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Paula Vennells
Post Office Limited
20 Finsbury Street
London
EC2Y 9AQ
16 Apc 2018
Dear Paula,
ENTRUSTMENT OF POST OFFICE LIMITED WITH THE DELIVERY OF
CERTAIN PUBLIC SERVICES
Commencement
This letter has effect from the later of: (i) the date on which the European Commission
confirms that the requirements of this letter are compatible with the requirements on
State Aid of the Treaty on the Functioning of the European Union; and (ii) 1 April 2018
(the "Effective Date").
Existing Entrustment Letter
Notwithstanding the signing of this letter, in respect of the period prior to the Effective
Date, the provisions of the letter from the Government-to Post Office Limited entitled
"Entrustment of Post Office Limited with the delivery of certain public services" and
dated 23 January 2015 (the "Existing Entrustment Letter") shall continue in full
force and effect and the provisions of this letter shall be without prejudice to any rights,
remedies, obligations ot liabilities of any party accrued under the Existing Entrustment
Letter.
The Existing Entrustment Letter shall be terminated on the Effective Date.
Entrustment
This letter contains an overarching ministerial instruction entrusting Post Office
Limited with the provision and delivery of certain services of general economic interest.
This instruction is legally binding on Post Office Limited and Post Office Limited has
signed this letter in agreement and acknowledgement of this.
(a) We contirm that Post Office Limited is under a public service obligation (as set
out here and also contractually in the Post Office Limited Funding Agreement
dated April 2018, (the "Funding Agreement")) to maintairi, from the
Effective Date until the end of its financial year ending on or around 31 March
2021, a network of post offices beyond its optimal commercial size (the
"Network SGEI"). That network must meet the following minimum access
requirements:
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© Nationally, 99% of the UK population to be within 3 miles and 90% of
the population to be within 1 mile of their nearest post office outlet.
* 99% of the total population in deprived urban areas across the UK to be
within 1 mile of their nearest post office outlet.
", « 95% of the total urban population across the UK to be within 1 mile of
their nearest post office outlet.
© 95% of the total rural population across the UK to be within 3 miles of
their nearest post office outlet,
In addition, the following criterion will apply at the level of each and every
individual postcode district, establishing a minimum level of coverage at a very
local level.
¢ 95% of the population of the postcode district to be within 6 miles of
their nearest post office outlet.
Post Office Limited is required to provide this network of post office branches to make
available the services of general economic interest detailed in Annex A ("Product
SGETI") on the basis set out in the Funding Agreement. This Network SGEI obligation
therefore extends the provision of the Product SGEI over a network -which may be
beyond that required under individual Product SGEI contracts entered into on a
commercial basis between Post Office Limited and relevant Government departmeits
or bodies (whether public or private). The delivery of the Product SGEI by Post Office
Limited across its network will be governed in accordance with contracts or other
agreements under which the terms of the provision of the individual product SGEI are
The entrustment of the delivery of the Network SGEI set out in this letter to Post Office
Limited does not replace or change in any way any contracts or other agreements under
which the terms of the provision of the individual Product SGEI are specified. Post
Office Limited is expected to use reasonable’ endeavours to enter into contracts with
Government departments or bodies (whether public or private) contracting with Post
Office Limited in respect of the provision of one or more Product SGEIs. A list of the ©
current individual contracts and agreements held by Post Office Limited to deliver the
Product SGEI is provided in Annex B.
Method of Calculating Compensation
As soon as reasonably practicable following publication of its audited accounts for the
Financial Year ending on or around 31 March 2021, Post Office Limited will be
tequited to provide, in accordance with the Funding Agreement, a statement (the
“Cumulative SGEI Statement"), The Cumulative SGEI Statement must be
accompanied by a supporting statement from an independent financial adviser, to
confirm that the aggregate amount of the SGEI compensation payments made by the
Government to Post Office Limited under the Funding Agreement (the "Cumulative
SGEI Payment") did not exceed the difference between the actual net costs incurred
by Post Office Limited and the net profits that would have been incurred in connection
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with the provision of a network that Post Office Limited would maintain on a purely
commercial basis (as specified by the relevant European Commission decision(s)),
during the financial years covered by the Funding Agreement (the "Cumulative SGEL
Cost").
This is to be calculated using the net avoided cost methodology, in accordance with the
principles in paragraphs 21-32 of the 2012 Community Framework for State aid in the
form of public service compensation (“Framework”) and in precedent Commission
decisions, which calculates the SGEI net cost as the difference between:
the expected net cost for POL when providing the SGEIs; and
© the expected net cost / profit for POL when operating without any SGEI
obligations,
For the purposes of this net avoided cost methodology the costs shall include, without
limitation, all variable and fixed costs associated with delivery of the SGEIs including
contributions to pension funds, interest costs, central costs, depreciation and
amortisation costs of any employee incentivisation arrangements and the costs of
transforming the network, in each case whether such costs are recurring or exceptional.
Recovery of Overpayment
Notwithstanding clause 5.3 of the Funding Agreement, in the event that the Cumulative
SGEI Payment exceéds the Cumulative SGEI Cost, Post Office Limited will be required
to repay to the Government, within 10 Business Days of'a request fiom the Government,
an amount equal to such excess.
It is possible that Post Office Limited may during the period of this entrustment cease
to provide an individual Product SGEI, the provision of which over the post office
network beyond its optimal commercial size is compensated by the Government. In
those circumstances, the Government may in its absolute discretion, provided that the
provision of the Network SGEI will be maintained, withhold such reasonable
proportion of that compensation (if any) which corresponds to the net direct costs of
providing that Product SGEI.
BS ee
GRO
Post Office Limited acknowledges that the instructions set out in this letter are legally
binding. = -- 5
Signed by I GRO
for and on behalf of Post Office Limited
Dated 2018
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Annex A
SCHEDULE OF SERVICES OF GENERAL ECONOMIC INTEREST
PROVIDED BY POST OFFICE LTD AT POST OFFICE BRANCHES
Category of Service Provided Service Provided on
Service Behalf of
Processing social I Cash payment of state benefits I The Department for Work
benefit and tax including state pension, child I and Pensions
credit payments to I benefits and tax credits . .
the public. The Social Security
Issuing of vouchers to eligible I Agency - Northern Ireland
asylum seekers Her Majesty’s Revenue &
Customs
The Home Office
Processing of Providing passport Her Majesty’s Passport
national identity application forms for Office
and licensing customers to complete and The Cabinet Office
scheme return
applications .
Checking, authentication and I UK Visas and
processing of passport Immigration
applications and supporting Driver and Vehicle
documentation Licensing Agency
Processing of identity .
* I verification applications The Environment Agency
bret Te Capturing biometric data for
p - Biometric Residence Permits
Providing vehicle licence
application forms for customers
to complete and return
Receiving payment for vehicle
¥ licences and photocard licences
Services for the sale of Rod
* I Fishing Licences Gqr Wwe
Universal payment I Provision of facilities for ‘Financial Institutions
facilities for public I payment of electricity, gas, _ ns .
utility seivices, telecommunications and water I Individual Utility Service
: bills. Payment options include I Providers
pre payment and other Billing Service Providers
udgeting schemes (e.g. wey,
includi ings st Her Majesty’s Revenue
Including savings st lamps) and Customs
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Category of
Service
I Service Provided
Service Provided on
Behalf of
Provision of facilities for
payment of tax bills and social
housing rents
Local Authorities
Housing Associations
Access to postal
services
Provision of access to postal
services which the universal
service provider (Royal Mail
Group Limited) is required to
provide under regulatory
conditions and directions
issued by Ofcom in accordance
with section 36 of the Postal
Services Act 2011 and the
Designated Universal Service
Provider Conditions issued by
Ofcom on 27 March 2012
Royal Mail Group
Universal access to
basic cash and
banking facilities,
especially for rural
customers and those
on social benefits.
Provision of basic community
banking facilities (e.g.
including cashing of cheques,
cash deposit and cash
withdrawals and deposits) and
cash transmission facilities
(e.g: including postal orders),
in particular to socially
excluded customers and ~
businesses local to post office
branches
Financial Institutions
Her Majesty’s Treasury
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Annex B
POST OFFICE CONTRACTS TO DELIVER SGEI
AS AT THE DATE OF THIS LETTER
Category 1: Processing Social Benefit and Tax Credit Payments to the Public
Description of Services
Contracting Entity Opposite Post
Office Limited
POCA Card Account The Department for Work and Pensions
Asylum Seekers Benefits Payments Sodexho Pass
Payout (Emergency Payments) Contracts _I Blackpool Council
Payout (Emergency Payments) Contracts I Cornwall Council
Payout (Emergency Payments) Contracts_I Derbyshire Council
Payout (Emergency Payments) Coniracts_I Greenwich Council
Payout (Emergency Payments) Contracts_I Merton Council
Payout (Emergency Payments) Contracts I Reading Council
Payout (Emergency Payments) Contracts _I Torbay Council
Payout Contracts Ajttism Initiatives
Payout Contracts Durham and Darlington NHS
Payout Contracts Financial Services Compensation
Scheme
Payout Contracts Buckinghamshire Council
Payout Contracts Cumbria Council
Payout Contracts Hampshire Council
Payout Contracts Hull Council
Payout Contracts Lambeth Council
Payout Contracts Lancaster Council
Payout Contracts Manchester City Council
Payout Contracts Newham Council
Payout Contracts Redbridge Council
Payout Contracts St Helen’s Council
Payout Contracts Wirral Council
Payout Contiact Capita
Payout Contract Eon Energy Limited
Payout Contract RWE Npower ple
Payout Contract
Scottish Power Energy Retail Limited
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Category 2: Processing of National Identity and Licensing Scheme Applications
Description of Services
Contracting Entity Opposite Post
Office Limited
Passport Applications ‘Check & Send’
Her Majesty’s Passport Office
Driving Licence Applications
Driver and Vehicle Licensing Agency
Services for the sale of Rod Fishing
Licences
The Environment Agency
Capture of photograph in support of
Security Industry Authority (The Home
Verification Services: Generic Services
applications Office)
Biometric data capture for Biometric ‘UK Visas and Immigration
Residence Permit applications
Identity Assurance Services (for access to I Government Digital Services (The
online public services) Cabinet Office)
Document checking in support of a Care Quality Commission
Vetting and Barring Scheme application
(formetly CRB)
Agreement for the Provision of Identity
Verification Services: Public Carriage GB Group
Office Services
Agreement for the Provision of Identity GB Group
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Category 3: Universal Payment Facilities for Public Utility Services
Description of Services Contracting Entity Opposite Post
Office Limited
Bill Payments Santander (A&L Commercial Bank ple
as was)
Bill Payments The Co-Operative Bank ple
Bill Payments Allpay.net Ltd
Bill Payments Airtricity Holdings Limited (Republic of
Treland company)
Bill Payments EON Energy Limited
Bill Payments EDF Energy
Bill Payments RWE Npower ple
Bill Payments Scottish Power Energy Retail Limited
Bill Payments Scottish & S Southern (SSE)
Bill Payments _I British Gas Trading Limited
Bill Payments Phoenix Gas
Bill Payments BT ple, novated to BT Payment Services
Limited
Bill Payments South West Water Limited
Bill Payments Northern Ireland Electricity plo, novated
to NIE Energy Lid
Bill Payments United Utilities
Bill Payments Yorkshire Water
Bill Payment Bristol and Wessex Billing Services Ltd
Bill Payment Siemens Energy Services (a
Managément Division of Siemens PLC)
Bill Payment Capita
Travel Tickets Neath Port Talbot Council
Travel Tickets Scotland Improvement Service
Travel Tickets Strathclyde Council
Travel Tickets Transport for London
Council Tax and Other Related Council I The Lotd Mayor & Citizens of the City
Services of Westminster
Council Tax and Other Related Council
Services
London Borough of Hammersmith and
Fulham
Face to face payment services
The Lord Mayor & Citizens of the City
of Westminster
Agreement for Provision of Online and
E-Bulk Services
Atlantic Data Limited
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Category 4: Access to Postal Services
Description of Services
Contracting Entity opposite Post
Office Limited
Master Distribution Agreement - Mail
support services from Post Office
Limited to Royal Mail Group Limited to
assist Royal Mail Group Limited in meeting
its designated Universal Service Provider
conditions
Royal Mail Group Limited
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Category 5: Universal Access to Basic Cash and Banking Facilities for Business
and Retail Bank customers, and Government Savings Instruments, Especially
for Rural Customers and Those on Social Benefits
Description of Services Contracting Entity opposite Post
Office Limited
ATM Services Bank of Ireland
Provision of Basic Banking Facilities Lloyds Bank PLC — including Bank of
under the Banking Service Framework Scotland and Halifax
Provision of Basic Banking Facilities
under the Banking Service Framework
HSBC Bank ple — including First Direct
Provision of Basic Banking Facilities
under the Banking Service Framework
Santander UK PLC- including Cahoot,
Abbey National and Alliance+Leicester
Provision of Basic Banking Facilities
under the Banking Service Framework
Barclays Bank PLC
Provision of Basic Banking Facilities
under the Banking Service Framework
Royal Bank of Scotland PLC —
Including NatWest, and Ulster Bank
Provision of Basic Banking Facilities
under the Banking Service Framework
Nationwide Building Society
under the Banking Service Framework
Provision of Basic Banking Facilities TSB Bank PLC
under the Banking Service Framework
Provision of Basic Banking Facilities Virgin Money PLC
Provision of Basic Banking Facilities
under the Banking Service Framework
Northem Bank Limited — including
Danske Bank
Provision of Basic Banking Facilities
under the Banking Service Framework
Bank of Ireland (UK) PLC
Provision of Basic Banking Facilities
under the Banking Service Framework ~
AJB Group (UK) PLC — including First
Trust/
Provision of Basic Banking Facilities
under the Banking Service Framework
Metrobank PLC (currently Business
Customers only)
under the Banking Service Framework
Provision of Basic Banking Facilities Cooperative Bank PLC — including
under the Bariking Service Framework Smile
Provision of Basic Banking Facilities Svenska Handelsbanken AB (publ)
under the Banking Service Framework
Provision of Basic Banking Facilities CAF Bank Limited
Provision of Basic Banking Facilities
under the Banking Service Framework
Clydesdale & Yorkshire Bank
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