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DEPARTMENT OF TRADE AND INDUSTRY
FAX HEADER
URGENT I
FOR THE ATTENTION OF: Stuart Sweetman, POCL I
Derek Hogson, CWU
Colin Baker, NFSP
Terry Deegan, CMA
NUMBER OF PAGES TO FOLLOW: 23
DATE; 30.11.99
FROM: ISABEL ANDERSON
POSTAL SERVICES DIRECTORATE
306 RED ZONE
151 BUCKINGHAM PALACE ROAD
LONDON SW1W 98S
FAX NO.
MESSAGE
HORIZON WORKING GROUP MEETING: WEDNESDAY 15
DECEMBER AT 3.30 PM
T attach papers for tomorrow’s meeting of the Horizon Working Group.
GRO I
ISABEL ANDERSON
e829
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tee
Your ref
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Internet!
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Mr Stuart Sweetman Department of
Managing Director ‘Trade and Industry
Post Office Counters Ltd 151 Buckingham Palace Road
148 Old Street London SWIW 98S
London EC1V 9HQ Enquiries I
30 November 1999
Jar 9 brant,
HORIZON WORKING GROUP: 1 DECEMBER MEETING
1 December meeting
My letter to you and copy recipients of 3 November confirmed that a full
meeting of the Horizon Working Group, chaired by Alan Johnson, will take
place on Wednesday 1 December 3.30pm to 5.00pm. The meeting will take
place at the Conference Centre, 1 Victoria Street.
I would be grateful if you and copy recipients could let me know the names
of those attending.
15 December meetings
You and copy recipients are also holding in your diaries a slot on
Wednesday 15 December 3,00pm to 4.30pm for a meeting of the drafting
sub-group if further work on the PIU paper is still required. We will confirm
this at the end of tomorrow’s meeting.
Papers
J attach:
(1) anagenda for Wednesday’s meeting;
. HWGSLET.OC
dta
Depurtotonl of Trade aul hiduotry
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(2) the minutes of the meeting with DSS/BA on 15 November; and
(3) adraft paper for submission by the Group to the Performance and
Innovation Unit study on the post office network.
Copies of this go to Derek Hodgson, CWU; Colin Baker, NFSP; and
Terry Deegan, CMA.
HWOBLEL.OG
dts
Department of Trade and Industry
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HORIZON WORKING GROUP
EIGHTH MEETING WEDNESDAY 1 DECEMBER 1999 A'T 3.30PM
Fy ewes roq ua of . }
1. Update on Child Benefit form issue, <f- feof & boric ase fic COG
2. we by Post Office on Benefits Agency contract issues.
g
SST ae on Orrer,
flow pe wort Gan buy he fa ct Ala ofr '
3. Update by Post Office on progress with project.
VPs kr loA~fro work Saye ew:
4. Submission to Performance and Innovation Unit,
5, Arrangements for next meeting.
DI
29 November 1999
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NOTE OF 7TH MEETING OF THE HORIZON WORKING GROUP
ON MONDAY 15 NOVEMBER AT DTT CONFERENCE CENTRE, 1
VICTORIA STREET, LONDON
Present:
Alan Johnson MP, Minister for Compctitiveness
Jeff Rooker MP, Minister of State DSS
Simon Lancaster, Privatc Sccretary/Alan Johnson
David Sibbick, Director-Posts, DTI
Tsabel Anderson, Postal Setvices Directorate, DTI
Christine Goodfellow, Bonefils Agency (BA) Payment Modernisation Programme Manager
Paul Hanson, BA ACT Project Delivery Manager
Manin Dunne, BA Commercial Manager
Davo Higlett, Private Secretary/ Jeff Rooker
Stuart Sweetman, Group Managing Director, Customer and Banking Sorvices FO
Rasil Larkins, Managing Director, Network Bank PO
Dave Miller, MD Post Office Network Unit PO
Colin Baker, Gcnoral Secretary, National Federation of Subpostnasters (NI'SP)
John Peberdy, Chairman to Negotiating Committee, NFSP
Terry Deegan, Cicneral Secretary, Communication Managers Association (CMA)
Tony Harris, Assistant National Secretary-Postal, CMA,
Tony Kearns, Assistant Scerctary, Communication Workers Union (CWU)
Matthew Payton, Roscarch Assistant, CWU
MAIN POINTS
Child Benefit Form
1, Mr Rooker said that he had looked into the issue of the wording on the child
benefit leaflet which had recently been sent out to 360,000 child benefit recipients.
He understood that the wording on ACT was consistent with that used on other
leaflets and forms since 1994, In his view there had therefore been no breach of
faith,
2. Mc Baker thanked Mr Johnson and Mr Rooker for the speed of their response I
to his complaint. He asked whether if the Benofits Agency were of the view that I
thore had been no breach of faith this meant that the child benofit letters would
continue to be issued,
3. Mr Rooker said that he believed that this mail shot had been completed and !
was not sure if any further such drops were scheduled. The aim was to move people
who were not entitled to be on weekly payment to monthly payment. Allowing
people who were not eligible to collect weekly payments to do so was wasting
money.
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4, Mr Johnson said that he understood that of 7.5 million child benefit recipients
360,000 had been receiving benefit on a weekly basis, and all of these had received
the form in question. Mr Rooker added that the BA were not mailing all child
benefit customers.
5, Mr Baker expressed concern that the words accompanying the child benefit
form were a blatant attempt to migrate people to ACT. The forms had been
misunderstood by customers since there was no mention of collecting the benefit in
cash at the post office as an option. On periodicity, he asked whether there would be
a transitional period for those migrating from weekly to four-weekly payments,
6. Mr Johnson concluded that he understood that the form was the same as that I
agreed in 1994 but he promised his officials would look further into this and would :
roport back to the group as a matter of urgency (Action Point: DT1). Mr Rooker
said that he would be quite happy to revisit the issue if necessary but he would not be
rc-designing forms and leaflets as there had been no change in policy.
WAT Susan dere ty nett Fo PD wes
Migration to ACT post 2003
7. Mr Rooker talked about the reasons for the planned move from paper-based
methods of paying benefits. He said that he was not in a position to enter into
negotiations on the commercial issues surrounding the OBCS. He referred to the
relationship that the Post Office has with a number of banks. He explained that, both
as a member of the Government and Minister for DSS, he was committed to
maintaining a viable network of post offices but he did not see it as his department's
responsibility to fund the network. Since DSS would be making savings from
moving to payment by ACT it might be possible to fund some modest adjustment in
the overall financial picture. On migration to ACT, Mr Rooker re-iterated that
benefit recipients were increasingly opting for ACT - with 54 per cent of new child
benefit recipients and 49 per cent of new pensioners choosing to receive benefit via
their bank accounts. He recognised however that some people would never be
suitable candidates for bank accounts. The Benefits Agency made around J million
emergency payments to recipients who represented some of the most vulnerable
citizens. On the Performance and Inriovation Unit study, Mr Rooker said that he had
met with Charlos Clarke, the Minister sponsoring the study on the future of the Post
Office Counters network.
Payment modernisation programme - Progress since May 1999 and forward I
look I
8. Mt Ilanson described work which the BA have been undertaking since the I
Ministerial decision of 24 May with support from POCL and the subpostmasters and
subpostmistresses in the pilot offices, The BA had successfully withdrawn the
Benefit Payment Card (BPC) without interruption to payments. Closure of the BPC
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project had involved wind-down activity. They were continuing their systems work
on CAPS which was always intended as a baseline for modern payment methods and I
had other business benefits associated with rationalising personal details of !
customers, They had of course also started early work on the project for delivery of I
ACT plans. i
9, On the forward look, Mr Hanson explained that this work, which was
necessarily process driven, involved: project initiation; working with Ministers on
setting objectives; establishing a timetable, and determining resource/IT \
requirements. Some big decisions needed to be made, for example, on exceptions to -
payment via a bank account; the payment process; the migration process; and
partnerships.
Exceptions
10. On exceptions, Mr Hanson said that there was a need to establish which
people and which benefit payments were not appropriate for migration to ACT.
There were a number of people for whom ACT might not be the right answer, these
might, for example, include people who had been rejected by banks, young people
and people who deal in cash. A mechanism for dealing with those for whom ACT is
not suitable had not yet been identified,
11. Mr Baker asked how many people DSS estimate to fall into this category.
Mr Hanson said that some research had been done including a study by the Rowntree
Foundation. The working assumption was that exceptions could number perhaps two
million people.
12, Mr Deogan asked whether this category included an element of exclusion due
to self-selection, Mr Hanson was unable to confirm the position on this,
13. Mr Deegan asked whether ordinary individuals would have an alternative to
being paid by ACT. Mr Hanson said that ACT would be the nonnal method of
payment. Individuals would have to fall within the limited exception category in :
order not to be paid by ACT. : I
Payment process
14. Mr Hanson said there was work to be done with the Post Office on delivery of
Ministers' commitment that people would continue to have a choice of collecting
their benefits in cash at post offices. The new Postal Regulator would be monitoring
access to post office services, The DSS/BA were concemed in particular about
accessibility in rural communities and outlying urban areas, they knew that in the
latter a number of post offices were very heavily reliant on benefit work.
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Migration process
15. Mr Hanson described the sorts of issues which BA would need to take into
account in decisions on the migration process. For example, they would need to
make decisions on the order in which they migrate customer groaps and payments.
They needed to cnsure that the plans enabled them to fulfil the obligation of the
Secretary of State to pay the right amount of money to benefit recipients on the
correct day. They also needed to take account of the DSS and Government financial
picture. There was also a need for the BA plans to intercept the Post Office plans for
network banking.
Partnership
16, Mr Janson emphasised that BA would need to think about the role of their
partners in planning the migration process, These included the banks with whom
DSS/BA already have relationships since 34% of customers were already being paid
their benefit by ACT. They would need to make sure benefit customers could access
their cash. And they needed to establish an appropriate relationship with the Post
Office under these new arrangoments. The BA were the Post Office's biggest
customer and a large contributor to sub-postmasters' incomes. Sub-postmasters also
had a big impact on BA's customers.
Next steps
17. Mr Hanson said that DSS/BA were looking forward to seeing the results of the
Prime Minister's PIU study which would look at the value of the network. The
DSS/BA expected to take 1% to 2 years to develop the policy options with Ministers.
A lot of planning work was necessary in order to deliver the ACT migration by 2005.
Officials from DSS/BA would be having a further meeting with key people in Post
Office Counters on 23 November.
Question and Answer session
18. Mr Miller asked whether the Benefits Agency envisaged having achieved
migration of the "ramp" by 2005, Mr Hanson said that BA were aiming to complete '
the migration of all customers by the end of the existing contract in spring 2005,
19. Mr Kearns asked who would pay for dealing with the rump - who was going to
pick up the tab,
20, Mr Ilanson confirmed that there would be a need to protect benefit customers
against bank charges. Other important issues included how customers could be
protected from losing benefit if they become overdrawn and how to deliver benefits
in denominations smaller than £1. Mr Larkins suggested that there were
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straightforward answers to these latter two questions and invited Mr Hanson to talk
with him.
21, Mr Keams asked when the answers to such questions would be known given
the objective of commencing the migration in 2003, Mr Hanson said that DSS/BA. :
expected their plans to be well developed by 2001. i
22. Mr Baker described how the procedure whereby benefit recipients signed for
their benefit in post offices offered a degree of security. He doubted whether this
could be replicated with ACT. Mr Hanson conceded that there was an element of?
passivity associated with receiving benefit by ACT. The BA would need to address
the issue of any additional safeguards which might be needed.
23. MrJJanson reiterated that there were 18 months to 2 years’ work to be
undertaken in consultation with Ministers, At the moment, the DSS/BA were
working on the timetable for the project work.
24. Retuming to the issue of customer choice, Mr Deegan asked whether
everyone would have the opportunity to opt for the option of collecting their benofits
in cash. If this option was not universally available there would be a stigma attached
to collecting benofits in cash. Mr Hanson confirmed that everyone would have the
opportunity to collect their benefit in cash at the Post Office. He explained that in
crediting benefit to an account ACT would be the normal mechanism, whilst in
debiting the account people would have the continuing choice of a range of outlets,
including banks, ATMs, cashback facilities, and, of course, post offices.
25, Mr Rooker and Ms Goodfellow confirmed that if a customer had a bank
account ACT would be the normal method of payment. Clearly, however, there
would inovitably be a need to make provision for a number of exceptions.
Current post office contract management arrangements
26, Mr Dunne said that the BA met with the Post Office every two months to
discuss service issues; their coittract with the Post Office was the biggest single
service contract in the UK, The low level of complaints received suggested that the
contract works quite well. The BA also met. with the Post Office in the context of
the Fraud Prevention Action Group, and Quality Forum meetings were held to
discuss improvement initiatives.
Methods of payment business ~ as usual
27. Mr Dunne said that BA's communication strategy was unchanged since 1994.
Standard wording and customer information continued to be used, The forms in use
stated that payment by ACT was available at post offices.
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28, Mr Baker asked whether BA would be discontinuing the procedure instigated
under the BPC project whereby BA wrote to beneficiaries in receipt of more than
one payment or having the facility to receive their payment at different post offices
advising them that in future they would only be able to use one nominated post i
office. Mr Hanson said he would need to look into this, The need to do this for the I
BPC had passed. He was unaware if there were other business reasons (Action
point: BA). I
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29. Mr Johnson explained that the Horizon Working Group’s task was to Jook at
the scenario where POCL stood to lose up to £400 million of revenue from the BA .
Even with automation and the development of network banking POCL might well
face a financial gap of as much as £300 million. DSS had said in response to crucial
questions asked about choice of payment that people would not have the choice
about how money was paid into their account but would have the choice on how they
accesscd the cash, There was a potential dilemma in that the Government wanted
people to encourage people to have bank accounts whereas allowing benefit
recipients to continue to receive their weekly benefit payments in cash only if they
didn’t have bank accounts would mean that many wouldn’t want to use a bank
account. In response, Mr Hanson said that 80 per cent of benefit customers already
had access to bank accounts.
30, Mr Johnson asked how many people with bank accounts at post offices that
could be accessed at post offices received their benefit via ACT. Mr Sweetman
undertook to look into this question (Action point: Post Office).
31. Mr Sweetman went on to express concern about the consequences of seeking
to pay all benefits by ACT. He said that DSS were currently paying the Post Office
40/S0p per transaction, POCL’s research showed that transaction costs of banking
were of a similar scale. POCL’s discussions with the banks suggested that they were
not enthusiastic about this benefits work which they saw as being a loss-making
proposition, He asked how Mr Rooker saw a way through this, mentioning that
Frank Field had seen the issue in policy terms as a liability the banks would be
required to absorb, Mr Hanson pointed to the wider government agenda on social
exclusion. He indicated that mixed messages were being received from the banking
industry, and a clear view had yet to emerge,
32. Mr Dunne said that not all benefit recipients were perceived in the way Mr I
Sweetman was suggesting. A lot of transactions were now highly automated and.
some banks were offering simpler products such as direct debit-only cards.
Mr Peberdy suggested that banks might seck in the region of £1.80 per transaction,
the equivalent of an ATM transaction.
33. Mr Deegan said that the BA should recognise that many within the Post Office
were still reoling from the shock of their withdrawal from the BPC project. ‘The
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impact on the Post Office was deeply worrying. Everyone needed to fully
understand that whereas a few months ago Post Office staff believed they were
building a relationship with the BA, they were now very worried about the impact of
recent developments on the business. He Suggested it would be a tragedy if the BA
saw the post office counters network as just another outlet for paying benefit
recipients - any hope of maintaining the post office network in its present form
would not come to fruition, He exprossed concern that the planned migration to
ACT would stigmatise those without bank accounts, At the moment the great
strength of the Post Office was that it crossed social divides, He wished to avoid the
situation where the Post Office was just dealing with the bottom end of the market.
Government should not underestimate the impact on society if POCL were not able
to do deals with the banks,
34. Mr Hanson confirmed that the DSS/BA recognised their wider public sector
role and obligations.
35. Mr Sweetman said that looking forward they would need to find a product
which meets the needs of the 2 million for whom a bank account would not be
appropriate. He was reassured that DSS/BA saw the Post Office as a potential lead
player in coming up with the solution to this,
36. Mr [anson said that the DSS/BA have 27 million different customers. Social
stigma was an issue about which they were concemed across all of service delivery
not just payment methods. Mr Johnson said that the PIU would be paying particular
attention to that point.
37, In conclusion, Mr Johnson thanked the DSS/BA team for their presentation
and asked if they would retum and give the Horizon Working Group updates on
progress,
DTI Postal Scrvices Directorate
29 November 1999
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DRAFT
JOINT SUBMISSION BY THE HORIZON WORKING GROUP TO THE
PERFORMANCE AND INNOVATION UNIT STUDY ON THE POST
OFFICE NETWORK
INTRODUCTION
1, The Horizon Working Group was established by the Secretary of State for
Trade and Industry following the Government's decision in May this year to
restructure the Horizon project, notably by discontinuing the benefit payment card
element of the project, removing DSS/BA as a party to the contract, and revising the
contractual basis to that of a conventional procurement rather than the previous
private finance initiative (PFI) basis, The Government also agreed to contribute
substantially towards the capital casts of the project by allowing the Post Office to
liquidate £480 million of assets already held on their balance sheet. In a parallel
decision the Government decided that the existing paper-based methods of paying
‘ social security benefits at post offices would be phased out over a 2-year period
starling in 2003, and would be replaced by modern electronic means using the
existing automated credit transfer system (ACT), Against an expectation that the
Horizon platform would by 2003 have enabled POCL to substantially expand its
a
commercial arrangements with the banks, allowing bank customers to access their
accounts at post offices, the Government offered assurances that all those benefit Ah
recipients who wished to do so would continue to be able to access their benefits in
cash at post offices both before and after the changeover, The Government stressed
that there would be no change to the existing methods of payment before 2003,
income) from carrying out this work on behalf of the Benefits Agency.
} PIUPALOL.DOC
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POCL currently carn some £400 million a year (about one-third of their total
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MEMBERSHIP AND REMIT.
2. The Group is chaired by Alan Johnson, Minister for Competitiveness at the
DTI, with membership drawn from the main stakeholders in the Post Office Counters
business, namely Post Office Counters Ltd (Pocky itself, the National Federation of
“beoe
Sub-Postmasters who represent some Pa hotsand of the nearly 18,000 sub-
postmasters who run the vast majority of the network outlets; the Communication I
Workers Union representing some Y thousand frontline staff working in the 600 i
Crown offices and in headquarters; and the Communication Managers Association
representing Z thousand managers within the Counters business. The Group was ;
given a remit to contribute to ensuring that the agreement in principle between POCL.
and ICL (the system supplier) signed on 24 May was carried through to a full
agreement; to oversee the roll ont of Horizon to all offices in the network within the
agreed timescale; to contribute to the smooth migration from paper based methods of
paying benefits to payment via ACT; and to contribute to maximising the
commercial potential of the Horizon platform and hence the future viability of the
counters network. Specifically, the terms of reference of the Group are
“Tn relation to carrying forward the work on the POCL/ICL Horizon project:
© (o oversee the negotiations between POCL and ICL which will develop the
letter of agreement signed between the parties on 24 May into a Codified
Agreement governing the contractual relationship under which the project
will be taken forward, together with the consequential arrangements
between POCL and the Benefits Agency; and to facilitate solutions to any
problems which may arise;
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*® to oversee, to contribute actively to, and to facilitate solutions where
problems arise, the completion of the development phases of the Horizon
project, and in particular the smooth and timely roll-out of the system to all
offices within the post office network, and the subsequent satisfactory
migration of benefit payments from the present paper-based methods to
more modern, ACT-based, methods of payment accessible through post
offices; and
* to contribute through ideas, contacts and other practical measures, to
maximising the commercial potential of the Horizon infrastructure and the
future viability of the post office network as a whole.”
‘THE HO:
PROJECT
3, The Horizon project was initiated under the previous Administration. Its
objectives were to automate the network of post offices in order to make existing
business more efficient and help to win new business; to provide a more secure and
efficient way of paying social security benefits by replacing the existing paper-based
methods by a magnetic strip benefit payment card; and to provide the Department of
Social Sccurity/Benefits Agency (DSS/BA) with the means to account fully for their
vast programme expenditure. ‘The project was by any standard huge, worth some £1
billion, involving automation in 19,000 post offices and 40,000 counter positions;
and providing links into DSS/BA and PO systems. The agreement to take forward
the project on a PFI basis was signed in May 1966 between POCL, DSS/BA and ICL
Pathway as the private sector partner. However it emerged over the next few months
that the project was necessarily of a complexity which had not previously been fully
understood and by February 1997 substantia} revisions to the timetable for the
slippages and by March 1998 the project was almost 2 years behind even the revised
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project were agreed by all the parties. Despite this there were further significant
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timetable agreed in February 1997. At the same time, ICT. sought a change in
contractual terms either in the form of an extension to the contract (to allow them
further time to recover their costs) or increases in charges. At that point Ministers
established an interdepartmental working group comprising officials from the DTI,
DSS, Treasury and CITU to advise on the way forward for the project. Intensive
efforts over the following 14 months involving substantial external assistance on
technical evaluation and commercial facilitation resulted in the decision by Ministers
described at paragraph 1 above.
THE NETWORK CHARACTERISTICS
4, Post Office Counters Limited is a wholly owned subsidiary of the Post Office.
It oversees the nationwide network of post offices, negotiating and co-ordinating the
contracts with Government bodies and other clients which provide business for the
network, The post office network comprises more than 18,500 outlets. All but 600
of these - the directly run and staffed Crown Offices - are run on an agency basis, the
vast majority by private individuals, The network thus represents a partnership
between the public and private sectors, with subpostmasters investing over £1 billion
of their own moncy in the network. Around 85% of post offices share premises with
anothcr retail business, enabling cost-effective operation of the post office through
shared overheads, whilst generating additional trade for the retail business through
the “footfall” effect of benefit recipients collecting their benefit cash at the post
office counter, and staying to miake purchases from the retail side of the business.
5. Although he post office counters network has been shrinking by some 200
offices a year for some years now, as subpostmasters leave and replacements cannot
be found, it remains the largest retail network in Europe. Statistics show that around
94% of tho UK population live within a mile of a post office (99.9% within 5 miles),
I
though this average probably falls to around 80-85% in rural areas. It is also
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estimated that 28 million people per week make around 45 million visits to a post
office each week. The post office network provides communities with access to a
wide range of services (some 170 products), of which the most important include I
access to postal services, benefit payments, cash, banking and bill payment services,
licensing and other Government services and a range of other customer driven
services (0.g.: lottery, bureau de changes, insurance), Local businesses in the I
community also value access to corporate banking/deposit facilities, cash
provisioning and access to mail services. Around 25% of all notes and coins in
circulation in the UK are acquired across a post office counter.
6. Numerically raral post offices account for almost half the network (57% of
rural parishes have a post office, less than 10% have a bank or building society), yet
they account for less than 20% of the network’s turnover. The post office outlet is
particularly valuable in rural areas where neighbourhood village shops are only able
to survive in the face of retail pressures because of the income which operating a
post office provides. ‘The village post office and store can provide a focal point in
the community providing access to cash and essential everyday items, an information
centre in arcas where frequently other retail and banking facilities are absent. The
accessibility of such post offices is crucial to the least mobile sections of the
community ~ poor, elderly, infirm, mothers with young children, etc.
7. As in rural areas, post offices in urban deprived areas pay a particularly
important role. Tfere also the post office is often the last remaining shop and
financial services outlet in a neighbourhood. The post office in such communities
can also act as 4 lynch pin in sustaining the local centre, having the potential to
generally increase the amount of trade of other shops located in its vicinity (a
somewhat wider manifestation of the “footfall” effect referred to above). Post
Office statistics show that in more than one third of the most deprived wards in i
England and Wales, covering almost 3 million people, there is at least one post office
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but no bank or building society. As banks and building societies continue to prune
and rationalise their branch networks, the number of deprived wards dependent
solely on the post office seeins certain to continue to rise.
8. A further significant statistic in terms of the potential value of the post office
network as a delivery channel for services which contribute towards achieving the
Governments objectives in combatting various forms of social exclusion is that post
office customers in deprived urban areas carry out 33% more business at their post
office than the national average. As almost all adults visit a post office the post
office customer profile matches the population profile closely. The visit profile is,
however, more weighted towards the Es (31% compared with 29%), older people
(24% as compared with 20% for 65 plus) and women. Distribution of pensions and
benefits is a significant element of the business transacted at post offices in these
areas. The range of products available at post offices makes them particularly well
suited to meeting the needs of the socially disadvantaged, for example schemes for
easy budgeting for household bills through traditional well-tried methods such as
saving stamps (as well as thoir modern replacement, the plastic card). As well as
providing access to cash ~ vital to those who currently lack access to a bank account -
post offices offer a range of financial products aimed at this market including
National Savings Pass Book accounts allowing small sums of money to be saved,
postal orders for easy money transmission and more recently insurance products
such as bill payment cover, tailored for this market.
9. Currently around half of Post Office Counters income is derived from its I
contracts with Government departments and agencies, including the Benefits
Agency, the Driver and Vehicle Licensing Authority and the Department for National
Savings. By far the largest of these is the contract with the Benefits Agericy which
runs until 2005, accounts for more than one-third of POCL’s total income, and
constitutes the UKs largest single service.agreement, The impending loss of income
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from the Benefits Agency adds sharply to the case for securing Some assurance of
stability in the remaining public sector contracts. Other business includes Royal
Mail/Parcelforce business which accounts for around 20 per cent of the POCL’s
“income, New services such as the sale of lottery tickets, bureau de change facilities,
insurance products and simple banking transactions for banks other than Girobank
generate about 10 per cent of POCL's business,
. APOST OFFICE SMARTCARD
10, Against the background of the Government’s decision on the way forward for
the Horizon project set out in Paragraph 3 above, and the network characteristics
described in paragraphs 4 to 9, the Horizon Working Group has begun to examine
the wider commercial potential of the Horizon platform. As noted above, the benefit
payment card had from the outset been at the heart of the Horizon project (and
arguably a major cause of the delay and cost escalation), and the decision to
discontinue it changed substantially the nature of the project from a technioal
viewpoint and also affected significantly the project's commercial potential. The
technical simplification which resulted from removal of the card, and the contractual
simplification which flowed from it, enabled a clear goal of equipping every counter
position at evory Post Office throughout the land by Spring 200] to be set. However
the decision to migrate all social security benefits to payment by ACT over a two
year period starting in 2003 not only stands to lose POCL some £400m a year in
revenue from BA once the migration has becn completed, but the loss of the benefit
payment card risks removing an important commercial opportunity which the
Horizon platform could otherwise have provided.
11, Although the benefit payment. card was to have taken the form of a magnetic
strip card utilising familiar (and therefore non-threatening) technology, the
possibility remaincd open that at a certain point in the renewal cycle of the cards the
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magnetic strip technology would be replaced by smast card technology (though for
sccurity reasons the BA application would remain “dumb"). However an installed
base of some 15 million smart cards justified by virtue of the BA application on a
Post Office branded smart card could have been expected to create an extremely
powerful marketing tool for attracting a series of revenue-earning commercial
"smart" applications. The Horizon Working Group believe that the early
identification of an alternative major application which would justify the creation of
a Post Office smart card as a basis for unlocking a further series of commercial
opportunities could play an important part in helping to replace revenue lost from ;
BA. However this window of opportunity may be strictly time-limited, since despite
the Post Office’s trusted image and ubiquitous availability there are likely to be
overwhelming “first to market” advantages,
WORKING WITILTHE GRAIN OF WIDER GOVERNMENT OBJECTIVES
12. The Group has also been looking at two further key areas of activity in which
the existence of the Horizon platform can be expected to open up significant
commercial opportunities, The first of these is network banking, to which reference
has already been made, . The second is the electronic interface between the public
and Government, government agencies, local authorities etc, The electronic delivery
of public sector services has been branded as "electronic government" or
"modemising government" but is referred to generically by the Post Office as
"government gateway", In looking at these, and indeed at other areas of potential
commercial opportunity for the Horizon platform, the Group has been concemed to
look beyond simply the straight commercial potential for the Post Office, important
though that unquestionably is, but to explore in addition the extent to which such
developments could best be carried forward in a way which would work with the
grain of wider Government objectives rather than against it:
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13. It is clear to the Group that a combination of the unique reach of the counters
network, the social groups who regularly use and trust it, and the potential of the
Horizon network combine to create a powerful weapon in the campaign against
social exclusion, particularly in the fields of financial, retail and IT exclusion; and in
the Government’s wish to communicate with citizens in a modern, convenient and
cost effective manner.
BANKING
14. The development of network banking facilities at post offices forms an
important part of POCL’s plans for the future, but is also key to the Government’s
plans to migrate to the payment of benefits by ACT from 2003. POCL. already has
agrcements in place with Alliance and Leicester Girobank, the Cooperative Bank and
Lloyds TSB. But these arrangements rely on slow and expensive paper-based
transactions, which severely constrain the scope for any major expansion of POCL’s
network banking activities. The Horizon platform offers the promise of removing
that constraint, and opens up a scenario in which a combination of, on the one hand
e the apparent desire by the high street banks to continue apace with their
programme of branch closures (and to focus the remaining branches more on
selling services than on carrying out routine banking transactions);
® yet at the same time wanting to enhance rather than reduce the service they are
able to offer their customers; i
« whilst also at the same time needing to accommodate large munbers of new
accounts (powerfully driven by Government policies) of a kind for which they
might normally have little or no appetite;
and, on the other hand,
* the ubiquity of the nationwide network of post offices; }
* its trusted image with the public, and especially that sector of it unused to, and I
probably mistrusful of, the existing financial instutions; and
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* its long experience in carrying out a wide range of financial transactions on an
agency basis;
together with
© POCL’s need to find additional business to replace the revenue stream from the
Benefits Agency;
« the desirability of keeping as many benefit recipients as possible within the post
office system, not least to retain the “footfall” effect for the retail side of
subpostoffices; and
® the desirability of maintaining as far as possible a balancing outflow (through
withdrawals from a large number of bank accounts) for the large inflows of cash
in the form of corporate deposits especially from small and medium sized
companies;
and
© the Government’s need to honour its commitment that all benefit recipients who
wish to do so will be able to access their benefits in cash at post offices both
before and after the migration to ACT from 2003 - as well as securing a credible
means of ensuring that benefit recipients living away from the major
concentrations of banks and ATMs can in practice access their benefits in cash
without undue expense or difficulty
begin to take on the appearance of - potentially at least - an cxtraordinarily
serendipitous fit.
15. The reality may be less clear cnt, There are important questions of timing.
The longer Horizon is delayed, the more likely it is that the banks will have moved to
develop alternative solutions. There are technical issues still to be fully resolved
about the suitability of Horizon as presently configured to handle potentially very
large numbers of on-line transactions, and about the interface between Horizon and
the banks’ systems, Perhaps above all lies tho question of how much the banka will
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be willing to pay POCL for providing front-end banking on an agency basis,
especially if many of the accounts are of marginal profitability (if at all) for them.
16. The Horizon Working Group will be pursuing these issues with POCL. and
other interested parties over the coming months,
GOVERNMENT GATEWAY
17. A second important area of potential opportunity for POCL which the Horizon
platform can open up is the delivery of Modern Government, or Government
Gateway, applications on behalf of central, regional and local government. However
although the potential here would appear to be enormous, there remain at this stage
very great uncertainties as to timing, as to the share of such work post office counters
might be expected to attract in competition with a multiplicity of alternative delivery
channels, and as to the value of the revenue streams that POCL might generate from.
such work,
18. It is clear that the counters network has a number of powerful advantages as a
potential delivery channel. Its ubiquity and its trusted image have already been
referred to, and when combined with the customer profile described in paragraph 8
above, the network offers an ability to reach large sections of the community for
whom electronic access would otherwise be denied. But at this stage it seems
difficult to predict with any accuracy how quickly even the most basic Modem
Government applications such as central notification of change of address will come
on stream; and in the meantime there are predictions that very ]arge numbers of
households, including the C,D and FE, socio-economic groups, may acquire access to
the internet through digital television a groat deal more quickly than earlier forecasts
based on the growth of hone computers had predicted.
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19, Whilst assessments can be made of the savings to Government expected to
flow from more modern ways of interfacing with the citizen, the price which
Government will expect to pay will in practice take account of the prices charged by
alternative delivery channels. Commercial delivery channels may be prepared to
carry certain amounts of Government information without charge, where they believe
that such information will add value to their channels. Others may be prepared to
provide interactive services without charge, or at very low cost, where doing so will
enablo them to attract advertising revenue,
20, The Horizon Working Group is at a very early stage in its consideration of the i
potential of Modern Government applications for the counters network, and is due
shortly to take delivery of a paper from CITU aimed at providing the Group with a
central and expert perspective.
CONCLUSION
21. The Horizon Working Group very much welcome the work on which the PIU
have now embarked, and which we see as complementary to our own task, We
believe that the Horizon platform offers the counters network its best hope of a
viab]e longer term future, and we will work towards maximising that potential.
Whilst we hope that the results of our efforts will go some way to reducing the gap
which will be left in POCL’s income when current annual revenue of some £400
million from BA begins to fall away from 2003 onwards, it is far from clear that i
revenue from new commercial activities can bridge the gap fully, at least from the
outset, Setting this work in the wider context which forms the remit of PIU study
should serve to provide Ministers with valuable insights to assist them in the
decisions they will need to take on the future of the counters network.
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22. We are, of course, happy to provide further information or clarification on our i
work so far, and on the next stages of our programme, In any event we feel it will be i
useful for our two groups to remain in touch and to exchange views and information 1
over the coming weeks. I
Horizon Working Group
November 1999
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