Post Office Network

(Limited Text - Ministerial Extracts only)

Thursday 25th April 2019 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kelly Tolhurst)]

It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael), and the hon. Members for Motherwell and Wishaw (Marion Fellows) and for Paisley and Renfrewshire North (Gavin Newlands), on securing today’s important debate on the sustainability of the post office network.

As I have said many times before, I am always happy to challenge the Post Office on specific concerns that MPs have at constituency level. I am therefore grateful to hon. Members for their contributions. It is encouraging to see that all sides of the House share common cause in ensuring that a vital national asset continues to serve our constituencies for many years to come. It is because of the key role that post offices play in service to their communities that our 2017 manifesto committed to safeguarding the network.

[Brendan O'Hara]

Will the Minister join the consensus across the House to support the retention of the post office network in public hands?

[Kelly Tolhurst]

If the hon. Gentleman would allow me the courtesy of getting to the content of my speech, that would be really useful. I am still at the start. We made a commitment in our 2017 manifesto and are committed to safeguarding the network. The Post Office is publicly owned and it is a commercial business operating in competitive markets. The Government set the strategic direction for the Post Office to maintain a national network, accessible to all, and to do so in a more sustainable way for the taxpayer. We allow the company the commercial freedom to deliver that strategy as an independent business.

I must point out some of the language and words used in the debate, such as “managed decline” and “undermining the network”, and the idea that it is ideological of the Tories to run down post office branches. As the Minister responsible for post offices, I find that incorrect and inaccurate. I do not regard Government investment of £2 billion over eight years as a so-called managed decline or undermining of the network, and I do not regard the establishment of 450 new locations since 2017 as managed decline or an undermining of the network. As hon. Members have outlined, at the end of March there were 11,547 branches. That number is as stable as it has been in many decades, so I refute those claims.

[Patricia Gibson]

I hear the Minister’s objection to the term managed decline, and that is fine. We are allowed to disagree with each other in this Chamber; we have that privilege. However, there is no plan in place in the—I think not unlikely—event that WHSmith completely collapses. It has declined over 14 years. Would she care to take that up?

[Kelly Tolhurst]

I thank the hon. Lady for her comment, but I highlight that WHSmith has been successfully running post office franchises since 2006. We are now in 2019, and the reality is that, in any franchising service and any business, work is always going on behind the scenes in regard to the management of the network. There is a massive network of 11,500 outlets throughout the country. As the Minister responsible, I will, quite rightly, challenge the Post Office on any issues I am told about. I am committed to maintaining that network.

I have highlighted that so early in my speech because ever since I have had this role I have been clear at the Dispatch Box and in any debate that I will talk to any MP about issues they have in their constituency about post office branches. I will also talk to anyone about the Post Office and take those issues forward to challenge it. I will also defend the Post Office when required.

[Several hon. Members rose—]

[Kelly Tolhurst]

I give way to the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry).

[Drew Hendry]

The Minister is making a powerful statement of commitment, but she has heard from around the Chamber the pressures faced by local post office sub-postmasters living on subsistence terms and struggling to maintain a living. Will she bring that enthusiasm, energy and commitment to sorting out their livelihoods and securing their post offices?

[Kelly Tolhurst]

I thank the hon. Gentleman for that, because that is exactly what I hope to do.

[Gill Furniss]

I want to continue on the point about contingency planning. At an APPG meeting some months ago, when we questioned the management who had turned up to talk to us about various things, it was clear that they had no contingency plan whatsoever should WHSmith fail. It is okay to say they have been doing it since 2006, but so have NatWest, HSBC and TSB, and now we see them disappearing from the high street. It is crucial that the Minister takes that seriously. If she did not know that the Post Office had no contingency plans in place, its keeping her in the dark is a serious omission on its part.

More generally, at that APPG meeting the management told us that the consultation was not worth the paper it was written on and that they would not take notice of any views from individuals or communities. Indeed, the only reason they were asking was to see whether there were any comments on disabled access. I asked them why that was the case, because they have a duty of care to look at disabled access and to listen to communities.

[Kelly Tolhurst]

I understand where the hon. Lady is coming from, but the reality is that 98% of the post office network is franchised. That is the fundamental business model within the Post Office and its distribution of services. The hon. Lady makes a presumption that WHSmith will fail, and its franchises will therefore be under threat. That does not take into account the potential future development of the Post Office and how we are challenging it. However, as I have outlined today, and in any conversation I have had with any colleague, when hon. Members highlight something to me, I will, as the responsible Minister, always raise that with the Post Office.

In my day-to-day role, I will always challenge the decisions and workings of the Post Office. However, while we are the Post Office’s shareholder, it is commercially run, so it is within its rights to manage operational delivery, but it is for me to challenge, oversee and raise questions where I believe work is needed to resolve matters.

[Hugh Gaffney]

I will keep it short and sweet: will the Minister ask WHSmith why it will not talk to the CWU, and ask it to talk to the CWU to represent members properly?

[Kelly Tolhurst]

I understand the hon. Gentleman’s concern about the CWU and perhaps the conversations with WHSmith, but the union’s relationship with an independent retailer such as WHSmith is a matter for it. It is not for me to direct an independent business. I know the hon. Gentleman and his passion for this subject well, so I am sure he will do all that he can, in his role and with his experience, to ensure that communication takes place.

[Gavin Newlands]

I had the time to advertise my surgery on Saturday in my speech, and I look forward to attending the Minister’s Tea Room surgery, where we can discuss some aspects of my speech in more detail. For the public record, will she give me and the people in Bridge of Weir and elsewhere in my constituency a commitment at least to look at the community designation of post offices? I am asking her to commit not to changing that but to looking at where there may be shortfalls.

--- Later in debate ---

[Kelly Tolhurst]

I am always happy to look at the details and where we can improve services if that is possible. I must point out that the post office network is long established and well loved. We love the people who work in our post office network: the sub-postmasters and the workers—[Interruption.] Hon. Members might heckle, but we do. The Government definitely do, and rightly so.

I have outlined this afternoon my personal commitment to the post office network, as we did in our manifesto, to see where we can improve it and where we can all work together to secure the future sustainability of a strong network throughout the country. There are challenges ahead, just as there are within retail. They are not insurmountable, but the challenge for us is to work with all of our stakeholders to tackle those and secure the network for the future.

The facts clearly show that the Post Office has made substantial progress over the past decade. The inhibiting cultural legacy of being a lesser partner to Royal Mail, with high public sector costs, has almost disappeared. As a business, Post Office Ltd is increasingly profitable and takes action to consolidate and defend its position in the market. Between 2010 and 2018, we backed the Post Office with nearly £2 billion to maintain and invest in a national network that had 11,547 post offices at the end of March. That extensive network gives the Post Office a unique reach among service providers. The Post Office currently meets and exceeds all the Government’s accessibility targets at a national level.

[Patricia Gibson]

I appreciate the amount of investment that the Minister is talking about; it is clearly a lot of money, although people might want a debate about whether it is enough. In spite of that investment, does the Minister understand the concerns raised today? In Scotland 22% of the entire post office network has closed over the past 15 years. Surely she, like me, laments that figure because of the scale of loss it represents.

[Kelly Tolhurst]

The hon. Lady is right to raise those concerns. She is also right that we are concerned about any particular closures that may happen, as is Post Office Ltd. That is why Post Office Ltd works hard—it always works hard—where there are unforeseen closures to make sure that those branches reopen. Since I have been in post there have been a number of examples where I and local MPs have worked with the post office network and local communities to make sure that new facilities are opened.

Where there have been closures, I would always encourage people to raise them with Ministers and to work with Post Office Ltd to make sure that we can sustain the network. The hon. Lady is right to have concerns, but she is wrong to say that the intention is not to renew those branches and not make sure that the network is stable in Scotland. There is a commitment and a desire to achieve that.

Government investment has also enabled the modernisation of over 7,500 branches, added more than 200,000 opening hours per week and established the Post Office as the largest network trading on Sundays. In terms of services provided, the Post Office’s agreement with the high street banks enables personal and business banking in all branches, ensuring that every community has appropriate access to cash and supporting consumers, businesses and local economies in the face of bank branch closures, particularly in rural and urban deprived areas. I encourage the House to look closely and objectively at these facts; they show unequivocally that the network is at its most stable and is much more sustainable today than in 2010.

We are not complacent. Post Office Ltd has to keep exploring new business opportunities to ensure a thriving national network for the benefit of communities, businesses and postmasters up and down the country. One of the most important and visible aspects of the Post Office strategy is its franchising programme. I accept that some communities have a strong emotional attachment to Crown post offices and naturally there will be concerns when proposals come forward to franchise their local branches, but our high streets are facing unprecedented challenges and the Post Office is not immune to them. Just like any other high street business, it needs to respond to these pressures and adapt to changing customer needs.

Franchising has reduced the taxpayer funding that the Post Office requires from Government, while maintaining—and, in some instances, improving—customer service levels. In fact, the report by Citizens Advice in 2017 indicated that franchised branches are performing in line with or better than traditional branches. I reassure hon. Members that, as part of its ongoing monitoring role, Citizens Advice will continue to track the impact of post office changes on consumers and on customer satisfaction in respect of post offices. Citizens Advice also has a formal advisory role in reviewing changes to Crown post offices across Great Britain that are relocated and franchised.

Serving rural communities is at the very heart of the Post Office’s social purpose. There are over 6,100 post offices in rural areas and virtually everyone living in such areas is within 3 miles of one of those branches. Last year, a study by Citizens Advice found that seven out of 10 rural consumers buy essential items at post offices and almost 3 million rural shoppers—that is, 31% of rural residents—visit a post office on a weekly basis, compared to 21% of people living in urban areas. The importance of post offices to rural areas is illustrated by the fact that almost half have community status. They are the last shops in the village, as hon. Members have outlined. Rural post office branches, whether main, local or traditional, can offer the same products and services as urban ones of the same category.

The Post Office recognises the unique challenge of running a community branch and supports those postmasters differently from those in the rest of the network. They receive fixed remuneration, as well as variable remuneration, to reflect their special situation. In addition, the Post Office delivered almost £10 million of investment via the Community Fund between 2014 and 2018. That enabled community branches to invest in their associated retail business. The Post Office has now launched a smaller community branch development scheme that will benefit an anticipated 700 branches. Let me be clear: this Government and the Post Office will continue to support rural post offices.

Some hon. Members raised concerns about the rates of remuneration paid to postmasters, especially for banking services; I, too, have been and continue to be concerned about that issue. While the contractual relationship between Post Office Ltd and postmasters is an operational responsibility for the company, I care deeply about the issue and I am determined to make sure that running a post office remains an attractive business proposition.

We offer post offices several ways of doing that, including the development of services for the future. My challenge to people thinking of taking on a franchise or a post office is to make sure that they deliver the services demanded by consumers and therefore enable post offices to continue to be relevant in today’s market, given the way consumers use services now compared to the past.

I have committed to meeting interested parties, including the Post Office Ltd and the National Federation of SubPostmasters, more regularly so we can ensure that particular issues, case studies and direct concerns are discussed and challenged on a more frequent basis, and we can all work together. Everybody in this room and all our stakeholders want to see the Post Office thrive and develop in the future. Some Members may regard me as having a different ideological view: there may be different ways of getting there, but the outcomes should remain the same.

[Gill Furniss]

The Minister talks about her passion for post offices and how everyone will work together. Would it not make more sense to have a review of how things are working at the moment? As I and others have mentioned, having a friendly little chat probably will not work. We urgently need a proper review of the governance and management and of the remuneration of sub-postmasters.

[Kelly Tolhurst]

I appreciate that the hon. Lady would like me to announce that we will hold a review, but fundamentally, as I have outlined, the Post Office is a commercial entity operating in a competitive market. It is owned by the taxpayer, and it is right that we are challenged and that it is run efficiently.

I point out that the Post Office has been making a surplus. We now have a sustainable network and a surplus. We have moved on from a time when there were more than 7,000 post office closures and the Post Office was over £1 billion in debt. We are not in that place today. That has been achieved by maintaining the network and investing correctly. However, I have tried to show that I understand hon. Members’ concerns about the viability of postmasters and their pay. I hope I have already outlined and expressed my determination to get to the bottom of some of these challenges and to ensure that they are addressed by the Post Office.

[Drew Hendry]

The Minister is being generous in taking interventions, and I appreciate that. She speaks passionately about her commitment to investigating this, and has commented that she believes the network is sustainable and well invested in at the moment. Will she take that a step further by coming to speak to some of the people running local post offices, particularly in the highlands and islands? They might not recognise the fact that they are within three miles of communities or that they have that kind of investment, because that is not their lived experience. Will she take up that invitation?

[Kelly Tolhurst]

I thank the hon. Gentleman for that invitation. I do speak to postmasters and, if time allows, I will be happy to go and visit post offices in any part of the country, if possible. However, we really need to look at the network and understand the operation. Post Office Ltd operates more than 11,547 stores—a sustainable network. In many of those circumstances, there will be particular differences. Of those stores, 98% are franchises, which in effect are businesses in themselves. It is acceptable to expect that there will be some churn and there will be particular issues that need to be dealt with.

[Gill Furniss]

indicated dissent.

[Kelly Tolhurst]

The hon. Lady shakes her head, but that is the reality. I apologise to her, because she is always very courteous to me in the many debates we have. At some stage or another there will be issues with a number within the network, and it is right that those are raised and that we deal with them. This is not something I like to accept, but sometimes there will be cases that cause problems, and the right course of action is to have debates such as this, to challenge me or whichever Minister is responsible and to ensure that we work to ensure that those particular branch or constituency issues are dealt with.

Part of the changes to the network involved moving from fixed and variable remuneration to a fully variable basis, based on transaction fees. That means that it is now important that a post office service is combined with a good retail offer to be successful. At the same time, fixed remuneration remains in those rural and remote locations where that approach is just not viable.

Post Office Ltd is not complacent and periodically reviews the rate of return on all services for postmasters to reflect the time and effort involved. For example, last year the Post Office increased remuneration on banking deposits twice to reflect the increased demand for services. I thank hon. Members for their positive comments about the increase announced last week to remuneration for postmasters for banking transactions; as hon. Members have outlined, that has doubled or in some cases tripled the fee payable to postmasters. Where possible, Post Office Ltd will continue to use the renewals of commercial contracts as opportunities to negotiate improved rates that can be shared with the postmaster.

I will answer a direct question put to me about why the Post Office is bringing forward the increase in charges only in October and why it is not happening before that time. The Post Office has taken the decision to implement the new banking framework payments to postmasters one quarter before the new negotiated banking framework comes into play. I understand that postmasters may be concerned, but the Post Office has acted to bring that in early and to enable the uplift to postmasters as soon as practically possible.

I want to pick up on one point raised by the hon. Member for Glasgow North East (Mr Sweeney), and give him some more information on cashpoints. He raised a concern about a post office having to pay the Post Office for that machine. Under its agreement with the Bank of Ireland, the Post Office pays post offices for the provision of the machines; they are remunerated for that. I would not be able to comment on any private agreement between an individual post office and another provider for the cashpoints. I would very much welcome further information after the debate, and I am happy to look into the issue for him.

[Mr Sweeney]

The additional concern is that the ATM footprint is subject to business rates, which is obviously a cost borne by the franchise holder. That is money over and above that received from Post Office Ltd, and it therefore represents a financial detriment to the franchise holder. The Minister needs to come up with a mechanism to offset that cost to the business, because otherwise it is unsustainable.

[Kelly Tolhurst]

As the hon. Gentleman knows, the Government have been working to make business rates more equitable for small businesses, and we are looking at the impact of that. Post offices will have benefited from that work. He mentions costs that he has been made aware of; if he lets me know that particular constituency issue, I am more than happy to take that forward. As I have outlined, under the Bank of Ireland agreement with the Post Office, postmasters are remunerated for, rather than being expected to pay for the privilege of, delivering that service for our communities.

On the question of cashpoints, as we are faced with bank closures, which is a problem that we all very much agree on—they have deserted our high streets—it is for the post offices to pick up the slack in some cases. That is why this Government, with the Post Office, have been negotiating strongly on the new banking framework—to get a better deal for the postmasters who are delivering services that we all rely on in our high streets and communities.

The question of accessibility in the franchise branches has been raised. Franchising means that a post office presence can be maintained in town and city centres in a way that not only makes financial sense, but ensures that services are more accessible to customers, for example through the provision of extended hours and Sunday opening. Post Office Ltd is wholeheartedly committed to ensuring that the needs of the community and its customers are met in any relocation. That is why the Post Office consultation encourages the community to share its views on all matters, including issues related to accessibility under the Disability Discrimination Act 1995.

Post Office Ltd and its franchise partners have stringent rules regarding access to post office branches, which meet all relevant legal requirements, to ensure that all customers, including those with disability or mobility issues, can access their branches. The Post Office also runs local consultations in order to engage local communities, so that they help to shape its plans. The Post Office does not seek a mandate for the franchising, but consults on practical aspects of a proposed relocation, such as service provision and accessibility.

[Hugh Gaffney]

The Minister mentions communication. Has she met the Communication Workers Union about post office closures? Will she arrange that?

[Kelly Tolhurst]

If I might correct the hon. Gentleman, they are not closures; they are franchises. I am concerned about the language used when we talk about the post office network. We are talking about a change in operation, not closures or a loss of service. I will happily meet the CWU on any issues it wants to raise. However, I have to be clear that these are not closures; they are franchises. I think that that sends a really strong message, because communities will think that they are losing all their post office services, when that is factually not the case.

I am aware that hon. Members have expressed concerns about this process. I have met many hon. Members to discuss issues that they have had with franchising in their constituency, and have raised those directly with Post Office Ltd. Citizens Advice reports that Post Office consultation is increasingly effective, with improvements agreed and reassurances provided in most cases. That demonstrates that the Post Office is listening to communities. Ultimately, decisions on franchising are commercial ones for the Post Office to take—within the parameters set by the Government to ensure that we protect our valued network.

On the partnership between WHSmith and Post Office Ltd, WHSmith sees post offices as a central hub in the community and takes the social responsibilities that come with that very seriously. As I have outlined, WHSmith has successfully operated post offices within its stores since 2006, and following the recent agreement, the number of post offices run in WHSmith stores will be greater than 200. This will support the long-term sustainability of post office branches and bring longer opening hours, so that customers are offered seven days of trading a week in convenient locations. Throughout this period, WH Smith has shown that it can successfully run post office branches across the country by delivering excellent standards of customer service, with trained staff promoting products and services in a modern retail environment.

Hon. Members have levied accusations about the fitness of WHSmith and its operation, but it is still very much a recognised brand on the high street, as is the Post Office. We need to accept that some consumers and customers are still very much lovers of the WHSmith brand. I have visited WHSmith branches in which there have been franchises, and the feedback from the community has been very good. I have seen at first hand how it can work. However, each store operates independently. Again, if there are issues with branches in any Member’s constituency, we will always raise those directly with the Post Office.

The Post Office card account is a commercial matter for the Department for Work and Pensions and Post Office Ltd. However, it is no secret that the contract for the Post Office card account comes to an end on 30 November 2021. For claimants who are unable to open a mainstream account ahead of that date, DWP will implement an alternative payment service that allows users to obtain cash payments, wherever their location, before the end of the contract.

It is worth pointing out that that 99% of a bank’s personal customers are able to withdraw cash, deposit cash and cheques and make balance enquiries at a post office counter. Post offices will therefore remain central to delivering cash to customers, including the elderly or the most vulnerable, regardless of the banking product that they chose or move to.

The hon. Member for Sheffield, Brightside and Hillsborough (Gill Furniss) rightly said that it would not be appropriate for us to talk about the legal proceedings at this time. However, I assure her that as the Minister responsible, I will endeavour to take any action required. I am absolutely committed to doing whatever is in my power to make sure that the Post Office retains its standing, and that the relationships it maintains are the best that they can possibly be.

[Hugh Gaffney]

The Minister says that standards will be maintained. Franchises do not maintain the same standard of services as Crown post offices. That is the point I am trying to make.

[Kelly Tolhurst]

I respect the hon. Gentleman’s position, but I disagree that moving to a franchise equals a loss of services and standards. I do not believe that, and I have not seen that, so I respectfully disagree. However, I absolutely take his point and understand his concerns.

Decisions on bank branch closures are a commercial matter for banks and are taken by the management team of each bank, without intervention from the Government. So that hon. Members can see exactly how well I understand the problem, I highlight that I represent Rochester and Strood, and Rochester no longer has a bank in what was the city. However, the Government recognise that branch closures can be disappointing for customers and believe that the impact on communities must be understood, considered and mitigated where possible. That is why we support the Post Office’s banking framework agreement, which enables 99% of the UK’s personal banking customers and 95% of the UK’s small and medium-sized enterprise banking customers to carry out day-to-day banking in the post office network.

I reassure the House that all post offices across the network are of the utmost importance to the Government. We recognise their value and importance to communities, residents, business and tourism in rural and urban parts of the UK. We also recognise and respect our sub-postmasters and the people who work within franchises, who work so hard, as was outlined throughout the debate; some postmasters will go the extra mile. We respect them, and we are determined to work with our partners to make sure that we maintain the Post Office as a viable business proposition for any postmaster to continue with. We will continue to honour our manifesto commitments, so that post offices thrive and remain at the heart of our rural and urban communities.

I again thank hon. Members for their contributions to the debate. I understand their frustrations, and I take their issues on board. In closing, I remind colleagues that, as I have said several times, I am always willing to talk to any MP regarding any constituency branch issue.