 25 basic bank accounts and for
customers with current accounts at certain High Street banks.
Other financial products and services (foreign exchange, credit cards,
insurance and savings products) though badged with the ‘Post Office’ brand
are provided by financial and banking sector partners such as Bank of Ireland.
To open up the network to range of competing products would undermine the
scope for such network-wide service offerings.
Though not encouraged by POL, sub post offices can have Paypoint terminals
on the associated retail side of the business but must not use them for
services which compete with those offered at the post office counter (e.g. bill
payment).
Exemption from business rates for post office premises which become
vacant as a result of compulsory closure
Current business rate relief provisions for vacant commercial property (shops
and offices) are that for the first 3 months of vacancy the premises are exempt
from (business) rates and after 3 months rates are payable at a rebated 50%
of the charge.
In the last Budget, changes to the rate relief provisions in England (and
potentially Wales) were announced (following the Barker and Lyon reviews) to
incentivise the bringing back into use of vacant commercial premises. From
April 2008, vacant commercial premises will remain exempt from rates for the
first 3 months, thereafter the full rates will be payable (current 50% rebate to
be abolished). The only exemption will be for properties occupation of which
is prohibited (i.e. condemned or subject to compulsory purchase order).
There are no plans to change the existing rebate relief in Scotland and
Northern Ireland. Although current draft legislation applies to England and
Wales, there is scope for the Welsh Assembly to decide against introducing
the change in Wales.
Vacant commercial properties with a Rateable Value (RV) below a certain
level (e.g. less than £2,200 in England; £1,700 in Scotland; £1,500 in Wales)
are currently totally exempt from business rates and the Government does not
propose changes to this provision under the revised arrangements from April
2008. RV is determined by location of the premises and DCLG has advised
that because of the wide disparities there is no ‘rule of thumb’ basis for
equating RV with floor area. But all indications are that commercial properties
below the exempt RV level are small as rural rate relief for the only shop/post
office in a community of up to 3,000 inhabitants applies up to RV of £11,500 in
Scotland, £7,000 in England and £6,000 in Wales.
After April 2008, former post office premises which are vacant as a result of
compulsory (or non-compulsory) closure will, after the first 3 months in
England (and possibly Wales) be liable for business rates in full as will all
other vacant commercial premises but in Scotland and Northern Ireland the
current 50% rebate will continue to apply.
Scope for post offices to accept and process payments of fines
Initial legal advice is that a change in legislation would be necessary to enable
payment of County Court fines at post offices and that either a change in
legislation or making of an order would be necessary to enable payment of
Magistrates Courts fines at post offices.
For fines payable to local authorities under local byelaws (e.g. parking fines),
there does not appear to be a legal obstacle to arrangements for such fines to
be paid at a post office. Local authorities have the power to contract out the
discharge of their functions including, it appears, the collection of fines.
However it would be each individual local authority to decide whether or not to
contract out this function to POL.
We anticipate that as part of POL’s engagement with local authorities in the
context of developing their area plans for reshaping the network the question
of whether there are new or additional local authority that could be provided
through post offices.
Balanced promotion by DVLA of payment of motor vehicle tax at post
offices as well as online and by telephone
All postal reminders for motor vehicle tax renewal include a reference on the
form to the option of renewal at a post office. Currently postal reminders also
include a leaflet explaining the online and telephone renewal options and
emphasising the flexibility and convenience.
There is currently no media advertising of Electronic Vehicle Licensing but
consideration is being given to a further media campaign in late summer/early
autumn. DVLA do not include reference to the continuing post office option in
such campaigns as they believe that the message needs to be kept simple to
have the necessary impact and avoid confusing its audience.
Scope for providing funding to improve post offices.
Under the Urban Reinvention programme, up to £30m was made available,
on a match funded basis (£26m drawn down), to improve sub post offices to
which customers migrated following a programme closure in the area.
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No provision for funding improvements for rural post offices is included in the
recently agreed network funding package of up to £1.7bn. In your initial
response, you warned against underestimating the difficulties but proposed
that Government, POL and NFSP should jointly consider whether, if a robust
business case could be made, some funding could be made available. POL
has indicated that it will make very limited funding available for improvements
to sub post offices but this will be tightly targeted on branches where there are
major capacity or disabled access problems which need to be addressed.
Mike Whitehead
34
DRAFT LETTER TO GEORGE THOMSON AT NFSP
George Thomson
General Secretary
National Federation of Subpostmasters
I was very pleased to have the opportunity to address the Federation’s Annual
Conference in Hinckley last month and I undertook to follow up and respond
to you on a number of points that were raised during the Question and
Answer session.
A concern was raised about the constraints on subpostmasters under their
contracts with Post Office Ltd which limit options for introducing products and
services to increase business and strengthen viability.
I recognise the tension between subpostmasters’ preferences for
entrepreneurial freedom and Post Office Ltd’s (POL) view that the contractual
restrictions on the products and services subpostmasters can offer cover only
the key products and services that generate income for the network and are
essential if POL is to be able to negotiate contracts on behalf of all branches
in the network. I understand that the Federation has traditionally recognised
and accepted the rationale for POL’s policy in this area and that the most
recent review of the contract terms relating to restricted products and services
two years ago resulted in some relaxations to these terms. But given the
pace of change in so many areas and market sectors, it would, I am sure, be
desirable to keep these issues under regular review to ensure that any
contractual restrictions remain relevant to prevailing economic and market
conditions.
As regards banking services and financial products, POL’s current contracts
enable all branches to offer simple over the counter banking services for
many basic bank account holders and for customers with current accounts at
certain High Street banks. Other financial products and services such as
foreign exchange, credit cards, insurance and savings products, though
badged with the ‘Post Office’ brand, are provided by POL’s financial and
banking sector partners. To open up the network to range of competing
products would undermine the scope for such network-wide service offerings.
Another concern was whether, against the background of Budget changes in
the business rate relief arrangements for vacant commercial premises, former
sub post office premises which remained vacant following compulsory closure
would be eligible for any business rate relief.
The short answer is that the position will vary between different parts of the
country. From April 2008, vacant commercial premises in England will remain
exempt from rates for the first 3 months, thereafter the full rates will be
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payable (current 50% rebate to be abolished). There are no plans to change
the existing 50% rebate relief arrangements in Scotland and Northern Ireland.
Pending consideration by the new Welsh Assembly, it is not yet clear whether
the changes planned for England will also be introduced in Wales.
I also undertook to clarify whether changes in legislation would be required to
enable post offices to accept and process payments of fines.
I understand that either a change in legislation or some other legislative
process would be necessary to enable payment of County Court and
Magistrates Courts fines at post offices. For fines payable to local authorities
under local byelaws (for example parking fines), there does not appear to be a
legal obstacle to arrangements for such fines to be paid at a post office but it
be for each individual local authority to decide whether or not it wished to
contract out this function to post offices.
I was also asked if there could be a more balanced promotion by DVLA of the
payment of motor vehicle tax at post offices as well as online and by
telephone.
DVLA stresses that all postal reminders for motor vehicle tax renewal include
a reference on the form to the continuing option of renewal at a post office.
Currently postal reminders also include a leaflet explaining the online and
telephone renewal options. DVLA is considering a further media campaign to
advertise the electronic vehicle licensing option later in the year
Finally I was asked about the scope for providing funding to improve sub post
offices particularly in rural areas where uncertainties about the future of the
network have been adversely affecting levels of investment.
POL has indicated that it will make limited funding available for improvements
to sub post offices. But this will necessarily be targeted on offices where
there are major capacity or disabled access problems which need to be
addressed as the reshaping of the network progresses. I hope also that as
this programme proceeds it will create a climate in which subpostmasters
have the confidence to undertake additional investment in their businesses.
I recognise that my responses will not be as positive as you and your
members would wish. We have to recognise that there are no easy answers
to many of the problems the network faces or to the concerns shared by many
subpostmasters. But this does not mean we should not continue to explore
potential new ways of addressing them and it is important that the Federation,
Post Office Ltd and Government continue to maintain a close dialogue in
doing so.
Alistair Darling
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TRADE AND INDUSTRY COMMITTEE AND POST OFFICE NETWORK
The Trade and Industry Committee published its report ‘Stamp of Approval?
Restructuring of the Post Office Network’ on 6 March 2007 to inform the
Government's national consultation on future strategy for the network. The
report drew on oral evidence from Alistair Darling and contained 31
conclusions/recommendations.
The Government's response to TIC was submitted on 17 May 2007 in parallel
with the Government’s response to the public consultation and Alistair
Darling’s statement to the House of Commons.
On 9 June, TIC published comments on the Government response to its
report. These comments expressed general satisfaction with most aspects of
the Government response but the Committee sought more substantive
answers on some areas, in particular the length of the local consultation
process, the timing of merging Postwatch into the new National consumer
Council, help to sub-postmasters to develop their businesses, the process for
dealing with uncompensated closures and the lack of greater functionality for
the successor to the Post Office card account.
A formal response is due by 8 August. A submission and draft will be
submitted in due course.
37
Select Committee on Trade and Industry Eighth Report
1. On 6 March 2007, we published a short Report commenting on the
Government's proposals for reducing and reshaping the post office network so
that post offices would be better able to meet the challenges of falling levels of
use and declining incomes from their traditional business. We recognised that
the current situation of increasing financial losses and haphazard closures of
branches was undermining the entire network, and we reluctantly accepted
that a thorough review of the network with a limited number of planned
closures was sensible, provided that the social as well as the commercial
aspects of post offices were fully taken into account.
2. On 17 May, the Government responded to our Report at the same time as
the Secretary of State for Trade and Industry made a Statement to the House
of Commons on the result of the public consultation on its proposals. The
Government's response is appended to this Report. We are satisfied with
some key aspects of the Government's reply but were dissatisfied with others.
So we decided to make this brief Report commenting on it.
3. We emphasise that overall we accept the justification for the proposed
major, systematic overhaul of the post office network. For the sake of the
remaining sub offices, and given both the changing nature of the market in
which they operate and the substantial volumes of government business that
have been lost to the network, we simply wish that this necessary action had
been undertaken earlier.
4. We also welcome the Government's willingness to widen the issues that
need to be taken into account when the futures of individual post offices are
considered. The Government has—rightly, in our opinion—decided that fairly
simple distance-based access criteria are by themselves insufficient and has
agreed that Post Office Ltd will have to demonstrate that it has taken into
account not only geographical obstacles to access but also factors such as
the availability of public transport, alternative access to key post office
services, local demographics and the impact on local economies.
5. We are pleased that the Government has responded to our
recommendation and other representations about the need to take into
account those urban areas which, though deprived, fall just outside the
definition of the 10% most deprived and therefore failed to qualify for the extra
protection which the Government proposed. The Government has decided to
extend this protection to the 15% most deprived areas.
6. However, a number of our recommendations have not been fully addressed
by the Government or have been rejected. We are particularly concerned
about three issues: the public consultation process, and the associated
question of the future of Postwatch, the consumer body for postal services;
how sub postmasters will be helped to adapt their businesses to improve their
commercial competitiveness; and how the Post Office will ensure the
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continuance of adequate geographical coverage when—as they surely will—
sub-post offices close in future.
7. The experience of the Post Office's Urban Reinvention programme led us
to suggest that six weeks was insufficient for public consultation on local area
plans for the post office network. We suggested a standard twelve week
period, as set out in the Cabinet Office guidelines for public consultations. The
Government has made welcome efforts to ensure the greater involvement of
Postwatch and the local authorities in drawing up the local area plans this
time. Nevertheless, the Government has resisted the extension of the period
of formal public consultation. Their justification is that six weeks is enough
when the earlier discussions with local authorities and Postwatch are taken
into account, and that any extension would increase the period of uncertainty
for sub postmasters and customers. We welcome provisions to ensure that
Post Office Ltd consults Postwatch and the relevant local authorities before
issuing local area plans for public consultation.
8. We are still of the view that six weeks' consultation is not sufficient for
customers and others, especially local councils, to formulate and express their
views, because: (a) the Post Office's proposals in respect of each post office
will quite rightly have to be based on a complex variety of factors (access
criteria, social and business needs, commercial potential, etc), and each area
plan will cover a large number of post offices; (b) some councils meet only
once every six weeks or even every two months; and (c) we reject the
Government's argument that a further six weeks' delay (i.e. twelve weeks’
consultation—per the guidelines—instead of six) would add significantly to the
uncertainty faced by sub postmasters and their customers. The examination
of local area plans is set to take at least 18 months, the restructuring process
having started in December last year; and considerable uncertainty over the
future of the network has existed at the very least since May 1999, when the
programme for the migration of benefits payments from order books was first
proposed. In this context, an extra six weeks is negligible. Indeed, given the
importance of this restructuring programme, a slightly longer consultation
period should help to ensure that the resulting new network structures are
genuinely durable.
9. We are also disappointed that the Government was unable to reassure us
that the timetable for the merger of Postwatch into the new National
Consumer Council would not hinder Postwatch in its role as consumer
representative in the preparation of the local area plans over the next 18
months. We understand that such matters have to be negotiated, but more
progress should have been made in the two months since our Report was
published. Postwatch is a substantially improved organisation with a lot to
contribute to the consultation process. It should not be subject to so much
uncertainty at such a sensitive time.
10. We seek a commercially viable network, not one permanently dependent
on subsidy. We also note that the Network Subsidy Scheme will not be
increased but will now be shared between the urban and rural network. Our
major concerns, which centre on the need to improve the business prospects
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of the remaining sub postmasters by encouraging and enabling them to
provide more varied and higher value services, have thus become more
urgent. The Government's response sidesteps this issue by placing
responsibility on Post Office Ltd, the very body that has consistently failed to
show sufficient imagination or entrepreneurial flair in developing services so
far, or properly to understand the realities of managing a network of often very
small businesses. When coupled with the restrictions on individual
postmasters that prevent them from innovating, it is difficult to see how the
profitability of the network can be significantly improved in future. Under its
new management, Post Office Ltd seems to be awakening from its lethargy,
but we think that the Government, as sole shareholder and representative of
the taxpayer, has a responsibility to ensure that Royal Mail Group as a whole
gives proper attention to increasing the competitiveness of the network rather
than just managing its decline.
11. In this context, the future of the Post Office Card Account is vital. We note
that the Department for Work and Pensions has already put a notice in the
Official Journal of the European Union seeking tenders for a 'POCA Mark 2". It
is clearly too late to influence the specifications for POCA Mark 2, but we are
disappointed that the Government thinks it both undesirable and too difficult to
extend the functions of this account to simple matters like making cash
deposits. Without such changes, all too often even the correction of mistakes
by cashiers is impossible. We accept that this would increase its similarity to
basic bank accounts, and we believe that many people who are suspicious of
banks might be attracted to the dependable Post Office brand instead if the
functions were similar—thus undermining the laudable hard work the
Government has done in inducing banks to offer basic accounts in the first
place. However, we are still of the view that it is absurd that holders of POCA
accounts cannot deposit cash into their accounts; and we do not understand
why Financial Services Authority rules should "require a greater degree of
scrutiny and ID checking" of customers in this case.
12. Frustratingly, it is still totally unclear what will happen when
uncompensated closures occur, now or in the future, that leave geographic
gaps in the leaner but still comprehensive network that the restructuring
programme is intended to produce. In its response, the Government baldly
asserts: "Unplanned closures will be counterbalanced by replacements if the
access criteria would be no longer met. Access criteria will replace the 'no
avoidable closure’ policy and ensure that a national network of post offices is
maintained", without explaining how this will be effected. It is of no use simply
to hope that replacement sub postmasters will spontaneously appear in all
cases. Both Post Office Ltd and the Government must soon announce how
they will cajole or induce providers to fill such gaps, and what will happen if
such inducements fail. For example, would they be prepared to open a new
Crown Office if an area were left with inadequate provision which failed the
Government's access criteria? Unless they give proper consideration to the
maintenance of the network after restructuring, it is sadly likely that the issue
of closures will return to the agenda—sooner rather than later.
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13. We do not wish to appear negative about the efforts to restructure the post
office network. Overall, in the face of the loss of so much business, the
programme is necessary. We welcome the fact that the Government has
learned lessons from previous problems. However, we think the issues we
have outlined above are too important to be ignored. We expect the
Government to give us more substantive answers on these matters than it has
done so far.
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POSTWATCH / NATIONAL CONSUMER COUNCIL - KEY POINTS
Agreed that Postwatch [and its successor body — the National Consumer
Council] will be given responsibility to monitor Post Office Ltd’s compliance
with coverage levels.
In recognition of the importance to consumers of the issue of post office
accessibility, the new National Consumer Council will have a specific
function to investigate any matter relating to the number and location of
public post offices, under Clause 16 of the Bill. This replicates the
provisions in the Postal Services Act 2000 that apply to Postwatch
We envisage that the new arrangements will be in place within a year of
the Bill receiving Royal Assent. Postwatch are fully engaged in early
planning for implementation of the new arrangements.
Great care is being taken to ensure that the consumer interest continues
to be effectively represented during the transition period.
Additional staff and other resources are being allocated to Postwatch to
assist them with the programme, and these resources will be carried
forward into the new arrangements for the duration of that work.
The budget will be ring-fenced for this specific purpose to ensure that the
local consultation process will not be adversely impacted by the merger.
POSTWATCH/ NATIONAL CONSUMER COUNCIL —- BACKGROUND
1.
Postwatch (and then the NCC) will monitor implementation of the closure
programme to ensure Post Office Ltd continues to comply with the access
criteria.
The Government is seeking to introduce the Consumers, Estate Agents
and Redress Bill which will see the alignment of existing consumer
representative bodies. Concerns have been raised at the timing of the Bill
which could result in the disbanding of Postwatch during the network
closure programme and the subsequent subsuming of Postwatch’s role
within the new National Consumer Council (NCC). In recognition of the
importance of post office issues, the NCC will have a specific function to
investigate any matter relating to the number and location of public post
offices, under Clause 16 of the Bill. This replicates the provisions in the
Postal Services Act 2000 that apply to Postwatch
Post Office Ltd and Postwatch have agreed a process to review any
contentious cases — though it will remain the responsibility of Post Office
Ltd to make final decisions. A similar process was adopted in the latter
stages of the urban reinvention programme and worked well.
COMVERCI ALLY CONFI DENTI AL - Governnent Contracts wth POL
2006/7 Incone
Contract Client Expiry Date
(En)
DWP, NISSA, HMRC
Post Of fice Card Account (POca) 220.1! Mar-10
and MoD
Mot or vehicle licensing and
dri ving licence application IDVLA 40.4 Mar-07?
ichecki ng service
IAll i ance and
Paynent by cash cheque 25.1 12 nvnths notice
Leicester
Identity and
Passport Check and Send service 16.7 Dec-07
Passport Service
Provisionof benefits toasylum_ INational Asylum
1.7 Dec-11
seekers Seeker Service?
Envi ronment
IRod/Game li censes 1.5 Mar-08
\Agency/DEFRA
' POCA income excludes interest
? Discussions between DVLA and POL to extend the contract until March 2012 are at an advanced stage.
3 POL is a sub-contractor to Sodexho, who were awarded the main contract with the National Asylum Seeker Service.
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IEHI C Check and Send servi ce and
appli cation formdistri bution
0.5
Sep-07
\Al ternative distribution
contingency
[DWP
0.3
Mar -08
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