Post Office Network

Ed Davey Excerpts

Tuesday 24th January 2012 Written Statements

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

On 9 November 2010, the Government published a statement on their plans for securing the future of the post office network. This set out the Government’s recognition that post offices serve a distinct social purpose and pledged that consequently the Post Office would not be for sale. Instead, Post Office would remain in Government ownership.

At the same time, the Government committed to maintaining the post office network at its current size of around 11,500 branches and building a long term sustainable future for those branches. This commitment is underpinned by a £1.34 billion funding package to 2015, a substantial proportion of which is for an ambitious and challenging investment programme. It will refresh and modernise the network—addressing its underlying economics, to win new customers and to build new sources of revenue.

I am pleased to update the House on the progress that has been made since that statement was published.

Royal Mail and Post Office Ltd—Relationship Going Forward

Work to separate Post Office Ltd into an independent business alongside Royal Mail has continued throughout the past year. In line with Government commitments. Post Office Ltd now has a strengthened board with both a new chair and a senior independent director appointed in September 2011. Further non-executive appointments will be made in due course. This new board will ensure that Post Office Ltd benefits from increased levels of oversight and challenge as it moves to being a separate business from Royal Mail group in the coming months.

During consideration of the Postal Services Act in its Bill stage, Moya Greene, the chief executive of Royal Mail told the House that

“To me it is unthinkable that we would ever have anything but the very strong relationship we have now with the Post Office”.

This reflects the fact that Royal Mail relies on the Post Office to provide access to its services for the public and that Royal Mail is the Post Office’s biggest customer. I gave a commitment to the House at that time that the Government would ensure that the two companies would put in place an appropriate new contract ahead of any separation of the businesses.

I can now confirm that both of these pledges have been met. A new 10-year agreement has been signed between Royal Mail and Post Office Ltd. This will ensure that the full range of Royal Mail products—including stamps, parcels, air mail and special delivery—will continue to be available over post office counters throughout the country for the long term. The agreement was commercially negotiated between Royal Mail and Post Office Ltd and reflects the clear continuing commitment of each business to the other.

Post Office Revenue Streams

The new agreement with Royal Mail provides a solid base for the relationship between those two companies. Clearly the Post Office cannot rely on mail income alone, and other traditional sources of income are in decline. The Government recognise Post Office Ltd must therefore develop new revenues if it is to thrive.

A Front Office for Government

Becoming a “front office” for central and local government are a key objective for Post Office Ltd. This will take time but I believe that Post Office Ltd is now well placed to build on its existing strengths—in particular its trusted role in communities and its extensive network—to further develop its role in this area.

Post Office Ltd faces a clear challenge as services are increasingly provided online or to consumers directly. Post Office Ltd has set out its clear ambition to work with this shift, providing services to support digital delivery. These include face-to-face ID verification, data capture for digital applications, and assisted services for those unable to access online services.

I fully support this ambition, and have been pleased to note the significant successes that Post Office Ltd has achieved so far. Most recently, the company was chosen to collect digital data—fingerprints and photographs—for the UK Borders Agency biometric residency permits. This contract could be worth up to £36 million to the Post Office over the life of the contract. Post Office Ltd has also recently been selected to provide a variety of services which play well to its “front office” ambitions. For example, from November it has been providing identity verification for Criminal Records Bureau checks, to provide licences for London taxi drivers on behalf of the Public Carriage Office. Post Office Ltd will also provide a face-to-face service as part of a wider identity-based registration service to enrol learners to a “Learner Passport” service on behalf of the Skills Funding Agency. At the local level, Post Office Ltd won a contract from Westminster city council to provide a range of “front office” services (the first of which went live in November). It has also been selected to provide a face-to-face enrolment service that will allow local authority employees to access secure Government systems.

The Post Office continues to actively engage with Government as it scopes out how it will deliver more key services in the future. By doing this it is developing its services to ensure a pipeline of services that Government and citizens wish to use. A good example is the Post Office working with the Cabinet Office as part of the identity assurance programme. Through this, the Post Office is further expanding its existing identity verification capability—a function that will be increasingly important as Government deliver more services online. The Post Office also continues to work with Departments—DWP and HMRC—on a number of pilots to test different services, which will help to inform the delivery plans for major Government priorities, such as the future introduction of universal credit. As part of this, the Post Office is developing new offerings to assist those who are currently unable to access services or information online, building on information from pilots such as print-on-demand kiosks—currently operational in Reading and Birmingham. This supports Government’s digital by default agenda.

I also fully support closer engagement between Post Office Ltd and local government. A year-long pilot partnership between Post Office Ltd, Sheffield city council and the National Federation of SubPostmasters has recently concluded and reported its findings. The partnership sought to identify ways of improving the sustainability of the local post office network and to establish the scope for post offices to deliver a wider range of public services. The partnership demonstrated that closer engagement would deliver clear benefits for Post Office Ltd, local government and consumers. We are now exploring these initiatives further with Sheffield as well as an additional 25 local authorities in England and Wales. Similar developments are taking place in Scotland following a successful meeting held with the Scottish Government, Convention of Scottish Local Authorities, National Federation of SubPostmasters and Post Office Ltd.

Financial Services

The expansion of accessible and affordable personal financial services available at post offices is another important element of the Post Office’s strategy. Here, too, good progress is being made. For example, Post Office Ltd recently launched a Junior ISA and it remains the No.1 provider of foreign exchange. Its mortgages and its savings bonds have been prominent in the best buy tables. Over the last year Post Office Ltd has won a range of consumer awards for savings, loan, mortgage and insurance products. Post Office also continues to review and consider the introduction of new products that could be suitable for a range of different customer groups—including the financially excluded—while also contributing to the commercial viability of the network.

Royal Bank of Scotland (including NatWest) customers are now able to access their current and business banking accounts over post office counters, meaning that around 80% of people can now access their current accounts in this way. These arrangements are particularly important to those without easy access to alternative banking facilities nearby. For this reason, I would like to see 100% of current accounts accessible in this way. We have held discussions with the remaining banks that do not currently offer this service—HSBC and Santander—and hope that they will choose to do so in the near future.

Post offices also provide a series of services for credit unions, more than 20 of which use the Co-operative bank’s banking platform for cash receipts and payments as well as balance enquiries. Over 60 credit unions use Post Office’s bill payment facilities to enable repayments and the Post Office also has established a scheme whereby credit unions can utilise its “payout” service, with a small number currently doing so. Some individual sub-postmasters also carry out manual “paper” transactions for local credit unions within their private retail business alongside their post office. I hope that Post Office Ltd’s links with credit unions can be strengthened even further as the sector develops in the future.

National Savings & Investment’s recent decision to withdraw some products from sale at post offices (either because sales of those products were being stopped completely or because they are now to be offered solely through direct channels) presents the Post Office with an opportunity to further develop its own growing range of competitive savings and investments accounts to enhance customer choice. At the same time, premium bonds, which currently account for 75% of all NS&I sales by value through post offices, will still remain available for purchase at any post office.

Post Office Network

All of these initiatives are making a major contribution to improving the sustainability of the post office network. The latest quarterly figures at end December 2011 show a network of 11,801 outlets, of which 5,351 are in urban areas and 6,450 in rural areas.

Post Office Ltd is committed to maintaining the network of at least 11,500 branches throughout this Parliament and it will continuously seek to recruit a new sub-postmaster to replace the incumbent wherever there is not an immediate transfer of the business under a commercial sale. The closure programmes of the past will not be repeated under this Government. These minimum network commitments ensure that services will be available in the places where people want them, but services must also be available at the times people want them—for example on their way to or from work.

Expanded pilot trials of new operating models which can deliver these changes, “Post Office Main” and “Post Office Local”, are continuing and are currently operating in 153 locations across the UK. Both of these new operating models involve investment into the location and are aimed at creating better environments for customers with longer and more convenient opening hours. The purpose of pilots is to enable these models to be refined and developed in the light of experience. Consumer and retailer issues identified in the pilot phase are being closely monitored and addressed. These pilot trials are therefore providing valuable insight into the potential of the new models for both customers and operators. They are also giving an opportunity to further develop and tailor the products and services offered in order to match customer demand and usage as closely as it is possible to do on a sustainable basis. Independent research shows that the Post Office Local pilots have been very well received and are generating high levels of customer and operator satisfaction. In the most recent research interviewing over 1,000 customers in November 2011, 91 % stated they were extremely or very satisfied with the overall branch experience. If you add those who stated they were “fairly satisfied” the total figure is 98%. Extended opening hours for the convenience of customers is a significant benefit of the Post Office Local operating model. A typical traditional post office might be open 46 hours per week. The average for the Post Office Locals that are currently being piloted is 81 hours per week.

These convenient opening hours are attractive to customers—the latest Post Office research suggests a third of the customers of the Post Office Locals are visiting the post office in the early morning or later in the evening.

These longer hours appear to be cutting queues. The survey also found that 68% of Post Office Local customers were served with no wait and of those who did have to wait to be served, 89% found the waiting time acceptable.

From the summer. Post Office Ltd, drawing on the experience and results of the extensive pilot trials, will begin a carefully managed, but voluntary, programme of converting branches to the new operating models in places where introducing the models enhances both customer service and the long-term sustainability of the post office. This will be linked to an accompanying programme of substantial investment in the network. Where a relocation of post offices services in any particular community appears to be appropriate, the proposal will of course continue to be subject to consultation with local authorities and local residents before changes are made in accordance with the code of practice set up by Post Office Ltd and Consumer Focus. In line with the views of the Post Office’s stakeholders, including Consumer Focus, the whole logic of this investment activity is to seek to complement the aspirations of consumers, local communities and local sub-postmasters. That is why the programme is one of investment to sustain and improve the network and to provide greater convenience to customers. Collectively the aim is to draw a line under the past steady decline of the network.

Mutualisation

Looking forward, I believe that the continued success of this strategy will deliver a profitable business and a thriving post office network and that Post Office Ltd can be most successful when all of its key stakeholders are engaged in that goal. In due course, the Postal Services Act 2011 allows for Post Office Ltd to become a mutual but, in addition to a requirement for Parliament to approve any transfer, the Act imposes a further key condition that any mutual post office continues to act for the public benefit. Our public consultation “Building a Mutual Post Office”, which sought views on the mutual concept and how it might be structured, closed on 12 December. Responses are now being studied and we expect to publish the Government’s response in the spring.