Post Office Card Account

Sarah Newton Excerpts

Tuesday 24th May 2011 Westminster Hall

[Sarah Newton (Truro and Falmouth) (Con)]

It is a privilege to serve under your chairmanship, Mr Hollobone, and to introduce the debate this morning. I requested the topic as a subject for debate as I was concerned by the apparent lack of progress on an important part of the coalition agreement. I am delighted that the coalition Government have been so publicly supportive of both the need to provide an enhanced Post Office card account and the need to enable more income streams into the post office network to ensure the sustainability of our much trusted and widely respected local post offices.

The additional Government plans for the post office network have received a warm welcome. They include no further closures of our post offices; an extra £1.34 billion in funding for the network between now and 2015; and post offices becoming a front office for Government and offering an expanded range of financial services, including credit unions and existing high street banks giving access to personal and business accounts at post offices. Currently, an estimated 60% of accounts can be accessed through post offices. The Government aim for that to be increased to 80% of all current accounts, and they will seriously consider enabling the Post Office to become a co-operative or mutual.

I understand that, for a variety of good reasons, the Government are exploring the possibility of enhancing POCA while at the same time developing a new account that could replace it. For the purposes of this debate and brevity, I will refer to POCA covering both possibilities. Although I very much appreciate the considerable economic challenges the Government face, as well as the pressure on Ministers’ time, I hope that there is a lack only of visible progress and that the Minister today will take the opportunity to update hon. Members on the behind the scenes progress being made. That would allay the concerns in post offices and the communities that they serve around the country. Although they very much support the direction and words of the Government, they want to see action. There is significant potential for POCA to be developed into a fully transactional account aimed at low-income consumers. The account is also vital to the financial viability of post offices, which play an important role in rural areas, where the local post office is often the only access to cash for people, small businesses and voluntary groups.

To help our debate, I will provide some background information on POCA, starting with some history. The direct payment scheme was the Government programme that replaced traditional payments of state pensions and benefits by order book or girocheque over the post office counter with electronic payments made directly into an account. The programme began in 2003 and was completed in 2005. The loss of the payments of pensions and benefits cost post offices about 40% of their traditional income. The Government claimed that direct payment would help to tackle financial exclusion and provide a cheaper method of paying pensions and benefits.

Under direct payment, there were three main options for the receipt of state pensions and benefits: a current or savings account at any bank or building society; a basic bank account; or a POCA, which was introduced in April 2003. A small number of pensioners and benefit claimants were able to sign up to the exceptions service to have their payments continue to be made by the green giro.

At its peak, there were about 4.3 million POCA customers, and that was despite well documented efforts by the Department for Work and Pensions at the time to promote other payment methods and to discourage customers from opening a POCA. The account has unique features that are important to people on low incomes. In particular, there are no restrictions on who can open an account, as long as they are in receipt of a state pension or benefit, and it is impossible to get into debt. It is a straightforward product that enables benefits to be paid into accounts. In March 2010, POCA was enhanced to allow access to cash withdrawals, balance inquiries and other PIN services at post office ATMs and over post office counters.

POCAs have a great deal of public support. When in 2006 the Government announced that they would cease by 2010, the National Federation of Sub-Postmasters campaigned rigorously to overturn the decision, which led to more then 4 million people signing a petition that was submitted to Downing street. As a result, in December 2006, the Government decided to continue the accounts. Another effective campaign by the NFSP led to more than 3 million postcards being sent to MPs, which called for POCAs to be retained exclusively by the Post Office.

Both successful campaigns highlighted the importance of POCAs to sub-postmasters’ income. According to the NFSP’s most recent research, from June 2009, on sub-postmasters’ income, on average, sub-postmasters earned £220 a month—7% of net income—from POCA transactions. However, that average does not highlight the heavy dependence of certain post offices on POCA income, typically those in deprived urban or rural areas. The 2009 survey showed that 15% of sub-postmasters earned £400 or more a month from POCA transactions. When customers withdraw at a post office, they also spend money through other Post Office services, such as bill payments or mobile phone top-ups, or in the attached shop. That footfall is a key factor in maintaining the viability of thousands of post offices.

The NFSP estimates that the value of the POCA contract for Post Office Ltd has fallen from an estimated annual £195 million to £131 million in the period ending in the spring of this year.

[Jim Shannon (Strangford) (DUP)]

Further to the hon. Lady’s last point, which was very valid, there are a great many postmasters and postmistresses who have actively engaged with their local communities to ensure that POCAs are available. They have done all the hard work and are now looking at the possibility of those accounts being removed through the running-down of rural post offices. Does she agree that it would be detrimental, not only to rural communities, but to small towns, for the Government to pursue that policy?

[Sarah Newton]

I absolutely agree. It would be detrimental to the post office network if POCAs were removed, but I do not believe that that is the Government’s intention.

The reduction in the worth of the contract will be felt in the income of sub-postmasters and postmistresses. It is understandable that the DWP wants to drive down the transaction costs of benefits payments and so sees that reduction as a saving—costs have come down to about 50p from about 70p to 75p per transaction—and I understand why the Government want to look at efficiencies in that way, but there are significant implications for incomes, livelihoods and the sustainability of the network. That underlines why it is so important that the future of POCA and banking services more generally is secured. Existing and new customers would very much welcome enhanced services.

Research on POCA customers by Consumer Focus demonstrates that customers want additional transactional features and want to carry on using post office branches, which they know and trust, to access their payments. A fully transactional account could deliver significant benefits in terms of financial inclusion. Consumer Focus research shows that up to 1.75 million people are “unbanked” and could access a transactional account. By not having a bank account, vulnerable consumers can lose out time and again. Not being able to use the internet to buy goods and services or direct debit for household bills means that they pay more. They miss out on safer money management and convenient access to cash through ATMs. They find it difficult to access mainstream credit or insurance, or to save effectively, unless they are fortunate enough to have local access to a credit union or community bank. They will find it increasingly difficult to be paid for work; Consumer Focus estimates that by 2018 only 2% of employees will be paid in cash.

[Richard Graham (Gloucester) (Con)]

I congratulate my hon. Friend on securing this debate, on a subject that is important to millions of people. Is she aware of the report recently published by the Association of British Credit Unions, which highlighted the opportunities for co-operation between the Post Office and credit unions? Although it is a difficult area and is connected with the mutualisation of post offices, which is taking time, does she agree that it could signify a huge step forward for the millions that do not have access to bank accounts, and will she join me in encouraging the Government to make progress on the matter as soon as possible?

[Sarah Newton]

I thank my hon. Friend for that interesting contribution. I support the work of credit unions. We have an excellent credit union in Cornwall: Cornish Community Banking provides good services for people on low incomes. As the Government consider the future of the post office network, given its reach into our communities, it is important that they fully consider the positive benefits of post offices working with credit unions and community banks, and how that might work with co-operatives or mutuals. Indeed, credit unions and community banks might work alongside post offices and offer their products through the branches. I hope that the Minister will update us on that.

I return to the benefits of an enhanced Post Office card account. It could also offer a genuine alternative for consumers who are dissatisfied with their basic bank account. Figures provided by the Financial Inclusion Taskforce last year suggest that up to 40% of basic account holders either have dormant accounts or, because of the associated penalty charges, opt not to use the full range of transactional features, including direct debit.

As well as the 1.75 million unbanked people in the UK, there are just under 4 million POCA customers, and benefit payments of about £1.2 billion per annum flow through those accounts. Many people on low incomes are reluctant to open basic bank accounts or current accounts because they fear high charges if they go overdrawn. Treasury research shows that, for low-income households operating a conventional direct debit facility, savings are offset by the loss of an average of £140 per annum in penalty charges. The cost is borne disproportionately by low-income households, who have to juggle daily or weekly income and/or benefits payments.

Consumer Focus recently undertook research on a transactional POCA. The account that it tested offered post office counter withdrawals, LINK-ATM access, the ability to receive inward payments and a debit card. Crucially, it also offered a bill payment facility that allowed customers to benefit from cheaper utility rates. Equally crucial is the fact that, unlike other direct debit facilities, it would be for the consumer to determine the frequency and the amount of payments to be made—and the consumer would not be liable for penalty charges if a payment were missed. A level of control that prevents them becoming overdrawn and incurring penalty charges is important to low-income households, as they have to be careful to live within their means.

I understand that the Treasury has recently finished a feasibility study into accounts that have the additional and useful feature of weekly budgeting. Measures that help people on low incomes to obtain the best prices for essentials such as energy, and enable them carefully to budget incomes and expenditure, are to be welcomed. Many low-income families are susceptible to doorstep lending, with its exorbitant interest rates, which can quickly get them into unmanageable debt.

I hope that a new product can be developed before the POCA contract ends in March 2015, and that existing account holders will be migrated on to the new account. Such an account would have much broader appeal to post office customers. It could lead to a customer base large enough to give economies of scale, which would make the operation of such an account cost-effective. The introduction of a transactional POCA with a budgeting facility will be particularly important in helping to secure the migration to universal credit.

I have been an MP for a limited time. I can see that, despite their good intentions, Governments can find it challenging to work across Departments on joined-up policy. The delivery of an updated POCA or similar new product is one such policy. It needs to be given thoughtful consideration by the Department for Business, Innovation and Skills, the Treasury and the Department for Work and Pensions. However, I understand that, as in so many policy areas, there are conflicting priorities. I realise that the DWP will want to reduce transaction costs for benefit payments. The Department also has the key aim of lifting as many people as possible out of poverty, and the improved POCA could help with that.

I realise that 2015 seems a long time away. However, sub-postmasters, the vast majority of whom are self-employed small business owners who work long hours for low returns, need to know that the Government are committed to introducing an enhanced POCA or a replacement, and that they are on track to deliver a product that will not only benefit customers but give them certainty of income. The recent decision to award the green giro payment contract to PayPoint, with savings going to the DWP but with losses going to the post offices, is a concern to many sub-postmasters.

The post office network has reached a critical point. The previous Government’s closure programme, the withdrawal of Government services and major social and economic changes have resulted in 7,000 post office closures over the past decade. However, the remaining 11,500 post offices and 500 outreach services still provide a much bigger network than all the banks and building societies combined. Every week, 20 million people visit a post office, and for every £1 transacted, 14p is handled through the post office network.

Post offices are a vital resource for rural communities such as those in Cornwall. Only 4% of villages have a bank, compared to the 60% that have a post office. Between 2000 and 2010, rural areas experienced the loss of nearly 60% of their banks and building societies According to the Campaign for Community Banking Services, Barclays closed 22 banks during the last quarter, 12 of which were the last, or the last bank but one, in the town. HSBC and Lloyds each closed nine branches. That lack of services and competition for small businesses has been recognised by the Treasury Committee and the Banking Commission in reports in April. This could be a real opportunity for new services to be delivered by post offices, as 47% of small businesses already use the post office more than once a week, especially for stamps, mailing and cash.

Although many post offices run alongside shops—in small villages, they are often the only shop—sub-post office income is worryingly low. New work urgently needs to be brought into the post office network to increase income for the remaining post offices and to ensure that they can continue to serve local communities.

Having outlined some of the challenges that face the post office network and the real opportunity of developing POCA in the war against poverty and the delivery of the universal credit, I look forward to being reassured by the Minister that the coalition Government are taking action to deliver the important legacy of a sustainable post office network.

--- Later in debate ---

[Mr Alan Reid (Argyll and Bute) (LD)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Truro and Falmouth (Sarah Newton) on securing this debate on the important issue of the Post Office card account and on presenting a good case on behalf of our communities. After spending nine years in opposition to a Government who were clearly urban based, it is a pleasure to be part of a Government who understand rural communities.

The coalition agreement includes a commitment to post offices and to making them the front office of government. For that to happen, they have to be financially underpinned so that they can provide a large number of basic services, including the Post Office card account. The importance of POCA to post offices derives not only from the income that sub-postmasters and sub-postmistresses get from it, but from the fact that customers collect their money from the post office and then spend it in the shop. In rural villages in a constituency such as mine, there is often just the one shop and the post office is an important part of that shop. Without the post office, the shop would not be sustainable.

My hon. Friend talked about the need for joined-up government and for all Departments to support the post office. Given the structure of government in this country, there is clearly a temptation for Ministers to engage in silo thinking and to be concerned only about their own Department. Although the Government inherited a terrible financial mess from their predecessors and the pressure is on Ministers to make savings in their own Departments, it is important that our Ministers do not pat themselves on the back for making savings in their own Department at the expense of other Government Departments. The Post Office is a case in point. We need all Government Departments to support the Post Office.

When I came back to Parliament after the election, I was unpleasantly surprised to find that the previous Government had issued tenders to replace green giros, which brought in a lot of money to post offices. People in rural areas were particularly dependent on such a service because it meant that they had a place in their own community to cash their green giros. When the new Government came in to office, they had to deal with the fact that the tender had been drawn up by the previous Administration, which greatly restricted their room for manoeuvre. I was further disappointed when the contract was awarded to PayPoint. Although there are a lot of PayPoint outlets in my constituency, they are all in the towns, and large rural parts of my constituency have no PayPoint outlet. There is no PayPoint outlet in the rural parts of north Argyll. There are about half a dozen in shops in Oban, but nothing outside.

[Sarah Newton]

I can echo my hon. Friend on that point. We have the same problem with access to PayPoint in parts of Cornwall. However, does he not agree that we should take some reassurance from the fact that the Government have said that people who currently receive the green giros will be given advice on their options, including signing up for a Post Office card account? I will work with my rural post offices to put up posters in branches so that as people cash in their green giros for the last time, they are encouraged to apply for a Post Office card account.

[Mr Reid]

My hon. Friend makes an important point that customers who use the green giros must be given the option of using POCA and must be encouraged to do so. I hope that this Government’s attitude towards POCA will be very different from that of the previous Government. Those of us who were MPs in the 2001 Parliament were inundated with complaints from constituents who were badgered and bullied by the Department for Work and Pensions call centre to move away from POCA to the banks. As I say, I hope that this Government will have a completely different attitude to POCA and that its use will be marketed positively rather than actively discouraged, as was the case under the previous Government.

There is a lack of PayPoint outlets in the rural parts of north Argyll, and there are several islands in my constituency that do not have a PayPoint outlet. Every time I mention PayPoint in a debate, I am conscious of the fact that a few days later a letter comes in from PayPoint saying what a wonderful service it provides. I say now to the person from PayPoint who will read the Hansard report of this debate that PayPoint still does not have outlets in rural north Argyll or on several of the islands in my constituency.

As we are discussing green giros, it is important to remember that many people who use them are people who were unable to use POCA for disability reasons. When my hon. Friend the Minister responds to the debate, I hope that he can tell us what facilities will be made available to people with disabilities who were previously deemed unable to use POCA to make it easier for them to access POCA. For example, if they live on a small island without a PayPoint outlet, what are they to do?

One of the lessons to be learned from the green giro contract is the importance of Government consultation before contracts go out to tender. When some of my hon. Friends and I attempted to lobby Ministers to give the green giro contract to the Post Office network, we were told the standard line that all Ministers in any Government use—that once a contract is out to tender and a legal process is under way, Ministers cannot engage in discussions about it. It is therefore important that we consult before contracts are put out to tender rather than, as was the case with the green giro contract, only finding out after the contracts have been put out to tender.

Of course, my hon. Friend the Minister has a responsibility to run his Department as efficiently as possible and to save as much money as possible. However, any savings that are made should not be at the cost of making the problems of financial exclusion worse. I understand that one of his remits is to be the Minister with responsibility for financial inclusion. If the only place in a rural community where people can access cash is a village post office and that post office closes, we will see real financial exclusion. Although pensioners may have bus passes that allow them free bus travel, in a rural community in the highlands there are not that many buses. Even on the days on which the buses run, it is often the case that there is only one bus from a village to a town at 9 am and there is only one bus back at 5 pm. What is a pensioner on a low income to do if they go into a town on the 9 am bus to collect their pension from the post office and they have to wait until 5 pm for the bus back?

[Mr Reid]

Yes. The hon. Lady makes a very important point, because the post office has a certain privacy that, say, a PayPoint outlet—I might as well say “PayPoint”, because I will get a letter about it anyway—in a filling station rarely has. Also, the staff who work at the checkout in a supermarket or filling station do not have the training that the post office staff have. That is another very important point.

[Sarah Newton]

Does my hon. Friend accept that staff in local post offices, such as those in villages in my constituency, know the regulars who come in, particularly elderly or vulnerable people? They can help those people if they have forgotten their PIN numbers; I am sure that that goes against the regulations, but it is a vital thing that they can do. They also notice if Mrs Smith or Mrs Jones does not come along. That sets off an alarm, and they either go round themselves or they ask other people to check on them. That is a vital social service for elderly people and people with disabilities in many of our villages.

[Mr Reid]

My hon. Friend makes an important point. I hope that the Minister and other Ministers will bear it in mind when they consider the importance of post offices.

The Government have a commitment to the Post Office network, as set out in the coalition agreement:

“We will give Post Office card account holders the chance to benefit from direct debit discounts and ensure that social tariffs offer access to the best prices available.”

I hope that my hon. Friend the Minister can tell us what progress the Government have made towards achieving that objective in the coalition agreement.

In conclusion, post offices are very important to our rural communities. As I have said, the post office often underpins the only shop in a village and there will be all sorts of problems for villagers, particularly elderly people on low incomes, if post offices close. I hope that my hon. Friend the Minister will agree that it is worth the Government spending money or perhaps giving up the opportunity to make some savings to retain the Post Office network in such areas. That means supporting Government services through the Post Office network and, crucially, it means that when the present POCA contract runs out in 2015 its successor is a post office-based product, and hopefully one that offers even more services than POCA offers at the moment. The successor to POCA must be a post office-based product. Otherwise elderly people on low incomes in our rural communities will really suffer.