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Question for Short Debate
Thursday 30° March 2017 — 4pm - 5pm
Location: TBC
Lord Hain:
To ask Her Majesty’s Government about the future of local post
offices.
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Contents Page
Pages
SPEAKING NOTE
FORMAT OF DEBATE
SUPPLEMENTARY QUESTIONS
FURTHER Q&A
RELATED TOPICS
BRIEF HISTORY OF THE POST OFFICE
KEY FACTS
HAIN: PAST PARLIAMENTARY DEBATES / ORAL QUESTIONS
BACKGROUND ON PEERS
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1, SPEAKING NOTE
Closing remarks
e lam very grateful for the Honourable Lord for bringing this debate
today. I would like to start by reiterating the Government's commitment
to the Post Office.
e The Government recognises the important role that Post Offices play
in communities across the country. We have said so time and again,
and we mean it.
e Local post offices are an important option for customers and small
businesses to access a range of mails, financial and Government
services, particularly to its more vulnerable and remote customers.
e That's why the Government has committed to securing the future of
3,000 rural post offices in its manifesto — typically those branches that
are the last shop in a community.
e Between 2010 and 2018 the Government will have provided nearly £2
billion to maintain, modernise and protect a network of at least 11,500
branches across the country.
e The Government sets the strategic direction for the Post Office, which
means we ask it maintain a national network of post offices that is
accessible to all, and to do so more sustainably with less need for
taxpayer subsidy.
e Post Office Limited delivers this strategy as an independent business.
We do not interfere in its day to day operations, such as the provision
and location of branches.
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e Today there are over 11,600 post office branches in the UK and the
network across the UK is at its most stable for decades.
e This is because the Post Office is transforming and modernising its
network, thanks to the investment Government has made.
e Support from Government has enabled—
- Over 7000 branches to be modernised across the UK - offering a
better experience for customers and more sustainable retail
propositions for postmasters.
- Customers to benefit from almost a million extra opening hours
each month and the largest Sunday retail network in the country.
- The subsidy needed to sustain the network drop from a peak of
£210m in 2012 to £80m last year and this should continue to fall.
- The business to reduce its losses - from a loss of £120m in 2012/13
to just £24m in 2015/16.
e And customer satisfaction has quite rightly remained high, at over
95%.
e In short: the business is offering more for customers, doing so more
efficiently for the taxpayer and ensuring that Post Office services
remain on our high streets throughout the country. We are
therefore confident that we have addressed the Noble Lord Hain’s
concerns about protecting local branches
Post Office in crisis / union criticism of business
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e Far from being in “crisis”, the Post Office is following a successful
course to commercial sustainability under the leadership of its
management team.
e This Government disagrees with the unions’ view that the Post
Office is failing, as it is reducing its losses, reducing its need for
subsidy and continuing to offer a high quality service to customers
with longer and more convenient opening hours.
e The business already engages with its stakeholders, such as the
National Federation of Subpostmasters and its unions, and I would
encourage them to continue their dialogue with the Post Office.
e Whilst significant challenges remain to completing the goal of
securing its future, the Government believes the business is on the
right path.
Creation of a Post Bank
e The case for creating a state-backed Post Bank was considered in
2010.
e Itwas decided that the Government investment then available would
be better used to modernise the network. The success of this
approach has been seen over 7000 modernised branches and a
network at its most stable for decades.
e While Post Office did not create its own bank, it has a successful
financial services business offering current accounts, mortgages
and personal savings as well as foreign currency. These are
delivered through its partnership with the Bank of Ireland and offer
all the key benefits of a Post Bank. Post Office has also developed
its insurance offer by building its in house capability.
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e Moreover Post Office has been working with the Banks and the
British Banking Association to create a standardised framework for
access to third party banking services.
e The framework was launched in January and offers simplified
access to those holding accounts with other banks across the UK.
e This is both a fantastic opportunity for the business and for the
communities they serve — many of which have been badly affected
by bank closures.
e lItis therefore hard to see what a Post Bank offers to customers
which is not already offered already.
Changes to Crown Network
e The Post Office’s proposals for franchising and hosting some of its
Crown branches are part of its plans to ensure the network is
sustainable and profitable in the long term.
e The change from a Crown to a franchise or host branch has been
undertaken previously in many locations across the UK and is a
successful way of sustaining Post Office services in these locations
as Post Office shares staff and property costs with a successful
retailer.
e These on-going plans have to date meant Post Office Crown
branches have moved from a £46m annual loss in 2012 to breaking
even today.
e But more work needs to be done. There continue to be Crown
branches which are loss making.
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e And that’s why these changes are important. By making all
branches more sustainable, including the Crowns, we will help to
keep Post Office services on our high streets throughout the
country, whilst reducing the funding burden on the taxpayer.
Government funding of Post Office
e The current funding agreement for Post Office expires in March
2018.
e The Government has said publically that it considers that Post
Office will likely continue to require some funding, to sustain the
nationwide network and to meet our manifesto commitment to
secure 3000 rural branches.
Funding discussions with the Post Office have opened and
discussions continue.
Network Consultation
The Government conducted a consultation exercise on the Post
Office network before the end of last year.
The aim of the consultation was to help us to understand what the
public and businesses expect from the Post Office and to
understand more fully what subsidy is needed and what it should be
used for.
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I want to stress that this consultation did not propose any changes
to the network, but sought views on how to make the network
stronger, sustainable and better for its customers.
The Government expects Post Office to require funding over the
coming years, and the feedback we received will help test how that
funding may best support the network.
The Government will publish its response to the consultation in due
course.
Government services at Post Office [If raised]
The Post Office is the largest provider of counter-based
Government services in the UK and has key contracts with the
DVLA and the Passport Office for a number of transactions.
Its extensive geographic reach and key role in the heart of
communities means that it is well-placed to bid for and win
important contracts.
The Post Office is continuing to work with both local and national
government to look at opportunities for delivering more government
services through the network.
But it’s important to remember that Government cannot simply
award contracts to the Post Office. It is right that services must be
procured competitively to ensure value for taxpayers’ money.
Furthermore, Government has an important role to play in ensuring
people can access Government services in the ways that best suit
their needs.
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e Increasingly, many of us prefer to access Government services
online, which can be more convenient for people. Whilst this has an
unfortunate impact on Post Office, we cannot ignore people’s desire
to transact with Government digitally from the convenience of their
own homes.
e But it is for that reason that Post Office continues to develop its
online presence. For example it is one of the largest providers of
identity verification through the Government's “Verify” service.
Restructuring at Post Office HQ /If raised]
e As part of Post Office’s ongoing transformation to make it more
commercially sustainable, there will be a 20% reduction in the 1100
people in its HQ function, largely based at Finsbury Dials in central
London.
e Amore efficient and lean central support team will mean that there
is greater scope to share benefits from contracts Post Office wins
with the agents who run the branch network.
e This will make the 50,000 jobs in the agency network more secure.
e There will be no reduction in the service the public will see.
Conclusion
e As we know all too well, it is a difficult time for the high street. Some
key presences like BHS have gone and others are having to make
tough decisions to survive.
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We recognise that the Post Office is a key presence on British high
streets and a key part of local communities.
This is why we have supported it to transform — to keep Post Offices
at the heart of their communities.
This has involved significant change. Many stand-alone post offices
have moved into other retailers where Post Office and the retailer
can operate better together —sharing staff and property costs and
where post office business is a big driver of increased footfall for the
host retailer.
I appreciate changes like these are not easy. Especially where it
involves staff who may be leaving the business. But it is essential
that the business gets a grip on its costs to ensure it can meet the
challenges it faces now and those it will face as the way we shop
and access services continues to change.
A more efficient Post Office is better able to support and
supplement the thousands of small businesses which provide the
network and makes the future of the over 50,000 employed in them
more secure.
The Government's investment since 2010 has, along with the hard
work of Post Office employees and postmasters, delivered real
improvements. It has enabled the business to offer more for
customers, to do so more efficiently and is ensuring that Post Office
services remain on our high streets.
To conclude, I would encourage Noble Lords to look objectively at
the results achieved by the business in recent years: the most
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stable network for decades, a £100m reduction of annual losses,
7,000 branches modernised and transformed, more than a million
additional opening hours per month, and over 4,000 branches now
open on a Sunday.
e While significant challenges remain to completing the goal of
securing the future of the Post Office the Government believes the
business is on the right path, which will protect local post offices for
the long term.
[Closing remarks end. Word count = 1688 ]
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[Insert pages / notes in response to issues or question raised
during the debate]
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2. FORMAT OF DEBATE
e The questioner (Lord Hain) is scheduled to speak first for up to 10
minutes.
e The following speakers may then also speak for up to 10 minutes
(with no guaranteed time for opposition frontbench)
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e You then wrap up the debate, responding to the earlier speakers,
and may speak for up to 12 minutes including interventions.
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3. SUPPLEMENTARY QUESTIONS
Calls to create a Post Bank and banking services at the Post Office
Lines to take
e The Coalition government looked at the case for creating a state-backed Post
Bank and decided that the Government investment then available would be
better used to modernise the network.
e The success of this approach has been seen in the over 7,000 modernised
branches and the stability of the network.
e While Post Office did not create its own bank it has delivered almost all of the
benefits of a Post Bank through its partnership with the Bank of Ireland or
directly. This has enabled it to offer current accounts, mortgages and personal
savings and insurance, to drive growth in this part of its business.
e Over the last few years Post Office has firmly established itself as one of the
leading challengers to the High Street banks, offering a wide range of financial
services across its nationwide network of more than 11,600 branches. This
helps to make financial services products including available to people in all
corners of the UK, even as High Street banks are closing their branches.
e Post Office has provided access to the majority of bank accounts at its
branches since before 2010.
e In January, the Post Office announced the launch of an industry-wide
agreement with UK banks. This means that 99% of UK personal bank
customers and over 75% of business customers can now do their day-to-day
banking at the Post Office.
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Q&A
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This is the biggest expansion in face-to-face banking access in a generation
and a fantastic opportunity for the Post Office and for the communities they
serve.
Professor Griggs independent report on access to banking protocol was
critical of Post Office’s capability? What has Post Office done to address this?
Service delivery and performance are the operational responsibility of the Post
Office.
It will be for the banks and the Post Office to work together to try and overcome
some of these perceived issues.
The Post Office recognises that it is important for customers to feel safe and
secure when undertaking personal transactions and is committed to ensuring
adequate privacy and security for any of the services it delivers.
The Post Office is also committed to ensuring all its staff and postmasters
receive the necessary training to successfully deliver all of its products and
services.
On average queue times at Post Offices are less than 2 minutes.
What banking services does the Post office Offer at its branches? Do they
replicate what customers expect at a traditional bank?
Q: Whats the difference between the new banking framework and the old
A: It’s a more uniform service for customers — previously the servce
available depended on who you banked with. Banks are also now quite
rightly paying to access the POL network.
Q: If POL can provide insurance directly, why can’t it provide banking
services?
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A: Greater requlatory burden (Tim will have a better answer)
Q: Isn’t a Post Bank better for POL than using lots of different partners?
A: Comes with lots of requlatory burdens and risk too (again, liaise with
Tim
[Need more Post Bank / banking framework Qs!!]
Background
Post Office becoming a Bank
e There would be a significant cost to creating a state-backed Post Bank, in 2010
this was estimated at more than the 1.34 Bn needed to fund the modernisation
of the network. In addition, having significant assets and liabilities on Post
Office’s balance sheet would impact Government’s own balance sheet.
e Post Office instead put in place arrangements with the Bank of Ireland (BOI) to
offer financial products. While this has been successful, over time the
objectives of the BOI and POL have diverged. POL has engaged Macquarie to
support it in a reengagement with the BOI to refresh the joint venture and better
align both businesses [Confidential].
e Beyond offering its own financial services in partnership with BOI the Post
Office offers to access to third party banking facilities at post offices.
e At present virtually all UK Debit Card holders are able to access basic banking
services of their provider at any Post Office branch (cash deposit and
withdrawal). The Post Office has worked hard to achieve this over many years
through individual agreements reached with each of the banks.
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The ability to access these services at post offices is significant in terms of
customers being able to access cash (without charge) even in the most remote
areas - particularly when bank branches close.
In March 2015 the major high street banks, consumer groups and government
signed up to an industry wide agreement (Access to Banking Protocol) to
minimise the impact of bank branch closures on communities and put in place
alternative access to banking services. It was recognised that the Post Office
had a role to play in providing access to banking services.
The framework was launched in January 2017 and now 99% of UK personal
bank customers and over 75% of business customers can now do their day-to-
day banking at the Post Office.
The British Banking Association appointed Professor Russell Griggs OBE to
carry out an independent review of the Protocol and he reported with his
findings early in November with — ‘Access to Banking Protocol —- One Year on
Review’.
His review showed that the banks are following the guidelines set out in the
Protocol when deciding to shut branches but that lenders could offer more
support and advice to customers — outlining a number of recommended
improvements to lessen the impact of bank closures on customers. The banks
will work with Professor Griggs on an updated version of the Protocol.
Additionally the report contained some concerns — driven by some feedback
from customers — around security/privacy, queue times, workload and
competence at Post Offices in connection with provision of banking services.
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e A survey undertaken for the report showed that around 11% of customers
surveyed have carried out more banking at post offices since closure of their
local bank branch.
4. FURTHER Q&A
Industrial Relations (CWU and Unite campaign — “Post Office in
Crisis”) and campaign for a summit
Lines to take
e There is no need for a summit to reflect on strategy as the business is not in
crisis.
e Rather, it is on a successful course to sustainability with decreased losses,
decreased reliance on subsidy and the most stable network in years.
Q&A
Why isn’t POL growing the business?
e While Post Office operates in a difficult high street retail environment, it is
successfully getting a grip on costs while trying wherever it can to grow — and
has had success with financial services and online identity.
e But we must be clear that even growth areas like banking are very competitive
and can have very tight margins. There is no magic bullet in financial services
or any other service that can totally mitigate the effect of the changes we are
seeing on British high streets or prevent the changes POL needs to make to
adapt to them.
Why won’t POL engage meaningfully with its staff?
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e Post Office consults thoroughly with its staff and their unions on both the
general direction of the business and specific changes.
e The business continues to offer the unions every chance to put any proposals it
may have to boost the business to its senior management team and the Board.
e In addition to these opportunities we have run a consultation on the Post Office
network to refresh our understanding of what the public expects from the
network. The Post Office’s unions, as key stakeholders of the business,
provided contributions as part of that consultation.
Will the union call for more strike action? Will the Government intervene?
e No one wants to see further strikes, but the business is well equipped to cope
with a repeat of last year’s strikes. These had a negligible impact on the public
with over 99% of branches open as usual.
e Given Post Office’s continually improving performance, we do not consider
there to be a need to intervene in industrial disputes between the company and
the unions. I would encourage the unions and the company to continue with
their dialogue to continue making the Post Office a success.
Background
Strikes
e The strikes held last year were in protest at job losses in the Crowns, supply
chain and some other central functions, and also the proposed closure of the
pension scheme.
e Turnout for the strikes, and voting, was low.
e Of the approximately 300 Crown branches, 73% were open for business as
usual during the last strike (31 October), up from 62% from the strike action in
September.
e All bar one supply chain sites were open and all of POL’s priority branches
were open.
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e Turnout for the action in Crown branches was 56% in September and down to
47% in October.
e In addition to the strike actions, each strike was accompanied by a political
demonstration — a small protest on Westminster green on 15" September and
a similarly sized protest on 31%' October outside BEIS offices and POL’s central
support office with a hearse to symbolise their view of the death of the Post
Office. [update]
Job losses at the Post Office
Lines to take
e I appreciate that the changes at the Post Office have been difficult, especially
for staff where these involve job losses.
e However we should remember that Post Office is a good employer and it has
consulted thoroughly with staff on each change. Where it can, Post Office
seeks to secure preferred options for its staff from a change — be it to transfer
to a new employer or to leave the business with compensation.
e We should also remember that many Post Office changes will create new jobs
in other businesses — such as in a newly franchised WHSmith.
e We should also remember that while staff reductions always are difficult, a
more efficient business secures it for the longer term. This means the business
is better able to compete for new business and retain current business such as
preserving POL’s position as the preeminent mails service.
e Importantly this will make more secure the c50,000 jobs created in local post
offices up and down the country, and help to secure Post Office’s continual
presence on the high street.
Q&A
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How many staff will be employed by the Post Office once the transformation is
complete?
e The Post Office will have reduced from 6,500 to 4800 by the end of March.
Are there plans to introduce more job losses at the Post Office?
e A 20% reduction in the c 1100 people at Post Office HQ has also been
announced.
Are people losing their jobs because the Government putting too much
pressure on the Post Office to reduce its costs?
e The Government will have committed nearly £2 billion during the period 2010 to
2018 to modernise and sustain the network.
e We have asked the Post Office to operate efficiently and as an independent
commercial organisation, providing value for money to taxpayers.
e It has managed to reduce losses by £100m p.a. over the last 5 years, whilst
keeping the network at its most stable for decades.
[Needs work]
Background
e Job losses have predominantly been in the cash supply chain, crowns, and
headquarters.
e The number of jobs will go from 6,500 to 4800 by March next year.
e The majority of people working for POL are either independent self employed
subpostmasters [insert number] and their employees (c50,000).
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Changes to Crown Network
Lines to take
Q&A
The Post Office’s proposals for franchising and hosting some of its Crown
branches are part of its plans to ensure its branch network is sustainable and
profitable in the long term and fits the future needs of the business and its
customers.
The proposals to franchise or host further Crown branches are part of an on-
going improvement plan which has shifted its Crown branches from a £46m
loss in 2012 to breaking even today. But more work needs to be done.
This will help keep Post Office services on our local high streets throughout the
country and bring further investment for customers.
The change from a Crown to a franchise or host branch has been undertaken
previously in many locations across the UK and is a successful way of
sustaining Post Office services in these locations.
It is worth remembering that 97% of all Post Office branches are already
franchises, operated by independent business people.
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These changes have resulted in a drop in quality of service in franchised
Crowns
e The Post Office is committed to ensuring all branches across its network offer
excellent customer service and has a strong history of working with its many
franchise partners and agents to achieve it.
e Independent research shows customers are happy, with satisfaction levels
consistently high at over 95%. Mystery shopping of Crowns and former Crowns
show they offer comparable quality.
e It should also be remembered that the Post Office’s franchise partners, such as
WHSmith or McColls, are very experienced retailers who are focussed on
delivering good customer service. The success of their businesses depend on
it.
e There is also the opportunity to retain staff from the existing branch also have
the opportunity to transfer to the franchise branch if they wish and some do so.
¢ 97% of all Post Office branches are already franchises, operated by
independent business people.
Do franchised Crowns offer less services that traditional Crowns?
e When it creates a new franchise to replace a Crown branch Post Office will
usually offer the same set of services as the existing Crown branch.
e There may be some occasions where local factors might affect this — as the
provision of Post Office services is the operational responsibility of the
company these are for the business to resolve.
Post Office is replacing good jobs with minimum wage or zero hours contracts.
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e Post Offices run on an agency branch basis comply with UK law on staff pay.
Those on the National Living Wage will benefit from increases in that wage
over the coming years.
e Zero hours contracts are not widely used in Post Offices. For example,
WHSmith has only used zero hour contracts for about 20 students who
requested this approach to fit in with studies.
Criticism of previous investment in Crowns that are now subsequently being
franchised or hosted
e The Post Office regularly invests in all of its branches to ensure they are in
modern and secure retail environments.
e Investment made will have benefitted customers and staff and some of that
investment will be transferable, for example such as with re-use of equipment
and IT.
Why not use the host model exclusively rather than franchise?
e While the hosted model allows staff to remain Post Office employees, sited
within a retail premises like WH Smiths, the decision on whether to host or
franchise will vary depending on the balance of costs and revenue at each
branch.
e Decisions on which model to adopt are the operational responsibility of the
Post Office which seeks to get the best long term solution for each location.
This is privatisation by the back door.
e Over 97% of the UKk’s post office network is already operated successfully on a
franchise or agency basis. This has been the case for many years.
e Post Office Limited, which remains wholly owned by the public, will continue to
manage and oversee the national network.
Why does Post Office refuse to meet or consult on changes?
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¢ Post Office does consult on every planned change to the location of a branch.
e The business runs a 6 week local consultation to make customers and the
local community aware of the detail of its plans and to seek feedback. The
Post Office takes into account all feedback received before reaching its final
decision and often runs local meetings where needed to explore local
concerns.
e [If required: However, where Post Office is asked to meet before it has a viable
proposal it will usually decline to meet until there is a clear proposal to discuss
as part of its standard engagement.]
Criticism of Post Office or franchise partners undertaking recruitment or
planning process in parallel with consultation, before decision made
e tis normal for potential franchise partners to undertake planning activities and
start recruitment processes prior to the end to the consultation period in order
to be ready to proceed as quickly as possible.
e This is in the interest of the host business and the Post Office to be ready to
move quickly on something which will benefit both businesses and benefits the
community who will have a greater idea of the type of branch being proposed
(e.g. from more formalised branch layout plans etc).
e However, all activity is undertaken on the condition that it is subject to the
outcome of the formal consultation. This includes any offers of employment
which are only formalised if the consultation process stage is passed.
Therefore this in no way affects the consideration of the feedback or pre-judges
the decision of the Post Office.
Background information
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There are currently just under 300 directly managed and run ‘Crown’ branches
within the network which makes up less than 3% of the overall network
Despite investment in these locations, these branches can still be loss making
or are not as profitable as they could be. Often the best way to make sure that
customers continue to have a main Post Office into the future is to seek to
franchise these branches or provide a hosting solution (hosting is where the
Post Office occupies the space in the branch and continues to directly operate
the post office and employ post office staff).
This puts them on a more sustainable basis as Post Office effectively shares
staff and property costs with a successful High Street retailer, often, but not
always, WHSmith. More often than not it also puts the new branch in a better
location on the high street for customers. Often the high street has moved
away from the old Crown office building.
Over the past year, the Post Office has been seeking franchise partners for a
number of its Crown Post Office branches and has closed 3 branches.
There are currently XX projects underway (3 closures, XX franchises and XX
hosts). XX decisions have been announced and of those 24 changes have
been completed. There are CC live consultation and X closed pending a
decision. [update]
Many of these changes have involved WHSmith. Just under a year ago, the
Post Office announced that it had entered into a new agreement with WHSmith
to relocate up to 61 branches into WHSmith stores over the following 12
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months, including a number of franchises and hosted concessions. WHSmith
currently operates XXX post offices.
e Relocating more Post Office branches into the UK retailer's modernised stores
has helped keep services on high streets throughout the country and bring
further investment for customers.
Definition of ‘Franchising’ and ‘Hosting’
Franchise
e Where the Crown post office moves to be run and managed by another local
retailer within that retailers store —- e,g. WHSmith or Tesco — so moves to an
agency arrangement with the retail partner chosen and the Post Office is
staffed and operated by employees of that retail partner.
e It is no longer run and managed direct by the Post Office. The existing Crown
will close and the Post Office staff will have opportunity to transfer for the new
franchisee under TUPE employment protections, redeploy elsewhere within the
business, or leave with compensation. Typically a franchised branch will
provide the same set of Post Office services as the Crown branch did.
Host
e The Crown post office moves into another local retailer — e.g. WHSmith/Tesco,
occupying space within their store but still run and managed direct by the Post
Office and staffed by Post Office employees.
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e Typically offers the same services as Crown branch did at original location and
staff move with branch. Post Office and host retailer benefit from associated
footfall and shared overheads.
e The type of solution the Post Office seeks to deploy will depend on the
individual circumstances in each case and will be what the Post Office
considers can deliver the best outcome for the business and its customers in
each circumstance.
Info on POL’s Local consultation Process
e Before it makes any changes the Post Office consults locally to let customers
and interested stakeholders know what the detail and plans for the change
proposal are and to seek feedback.
e The six week local consultations will be when there is a proposed relocation,
franchise etc. (i.e. significant change off-site) - as opposed to changes to an
existing branch involving the current postmaster (e.g. an on-site modernisation
with the existing postmaster).
e The decision on any change is for the Post Office — the local consultation does
not seek a mandate for change, it merely helps inform the Post Office before it
finalises its plans.
e The Post Office carefully considers all feedback received during the
consultation process before reaching a final decision and the Post Office has
made changes to a number of its plans following on from consultation feedback
(this can range from not proceeding, to making additional arrangements for
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parking, changing the proposed branch layout, inclusion of some additional
services, changes to opening hours etc.).
Consultations that occur prior to a final decision by the Post Office.
e More often than not when people refer to a post office closing — this will have
involved a relocation to another site — so the original site closes but services
going forward are provided from a nearby shop, WHSmith etc. (actual impact is
a site change rather than loss of service)
e There will be occasions where a post office has closed due to reasons beyond
the control of the post office (i.e. postmaster retires due to ill health,
experiences financial difficulty due to personal circumstances) and that closure
is not planned and not a result of the Post Office’s transformation and
modernisation programmes.
e Insuch situations the Post Office works hard to restore the service as soon as
possible to the community — and when it has a potential new operator on board
or proposal to reinstate service provision then it will consult locally — again to
inform stakeholders of plans and to seek feedback.
e This is the very limited circumstance where a consultation would occur - after
an unplanned closure.
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Closure of the Defined Benefit Pension Scheme
Lines to take
e The independent trustees have agreed that the Post Office’s defined benefit
pension scheme will be closed on 31st March 2017.
e Closure will prevent the Post Office having to increase its annual contributions
by £30m p.a. just to keep the pension open.
¢ Closure will also assure pension benefits earned by staff up to that time.
e Post Office has acted prudently before the scheme could fall into deficit and ran
a thorough consultation and extended it twice to allow sufficient time for
discussion.
e In 2012 the Government relieved the combined Royal Mail and Post Office
pension scheme’s deficit to the tune of £10bn. The current scheme was
unsustainable, and the scheme’s trustees agreed.
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Q&A
The Government should have bailed out the pension/it created the problem in
2012 with separation from Royal Mail?
e Government already relieved the Royal Mail and Post Office pension scheme
of £10Bn of unfunded deficit back in 2012.
e This left the scheme fully funded on the planning assumptions available at the
time, but given the generous terms of the scheme combined with factors like
increasing longevity, the scheme was increasingly unsustainable.
e With all the other calls on Government funding no further help can be provided
to the Post Office for the pension.
Why is POL closing the pension while it is still in surplus? Isn’t this stealing
member’s money?
e The decision to close the defined benefit pension was taken by the
independent trustees of the pension. Therefore they agreed that without this
action the scheme would soon fall into deficit. Closing it has assured the
benefits built up before 31% March.
e While closure should prevent a deficit occurring, should market conditions
mean that there is still a small surplus in the scheme then this will be used to
fund other member benefits as agreed between the trustees and the business.
What will happen to staff now the pension has closed?
e The 3,500 staff affected by closure of the defined benefit scheme will now join
the Post Office’s Defined Contribution scheme. This has been the standard for
new Post Office joiners since 2008.
e The defined benefit scheme it is better than many market comparators e.g.
those for staff in the general retail sector.
Where has the surplus gone?
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e The defined benefit pension is in surplus at the moment, but as agreed with the
trustees the surplus has been used to keep the scheme open for longer, by
making the business's contributions affordable..
e The contributions that were needed by Post Office to keep the pension open
were expected to rise by around £30m p.a. once that surplus had gone, caused
by increasing longevity and the low interest rate environment, for example.
e While the business has been making huge strides towards operating
sustainably it is still loss making and cannot afford contributions at this level.
Background
e The Defined Benefit (DB) pension closed to new members in 2008. Employees
who joined after 2008 are part of the Post Office’s Defined Contribution (DC)
scheme.
e The 3,500 members of the DB scheme will now move to the DC scheme.
e Royal Mail has c 90,000 staff in its DB scheme and has given an undertaking
that no changes will be made to this pension until March 2018.
e However, Royal Mail’s pension is in the same position as POL’s and RM has
written to staff to start the discussion about what changes may be needed after
2018. [Check latest position]
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Government Funding
Lines to take
e Government accepts that the Post Office network will require funding in the
future, to enable it to continue making important services available to people in
all corners of the United Kingdom.
e Government is in discussions with Post Office about future funding for the post
office network. It is important that this is appropriate, affordable and
proportionate, and that it delivers Value for Money
Q&A
How much funding does the Government expect to give the Post Office in the
future? A: We are in discussions and can’t say anything further at this stage
What will the Post Office use this funding for? A: Will be used to continue to
Support our manifesto commitment to protect 3000 rural branches. We have
always said we envisage POL will continue to need funding
When will the Government announce the new funding package for the Post
Office? A: Still in discussions, announce in coming months.
Background
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Government has committed almost £2 billion to the Post Office network
between 2011/12 and 2017/18 to maintain and transform the network, and this
funding has made it possible to modernise over 7,000 branches, extend
weekday and weekend opening hours, reduce the network’s losses and bring
down the need for taxpayer subsidy.
However as Government requires Post Office to maintain a network that is
larger than commercially viable, we think the business will continue to require
funding in the future. Government's existing funding agreement with Post Office
comes to an end in March 2018 and as such a new agreement will be required
for the period that comes after this.
Discussions between Government and Post Office have started on this funding
and we expect to be in a position to make an announcement on new funding
towards the end of May (confidential). This will be aimed at making sure Post
Office can continue to operate its network, and depending on HMG’s
affordability constraints, to supporting investments in the business to help it
become more commercially sustainable.
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Front Office for Government / Government Services
Lines to take
e The Post Office is the largest provider of counter-based Government services
in the UK.
e In 2013 it won a cross-Government framework contract which allows all
Government Departments and their Executive Agencies to contract with the
Post Office easily and cheaply.
e Times are changing etc — people want to transact differently...
Q&A
Why isn’t the Government delivering on its commitment to make the Post
Office a front office for Government?
e Key contracts with the DVLA and the Passport Office have been moved onto
the cross government framework that POL won in 2013, as has the Post Office
Card Account contract which has been extended to at least 2021.
e However, Government cannot simply award contracts to the Post Office:
services must be procured competitively to ensure value for taxpayers’ money.
Customers are increasingly wanting to transact with Government digitally.
e The Post Office is still well-placed to bid for and win important contracts, with
its extensive geographic reach and key role in the heart of communities.
e The Post Office is also a provider of identity verification services online, as part
of the Government's “Verify” service. This means people can choose the Post
Office’s trusted brand to verify their identity when accessing government
services online.
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Background
Post Office has an important role to play in ensuring people can access
Government services in the ways that best suit their needs. But increasingly,
many of us prefer to access Government services online, which can be more
convenient for people. Post Office is one of the largest providers of identity
verification through the Government's “Verify” service.
Post Office continues to work with both local and national government to look
at opportunities for delivering government services through the post office
network. But contracts cannot simply be awarded to the Post Office — they
must be procured competitively to ensure value for taxpayers’ money.
The Coalition government made a commitment to support the Post Office in its
ambition to become a front office for Government. It did not commit to make it a
front office for Government.
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Network Transformation
Lines to take
e The Government will have invested nearly £1Bn in Network Transformation
between 2012 and 2018 when the programme closes.
e This has helped Post Office shift many post offices from small standalone
branches (which had become unviable without fixed subsidy) into successful
shops, usually convenience stores.
e Where an existing postmaster could not convert their branch, the programme
helped the transition by allowing them to leave with compensation when a
replacement host was found in their community.
e Network Transformation has been the key plank in reducing subsidy, vastly
increasing the hours operated, improving retail performance for hosts (by
improving retail environments and increasing footfall), securing the Post
Office’s long term future by getting agency branches onto a sustainable footing.
e Over XXXX agency branches have been transformed with around XXX more
signed up to convert. Post Office expects to modernise around XXXX agency
branches before the programme closes.
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Q&A
Where did £1Bn go? That’s £130k per branch but actual branch
modernisations are a fraction of that.
e The NT programme has covered in store fit outs, compensation for departing
postmasters, programme run costs, property specialists, commercial experts to
help postmasters properly pass long term business planning tests and
programme close out costs.
e One of the largest elements of these has been compensation where a
postmaster can depart with up to 26 months of remuneration (capped at
£200k). This has been an essential part of managing the process as fairly as
possible and ensuring take up in a voluntary programme has been as high as it
has.
e Around a quarter of eligible postmasters have left under this approach — the
majority converted on site or at a new location.
What about those stranded by the programme — those who signed up to leave
but couldn’t because no other retailer could be found in their community
e Network transformation was not a guarantee of compensation. Whilst I
appreciate that those who have made the decision to go would like to go we
cannot sanction using tax payer money to leave a community without a post
Office.
e As we move to the end of the programme, the Government is seeking
proposals from Post Office on how best to address this issue going forward for
this cohort of postmasters.
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If the network is so stable why has my local branch closed/been closed for
months?
e The Post Office is made up of small businesses and like any other is subject to
the same problems, such as subpostmasters deciding to retire or move on, or
the loss of access to buildings due to lease arrangements expiring.
e Post Office does have contingency plans in place for maintaining service
provision when this is disrupted but each site has its own unique challenges
and it not always possible to do so.
e Post Office is often able to maintain service provision even in the worst cases
(such as death of a postmaster) but alas not always.
e The reasons for a temporary closure of a branch are normally outside the
control of the Post Office, but in such instances the Post Office works hard to
restore service to the community as soon as possible
e The time this can take will vary depending on the individual local circumstances
in each case, and for some cases this will take longer than others.
While there may be over 200,000 extra hours overall, what about my local
community where the bricks and mortar branch has been replaced with a part
time outreach service?
e Modernised branches are now offering over 200,000 additional opening hours
every week. This is the equivalent of c.4,700 additional Post Offices operating
on traditional core hours. This is a step change in access to the network.
e Nevertheless, where a small community post office closes for whatever reason,
Post Office seeks to ensure continued service and will put in a mobile service-
an outreach. While there is a reduction in hours it ensures continued access in
the community.
e Any decision on the provision and location of post offices is the operational
responsibility of the Post Office.
Background
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e Since 2012 the Post Office has been transforming and modernising its national
network through Network Transformation (NT), bringing benefits for customers
and postmasters and securing its long term future. The programme is due to
conclude by March 2018.
e There were over 8,000 eligible branches for NT (note NT does not include the
c.3,000 Community Branches, or the Crowns).
e NT involves the introduction of new operating models into the network (Mains
and Locals) designed to offer a more efficient and optimised operation for
postmasters and franchisees
Main Branch - A high-volume model offering customers an effectively complete range
of post office services. A majority of these are standalone although some are co-
located with a retail business. In converting from a Traditional Branch these post
offices benefit from investment that refreshes branch environments and extends
opening hours.
Local Branch- A lower-volume model co-located with a retail business that offers
customers an extensive range of post office services. In converting from a
Traditional Branch these post offices benefit from investment that refreshes branch
environments and extends opening hours. Co-location of the retail till also frees up
space for retail use by removing the old “fortress position”, and frees up employee
time which delivers efficiency and cost-savings for postmasters.
e Transformed branches do not receive fixed remuneration — all payments for
post office services are linked to transaction volumes.
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e The move to a variable cost and more efficient operational models for these
agency branches has helped reduce the Post Office’s losses. NT has
significantly reduced the reliance of the network on public subsidy and will
continue to do so.
e Every branch eligible for the programme is assessed by the Post Office and
each will have a range of local circumstances that apply. These specific
factors create a range of various options for the branch, from securing
investment into the branch to convert, to attracting a suitable retailer nearby to
integrate the service into their retail (relocation).
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Post Office Network Consultation
Top Lines
e Before Christmas, the Department for Business, Energy and Industrial Strategy
ran a consultation exercise to understand more fully what subsidy was needed
by the Post Office and what it should be used for.
e This consultation was an important step in determining support for the network
in the future, once government's existing funding agreement with Post Office
Limited comes to an end in 2018.
e Nochanges to the network were proposed through this consultation, we were
seeking to re-affirm that view with stakeholders.
e The consultation ran for 6 weeks and we received over 30,000 responses from
members of the public, businesses and stakeholders.
e The Government will provide a response to the consultation in due course.
Background
e The funding agreement between Government and the Post Office expires in
March 2018 and to sustain the network of social branches, i.e. those that
cannot operate commercially, we expect there will continue to be a need for
some government funding in future.
e To understand what stakeholders/customers want out of the post office network
and the taxpayer funding that supports it, Government launched a public
consultation (the last one being held in 2007).
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Aside from this representing best practice to establish the value money case
for such support, any funding provided by the Government must be approved
by the European Commission.
During the last Commission approval process, Government agreed to
undertake a consultation to refresh the data from 2007 in relation to the social
need associated with the Post Office, which more easily allows the
Commission to approve any state aid provided.
Since 2010, Government's £2bn investment in to Post Office has stabilised and
modernised the network, while reducing its need for subsidy and keeping
customer satisfaction high. The nature of the consultation reflected this - for the
most part it sought an endorsement of the current approach to managing the
network, such that its post office policy will continue in a similar vein, with no
changes to that policy proposed. On future services there were questions
seeking input on possible new products and whether there can be a greater
role for communities in the delivery of Post Office services.
The consultation ran for 6 weeks and closed on the 16" December 2016. We
received over 30,000 responses
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Separation from Royal Mail
Lines to take
e The Post Office and Royal Mail are very different companies and since
separation in 2012, as a separate company with its own Board, the Post Office
has had the commercial independence to be able to focus on what is best for
the business and to adapt and change to best meet the challenges it faces.
e There is along term commercial agreement in place between the two parties
and they have been working together successfully since separation.
Q&A
It was a mistake to separate — this has not worked
e Since separation the Post Office has become increasingly sustainable, with its
transformation programme delivering over 200,000 extra opening hours a week
across the country and more than 4,200 branches are open on Sundays —
directly benefitting customers.
e Over the last four years losses in the business have declined from £120m to
£24m.
e The Post Office is following a successful course to commercial sustainability
under the leadership of CEO Paula Vennells and its Chair, Tim Parker.
Has separation has led to Post Office closures?
e There are over 11,600 post office branches in the UK. Since separation, the
Post Office network has been at its most stable for decades.
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Background
e The Post Office and Royal Mail were separated in April 2012, as part of the
restructuring of the Royal Mail Group of companies in preparation for the
Coalition Government's sale of Royal Mail plc shares in 2013 via IPO.
e Onseparation the Post Office and Royal Mail entered into a long term
commercial agreement (the Mails Distribution Agreement - MDA) which runs
for a period of 10 years (to 2022) — the longest period permissible under law.
The MDA is due for a mid-point review by both partiesthis year — which is
sensible, to allow them to refresh and renew their working relationship and take
account of any changes in the market and service delivery since 2012 to the
benefit of both parties.
e Under current legislation the Post Office must remain in public ownership,
except in the case of conversion to a mutual structure of ownership.
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5. RELATED TOPICS
- Changes to Post Office’s Supply chain
Background
e Post Office has the third largest cash distribution network in the UK (armoured
vans etc), to deal with the c£60bn of cash that flows through the network each
year. The supply chain is highly unionised and inefficient.
e Post Office had previously adopted a strategy of selling services to third parties
(e.g. Primark) to attempt to recover the cost of the operation. However, in such
a competitive environment for the supply of cash (and the decreasing use of
cash by retail customers), POL are now adopting a strategy of focusing on their
own networks cash needs, and withdrawing from third party contracts which
had varying degrees of profitability.
e Post Office have therefore closed 9 cash handling facilities (out of 25) and
reduced headcount by c600 (out of c1350 posts).
e These changes will save the business c£10 million each year.
Top Lines
e The changes to the Post Office’s cash supply chain mean that the business
can now deliver the same service to its branches for less overall cost.
e Post Office cannot realistically compete for external business against
competitors who have lower pay and more flexible working conditions.
e tis also difficult to make a case to invest in what is a declining market for cash
with the rise of electronic payments like contactless.
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e Post Office believes it will only be able to deliver the expected savings by
adopting a clear and consistent policy of completely exiting the external market,
and focus on delivering cash to their own network.
- Horizon
Background
e Following complaints from a small number of sub-postmasters regarding the
POL’s Horizon IT (point of sale) system, an investigation was undertaken by an
independent firm, Second Sight, over two years. Whilst this received relatively
high profile press attention, no systemic issue with Horizon has been found.
e However, affected sub-postmasters continue to put pressure on POL, the
Criminal Cases Review Commission (CCRC) are considering some cases
where individuals have received criminal convictions, and group civil litigation is
being launched against POL in the High Court.
e The Court system represents the best place for this sort of dispute to be
resolved.
Top lines
e I understand that civil proceedings have been issued against the Post Office on
the matter of the Horizon IT system. This is a matter for the courts and I am
unable to comment further.
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e Iunderstand that a number of individuals have raised cases with the Criminal
Cases Review Commission (CCRC). This process is independent of
Government and I will not comment further.
Mutualisation
Top Lines
e Post Office has made significant progress in recent years towards commercial
sustainability, which is a key precondition to any mutualisation.
e Decisions about Post Office’s future ownership cannot be considered until that
commercial sustainability has been achieved.
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6. Brief History of the Post Office
e Post Office was originally part of the General Post Office, a Government
department (which also contained Royal Mail and British Telecom)
e Post Office Counters Ltd was created as a wholly owned subsidiary of Royal
Mail in 1986, becoming Post Office Ltd in 2001. It separated from Royal Mail in
2012 using powers in the Postal Services Act 2011.
e The number of Post Office branches in the UK peaked in the 1970s at around
25,000. It has more than halved since then as uneconomical branches have
closed down.
e Between 2003 and 2009, 5000 post office branches (28% of the network) were
closed under two closure programmes. These saw the network decrease in
size from approximately 17,000 to just under 12,000
e The network has been at its most stable now for decades, as the graph below
shows.
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Number of Post Offices: 1981/82-2014/15
25,000
20,000
5,000
201014
e There is however always some churn in the network as subpostmasters retire
or leave the network. In such cases POL seeks to find a replacement
subpostmaster at the same or alternative premises. Some branches remain
temporarily closed whilst new subpostmasters or premises are found, which
can often cause frustration at the local level.
Network numbers since 2009
UK Wide Variance
End March 11643 9
2016
End March 11634 -62
2015
End March 11696 -84
2014
End March 11780 -38
2013
End March 11818 -2
2012
End March 11820 -85
50
2011
End March
2010
11905
-47
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7. KEY FACTS
There are over 11,600 post office branches in the UK, the largest retail network in
the country. The Post Office network is at its most stable in decades.
Government recognises the important role that post offices play in communities
across the country. Government will have provided nearly £2 billion during the
period 2010 to 2018 to maintain and invest in a network that meets nationwide
access criteria and to invest in transformation of the business.
Our investment has led to the most stable network for decades, with over 11,600
branches. These new branches are offering almost a million extra opening hours
every month.
There are more than 4,200 branches open on Sunday making Post Office the
country’s largest Sunday retail network.
Government committed in its manifesto to secure the future of 3,000 rural post
offices, recognising the important role post offices play in service their communities.
While the Post Office is publicly owned, it is a commercial business operating in
competitive markets. The Government sets the strategic direction for the Post Office
— to maintain a national network accessible to all and to do so more sustainably for
the taxpayer — and allows the company the commercial freedom to deliver this
strategy as an independent business.
93% of the national population (and over 95% in urban areas) live within one mile of
their nearest post office branch.
Around 18 million customers & a third of SMEs visit post offices every week.
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8. HAIN: PAST PARLIAMENTARY DEBATES / ORAL QUESTIONS
e Lord Hain Labour (item an date)
Text
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Joined the Lords:
Party:
Policy Interests:
Other Information:
Professional Life:
UK Parliament:
Expected position on Post Office:
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