1. On 6 March 2007, we published a short Report commenting on the Government's proposals for reducing and reshaping the post office network so that post offices would be better able to meet the challenges of falling levels of use and declining incomes from their traditional business.[1] We recognised that the current situation of increasing financial losses and haphazard closures of branches was undermining the entire network, and we reluctantly accepted that a thorough review of the network with a limited number of planned closures was sensible, provided that the social as well as the commercial aspects of post offices were fully taken into account.

2. On 17 May, the Government responded to our Report at the same time as the Secretary of State for Trade and Industry made a Statement to the House of Commons on the result of the public consultation on its proposals. The Government's response is appended to this Report. We are satisfied with some key aspects of the Government's reply but were dissatisfied with others. So we decided to make this brief Report commenting on it.

3. We emphasise that overall we accept the justification for the proposed major, systematic overhaul of the post office network. For the sake of the remaining sub offices, and given both the changing nature of the market in which they operate and the substantial volumes of government business that have been lost to the network, we simply wish that this necessary action had been undertaken earlier.

4. We also welcome the Government's willingness to widen the issues that need to be taken into account when the futures of individual post offices are considered. The Government has—rightly, in our opinion—decided that fairly simple distance-based access criteria are by themselves insufficient and has agreed that Post Office Ltd will have to demonstrate that it has taken into account not only geographical obstacles to access but also factors such as the availability of public transport, alternative access to key post office services,[2] local demographics and the impact on local economies.[3]

5. We are pleased that the Government has responded to our recommendation and other representations about the need to take into account those urban areas which, though deprived, fall just outside the definition of the 10% most deprived and therefore failed to qualify for the extra protection which the Government proposed. The Government has decided to extend this protection to the 15% most deprived areas.[4]

6. However, a number of our recommendations have not been fully addressed by the Government or have been rejected. We are particularly concerned about three issues: the public consultation process, and the associated question of the future of Postwatch, the consumer body for postal services; how sub postmasters will be helped to adapt their businesses to improve their commercial competitiveness; and how the Post Office will ensure the continuance of adequate geographical coverage when—as they surely will—sub-post offices close in future.

7. The experience of the Post Office's Urban Reinvention programme led us to suggest that six weeks was insufficient for public consultation on local area plans for the post office network. We suggested a standard twelve week period, as set out in the Cabinet Office guidelines for public consultations. The Government has made welcome efforts to ensure the greater involvement of Postwatch and the local authorities in drawing up the local area plans this time. Nevertheless, the Government has resisted the extension of the period of formal public consultation. Their justification is that six weeks is enough when the earlier discussions with local authorities and Postwatch are taken into account, and that any extension would increase the period of uncertainty for sub postmasters and customers. We welcome provisions to ensure that Post Office Ltd consults Postwatch and the relevant local authorities before issuing local area plans for public consultation.

8. We are still of the view that six weeks' consultation is not sufficient for customers and others, especially local councils, to formulate and express their views, because: (a) the Post Office's proposals in respect of each post office will quite rightly have to be based on a complex variety of factors (access criteria, social and business needs, commercial potential, etc), and each area plan will cover a large number of post offices; (b) some councils meet only once every six weeks or even every two months; and (c) we reject the Government's argument that a further six weeks' delay (i.e. twelve weeks' consultation—per the guidelines—instead of six) would add significantly to the uncertainty faced by sub postmasters and their customers. The examination of local area plans is set to take at least 18 months, the restructuring process having started in December last year; and considerable uncertainty over the future of the network has existed at the very least since May 1999, when the programme for the migration of benefits payments from order books was first proposed. In this context, an extra six weeks is negligible. Indeed, given the importance of this restructuring programme, a slightly longer consultation period should help to ensure that the resulting new network structures are genuinely durable.

9. We are also disappointed that the Government was unable to reassure us that the timetable for the merger of Postwatch into the new National Consumer Council would not hinder Postwatch in its role as consumer representative in the preparation of the local area plans over the next 18 months. We understand that such matters have to be negotiated, but more progress should have been made in the two months since our Report was published. Postwatch is a substantially improved organisation with a lot to contribute to the consultation process. It should not be subject to so much uncertainty at such a sensitive time.

10. We seek a commercially viable network, not one permanently dependent on subsidy. We also note that the Network Subsidy Scheme[5] will not be increased but will now be shared between the urban and rural network. Our major concerns, which centre on the need to improve the business prospects of the remaining sub postmasters by encouraging and enabling them to provide more varied and higher value services, have thus become more urgent. The Government's response sidesteps this issue by placing responsibility on Post Office Ltd, the very body that has consistently failed to show sufficient imagination or entrepreneurial flair in developing services so far, or properly to understand the realities of managing a network of often very small businesses. When coupled with the restrictions on individual postmasters that prevent them from innovating, it is difficult to see how the profitability of the network can be significantly improved in future. Under its new management, Post Office Ltd seems to be awakening from its lethargy, but we think that the Government, as sole shareholder and representative of the taxpayer, has a responsibility to ensure that Royal Mail Group as a whole gives proper attention to increasing the competitiveness of the network rather than just managing its decline.

11. In this context, the future of the Post Office Card Account is vital. We note that the Department for Work and Pensions has already put a notice in the Official Journal of the European Union seeking tenders for a 'POCA Mark 2'. It is clearly too late to influence the specifications for POCA Mark 2, but we are disappointed that the Government thinks it both undesirable and too difficult to extend the functions of this account to simple matters like making cash deposits. Without such changes, all too often even the correction of mistakes by cashiers is impossible. We accept that this would increase its similarity to basic bank accounts, and we believe that many people who are suspicious of banks might be attracted to the dependable Post Office brand instead if the functions were similar—thus undermining the laudable hard work the Government has done in inducing banks to offer basic accounts in the first place. However, we are still of the view that it is absurd that holders of POCA accounts cannot deposit cash into their accounts; and we do not understand why Financial Services Authority rules should "require a greater degree of scrutiny and ID checking" of customers in this case.

12. Frustratingly, it is still totally unclear what will happen when uncompensated closures occur, now or in the future, that leave geographic gaps in the leaner but still comprehensive network that the restructuring programme is intended to produce. In its response, the Government baldly asserts: "Unplanned closures will be counterbalanced by replacements if the access criteria would be no longer met. Access criteria will replace the 'no avoidable closure' policy and ensure that a national network of post offices is maintained", without explaining how this will be effected.[6] It is of no use simply to hope that replacement sub postmasters will spontaneously appear in all cases. Both Post Office Ltd and the Government must soon announce how they will cajole or induce providers to fill such gaps, and what will happen if such inducements fail. For example, would they be prepared to open a new Crown Office if an area were left with inadequate provision which failed the Government's access criteria? Unless they give proper consideration to the maintenance of the network after restructuring, it is sadly likely that the issue of closures will return to the agenda—sooner rather than later.

13. We do not wish to appear negative about the efforts to restructure the post office network. Overall, in the face of the loss of so much business, the programme is necessary. We welcome the fact that the Government has learned lessons from previous problems. However, we think the issues we have outlined above are too important to be ignored. We expect the Government to give us more substantive answers on these matters than it has done so far.

2   Which we take to mean, for example, the availability or otherwise of other cash withdrawal services in the locality. Back

3   See Government's response, p7 below. Back

4   Ibid. Back

5   Formerly the Social Network Payment Back

6   See Government's response, p7 below Back