BRIEFING FOR SoS’s MEETING WITH CONSUMER FOCUS BOARD: 16
MARCH 2009
Post Office Network
Lines to take
Government's vision for the post office network
We have provided £1.7bn to support a network of around 11,500
branches to 2011. This includes £150m a year to support some 7,500,
primarily rural, branches which are loss-making for Post Office Ltd.
We will continue to subsidise this socially and economically important
part of the network beyond 2011 in recognition of vital role such post
offices play in the communities they serve.
The Network Change Programme was necessary, but understandably
unpopular. All closure decisions now taken. Programme has helped to
establish a better balance between demand and capacity.
We are committed to a stable and sustainable network of post offices
throughout the UK.
We now want to see a period of stability for the network. Funding is in
place to sustain it at around the current level. The scope for new
business opportunities is being explored through a mix of Post Office
and Government initiatives.
The financial viability of the network will be strengthened by the award
of a new Post Office card account contract to 2015 to POL. This will
generate a key income stream. As importantly, it will generate footfall
which is vital to the viability of subpostmasters’ associated businesses.
It will be further strengthened by the introduction of a wider range of
products and services especially in financial services. The Post Office’s
trusted brand, geographic and demographic reach with face to face
contact are ‘Unique Selling Points’
Network Change Programme
At the end of the programme the network consists of around 11,500
post office outlets —- more than all the major banks and building
societies combined.
On average at the end of the programme, over 90% of customers will
see no change to their local post office.
At end January 2009, 93.3% of the total population across the UK were
within 1 mile of their nearest post office outlet (access criterion requires
90%) and 99.7% were within 3 miles (access criterion requires 99%).
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e Without continuing public support in the form of the £150m annual
network subsidy payment, a purely commercial Post Office network
would have fewer than 4,000 branches.
Post Office Card Account
Consumer Focus is commissioning research to establish what POca
holders and others at the margins of financial inclusion want this product to
offer. Using the findings, it will investigate whether there is a case for POL
to develop an ‘evolved from’ POca product, which would offer flexible
functionality and prove attractive to existing POca holders and to other low-
income consumers. This could help increase financial inclusion by offering
a product tailored to the needs of a group of consumers underserved by
traditional financial services providers.
e For the longer term, POL’s aim is to develop a product or group of
products with greater functionality than the new POca to which POca
customers would naturally migrate.
e The Government has agreed a new contract for the Post Office card
account (POCA) with Post Office Ltd (POL). The contract will run
through to March 2015, with the option of a 2-year extension beyond
that.
e We have asked POL to ensure that they offer some modest
enhancements to the existing POCA to ensure it provides a better
service to customers. They have already introduced a facility to correct
mistakes. The new product will offer some further enhancements which
should include: a simpler opening process for customers; faster
clearance of payments into a POCA; and access via some Post Office-
owned cash machines.
e Difficult to envisage adding new functionality such as direct debit onto
the POCA. This risks unpicking the November decision to award the
new contract to POL.
Creation of a ‘neighbourhood bank’
Consumer Focus favours the development of the Post Office network as
the ‘neighbourhood bank’ to support a range of policy objectives, including
financial inclusion, and sustainable communities. They see trust in banks
as having been severely undermined, particularly for low-income
consumers with the Post Office, as a trusted institution with unparalleled
reach, ideally placed to become a neighbourhood bank.
* Consumer Focus should ensure that views are fed in to the Business
and Enterprise Select Committee inquiry.
« From a Government perspective, we’re clear that we want POL to
increase its range of financial services. The Post Office is developing
new products.
e There are a number of views about what a People’s Bank or
Neighbourhood Bank might look like. But need to bear in mind that the
Post Office is insolvent so cannot get a banking licence. It operates a
Joint Venture with the Bank of Ireland which is working well. It seems
logical to build on this successful partnership and develop new
products through this venture.
Only if raised
Q. What will happen to consumers if Bank of Ireland goes bust?
A. Government doesn't speculate on hypothetical situations affecting
individual institutions. But we should bear in mind that Post Office
savers benefit from the protection of the Irish Deposit Protection
Scheme, and the Irish Government's unlimited guarantee until
September 2010.
Background: POL offers Post Office-badged savings products, the funds
from which are deposited with Bank of Ireland. The Irish Deposit Protection
Scheme covers deposits up to E100,000 compared to the UK scheme limit of
£50,000. In addition, the Irish Government guarantees unlimited deposits until
September 2010.
Background
Consumer Focus came into being on the 1' October 2008, replacing
Postwatch as the statutory consumer body covering postal services.
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