post office network transformation · post office network transformation 3 summary the...

HC 84

House of Commons

Business, Innovation and Skills Committee

Post Office Network Transformation

Third Report of Session 2012–13

HC 84 Published on 17 July 2012

by authority of the House of Commons London: The Stationery Office Limited

£0.00

House of Commons


Post Office Network Transformation

Third Report of Session 2012–13

Report, together with formal minutes, oral and written evidence

Ordered by the House of Commons to be printed 11 July 2012


The Business, Innovation and Skills Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Innovation and Skills.

Current membership

Mr Adrian Bailey MP (Labour, West Bromwich West) (Chair) Mr Brian Binley MP (Conservative, Northampton South) Paul Blomfield MP (Labour, Sheffield Central) Katy Clark MP (Labour, North Ayrshire and Arran) Julie Elliott (Labour, Sunderland Central) Rebecca Harris MP (Conservative, Castle Point) Margot James MP (Conservative, Stourbridge) Simon Kirby MP (Conservative, Brighton Kemptown) Ann McKechin (Labour, Glasgow North) Mr David Ward MP (Liberal Democrat, Bradford East) Nadhim Zahawi MP (Conservative, Stratford-upon-Avon) The following members were also members of the Committee during the parliament. Luciana Berger MP (Labour, Liverpool, Wavertree) Jack Dromey MP (Labour, Birmingham, Erdington) Dan Jarvis MP (Labour, Barnsley Central) Gregg McClymont MP (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Ian Murray MP (Labour, Edinburgh South) Nicky Morgan MP (Conservative, Loughborough) Chi Onwurah MP (Labour, Newcastle upon Tyne Central) Rachel Reeves MP (Labour, Leeds West)

Powers

The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publications

The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/bis. A list of Reports of the Committee in the present Parliament is at the back of this volume. The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only.

Committee staff

The current staff of the Committee are James Davies (Clerk), Neil Caulfield (Second Clerk), Peter Stam (Committee Specialist), Josephine Willows (Committee Specialist), Ian Hook (Senior Committee Assistant), Pam Morris (Committee Assistant), Henry Ayi-Hyde (Committee Support Assistant).

Contacts

All correspondence should be addressed to the Clerk of the Business, Innovation and Skills Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected]

Post Office Network Transformation 1

Contents

Report Page

Summary 3

1 Introduction 5

2 Proposed changes to the Post Office network 6 Introduction 6 Government proposals for reform 8

3 The network transformation 10 Introduction 10 Changes to post office services in the new ‘Local’ model 11 Post office ‘Locals’ to be located in other premises 13 The ‘Locals’ pilot scheme 15 Implementation and consultation 16

4 Front Office for Government 18 Credit Unions 20

5 The future role of the subpostmaster (SPM) 22 Current situation 22 Retirements and new entrants 23 Training of staff 25

6 Mutualisation 28

7 Post Office subsidy 30

8 Conclusion 32

Conclusions and recommendations 33

Formal Minutes 37

Witnesses 38

List of printed written evidence 38

List of Reports from the Committee during the current Parliament 39


Summary

The Government’s proposals aim to put the Post Office on a long-term sustainable footing and have the potential for it to increase the geographical coverage of post offices. While we support the direction of travel set out in Securing the Post Office network in the digital age, we remain concerned that the inflexibility of the proposals, the lack of a programme for delivering government services for the Post Office and deficiencies in the training programme for post office staff may undermine these reforms.

The Government has relied on narrow research to support its widespread coverage of the new post office models across the country, without consulting affected groups with diverse needs and demands. To be a success, the new post office models must reflect those interests and the Government must commit to active consultation with all those groups directly before the scheme is rolled out across the country.

Many of those involved in the sector have concerns about the proposals, which include: the removal of the dedicated ‘fortress’ position, with the accompanying lack of privacy; the provision of a more limited set of services, including the removal of the manual cash deposits and withdrawals service from the ‘Locals’ model; extended opening hours, possibly from 7am in the morning until 10pm at night, with varying degrees of service provided during that time; and the prospect of reduced training—and vetting—for staff.

Staff training is vital to the future success of the Post Office. With the new post office models offering more than the traditional post office services, post office staff will need a far greater degree of marketing and retailing skills. Post Office Ltd must develop and invest in a more modern training programme for post office staff, to ensure that the service standards are maintained across the different models of post offices and during the proposed longer opening hours.

Both central and local government speak warm words about delivering government services through the Post Office, yet such additional government services—with the accompanying extra revenue for the Post Office—has yet to materialise. The Government needs to set out a coherent strategy for delivering its long-term ambition for Post Office Ltd to become the Front Office for Government. For this to be economically viable, the Post Office must commit to a far more aggressive marketing strategy to ensure that post offices are the preferred outlet for government services.

Mutualisation is the Government’s long-term ambition for the Post Office. But its recently published response on mutualisation lacks detail on the timetable for change, and many practical issues remain unresolved. For example, it does not give sufficient detail on how mutualisation could be affected if the majority of ‘Locals’ were owned by a small number of larger retailers. Any plans for mutualisation must be considered alongside, not after, implementation of the Network Transformation policy.

We believe that the Network Transformation reforms are necessary. That said, the Government has to be alive to the risk that the truncated timetable may not provide sufficient time to deliver marketing strategies, the proper training of staff and a full evaluation of what services should be provided to which communities, all of which are vital

4 Post Office Network Transformation

to the success of the Programme. The Post Office ‘brand’ is cherished by many and post offices play a vital role both as the social hub of communities and as the provider of essential and useful services. It is therefore crucial that the Network Transformation Programme carries with it the communities that value and rely on post offices. If successful delivery of the reforms requires a slower pace of change, then such a delay would have widespread support, including those who rely on the services the Post Office provides.


1 Introduction

It all comes down to the image of the Post Office, the reliability of the Post Office and its reputation. If that is damaged, you have got a serious problem. [Clive Davenport, Federation of Small Businesses]1

1. The quotation above exemplifies the concerns of many in the industry about the future of the Post Office. There is a united view across all sectors of the Post Office industry that something substantial must be done to ensure the long-term viability of the Post Office service. The Government’s proposed restructuring of the Post Office—the third in eight years—is set out in its policy statement, Securing the Post Office Network in the Digital Age.2 It describes the Government’s key commitments for modernising the Post Office network, called ‘Network Transformation’.

2. The Government has pledged not to reduce the total number of post offices, but with that pledge comes a set of proposals that will radically alter the way in which people view, use, and interact with post offices. The Government wants the Post Office to offer a service available for longer hours, in more convenient locations, serving a wider range of customers. The changes foresee the conversion of post offices into three different types: Crown, ‘Main’ and ‘Local’.

3. Given the wide-ranging nature of the Government’s proposals, we decided to undertake a short inquiry into the Government’s progress towards reforming the Post Office network. We issued a call for evidence in April 2012 and in June we took oral evidence from: the Post Bank Coalition; Consumer Focus; the Association of Convenience Stores (ACS); Post Office Ltd (POL); and the National Federation of Subpostmasters (NFS). We are grateful to all those who gave both written and oral evidence.

1 Q 9

2 Department of Business, Innovation and Skills, Securing the Post Office network in the digital age, November 2010.The other two Post Office modernisation programmes were the Urban Network Reinvention Programme (2002) and the Network Change Programme (2007).


2 Proposed changes to the Post Office network

Introduction

4. Since its inception in 1854—when the Royal Mail set up its own wholly-owned post offices—the Post Office has undergone a series of reforms. The Post Office was nationalised in 1969. In 1986, Royal Mail was split into Royal Mail Letters, Royal Mail Parcels, and Post Office Counters. In 1987, Post Office Counters Ltd became a wholly-owned subsidiary of Royal Mail and then in 2001, Post Office Counters Ltd became a public limited company and was renamed Post Office Ltd.

5. The Postal Services Act 2011 made provision for an unrestricted sale of shares in Royal Mail, and for Post Office Ltd to remain in full public ownership, with the possibility of a move to a mutual structure in the future.3 The Government is the only shareholder of Royal Mail Holdings plc, and Royal Mail Holdings plc is itself the ultimate parent company of Royal Mail Group Ltd. Royal Mail Group is made up of four major operating businesses:

• Royal Mail letters provides the nationwide delivery service;

• Parcelforce Worldwide is an express parcels business;

• General Logistics Systems, incorporated and based in the Netherlands, is Royal Mail’s European parcels business (Parcelforce Worldwide is its UK partner); and

• Post Office Ltd is responsible for the network of post offices, including sub-post offices, franchise offices, and the remaining Crown Offices.4

6. The Post Office remains an essential service which is extensively used. A third of the UK population—just under 20 million people—and half of all small businesses visit one of over 11,500 post offices every week.5 The Post Office is one of the country’s largest cash handlers, processing around £70 billion of cash and £636 million of coinage every year.6 Post Office Ltd’s written submission and the Government policy document, Securing the Post Office network in the digital age, gave the following snapshot of the activity of the Post Office and its value to communities:

• In 2009 independent research estimated the social value of the Post Office to be at least £2.3 billion per year.

• In 2010/11, Post Office Ltd made a profit of £21 million and in that year there was a Government subsidy payment of £150 million.

3 Explanatory notes: Postal Services Act 2011, para 16

4 Royal Mail Group, Annual Report 2011

5 Ev 42

6 Securing the Post Office network in the digital age, page 10


• Of the current 11,500 post office branches, 373 are operated directly by Post Office Ltd; the remaining are agency branches, run by independent business people or multiple retailers, often as part of a retail business.7

• Of these agency branches, some 4,000 are run by the four largest supermarket chains.8

The National Federation of Subpostmasters (NFSP) gave the following assessment of the services offered by post offices:

Post offices offer a uniquely wide range of products and services under one roof—from postal services, travel, telephony and bill payments to government services, banking and financial services. Eight in ten post offices are run alongside a shop, and post office shops play important roles in providing local retail [facilities] including stationery, newspapers, food and household goods.9

7. Despite the range of services offered and their position as the social hub of many villages

Office during the past 10 years. Post Office Ltd argued that this trend was “largely driven by the reduction in government services and a shrinking consumer mails market in an increasingly digital world”.10 This fall in customers has been accompanied by a steady decline in Post Office branches over the past 30 years. The graph below shows clearly that decline:

Number of Post Office Branches

Source: BIS, Securing the Post Office network in the digital age, November 2010, Chart 3

7 Ev 42 and Ev 44

8 Securing the Post Office network in the digital age, para 1

9 Ev 37

10 Ev 42

25000

20000

15000

10000

5000

0

Num

ber o

f Pos

t Offi

ce b

ranc

hes

1980

/81

1982

/83

1984

/85

1986

/87

1988

/89

1990

/91

1992

/93

1994

/95

1996

/97

1998

/99

2000

/01

2002

/03

2004

/05

2006

/07

2008

/09

Year

and towns across the country, over 8 million customers have stopped using the Post


Carole Campbell, a subpostmaster, described this decline from a personal perspective:

The loss of a rural sub-post office is very damaging to the community as a whole and I know my customers are very upset at the prospect of losing theirs.11

This decline sets the back-drop for the Government’s proposals and demonstrates the challenge facing it in providing a secure and sustainable future for the Post Office.

Government proposals for reform

8. Securing the Post Office Network in the Digital Age sets out the Government’s proposals for the future of the Post Office network. In its foreword, the Secretary of State for Business, Innovation and Skills, Rt Hon Vince Cable MP, describes the overall aim of the proposed changes:

We believe in a Post Office with a public mission, and the Post Office will not be for sale. But we do not think that the current ownership arrangements, where Government acts as ultimate 100% shareholder, always serve the best interests of the Post Office. So we have put forward proposals in the Postal Services Bill that would, in time, allow the Post Office to be converted to a mutual. I want to empower those that know the Post Office best—the subpostmasters, the employees, and even communities—to have more of a stake in the future of the services that they value.12

9. The key Government commitments are described as follows:

• the Post Office is more than a commercial entity and serves a distinct social purpose;

• post offices remain a valuable social and economic asset for communities and businesses;

• there will be no programme of post office closure under this Government;

• the Post Office is not for sale;

• there will be a provision of £1.34 billion for the Post Office to modernise the network and safeguard its future, making it a stronger partner for Royal Mail;

• the Post Office will become a genuine Front Office for Government at both the national and local level;

• there will be an expansion of accessible affordable personal financial services available through the Post Office;

• the Government will support greater involvement of local authorities in planning and delivering local post office provision; and

11 Ev 52

12 Securing the Post Office network in the digital age, November 2010, foreword


• the opportunity will be created for a mutually owned Post Office.13

Paula Vennells, Chief Executive of Post Office Ltd, supported the proposals and set out her ambition for the Post Office:

If I have a vision, it is to have 30,000 post office outlets, not 11,500. It is to have standalone electronic drop boxes for mail packets. It is to have ATMs in railway stations. It is to have identity kits in town halls and libraries, all branded ‘Post Office’. But until we transform the current network and make it more sustainable, that becomes just an ambition.14

In particular, she highlighted the financial commitment given by the Government which she described as “perhaps the biggest investment the Government has ever made in the post office network, certainly in living memory and possibly ever”.15

10. We welcome the Government’s drive to put the Post Office on a long-term sustainable footing and we support its commitments as set out in Securing the Post Office network in the digital age. The reform of post office network should be seen as more than just a consolidation of the existing network; it has the potential to deliver an expansion of the network’s coverage across the United Kingdom. However, this will happen only if post offices are given sufficient flexibility to thrive. In particular, far greater attention needs to be given to the range of services post offices can offer. Equally, Post Office Ltd has to provide sufficient support so that post offices can meet the demands and social needs of the many varied communities across the country.

13 Ibid, page 3

14 Q 44

15 Q 44


3 The network transformation

Introduction

11. At the heart of the Government’s reforms is the plan to remodel current post offices into three distinct types of post offices—Crowns, ‘Mains’ and ‘Locals’—depending on the location and circumstances of the post office concerned. This remodelling is commonly known as “Network Transformation”.

Crowns—there are currently 373 Crown post offices, which employ around 5,000 staff. These will continue to be directly owned and operated by Post Office Ltd. These are major Post Office outlets.

‘Mains’—the Network Transformation programme plans to update and, if necessary, move the location of some of the 4,000 larger non-Crown post offices, in partnership with those who own the businesses, into what will be called ‘Main’ post offices. ‘Main’ post offices will continue to offer the same range of existing services.16 These larger post offices are currently run by retailers such as WH Smith, the Co-op or Spar.17 In evidence, Post Office Ltd gave the following description of how ‘Mains’ will operate:

The number of customers means that there has to be specific space set aside in the store for Post Office activities. The main format allows the branch to make this space more open-plan, taking down some of the ‘fortress’ positions and ensuring the most efficient and cost effective fit into the store. It revitalises the store to make it more attractive to customers.18

‘Locals’—the Network Transformation programme plans to transform post offices into what is called the ‘Local’ model, 2000 of them by the end of the current Parliament. These conversions will be of smaller post offices, within retail shops:

The format replaces the closed in ‘fortress’ post office position at the back of the retail store with an open plan position typically next to the retail tills at the front of the store. It allows the processes for the subpostmaster and staff to handle services as straightforward and quickly as possible to avoid queues. As a result, the format can release the space formerly taken up by the post office fortress which can be used to gain more retail sales space (with accompanying revenues). It also enables the subpostmaster to make the more effective use of their staff (they don’t have someone sitting behind a screen isolated from the rest of the store—even if there are no post office customers). Integration into the store also means that the post office can be open the same hours as the rest of the store—in modern convenience stores this means early morning, evening and Sunday opening.19


17 Ibid, para 13

18 Ev 45

19 Ev 45


Status quo—Subposmasters also have the option of continuing with their current arrangements. Supplementary evidence from Post Office Ltd stated that:

Any move to the new Post Office ‘Local’ model is entirely voluntary on the part of the subpostmaster. They will only move to the new operating model if the economics stack up for them and we will only introduce the new model where there is a robust business plan and where we are sure it can be successful and sustainable.20

12. The Department is currently running a pilot scheme to assess the new models comprising 25 ‘Main’ post offices and 176 ‘Local’ post offices.21 Once the pilot scheme is completed, the roll-out of the new models will be rapid and Consumer Focus told us that the speed of change was unprecedented:

Overall, the rate and scale of Network Transformation changes are far greater than anything that POL, or any comparable retail distribution network, has previously undertaken—at the peak of the programme, POL expects to convert around 50 post office branches to new operating formats every week.22

The roll out will be financed by a significant amount of investment. According to George Thompson, the general secretary of the National Federation of Subpostmasters (NFSP), “about £200 million will be spent on modernising both the ‘Main’ branches and the ‘Local’ branches”.23

Changes to post office services in the new ‘Local’ model

13. When giving evidence, Paula Vennells, Chief Executive of Post Office Ltd, set out what she believed to be the advantages of the new ‘Locals’ model. She highlighted the fact that opening times would be extended—in her view, typically from 7am in the morning to 10pm at night, and sometimes later—which she argued would bring in both additional, younger customers and increased revenue to the Post Office.24 However, this will be balanced by a reduction in the range of services offered. Despite the Government’s statement that “we have heard loud and clear how much the public values a large branch network that offers a wide range of products”,25 ‘Local’ post offices will no longer offer the following services, currently available from the majority of post offices:

• The posting of international parcels and any parcels weighing over 20kg;

• Parcel Force Express Services parcels;

• Manual cash deposits and withdrawals;

• Change-giving service to small businesses;

20 Ev 46

21 Ev 51

22 Ev 36

23 Q 47

24 Q 49 and Q 50



• Post Office financial services and insurance products;

• Manual bill payments services;

• Passport, car tax and DVLA services;

• On demand foreign currency; and

• Payment by cheque.26

Furthermore, some Post Office services which are planned to be available at ‘Locals’ might not be available during all the opening hours of the attached retail business.

14. George Thompson, General Secretary of the NFSP, acknowledged this reduction of services and warned of the dangers of over-selling the new model:

Is it right that you would expect the staff to have the knowledge base to send a parcel to Poland at 9.30 on a Sunday night? That is an unreasonable request. The danger is that you over-promise.27

A number of our witnesses further argued that the reduction in services would adversely affect customers, in particular the elderly. Sir Barney White-Spunner, from the Countryside Alliance, told us:

If you look at some of the Age Concern figures, they tell you that 56% of pensioners use the post offices to pay bills and 44% do so to draw cash out, and there is this issue of cash capping. […] The thing would seem to be dumbing down to a level where there is a huge gap in rural communities for banking, for small businesses and for pensioners, which is really concerning.28

In a similar vein, Consumer Focus also highlighted the risk that the reduction in services could undermine the viability of ‘Locals’:

Further work appears to be needed to refine the model so it is sufficiently attractive to operators, but perhaps more significantly, so it allows them to provide the PO Local to a satisfactory standard. There is a need for decision-makers to better understand whether the PO Local model reduces POL’s operating costs but risks doing so in a potentially unsustainable way, through the excessive direct or indirect transfer of some of these costs to operators.29

15. By remodelling small post offices into ‘Locals’, the Government is trying to ensure their long-term viability. However, for some ‘Locals’, the reduction in services offered runs the risk that they may become unsustainable. We recommend that the Department undertakes a rigorous assessment of the ‘Locals’ in the pilot scheme to ensure that there is sufficient flexibility in the model to deliver viable post offices

26 Ev 23

27 Q 52

28 Q 4 and Q 13

29 Ev 36


servicing a variety of needs in different settings. This should include additional or fewer services where demand dictates.

Post office ‘Locals’ to be located in other premises

16. The Government’s intention is for post office ‘Locals’ to be housed in existing retail outlets. However, as Sir Barney White-Spunner told us, there might not be such an outlet in remoter parts of the country:

Seven out of ten villages in this country now do not have village shops. The logic that says there is going to be some business for the Locals to latch onto, in an area where shops are closing at a fast rate, is quite a key one.30

Andy Furey, Assistant General Secretary of the Communication Workers Union (CWU), added that co-location also presented risks to the Post Office brand:

There would be an amalgamation of the queue into the retail queue, so those customers queuing for a loaf of bread, a packet of cigarettes or a bottle of wine would also have to queue with people doing postal transactions. That gives us deep cause for concern. We feel that that could impact detrimentally on the standing of the brand in the wider society.31

17. Tim McCormack, the owner of Duns Post Office, wrote of the threat to the personal yet professional service relied on by many customers, particularly the elderly:

With the post office becoming a small part of a large shop rather than the retail side being a small part of the subpostmaster’s business, the very important attributes for a subpostmaster […] will no longer be required. As a consequence, the elderly will suffer as impatient retail queues gather behind them as they attempt to have perhaps their only social conversation of the day with the counter staff.32

18. Alongside concerns about the traditional image and role of post offices, the Association of Convenience Stores questioned the economic benefits of having post offices situated within retail stores, when cheaper alternatives—such as bill payment services, foreign exchange, money transfer, and even mail services—are available through third party suppliers.33 It concluded:

In this context, whether the Post Office is attractive to retailers depends on its commercial viability within this competitive market. We welcome the steps being taken to modernise POL, but must ensure that any changes to the operating structures do not result in small businesses having to subsidise the network.34

30 Q 4

31 Q 2

32 Ev 60

33 Ev 25

34 ibid


19. However, in supporting the move to other retail premises, Paula Vennells, Chief Executive of Post Office Ltd, said that multinationals were interested in the new ‘Locals’ model because “people who see these economics and who are really good retailers have made this work”35 and gave an example:

I was in a meeting last week with the Minister—so this was said in front of the Postal Affairs Minister—where one of the operators, who is now running 25 of these [Locals], asked if they could have one in every one of their 600 shops. These models work, and that is the most important thing. This is what will transform the network. We will have economic models that work, provided that […] we have growth as well.36

20. A further concern was that the ‘Locals’ model could irrevocably change post offices for the worse and that the only retailers that could make ‘Locals’ viable would be large multinationals, who would then either be able to subsume the losses, or pass on the extra cost to customers. The Guardian newspaper highlighted the fact that “Tesco could become a major player in a restructured Post Office. [...] Through its One Stop convenience chain, the UK’s biggest retailer has been taking part in the Post Office Local pilot”.37

21. This risk was highlighted by the Rural Shops Alliance:

PO Locals can make commercial sense in large convenience stores, where the additional footfall it generates can produce sufficient extra sales to justify the staff and space costs of operating it. Few of those will be in rural areas where the social value of the post office branch is most apparent.38

22. While the ‘Locals’ model may, in theory, reduce Post Office Ltd’s operating costs, it could do so at the expense of quality, service, or value-for-money for customers. It is clear that more work needs to be done on the proposed ‘Locals’ model, to ensure that the model is attractive to operators, but also meets the needs of customers and service users..

23. We remain concerned that the new ‘Locals’ model could result in a small number of major retailers running the majority of Post Office outlets. For example, it has been reported that One Stop, which is owned by Tesco, is interested in taking over 600 post offices. A full-scale takeover of our post offices by a few companies, with the reduced opportunities for individuals owning post offices, would change the ethos of many post offices. The Government needs to be alive to this risk. We recommend it sets out how it plans to ensure that the ‘Locals’ model is viable and attractive to a wide range of retail operators.

35 Q 49

36 Q 49.The Guardian reported that Paula Vennells was referring to the One Stop Convenience chain, which is owned by Tesco. (The Guardian, 19 May 2012)

37 The Guardian, Saturday 19 May 2012

38 Ev 54


The ‘Locals’ pilot scheme

24. There are 200 ‘Main’ and ‘Local’ post office branches, taking part in Post Office Ltd’s pilot scheme.39 In the past two years, Post Office Ltd has been conducting independent research into customer satisfaction of specific pilot ‘Locals’: across 25 branches between 2009 and 2010; across 12 pilot ‘Locals’ between January and March 2012; and across 18 ‘Locals’ between April and May 2012. Post Office Ltd’s supplementary evidence described the latest piece of research they conducted:

Research was conducted in April/May 2012, to provide a current view of in-branch customer satisfaction in 18 Local branches.

This research was split to give a robust sample of customers in both on-site and off-site conversions. Satisfaction was high in both types:

• Locals overall—95% of customers satisfied. Base: 774 customers;

• Locals on-site conversions—92% of customers satisfied. Base: 409 customers;

• Locals off-site conversions—98% of customers satisfied. Base: 365 customers.40

In summary, Post Office Ltd concluded:

These three studies have involved interviewing more than 5000 customers across a representative, geographical spread of 49 branches throughout a wide range of times of day, across a number of months. All of this research has shown consistently high levels of customer satisfaction in pilot Local branches.41

25. Consumer Focus carried out similar research between January and February 2012, in 105 locations—over twice the sample of the research carried out by Post Office Ltd—where a pilot ‘Local’ outlet had been open for a minimum of three months.42 Its evidence outlined the main findings:

Awareness of the PO Local among users and non-users is high with, respectively, 97% and 82% aware that post office services are available from the premises. This is not, however, matched by an understanding of the products and services accessible at a PO Local. For example, only 54% of users and 33% of non-users, correctly identified that they could make cash withdrawals [from a valid account] using chip and pin at the PO Local with only 66% (users) and 44% (non-users) noting that they could undertake recorded and special delivery transactions.43

In written and oral evidence, it became clear that pilot scheme statistics were being interpreted differently, depending on which organisation was concerned. This discrepancy

39 Ev 43

40 Ev 46

41 ibid

42 Ev 32

43 Ev 33


was highlighted by Clive Davenport, from the Federation of Small Businesses, who questioned the premise on which the research was built:

One of the concerns that we had was that the 105 Locals that were chosen were all in areas where there was not a post office anyway. The response said that it was a great success, but it was a great success because there was a zero base to start off from.44

In her defence, Paula Vennells, Chief Executive of Post Office Ltd, told us:

These models work. We have got 200 in pilot. We have got them not as you heard previously; we have got them both in sites where there were post offices and where there were not post offices previously. In all cases, the customer satisfaction is over 90%.45

In its written evidence, Post Office Ltd provided further information on the location of these new ‘Locals’:

The new style formats have been developed and piloted and there are now 200 of the main and local format branches in operation. 63% have been introduced in nearby replacement sites taking up the functions of the Post Office where local communities had lost a service on a temporary basis. 37% have been introduced as conversions in existing Post Office sites.46

26. Research carried out on the Local pilots by the Post Office and by Consumer Focus has produced a somewhat confused picture. Post Office Ltd’s research was narrowly focused and concentrated on those ‘Local’ pilots where there had previously been no post office. Consumer Focus research covered a wider range of ‘Locals’, but neither looked at the social demographic of post office users. Without this information, the Government has no evidence base on which to judge the success of the ‘Local’ model across communities with very different social mixes. We therefore recommend that the Government conduct a review of the ‘Local’ pilot scheme which concentrates on the suitability of ‘Locals’ to a wide range of communities.

Implementation and consultation

27. The Government has stated that “a national consultation on the transformation programme would not [...] be appropriate”47 because changes to post offices will vary from location to location. Instead, customers and local stakeholders will be ‘informed’ when conversions to the ‘Main’ or ‘Local’ model takes place at the same location as the old post office, and they will be consulted only when a post office is moved to a different location and converts to a new model:

The transformation will begin later this year. Where the conversion to the Main or Local model takes place on-site, customers and local stakeholders will be advised of

44 Q 13

45 Q 44

46 Ev 43

47 Ev 21


the proposed change in advance. If, in making the change, the branch relocates to a nearby location, a local public consultation, on a basis agreed with Consumer Focus, will ensure that customers and stakeholders are aware and have the opportunity to comment on the proposal for that particular branch.48

28. A number of our witnesses argued that there was a lack of public awareness and consultation—at either a local or national level—about the changes resulting from the Network Transformation programme. Andy Furey, Assistant General Secretary of the CWU, told us that

There should be greater dialogue with all the interested parties and not just the Post Office rolling out its plans and everybody having to do what the Post Office has determined. We think there should be much greater scrutiny. We are pleased with this Committee today, but this is the first indication of any meaningful scrutiny. We are calling for a moratorium and a big debate in society that all interested stakeholders can contribute to, so that a solution can be found that gets buy-in from everybody.49

29. Clive Davenport, from the Federation of Small Businesses, said that “the public, who are the recipients of all these services, have not really had the chance to voice their opinions at all”.50 Post Bank Coalition were concerned that “there is little public awareness or scrutiny of these plans”.51 Consumer Focus also argued that the absence of a proper consultation had the potential result that decisions would be made “on a partial and potentially flawed understanding of local consumer needs”.52

30. To be a success, the ‘Local’ model must reflect the needs and demands of diverse communities. However, we are concerned that ‘Locals’ will be delivered without the informed understanding of post office customers. We recommend that the Government commit to active consultation with all those groups directly affected by the changes, before the ‘Locals’ pilot scheme is rolled out across the country.

48 Ev 21

49 Q 11

50 Q 18

51 Ev 24

52 Ev 30


4 Front Office for Government 31. A key pillar of the Government’s reform is to develop post offices as “a genuine Front Office for Government at both the national and local level”.53 The Government’s ambition is for post offices to become the first port of call for people accessing local and national government services. In its 2009 Report, Post Offices—securing their futures, our predecessor Committee concluded that this was a key role for post offices:

We believe the Government has seriously underestimated the potential of the network to serve as a link between government and its citizens.54

It went on to describe the benefits of post offices in the following terms:

One of the most important features of that network is that post offices are found throughout the country. And although there is some variation in the services on offer, there is an irreducible core that people have come to expect will be provided across the country: access to post, access to cash, and, at the least, access to government information. Also, the public expects that, where appropriate, that core will support associated private sector services.55

32. The National Federation of Subpostmasters (NFSP) was in favour of the proposal and argued that it built on the “many central and local government services already available at post offices”.56 It argued that other services including “identity verification; notifying government of a change in circumstances; assisted applications; and payment services enabling the public to make and receive payments to and from public bodies” were good examples of where the ‘front office’ role of post offices could be expanded.57

33. The benefits of expanding government services available at post offices were also set out in supplementary evidence from Consumer Focus, the statutory consumer watchdog for the postal and energy sectors:

There is a greater focus from Government and POL on the post office becoming a ‘front office’ for central and local government services, for example, providing services such as identity verification, driving licence renewals, as well as local authority services such as council tax payments, travel permits and bus passes. There is also scope for post offices to play a critical role in the delivery and management of benefits and to assist in the delivery of Universal Credit.58

34. Written evidence from Post Office Ltd stated that “income is growing in Government services with the Post Office competing for and winning six new contracts in 2011–12”.59

53 Securing the Post Office network in the digital age, page 3

54 Business and Enterprise Committee, Eighth Report of Session 2008–09, Post offices—securing their future, HC 371, summary

55 Ibid, para 30

56 Ev 40

57 ibid

58 Ev 35

59 Ev 43


In its document Delivering Public Services in the Digital Age, Post Office Ltd highlighted the trialling of new forms of service delivery:

The Post Office is working with government departments, agencies and local councils to explore new forms of service delivery that improve accuracy, eliminate fraud and reduce costs. Post Office branches in Liverpool for example have tested new processes to reduce errors in applications of Tax Credits on behalf of HM Revenue and Customs. Elsewhere, branches have trialled new ways to support National Insurance Number applications, rural sign-off for job-seekers and a document verification pilot for the Pensions Service on behalf of the Department for Work and Pensions (DWP).60

35. However, post offices will not become the front office for Government without concerted effort from Departments across Whitehall. Although, as stated above, the Post Office Ltd has won six new contracts in 2011–12, the Government’s own document, Securing the Post Office Network in the Digital Age, showed that revenue from Government services had been on a steady decline over the past eight years. It also gave the following long-term assessment of revenue from Government services:

Revenue from government services fell sharply from £576 million in 2004–5, to £167 million in 2009–10, mainly due to moves to direct payment of benefits and increased online substitution. Although the Post Office has been successful in developing other revenue streams, such as its telephony business and personal financial services, it has not been able to fully replace the revenues lost.61

36. While acknowledging that Post Office Ltd had won the UK Borders Agency Identity Verification work—which will be worth up to £36 million over the life of the contract—the Post Bank Coalition set out the extent of the Government work that Post Office Ltd had lost or was losing:

POL recently lost the ‘green giro’ work from Department of Work and Pensions, which will transfer to Pay Point later this year. This was worth approximately £20 million per annum. POL is also set to lose National Savings and Investment work (except for premium bonds) from Post Office counters, which was announced last year, moving it onto direct, online services. In additional, the promise for a Post Office Financial Services Children’s Account to be introduced in spring 2010 is yet to be delivered.62

37. Clive Davenport, from the Federation of Small Businesses, asserted that there had been an 8% reduction in Government usage of the Post Office in the previous year and that “if it is a business, it needs a core to be able to support itself”.63 Maureen Coston, the subpostmaster of Ashwell Post Office in Hertfordshire, gave a more stark assessment of this fall in Government services stating that: “we are effectively being starved of business”.64

60 Department for Business, Innovation and Skills, Delivering public services in the digital age, April 2012, page 5

61 Securing the Post Office network in the digital age, November 2010, p 8

62 Ev 23

63 Q 13

64 Ev 53


The National Federation of Subpostmasters also stressed the importance of Government services to the survival of post offices:

Whilst the [Network Transformation] programme is set to play a critical role in securing the future of the post office network by reducing its cost base and providing investment funds; it is only part of the solution. For the Post Office to regain a secure footing, it also needs to bring in additional income through new or expanded revenue streams. These include a significant increase in the number of government services offered at post offices.65

38. Front office services for Government will play an important role in the financial viability of post offices. However, the record of Government in delivering services through the Post Office is, at best, patchy. Warm words and aspirations are not enough. The Government has to set out the number of services to be delivered and how they will be delivered. It will also need to demonstrate that it is committed to a long-term relationship with Post Office Ltd.

39. Front office services have to be cost-effective to Government in order be viable. Economies of scale should be able to deliver that but only if the Post Office commits to a far more aggressive marketing strategy. Post Office Ltd has to set out how it is going to market itself as the front office for both central and local government. Furthermore, Post Office Ltd will need to demonstrate a clear strategy for how it will promote post offices as the preferred outlet for those services.

Credit Unions

40. Our Report into Debt Management, published earlier this year, highlighted the role that the Post Office network could play in expanding and supporting the Credit Union market. In that Report we recommended that the Government set out formal proposals for using the Post Office to expand the Credit Union market.66 The Government’s Response was positive and agreed that the credit union sector had “an important role to play in this market, and also that there are potential benefits to be gained from the Post Office working with Credit Unions”.67 The Response also highlighted work already being done in this area:

For example, more than 20 Credit Unions use Co-operative Finance’s banking platform for cash receipts, payments and balance enquiries at the Post Office; and over 60 credit unions use Post Office’s bill payment facilities to enable repayments of their loans. DWP’s feasibility study into credit unions, published on 10 May, represents an important next step in understanding how the sector could develop and work towards financial sustainability, and how this might enable it to work more widely with Post Office Ltd in the longer term.68

65 Ev 37

66 Business Innovation and Skills Committee, Fourteenth Report of Session 2010–12, Debt Management, 7 March 2012, HC1649, para 88

67 Business Innovation and Skills Committee, First Special Report of Session 2010–12, Debt Management: Responses to the Committee’s 14th Report of Session 2010–12, HC 301, page 16

68 Ibid, page 15


Consumer Focus agreed that the Post Office needed to develop additional revenue streams through financial services:

If the Post Office network is to return to long-term financial health, additional revenue streams, including the development of new banking products and realising the potential for the Post Office to become a ‘front office’ of local and central government services, will be required.69

41. We are encouraged by the Government’s positive response to our Report on Debt Management, published in March 2012, which recommended that the Post Office network play a significant role in expanding the Credit Union market. We recommend that the Government provides us with six-monthly updates on how it is facilitating the provision of Credit Union services through the network.

69 Ev 27


5 The future role of the subpostmaster (SPM)

Current situation

42. The role of the subpostmaster (SPM) is key to the successful delivery of services in post offices. Each SPM is self-employed and signs a contract with Post Office Limited (POL) to provide post office services. The SPM of Duns post office, Tim McCormack, gave us the following description of what he believed made a good SPM:

The right person to run a sub post office is one who first of all is willing to invest capital, time and effort in order to achieve a suitable return on their investment. They must be intelligent, trustworthy, able to gain the knowledge and experience required as well as willing to provide the support that is required of them to the local community. Above all they must demonstrate the patience and care required when dealing with their most important customers, the elderly.70

43. The SPM receives a fixed core tier payment, and is paid for annual leave and sick leave. On top of the fixed core payment, subpostmasters are paid per transaction. For example, selling a 2nd class stamp would generate 2.25% of the value (or just over 1p).71 The Rural Shops Alliance highlighted a typical income that a subpostmaster might receive:

The balance of income for a post office between the core payment and transaction fees obviously depends on the specific PO contract and the level of business, but a typical rural shop with a PO might receive a PO income of £12,000 per year, of which something like £8,400 would be the core payment, £3,600 transaction fees.72

However, the National Federation of SubPostmasters (NFSP) argued that many subpostmasters are facing financial pressure:

A major survey carried out by the NFSP in 2009 revealed subpostmasters’ personal drawings (money taken as a salary) from their Post Office income had dropped by nearly 9% over the previous three years and average drawings were £866 per month. Moreover, 14% of subpostmasters were taking no personal drawing from their post office at all.73

44. Network Transformation offers a number of choices to SPMs for the future of their own post offices. In evidence, the Government stressed that any conversion to the ‘Locals’ model would be voluntary, a point reiterated by Post Office Ltd in supplementary written evidence:

The Network Transformation programme is designed to achieve these objectives by addressing the economics and lack of flexibility of the traditional sub post office

70 Ev 60

71 Ev 55

72 ibid

73 Ev 38


operating model thereby enabling branches to adopt a new business structure where circumstances are suitable. But it is also important to recognise that the transformation programme is voluntary.74

Voluntary—any move to the new Post Office Local model is entirely voluntary on the part of the subpostmaster. They will only move to the new operating model if the economics stack up for them and we will only introduce the new model where there is a robust business plan and where we are sure it can be successful and sustainable.

Stay as you are—any subpostmaster who wants to stay on their current contract terms—if that works best for them—can do so. 75

There has been confusion among SPMs about whether they will retain the fixed element of their pay if they choose to ‘stay as they are’76 but George Thompson, General Secretary of the NFSP, was firm in his reassurances: “No one is having their fixed pay taken off them, unless they volunteer to become either a new Local or a new Main”.77 However, the ‘stay as you are’ option might be the only one on offer for many. As Debi Kemp, a SPM, wrote:

There is no way I could change to a Local [as] I am a small village post office with a very small retail side—cards, stationery, gifts etc. so my retail side is too small to be a local—and neither of the other two businesses in my village—a fair sized convenience store and a pub—are the least bit interested in having to deal with POL.78

45. The Government will need to ensure that the roll-out of the new models for post offices does not result in further financial uncertainty for subpostmasters. In particular, it needs to state clearly that those who choose to remain on their current contract terms or are unable to move to the ‘Local’ model, will continue to receive the Core Tier Payment, in accordance with current terms and conditions of pay.

Retirements and new entrants

46. At present, Post Office Ltd has no control over when or the location of where a subpostmaster may retire or give up their business. However, those decisions will have a significant impact on the future location and type of post offices in the network. As the Post Bank Coalition wrote:

The precise number of closures of existing offices will depend on whether individual postmasters opt to accept a ‘buy-down’ with compensation for the loss of the fixed payment and remain in the business under the new Locals model, or opt for a ‘buy-out’.79

74 Ev 21

75 Ev 46

76 For example, Ev 51 and Ev 52

77 Q 56

78 Ev 51

79 Ev 22


47. The following table shows that the majority of subpostmasters are aged 50 or over:

Agents' Age bands

Age Banding

Under 20 0.00%

20-29 2.36%

30-39 10.77%

40-49 26.11%

50-59 35.16%

60-69 21.21%

70-79 3.72%

80+ 0.63%

Ev 48, Post Office Ltd, supplementary evidence

George Thompson, the general secretary of the NFSP, taking the Government’s figures for conversions to ‘Locals’ in the current Parliament, gave a broad sense of the proportions of SMPs who are expected to take advantage of the compensation package:

Of the 2,000 Post Office Locals, something like only 200 will be run by existing subpostmasters. About 1,800 will be off-site conversions; that is new retailers. We are comfortable because these 1,700 or 1,800 who do not want to stay will be given compensation. We have over 1,000 members who are over retirement age. Some of them are well into their 70s and some of them are very ill as well, and they are desperate to leave, because the post office model as it stands is not working.80

48. These figures suggest that the majority of post offices may be subject to relocation and variation in the location and services offered, because of the large proportion of subpostmasters expected to take compensation. The Rural Shops Alliance highlighted the uncertainty felt by many:

What happens to businesses put up for sale—will a new operator only be offered PO Local? The situation needs to be clarified for sub postmasters—POL and the NFSP need to be absolutely clear on the rules of the game and to communicate this information clearly to those involved.81

When questioned further on what would happen to post offices where the SPMs took compensation, Post Office Ltd gave the following response:

80 Q 74

81 Ev 56


Where a subpostmaster is looking to sell their branch, Post Office Ltd will meet with them to establish if their branch is suitable for conversion to the new operating model. If it is decided that a new operating model would be most suitable and appropriate at that time then Post Office Ltd would advertise the vacancy and also make sure that all the necessary details are provided to applicants. [...] There will be some circumstances in which Post Office Ltd decides that the most appropriate option would be for the appointment to be made on the current operating model.82

While this goes some way to clarifying the situation, it does not explain the criteria by which decisions will be made on whether to convert post offices to a new ‘Local’ or to keep current operating models, when SPMs decide to sell their businesses.

49. Both the ‘Local’ and ‘Main’ Post Office models involve changes to the remuneration of subpostmasters, with pay becoming entirely variable, and the current fixed core tier payments being removed. We are concerned that the ‘Locals’ model may be unviable for many existing subpostmasters, thereby leaving it to the large supermarkets to take over the Post Office mantle. Furthermore, there is an expectation that a large number of subpostmasters will take compensation and leave the service, which will increase the likelihood that the majority of smaller post offices will move location. The Government needs to set out in detail how it will manage those post offices where subpostmasters take compensation and the criteria by which decisions will be made on whether to convert post offices to the new ‘Local’ model.

50. We do not agree that the default position for new entrants should be restricted to the ‘Local’ model. While this may be the predominant route for new post offices it will not always be a viable option. Post offices provide valuable services to deprived areas and the current approach runs the risk of removing those services from communities which need them most. Therefore, we recommend that the Government set out how it will support the location or relocation of post offices in areas where the ‘Local’ model is not appropriate.

Training of staff

51. There has been concern about the lack of proposed vetting of those staff who will be serving customers in the new ‘Locals’ post offices. Currently, Post Office Ltd carry out strict checking and vetting processes, including Criminal Records Bureau (CRB), County Court Judgment (CCJ) and right to work checks, which are all carried out on SPMs.83 Post Office Ltd reassured us that “exactly the same checks are completed for the Post Office ‘Local’ and ‘Main’ contracts as those carried out for traditional sub post offices”.84 Sub postmasters are then responsible for training their own staff. However, Tim McCormack, the owner of Duns post office, argued that one of the shortcomings of the ‘Local’ model is that “operators will be paid significantly less than now to do the same job and therefore have fewer resources available to cover the cost of adequate training”.85 Similarly, Andy Furey,

82 Ev 50

83 Ev 48

84 ibid

85 Ev 60


Assistant General Secretary of the Communication Workers Union (CWU), described the extra responsibility of training for all members of staff:

It is not just the new postmaster who would need the skills. The range of opening hours would require more than one person. Open all hours literally would mean two or three additional people to be able to serve the customers at seven or eight o’clock at night.86

52. Research carried out by Consumer Focus supported these views. It carried out a ‘mystery shopping exercise’ with researchers visiting 105 pilot ‘Locals’, between one and four times each, making a total of 362 visits. Consumer Focus’ supplementary evidence summarised the findings as follows:

Our mystery shopping exercise found widespread evidence of inconsistent and often inaccurate product and pricing advice—for example, a basic transaction such as posting a large second class letter was sold correctly in only 1 in 5 visits, dropping to only 15% of visits during extended opening hours; large or heavy parcel (up to 20kg) transactions were refused in 1 in 4 instances; and in two-thirds of cases, Special Delivery was sold but without counter staff asking the questions necessary to determine whether this was the most suitable product to meet needs.87

53. The Consumer Focus research also highlighted inconsistencies of staff service during the extended opening hours:

Almost one in five consumers (19%) were reluctant, because of concerns over the consistency and reliability of staff, to undertake high-value, personal or confidential transactions at PO Locals during longer opening hours. 23% of PO Local users felt staff working in the evenings or at weekends were less knowledgeable than during ‘core’ hours and 22% reported levels of customer service to be poorer during extended hours. PO Locals will only be able to capitalise fully on longer opening hours, if consumers can be assured that service standards are robust, and if they can be confident they will always be correctly served the product or service they require.88

54. A fundamental requirement of any retailer offering goods and services must be that consistency of service is maintained throughout the opening hours and across all staff. The proper training of staff is therefore paramount to the success or otherwise of ‘Local’ post offices.

55. Staff training is vital to the success of post offices. However, this should not be restricted to narrow training on traditional post office services. To be successful, post office staff will need to develop new skills such as marketing and retailing. We therefore recommend that Post Office Ltd develops and invests in a more modern training programme for post office staff in order to equip them with these skills.

86 Q 10

87 Ev 34

88 ibid


56. The Post Office ‘brand’ needs to be consistent across the country; if there is too much variation, loyalty will be lost and this will only serve to undermine the Post Office service. We therefore recommend that Post Office Ltd should consider issuing a ‘Certificate of Competence’ to be given once all relevant staff have taken appropriate training, which can be displayed.


6 Mutualisation 57. The Government’s consultation document Building a mutual Post Office,89 published in September 2011, proposed that the Government transfer its entire share in Post Office Ltd to a mixed-membership mutual, consisting of an equal balance of consumers and producers. The consultation closed in December 2011. Edward Davey MP, the then Minister for Employment Relations, Consumer and Postal Affairs, said that the future mutualisation of the Post Office was an important part of the Government’s policy:

We think that the Post Office could be ideally suited to a mutual model with employees, subpostmasters and communities working together to help the post office network to deliver its social and economic objectives for the public benefit.90

58. When questioned on the issue of mutualisation, Paula Vennells, Chief Executive of Post Office Ltd, said that no decision had been made on the type of mutual the Post Office would become:

There are lots of different models and they are all pretty successful where they have been in existence for some time. The Co-op is a good example of a membership model, which is customer-related. John Lewis is the one that is usually quoted as an employee model. My sense is that the Post Office would have to be something that spans a huge number of stakeholders.91

59. That said, Paula Vennells went on to argue that mutualisation could not be considered until the Post Office became a profitable organisation: “I do not think you can take a network that has systemic problems in terms of economics and then mutualise it”.92 However, she did attempt to reassure the Committee that the Government would protect the Post Office from subsequent demutualisation:

It would be critical that whatever legislation or vote went through on mutualisation [it] protected the network—and that it protected it from demutualisation. As I understand it, that is entirely the Government’s position. Whatever you do, you have to look after this institution very carefully indeed. The point is well made, and I have heard nothing to the contrary from any conversations with Government about that.93

60. On 4 July 2012, the Government published its response to the consultation on mutualisation. That response reiterated the Government’s policy to protect the public benefit of the Post Office, in line with the Postal Services Act 2011:

A Post Office mutual must have in place arrangements to prevent disposals of property or rights that would be inconsistent with the public benefit purpose. No

89 Building a Mutual Post Office, September 2011

90 Ibid, page 4

91 Q 69

92 ibid

93 Q 70


disposal of a mutual’s interest in the Post Office may be made, other than to another relevant mutual, the Secretary of State or a company wholly owned by the Crown.94

As we said earlier in this Report, we have concerns that the Post Office’s transformation of the network may result in a few larger supermarket chains taking over the majority of post offices. This concern was not addressed in the Government’s response. Such an eventuality would have serious implications for the type of mutualisation which would be appropriate. For that reason, any decision on the form of mutualisation needs to bear in mind the effect of the transformation of the network.

61. While the Government’s response to its consultation on mutualisation contained many aspirations, it was lacking in any detail on the programme for change. Without that detail we are unable to give a considered view. If the Government is committed to mutualisation it needs to set out, in detail, its road-map for change. We expect the Government to set this out in its Response to our Report.

62. We welcome the Government’s commitment that any mutualisation of the Post Office would include arrangements to prevent a future demutualisation which went against the interests of the Post Office. However, the Government’s proposals do not give sufficient detail on how any mutualisation would be affected should the majority of ‘Locals’ be owned by a small number of major companies. We recommend that the Department, in its Response to this Report, sets out how such a situation would affect the ability of the Post Office to become a mutual organisation.

94 Building a Mutual Post Office: the Government’s Response, page 23


7 Post Office subsidy 63. The Government document Securing the Post Office Network in the Digital Age also set out the current and future levels of Government financial support for the Post Office Network:

We have already committed to a subsidy for the Post Office of £180 million in 2011/12. As part of the Spending Review, Government has made the decision to make sure that Post Office Ltd will have the money it needs to modernise, and we have committed £1.34 billion of funding over the four years of the Spending Review period to March 2015. This package averages out at over £330 million a year, which is more than double the subsidy paid to the Post Office for the past two years.95

However, it went on to explain that the subsidy would reduce over time:

As these investments will be used to transform the underlying economics of the Post Office network rather than closing branches, we believe that the network can become financially stable. Post Office Ltd project that the government subsidy will reduce substantially over time. However, there will almost certainly remain a need for a residual level of subsidy in the future to maintain those branches which could never be profitable, such as those in remote rural areas, but which provide a valuable social purpose.96

Building a Mutual Post Office: the Government’s Response also states that the Government’s ambition “is for a Post Office network which thrives on the business it generates, rather than relying on Government funding”.97

Paula Vennells, Chief Executive of Post Office Ltd, agreed that for certain branches the subsidy would need to remain:

What is very clear is that, particularly for rural post offices […] there will always be some that cannot survive profitably. It is our policy that we would continue to support those. The only way we can do that is through Government subsidy, so that Government subsidy has to continue. There is no intention at all to stop the subsidy.98

64. There is an argument that post offices are not used by enough people—or used by people enough—to justify Government subsidy. That argument also highlights the fact that many post offices are part of a general retail business, while other general retail businesses nearby receive no such Government support. However, this does not take into account the distinct value of the Post Office brand. Andy Furey, from the Communication Workers Union (CWU), explained this unique nature of the Post Office brand:


96 Ibid, para 38

97 Building a Mutual Post Office: the Government’s Response”, July 2012, foreword

98 Q 73


The Post Office, from all the evidence we have, is cherished by society, full stop, irrespective of whether you are in towns, villages or inner-city areas. The problem if the post office goes is the inconvenience that that creates for everybody, where there may not be bus services or even where there are bus services, because elderly people and people who have disabilities will struggle to get on a bus even if the next post office is a mile down the road.99

Sir Barney White-Spunner, from the Countryside Alliance, also highlighted the social benefits of post office:

The New Economic Foundation’s report in 2009 looked at the social value of post offices. The Rural Commission found that 91% of people felt the post office played a vital role in their community. There is quite well researched work from the last couple of years to back that up.100

65. Our predecessor Committee’s Report highlighted the relevance of the Post Office:

The importance of post offices to poor, elderly or otherwise disadvantaged people is frequently mentioned, but what comes through very clearly is the sense that the post office is important because it provides services to the total community, not just to disadvantaged people. It is an instrument of social cohesion or, to put it differently, it preserves the fabric of our society.101

66. We support the long-term objective for post offices to become financially self-sufficient. That said, this should not be at the expense of those post offices which may never achieve financial independence but still provide essential services to remote or deprived areas. The Government needs to be alive to the risk of losing these vital outlets in the drive for sustainability. The need for indirect financial support will remain and key to this are the Front Office services for Government. Committing to longer-term contracts for the delivery of Government services—both central and local—would help to give post offices more confidence in their revenue streams. In its Response to our Report, the Government should set out in detail its long-term strategy for the Post Office in respect of both direct and indirect financial support. Such an approach will provide greater clarity for post offices and would greatly benefit decision-making during the network transformation.

99 Q 20

100 ibid

101 Business and Enterprise Committee, Eighth Report of Session 2008-09, Post Offices – securing their future, HC 371-1, para 14


8 Conclusion 67. The Government has embarked on an ambitious programme of reform of the Post Office. While the reforms are necessary and, on the whole, go in the right direction, we have a number of concerns about the detail and delivery of the programme. Our Report highlights flexibility, training and government support as three areas in which more works needs to be done. This is a progress Report and we will monitor closely the implementation of Network Transformation over the coming years.


Conclusions and recommendations

Government proposals for reform

1. We welcome the Government’s drive to put the Post Office on a long-term sustainable footing and we support its commitments as set out in Securing the Post Office network in the digital age. The reform of post office network should be seen as more than just a consolidation of the existing network; it has the potential to deliver an expansion of the network’s coverage across the United Kingdom. However, this will happen only if post offices are given sufficient flexibility to thrive. In particular, far greater attention needs to be given to the range of services post offices can offer. Equally, Post Office Ltd has to provide sufficient support so that post offices can meet the demands and social needs of the many varied communities across the country. (Paragraph 10)

Changes to post office services in the new ‘Local’ model

2. By remodelling small post offices into ‘Locals’, the Government is trying to ensure their long-term viability. However, for some ‘Locals’, the reduction in services offered runs the risk that they may become unsustainable. We recommend that the Department undertakes a rigorous assessment of the ‘Locals’ in the pilot scheme to ensure that there is sufficient flexibility in the model to deliver viable post offices servicing a variety of needs in different settings. This should include additional or fewer services where demand dictates. (Paragraph 15)

Post Office ‘Locals’ to be located in other premises

3. While the ‘Locals’ model may, in theory, reduce Post Office Ltd’s operating costs, it could do so at the expense of quality, service, or value-for-money for customers. It is clear that more work needs to be done on the proposed ‘Locals’ model, to ensure that the model is attractive to operators, but also meets the needs of customers and service users. (Paragraph 22)

4. We remain concerned that the new ‘Locals’ model could result in a small number of major retailers running the majority of Post Office outlets. For example, it has been reported that One Stop, which is owned by Tesco, is interested in taking over 600 post offices. A full-scale takeover of our post offices by a few companies, with the reduced opportunities for individuals owning post offices, would change the ethos of many post offices. The Government needs to be alive to this risk. We recommend it sets out how it plans to ensure that the ‘Locals’ model is viable and attractive to a wide range of retail operators. (Paragraph 23)

The ‘Locals’ pilot scheme

5. Research carried out on the Local pilots by the Post Office and by Consumer Focus has produced a somewhat confused picture. Post Office Ltd’s research was narrowly focused and concentrated on those ‘Local’ pilots where there had previously been no


post office. Consumer Focus research covered a wider range of ‘Locals’, but neither looked at the social demographic of post office users. Without this information, the Government has no evidence base on which to judge the success of the ‘Local’ model across communities with very different social mixes. We therefore recommend that the Government conduct a review of the ‘Local’ pilot scheme which concentrates on the suitability of ‘Locals’ to a wide range of communities. (Paragraph 26)

Implementation and consultation

6. To be a success, the ‘Local’ model must reflect the needs and demands of diverse communities. However, we are concerned that ‘Locals’ will be delivered without the informed understanding of post office customers. We recommend that the Government commit to active consultation with all those groups directly affected by the changes, before the ‘Locals’ pilot scheme is rolled out across the country. (Paragraph 30)

Front Office for Government

7. Front office services for Government will play an important role in the financial viability of post offices. However, the record of Government in delivering services through the Post Office is, at best, patchy. Warm words and aspirations are not enough. The Government has to set out the number of services to be delivered and how they will be delivered. It will also need to demonstrate that it is committed to a long-term relationship with Post Office Ltd. (Paragraph 38)

8. Front office services have to be cost-effective to Government in order be viable. Economies of scale should be able to deliver that but only if the Post Office commits to a far more aggressive marketing strategy. Post Office Ltd has to set out how it is going to market itself as the front office for both central and local government. Furthermore, Post Office Ltd will need to demonstrate a clear strategy for how it will promote post offices as the preferred outlet for those services. (Paragraph 39)

Credit Unions

9. We are encouraged by the Government’s positive response to our Report on Debt Management, published in March 2012, which recommended that the Post Office network play a significant role in expanding the Credit Union market. We recommend that the Government provides us with six-monthly updates on how it is facilitating the provision of Credit Union services through the network. (Paragraph 41)

The future role of the subpostmaster – current situation

10. The Government will need to ensure that the roll-out of the new models for post offices does not result in further financial uncertainty for subpostmasters. In particular, it needs to state clearly that those who choose to remain on their current contract terms or are unable to move to the ‘Local’ model, will continue to receive


the Core Tier Payment, in accordance with current terms and conditions of pay. (Paragraph 45)

Retirements and new entrants

11. Both the ‘Local’ and ‘Main’ Post Office models involve changes to the remuneration of subpostmasters, with pay becoming entirely variable, and the current fixed core tier payments being removed. We are concerned that the ‘Locals’ model may be unviable for many existing subpostmasters, thereby leaving it to the large supermarkets to take over the Post Office mantle. Furthermore, there is an expectation that a large number of subpostmasters will take compensation and leave the service, which will increase the likelihood that the majority of smaller post offices will move location. The Government needs to set out in detail how it will manage those post offices where subpostmasters take compensation and the criteria by which decisions will be made on whether to convert post offices to the new ‘Local’ model. (Paragraph 49)

12. We do not agree that the default position for new entrants should be restricted to the ‘Local’ model. While this may be the predominant route for new post offices it will not always be a viable option. Post offices provide valuable services to deprived areas and the current approach runs the risk of removing those services from communities which need them most. Therefore, we recommend that the Government set out how it will support the location or relocation of post offices in areas where the ‘Local’ model is not appropriate. (Paragraph 50)

Training of staff

13. Staff training is vital to the success of post offices. However, this should not be restricted to narrow training on traditional post office services. To be successful, post office staff will need to develop new skills such as marketing and retailing. We therefore recommend that Post Office Ltd develops and invests in a more modern training programme for post office staff in order to equip them with these skills. (Paragraph 55)

14. The Post Office ‘brand’ needs to be consistent across the country; if there is too much variation, loyalty will be lost and this will only serve to undermine the Post Office service. We therefore recommend that Post Office Ltd should consider issuing a ‘Certificate of Competence’ to be given once all relevant staff have taken appropriate training, which can be displayed. (Paragraph 56)

Mutualisation

15. While the Government’s response to its consultation on mutualisation contained many aspirations, it was lacking in any detail on the programme for change. Without that detail we are unable to give a considered view. If the Government is committed to mutualisation it needs to set out, in detail, its road-map for change. We expect the Government to set this out in its Response to our Report. (Paragraph 61)


16. We welcome the Government’s commitment that any mutualisation of the Post Office would include arrangements to prevent a future demutualisation which went against the interests of the Post Office. However, the Government’s proposals do not give sufficient detail on how any mutualisation would be affected should the majority of ‘Locals’ be owned by a small number of major companies. We recommend that the Department, in its Response to this Report, sets out how such a situation would affect the ability of the Post Office to become a mutual organisation. (Paragraph 62)

Post Office subsidy

17. We support the long-term objective for post offices to become financially self-sufficient. That said, this should not be at the expense of those post offices which may never achieve financial independence but still provide essential services to remote or deprived areas. The Government needs to be alive to the risk of losing these vital outlets in the drive for sustainability. The need for indirect financial support will remain and key to this are the Front Office services for Government. Committing to longer-term contracts for the delivery of Government services—both central and local—would help to give post offices more confidence in their revenue streams. In its Response to our Report, the Government should set out in detail its long-term strategy for the Post Office in respect of both direct and indirect financial support. Such an approach will provide greater clarity for post offices and would greatly benefit decision-making during the network transformation. (Paragraph 66)

Conclusion

18. The Government has embarked on an ambitious programme of reform of the Post Office. While the reforms are necessary and, on the whole, go in the right direction, we have a number of concerns about the detail and delivery of the programme. Our Report highlights flexibility, training and government support as three areas in which more works needs to be done. This is a progress Report and we will monitor closely the implementation of Network Transformation over the coming years. (Paragraph 67)


Formal Minutes

Wednesday 11 July 2012

Members present:

Mr Adrian Bailey, in the Chair

Mr Brian BinleyPaul Blomfield

Rebecca HarrisMargot James

Draft Report (Post Office Network Transformation), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 67 read and agreed to.

Summary agreed to.

Resolved, That the Report be the Third Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Written evidence was ordered to be reported to the House for printing with the Report (in addition to that ordered to be reported for publishing on 15 May, 22 May, 12 June, and 3 July 2012).

[Adjourned till Tuesday 17 July at 11.00 am.


Witnesses

Tuesday 15 May 2012 Page

Andy Furey, Assistant General Secretary, Communication Workers Union, Sir Barney White-Spunner, Executive Chairman, Countryside Alliance, Clive Davenport, Trade and Industry Chairman, Federation of Small Businesses, and Mark Baker, Vice Chairman, Postmasters, Communication Workers Union

Ev 1

Mike O’Connor CBE, Chief Executive, Consumer Focus, Andy Burrows, Head of Post Office Policy, Consumer Focus, and James Lowman, Chief Executive, Association of Convenience Stores

Ev 6

Paula Vennells, Chief Executive, Post Office Ltd, and George Thomson, General Secretary, National Federation of SubPostmasters

Ev 11

List of printed written evidence

1 Department for Business, Innovation and Skills Ev 21

2 Post Bank Coalition Ev 21

3 Association of Convenience Stores (ACS) Ev 24

4 Consumer Focus Ev 26: Ev 32

5 National Federation of SubPostmasters Ev 37

6 Post Office Limited Ev 42; Ev 45; Ev 48; Ev 49

7 Debi Kemp Ev 51

8 Carole Campbell Ev 52

9 Maureen Coston Ev 52

10 Christopher Swain, Chairman, Henham Village Shop Association Ltd Ev 53

11 Rural Shops Alliance Ev 54

12 Shoosmiths Ev 57

13 John Parr Ev 58

14 Christine Mary Birch Ev 59

15 Tim McCormack Ev 59


List of Reports from the Committee during the current Parliament

The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.

Session 2012–13

First Report The Hargreaves Review of Intellectual Property: Where Next?

HC 367-I/II

Second Report/First Joint Report

Scrutiny of Arms Export Controls (2012): UK Strategic Export Controls Annual Report 2010, Quarterly Reports for 2010 and January to September 2011, the Government’s review of arms exports to the Middle East and North Africa, and wider arms control issues

HC 419

Session 2010–12

First Report The New Local Enterprise Partnerships: An Initial Assessment

HC 434 (HC 809)

Second Report Sheffield Forgemasters HC 484 (HC 843)

Third Report Government Assistance to Industry HC 561

Fourth Report / First Joint Report

Scrutiny of Arms Export Controls (2011): UK Strategic Export Controls Annual Report 2009, Quarterly Reports for 2010, licensing policy and review of export control legislation

HC 686

Fifth Report Government Assistance to Industry: Government Response to the Committee's Third Report of Session 2010–11

HC 1038

Sixth Report Is Kraft working for Cadbury? HC 871

Seventh Report Rebalancing the Economy: Trade and Investment HC 735 (HC 1545)

Eighth Report Trade and Investment: China HC 1421 (HC 1568)

Ninth Report Time to bring on the referee? The Government’s proposed Adjudicator for the Groceries Code

HC 1224-I

Tenth Report Pub Companies HC 1369-I/II (Cm 8222)

Eleventh Report Time to bring on the referee? The Government’s proposed Adjudicator for the Groceries Code: Government Response to the Committee’s Ninth Report of Session 201-12

HC 1546

Twelfth Report Government reform of Higher Education HC 885-I/II/III (HC 286)

Thirteenth Report Pre-Appointment Hearing: Appointment of Director of the Office for Fair Access

HC 1811

Fourteenth Report Debt Management HC 1649 (HC 301)

Fifteenth Report Stamp Prices HC 1841-I/II

cobber Pack: U PL: COE1 [SO] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml

Business, Innovation and Skills Committee: Evidence Ev 1

Oral evidenceTaken before the Business, Innovation and Skills Committee

on Tuesday 15 May 2012

Members present:

Mr Adrian Bailey (Chair)

Mr Brian BinleyPaul BlomfieldKaty ClarkJulie ElliottRebecca Harris

________________

Examination of Witnesses

Witnesses: Andy Furey, Assistant General Secretary, Communication Workers Union, Sir BarneyWhite-Spunner, Executive Chairman, Countryside Alliance, Clive Davenport, Trade and Industry Chairman,Federation of Small Businesses, and Mark Baker, Vice Chairman, Postmasters, Communication WorkersUnion, gave evidence.

Q1 Chair: It is 10.30. Good morning. Can I welcomeyou here? Thank you for agreeing to come before theCommittee. I was getting a bit worried that the GirlGuides had prevented some of our witnesses fromarriving. Could you just introduce yourselves forvoice transcription purposes? We will start with you,Andy.Andy Furey: Andy Furey, CWU.Sir Barney White-Spunner: Barney White-Spunner,Countryside Alliance.Clive Davenport: Clive Davenport, Federation ofSmall Businesses.Mark Baker: Mark Baker, the Vice Chairman of thePostmasters section of the CWU.

Q2 Chair: Thanks very much. Before we start, wehave got quite a few questions. We have only got halfan hour, so do not feel obliged, each one of you, toanswer every question. Some may well be specific toone of you. If you feel that you need to eithersupplement or contradict what another witness hassaid, that is fair enough, but do not just repeat thingsfor the purpose of getting yourself on record. Thisquestion is in theory to all, although one may answerand the other supplement it. What would be the keychanges to post offices in the proposals to move toLocals and Mains? Who would like to lead on that?Andy.Andy Furey: The key changes to Locals would be theremoval of the fortress position, the dedicated queueand the privacy that goes with that, when customersinterface with the counter clerk. There would be anamalgamation of the queue into the retail queue, sothose customers queuing for a loaf of bread, a packetof cigarettes or a bottle of wine would also have toqueue with people doing postal transactions. Thatgives us deep cause for concern. We feel that thatcould impact detrimentally on the standing of thebrand in the wider society.

Q3 Chair: In some respects, it would be akin to thesituation you have now where retailers just sellstamps. Now fair enough, there would obviously be a

Margot JamesSimon KirbyAnn McKechinMr David Ward

wider range of services, but the consumer experiencewould be fairly similar.Andy Furey: Yes.

Q4 Chair: Does anybody wish to add to that?Sir Barney White-Spunner: There are two things.There is the range of what people can do. Speakingspecifically of rural areas, people rely very heavily onpost offices in a way maybe they do not in urbanareas, so the range of services that Locals may provideis inadequate. If you look at some of the Age Concernfigures, they tell you that 56% of pensioners use postoffices to pay bills and 44% do so to draw cash out,and there is this issue of cash capping. That is pointone. Point two is that it is not entirely clear to mewhere all these Locals are going to go. Seven out often villages in this country now do not have villageshops. The logic that says there is going to be somebusiness for the Locals to latch on to, in an area whereshops are closing at a fast rate, is quite a key one.

Q5 Paul Blomfield: On that point, I wonder if youcould clarify what, as you understand it, is the basicminimum platform of services that will be required ofthe Locals and how that differs from what people canexpect at the moment.Sir Barney White-Spunner: Paying bills. We wouldstrongly advocate that Government services gothrough the post office in rural areas, because thatwould give the post office a rationale. It is being ableto draw out full amounts of cash for pensions et al.,and it does not look as if that may happen. I stronglyback Andy’s point about privacy, somethingpensioners mind about particularly. If you look at therange of services that we think Locals are not goingto produce—payment by cheque, on-demand foreigncurrency, passport, car tax, DVLA services, manualbill payments, Post Office financial services, smallbusiness facilities, manual cash deposits andwithdrawals—it is quite a long list.

Q6 Paul Blomfield: You think.Sir Barney White-Spunner: I think, yes.

cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml

Ev 2 Business, Innovation and Skills Committee: Evidence

15 May 2012 Andy Furey, Sir Barney White-Spunner, Clive Davenport and Mark Baker

Q7 Chair: Given the fact that it is a declining marketand post offices have been closing for donkey’s years,do you not think this is a reasonable compromise interms of sustaining the service but recognising thechanging pattern of consumer behaviour on this? Ifwe are to preserve some sort of network, is this notbetter than nothing?Clive Davenport: I would dispute that a little bit. Themain problem that we have got at the moment is thatthe survey that Consumer Focus did recently said that,of the 105 that have done this Local exercise, a lot ofthe shops were not open out of hours and there werepeople being charged incorrectly for incorrectrequirements for postal services. For instance, as asample, a large envelope went through with themystery shoppers and 42% had incorrect postage onthere. They were classed as special deliveries at£5.40-odd before the price increases, when it shouldhave been 60p. One of the concerns that we certainlyhave is that what you are going to get, if that trainingis not improved dramatically, is a diminution ofservices and of the image of the Post Office as beingsuch a reliable and well-known brand. It will damagethe brand for many years to come if that happens.

Q8 Chair: I understand what you are saying, butessentially it is a training issue. If the training wasadequate, then do you think that would still be valid?Clive Davenport: The training would have to improvedramatically for that to be valid. The fundamentalthing is what is going to happen to the ordinary postoffices or the sub-post offices that are already there ifyou start a Local. They are just going to disappear.The people who have got the training are not going tobe employed.

Q9 Mr Binley: This point of training has been verymuch in my mind right from the beginning of thisCommittee’s concern into this whole matter. It seemsto me it is not only about training; it is making sureyou get the people who are trainable. In this new age,unless you have people who are of entrepreneurialspirit, who can go out and do things for themselves,who are able to take the training and guidance, thenthat is most of what you are going to succeed or failon. Is that the case?Clive Davenport: Yes, that is quite true. It all comesdown to the image of the Post Office, the reliabilityof the Post Office and its reputation. If that isdamaged, you have got a serious problem.

Q10 Mr Binley: What can the Post Office do toensure that it gets the right people? We ought to bethinking, at this time, of a lot of people who mightsee the Post Office as a real opportunity. Is that thecase? Are they looking? Is the outreach there to makesure you get the right people?Andy Furey: The problem here is the economics ofthe financial model. First and foremost, theintroduction of Locals and Mains removes the coretier payment. The core tier payment for postmasters isa minimum of £10,000. We must not lose sight of thefact that this, ostensibly, is a cost-cutting exercise, andthe purpose of this at the end is for the Post Office tohave a greatly reduced pay bill for postmasters, by

moving the risk to the postmaster by moving on tovariable pay.Chair: Andy, we want to ask a question on thissubsequently. We take the point, but we will comeback to it.Andy Furey: Can I make the point about trainingthough? The reality with training is that it is not justthe new postmaster who needs to have the skills. Therange of opening hours would require more than oneperson. Open all hours literally would mean two orthree additional people to be able to serve thecustomers at seven or eight o’clock at night, so it isnot just the new postmaster who would need thosepre-requisite skills; it would be their support staff aswell. That in itself would then become more costly,because you would be having to open up longer hoursand provide a range of postal services, albeit a limitedrange in the Locals model. Nonetheless, it is stillcostly to do that training.Sir Barney White-Spunner: We come back again tothe rural community. Most of these shops or the otherretail outlets that your Local might be in tend to beone man, one woman, family affairs. To expect themto take on the full range of services is quite an ask.Mark Baker: Could I just make a point on this? Thereis a lot of talk about longer hours and an open-planservice environment for customers. Actually, asubpostmaster is quite at liberty to approach the PostOffice and do that right now. He can convert his postoffice to what we call an open-plan post office. Hecan trade all the hours his retail business trades. Hejust needs to liaise with the Post Office to do that. Theadvantage, of course, is that if he continues on hiscurrent contract, he can keep his fixed element of pay,which then maintains the sustainability of trading inthat way. Postmasters make their own assessment asto whether or not it will pay them to do so. If theyfeel that they cannot make a living out of tradinglonger hours under those conditions, then they will notdo it. I think that is why there is a lot of resistancefrom postmasters to this notion of having to tradelonger hours without a fixed element of pay. You arestacking all the odds against us.

Q11 Chair: I do not want to hog the proceedings,but could you very briefly say what you would dodifferently if you did not have this model to sustainthe network?Andy Furey: I think everybody acknowledges thatsomething has to be done differently and the statusquo is not the answer. The Post Bank Coalition is notsaying, “Let us just simply hold on to what we have”.As you know, we have been strong advocates for apost bank. The vast majority of very successful postoffice retail arms throughout the world, such as Japan,Brazil and New Zealand, do have very successful postbanks. We think that is the way forward. The realityof this model is that there is a distinct possibility youcould end up with resultant unplanned closures. Oncea person takes over the Locals model, in due coursethey might realise this does not work for them andthen you could have unplanned force majeure closuresas a consequence of this.We think there should be a moratorium on the plans ofthe Post Office, and we think there should be greater

cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml



dialogue with all the interested parties and not just thePost Office rolling out its plans and everybody havingto do what the Post Office has determined. We thinkthere should be much greater scrutiny. We are pleasedwith this Committee today, but this is the firstindication of any meaningful scrutiny. We are callingfor a moratorium and a big debate in society that allinterested stakeholders can contribute to, so that asolution can be found that gets buy-in fromeverybody.

Q12 Chair: On the basis of what you said, it soundsas if you would not necessarily discard the model, buthave greater input from stakeholders and potentially—I hate the word—finesse it to suit everybody. Wouldthat be a reasonable summary?Andy Furey: I think so, sir.

Q13 Mr Ward: We have inevitably, with a generalopening, strayed into lots of other questions that wealready have got, so I will not ask you to repeat, butin terms of the general concerns that are felt about theLocals branches in particular, is there anythingspecific you would like to add as a concern?Clive Davenport: One of the concerns that we hadwas that the 105 Locals that were chosen were all inareas where there was not a post office anyway. Theresponse said that it was a great success, but it was agreat success because there was a zero base to startoff from. There are lies, bloody lies and statisticshappening here. That is one issue that we are deeplyconcerned about.The other thing, following on from what Andy said,is that a lot more examination needs to take place ofpublic funding for post offices. Talking to the Ministerlast week, it was supposed to be the backbone of thesocial service and the community service. Well, if theGovernment are not using it or drastically reduce theamount they use the post offices, then they are notsupporting it. If it is a business, it needs a core to beable to support itself. If you are taking away the frontoffice things, regardless of what the Minister and otherMinisters before him have said, what is going to fillthe vacuum that that has created? There was avirtually 8% reduction in Government usage of thePost Office in the last year. If that continues, thevacuum gets bigger and bigger, and there is nothingto fill it. That is why the Coalition was so keen to tryto expand, through the bank, the services that a bankcould give. One other thing about Locals: becausethere are no transactions, small businesses are notgoing to use them because they cannot.Sir Barney White-Spunner: Going back to Andy’spoint, from a rural point of view, this debate cannotall be about cash. It has got to be about how you livein a rural area and how you access all those servicesthat somebody in a city takes for granted, particularlywhen you do not have broadband, as an awful lot ofpeople in rural Britain do not. It is no good saying,“Just apply online,” because you cannot get online.Added to which, an awful lot of pensioners just willnot get into that e-world at this stage in life. Thedebate cannot just be what makes money. You havegot some essential services that have to be providedto a rural population. The debate has to be: how do

you provide those? As Paul said, if you can up theante on the Locals and find a way of employingenough staff and providing all those services, then yes.But at the moment, the thing would seem to bedumbing down to a level where there is a huge gap inrural communities for banking, for small businessesand for pensioners, which is really concerning.

Q14 Mr Ward: Briefly, because we have not touchedon this, is there a flipside to this in terms of extendedconsumer choice and extended consumer services?Clive Davenport: We are wholly in favour ofconsumer choice, but the main concern that we haveis that the Post Office has put forward this plan, and£1.34 billion has been invested into this plan; there isno fall back. What if this plan fails? What are wegoing to do then? There is nothing there if this thingfails.Andy Furey: May I add to that? Also, this money—the £1.34 billion—is not being used to generate newrevenue, new income or new streams of work. It doesnot create or build the new revenue. It is a stickingplaster to resolve a problem. There are no guaranteesof that.

Q15 Mr Ward: We have also got in written evidencefrom Consumer Focus the issue of whether newLocals, or indeed Mains, are within existing premises,suggesting that, in many cases, they will have torelocate. Can you just talk to us about the implicationsof that, if it occurs, for providers of the services andalso consumers?Mark Baker: In the preference exercise that is inoperation as we speak, postmasters are asked to givean indication as to whether or not they want to takeon a new model, or whether they wish to leave thebusiness with some compensation, provided theservice can be transferred to another outlet. Theproblem we have with that is there is insufficientinformation for a postmaster to make a properdecision which way he wants to go. I suspect there iseven less information for retailers out there to have adetailed understanding of what it is they are taking on.My fear, as a postmaster, is that if the service isoffloaded on to what we call ‘offsite’, when the newoperators realise not just the level and quality ofservice they will have to maintain, but the economicsof it all—the pay—they will say, “I took on a bad dealand I’m going to dispose of it.” They will be able todispose of their service a lot easier and a lot quickerthan a subpostmaster currently can because he has,more often than not, his home involved. You hang onin there and you try to make a go of your post office,whereas, in the hands of operators running firstly aretail business—that would be their primary focus—if they have a weak link to that, it would be disposedof. That is when you will start seeing unplannedclosures.Clive Davenport: If I could just come in here, in theinterests of this meeting I went to my local postmasteryesterday afternoon. He has two post offices. One ofthem has been up for sale for two and a half yearswith no takers. The reason there have been no takersis that there is total insecurity about the businessmodel, so no one is prepared to take it on. He is 66




now and keen to retire, but he wants to sell hisbusiness at a reasonable price and he cannot get anytakers at all, for either of the businesses. That is thesituation for postmasters. That is only one postmasterand two post offices, but that is where they are at; itis very difficult.

Q16 Mr Binley: How do you buck the market then,Clive? Do you want a post office network that hascontinued, and maybe ever greater subsidy? You said,“What happens if the plan fails?” I am not sure thatthe Post Office, as it is at present constructed, is ableto make this plan work. I have always been concernedabout management from the times of that awfulhatchet man, Allan Leighton. I have said it three orfour times in this place; I thought the man wasdisgraceful and treated the staff disgracefully. At theend of the day, the market has to be king. I justwonder at what level we say that you cannot buck themarket and we have got to recognise that this is adiminishing resource that we have to manage, but wehave to allow it to diminish. That creates problems forrural areas.Clive Davenport: You are quite right. There has to bea model that will be useable. One of the things that Ifind quite surprising is that there is one massive modelthroughout this nation, but this nation is millions ofdifferent things. There is no flexibility in that modelthat we can see at the moment; that is one of the thingsthat concerns me. As Andy said, there is no feedbackabout what we are going to do if the model fails orwhat we are going to do if the revenue increases. Idoubt very much that the revenue is going to increasethrough postal services. When you look at Locals,they can only post parcels up to a certain size, so youare constraining the parcel market, which is the onlyreal growth market there is, because of the internet.That will be growing. The biggest growth market isbeing constrained the moment it goes into the Localoffice, whatever they call it nowadays.

Q17 Rebecca Harris: Back to the issue ofremuneration, which you were touching on earlier, MrFurey and Mr Baker, could you explain what theproposed changes to remuneration actually mean?Talk about that a bit.Andy Furey: Firstly, every sub-post office receiveswhat is called a core tier payment—the fixed pay it isguaranteed. That is a minimum of £10,000 per annum.The proposal to move to Locals or Mains—and I thinkthe Post Office will probably stress this significantly—is voluntary, so it would mean that the postmastervoluntarily gives up the core tier payment. The reality,though, is that you would have to significantlyimprove your retail sales offer or your post officevolumes and transactions to make good the loss of thecore tier payment. To sell products in localconvenience stores, newsagents or grocery stores tomake a profit margin of £10,000, you would have toincrease your turnover probably six, seven or eighttimes.Going back to Brian’s question, the reality is that thereis a social fabric need for post offices across the UK.I believe that there should be payment for servicesand what was badged as the ‘social network payment’

should continue. I do not like calling it a ‘socialnetwork payment’; I think it is Government paymentfor services for the Post Office to provide toeverybody throughout society, in urban, deprived andall the rural areas. The reality with this model is thatit is being presented or sold that, if you free up thespace for your fortress position, then you can expandyour wares, products and produce to sell more. I donot think there is any real evidence of that, to beperfectly honest. What we have not got is a balancesheet of a Local operating for over a year, where itcan show how its postal services and income haveimproved to take account of the loss of the core tierpayment, and indeed how its retail arm has alsoimproved. Most of the Locals that have been pilotedso far have been in places where there has not been apost office, and the post office has been restored. Ofcourse the public is going to like that, because it isbetter than nothing. The whole economic debate aboutthe loss of the core tier payment needs to have greaterscrutiny and perhaps refinement in a wider debate.Mark Baker: If I could put that into perspective, apostmaster colleague of mine did a quick calculationto replace, in his case, a £14,000 loss of core tiermoney. Acknowledging the amount of retail space hewould free up, he would have to improve the turnoverof his retail business by £100,000 to get that moneyback and that would leave him standing still. In myown office, I did the calculation based on my postoffice remuneration. How many more products fromthe post office would I have to sell to get back my£10,000 core tier payment? Given that the mostcommon transaction at a branch is producing a firstclass packet label, I would have to improve my salesof packet labels by 28,000 a year just to get back mycore tier payment. That just leaves me standing stilland I am struggling on that. It just gives you anindication of the sort of handicap we face in trying tofight back against the removal of this fixed element ofour pay. I am afraid the industry has become totallyreliant upon it and, as you know, if you try to comeoff something that you are totally reliant upon, thereis a real risk of things falling over.

Q18 Katy Clark: First of all, if I could declare aninterest, I am a member of the CommunicationWorkers Union. A specific example I am aware of,because it is in the south-west of Scotland and mycolleague, Russell Brown, has been campaigning onit, it is the post office in Glenluce, for which I wasonce a Labour candidate in Galloway and UpperNithsdale. It closed quite recently. The previousincome from the post office under the traditionalmodel was about £30,000 a year. It is now a Local.What I am told is that the new person who would liketo take over feels that they are just not able to do that,because the income would now be £7,000 from thepost office as a Local. What now looks likely is thatthey are going to have some kind of outreach servicethere. How representative is that of what we areseeing?Mark Baker: That is becoming quite a common story.It is early days, as these models are being marketed,but the feedback we are getting is that interestedparties outside of the Post Office are taking a look at




the economics of the model and are rejecting them.You are quite right. I know the office; I think it isGlenluce. Is that how you say it? There is a willingcandidate up there, who was prepared to be what wecall a proper postmaster, running the facility under thecurrent terms and conditions, but he simply cannotmake money out of the proposition from running it asa Local. He has walked away and the community arethe ones who lose, because they have the lowest formof service that the Post Office can offer at the moment,which is Post Office Outreach. We are also hearingfrom people who are interested in the larger, Mainscontracts. When they have their forecast done of whatwould happen if they converted themselves, thereseems to be a pattern forming of an average drop inremuneration of about £4,000 to £5,000.Rebecca Harris: I have got another question, but MrDavenport wants to add something on this.Clive Davenport: I just wanted to try to make thepoint that basically there are two things that we areconcerned about as well. That is that the public, whoare the recipients of all these services, have not reallyhad the chance to voice their opinions at all. That isnumber one. Number two, the Government or anyAdministration have to decide whether postal servicesare a community service or whether they are not. Thatis the fundamental thing. We have got to decide that,as a community, as an entire nation. We have todecide that.Sir Barney White-Spunner: Can I just add to that?Of course, one model does not fit all. I cannotremember who said it just now, but each area of theUK is very different. If you are in one of these areaswhere you do not have access to these services, whatdo you do in the future? Where do you go?

Q19 Rebecca Harris: Following on from that,Mr Baker, speaking from your position, in what waysdo you think the role of a subpostmaster might changeunder these new models? Do you see any advantagesas well as the disadvantages?Mark Baker: I cannot really see any advantages forthe community with the role changing. You are quiteright to highlight that there is a role change here. Itmay not seem much to you, but the postmaster orpostmistress actually disappears in all this. They are acommunity champion. They come into the networkwith a slight vocation about their venture; the rest ofit is entrepreneurial spirit. They recognise themselvesas a community champion. You are handing over to anew model in which they are not given the dignity ofthe name ‘postmaster’. They are operators of thesenew contracts. They are retailers first and they alwayswill be. Therefore, I do not see how those people aregoing to be able to spare the time or be able to traintheir staff to have the same dedication that asubpostmaster and his assistants have in dealing withthe most vulnerable members of our society—thesocially vulnerable, the people who need that extrahelp, and the people who come into the post officebecause they know they will get that help. That is thebit that sent a chill down my spine when I first cameacross this plan. We are set to lose all that if this planrolls out to its ultimate fruition. You lose your

postmaster and the social care he has for hiscommunity.

Q20 Mr Binley: From what you are all sayingcollectively, it seems to me that, unless there is arecognition that the post office, as constructed, is asocial networking resource—that it is almost a part ofour social services—and you decide how much youwant to pay for that social networking resource, thennothing is going to succeed in the way that the PostOffice is now proceeding. That seems to me to be theconclusion of everything you are saying collectively.How will we then get the will of the people? That isthe point you make. Do they want a social networkingresource? Do you only ask in the rural areas? How doyou deal with this at a time when money is asstringent as it has ever been in your lifetime or mine,almost?Andy Furey: May I say that I think the post office,from all the evidence we have, is cherished by society,full stop, irrespective of whether you are towns,villages or inner-city areas? The problem if the postoffice goes is the inconvenience that that creates foreverybody, where there may not be bus services oreven where there are bus services, because elderlypeople and people who have disabilities will struggleto get on a bus even if the next post office is a miledown the road.Mr Binley: In my village, we do not have buses.Andy Furey: It covers the length and breadth of theUnited Kingdom, irrespective of what aspects ofsociety there are.Sir Barney White-Spunner: There are some hardfigures you can put on there. Postcomm’s report in2009 looked at the social value of post offices. TheRural Commission found that 91% of people felt thepost office played a vital role in their community.There is quite well researched work from the lastcouple of years to back that up.

Q21 Mr Binley: You are arguing a special interestcase that we need to see this as social networking andsubsidise it accordingly. That is what you are tellingus and that is the decision we have to make.Sir Barney White-Spunner: Yes, it is.Clive Davenport: If, as we understand, every majorcountry in the world subsidises its post offices to somedegree, the question that needs to be asked is: whenyou have got areas like New Zealand that have a postbank, how much do they subsidise it in relationship toan area that does not have a post bank? Compare thetwo. No comparison of that has been done. It couldvery well be that, if you put something in place ofalready diminishing Government usage because of theinternet and changes in technology, then the load tothe taxpayer would be less.

Q22 Ann McKechin: Following on fromBrian Binley’s comments, I notice that ConsumerFocus, in its written submission to the Committee,said that both the Government and Post Office Ltdexpected relatively few branches that converted to POLocal to remain in current premises. Is it perhaps thecase that they are looking for the Tesco Expressmodel, where you have a large company that is able




to provide economies of scale, which has a largenetwork, and which effectively takes out the issueabout subsidising small individual businesspeople?Andy Furey: That might be the case, but the driverhere is that there is a desire by quite a significantminority of postmasters to sell their property, to moveon and to retire. Many of them have provided a longand loyal service to the community for many, manyyears. They have invested thousands of pounds oftheir income into that post office. They are lookingfor a package to go. The package in the agreement—the funding deal—is for 18 months’ money based onthe best year in the last three. I think there isacknowledgement that up to possibly 1,000 or 2,000postmasters might put their hands up to go and then,by definition, you have to find somebody new to takeon the Local. They will not be a postmaster and theywill not have the history or the heritage of serving thecommunity as a postmaster.

Q23 Ann McKechin: Mark, as you will be aware,we are going to be taking evidence later this morningfrom the National Federation of SubPostmasters,which is the only body recognised by Post Office Ltdto represent subpostmasters. How well do you thinkthey are doing in this job, particularly given thiscurrent reform process?Mark Baker: In a word: badly. They are supposed tobe an independent trade union and, therefore, youwould expect them to come to this point with the fullbacking of their membership, after having widelyconsulted with them. They have done neither of thosethings. They have no mandate from them to berecommending that the network gets changed in thisway. I think this is borne out by the reaction frompostmasters themselves when they were approachedby the employer, who surveyed them at the beginningof this year. Just about two-thirds of the network has


Witnesses: Mike O’Connor CBE, Chief Executive, Consumer Focus, Andy Burrows, Head of Post OfficePolicy, Consumer Focus, and James Lowman, Chief Executive, Association of Convenience Stores, gaveevidence.

Q25 Chair: I welcome you as our next panel. If wecould just start as we did with the previous panel,would you like to introduce yourselves and your title?James Lowman: I am James Lowman. I am ChiefExecutive of the Association of Convenience Stores.Andy Burrows: I am Andy Burrows. I am Head ofPost Office Policy at Consumer Focus.Mike O’Connor: Mike O'Connor, Chief Executive,Consumer Focus.

Q26 Paul Blomfield: James, could I start with you?You stated in your written evidence that the operationsof the trials for the new models were not all initiallysuccessful. Why did you come to that conclusion?Could you elaborate on that point?James Lowman: Yes, the results of the trials aremixed. They are trials and we are waiting to get moreevidence. They are very location, business andstore-specific, in terms of how retailers fared. Some

rejected getting involved with these new models. Iserved with the Federation for 12 years at executivelevel, and I am just astounded that they could cometo this position knowing that they are not carryingtheir postmaster members with them. I think it hasbeen the root cause of much of the problems. We aretrying to find a solution to provide a sustainable futurefor the network.

Q24 Ann McKechin: I noticed that, in theconsultation, there was actually relatively littleresponse. I think only 50% of subpostmasters actuallyresponded. Did you really feel the consultation wasjust simply a kind of tick-box exercise; that peoplethought the conclusion was inevitable?Mark Baker: In a way, yes, I agree with you. It wasa tick-box. We had to fill out the questionnaire basedon very cursory information. We were being asked,“Do you want to change your life for ever?” and wehad a series of four boxes to tick. People who didindicate they wanted to know more are beinginterviewed as we speak and, again, they are beinggiven very basic information, but they are not givenfundamental stuff. They are not even given the paybooklets that the new models will operate under, andthey are not shown the contract. Again, we arebusinesspeople. We expect fundamental informationlike that and it is being withheld from us.Chair: Thank you. That concludes our questions toyou. Thank you for your brevity. I will say, as I alwaysdo to such panels, if you feel that there is somethingthat you have not said, either because we did not askthe right question or you did not think of it, pleasefeel free to send us some supplementary evidence.Similarly, if we feel there is a question that we shouldhave asked but did not, we may do the same to youand would welcome your co-operation with yourreply. Thank you very much.

of the issues that have come out of those trials arevery practical operational issues, like the queues.Queues will arise at certain times of the day that canbe very disruptive to the retail business. There areother operational issues, like if you are taking lots ofparcels, sometimes there is no space behind thecounter to put all those parcels and to shift themacross the space and so on. There are issues abouttraining and trying to ensure that retail staff—the pointwas made in the previous session about retail staff andtraining. You may have someone who is working ahandful of hours a week in the store, but who youwant to give that additional skill set to be able toexecute post office transactions as well. There areissues of training there. There are issues of supportfrom the Post Office. One of the issues we have beentalking to them about, in very practical terms, is theproblems our members are likely to get from atechnical and systems point of view when they turn



15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman

the system on if they are opening up very early in themorning. Currently, the Post Office support for thosesystems is not available at the times when retailers areopening their businesses. As the new models roll out,those are the sorts of things that need to be addressedand we are working with the Post Office to ensurethey are.I have talked about some of the very practicaloperational issues. There is the commercial reality thatmembers are finding out. They are losing the core tierpayment, and they are finding out not just what theyare then making in transactions-based payments, butwhat they can actually do with the retail space theyhave freed up. Sometimes that can be a reallyprofitable new part of the retail space; sometimes lessso. It depends what they can put in there. They haveto invest in that space to make it pay. It is notsomething they just free up from being a fortress andall of a sudden the money starts coming in. You haveto invest, whether that is in bake-off, fresh coffee orwhatever else the offer is. Retailers are having tobalance out a change in income with a change instaffing costs and other costs associated with thebusiness, and the opportunity of having more retailspace. Those three things are all very site-specific.What the trials have shown is probably generally agood news story, but there are lots of issues in thosedetails.

Q27 Paul Blomfield: It sounds like there is a fairlyfundamental flaw in the model, to some degree. Whenyou were talking about, for example, the problems ofqueuing, it is almost a suggestion that the retail andconventional post office product offer do not gotogether. Most of us experience the practical problemsof queuing for a post office counter and how that isvery different from the conventional supermarket’squeuing experience. Will that not lead retailers in thelong term, as they are looking at their business modeland the post office products are getting in the way ofhigher-profit, quicker-turnover items, to squeeze outthat part of the offer?James Lowman: In some cases that might happen.Retailers need to respond and be very flexible on thoseissues. One of the things they need to do that is a lotof staff, or a majority of staff, who are trained toexecute post office transactions. This, to me, does notwork if you do not have most staff able to do that,otherwise you do not have the flexibility that, whenthere are particularly busy post office queues, you canput more people on to deal with that. Similarly, ifpeople who transact post office transactions are nothappy to move across to the retail side and executeretail transactions, it will not work either, because youare not going to get the cost savings. I think these arethings that retailers will work through in the trials. Iagree with your overall point: there will be someretailers who will look at this after a period of timeand say, “Due to these issues and looking at all thevery complex issues, operationally and commercially,this does not work.” Working through the trials, thereare many retailers who will find it does work. I waswith a retailer last week who found it did.

Q28 Paul Blomfield: There is a real risk that whatwe are going to see is an incremental loss of postoffice product.James Lowman: It is possible, but I think then whatmatters is whether the offer is attractive enough andmight be applicable in another retail setting. If aretailer does, for argument’s sake, take on a Local and,after a couple of years decides, “This isn’t for me. Ithasn’t worked. I’m therefore moving away from thenetwork,” will the model be sufficiently attractive thatanother retailer in that area might come in and run it?We do not know the answer to that and that is clearlyvery important.Paul Blomfield: There are a lot of question marks.James Lowman: A huge number of questions, yes.

Q29 Paul Blomfield: If I could move to ConsumerFocus, I wonder if you could just outline the keypoints of the research that you carried out in Januaryand February, which has got a fair amount ofpublicity.Mike O’Connor: Thank you. Just to summarise, itwas the largest research that has ever been done onPost Office Locals. We found that the major positivewas that consumers really welcomed the longeropening hours of Post Office Locals. On the negativeside, there was a problem with advice. In our mysteryshopping, we visited every Post Office Local includedin the research programme (105 in total), up to fourtimes, but there were problems with advice. Forexample, second-class postage was only sold correctlyin one in five visits. On product availability, some ofthe services consumers said they needed, and whichare currently available across the network, will not beavailable at most Post Office Locals. One-third ofpeople thought that the privacy available in a PostOffice Local was poor. Fourthly, consistency ofservice: there was a problem with the reliability of theservice at different times of the day and issues abouttrained staff not being available and the associatedbusiness sometimes taking priority. Finally, there wasa problem with cash withdrawals. Some Post OfficeLocals were capping the amount of cash they wouldpay out, for example on benefits, because they did nothave the cash available. They were the five negativepoints we found. Of course, the purpose of a pilot isto learn and to move forward addressing these things.We are calling on Post Office Ltd to produce an actionplan to address these areas.

Q30 Paul Blomfield: Some of those are fairlyfundamental, are they not? I read from the researchthe point that two thirds of customers were advised tobuy more expensive postage than they needed. That isa pretty flawed experience, is it not?Mike O’Connor: I do not believe it needs to bestructural. We are asking Post Office Ltd to dosomething really quite difficult. This is the biggestplanned transformation the post office network hasever seen and we have to see transformation, becausethe system is not economically viable. We can argueabout how much public subsidy is justified or not, butwe have a duty to put the Post Office on the bestfooting we can. Therefore, if Post Office Ltdaddresses these things, we believe Post Office Locals




can provide a more sustainable way forward—the typeof way forward we all want. We cannot go back to theold model; we have to go forward. We want to workwith Post Office Ltd to help identify these problems,to produce an action plan to meet consumers’ needs,to consult locally and to work with communities. Thisis not an easy nut to crack.Andy Burrows: The research speaks to the issuesabout training, which James touched on, about thesupport that is available to branches and about qualitycontrol and the monitoring of branches to make surethat the quality of service that these branches areoffering is consistent and of the high quality thatconsumers expect. Specifically on training, one of thethings that is striking from the research is that thelarger convenience stores, which will play a key rolein the rollout during network transformation,generally score poorer, which perhaps is not a surprisegiven that large convenience stores will typically havelarger numbers of part-time staff and greater staffchurn. That speaks to the need for greater investmentin training and making sure that the service standardscan be consistent across the longer opening hours.

Q31 Paul Blomfield: You are absolutely right aboutthe high levels of churn, part-time staff and so on,which is so different from the conventional post officecounter model. Do you think that it is possible to meetthe required level of training for the range of productsthat people expect to be available within that sort ofwork force?Andy Burrows: One of the challenges that exists inthe training structure that has been rolled out duringthe pilots is that, in the initial period during whichthe Local is rolled out, the feedback from operators isgenerally that the quality of training is very good; itis then about the ongoing training and support, feedinginto those issues of staff churn. For example, one ofthe concerns that we have heard from operators, whichwould seem to be represented in some of the issuesaround service consistency, is that the supportavailable to branches typically is not available. Thetechnical assistance telephone helpline, for example,is not available during evenings or during weekends.It is a combination of getting the ongoing trainingright, but also the initial support and, in effect, makingsure that that is appropriately provided by Post OfficeLtd and is not externalised, if I can put it that way, toindividual operators hosting the service.Mike O’Connor: And a way of addressing trainingneeds. It is not always about training the individual; itis about product design and technology. Having theright technology means sometimes that the individualselling the product has to use less discretion and needsless training. Product design is also about that. So itis about product design, technology and training.James Lowman: It is possible, because I know ofretailers who have managed to bring out effectivetraining for staff that works. They offer longer hoursin one of the new formats, so it is possible.Absolutely, the product design point is very important.

Q32 Paul Blomfield: Can I continue to press onareas of improvement that you think should beidentified from the pilot so far? Training is obviously

a key issue and we talked about it a lot this morning.Other areas?Mike O’Connor: Fundamentally, success will dependon giving consumers what they want and a consistenthigh level of service, so being clear about what theproducts are, making sure the products meet people’ssatisfaction, and making a core list of productsavailable. We also want to see issues about physicalenvironment and privacy addressed. Critically,nothing will put people off more than having anegative experience, so issues around cash supply andcash capping have to be considered. If you are apensioner and go in and only get half your pension,you are not going to want to go back there again. Theywould be the key areas.

Q33 Paul Blomfield: They all sound fairlyfundamental. We have heard this morning that there isconcern about the pace of rollout and that there mayneed to be some pause for learning and somemoratorium. Do you agree with that?Mike O’Connor: We believe Post Office Locals canbe a success. The Post Office is a great brand. Wehave to go forward. I would not like us to stop goingforward because we do not have the time and we donot have the money. I want to continue to go forwardat the right pace. The right pace is one that addressesthese problems. I believe that Post Office Ltd canaddress these problems. Indeed, they are addressingsome of these problems. I want us to continue to goforward, not to stop, but to address these problems.

Q34 Ann McKechin: Under the current system thereis a very strict process of vetting of subpostmasters,but there is not under this particular model. To whatextent did you consider the issues around probity andtrust? A key element for customers when they areusing the post office is that they are meeting staff whohave been strictly vetted.Andy Burrows: There is absolutely a key issue interms of making sure that the branch environment andthe quality of the customer experience, including theengagement with staff behind the counter, is sufficientthat consumers want to use the branch. What will beimportant there is to make sure, firstly, once networktransformation gets under way, that there are sufficientoperators, but that those operators are of sufficientlyhigh quality to offer the service. It is absolutelyappropriate that those checks and that assessment areundertaken. As the programme rolls out, the issue thenis about ongoing monitoring. It is about qualitycontrol and it is making sure that, if there are issuesin the way in which services are being delivered bystaff—if the quality of the staff advice, for example, isnot up to the level that it should be—that is identifiedthrough a rigorous programme of monitoring andquality control.Mike O’Connor: At the first stage as well, when yougo from a sub-post office to a Post Office Local, youhave got to consult the community, tell them what youare doing and take on board their concerns. ConsumerFocus is a statutory body. We have a code of practicethat we agree with the Post Office about how thesechanges come about and how people are consulted. Ifyou consult the local community and get them




involved, that will help build trust. That consultationis vital.

Q35 Ann McKechin: But the public do not vetpeople and they do not do a criminal check of theirrecord. What I am asking you is why we should nowforgo that requirement. The public cannot go andcheck someone’s criminal record in the way you canwith a subpostmaster in the current system. You areasking the public to take a greater risk. Is that whatyou are saying?Mike O’Connor: I agree that we should place a dutyon Post Office Ltd to put the proper checks in place.I am sure that they would only want to do businesswith somebody who was reliable, so I think thosechecks should be in place. Beyond that, you need toengage the community, get them to know what iscoming down the line and get them to understand itto build that trust. Sometimes there is no trust for thewrong reasons; sometimes the post office istrustworthy. But moving from what you know andlove to a new model is difficult. Therefore, Post OfficeLtd has got to go out and sell these changes to thelocal community. Explain them. ‘Sell’ is the wrongword, but involve local communities.James Lowman: Taking the point of view of thepeople who will be coming in to operate post offices,of course there should be adequate checks in placeand I absolutely support that. These are, in most cases,stores that have served the community for many, manyyears themselves, often generations. They arecommunity-based businesses. I would not want theimpression to stick that subpostmasters and postoffices are necessarily community businesses and allother retailers are not. Most convenience stores investin the community, supporting sports clubs or localcharities. They are civic leaders, every bit as much assubpostmasters. In fact, we are often talking about thesame people already. The subpostmaster now, in mostcases, is the local retailer. There are very fewstandalone post offices, outside of the Crown Estate,which are not run by someone who would describethemselves as a retailer first and foremost, and asubpostmaster second.

Q36 Mr Binley: Post offices have been in a situationof managed decline since the late 1970s, have theynot? We have lost pretty much half of all the postoffices we had at that time. Should we not be muchmore honest about what we are doing? Hasn’t a lot ofthe problem come from holding out expectation thatis not there? Can I relate that to a statement you makein your written evidence? “Whether the Post Officeoffer is attractive to retailers depends on itscommercial viability within this competitive market.”Are you not saying exactly what I am saying, but inmuch less blunt and slightly more camouflagedwords?James Lowman: You are right: there is a long-termdecline and that is for a number of reasons I am notgoing to try to reprise now. A decision could be takenby the Government and by this House that says, “Wewant to subsidise the Post Office to a significant extentmoving forward to ensure that a network in its currentform, or maybe going back to its previous form, is

retained”. That is clearly not Government policy andhas not been the policy of successive Governments.What we have to do, when looking at the future of thepost office, is acknowledge that the things Andy Fureysaid about people not having to get on buses to travelmany miles down the road means numbers of postoffices and geographical reach, and if you want toretain a network of post offices, then you are going tohave to change the current operating model orsubsidise much more heavily. The point that we makein our submission is that we should not just think ofall those services—for example, bill payments, mailand all these other things—only being availablethrough post offices. They are operating in acompetitive market, with companies such as PayPointand Payzone, which offer bill payment services. Manyof my members will offer a lot of the communityservices we talk about with post offices, withouthaving the Post Office lozenge and the post officefacility there. We have to acknowledge that we are ina competitive market and that customers can get thepost office services, whether it be from other retailoffers or online, and we have to exist in that market.

Q37 Mr Binley: Does your answer and the wholeof your thrust not demand another question? You arearguing that, increasingly, there is no such thing as astandalone post office, and increasingly, the peoplewho provide the post office service are primarilyretailers. Consequently, there is a real problem aboutsubsidy between those who actually provide a postoffice service as a bit of their business and those otherretailers who get no subsidy at all, particularly in ruralareas. Is there not a real issue there that we have notfaced up to?James Lowman: Yes, I think that is absolutely right.Mr Binley: That is the point I was trying to get to.Mike O’Connor: Mr Binley, could I just respond toyour question? You asked, “Should we not be a bitmore honest?” I would like to ask also: should we notbe a bit more ambitious for Post Office Ltd, insofaras managing decline? I do not think consumers justwant to see less; consumers will want to see more. Awhole range of central and local government servicescould be provided through post offices. I think wehave to look for the opportunities to grow thebusiness, perhaps even beyond 11,500 outlets, perhapsto more outlets, perhaps not all physical outlets;perhaps sometimes just using cards, etc. We must notbe in a mindset of decline but a mindset of what newopportunities are available. Sometimes theGovernment are not providing those opportunities.For example, last year Post Office Ltd lost the greengiro system because somebody else could do itcheaper. I question the amount you save by going toa provider that is cheaper, when you take into accountwhether that is undermining the post office networkand its social value. Perhaps that is a call for subsidyin another way, but generally I think we should beambitious about the Post Office, and front of officefor Government, central and local, should be a bigpart of the Post Office’s future.

Q38 Mr Binley: I fought to save some of my postoffices during the last Government’s attempt to reduce




the network, because people saw it as a social need.You say people want their post offices. The truth ispeople are not prepared to pay for their post offices.That is the harsh fact. Or at least not enough peopleare prepared to pay. I still come back to the questionI put to James: should we subsidise it, recognising thatthis is a part of a general retail business, when othergeneral retailers are not being subsidised in a givenarea? How do you face that problem?Mike O’Connor: I think that is a problem for society.Mr Binley: Not for you?Mike O’Connor: If you ask anybody whether theylike to pay extra taxes, they say no. But we should putthe question a different way: “Is this service you aregetting value for money?”

Q39 Mr Binley: Excuse me. I am asking thequestions; you are answering them. I put the questionsthe way I want to. I would like you to answer, becausethere is a real problem here of conflict between someretailers who do not offer post office services andsome who do. I want to know how we overcomethat—how we see that as fair and just in a competitivemarket that Mr Lowman talked about.Mike O’Connor: The market fundamentally is whatconsumers need. I think that you should look at theissue of public subsidy. I do not think you should ruleit out just on ideological grounds. You should look atit in terms of what you are getting back for that, lookat what post offices can provide and justify subsidy inthat way. Subsidy can be about stretching the PostOffice brand and making use of that public asset toprovide wider services that people want. I thinkpeople do want these services, so you should not ruleout subsidy.

Q40 Mr Binley: I did not say I did. I am asking youthe questions; I am not giving you the answers. I donot know, but we need to come to some conclusionsin our report that we will make, I assume, to theMinister. I am looking to understand what thoseconclusions should be. I am not making an argument.Mr Burrows, how did you deal with that particularissue about unfair competition through subsidy?Andy Burrows: If subsidy is necessary to maintain anetwork and maintain access to the services of socialand economic interest that post offices provide, thenit is appropriate to provide that. I think everyonewould want to see the subsidy that the post officenetwork requires to maintain the current levels ofaccess as low as possible. That requires a post officenetwork that, firstly, offers a range of products andservices that matches the changing needs ofcustomers. That might include additional bankingservices. That might be realising the front office forGovernment proposition. But it is also about makingsure that we, as consumers, who generally love ourpost offices but do not always want to use them withthe frequency that we otherwise could, are encouragedto go through the door. So the post office has to offer amore convenient, high-quality and consistent service.Really, therein are both some of the risks and some ofthe opportunities for Locals. There is a tremendousopportunity around most Locals branches offering

longer opening hours. For many professional peopleand people in full-time work, clearly that is a bigasset. We know from our own research and from someof Post Office Ltd’s research that encourages peopleto use post offices out of hours, when previously theywould not have had the option to do so. It is aboutrefreshing; it is about improving the customerexperience, making sure that that is consistent andhigh quality, and making sure the product mix is thereso that the post office can thrive on its own merits.

Q41 Simon Kirby: The question I was going to askof you, James, has been answered, so I will move toa slightly different area—that of stamp price increasesand subsequent revaluation of stock. Does this putpost office branches at a competitive disadvantage?James Lowman: We looked at this beforehand andwe asked members questions about it. Any time pricesgo up—it happens around alcohol duty, for example—retailers who hold stock, having bought it at the oldrate, have an advantage in that they can make moremargin, but similarly, they have cash flow issues thatmean they are not going to hold too much stock. Ihave to say we have had nothing back from memberson the impact of the price increase, so there is not agreat deal I can add on that. I think there are retailerswho are buying at wholesale; I get the theory that theyhave an advantage where there is a price increase. Ihave not got any direct evidence, I am afraid, on that.Chair: I think that concludes our section ofquestioning. Can I thank you for your contribution?

Q42 Katy Clark: Sorry, can I just come in onsomething that I did not feel came out adequately, sothat I fully understood, in the questions? One of thepoints that has been made to me about Locals is thatthey are going to offer a far smaller range of servicesthan the conventional post office, and obviously thatis an issue for consumers. The other point that hasbeen made to me is that they may not be allowed tooffer some of the more profitable parts of the business,in particular things like currency transactions, butthere is a whole range of other things. I just wonder,particularly for James, whether that is something thatyou are concerned about. There seems to be a lack ofclarity. Can you let us know exactly what you feel arethe bits of the business that are essential for Locals tooffer if this is going to work from an economic pointof view?James Lowman: We have got a difficult balancehere—it relates to some of the questions we wereasked earlier about staffing and training—in that manyof our members will have members of staff who arenot operating the post office very much. They arefilling in for a few hours here and there in the postoffice. Therefore, as the knowledge threshold forexecuting a transaction properly rises, it becomesharder and you get more mistakes and issues thatcome from that. So I think actually, our memberswould overall want to go for a relatively limited rangeof services, with the clarity that everyone would needto know that, “If I want to do X, Y and Z, I can go tomy Local; if I want to do A, B and C, I have to geton the bus and go to a bigger post office that is able




to execute that”. Clearly there are some areas, likecurrency transactions and so on, which have been inrecent years probably where some of the growth hascome, but I think some of the more exciting areasgoing forward—biometrics, passport applications andso on and so forth—are possibly things that will notbe included in the Locals model, and something wewill work with the Post Office on.


Witnesses: Paula Vennells, Chief Executive, Post Office Ltd, and George Thomson, General Secretary,National Federation of SubPostmasters, gave evidence.

Q43 Chair: Welcome, and thank you for agreeing tospeak to us. If you could just introduce yourselves,that would be helpful.George Thomson: George Thomson, the GeneralSecretary of the National Federation ofSubPostmasters.Paula Vennells: Paula Vennells, Chief Executive ofPost Office Ltd.

Q44 Katy Clark: Thank you very much. I do notthink you were here in some of the previous sessions.I should say that I am a member of theCommunication Workers Union. I just wanted todeclare that interest. You will have seen the writtenevidence that has been submitted to this inquiry. Muchof that written evidence criticises the proposedrestructuring, basically from the point of view that it islikely to lead both to fewer services but also, probably,fewer post offices at the end of the day. Can youexplain, from your point of view, the rationale behindthe new Locals and Mains post office model, and whyyou think they would succeed? Could you also outlinehow much of the £1.34 billion, which I understand isthe amount of money, in global terms, that is beingprovided by the Government, is likely to go oncompensation packages to those leaving the industry?Paula Vennells: With pleasure. I think I should sayfirst of all that I have been listening to what has beendiscussed this morning, and clearly there are going tobe some areas where I will offer a different view. Iam very pleased to have that opportunity.If I can take a number of things that you raised, onthe £1.34 billion, the most important point was theone that was made by Mike O’Connor, which is thatthis is perhaps the biggest investment the Governmenthas ever made in the post office network, certainly inliving memory and possibly ever. It is really importantthat it is spent well. It divides into two parts: roughlyhalf of it is investment and half of it is subsidy. Thatis very, very important for all of the questions thatwere posed about what happens, particularly withinthe rural network. There is a big question there. Therewill always be small post offices that will not get tobreak even and will need some sort of subsidy. Thereis no change in Government policy. The differencethis time, though, is that there is a further investment.That investment really plays to three things and theseare the only three points I want to get across thismorning.

Chair: That does conclude our questioning on thisparticular session. Can I thank you and just repeatwhat I said to the other panel? If you feel that there isanything you would like to add and have not saidtoday, please submit evidence to us. Of course, wemay submit further questions if we feel that there arefurther questions that we should have asked. Thanksvery much. Can we have the next panel, please?

The first one is that it is actually about transformingthe network completely. We have had, for the last twodecades at least, and certainly since I joined the PostOffice seven years ago, nothing but closures. Thebusiness has become a victim, and that is not the placea brand as strong as the Post Office should be. Weshould be really strong. We should be playing to themarket competitively, just as Brian says. What thatinvestment will do is help us transform the networkto be able to respond to that, which brings me to mysecond point.This money is also important because it puts us in aposition so that we can grow. If I have a vision, it isto have 30,000 post office outlets, not 11,500. It is tohave standalone electronic drop boxes for mailpackets. It is to have ATMs in railway stations. It isto have identity kits in town halls and libraries, allbranded ‘Post Office’. But until we transform the basisof the current network and make it more sustainable,that becomes just an ambition. I am very confidentthat we will get there, but the growth is important inthe current network. That growth will come if I run anetwork that is sustainable, because then I can go toclients. In the last year, we have won seven out ofseven Government contracts that we have bid for. Thatis unheard of in the last decade, and that is becausepeople are now beginning to believe in what we aretrying to do with the Post Office. The transformationof the network to models that work and becomesustainable, combined with growth, are my first twopoints.The final point is about the customers and thecommunities. These models work. We have got 200in pilot. We have got them not as you heardpreviously; we have got them both in sites where therewere post offices and where there were not postoffices previously. In all cases, the customersatisfaction is over 90%. Yes, we make mistakes. Ofcourse we make mistakes. In a network this sizemistakes will always be made. Do we sell wronglyand do we overprice on mails? No.

Q45 Chair: Excuse me, can I just interrupt? You saidcustomer satisfaction was 90%. How was thatmeasured?Paula Vennells: That is measured independently,Chair. It is measured quantitatively, so that it isrepresentative. I would be very happy to send a copyto the Committee. In fact, the Consumer Focusresearch shows that 75% of customers find the service



15 May 2012 Paula Vennells and George Thomson

good or very good. If you add in those who find itsatisfactory, you will probably get close to 90%. The90% figure comes from both on-site Post OfficeLocals and off-site Post Office Locals.

Q46 Chair: Can you send us details of the body thatcarried out the survey, the questions that were askedand the responses?Paula Vennells: I can, yes.George Thomson: Could I give you a specific answerto the question and a different emphasis from POL?We support both network transformation and the newmodels because, quite simply, the status quo is notsustainable. Quite simply, thousands ofsubpostmasters cannot sell their businesses. Clivementioned earlier someone who had been trying tosell for two and a half years. Many subpostmasters—it is nothing to do with the new models—are findingit impossible to sell their businesses in the currentmarket. In fairness to POL, I think there should havebeen a greater emphasis—it touches on Brian’spoint—on the fact that Mains and Locals are a newmodel, but the options are that, unless you areprepared to provide a subsidy increasing up to£400 million or £500 million a year, something has togive. I support it, because up to 2,000 existingsubpostmasters will leave with compensation to moveon. We have thousands of members over retirementage.

Q47 Katy Clark: Can I just ask Paula Vennells thisquestion? How much of that £1.34 billion is going onthose packages? If you are not able to give thosefigures today, maybe that is something that could begiven later. I appreciate, George Thomson, that youmay not know yourself the answer to that question.George Thomson: The first part is that I supportsubpostmasters being able to leave and to havechoices. The second issue is that about £200 millionwill be spent on modernising both the Main branchesand the Local branches. Katy, that money is needed.The 4,000 big commercial offices have kept the wholenetwork afloat by cross-subsidising the rural throughthe Assigned Office Payment. We all know that partof the Government’s strategy is that the £60 millionthat is lost per annum on the Crown Offices is to beeradicated over the next three years. Again, the 4,000commercial offices that will remain are the ones thatare underpaid to allow that cross-subsidy to go to theCrown. For these three reasons—the fact that theCrown office losses will be eradicated, the fact thatthere will be up to £200 million of new investment,and the fact that there will be well over £100 millionof compensation for subpostmasters to retire and bereplaced with new models off-site—we support it.

Q48 Katy Clark: You are also aware that the pictureis far from all rosy and many subpostmasters are very,very concerned about these proposals. I am not sureif you were here in the previous session, when I raiseda particular example in Glenluce, which I suspect isan example that you will be aware of, with youraccent. That is a south-west of Scotland example,where a post office will probably turn into an outreachservice, because of the new funding model. The

figures that I have been provided are that previouslythe income would have been about £30,000 a year; itprobably will be something like £7,000 a year underthe new Local model. Do you not think thatsubpostmasters will have real difficulty in surviving—not the ones who want to take a package but the oneswho want to stay in the industry—with the fundingmodel that is on the table?George Thomson: It is a very good point, Katy, andthe Federation made sure that anyone who wanted toremain on the model that they have at the moment—there will be at least 5,500—will retain their fixed pay.No one will be forced to give up their fixed pay. Foranyone who wants to move to a new model, it will bevoluntary. One of the things that was not said in thelast session was that, if you decide to give up yourfixed pay and become a Main, you will receiveenhanced payments. The fixed pay transfers to theproducts; it does not disappear.

Q49 Katy Clark: But for the communities wheresomeone is leaving the industry for whatever reason,it is going to be a new model that comes in, is it not?It is going to be a Local. Are people going to be ableto survive and keep these services open in ruralcommunities?Paula Vennells: From all the evidence we have gotso far, yes. If you look at the economics of the PostOffice Local model, which is probably where most ofthe concern lies—these are average figures, so thereare some that are slightly less and, in fact, there aresome that are substantially more. The post office isnow open from 7 in the morning to 10 at night, insome cases even longer than that. First of all, that isan 85% increase in post office hours. That does twothings. It brings additional customers to the postoffice. Post offices have seen a 9% increase in postoffice custom. They have also seen roughly a 9%increase in their retail business. In terms of the overalleconomics, it works. The other advantage to theoperator is that the staffing model is more flexible, sothere are either savings from the staffing model orthere is productivity. You no longer have one or twopeople working solely behind a post office counter;those people can move and they can do other things.The economics of the model work. That is the wholepoint about the pilots: that we actually try this. Wewould not want to roll this out if the economics didnot work.It is, as George says, completely voluntary. There willalways be some post offices, as I said at the verybeginning, that this will not work for. Therefore, therehas to be a decision that a continuing subsidy isneeded, and the current Government has endorsedthat. But it is about being businesspeople too. Peoplewho see these economics and who are really goodretailers have made this work. I was in a meeting lastweek with the Minister—so this was said in front ofthe Postal Affairs Minister—where one of theoperators, who is now running 25 of these, asked ifthey could have one in every one of their 600 stores.These models work, and that is the most importantthing. This is what will transform the network. Wewill have economic models that work, provided that—I go back to my second point—we have growth as




well. We have to put more business through the postoffices, and that is where the Government front-officework comes in. That is why that is so important. Butlocal government too; I would ask the Committeemembers to go back and talk to your local councilsand local authorities. We can take much more workthrough the post offices.

Q50 Chair: Just before I bring you in, David, youspoke earlier about the level of satisfaction being90%. I believe this is based on the 200 or so pilots thatyou have got so far, of which 63% were effectivelyreplacement post offices and the balance were existingpost offices. Was there any difference in the levelsof satisfaction between the two, given the fact that acommunity that had hitherto been deprived of a postoffice is likely to have, shall we say, a much higherlevel of gratitude and, potentially, satisfaction thanone that is used to an existing service?Paula Vennells: There is. If I may, I will give youtwo answers to that, and they are both as important.The first is that, of those pilots, 50 are post officesthat were temporarily closed and we were strugglingto reopen, so not unlike the situation in yourconstituency. Because of the new models, wereopened 50 post offices, and people were overjoyed.That is the first point. Where we have opened a PostOffice Local in a location where either a post officehas closed or there has not been one for some while,the customer satisfaction stats were—I may get thisslightly wrong—about 98%, so very, very high.Where we opened a Post Office Local where therewas an existing post office, it was lower; it was 91%.These models work.Locals do not do everything that a post office woulddo, and I want to cover that very openly and veryovertly. They do not have 100% of the Post Officerange, because some things just cannot be done, butthat is no different from a Sainsbury’s Local versusa Sainsbury’s Superstore. Please understand that theycover 95% of post office customer visits. We are stillworking in some areas to see where we can improvethat range further, but there will be some where I willsimply say, “No, we cannot do this because it doesnot make sense.” The ones that often come up,passports and motor vehicle licences, are todayavailable in only 2,900 post offices and 4,500 postoffices. They are not available across the range of postoffices anyway. In most cases, post offices that wewould be talking to about the Locals model would nothave offered those services in the first place. I thinkof 95% of customer visits, 85% extra hours, openseven days a week, shop when you like. One otheradvantage of these additional opening hours and thegrowth in mails business that is coming through all ofthe models, including Locals, is that we are gettingyounger customers in, because they are shopping earlyin the morning, after work at night and at weekends.

Q51 Chair: Can we just concentrate on thesatisfaction ratings? Your research does not reflect thatdone by Consumer Focus. If I can just quote: “48%of users considered the product range available to beaverage or very/fairly poor. 38% of users consideredthe overall experience to be average or very/fairly

poor compared to other post offices. 64% of usersconsidered the level of privacy to be average or fairlypoor.” How do you explain the difference?Paula Vennells: I think, with respect, Chair, your lastfigure is the other way round. I think 34% find it pooror very poor. If you add in the average to those whofind privacy okay or fine, it is about 66%, frommemory.Let me take those three areas. One of the comments Imade first of all is that we have made some mistakesand these are pilots. The point is we need to learn.Secondly, the Consumer Focus research is veryhelpful. I do think it is a very good report, and wewill absolutely look at the boxes, if you have readthe report, where they make their recommendations ofthings that we should look at. We will work withthem. Since the last time they did their research, wehave improved privacy. We have got a better resultfrom our customers. What we are doing now, whenwe go to every single branch to talk to thesubpostmasters, is working with them on how theycan improve their privacy. In some cases, that meansputting in half screens. In some cases, it meanspainting a line on the floor. These are smallconvenience outlets, so you have to think carefullyabout how you do this, and it has to be done on anindividual basis.In terms of the product range, I go back to myprevious points that 95% of visits are covered andover 90% of customers are satisfied with what theyget. We will continue to work on those two areas, andwe will listen to Consumer Focus; they are a bodythat we respect and that we work very closely with. Ihave no issue with them raising problems for us todeal with, but we are dealing with them.

Q52 Chair: George Thomson, you looked concerned.Do you wish to come in?George Thomson: I think we have to be very carefulhere, both as a Parliament and also as Post Office Ltd.What is wrong with the Post Office Local model?Partly it is to keep the politicians on board. It is adifferent model. It is better in some respects, i.e. it ismore convenient and there are longer opening hours.That is good, but what you do lose—and we haveto be upfront here—is a lot of the specialisation andknowledge that has been built up, because manypeople are going to leave. If you look at ConsumerFocus and the report, these are two of the areas thatare not identified that I have had concerns about forover a year.The third thing is, if you have got a convenience store,and some of the Post Office products are stillcomplicated—they may be over-engineered and a bigrange—is it right that you are expected to give aservice from 6.00 in the morning until 10.00 at night,seven days a week? It keeps the politicians on board;I accept that. If you go into a convenience store at9.30 on a Sunday night, would you expect to top upyour mobile phone? Yes. Buy a stamp? Yes. Do someof your gas and electricity? You would. Is it right thatyou would expect the staff to have the knowledge baseto send a parcel to Poland at 9.30 on a Sunday night?That is an unreasonable request. The danger is thatyou over-promise. What happens—and Consumer




Focus identified this—is that people, although they aremeant to provide all the service at that time of night,do not do it, or, if they try to do it, they do not get itright. There is a lot of work still to be done. The statusquo is not sustainable. We will work with Post OfficeLtd to get the Local model right, but there arecertainly two or three things with the Local model thathave to be made better. One of them is that productshave to be re-engineered; they have to be simplifiedor mistakes will happen. The Federation has set up aworking panel with POL to actually do that.Chair: We have got some further questions on that. Ido not want to over-anticipate. David Ward, you havebeen waiting very patiently.

Q53 Mr Ward: On the economics of this, we havetalked about consumer satisfaction levels, butpresumably consumers would like every shop to beopen always. If a taxi driver is coming home at 3 amfrom a shift, he would be delighted if he could stopoff and buy a stamp. Are enough stamps being sold inthose extended hours to cover the marginal costs ofstaying open? It is not only increased usage—whichis the 9% figure—but whether the additional hours areeconomically viable.Paula Vennells: That is a really helpful question. Ifyou look at the overall retail outlet, then the decisionas to how long the retailer stays open is entirely theirs.If it was not economic, they could shrink those hours.For example, we have got one at the moment that isopen from 6.30 in the morning to 10.30 at night; wehave got some that are open from 8 in the morninguntil 7 in the evening. It really depends on what theretailer thinks they need to do. In terms of the rangeof services—they are profitable—what we are findingis the retail mails are selling well, because of eBay. Itis the conversation that was had previously aboutgrowth in the packets market. Consumer Focushighlighted this in their report. This is a really goodarea for Post Office Locals to move into, because theycan both take the packets and process them. We areworking with Royal Mail Group to make sure that wecapitalise on the growth in the collections and returnsmarket. Post Office Locals could do that too. So itdepends on the spread of the business and the hoursof the retail outlet.George Thomson: Take an example in a small village.Let us say there is a post office that is standalone,with the post office, and some cards and stationery,and you have another newsagent. Maybe both of themare struggling. The good thing about Post Office Localis, if that subpostmaster wants to leave withcompensation, then the post office is offered to thatnewsagent as a Post Office Local. Instead of havingtwo shops in the village that may go under becausethey are really struggling, all of a sudden you haveone viable business, where the newsagent is maybegetting another £8,000, £9,000 or £10,000 salary as aPost Office Local and is getting the additional footfallthat used to go to the post office. That business couldbe the difference between survival for that newsagentor convenience store and folding and going bankrupt,which is happening to many people in this verydifficult economic climate.

Q54 Chair: Could I just try to seek clarification? Ithink probably, George, you are the person to ask.What will be the changes to subpostmasters’ pay oncethis model or two models come into effect? Youtouched on this just now; if you could just elaborate.George Thomson: Three things to say, nice and easy:if someone decides that they do not want to change orthey do not want to leave, they will stay on thetraditional contract, i.e. fixed pay and variable pay.Nothing changes and there will be 5,500 to 6,000 whodo that.

Q55 Chair: What is the element of variable pay?George Thomson: It varies. Variable pay depends onyour commission from your transactions. Let us sayan office was on £60,000. It would get roughly£15,000 fixed and about £4,000 to £5,000 variable, asa rough estimate. Basically, the traditional offices willremain fixed and variable. The existing subpostmasterwho wants to become a Local will get his fixed paybought out. Let us say someone is on £20,000 at themoment—£10,000 fixed and £10,000 variable. If thatsubpostmaster wants to become a Post Office Local,he will get one-and-a-half times his £10,000, so hewill get a £15,000 lump sum, but he will then haveto operate on £10,000 a year going forward, ratherthan £20,000.

Q56 Chair: That £10,000 is based on the variable.George Thomson: No, the £10,000 that remains isbased on variable. The £10,000 that goes is the fixedpay that he used to get.Chair: Yes, that is what I am saying.George Thomson: The third lot of people is peoplewho decide to become a Main and they are an existingsubpostmaster. Because they are changing theircontract from a fixed and variable to a fully variable,they will get a £10,000 lump sum for agreeing tochange the contract. They will then go into enhancedproduct rates that virtually make up what they havelost on their fixed pay. Those are the three differentthings that are going to happen. Again, I have tore-emphasise the point that anyone who wants toremain as they are does not lose their fixed pay. Noone is having their fixed pay taken off them, unlessthey volunteer to become either a new Local or anew Main.

Q57 Margot James: George, you did touch on theseover-engineered products before, which are aproblem. Can you give any examples? The exampleyou very briefly touched on was someone trying tosend a parcel to Poland out of hours. Can you give ussome more definitive examples of what you mean bythese over-engineered products and what might bedone to simplify them?George Thomson: Margot, we have set up a workingteam. That is the first thing. What do we mean byproducts that are over-engineered? We have got theHorizon system on the counter and it is a very goodsystem. It could be that you need to have six differentcomputer screens to get to the transaction. A perfectexample of where products became over-engineeredis that, three or four years ago, many of the mailsproducts used to have stamps put on them. Let us say




you are sending something to Switzerland and it is 30grams. In the past, it would have been one stamp. Itwould not have taken the clerk a lot of time. Now youhave to go through various screens; you have to printa label; it slows it down. Now, I know Royal Mailwants that process but, over the last four or five years,some of the mails products in particular, for all theright reasons, have become far slower, far moretime-consuming and over-engineered. We will workwith both Moya Greene at Royal Mail Group—obviously we are separate now—and Paula at POL tomake these products easier and quicker.It comes to my point, Margot, that if these productstake too long and it starts to hold up your retail queuebecause someone has got four or five parcels—James Lowman touched on this earlier—then quitefrankly that is a recipe for disaster and it suits noneof us to have that as an ongoing concern. We have gotto work together to simplify the products. Again, itcomes back to what I said earlier on: the range ofproducts that a Local is expected to do is 85% of theproducts and 95% of the volumes of a traditional postoffice. I think, quite frankly, we are kidding ourselvesthat that is achievable. We are trying to put too muchon to a Local and, again as I said earlier on, probablyover-promising and under-delivering. I would ratherwe had 80% of the volumes through a Local, whichwas achievable, with a few fewer products than weare trying to sell at this moment in time.

Q58 Margot James: That seems to make sense. Iwould be interested in your view on that, Paula.Paula Vennells: George and I have a slightly differentview on this, but not too much, to be fair. Anotherway of thinking about it is how we might simplifysome of the products, rather than necessarily sayingthat the current ones are over-engineered. The pointabout labels was made because Royal Mail has, asyou all know, introduced a huge amount ofautomation. The labelling and the barcode are neededat the back end through the mail centres. Thesubpostmasters are paid more for labels, so they havenot lost out as a result of that, but it is a longerprocess.Where I think there is big opportunity and, therefore,commercial opportunity, is if you look at packets, forinstance. First of all, I certainly have not had anyevidence of lots of queues as a result of packets but,as this is a growing part of the business, if we couldmove to volumetrics—prepaid boxes that are standardsizes and easier to use—that would be fantastic. Thatwould be something that you would put through all ofthe network. It is not just something for Locals. I amreally pleased that George has agreed that we willwork together on this, because clearly the Federationhas so much contact with subpostmasters that they seewhat goes on day in, day out in the post officenetwork. I am grateful for that.

Q59 Margot James: Could I digress slightly fromwhat I was going to ask and go back to the subjectof separate queues, which we heard about in the lastsession? It does strike me that a number of Post Officerequirements do take some time and are completelyincompatible with a fast-moving retail queue, yet

there is no requirement for separate queues in thesenew Locals. What do you think about that?Paula Vennells: I smile when I answer this question,because you can imagine that we have heard them anumber of times before. The queues go down. Theaverage queuing time in a Post Office Local is48 seconds. What happens is, because you have 85%longer hours, the business is spread over a muchlonger period of time. Again, that has beenindependently validated. Yes, if you go in on aMonday morning or a Tuesday morning when someof the pensioners go in for their pension—they like togo at the same time—you will have to wait slightlylonger, but nothing at all substantial has given us anyproblems. In the Mains post offices, the averagequeuing time is about two minutes, 40 seconds. Wehave done a lot of work in Post Office Ltd on queuingin the last 12–18 months. If you look at the top 1,000post offices in the country, a year ago 68% ofcustomers were served in under five minutes. That isnow over 75%. I have a target that we will get to 90%in three minutes. How long it will take to get to thatI am not entirely sure, but we are moving things inthe right direction. The Locals are just fantastic,because of that extra time that the post office is open.It simply spreads it. That is great, because it makesthe post office work. It means that we can then go toplaces like local authorities, local councils and centralGovernment, that are talking about giving us morework, and when they mention queuing I can say that,“Actually, this is what it is now looking like in thepilots”.

Q60 Chair: Can I just come in there? You havementioned an average of 48%, but that could maskconsiderable delays for quite a lot of people at keytimes. With extended opening hours, it is reasonableto assume that quite a lot of people would actually notwait at all, if they are going in at times when there isnot going to be peak traffic. On the other hand, as wehave got an average, you could have some who arewaiting considerably longer.Paula Vennells: Of course you could. There will besome, undoubtedly, but I suppose there are twoanswers to that. One is the one that you have given:that some people will come back another time, andthe convenience is so much better that they can nowdo that. The second is that from the customer researchthat we have done, it has not degraded over time. Wehave done ours fairly frequently over the last two orthree years since we started the pilots, and satisfactionhas not gone down. I think we would have noticed ifbig peaks in queuing were driving dissatisfaction, andthat has not been fed back. Every time we getcomplaints about this, because clearly these are pilotsand we are learning from them, we will act on themand we will go and visit a local store. But that is notone of the problems that has been flagged.

Q61 Mr Ward: My experience is that it is damnlottery tickets and scratch cards that increase queues.For someone who has never had either of them, if youwould ban those, then I would be very happy.Paula Vennells: They make money out of that.




George Thomson: Can I just say, Chair, that PostOffice Locals is not perfect, but it is necessary. Thereality is that the country cannot afford to have 11,800traditional offices. It has to change and it has tochange now. People have been asking for amoratorium. We were the first organisation to raise thepost bank five years ago at the national conference;people are presenting post bank as John Wayne andthe Seventh Cavalry. I had four or five discussionswith Peter Mandelson, who said, “Look, George, itwould cost £2 billion. We are not going to do it.” I hadtwo discussions with Ken Clarke when we thought theConservatives were going to win the election. Kenwas exactly the same: “It is going to be £2 billion; weown the Royal Bank; we own half of Lloyds TSB; weain’t going to do it.” I had the same discussion withVince Cable and Ed Davey, with exactly the sameanswers. I support a post bank but, in the immediatefuture, it is not on the horizon and it is a little bitunfair to try to kid people on that it is John Wayneand the Seventh Cavalry riding over the hill and it cankeep the network at 11,800. It is intrinsicallydishonest.

Q62 Margot James: I was going to ask about theHorizon computer system. I think I heard you say itwas quite a good system, but written evidence wehave received shows that there have been a lot ofproblems with it. It is a slow system and it does notallow subpostmasters to find where an error hasoccurred and to rectify the error before having torepay the losses. What is your estimate of this system?Would we be much better off with a simpler systemthat can be operated by less specialist staff?George Thomson: It is a robust system. Could it bemade simpler? Absolutely. We have to be careful,because some people present it as not being a robustsystem and say it is systemically faulty and createserrors. That is not the case. As far as we areconcerned, usually what happens is that an errorcomes to light when there is an audit visit andsometimes that error has been covered up for five, sixor seven months. What we have found is that whatpeople say the system does not show is massiveoverages, but, actually, it shows massive shortages. Inother words, every case has to be judged on its meritsbut, as far as the Federation is concerned, it does notlook like there are any systemic problems withHorizon. Usually, it is after an audit visit that peopleclaim a big shortage is associated with Horizon. It isnot the case.

Q63 Ann McKechin: Ms Vennells, I wonder if Icould just clarify one point with you. In your earlierevidence to my colleague, Katy Clark, you said thatthe Government funding would be divided roughly 50/50 between investment and subsidy. Am I right inthinking that the compensation payments wouldentirely come out of the investment stream and notthe subsidy stream?Paula Vennells: Yes, that is right.

Q64 Ann McKechin: Thank you very much for that.The National Federation of SubPostmasters, in theirwritten evidence to the Committee, stated that: “Many

decisions currently taken by POL are decisionsspecifically designed to protect the central structuresof the company at the expense of the whole.” I justwondered to what extent or how you would respondto that criticism as being fair.Paula Vennells: The Post Office cost base isapproximately £1 billion, and 90% of that cost goesto supporting the network. My first contention is thatso much does not stick to the sides at all. Half of thatis subpostmaster remuneration. A significant amountof the cash distribution that goes through oureconomy—14p in every pound—comes through apost office. We run hugely secure—as you canimagine—and costly cash centres and a distributionnetwork to enable that to be there. There is a bigtechnology investment. Most of our cost—I would bevery happy to supply that to the Committee—isinvested on the network. I have worked in commercialbusinesses before; there is always, in any business,opportunity to take costs out centrally. We do thatcontinuously.

Q65 Ann McKechin: Would that be in line withother continental models about the way post officesare operated, in terms of that split?George Thomson: What I do know is that ourmembers run 97% of all branches; 3% are run by thePost Office as Crown Offices. Because technology ischanging and because the customer base is changing,in the year 2010–11, subpostmasters’ income,including the franchises, was in the region of£480 million. In the year just finished, that has slippedto £470 million, so it is actually down by £10 million.When we talk about central costs, for example, theLabour Government twice and the Coalition oncehave said: “The Crown Offices are losing £60 milliona year; you have to get them to break even. You haveto look at the staffing, look at where they are and allthese things”. That has never happened. I know Paulaand her team will look at that from September.I know Brian Binley had a go at Allan Leighton. Forthe cash in transit, the cost of supplying the cash isabout £130 million a year. One of the thingsAllan Leighton was going to do about seven yearsago was put that out to competitive tendering and hereckoned it would have saved about £30 million ayear. There is that issue as well. I know these aredifficult times. The other issue—this is what we aretalking about with central costs—is that we are anorganisation that does not represent staff. Werepresent self-employed small businesspeople, theNational Federation of SubPostmasters. One of thebiggest other costs of Post Office Ltd, even after thechanges with the Government taking over the pensiondeficit, is the payment into Post Office Ltd’s pensioncontributions. I know it is difficult, but our membersare trying to make a living. That will be as much aswhat our reduced subsidy is going to be in three orfour years’ time.

Q66 Ann McKechin: Thank you for that, MrThomson, because that comes to my next point aboutthe issue of mutualisation, which is the Government’sultimate plan. It is probably on the basis that thepublic have a view that, as at present, the vast majority




of people who are providing postal services throughthe network, as you said, Mr Thomson, areself-employed independent retailers. However, if youlook at this model, it would appear to me that it isexactly the model that would suit your TescoExpresses and your Sainsbury’s Locals. Five yearsfrom now, how much of that network do you thinkwill be in the hands of the 10 largest retailers in theUK?George Thomson: I think that is an excellent questionand I have a difference of opinion with Post OfficeLtd. I think that the new Local model in particularlends itself to family-run businesses, where you havesomeone you can trust on site from early in themorning until late at night. About six years ago,something called the combi till was trialled by someof the multiples like SPAR and the Co-op. What theyfound is, late at night, when you did not have themanagerial processes in place, the number of errornotices, where you got transactions wrong, exploded.More importantly, the amount of money goingmissing from the post office till exploded as well. SoI am not convinced. I have this debate with the PostOffice all the time. I actually think that Post OfficeLocals and the new Mains can take us back to a timewhen independents, which still dominate the network,dominate more. I do not think that the Local model isas attractive to the mutual as what is being expressedby the Post Office. I have to say that Tesco, throughtheir One Stop, may be interested, but I have said tothe Post Office on many occasions that—

Q67 Ann McKechin: Mr Thomson, can I just saythat, in about a mile and a half radius from myconstituency office, I now have about five TescoExpresses, compared to none five years ago. They arenow dominating many urban areas of this country. Iwould be interested to hear Ms Vennells’ opinion, butwhat percentage do you think? You are saying that,five years from now, you do not think they will havea more significant presence. I do not know ifMs Vennells might have a different view.George Thomson: No, I do not, but if I can just finishon that point, I have also warned the Post Office theyare on every village high street in Britain and in everytown in Britain and they have to be very careful thatthey do not get into bed with Tesco, because Tesco isseen as actually damaging local retail and damaginglocal high streets. I think it is important to the brandof Post Office Ltd that we are very cautious about anyfuture dealings with One Stop, which is part of Tesco.

Q68 Ann McKechin: Ms Vennells, I would beinterested to have your opinion.Paula Vennells: I am not sure that we had a particulardebate about this. We already have a couple ofthousand post offices that are run by various differentmultiple retailers. Sainsbury’s has some; Tesco hassome; One Stop does; McColl does. Far more are runby the Co-op, which plays to the mutual question Ithink you started on, and far more are run by theSPAR and the convenience store networks, whichJames represents as well. We have a mixed economyof post offices, and we have, in my view, the rightsolution that works in communities. Will we have a

growth in post offices in some of the multiples? Verypossibly, if that is what communities need. We haveto find the best place to put the post office. My guess,though, is that they will still, in five years’ time, berun in the vast majority of cases by independentretailers, because that is what actually works incommunities. There is no conflict here, as far as Ican see.

Q69 Ann McKechin: That is why I am askingwhether the mutual model is a suitable model, if weare going to have a larger proportion of the networkactually owned by large multinational companies, asopposed to independent self-employed postmasters,which has been the previous tradition. There doesseem to be a huge growth going into the local marketmodel by Sainsbury’s and Tesco in particular and bya number of other retailers. It is a growing trend. I amjust suggesting to you that a mutual model may notbe one that would necessarily suit that type of set-up.What do you think? What sort of mutual structure doyou think would work to cover the mixture ofbusinesses that you are now dealing with?Paula Vennells: This is an important area to go into,I think, and there are two or three points to be made.Firstly, we have no idea currently as to what mutualmodel the Government are going to propose. As youknow, they went out to consultation and I understandthat their response is due back some time in the nextcouple of months. Until we get to that, it is difficultto even guess what the mutual model might be. Thereare lots of different models and they are all prettysuccessful where they have been in existence for sometime. The Co-op is a good example of a membershipmodel, which is customer-related. John Lewis is theone that is usually quoted as an employee model. Mysense is that the Post Office would have to besomething that spans a huge number of stakeholders.The only point I really want to make today onmutualisation is we cannot get there until I have gotthis business in a sustainable economic state, becauseyou cannot really mutualise something that does notmake any money. I do not think you can take anetwork that has systemic problems in terms ofeconomics and then mutualise it. However, havingtold you that I believe that is entirely doable, it doesthen make mutualisation a possibility. The secondpoint about mutualisation is that, if we believe it isdoable because we have created a sustainable PostOffice, what it could do is group together the peopleyou have heard from today. We had a very usefulmeeting last week with the Minister; a number of ussat around the room and talked about how you mightmake a post office work in a mutual world. Whattends to happen then is that people listen to each other.I think it would be very good for the Post Office toformalise some of this stakeholder input, but it cannotbe done until I have transformed the network and untilI have got some growth through the doors and wehave got communities confident that they are keepingpost offices.

Q70 Ann McKechin: Could I just ask one otherpoint on this matter? Under the current scheme, thereare no controls on the way on which departures from




businesses occur. When people retire, give up or selltheir businesses, you have no control over where thatmay occur. They may cluster in one part of thecountry or in certain communities. To what extent doyou think mutualisation can either help or not helpmaintain the numbers within the network, particularlyin rural areas and also in areas of social deprivation,where, I have to say, the demand for services can bejust as great as in rural areas and, in fact, people aremuch more dependent on those services? Could I askMs Vennells first of all, and I will come back to you,Mr Thomson?Paula Vennells: It would be critical that whateverlegislation or vote went through on mutualisationprotected the network—and that it protected it fromdemutualisation. As I understand it, that is entirely theGovernment’s position. Whatever you do, you have tolook after this institution very carefully indeed. Thepoint is well made, and I have heard nothing to thecontrary from any conversations with Governmentabout that.

Q71 Ann McKechin: Thank you. Mr Thomson, didyou want to contribute?George Thomson: Mutualisation of the Post Officenetwork was actually the brainchild of my goodcolleague sitting behind me, Mervyn Jones, about fourand a half years ago. I think it came, Ann, from thefact that subpostmasters felt they were at the bottomof the food chain and, although we could makerepresentations, on too many occasions our viewswere ignored, even though we had £2 billion investedand we had 97%. What we have said to theGovernment is that we are looking for the equivalentof a BBC Trust model, where the shares would beheld in trust; as long as you are a subpostmaster, youhave the shares in Post Office Ltd, and when youleave, just like John Lewis, you leave the sharesbehind. We believe that what it really is about is aheart-and-mind exercise. There are a lot of toughdecisions to be made, not just with subpostmasters butwith staff as well. We believe in the hearts and mindsworking together, turning this company around and if,in the future, it does not work, it will be our fault. Wewill no longer be in the situation myself and BillyHayes have been in for years, where we blame theGovernment, Tory and Labour, for all the problems.Let us take ownership of the company and let us worktogether to make it the success that Paula, her teamand the Federation are looking to achieve.

Q72 Katy Clark: That is all very well, but werepresent constituents who want this service. What weneed to know is what this future Post Office is goingto look like. We have real concerns about theeconomics. It might work for some people—I am notsaying it will not work in certain communities—butthe reality is that a lot of postal services have a retailoutlet now. I represent an area where there are lots ofpost offices in small communities where they alreadyhave retail trade. I frankly cannot see what is reallysignificantly different with what is on offer, other thanthat there is going to be less money as an incomestream as they go forward. Can you actually give usthe figures? What information can you give us, as a

Committee, on the economics of the Locals that youthink are working? Can you provide us with as muchof that as you can, but can you also give us the figuresfor where it is not going to work? We know that manyof the Post Office Locals that have been advertised onyour website actually have not been taken up. Theyhave been withdrawn from your website and we nowhave outreach services or we are going to get outreachservices. What we are talking about for a futurenetwork is probably going to look very different. Ithink you need to be honest about that.George Thomson: Katy, on that particular point, Ihave a lot of sympathy if the post office is the lastshop in the village. It would be different if that shopwas really successful and maybe turning over£1 million in its retail. Would it need some kind offixed-pay subsidy from the Post Office? No, it wouldnot. But where MPs have got to be careful is that, ifa post office is the last retail shop in the village, youcould well be right that, if its turnover is quite smalland what is on offer is just a Local without fixed pay,that community could lose its shop and its post office.I think, even after all these plans are finished, theGovernment will still be putting something like£60 million a year as a payment into the post officenetwork, even beyond 2015. There are about 2,000post offices that are the last shop in the village. Weare putting £60 million in a year. If I was an MP, Iwould to say to Post Office Ltd that, if the last shopin the village is a post office and it does not havesufficient retail turnover to stand on its own without afixed element to the post office pay, “We would expectsome kind of fixed pay to be on offer as well asvariable pay”. None of you should forget that, becausethat is going to be very important in the next two orthree years; I agree with you.Paula Vennells: That is entirely the policy. That isprecisely the policy.

Q73 Katy Clark: But do you not understand that weare concerned we are going to end up with all sorts ofoutreach services?Paula Vennells: I do, absolutely. Forgive me; I wassmiling because George was, I think, implying thatmaybe that was not the case. What is very clear isthat, particularly for rural post offices—and Iunderstand the concern; I go and see them and I knowthem—there will always be some that cannot surviveprofitably. It is our policy that we would continue tosupport those. The only way we can do through thatis through Government subsidy, so that subsidy has tocontinue. There is no intention at all to stop thesubsidy. I make an offer through the Chair to thewhole of the Committee, either individually or tocome along and meet you as a Committee, to take youthrough whatever figures you need to see, because itis important you understand this. Perhaps the mostimportant point to take away is that that is notchanging. The programme itself is entirely voluntary.People only volunteer for this if they think it willwork for them. We then only ‘allow’ them to do it ifwe think they have a business case that stacks up, sowe would not be putting into a rural post office a PostOffice Local model where we knew it would notwork. That would be irresponsible. We are also still




obliged by Government to keep all of these postoffices open.That brings me to another helpful point, which is that,in the last 12 months, we only had two post officeclosures—two net closures. Net closures previously,in the last decade, have run between 100 and 200 ayear. That is how we have got down from 18,000 postoffices to the 11,800 we have got today. The reasonthose net closures are so many fewer is that, in anumber of places—I mentioned there were 50 in thepilots—we have now been able to go in and put in amodel that works. Every time a post office closes, itis not because we close them anymore—that hascompletely gone—it is sadly because people have diedor taken ill or they decide they want to sell their postoffice on. We are then obliged to go back and replacethat post office in that community. Where we can, weput back what is there in the same place, because it iseasier for the community. If we cannot do that, welook around for something else. What we now have,with the Post Office Local model, is in some casesa better model that means we have got more peopleinterested in taking post offices. That is why we havegot fewer permanent closures now. I need to give youa balanced view. It is not perfect for everywhere.There are lessons we still have to learn and we willwork with Consumer Focus on everything they haveidentified. But economically, from the pilots and thework we have done, I think this gives us hope for thePost Office for the future.

Q74 Julie Elliott: George, you have given us somereasons why you are in favour of this Post OfficeLocals model, but I would like to ask you a questionspecifically around your members. These Post OfficeLocals are designed to be operated by retail assistants,rather than specialist post office staff, and yet yourmembers are specialist post office staff. Can youexplain why you are in the position you are in?George Thomson: Yes, fairly easily. The estimatesthat we have made—and in fairness the Post Officehas made them as well—are that we reckon, of the2,000 Post Office Locals, something like only 200 willbe run by existing subpostmasters. About 1,800 willbe off-site conversions; that is new retailers. We arecomfortable because these 1,700 or 1,800 who do notwant to stay will be given compensation. We haveover 1,000 members who are over retirement age.Some of them are well into their 70s and some ofthem are very ill as well, and they are desperate toleave, because the post office model as it stands is notworking. It is difficult to sell your office. That is whywe are comfortable: because about 1,800 of theexisting subpostmasters will, if you like, takecompensation—the Queen’s shilling, as we call it—and leave and the premises or the products will berelocated into a convenience store or a newsagent.That is why we are so relaxed about it.

Q75 Julie Elliott: Much of our written evidence—again, this is to you, George—criticises yourorganisation in terms of both failing to consult your

members and failing to negotiate, with one submissiondescribing the National Federation of SubPostmastersas Post Office Ltd’s “business partners”. A NationalFederation member claims that “A miniscule amountof information … has been provided” by both PostOffice Ltd and yourselves, and another states thatmembers have been denied information because ofconfidentiality agreements. Why have you notproperly consulted your members?George Thomson: These comments are withoutfoundation. The reality is, Julie, we had a conferencelast year that fully endorsed our position. We had aspecial conference at Buxton in November—half of itwas about network transformation—that fullyendorsed our position. We have had a series of jointregional meetings with the Post Office, which fullyendorsed our position. Myself and my good colleague,Mervyn Jones, behind me here, went around thecountry.More importantly, we have something like 53branches throughout the UK and in the last twomonths every single branch agreed to have a jointmeeting, a joint presentation to the members, onnetwork transformation. So we have engaged with ourmembers. Out of the whole of last year, not onemotion came forward saying we should not supportnetwork transformation. At this year’s conference,there is only one motion from one branch saying thatwe should withdraw our support for networktransformation.Can I also say, in the Government’s figures, there are8,800 independent-run post offices in the UK? Some7,300 of these branches are run by our members. Wehave 6,400 members, but some of them haveoutreaches, so 7,300 of the 8,800 independentbranches are run by our members, which is a bigpenetration. I have got to admit that, since the CWUspent about £200,000 last September, we have had103 resignations in the last eight months from theFederation. I can only assume that, in spending the£200,000, the CWU has managed to take 100 of ourmembers. But 7,300 independent branches are run byNFSP members. We consult our members. We havehad the conferences and we have had the meetings. Ithas the overwhelming support of our membership.

Q76 Julie Elliott: The conferences, were theydelegate conferences or were they all-membermeetings?George Thomson: They were delegate conferences,very much like Parliament.

Q77 Julie Elliott: In terms of the comments in thequestion that I asked, why do you think that theoverwhelming amount of written evidence is sayingthe things that it is saying, which is very differentfrom what you are saying? These are your members.George Thomson: Some of them are our members. Itis very easy to have a campaign to get 50 or 100members to write in to say critical things aboutnetwork transformation. I am saying that this isactually one union trying to damage another. That isthe reason.




Q78 Julie Elliott: I am asking particularly aboutcomments that have come from your members. Is ittrue that you have denied information because youhave confidentiality agreements?George Thomson: Absolutely not. The reality is thatwe have been very open with our members. Thecontracts that are being dealt with at the moment arein a place that, before anyone signs up to change to anew model, they will know the pay rates. The payrates have been explained to them already when theyhave their visits. No one will be expected to sign upto either a Local or a Main without seeing the contractand knowing exactly what the pay rates are. When thevisits take place with the field change advisers, theyare actually being told what the rates are for theLocals and what the rates are for the Mains. Individualsubpostmasters have choices. All we have done, Julie,is give postmasters choices about leaving the industrywith some money, staying as they are with their fixedpay or moving to a new model. Quite frankly, I woulddo everything again exactly the same as we have doneit in the past. We have got a great deal for ourmembers. What I will say is this: the high street is adifficult place. Many retailers are going underfinancially—newsagents and convenience stores.Uniquely, this is the third time, in 10 years workingwith the Post Office, that we have got Governmentmoney to restructure the post office network. That isa big achievement in anybody’s language.

Q79 Chair: Could I just ask about stamp prices? Ihave been asking the Royal Mail whether post officeswill be disadvantaged by having their stock revaluedat higher prices. I may say I did have this brought tomy attention by a subpostmaster. The response we gotwas not entirely clear. What is the situation?George Thomson: The situation is this: the stock isrevalued. Subpostmasters make 7% on a first-classbook of stamps. When the stamps went up on30 April, there was a revaluation that meant thatsubpostmasters made 7% of the new price, not 7% ofthe old price. They got 7% on a bigger piece of thecake. James Lowman tried to explain it, but basicallywe are different from retailers. What happens withretailers is they purchase the stock; subpostmasters donot purchase the stock. It is Royal Mail’s stock untilwe sell it. If retailers managed to buy a lot of stamps,instead of making about 3 pence for a first-classstamp, as our members make and retailers weremaking until the price went up, some were able tomake about 23 pence a stamp, hence Royal Mail wastrying to restrict it and make sure they came throughthe Post Office. The reason the stamp prices are goingup is not so that retailers can make 23 pence profit ona first-class stamp instead of 3 pence. The reason whystamps went up was to protect the universal service.

Subpostmasters did not benefit to the same extent asretailers. We got the 7%, but we did not benefit frombuying stock at a cheaper price and selling it at a moreexpensive price.

Q80 Chair: Did Royal Mail restrict the sale ofstamps to non-post offices—to normal retail?George Thomson: We are the front shop and Moyawants us to be the front shop, with 11,800 branches.Royal Mail was acutely aware that there would beabsolutely no profiteering from post office branches,because the revaluation meant that actually we wouldonly get 7% on the new price and not make extramoney from buying them cheap and selling them atthe more expensive price later on. Royal Mailobviously was aware of that, but they did restrict themto some retailers, because a lot of them were trying tostockpile, not just to sell to the public before the pricewent up. Some of them tried to buy them to stockpileuntil 30 April and make 23 pence a stamp, rather than3 pence a stamp.

Q81 Chair: Did they restrict them to post offices aswell?George Thomson: No, they did not.

Q82 Chair: Paula Vennells, in a lot of the evidencethat we took previously people said that there hadbeen limited opportunity for public engagement.Would you like to comment on that?Paula Vennells: Yes. I am grateful to Consumer Focus,who raised this point. We work with them, as Mike saidearlier, within a code of practice. There has beensufficient consultation on the overall networktransformation programme. What is probably mostimportant going forward—I think the concern isprimarily around the Locals—is that where we move aPost Office Local branch to a different site, there will beproper code of practice consultation with thatcommunity in every single case. We will speak to thembeforehand; we will take feedback afterwards. Indeed,what we have recently agreed with Consumer Focus aswell, just to show you that we are working together andevolving things, is that where there is a change on site—so the post office stays in the same retail outlet—we willalso communicate with the community. We will engagethem beforehand and we will then take their feedbackafterwards, so that we do understand that it is workingfor them. The Government policy, as you know, waspublished in December 2010, so it has been around forquite some time.Chair: Okay, thanks very much. I will repeat what Ihave said to other panels: if there is anything furtherthat you would like to submit to us, please feel freeto do so. Of course, we may do the same to you.Thanks very much.

cobber Pack: U PL: COE1 [SO] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml


Written evidence

Written evidence submitted by the Department for Business, Innovation and Skills (PONT 01)

Network Transformation Context

1. The policy statement “Securing the Post Office Network in the Digital Age” published on 10 November2010 set out the Government’s commitment to maintain the national post office network at around its currentsize and to safeguard its future. This policy reflects the vital importance of post offices as valuable social andeconomic assets of the communities they serve and also recognises the need to modernise the network to securea sustainable future.

2. To enable these commitments to be met, the Government is providing £1.34 billion over four years to2015 to Post Office Ltd. The Government is also clear that the previous policy of closing post offices to cutlosses failed to address the real economic challenges facing the network. It has therefore made a furthercommitment that there will be no programme of post office closures on its watch. In turn, Post Office Ltd isrequired to maintain a network of at least 11,500 branches which is also in full compliance with the accesscriteria, set by Government in 2007.

3. Post Office Ltd is about to launch the largest investment programme in its history to address the underlyingeconomics of the network and to break the cycle of decline. Drawing from the Government funding package,around half of the UK’s post offices will, over the next three years, receive investment creating more modern,customer focused branches and, in parallel, they will adopt new operating models—Main or Local. Over 200pilot branches operating to these new models are up and running. Contrary to claims that have been made, theLocal pilots have not been limited to areas where the previous post office had either permanently closed orbeen closed for a long time. In fact, out of over 150 locations in which the Local model is now operating, overone third are on-site conversions from the traditional model with no, or no significant, break in service.Independent research continues to show high levels of positive customer and operator feedback from the pilotbranches. However, lessons have been, and continue to be, learned and applied ahead of the programme roll out.

4. The need for the post office network to change if it is to compete effectively in a changing retailenvironment is widely recognised among key stakeholders. In particular it needs to offer longer opening hours,quicker service and high retail standards. The Network Transformation programme is designed to achieve theseobjectives by addressing the economics and lack of flexibility of the traditional sub post office operating modelthereby enabling branches to adopt a new business structure where circumstances are suitable. But it is alsoimportant to recognise that the transformation programme is voluntary.

5. The new post office operating models have been designed with viability for the subpostmaster, thesustainability of the network and the needs of customers in mind. Against the background of the requirementfor Post Office Ltd to maintain a national network of at least 11,500 branches and to meet the access criteria,any new operating models must necessarily be viable and sustainable for the subpostmaster. Serviceenhancements, in the form of longer opening hours for example will, in the context of Post Office Ltd’s widerstrategic direction, make these post offices more sustainable into the long term whilst providing customers witha significant improvement in access to services.

6. The transformation will begin later this year. Where the conversion to the Main or Local model takesplace on-site, customers and local stakeholders will be advised of the proposed change in advance. If, inmaking the change, the branch relocates to a nearby location, a local public consultation, on a basis agreedwith Consumer Focus, will ensure that customers and stakeholders are aware and have the opportunity tocomment on the proposal for that particular branch. The circumstances of any changes to the post officeoperating model will vary location by location and require local consideration. A national consultation on thetransformation programme would not therefore be appropriate.

27 April 2012

Written evidence submitted by the Post Bank Coalition (PONT 08)

Overview

The Post Bank Coalition, collectively, represent employees, managers and postmasters providing Post Officeservices and those who rely on and use these services on a daily basis, including small businesses, ruralcommunities and pensioners throughout the country. As you will be aware, we have called on the governmentand Post Office Ltd to establish a Post Bank through the network, in order to help sustain the business and tomeet customer needs.

Since our inception in 2009, we have pressed both the previous and current governments to create a publiclyowned Post Bank through the network, in order to help sustain the business and meet customer need, as wellas bringing diversity to the retail banking system and supporting local economies and micro and small sizedbusinesses. We are disappointed that the Coalition Government does not agree with us that Post Bank wouldsecure the future viability of the Post Office network.

cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml


We are concerned that the government’s policy statement, Securing the Post Office Network in the DigitalAge, which sets out its “vision” to secure the network until 2015, will not bring the revenue needed to sustainthe Post Office network long term. The government has pledged that there will be no “programme of closures”over the course of the current Parliament, and that the current level of annual subsidy will continue until 2015.However, we have concern that the network changes will mean Post Offices are far from secure and will leadto an unrecognisable, diminished skeleton service. It’s also a change that has not been presented to the Britishpublic and will cause public outrage when introduced.

I would refer the committee to the excellent report into the social value of the Post Office network, whichcould be lost if we continue down the path of network transformation. This can be found at the following link:http://www.nera.com/extImage/PUB_Postcomm_Aug2009.pdf

The government document sets out some details of the funding package of £1.34 billion announced for PostOffice Ltd (POL) as part of the comprehensive spending review. Part of this money is to oversee the networktransformation programme. The document also cites two areas with “real growth potential”: front office forGovernment and financial services.

The Locals and Main Models

As part of the network transformation programme, Post Office Ltd has undertaken to convert around 2,000sub post offices to a new Locals model, and around 4,000 branches to a new Main Post Office model, by theend of the current Parliament.

This means transforming over 50% of the current branch network over three years. The Locals conversionprogramme, which will affect 20% of the network, will mean that fewer services than are currently availablewill be provided. Consumer Focus has described the challenges presented by this as being “as significant, ifnot more challenging, than [in] previous restructure exercises”.

We have a number of concerns over the plans, in particular regarding: the piloting and consultation on theLocals model; the service Locals branches will provide; security for postmasters and the sustainability of thenew models.

Both the Locals and Main Post Office models involve changes to remuneration, with pay becoming entirelyvariable and the current core-tier fixed payments being removed. The new remuneration arrangements couldmake running a post office unsustainable for many existing sub postmasters.

Main post offices will continue to offer the full range of services, while the Locals model will do away witha dedicated fortress counter and will provide a narrower range of services than sub-post offices currently offer.The services will be accessed at the retail till of another outlet and will see many existing sub-post officesclosing with Locals services transferring to nearby shops, petrol stations or other existing retail facilities as aresult of the different, purely commission based, remuneration model being proposed. Locals will, however,have longer opening hours than sub-post offices.

The precise number of closures of existing offices will depend on whether individual postmasters opt toaccept a “buy-down” with compensation for the loss of the fixed payment and remain in the business underthe new Locals model, or opt for a “buy-out”. The location of Main and Locals branches is additionally notyet clear and is not covered by the Access Criteria set for the network.

Locals Trials and Consultation

Both Post Office Ltd and the government claimed that there are high levels of customer satisfaction withLocals. However, the trials of the model have been limited: it has only been piloted in areas where a PostOffice had been closed on a long term or a permanent basis, and where the provision of any Post Office serviceis, by default, an improvement on the status quo; Locals have also not been tested as conversions from sub-post offices. Post Office Ltd has, furthermore, only surveyed customers who use Locals and have not surveyedcustomers opting to use other Post Office branches instead (in order to access a broader product range, forinstance).

Consumer Focus’ research into the pilot areas has also questioned Post Office Ltd’s claims. Its report, Localbut Limited? (published in April 2011), highlighted a number of problems with Locals and questioned the levelof satisfaction with the model:

— 48% of users considered the product range available to be “average or very/fairly poor”;

— 38% of users considered the overall experience to be “average or very/fairly poor” comparedwith other post offices; and

— 64% of users considered the level of privacy to be “average or fairly poor”.

While Post Office Ltd is conducting pilots of Locals as sub-post office conversions from November 2011and, with the rollout of the model scheduled to commence from April 2012, this means there is limitedopportunity to change the model, and with no national consultation planned on the proposals for the network,there is no chance for the public to have their say.

cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml


Services

Under the proposals to convert around 2,000 branches to the Locals model, over a fifth of the current branchnetwork will offer fewer services than at present, downgrading the provision. The services which will not beprovided include:

— international parcels and parcels weighing over 5 kg and 6 kg respectively;

— Parcel Force Express Services Parcels;

— manual cash deposits and withdrawals;

— change giving service to small businesses;

— Post Office financial services and insurance products;

— manual bill payment services;

— passport, car tax and DVLA services;

— on-demand foreign currency; and

— payment by cheque.

The lack of a dedicated counter area and the use of an existing till for another retail operation also questionswhether the rollout of the Locals model would be consistent with expanding the services the Post Officeprovides, particularly in relation to banking and government services, despite the government’s pledge totransform the Post Office into the “front office for Government”.

The Consumer Focus report has also highlighted problems with caps being applied to services which Localsare intended to provide. For instance, cash and benefit withdrawals were being capped in a number of Localsbranches because the retailer—which does not receive working cash from Post Office Ltd—did not havesufficient cash in its tills. This has meant benefit recipients being turned away. Consumer Focus also found a“widespread problem” with operators unaware of, or opting not to provide, the proper range of parcel services.

We also have some concerns over security of the new local model. The new service could potentially bedealing with banking transactions late into the night, without a dedicated fortress counter. This increases therisk of attack for the sub-postmaster.

Sustainability

It is not clear whether the proposed Main or Locals models will be sustainable in the long term, given theremoval of core-tier fixed payments, which are currently provided alongside commission payments pertransaction. For many sub-post offices the fixed payment equates to over 50% of their income and this changein remuneration is likely to mean the “conversion” programme will involve a significant number of sub-postoffices closing and provision moving to larger retail businesses.

We understand that none of the multiples providing Post Offices have signed up for the new models becauseof concerns over their viability.

Current Consultation with Sub-Postmasters

POL has consulted with all sub-postmasters via the online horizon system. They have asked sub-postmasterswhether they wish to: a) remain as they are b) convert to a main or local or c) leave the business withcompensation if a replacement operator can be found. The consultation was due to close at the end of December,but due to a lack of response, they had to extend the consultation. At the time of writing this brief, weunderstand around 50% of an estimated 9000 sub-postmasters have responded.

Front Office for Government and Financial Services at the Post Office

Alongside these procedural issues, we are also concerned over the suitability of Locals outlets for providingfinancial services, or acting as the “front office for government”, and over the lack of progress which has beenmade in either of these areas since the government published its policy document in November 2010.

The written statement from Ed Davey, Parliamentary under Secretary of State for Postal Affairs, on 24January 2012, updating Parliament on developments with their policy, highlighted how little developments hadproceeded. Just the UK Borders Agency (Identity Verification) work, worth up to £36 million over the life ofthe contract, has been won. The extra revenue is essential; however, we are concerned that it won’t bring muchneeded sustainability to the entire network as it will only be available in just 104 Crown Offices.

In addition, POL recently lost the “green giro” work from Department of Work and Pensions, which willtransfer to PayPoint later this year. This was worth approximately £20 million per annum. POL is also set tolose National Savings and Investment work (except for premium bonds) from Post Office counters, which wasannounced last year, moving it onto direct, online services. In addition, the promise for a Post Office FinancialServices Children’s Account to be introduced in spring 2010 is yet to be delivered.



Clearly, this indicates that there is a total contradiction from Government, with the Minister claiming hewants the Post Office network to become the “front office of government services” yet, systematically,Government work is being removed.

Conclusion

1. We recognise the value of the Post Office network in supporting businesses and communities. We call forthe publication of a credible plan that creates a sustainable model that protects the current size of the network.We believe the creation of a Post Bank is one solution to this.

2. We express concern in relation to the Post Office’s planned restructuring, which is attempting to tacklesome of the financial challenges facing the network. We believe the change will not create a sustainable postoffice model, nor will it increase revenues.

3. Post Office Ltd’s plans will mean a fundamental shift in the way the business currently operates, withchanges to the services being provided. We are concerned that there is little public awareness or scrutiny ofthese plans. Any post office strategy needs to take into account, not just financial sustainability, but the needto safeguard a valued public service.

4. We call for a full national public consultation before Post Office Ltd proceeds with the proposed rolloutof the Locals model.

5. Front Office for Government—whilst we welcome the statement in the BIS paper that the Post Office willbecome the “front office for Government”, it is questionable, a year on, whether this will be delivered. POL’srevenues from Government services are falling; 7.4% decline in its total revenue in 2010–11 came as a resultof further decreases in Government services. If the government wishes to see this policy statement secured,then a more coherent approach across Government to secure Government contracts and to promote Post Officeas the “front office for Government” must be acted upon.

16 February 2012

Written evidence submitted by the Association of Convenience Stores (ACS) (PONT 11)

1. ACS (the Association of Convenience Stores) welcomes the opportunity to submit evidence to the BISCommittee Post Office Network Transformation inquiry. ACS represents 33,500 local shops, 4,000 of theseinclude Post Offices. Most other stores in ACS membership include some form of service offering which maycompete with and/or be complimentary to Post Office services.

2. ACS recognises the need for Post Office reform and supports efforts to create a successful and sustainablenetwork which benefits Post Office Ltd (POL), retailers and the communities they serve. However, if thenetwork transformation project is to be successful it is important that POL works with retailers to ensure themodels, and the operational implications of running them, are able to provide a comprehensive and attractivepackage for retailers.

3. This evidence sets out:

— Support for Post Office modernisation.

— ACS role and approach to the new models.

— Progress to date and areas still to be resolved.

Modernisation

4. ACS has welcomed the £1.34 billion investment in the Post Office network and the commitment thatthere will be no programme of Post Office closures under this Government. The Post Office network providesimportant services to communities across the UK, and is widely valued by its customers.

5. ACS supports the efforts POL have made in recent years to modernise the network. We believe thechanges to the network are important to ensure that the Post Office can compete and succeed on the openmarket, and continue to provide essential services across the UK.

6. During this time, we have been working to ensure that policy development surrounding Post Offices takesaccount of the current profile of the Post Office network and the development of related services. Therefore, webelieve it would be useful to provide a brief overview of the relationship between Post Offices and local shops.

7. Small stand-alone Post Offices are now rarely profitable and have closed both through national closureprogrammes and through insolvency. Few professional retailers wish to purchase stand alone Post Office sitesunder the existing business structure. This led to a trend of Post Offices increasingly being situated within aretail shop. Brought into a wider retail offer, Post Offices can make an important contribution to conveniencestores. As well as offering remuneration on transactions, Post Offices can bring customers into the store andthis footfall can generate additional income for retailers. The new Local and Main models aim to build on thisand make the Post Office offer more successful, accessible and attractive to both retailers and customers.



8. However, the development of the Post Office in convenience stores cannot be viewed in isolation. Inrecent years, we have also seen the growth of other models which offer some of the services traditionally onlyavailable through Post Offices. The mechanism for executing bill payment services, for example, outside ofPost Offices (usually through one of two companies, Paypoint or Payzone) has been extended to other servicessuch as London congestion charge payments. Other services such as foreign exchange, cash machines andmoney transfer are also offered in non-Post Office convenience stores through third party suppliers, and evenmail services can be offered through third parties.

9. In this context, whether the Post Office offer is attractive to retailers depends on its commercial viabilitywithin this competitive market. We welcome the steps being taken to modernise POL, but must ensure thatany changes to the operating structures do not result in small businesses having to subsidise the network.

ACS Role and Approach to the New Models

10. The network transformation project aims to integrate Post Office services into the heart of the retailspace by delivering Post Office services over the counter in stores through the Local and Main models. Giventhis, the needs of both must be recognised if the new models are to be both sustainable and attractive to retailers.

11. Several of our members have been involved in the operation of trials for the new models. While not allinitially successful, POL has been working closely with retailers to understand and address the issues whichhave arisen. ACS will continue to work closely with POL and the Department for Business, Innovation andSkills on behalf of members, to ensure that the new operating models are a viable way forward for bothretailers and the network as a whole.

Progress to Date

12. ACS and our members welcome the level of engagement POL has shown towards retailers in recentmonths. We believe significant progress has been made in several areas, although we do recognise there are anumber of issues still to be resolved. Below we have set out the key areas of on-going work which we believeare central to the retail success of the new models, and therefore the network transformation programme.

(a) Training

During the early pilots, issues were raised with the breadth of training and the hours it was made availablein stores. In light of this feedback, POL announced increased training for staff which is now available until6.00 pm. ACS and our members welcome this progress, however, given the nature of convenience retailing,and the number of part time staff employed in the sector, this still leaves many staff who work evenings andweekends unable to access this training. We would welcome further consideration of what measures could beintroduced to ensure all necessary staff have access to Post Office training.

(b) Business support

Following from above, members have also highlighted concerns over the operating hours of the Post Officehelpline. Under the existing operating structure, Post Office services were delivered in core office hours, andtherefore the support services were also limited to this time. The new models will see Post Office servicesbeing delivered around the clock, however the support services for businesses appear to have remained at thestandard 9–5 operating hours. We recognise that POL has looked into this and, in response to feedback, hasannounced plans to increase the helpline hours from 8.00 am until 10.00 pm. While this is a significant step inthe right direction, this will still not cover all hours that PO services will be available.

In particular, members have highlighted the need for support services to operate from the time that POsystems first come online, often at 6.00 am, as if issues are to arise, these are often identified when the systemis first turned on in the morning. Ideally, support services should be in place during all hours that Post Officeservices can be delivered, which could be 24 hours a day under the new models.

Retailers also identified issues with the current “fix time” for equipment if an error does occur. Currentlyproblems are resolved within 48 hours, however this can cause significant disruption and dissatisfaction amongcustomers during that time. Retailers would like to see this timeframe significantly reduced. We welcome thecommitment given by POL that this will be looked at further, and we look forward to being updated indue course.

(c) Product mix

Designing the correct product mix that is right for both retail and customers is a difficult balance. ACSrecognises the need to offer enough of the range so as to still be attractive to customers, however it is alsoimportant that products are easy for staff to understand and are not so complicated that they impact ontransaction times. We would request that retailer feedback in this area is carefully considered, and that workto streamline and simplify existing products has active retailer input to ensure the products are suitable fordelivery in the new formats.



(d) Restrictions

The Post Office network provides key services to the whole of the UK and is designated as providingservices of general economic interest. Therefore it is permitted to impose certain restrictions on stores in orderto maintain the network. However, with an increasingly competitive market for the services Post Officesprovide, ACS believes the current restrictions policy need to be reviewed. We welcome the undertaking byPOL to conduct a review of this policy, and understand that they are engaging directly with retailers on thisissue. We look forward to the results of the review being communicated to all stakeholders in the near future.

In particular, the issue of payment of lottery commission is contentious amongst retailers. While POL haslooked at this matter and proposed a permanent exemption for all new Locals, the technical reasons for grantingthis exemption can and should also be applied to all other Post Office models, and for those transferring to aLocal. If not, the current policy will create a two-tier system which would penalise those retailers who havedemonstrated continued support for the Post Office. ACS believes lottery payments should be removed as acondition for all retailers.

(e) Technology

Currently the Post Office Horizon system is not able to be integrated with standard POS systems in stores.As the new models aim to integrate Post Office services into the heart of the retail space, the ability to simply“plug in” Post Office systems would make delivery of the new models more straightforward and easy to usefor staff. While we recognise there are significant obstacles achieving this, we would welcome on-goingdiscussions as to how this may be delivered.

(f) Provision of information

There has been a regrettable delay in the provision of some important information regarding the trials andthe cost savings the new models could bring to stores. In addition, the estimates provided do not always takeinto account the impact of the loss of core tier payment (for Locals), or the costs to retailers of refurbishingand equipping the additional retail space in their stores. While this latter point is not directly linked to the PostOffice offer, it is a resulting cost for those who transfer to a Local model, and therefore a relevant factor to theviability of transferring to the new models.

ACS has been informed that more detailed information from the trials is currently being collated. Given theimminent roll-out of the new models, it would be disappointing if a lack of information meant that someretailers felt they were unable to fully consider all the options available. We would welcome additionalcommitments to ensure this work is expedited and communicated to all relevant parties at the earliestopportunity.

(g) Customer information

Another area raised by retailers who have operated trials is that they are currently not able to take advantageof the additional Post Office hours as the majority of customers are unaware of the changes taking place in thenetwork, and the benefits that the new models can bring. We welcome POLs commitment to support retailersin communicating this message more effectively, and would be happy to assist in this process where possible.

13. While there are clearly a number of issues still to be addressed, ACS recognises the progress which hasbeen made in many of these areas, and looks forward to continuing to work closely with POL throughout theroll-out of the new models and beyond.

1 May 2012

Written evidence submitted by Consumer Focus (PONT 02)

About Consumer Focus

Consumer Focus is the statutory consumer watchdog for the postal and energy markets for England, Wales,Scotland and (for postal consumers) Northern Ireland. We work to secure a fair deal for consumers acrossthe economy.

Consumer Focus investigates complaints from MPs, Councillors and others dissatisfied with the Post OfficeLtd (POL) process of consultation and communication around changes to the Post Office network, for examplewhen a temporary closure or proposal to relocate a Post Office branch occurs.

The Consumers, Estate Agents and Redress Act, 2007 also provides Consumer Focus with the power toinvestigate any matter relating to the number and location of public post offices in the UK.

1. Executive Summary

1.1 Post Office Ltd (POL) has announced their intention to convert some 6,000 sub-post offices, more thanhalf of the network, to new operating formats before 2015. Consumer Focus expects that the Network



Transformation exercise will see the conversion of one in five sub-post offices into Post Office Locals (POLocals) and a further 4,000 of the largest branches converting into Post Office Mains (PO Mains).

1.2 Pilots of the new operating models are underway, with the rollout expected to begin, earlier thanoriginally envisaged, in summer 2012. POL has advised Consumer Focus that it expects around 1,200 branchconversions during 2012–13, and approximately 2,400 changes each year during 2013–14 and 2014–15.Government previously envisaged that the bulk of conversions would be undertaken from 2014 followingfurther piloting.1

1.3 Consumer Focus recognises that change is necessary in order to maintain consumer access, on a universalbasis, to the important social and economic services currently offered through 11,500 Post Office outlets.Network Transformation is a necessary strand of this activity. However, if the Post Office network is to returnto long-term financial health, additional revenue streams, including the development of new banking productsand realising the potential for the Post Office to become a “front office” for local and central Governmentservices, will be required. The Post Office will also need to invest in service standards and consumer experienceoffered through its branches if it is to arrest the long-term decline in its customer base and attract newcustomers.

1.4 Such a radical restructuring, as proposed by this network transformation programme, needs to beimplemented in a way which is driven by consumers’ needs. The proposed restructure will not result in a netreduction in the number of branches, and is necessary in order to secure a sustainable and affordable networkfor the long-term. However, this programme of network transformation will inevitably necessitate significantchanges in local provision and, as such, carries considerable challenges for Post Office Ltd and, in terms ofimplementation, for consumers.

1.5 Without effective implementation of the rollout, there is a significant risk that the potential consumerbenefits of the new operating models will not be realised. Our detailed research2 in to the impact of thisnetwork transformation programme on consumers underpins the need for service issues to be quickly addressedif the new models, and their rollout, are to be successful in meeting consumers’ needs.

1.6 POL will need to demonstrate that, in particular, the PO Locals model is suitable for a wider rollout.Without POL committing additional resources, eg in planning, prioritisation and strategic focus, to identify,pilot and incorporate necessary refinements to the model, we remain concerned that the model may not yet besuitable in terms of the adequacy of service standards; the consistency of provision it offers; and the model’sattractiveness to operators which is vital to ensure the long-term viability of branches converting to this format.

2. New Post Office Operating Models

Post Office Locals (PO Locals)

2.1 PO Locals provide a core range of post office services from existing retail premises which includeconvenience stores, petrol stations or corner shops. Transactions are undertaken from the main retail counterand are conducted by general retail staff as opposed to being offered from a dedicated counter by a sub-postmaster or other dedicated staff. It is envisaged that PO Locals will, in general, offer consumers a morerestricted range of products and services than currently available at their local sub-post office with somebanking transactions and bill payment services not currently being offered in the model range.

2.2 Our 2011 research report, Local but Limited?3 identified shortcomings. There is a risk that unless theseshortcomings are promptly addressed they could be replicated across the 2,000 branches to be converted intothe PO Locals operating format. Issues of concern highlighted by our research include:

— In branch customer experience: due to their nature, convenience stores and other retail outletscan often be small and busy, with a poor layout, leading to privacy issues at PO Locals, withsome customers no longer visiting the PO Local branch because of their concerns over privacy.According to our research, 43% of consumers find the privacy available in a PO Local to bepoor. Some consumers are unwilling to use the PO Local to undertake sensitive, high value orconfidential transactions. Limited space and poor branch layout have also led some consumersto have concerns over accessibility and security.

1 Securing Post Offices in the Digital Age, Department for Business, Innovation & Skills, Oct 2010; available atwww.bis.gov.uk/assets/biscore/business-sectors/docs/s/10–1260-securing-the-post-office-network.pdf

2 Local but limited?, Consumer Focus, Apr 2011; available atwww.consumerfocus.org.uk/files/2011/03/local_but_limited.pdfStaying Local: the future of the Post Office network, Consumer Focus Wales, Feb 2012; available atwww.consumerfocus.org.uk/wales/files/2012/02/Staying-local-INTERACTIVE.pdf;Additionally, Consumer Focus current research programme, of relevance to network transformation issues, includes strandswhich will update our work in Local but Limited? through testing consumer experiences in PO Local locations; assessing servicestandards and the quality of product advice in PO Local locations; and assessing consumer experience of POL communicationand consultation on conversion to PO Locals.

3 Local but limited?, Consumer Focus, 2011; available at www.consumerfocus.org.uk/files/2011/03/local_but_limited.pdf



— Products and services: although PO Locals offer a core range of post office products andservices, our research found that 20% of service users find the range of products and servicesavailable to be poor. Almost half of service users (46%) say they have had to use another postoffice specifically because the PO Local does not offer a particular service, with one-third ofservice users saying the PO Local offers only some or few of the products they regularly use.There is significant consumer demand for a number of products not currently offered througha PO Local, but available through all sub-post offices, including paying paper-based bills andmaking cash withdrawals or deposits using passbooks or deposit slips. Some products, includingcar tax and passport applications, are not available in PO Locals but are offered in the majority(7,500) of, though not all, post offices.

— Staff knowledge and experience: the capability and experience of the staff in PO Locals isreported to be variable, and their knowledge of post office products and services can be patchy.Mystery shopping research undertaken in summer 2011 suggested that in 50% of PO Localbranches counter staff refused to undertake transactions for large or heavy parcels: this is likelyto reflect poor staff training and the reality that PO services are available as a “secondary offer”thereby increasing the likelihood that staff in PO Locals may refuse to undertake more complex,time-consuming or low-margin transactions. This is particularly the case at busy times or whenundertaking post office services may conflict with the delivery of their core retail activity.Consumers’ also have concerns over the ability and suitability of retail staff to be undertakingfinancial, and other, more complex, transactions.

— Access to cash: the qualitative element of our research found that in some locations the POLocal operator placed a cap on the amount of cash or pensions and benefits that a customercould withdraw. In some instances, the PO Local ran out of money altogether. One participantadvised that she now used the PO Local to withdraw enough money to get the bus to the nearestalternative post office where she withdraws her weekly benefit.

— Opening hours: despite the potential for PO Locals to provide post office products and servicesover longer opening hours, our research4 and on-the-ground monitoring has found that this isnot always the case. In some instances, although the retail outlet may be open until late, postoffice products and services may only be available for a limited period.

— Non-users of PO Locals: We are not aware of POL having undertaken detailed work tounderstand the 23% of consumers who do not use PO Locals but, in a majority of cases, useother post offices regularly. 60% of those who do not use PO Locals use alternative post officesat least each month. For most of these consumers this is because of gaps in the product range;concerns over the PO Local premises and its suitability; or because they were unaware theretail premises offered post office products and services. Only 13% identified convenience towhere they work or shop as a reason for preferring to use an alternate post office.

2.3 Both Government and POL expect relatively few branches converting to PO Locals to remain in currentpremises operated by the current sub-postmaster. As a result, the majority of consumers impacted by thesechanges will experience the closure of their current branch with services transferring into other premises.

Post Office Mains (PO Mains)

2.4 PO Mains are a new operating model for the largest High Street branches with extended opening hours;increased automation; and investment to tackle service standards, including queue times. The introduction ofthe PO Mains concept should be largely beneficial for consumers if, and when, the conversion exercise issuccessfully completed.

2.5 However, it is possible that a number of conversions into PO Mains could also result in the physicalrelocation of the Post Office branch—in some instances on a planned basis, for example, where larger premisesare required, but in other instances the new operator contract may not be sufficiently commercially attractiveto existing operators.

2.6 There is the potential for a not insignificant number of the 6,000 planned sub-post office changes,affecting both PO Locals and PO Mains, to result in branch relocations.

3. Changes to Crown Post Offices

3.1 In its Autumn 2010 strategy document, “Securing Post Offices in the Digital Age”,5 the Governmentnoted that “the Crown network is currently loss making, and this is not acceptable. POL is committed toeradicating these losses over the next four years”. Crown offices continue to record losses of approximately£60 million each year.4 Local but limited?, Consumer Focus, Apr 2011; available at

www.consumerfocus.org.uk/files/2011/03/local_but_limited.pdfStaying Local: the future of the Post Office network, Consumer Focus Wales, Feb 2012; available atwww.consumerfocus.org.uk/wales/files/2012/02/Staying-local-INTERACTIVE.pdf

5 Securing Post Offices in the Digital Age, Department for Business, Innovation & Skills, Oct 2010; available atwww.bis.gov.uk/assets/biscore/business-sectors/docs/s/10–1260-securing-the-post-office-network.pdf



3.2 A long-standing moratorium on planned changes to the Crown Office network is scheduled to end inAutumn 2012. In addition to the changes proposed as part of the network transformation programme it isconceivable that a programme of planned changes to the Crown Office network, to reduce losses which remainstubbornly high, could be developed and implemented during a similar timeline.

3.3 Over 70 Crown Offices were closed and replaced with franchised branches located in WHSmith during2007 and 2008. Consumer Focus expects to publish research before Summer on consumers’ experience ofservice standards and accessibility of High Street branches including Crown post offices and WHSmithbranches.

4. Implementation of the Network Transformation Programme

4.1 We are concerned that the design and implementation of the network transformation programme securesthe viability of the network by providing the greatest range of services in the most convenient and suitablelocations to meet consumer needs.

4.2 There are a number of risks associated with a programme of this scale and character. Unless the rolloutis implemented effectively, there is a risk that the potential consumer benefits of the new operating model willnot be realised. The new timescales for implementation make it exceptionally demanding for POL to adequatelyaddress significant challenges associated with:

— the robustness of the operating model and its ability to meet consumer needs;

— the adequacy and consistency of service standards;

— understanding and preparing for the possible migration of customers to alternative postoffices; and

— the new operating models capacity to secure long-term post office provision, through the widestand most appropriate range of retailers and on a “best fit” basis for the communities concerned,and based on the proposed remuneration structure and externalisation of costs to operators.

4.3 The design of the programme should also positively reflect lessons learned from previous restructuringprogrammes with changes planned on a strategic basis and shaped by specific criteria relating to consumeraccess and the needs of local communities.

4.4 Crucially, Government has determined that this network transformation programme should operate on avoluntary exit basis. A preference exercise has recently been completed whereby sub-postmasters were askedto outline whether they wish to leave the network on a compensated basis; convert to a PO Locals or PO Mainsoperating model; or remain on their existing sub-postmaster contract.

4.5 It is not yet evident how the sub-postmaster preference exercise will shape the programme framework,and its outcomes, although it is questionable as to whether a voluntary exist scheme would be the optimalmeans of delivering the most sustainable network or ensuring that primacy is attached to consumer outcomes.During the Urban Reinvention programme, the then Trade and Industry Select Committee criticised POL bothfor undertaking a sub-postmaster preference exercise and for the perceived overreliance on the results of thisexercise in shaping the programmes outcomes. Concerns from the Select Committee, and other stakeholders,resulted in the Urban Reinvention programme being halted and subsequently restarted with a more strategicfocus.

4.6 Although this network transformation programme is not about reducing the number of post officebranches, it will result in significant changes in local provision. Changes of this nature could therefore generateexceptionally high levels of consumer and stakeholder interest. The previous Network Change Programmegenerated some 2.7 million “consumer actions”—petition signatures; consultation responses and submissions;and correspondence from MPs, Councillors and other community representatives to POL and, Consumer Focuspredecessor body, Postwatch (which received 15,000 items of correspondence alone). Consumer focus willneed to prepare itself to respond to any consumer about the forthcoming transformation programme.

4.7 As part of the previous Network Change Programme a number of post offices were replaced with PartnerOutreach services, which are broadly a similar service offer to PO Locals, where post office products andservices are offered from the main retail counter in convenience stores. The volume of “consumer actions”generated in these cases, where the existing post office was replaced with a post office offering similar products;with similar opening hours; and in a nearby location, suggests that a correspondingly high consumer responseis to be expected during the network transformation programme.

4.8 Given the types of post offices likely to be converted into PO Locals, Consumer Focus expects that thePO Locals conversion programme is likely to trigger between 1.9 million and 2.6 million “consumer actions”—a figure broadly comparable to previous change programmes.

4.9 Pro-active communication, from POL, with, and engagement of, relevant stakeholders and consumers,at an early stage, is a crucial factor in managing, and mitigating potential adverse reactions to, the changeswhich will take place in local communities.



5. Role of Consumer Focus

5.1 Currently, the task of tracking changes in the post office network, and their impact on consumers, isundertaken by Consumer Focus. We have an agreed Code of Practice with POL which sets out POL’sresponsibilities to communicate and consult with elected representatives, other stakeholders and localcommunities when it proposes to make changes to local service provision. The Code of Practice is currentlybeing reviewed in light of the impending network transformation programme.

5.2 Based on Consumer Focus’ experience and handling of previous restructure programmes, there is a riskthat without strong and appropriately resourced consumer representation hardwired into the process, POL willbe poorly equipped to implement changes in the consumer interest—potentially leading to poorly implementedproposals and unplanned and unmanaged migration to other post offices.

5.3 Consumer Focus recommends the following principles should inform the design and delivery of thisnetwork transformation programme:

— effective consumer protection is required, necessitating scrutiny of the programme and how itoperates, not just analysis of specific proposals;

— consumer drivers need to be built into POL’s decision-making functions and processes;

— consumer functions require effective, continuous dialogue with POL’s senior management andthe programme needs to be designed to accomodate this as an essential feature in dischargingscrutiny of the process and maintaining accountability; and

— the design of the programme needs to positively absorb the lessons learned from previouschanges to the post office network while also reflecting the likely outcomes for consumers thisprogramme will generate.

6. POLs Consultation And Communications Strategy

6.1 Consumer Focus research demonstrates the particular importance of effective consultation andcommunication with elected representatives, other stakeholders, and local communities when changes areproposed to post office provision.

6.2 Consumer Focus continues to have a constructive dialogue with POL to offer guidance on theircommunication and consultation programme. However, our “Local but Limited?”6 research found significantshortcomings in POL’s consultation on, and communication of, the introduction of PO Locals pilot branches.56% of those surveyed had not heard anything about the introduction of the PO Local in their area; 17% wereunaware that a consultation had taken place; and 65% noted that they had not received enough informationabout the PO Local prior to opening.

6.3 It would be particularly disappointing if legitimate concerns about POL’s past shortcomings in adequatelycommunicating and consulting effectively with consumers, including from Consumer Focus and the predecessorto the Business, Innovation and Skills Select Committee, failed to result in an improvement in POL’sconsultation materials or the perceived effectiveness or robustness of the consultation process.

6.4 Unless POL commits to strenuous efforts to engage effectively with its consumers, and theirrepresentatives, during the network transformation programme, there is a significant risk that the result willbe proposals being implemented that are based on a partial and potentially flawed understanding of localconsumer needs.

6.5 This, in turn, could potentially lead to unplanned migration to, and quality of service failures in, otherparts of the network. This is a significant risk with network-wide implications given the wider volume ofchanges being undertaken as part of the network transformation programme.

7. Will the New Operating Models Deliver Long-Term Sustainable Provision?

7.1 The PO Locals model has to be sufficiently attractive to commercial operators and it is important thatoperators are able to offer post office products and services on a consistent basis and with high quality servicestandards. If fewer premises are willing to operate PO Locals this would represent a major constraint on POL’sability to introduce the model on a “best fit” basis.

7.2 It is difficult to envisage a successful conversion programme if major operators or independent retailersare unable to operate a PO Local on what will inevitably be less preferential terms. Even if operators comeforward, the funding package they receive is likely to shape the service standards they can provide—reducedoperator remuneration is likely to result in fewer staff able to process post office product and servicestransactions and with a more variable standard of service.

7.3 Additionally, Consumer Focus has concerns regarding the training and ongoing support available to POLocals operators—although POL provides initial in-branch training to staff, the costs of training additionalstaff is effectively externalised to the operators. In the case of large multiple stores and convenience stores,6 Local but limited?, Consumer Focus, 2011; available at www.consumerfocus.org.uk/files/2011/03/local_but_limited.pdf



with high staff turnover and a large number of part-time staff, maintaining service standards in the long-termcould prove particularly challenging.

7.4 Uncertainty exists about whether sufficient numbers of sub-postmasters will agree to convert to one ofthe new post office operating models. Significant changes to operating contracts and the discontinuation of afixed salary payment potentially reduce the positive impact of additional investment in the branch environment.

7.5 As part of the conversion terms, POL will offer “parachute payments” for the first three years in whicha PO Local or PO Main is in operation. Effectively, this means that sub-postmasters who convert to a newoperating format will be guaranteed equivalent income during this period and will also qualify for additionalmodernisation and investment funds.

7.6 However, it is uncertain whether many operators will find the operating models commercially sustainableafter this initial period, and therefore what the long-term impacts will be of moving to the new PO Locals andPO Mains operating models.

8. Post Office Network Sustainability

8.1 The stated intention of the new business models is to assist POL in securing a sustainable, viablenetwork. Additional future revenue streams will also be required to help to achieve that aim.

8.2 There is the potential to significantly extend the range of products that the post office network offers toits customers, face-to-face, in their local communities. Increasing, for example, the range of governmentservices and financial products on offer via the Post Office would improve access to these important servicesfor consumers and would help to support a growing, thriving and sustainable post office network—whichwould clearly be in the interests of all its customers.

8.3 We agree fully with the assessment of the Public Accounts Committee7 that both central and localgovernment services, and additional banking services, are necessary for the post office network to becometruly sustainable.

“Front office” for Government services

8.4 Consumer Focus welcomes the Government’s announcement8 that it intends for the post office networkto become a “front office” for central and local authority services. We are currently undertaking research tounderstand the consumer appetite for the Post Office to offer a range of products and services including, butnot limited to, transactional services; identity applications; biometric capture of personal data; and to supportthe delivery of Universal Credit.

8.5 While Government anticipates that 80% of Universal Credit recipients will apply for and manage theirbenefits online, as part of its “digital by default” initiative, it is likely that the Post Office could play a valuablerole in providing face-to-face services for those who are unable or unwilling to manage their benefits inthis way.

8.6 The Post Office is also well placed to support those who require assisted applications, for example,Universal Credit recipients who may not be able to manage benefits online, despite willingness to do so,because they do not have the necessary identity credentials.

Banking and budgeting services

8.7 Post Office based banking offers a major opportunity to reinvigorate the post office network and putbanking services, delivered by a trusted provider, back into communities. A greater role in financial servicesfor post offices would benefit all post office users but could particularly help low-income customers; smallbusinesses; and those in rural and deprived urban areas where there are fewer bank branches.

8.8 Consumer Focus eagerly anticipates the findings of the DWP’s feasibility study on building the capacityof credit unions including the potential funding of a joint platform that would enable consumers to accesscredit union products, including savings and loans, on a universal basis over the post office counter.

8.9 In 2010, Consumer Focus published Opportunity Knocks,9 which revealed that nearly one million ofthe poorest people in the UK could be lifted out of financial exclusion if a new, simple-to-use, bank accountwas launched by the post office network. It called on the UK Government to introduce a tailored bank accountproduct as part of its plans to introduce banking services through the Post Office. This would be offered as asuccessor to the existing Post Office Card Account (POCA) and would provide an expanded range oftransactional banking features including universal ATM access; debit card functionality; and a modified billpayment facility. This facility would enable low-income consumers to benefit from cheaper bill payment options7 Oversight of the Post Office Network Change Programme, Public Accounts Select Committee, Nov 2009 available at

www.publications.parliament.uk/pa/cm200809/cmselect/cmpubacc/832/832.pdf8 Securing Post Offices in the Digital Age, Department for Business, Innovation & Skills, Oct 2010; available at

www.bis.gov.uk/assets/biscore/business-sectors/docs/s/10–1260-securing-the-post-office-network.pdf9 Opportunity Knocks, Consumer Focus, Jan 2010; available at

www.consumerfocus.org.uk/files/2010/10/Opportunity-knocks-web.pdf



but provide them with greater control and certainty over payments than conventional Direct Debit facilitiesallow.

8.10 Consumer Focus is currently exploring the scope for this type of account, with potentially additionalbudgetary features, to support the introduction of Universal Credit. Among the biggest challenges for themillions of consumers affected by the proposed benefit payment changes will be the move to monthly payments.Most benefits are currently paid on a weekly or fortnightly basis and many consumers budget according tosimilar timescales. The transition to Universal Credit represents a challenging period with low-incomeconsumers being required to adjust to the new payment timescales without facing significant budgetarydisruption.

8.11 These risks are exacerbated by the fact that 1.75 million adults do not have access to a transactionalbank account and many more who have a bank account are effectively continuing to operate largely in cash.However, many of these consumers currently use the Post Office to receive their pensions and benefits througha POCA and there is considerable scope to develop post office based solutions to support the budgetary riskpresented by the transition to monthly benefit payments.

17 February 2012

Supplementary written evidence submitted by Consumer Focus (PONT 02A)

Introduction

In advance of the rollout of the new Post Office operating models, Consumer Focus commissionedcomprehensive research to gain an up to date understanding of consumers’ experiences, attitudes and views inareas where the Post Office (PO) Local model has been piloted, and to assess service standards, including theconsistency and accuracy of product and pricing advice, in PO Local outlets.

It is important to note that, in most instances, PO Local outlets were opened in areas that did not have apost office previously, and were designed to plug gaps in service provision, or replace long-term closures. Insome locations, communities had been without a post office for more than two years. The NetworkTransformation programme will see existing branches transformed to one or other of the new operatingmodels—with a number of those branches relocating to different premises. The reactions of consumers totransformed local post office provision may be very different from, and perhaps less positive than, theexperience reported in pilot locations so far.

1. Research Methodology

1.1 Research was carried out in January and February 2012 in 105 locations where a pilot PO Local outlethad been open for a minimum of three months.

1.2 The research consisted of a face-to-face survey of 1,030 adults, comprising both users and non-users,residing in the catchment areas of the 105 PO Local branches. Additionally, six focus groups were held withPO Local users and non-users across the UK. Locations were selected to provide a range of customerexperiences and a range of operating formats. Non-user focus group participants were screened to identifythose who used other post office branches but had opted not to use the PO Local because of one or more ofits service attributes.

1.3 A mystery shopping exercise was also undertaken. A total of 362 visits were carried out with a minimumof one to four visits performed in each of the 105 PO Local branches. Mystery shoppers were each allocatedtwo out of a total of five scenarios that were designed to test the quality of product and pricing advice theyreceived (724 scenarios were tested overall). Each mystery shopper also reported on general service standardsand the branch environment.

2. The Consumer Interest

2.1 Our research identifies that consumers greatly value extended opening hours but that there are a numberof areas where improvements are needed if the PO Local model is to be rolled out successfully. Withoutattention, these shortcomings pose a risk that the potential benefits of the model, such as longer opening hours,may not be fully realised. More significantly, without improvements to services standards, our findings raisequestions about the operating model and the ability of operators to offer the consistent, reliable and high qualityservice standards that consumers expect.

2.2 Consumer Focus will continue to monitor service standards, as a priority, once Network Transformationgets underway. As part of the Government consumer landscape reforms, Consumer Focus will hand overresponsibility for general advocacy to the Citizens Advice service in April 2013. However we will continue todischarge our responsibilities to post office users through the creation of a new Regulated Industries Unit. It isintended that this Unit, holding as it will Consumer Focus’s existing responsibilities in the energy and postalservices sectors, will transfer to the Citizens Advice service in 2014.



3. Meeting Consumers’ Needs—A Comprehensive Range of Products and Services

3.1 Awareness of the PO Local among users and non-users is high with, respectively, 97 and 82% awarethat post office services are available from the premises. This is not, however, matched by an understandingof the products and services accessible at a PO Local. For example, only 54% of users and 33% of non-users,correctly, identified that they could make cash withdrawals,10 using chip and pin, at the PO Local with only66% (users) and 44% (non-users) noting that they could undertake recorded and special delivery transactions.

3.2 Conversely, many users expect to be able to access core post office products and services at the POLocal, including paying paper bills (31%); cheque deposit (29%); the Local Collect service—pick-up parcelsthat couldn’t be delivered to the recipients’ address (26%); and banking transactions using a passbook ordeposit slips (22%).

3.3 Although many consumers are broadly satisfied with the products available, one in five (21%) say POLocals offer only some or few of the products they need and almost two-thirds (61%) have had to use anotherbranch because a product or service was not available. Two-fifths of users (38%) have actively tried and beenunable to access a product or service at a PO Local branch and more than one in five (22%) consumersparticipating in our research do not use the PO Local in their area but typically use other post offices regularly.Among those using alternative post offices, 60% identify product and service availability as the reason for theiruse of other post office outlets.

3.4 Post Office Ltd (POL) should commit to a core menu of services, to be offered through every PO Localbranch, so consumers can reasonably know which services they can access at that outlet and which servicesthey will have to access at another outlet. The core range of services should include a number of products notcurrently offered as part of the standard range but offered through the other 11,600 post office branches,including paying paper-based bills; all banking transactions; and a full range of parcel pick-up and collectionservices, including Local Collect—which 52% of users report as a desirable service from their PO Local outlet.

3.5 If, for whatever reason, a core product or service cannot reasonably be offered from a particular branch,for example because of space constraints, POL should specifically consult with local consumers on the impactof this change. Information should be made readily available, in a clear format, in every PO Local providingfull details of which products and services are available in the outlet together with information on which otherpost office outlets nearby offer products and services that are not available as part of the standard menu inthat branch.

4. A Suitable Environment for all to Undertake Personal and Sensitive Transactions

4.1 Over a third of users (34%) find the privacy available in a PO Local to be poor, and 41% say it is worsethan in sub-postoffices. 30% report that the security and suitability of the layout is poor or very poor with 25%of users offering the same rating in relation to the open plan environment and screenless counter. Consumersmust feel confident and secure when undertaking any transactions—but some consumers tell us they arereluctant to use to the PO Local for personal, high value, or confidential transactions.

4.2 There appears to be a particular problem with the consumer experience in large chain convenience stores:44% say the level of privacy is very or fairly poor; 33% say the open plan environment is very of fairly poor;and 32% say the level of security when undertaking transactions is either fairly or very poor.

4.3 Non-users of PO Locals are twice as likely as users to identify privacy and security as key attributes fortheir usage of post offices and one in five (20%) of those who use PO Locals for some basic transactions toldus they use other post office outlets because of concerns about privacy, staff training, or because they generallyfeel more comfortable undertaking high value transactions in other branches.

4.4 This apprehension is compounded, in some instances, by concerns about the premises type and thegeographic locations of the store. For example, in one focus group there was particular anxiety expressed thatthe PO Local was situated in a convenience store in close proximity to a drug and alcohol outreach centre.Several participants voiced concern about undertaking high value transactions at the outlet particularly whenin-branch privacy is poor and the immediate external environment sometimes felt threatening. The interplay inthis example between the external and internal environment underlines the importance of effective consultationtaking place in both on-site and off-site conversions.

4.5 Difficulties with physical access to the premises and to counters, where post office products and serviceswill be provided from, have also been identified in our research. While 87% of branches were found to havedoors wide enough for wheelchair access, 10% did not have level access to the premises. 80% of aisles inoutlets were reported to be wide enough for wheelchair access although, in 12% of mystery shopper visits,obstacles were reported to be blocking access to the post office counter. Our mystery shopping also reportedthat low-level counters are available in only one-third of PO Locals outlets; low-level scales have been installedin only 30% of branches; and hearing loops were only available in 6% of the 105 PO Locals visited.

4.6 POL must take seriously consumer concerns over security, privacy, the open plan counter and the knock-on impact on confidentiality when undertaking transactions. Resources should be committed to ensuring thebranch, the internal layout and counter services are appropriate for access by all with best practice guidelines10 From a valid account.



developed. Before and during the programme, we expect POL to regularly review and learn from completedchanges; commit to targeted improvements in consumer satisfaction levels; and attach greater priority to in-branch, counter and space requirements when it selects operators during Network Transformation.

5. An Improved Consumer Experience with a Reliable and Consistent Service

5.1 Significant improvements are needed in the quality of product and pricing advice given by counter staff,and in the consistency of the service standards they sometimes provide.

5.2 Our mystery shopping exercise found widespread evidence of inconsistent and often inaccurate productand pricing advice—for example, a basic transaction such as posting a large second class letter was soldcorrectly in only one in five visits, dropping to only 15% of visits during extended opening hours; large orheavy parcel (up to 20 kg) transactions were refused in 1 in 4 instances; and in two-thirds of cases, SpecialDelivery was sold but without counter staff asking the questions necessary to determine whether this was themost suitable product to meet needs.

5.3 Consumers strongly welcome extended opening hours, but there are concerns about whether all POLocals open when they should; and we have found significant evidence of unplanned breaks in service andinconsistent and unreliable provision. One in 10 users (11%) state that PO Locals are supposed to operatelonger hours but they think services are not available at these times and in 7% of outlets, our mystery shoppersfound the opening times displayed varied between one visit and the next.

5.4 Our research has identified a 3% “refusal rate”—where the desired transaction could not be completed—a rate likely to be significantly higher than the proportion of transactions that cannot be completed in otherpost office operating models and one that is significantly higher than the equivalent score for other retailers,banks and cash distribution networks.11 This included instances where the outlet was supposed to be open butwasn’t; the PO counter was closed; equipment failed; and staff were not available.

5.5 Additionally, almost one in five consumers (19%) were reluctant, because of concerns over theconsistency and reliability of staff, to undertake high-value, personal or confidential transactions at PO Localsduring longer opening hours. 23% of PO Local users felt staff working in the evenings or at weekends wereless knowledgeable than during “core” hours and 22% reported levels of customer service to be poorer duringextended hours. PO Locals will only be able to capitalise fully on longer opening hours, if consumers can beassured that service standards are robust, and if they can be confident they will always be correctly served theproduct or service they require.

5.6 POL should take action to make necessary improvements to the consistency and reliability of branchopening hours and to raise service standards, including steps to address the shortcomings in staff training;ongoing support; quality control; and compliance that underpin in-branch standards. PO Locals need to offerservice reliability that is comparable with other post office operating models, but also other retail, bill paymentand cash distribution networks—to ensure consumers have confidence in the availability and ongoingconsistency of the service.

5.7 Before the programme starts, POL should develop a demonstrably robust action plan that can reassurestakeholders there is a coherent strategy for bringing service standards up to a satisfactory level which includesthe development of robust service level agreements with operators that carry sanctions if service standards fallshort. Once the network transformation programme gets underway, POL should commit additional resource toensuring its quality control, monitoring and compliance processes are sufficient—and operators are able todeliver the standards of service that consumers, rightly, expect.

6. Consumer Access to Cash and Benefit Payments

6.1 Some PO Locals have been found to cap the amount of cash or benefits a consumer can withdraw, orstop making cash payments altogether.

6.2 In PO Locals that do not receive cash supplies from POL—the “operator cash” model—mystery shopperswere unable to withdraw cash in 10% of visits where they should have been able to do so. Around 3% ofcustomers using “operator cash” Locals reported that they have been unable to withdraw all or some of theirmoney at the outlet. Among those consumers who told us that they have had to use another post office outlet,because they couldn’t access a product or service at the PO Local, 8% said this was because they couldn’tmake a cash withdrawal.

6.3 Through our on-the-ground monitoring, including proactive contact from stakeholders, we are aware ofproblems in over 20% of “operator cash” locations and in 12% of all PO Local branches.12 This suggests awidespread, even systemic, issue with the operating model—the scale of this problem cannot be crediblyexplained by discrete problems affecting individual operators.11 For example, in 201011. National Lottery operator Camelot reported its terminals sales availability was 100pc, exceeding its

regulatory obligation of 99.5pc; and its terminals were able to validate winning claims on 99.97pc of occasions. Camelot AnnualReport (2010).

12 Figures based on PO Local outlets open in February 2012.



6.4 The ability to make cash withdrawals and undertake basic cash transactions will be a key future revenuestream for post offices—and problems in withdrawing pensions and benefits risks considerable detriment forelderly and vulnerable consumers, who rely on post offices to access their cash.

6.5 The arrangements for supplying PO Locals with cash must be reviewed as a matter of urgency, and ifthe problems in supplying cash cannot be overcome, cash supply arrangements must be changed.

7. Appealing to the Widest Possible Customer Base

7.1 Our research identified 23% of consumers do not use PO Locals. However, in a majority of cases,although they are not using PO Locals, these consumers use other post offices regularly. 60% of those who donot use PO Locals use alternative post offices each month and almost one in five PO Local users (18%) saythey now use the post office outlet less frequently than the previous post office in the area.

7.2 For many PO Local non-users this is because of gaps in the product range; concerns over the PO Localpremises and its suitability; or because they were unaware the branch offered post office services. There maybe significant implications for the rest of the network if this results in similarly high levels of migration to orusage of other branches once Network Transformation gets underway.

8. Network Sustainability—Banking, Government and Future Services

8.1 With one-fifth of the post office network planned to be operating as a PO Local by 2015, and Governmentenvisaging that the PO Local model would “become the mainstay” of the network over time,13 it is essentialthat the model is not only capable of meeting the needs of existing consumers, but also their future needs.

8.2 While consumers told us that having access to more cash and banking services, through PO Local outlets,would be useful, some also have concerns that PO Locals, in their current form, are not suitable for offeringthese services—mainly due to their inability to meet needs in relation to privacy and perceptions of securityand personal safety. 48% of users think that a PO Local is a suitable outlet for conducting more cash andbanking services, rising to 51% of users whose PO Local is offered from an independent retail outlet.

8.3 There is a greater focus from Government and POL on the post office becoming a “front office” forcentral and local government services, for example, providing services such as identify verification, drivinglicence renewals, as well as local authority services such as council tax payments, travel permits and buspasses. There is also scope for post offices to play a critical role in the delivery and management of benefitsand to assist in the delivery of Universal Credit, for example in identity verification.14

8.4 When consumers were asked if they thought their PO Local was a suitable outlet for confirming theirdetails for Government departments, for example confirming their status for receiving benefits, 37% of POLocal users and 32% of non users agreed.

8.5 Although consumers would like more services to be offered through PO Locals, it is clear that theenvironment in which they can access these services must be acceptable to them. Improvements to addressprivacy and security concerns could allow PO Locals to successfully attract greater numbers of consumers toundertake financial and other sensitive transactions over the Locals counter. POL should ensure the futuredelivery of banking and Government services is fully integrated into its network and branch decisions,particularly during the Network Transformation programme.

8.6 The rollout of the PO Local model offers considerable opportunities for the post office network tocapitalise on the dramatic growth of fulfilment mail15 (the delivery of goods and services online) and thecorresponding growth in home shopping returns.16 PO Locals are exceptionally well-placed to meet thegrowing demand among consumers for more convenient options to pick up and drop off parcels and packets,at a time and location that is most convenient for them.17

13 Securing Post Offices in the Digital Age, Department for Business, Innovation & Skills, Oct 2010.14 Consumer Focus will report separately on research to understand and inform the budgetary needs of low-income and unbanked

consumers and challenges with identity verification of those not online, specifically to inform the rollout of Universal Creditfollowing confirmation from the DWP Minister, Steve Webb, that DWP is working closely “with the banking sector, creditunions, and Post Office Ltd to explore the opportunity to create cost-effective budgeting accounts that would provide access tomainstream banking facilities such as regular payment facilities” (Issued in a written answer to the House of Commons on 21February 2012).

15 43% of residents expected to be doing more shopping online for goods that are sent by post in three years time. ConsumerFocus and Postcomm (2010), Residential Customer Needs from a Universal Postal Service in the UK.

16 In 2011, Collect+ conducted research showing that one in ten festive gifts bought the previous year were returned beforeChristmas. During the first week of December 2011, it estimates that over two million parcels were returned. Collect+ expandedits number of outlets by 20% during the next six months to November 2011.

17 Reasons why residents who receive “Sorry you were out” cards do not pick up their items in person include inconvenientlocation, opening hours, Consumer Focus and Postcomm (2010), Residential Customer Needs from a Universal Postal Servicein the UK.



8.7 The value of parcel services to small and micro businesses is also underlined by forthcoming researchundertaken for Consumer Focus Post in Northern Ireland. This finds that 50% of these businesses would benegatively affected by post offices not accepting parcels over 6 kg, with 59% negatively affected if they couldno longer access Parcelforce services.18

8.8 If PO Local is expanded on the basis it cannot or does not offer certain larger parcel services, presumablybecause of space restrictions in certain outlets, it would be a major missed opportunity to position the postoffice in this expanding, although increasingly competitive,19 market. Offering a full range of parcel services,including Local Collect, would be a major benefit for residential and small and micro business consumers.Crucially, this also presents scope for increased operational efficiencies for Royal Mail with more consumerslikely to use the Local Collect service if it is more convenient and easy for them to collect items.

8.9 During the Network Transformation programme, POL should ensure all potential operators havesufficient space and well trained staff capable of offering the full range of parcel services. POL should reviewthe exclusion of the Local Collect service from most Locals branches. In considering how to overcome spaceconstraint barriers and other concerns, lessons can be learnt from some multiple operators who havecommissioned innovative counter storage and space solutions in order to maximise the available space—butperhaps more importantly, to build consumer confidence around the integrity and security of stored items.

9. Effective Rollout of PO Locals and Implementation of the Network TransformationProgramme

9.1 POL must ensure the PO Locals operating model meets consumers’ needs, but is also suitably attractiveto large chain convenience store operators and sub-postmasters that may be interested in converting to theLocals format. Large chain convenience stores will play a critical role in ensuring the model is rolled out in astrategic and effective way, and that PO Locals are situated in the most convenient and accessible locations.

9.2 Further work appears to be needed to refine the model so it is sufficiently attractive to operators, butperhaps more significantly, so it allows them to provide the PO Local to a satisfactory standard. There is aneed for decision-makers to better understand whether the PO Local model reduces POL’s operating costs butrisks doing so in a potentially unsustainable way, through the excessive direct or indirect transfer of some ofthese costs to operators.

9.3 Close scrutiny of the rollout will be needed, particularly to determine whether operators are able to offersufficiently high quality service standards, and able to maintain them, as the programme rolls out—and toassess whether POL is able to attract the widest possible “footprint” of potential host retailers to ensure thatPO Locals are able to be introduced on a “best-fit” basis in the communities affected.

9.4 In addition to securing necessary changes to the operating model, it is arguably as important that theimplementation process for PO Locals is designed and delivered in an effective and strategic way. It seemsclear that the challenges associated with Network Transformation are just as demanding, if not more so, asprevious large-scale post office network change programmes. Overall, the rate and scale of NetworkTransformation changes are far greater than anything that POL, or any comparable retail distribution network,has previously undertaken—at the peak of the programme, POL expects to convert around 50 post officebranches to new operating formats every week.

9.5 POL will need to carefully monitor whether the rollout of PO Locals results in migration to otherbranches, and respond accordingly to ensure other post offices can, in turn, respond effectively to anyincreased custom.

9.6 Millions of consumers will be affected by this transformation of the Post Office network. It is thereforecrucial that POL delivers this comprehensive set of changes in an effective and consumer-oriented way. Ourhandling of previous and ongoing network changes suggests there is a risk that, without strong consumerrepresentation “hardwired” into the process, POL may be ill equipped to implement changes in the consumerinterest.

9.7 Consumer Focus is confident that the potential benefits of PO Locals can be unlocked for consumers,but only if necessary steps to improve the model are taken, and consumers are put at the heart of the decisionsto be made.

2 May 2012

18 The Post Office and Small and Microbusinesses in Northern Ireland. Prepared for Consumer Focus Post by Ipsos MORI(forthcoming).

19 For example, the Collect+ network allows consumers to send and receive parcels through a growing network of 4,500 outlets,with opening hours that typically mirror those of the “host” convenience stores.



Written evidence submitted by the National Federation of SubPostmasters (PONT 03)


1.1 Post offices offer a uniquely wide range of services under one roof and play critical roles supportinglocal communities and underpinning local economies. However, our national post office network is underconsiderable pressure due to trends in retailing, technological innovations and reductions in the number ofgovernment services offered through post offices. Subpostmasters are increasingly struggling to make a livingfrom their post offices.

1.2 The post office network transformation programme is a major reorganisation of the post office network,designed to ensure a future that is financially sustainable. While the network will remain at its current size,two new models of post office—Post Office Locals and Main Post Offices—will be created.

1.3 Post Office Locals will house a post office service that is integrated into an existing retail business,offering longer opening hours that match those of the retail business. Locals offer the majority of Post Officeservices. Main Post Offices are larger post offices providing the full range of Post Office services.

1.4 The new models enable subpostmasters to combine retail and Post Office staff costs; and the combinedservice will attract customers for both retail and Post Office business. For Post Office Ltd (POL) the programmedelivers a lower cost operating model. The public benefits from the retention of a local Post Office service andthe longer hours the service will be available.

1.5 The network transformation programme is vital, as fundamental strategic change is urgently required inthe post office network. Without significant action thousands of post offices would close as subpostmastershand in their keys, no longer able to afford to run their businesses.

1.6 Whilst the programme is set to play a critical role in securing the future of the post office network byreducing its cost base and providing investment funds; it is only one part of the solution. For the Post Officeto regain a secure footing, it also needs to bring in additional income through new or expanded revenuestreams. These include a significant increase in the number of government services offered at post offices; andthe provision of a comprehensive range of Post Office and high street banking and financial services. It is alsocrucial that post offices remain the shop front on the high street for public and small business mails services.

2. The National Federation of SubPostmasters

2.1 The National Federation of SubPostmasters (NFSP) is the trade union and membership organisationwhich represents subpostmasters. Subpostmasters are independent business people who act as agents to PostOffice Ltd (POL) and run sub post offices, which make up 97% of the national post office network. The NFSPis the only organisation recognised by POL to represent subpostmasters.

3. Background

3.1 The House of Commons Business Innovation and Skills (BIS) Committee is undertaking an inquiry intothe government’s post office network transformation programme. This is the NFSP’s written submission tothe inquiry.

4. The Post Office Network

4.1 Services

4.1.1 Post offices offer a uniquely wide range of products and services under one roof—from postal services,travel, telephony and bill payments to government services, banking and financial services. Eight in ten postoffices are run alongside a shop, and post office shops play important roles in providing local retail includingstationery, newspapers, food and household goods.

4.1.2 With 11,500 outlets, the post office network provides easy public access to these essential servicesthroughout the UK, including remote rural communities and deprived urban areas. Government access criteriarequire POL to maintain a minimum level of coverage.

4.1.3 Post offices are extensively used, and used by all sections of society. Every week 20 million peopleconduct almost 60 million transactions. Research finds 98% of households use a post office, and 49% ofconsumers use a post office every week.(1), (2)

4.2 Community role

4.2.1 There is overwhelming evidence of the exceptionally valuable role played by the post office networkin supporting local communities above and beyond that of providing Post Office and retail services. Thisincludes providing assistance for vulnerable residents—interpreting official letters, fielding lost property, takingmessages and offering emotional support. Post offices also provide a focal point for communities by offeringa place to come together and a venue for agencies like the police, local authorities and tourist attractions tooffer information and services.



4.2.2 Although all sections of society use post offices, certain sections of the population are more reliant onthe network. The heaviest users of post offices are older people and those in the lower (C2 and especially DE)socioeconomic grades—some visiting the post office three or four times a week.(3) Studies show disabledpeople and rural residents are also particularly frequent users of post offices.(4), (5)

4.3 Local economic role

4.3.1 Post offices play significant roles in local economies as sources of cash. For every £1 transacted in theUK, 14p is handled through post offices, and over £80 billion of cash a year passes through the network. Thepost office network is bigger than the UK’s retail bank and building society branch networks combined, andits role in cash provision is likely to become increasingly critical as more and more banks close their branches.

4.3.2 Local access to banking services is not just a question of access for individuals. Access to banking iskey to the survival of retail and other services in many communities. Cash is often spent near to where it iswithdrawn—people who take out money from a bank or cashpoint spend 50–67% in nearby shops.(6) A studyof post offices in Manchester concluded each post office contributes around £310,000 to the local economyeach year, of which £120,000 is direct spending on local goods and services.(7)

4.3.3 In addition, post offices provide a wide range of services directly to local businesses. There are 4.5million small businesses in the UK, accounting for 49% of total private sector turnover. The Federation ofSmall Businesses (FSB) finds 88% of small businesses use a post office for mails services.(8) The FSB reports20% of small businesses use a post office every day and 47% use it more than once a week.(9)

4.4 Current issues

4.4.1 Despite its obvious strengths our national post office network is under considerable pressure. This isin part due to trends in retailing and technological innovations. Long-term lack of investment has also takenits toll. A further blow to the network’s fortunes came in 2003, when the government introduced the directpayment of state pensions and benefits straight into bank accounts. Two major government closure programmesresulted in the closure of 7,000 post offices over the past decade, in an attempt to boost the viability of theremaining post offices. However, many subpostmasters continue to struggle to make a living.

4.4.2 A major survey carried out by the NFSP in 2009 revealed subpostmasters’ personal drawings (moneytaken as a salary) from their Post Office income had dropped by nearly 9% over the previous three years andaverage drawings were £866 per month. Moreover, 14% of subpostmasters were taking no personal drawingsfrom their post office at all.(10) Since this time, internal research for the NFSP shows further reductions and anongoing downward trend in transaction volumes and transaction payments.

4.4.3 In November 2010 concerns about the future viability of the post office network led the Departmentfor Business Innovation and Skills (BIS) to publish a range of proposals to modernise the post office network,to make it more financially viable and prevent further post office closures.(11) The government stated that anetwork of around 11,500 branches is to be maintained and provided the assurance that there will be no furtherprogramme of post office closures.

4.4.4 The government has allocated £1.34 billion funding for the post office network between 2011 and2015. A significant proportion (48%) of the funding will maintain the Social Network Payment, thegovernment’s subsidy to POL for running otherwise loss-making post offices due to their social value. However,£496 million (37% of the total) is to be spent on network restructuring—the network transformationprogramme.

5. The Network Transformation Programme

5.1 The network transformation programme is a major reorganisation of the post office network, designedto ensure a future that is financially sustainable. While the network will remain at its current size, the operatingmodels will change. It is a three year phased programme, with national roll-out starting in June 2012.

5.2 As part of the restructuring two new models of post office—Post Office Locals and Main Post Offices—will be created. By 2015 there will be 2,000 Post Office Locals and 4,000 Main Post Offices. Investmentfunding is available to pay for these developments.

5.3 The NFSP believes the network transformation programme is vital, as a fundamental change is urgentlyrequired in the post office network. The network simply cannot survive as it is. If action is not taken thenetwork will change anyway—post offices will close as subpostmasters are unable to sustain them. It is betterto have a planned, funded programme to maintain the network at its present level than to have thousands ofsubpostmasters forced to leave because they can no longer afford to run a post office. Unstructured mass postoffice closures would leave substantial gaps in the national provision and millions of people without localaccess to Post Office services.

6. Post Office Local

6.1 The development of Post Office Locals is central to the network transformation programme. This modelis designed for small sub post offices in suburban and rural areas; and intended to be integrated into an existing



retail business such as a convenience store. The model has been piloted for several years (originally as “PostOffice Essentials”).

6.2 In a Local, Post Office services are transacted from a retail counter for as long as the retail operation isopen. This provides customers with longer opening hours than traditional post offices.

6.3 Dedicated Post Office counters and fortress screens are not used at Post Office Locals and this frees upspace for retail. POL has found that some pilot branches have seen retail sales increase by up to 25% as aresult of removing the fortress position.

6.4 Locals are designed to be operated by retail assistants, rather than specialist Post Office staff. Thisarrangement facilitates staff efficiencies, as each staff member is able to process both retail sales and PostOffice services from one location.

6.5 Post Office Locals provide a wide range of Post Office services including mails services, bankingwithdrawals and cash deposits, Post Office card account withdrawals, bill payments and pre-order travel money.POL states that the products available at a Local typically account for 95% of Post Office customer visits.

6.6 Subpostmasters converting their traditional post office to a Local will receive up to £10,000 funding tocover the cost of setting up the new operating model. The funding will pay for installation of the Horizoncomputer terminal, through which all Post Office transactions are carried out, on the retail counter. It will alsopay for new internal and external signage; a window display; safes and the integration of the Post Office andretail counters.

6.7 Although Post Office Locals will be created through subpostmasters converting their traditional postoffices, it is anticipated that many Locals will be operated by people running existing retail businesses whohave not previously provided Post Office services.

7. Main Post Office

7.1 The new Main model has been designed for larger busier post offices. Main Post Offices have a dedicatedPost Office area offering an extensive range of Post Office products during core hours. All Main Post Officeswill provide all Post Office services, with the exception of Lottery, ATMs and biometric data capture servicesin some offices.

7.2 In Main Post Offices with attached retail businesses, Post Office services will also be available duringthe longer hours that the retail business is open. During these non-core hours Post Office services will beaccessed via a Post Office service point on the retail counter. The services available on this counter will matchthose available in the Local model.

7.3 Subpostmasters converting their traditional post office to a Post Office Main will receive investmentfunding of up to £45,000 depending on the size of their post office and future business potential. The fundingwill pay for new dedicated Post Office counter areas; Post Office signage; modifications to the retail counter;moving equipment; redecoration; and installing a customer conversation area (for larger branches).

7.4 Whilst many Mains will be developed from the conversion of an existing post office; in some cases,where the existing premises are unsuitable, the post office may need to relocate to better premises nearby.Alternatively a Main Post Office may be opened by a local retailer, who has not previously offered Post Officeservices, and run alongside their current business.

8. Impact for Customers

8.1 Network transformation will result in a different model of Post Office provision for customers. In manycases, the outcome will be more viable local services. For example, a joint shop/post office may be morefinancially sustainable than two separate enterprises trying to remain open independently. A further benefit forcustomers will be the longer opening hours for Post Office services at both Post Office Locals and Main PostOffices with attached retail businesses.

8.2 However, whilst network transformation should do the vital job of helping to stabilise the post officenetwork, under the new model it is inevitable that many Post Office outlets will not be as specialist as theyonce were.

8.3 Research studies looking at pilot Post Office Locals raise some concerns about the limited knowledgeand experience of staff providing Post Office services at Locals.(12), (13) Clearly for the restructuring programmeto succeed, it is essential the staff have the requisite skills and knowledge to provide the service that is due tobe offered. The NFSP is working with POL to address this issue. The NFSP holds the problem partly arisesbecause some current Post Office products are over-engineered. A simplification of the administrative processesfor carrying out transactions will go a considerable way to resolving some of these concerns.

8.4 The NFSP also believes that although it is well-intentioned to provide as wide a range of services aspossible (compared with those offered at the previous traditional post office); this ambition runs the risk ofmaking the model over-complicated. POL needs to consider carefully the range of services that are availablethrough Post Office Locals—a slimmed down range of services may result in a more viable model.



8.5 Concerns have been expressed about reduced privacy and space in the new models of post offices. TheNFSP agrees that in some places there will not be the space or privacy that was available in a traditional postoffice. Further work is needed to ensure there is as much privacy as possible within the limitations of the model.

8.6 An additional issue raised by research into the Local pilots relates to reported incidents involving cappingcash or benefits withdrawals at these offices. However, since over 90% of Locals receive POL cash deliveries,running out of cash should never be a particular problem for Post Office Locals. Some of the reported incidentscould have happened in a traditional office, for example when a nearby post office closes on a temporary basisfor security reasons leading to a run on cash withdrawals at neighbouring offices.

9. Impact for Subpostmasters and POL

9.1 For the transformation programme to be successful, it is critical that the subsequent structure worksfinancially and logistically for the people providing the Post Office service—both POL and subpostmasters.

9.2 In the long-run the programme delivers a lower cost model for POL. Under the new modelsubpostmasters operating Post Office Locals and Main Post Offices are paid directly for each transactionundertaken. POL does not provide any fixed pay element for these post offices, and is not liable for pay tocover subpostmasters’ sickness or holidays.

9.3 Network transformation gives subpostmasters options about their future. In December 2011 POLundertook a preference exercise—surveying all subpostmasters asking them about what they wanted to do withtheir offices.

9.4 For individual subpostmasters network transformation is a voluntary programme—subpostmasters canopt to keep their post office as it is and not transfer to a new model.

9.5 Alternatively subpostmasters can choose to leave the network. If a suitable new location and operatorcan be found and POL agrees to relocate the post office, the subpostmaster will receive a contract terminationpayment on leaving. This payment is equivalent of 18 months’ remuneration.

9.6 Under a third option, subpostmasters can ask to be considered for conversion from a traditional office toa Post Office Local or Main. POL will take individual subpostmasters’ preferences into account when decidingwhether to convert an individual post office from a traditional office to a Post Office Local or a Main PostOffice. From spring 2012 POL is visiting subpostmasters who are interested in converting to a new model toassess the suitability of their post office.

9.7 For subpostmasters running a Main or Local, there are a number of advantages over running a traditionalpost office. The new models offer opportunities for staffing efficiencies; more space for retail; funds to improvetheir offices; and longer opening hours for Post Office services which have the potential to bring morecustomers in through the door.

9.8 Subpostmasters operating the new models are subject to terms and conditions that are more commercialthan those for subpostmasters with traditional offices. This includes fully variable pay for transactions—subpostmasters are only paid for the products and transactions they sell or undertake and no fixed payment forthe post office is available. In recognition of the differences between the two sets of arrangementssubpostmasters who convert to a Local will receive a payment equivalent to 1.5 times the difference betweentheir annual remuneration received under the subpostmaster contract and the expected fees for the first yearof operation of their Local. Subpostmasters running a Main Post Office receive enhanced payment rates ontheir transactions.

9.9 There are a range of outstanding issues regarding the new contracts for Main Post Offices—includingrequirements to set up as a limited company, VAT issues, National Insurance issues and the opening hours forthe retail side of the business. The NFSP and POL are currently working to resolve these.

10. Post Office Network Sustainability

10.1 Increasing revenue

10.1.1 The network transformation programme is set to play a vital role in securing the future of the postoffice network, by reducing its cost base and providing investment funds. However, the programme is only onepart of the solution. For the Post Office to regain a secure footing, it also urgently needs to bring in additionalincome through new or expanded revenue streams.

10.2 Government services

10.2.1 The government has proposed that post offices should become the “front office for government”,providing face-to-face access at post offices for a full range of central and local government services. Thegovernment says the front office for government is one of two areas with the potential to boost significantlyPost Office revenues.(14)

10.2.2 This proposal builds on the many central and local government services already available at postoffices. Services could include identity verification; notifying government of a change in circumstances; assisted



applications; and payment services enabling the public to make and receive payments to and from publicbodies. The NFSP supports these plans, which need to translate into significant amounts of additional workacross post office counters.

10.3 Banking and financial services

10.3.1 The second major area with the potential to significantly increase Post Office revenues is financialservices. The government proposes that the Post Office expands further into financial services. This shouldinclude developing new Post Office financial services products, and making all UK current accounts accessiblethrough the post office network. The NFSP supports these proposals.

10.3.2 The contract for the Post Office card account, which enables pension and benefits recipients to accesstheir entitlements, runs out in 2015. However, the account remains an important and popular service forpensioners and benefits claimants, and brings income for subpostmasters and people in through the door. TheNFSP believes there should be a Post Office-based solution to the continuation of the POCA. We also supportthe idea of a state-backed Postbank.

10.4 Mail services

10.4.1 Although POL is set to separate from Royal Mail under the government’s plan to split Royal MailGroup, it is vital that the new Royal Mail sees post offices as its shop front on the high street. The recentsigning of a 10 year Inter Business Agreement between the two companies should help ensure this; but POLmust continue to have a close working relationship with Royal Mail beyond the initial 10 years of theagreement.

10.4.2 Income from mail transactions accounts for one-third of total post office income; and postal servicesare the reason for around half of all post office visits. However, with the mails sector undergoing considerablechange it is vital that post offices adapt their mails services to reflect developments in the market. This mayinclude offering services like Local Collect (enabling customers to collect undelivered parcels from their localpost office), for other mail providers.

10.5 Government payment and investment

10.5.1 The government currently pays £180 million a year to POL, which is used to support POLinfrastructure and support those post offices that are not commercially viable. The NFSP foresees an ongoingneed for this network subsidy, and at a realistic level. The NFSP would like to see it ring-fenced and usedtransparently to continue to keep open smaller offices and those based in deprived areas.

10.5.2 Funding under the network transformation programme is set to modernise 6,000 post offices by 2015.However, this leaves around 5,500 offices untouched. New funding is required to modernise the remainder ofthe network. Previous grant schemes for post offices have been shown to be particularly effective and theNFSP would like to see similar investment funds made available for all post offices that require it.

10.6 Mutualisation

10.6.1 The NFSP supports the government’s plans to convert POL to a mutual structure. The NFSP believesa mutualised Post Office, with subpostmasters owning a substantial stake would ensure subpostmasters’interests are better taken into account in the running of the company. In contrast, many decisions currentlytaken by POL are decisions specifically designed to protect the central structures of the company at the expenseof the whole. A mutualised POL would also be able to take advantage of the many benefits realised bybusinesses that are owned by those who work in them.

10.7 High streets

10.7.1 Post offices rely on thriving town centres and neighbourhood shops to attract customers and the NFSPis very concerned about the serious problems currently affecting our high streets. Both central and localgovernment need to take decisive action on this issue—including through planning reforms; taxation ofsupermarket and out-of-town retail centres; tackling the pricing behaviour of large retailers; levies; addressingcompetition issues and business rates inequities.

11. Conclusion

11.1 Changes in the way pensions and benefits are paid, as well as changes in technology and shoppinghabits have led to fewer people coming in through the post office door. In turn, this has resulted in reducedincome for many subpostmasters leaving them struggling to make a living from their post offices. This is asituation which cannot continue—it is unsustainable. Subpostmasters need to know their businesses havefutures and are worth investing in. Customers need to know their post offices will stay open and continue toprovide with the services they require.

11.2 The network transformation programme, alongside the growth of key Post Office revenue streams,should turn the situation around. The programme gives us a different model of post office provision, one which



will help sustain the network at 11,500 outlets. Customers will benefit from the retention of a local Post Officeservice and longer opening hours. POL and subpostmasters will benefit from a lower cost model and moresustainable businesses. However, it also has to be acknowledged that under the new model many post officeoutlets will not provide the same degree of specialisation that currently exists.

11.3 The post office network will be transformed, either as part of a planned and structured programme orwith mass ad hoc closures as subpostmasters who can no longer make a living simply hand in the keys.Subpostmasters and, doubtless, the public prefer the former route.

16 April 2012

References

(1) Postcomm/NERA, August 2009, The Social Value of the Post Office Network.

(2) Consumer Focus Scotland, July 2010, Survey of Postal Users.

(3) Consumer Focus Wales, February 2010, Post Office Closures—impact of the Network Change Programme.

(4) Postwatch/Commission for Rural Communities, June 2006, Future of the UK’s Rural and Deprived UrbanPost Office Network.

(5) See 2.

(6) New Economics Foundation, 2003, Ghost Town Britain.

(7) New Economics Foundation, December 2006, The Last Post—the social and economic impact of postalservices in Manchester.

(8) Federation of Small Businesses, September 2009, Postal Report—securing the future of the Post Office.

(9) Federation of Small Businesses, December 2006, Small Businesses and the Postal Market.

(10) National Federation of SubPostmasters, June 2009, Subpostmaster Income Survey 2009.

(11) Department for Business Innovation & Skills, November 2010, Securing the Post Office Network in theDigital Age.

(12) Consumer Focus, April 2011, Local But Limited—will Post Office Locals meet consumers’ needs?

(13) Consumer Focus Wales, January 2012, Staying Local—the impact of changes to the post office network forWelsh consumers.

(14) See 11.

Written evidence submitted by Post Office Limited (PONT 12)


1.1 The Post Office has a unique and valued place at the heart of communities across the UK.

1.2 A third of the UK population and half of all small businesses visit a Post Office each week which helpsto make it one of the nation’s most valued and treasured organisations. In 2009 an independent piece of researchwas undertaken that estimated the social value of the Post Office to be at least £2.3 billion per annum.

1.3 It is seen as a vital public service but it faces a challenging commercial environment.

1.4 Over the last 10 years footfall has dropped from 28 million customers a week to just under 20 million.This is largely driven by the reduction in government services and a shrinking consumer mails market in anincreasingly digital world.

1.5 Government policy until 2009 was to address this fall in income through drastically reducing the costbase. This was done by closing over 4400 branches in two deeply unpopular closure programmes.

1.6 The people of the UK want their local Post Office service to continue and there is a new strategy toensure this happens—to reverse the decline by maintaining the network size, modernising branches, improvingcustomer experience and thereby growing income.

1.7 Investment into Post Office branches will ensure the physical network is attractive, accessible,convenient—complemented by the Post Office online and telephone channels. This clear policy has been statedby Government in its November 2010 document “Securing the Post Office Network in the Digital Age” whichoutlined £1.34 billion of funding to 2015 to support the strategy. A copy of the Government document isincluded with this submission.



1.8 Income is growing in Government Services with the Post Office competing for and winning six newcontracts in 2011–12. A document explaining the opportunities for the Post Office to increasingly become a“Front Office of Government” is also included with this submission.20

1.9 We have also seen encouraging performances in the Financial Services, Retail Mails and Telephonymarkets with an aim to grow in these areas.

1.10 The alternatives to this strategy of modernisation and growth are either further branch closures or anever increasing public subsidy to maintain the network. We do not see these alternatives as sustainable.

2. Investing In and Modernising Post Office Branches across the UK

2.1 Our entire strategy is underpinned by the network transformation programme.

This investment programme is the foundation for Post Office sustainability and growth.

2.2 We are investing in branches to introduce new, fresh retail formats that help to improve customerexperience, improve the retailer’s profitability and reduce overall operating costs for the Post Office, andtherefore the tax payer.

2.3 Extended opening hours, modern environments, and the unrivalled access and trust that oursubpostmasters and their teams hold in communities also mean we can serve the needs of our existing andfuture clients better. Revenue growth is intrinsically linked to this transformation programme. Ultimately thetwo together equal sustainability.

2.4 Over the next three years we will be working with subpostmasters to develop around 6,000 new stylePost Office branches with longer opening hours to meet the needs of 21st century customers and communities—large and small. You can read more in our attached case study booklet—“Modernising the Post Office network”.

2.5 The new style formats have been developed and piloted and there are now 200 of the main and localformat branches in operation. 63% have been introduced in nearby replacement sites taking up the functionsof the Post Office where local communities had lost a service on a temporary basis. 37% have been introducedas conversions in existing Post Office sites.

2.6 Customer satisfaction in the pilot branches has been independently measured and is well above 90%.This is a very strong performance for any retailer. Customers are extremely enthusiastic about the longeropening hours the formats allow as this suits their lifestyle needs.

2.7 Research also indicates that subpostmasters are seeing an upturn of around 9% in their Post Officefootfall with indications that this is an increasing trend. And queues are being reduced as customers takeadvantage of early morning and after work visits. For example, 22% of visits to the Post Office local formatfall into these “non-traditional” hours. Compared to traditional Post Office branches, opening hours in locationsthat now have the local format have increased by an average of 85%.

2.8 The new formats are also having a positive effect on the income subpostmasters generate from theirretail businesses. The new formats allow for more retail space in their store, as well as opportunities for moreefficient working amongst their staff.

2.9 This all helps the economics of individual branches.

2.10 The Network Transformation Programme offers investment to subpostmasters to help introduce theseformats where they believe it would improve their business.

2.11 We envisage that up to 4,000 branches in the network could be using the main branch format by 2015,and up to 2,000 could be using the local format. The remainder of the network (that will remain a similar sizeas at present—over 11,500 branches) will be made up of subpostmasters staying on their existing operatingformats.

3. Findings from the Pilot Branches

3.1 We have learnt a lot over the three years we have been testing the new formats.

3.2 In addition to main branches offering a full range of Post Office services, we have now extended theproduct set available at the local format branches so the vast majority of products remain available after abranch converts—and typically available over much longer hours.

3.3 We have recognised that in our early trials we were not providing enough training, and the supportoffered to branch teams has now significantly increased—by a third.

3.4 Whilst a clear majority have welcomed the convenience of the new models, a small number of customershave cited privacy as an issue and we continue to test different ways of overcoming this with individualbranches.20 Not published.



3.5 We will continue to closely monitor the pilot branches through until June. We are however seeing thatboth the main and the local formats are operationally stable, receiving good levels of customer satisfaction andgrowth. Overall this shows that they can be a viable and sustainable part of a profitable business forsubpostmasters.

3.6 We will continue to listen and learn from our customers and subpostmasters.

4. Investment Programme Roll Out

4.1 This is a voluntary programme recognising that every Post Office is individual. The programme teamare working with those subpostmasters who see the new formats as suiting their businesses.

4.2 Over 50% of our independent subpostmasters have now told us their initial view of the investmentopportunities and the new formats, and there are over 3,000 who wish to discuss the opportunity further. Everysingle one of these will receive a face to face review with a transformation advisor by the end of the summer.This will help determine whether it makes sense for the investment to be undertaken in this particular branchand whether one of the new formats will enhance its future sustainability.

4.3 We have also seen strong interest from some of the multiple retailer companies and symbol groups whohave piloted the new formats and have seen that they can work for them and their customers.

4.4 Our expectation is that following the pilot review and the initial visits, the programme will begin to rollout more widely later in the summer.

4.5 As the funding from Government is staggered over the next three years, branches receiving investmentwill be spread over this period.

4.6 Our detailed Code of Practice will be followed as we communicate potential changes to customers andopinion formers, and instigate local consultation processes—for example in those cases where the Post Officemay be relocating within a community.

5. Conclusion

5.1 Network Transformation is a once in a generation opportunity to invest into the network, modernise it,sustain its size and ensure it remains relevant in the lifestyles of today’s customers. It provides a strong andsecure network platform for Post Office Ltd’s growth strategy in Government Services, Financial Services,Retail Mails and Telephony markets.

30 April 2012

APPENDIX

More about the Post Office— Following the enactment of the reforms contained within the Postal Services Act 2011, Post Office

Ltd is now (as of 1 April 2012) an independent company. It has its own Chairman and full Boardincluding non-executive directors. The Postal Services Act has made clear that the company willremain in the public sector—with the possibility of mutualisation at a later date.

— The company provides services to just under 20 million customers (and to half of all small businessesin the UK) per week through a network of over 11,500 Post Office branches. 373 of these branchesare operated directly by Post Office Ltd, all the others are agency branches operated by independentbusiness people or multiple retailers—typically as part of retail premises.

— Post Office Ltd provides full infrastructure support to all branches with a UK-wide cash and stockdistribution system, an integrated computer system for handling transactions and with fulloperational, product and marketing support.

— In 2010–11—Post Office Ltd made a profit of £21 million. In this year there was a Governmentsubsidy payment of £150 million. The main markets in which it operates are Government Services,Financial Services, Retail Mails and Telephony.

— The last closure programme finished in 2009. The current network—at over 11,500 branches—remains larger than all the branches of the banks and building societies put together and is a keypart of UK infrastructure. An independent study has identified that the network delivers at least£2.3 billionn “social value” per annum for the people and businesses within the UK. Post Office Ltdis committed to maintaining the size of this network, retain its social value and use it as a platformfor a new growth strategy.

More about the Main and Local Branch formats

Local

— The local format is designed to be attractive primarily in convenience type retail stores where thePost Office typically has one, possibly two counter positions.



— The format replaces the closed in “fortress” Post Office position at the back of the retail store withan open plan position typically next to the retail tills at the front of the store.

— It allows the processes for the subpostmaster and staff to handle services as straightforward andquickly as possible to avoid queues.

— As a result, the format can release the space formerly taken up by the Post Office fortress which canbe used to gain more retail sales space (with accompanying revenues). It also enables thesubpostmaster to make the most effective use of their staff (they don’t have someone sitting behinda screen isolated from the rest of the store—even if there are no Post Office customers).

— Integration into the store also means that the Post Office can be open the same hours as the rest ofthe store—in modern convenience stores this means early morning, evening and Sunday opening.

— The Post Office will invest into the store to help set up this operation, and will make a transitionpayment to the subpostmaster to give them time to adapt their internal cost structures.

— The ongoing payments that the Post Office then makes to the subpostmaster no longer include any“fixed element” of remuneration—payments are made for each product or service transacted.

— As a result of this approach the subpostmaster gains in overall profitability as loss of fixed pay isoutweighed by additional retail revenue from enhanced retail space, better use of their staff hours andincreased Post Office customer numbers attracted by more convenient opening hours. The approach ismore cost effective for Post Office Ltd to operate its network into the long term.

— Post Office branches that are more profitable for their operators and more cost effective for PostOffice Ltd to run—also mean that future demands to Government for subsidy to keep Post Officesopen will be reduced.

Main

— The main style format is designed for larger Post Offices—typically over two counter positions—where there is a suitable retail business attached.

— In these cases, the numbers of customers means that there has to be specific space set aside in thestore for Post Office activities. The main format allows the branch to make this space more open-plan, taking down some of the “fortress” positions and ensuring the most efficient and cost effectivefit into the store. It revitalises the store to make it more attractive to customers.

— In addition, investment is made to put the equivalent of a “Local” on the front retail till of the overallstore. This part of the Post Office operation can remain open all the hours the store is open. Themain part of the branch may also open longer hours than at present.

— The Post Office will invest into the branch to support the format.


— Loss of fixed pay is outweighed by transactional rates paid, by increased custom as a result ofopening hours and better customer environment, by better use of space in the store enhancingpotential retail earnings and, as with the local model, from new business that is attracted to arevitalised network.

— The overall profitability of running the Post Office for the subpostmaster can be enhanced.


Supplementary written evidence submitted by Post Office Limited (PONT 12A)

Further to the oral evidence session on 15 May there were some areas where I committed to provide moreinformation to the committee. Please find relevant information below covering:

— Customer Satisfaction research.

— Further explanation of the economics of the Post Office Local model.

— The cost base of Post Office Ltd.

— Vetting checks.

Customer Satisfaction

I highlighted at the committee that our research was showing 90% customer satisfaction with the Post OfficeLocal model and I said that I would provide further details on this.

Overview & Methodology

Customer research in Locals has been conducted on a number of occasions through the NetworkTransformation Programme pilot phase. This has been done using interviewer administered exit interviews with



customers who have just completed their visit to branch, meaning their Post Office experience will be fresh intheir minds.

This has been conducted in a number of projects, all of which have involved interviewing large samples ofcustomers across representative geographic samples of Local branches.

All projects have shown high levels of customer satisfaction, as detailed below, based on the question “Howsatisfied or dissatisfied are you with the overall experience in this store today?”, using a 7 point scale from“Extremely satisfied” to “Extremely dissatisfied”.

Examples of Research Studies

Time series tracking research over three years (2009–11)

A new model for Local Post Office branches was introduced in 2009 (at the time the model was called “PostOffice Essentials”). Post Office conducted in-branch customer research in 2009 (within a month of the newbranches opening) and again in 2010 and 2011 to track the impact of the new operating model. This was across25 branches, with customer satisfaction high immediately after the change, and remaining high over time:

— 2009—97% of customers satisfied. Base: 938 customers.

— 2010—98% of customers satisfied. Base: 1,192 customers.

— 2011—98% of customers satisfied. Base: 1,216 customers.

Specific research in converted branches (research January 2012 and March 2012)

Across 12 pilot Local on-site branches converted in October/November 2011, in-branch customer researchwas conducted on two occasions post-conversion, once a minimum of six weeks after the changes had beenimplemented at each branch (January 2012), then again a minimum of three months after the changes (March2012). Again, customer satisfaction remained high through transformation:

— c.6 weeks post conversion—93% satisfied. Base: 442 customers.

— c.3 months post conversion—90% satisfied. Base: 466 customers.

Specific research in converted branches (research—April/May 2012)

Research was conducted in April/May 2012, to provide a current view of in-branch customer satisfaction in18 Local branches. This research was split to give a robust sample of customers in both On-site and Off-siteconversions. Satisfaction was high in both types:

— Locals overall—95% of customers satisfied. Base: 774 customers.

— Locals On-site conversions—92% of customers satisfied. Base: 409 customers.

— Locals Off-site conversions—98% of customers satisfied. Base: 365 customers.

Summary

In summary, these three studies have involved interviewing more than 5,000 customers across arepresentative, geographical spread of 49 branches throughout a wide range of times of day, across a number ofmonths. All of this research has shown consistently high levels of customer satisfaction in pilot Local branches.

Overall context of the research

Research was conducted by Brass, an independent market research agency, based in Leeds. It has been inbusiness for almost 30 years. Over this time it has grown significantly and has developed its insight servicesto provide added value to its clients—blue chip organisations in the private and public sector such as ASDA,GSK, Boots, TNT and Dixons Retail Group. Brass works with clients of all sizes and industry sectors to helpthem address a variety of business challenges through effective customer insight. It has strength in bothbusiness-to-business and consumer research. As full Company Partners of the Market Research Society (MRS),Brass upholds the highest standards of market research practice and ethics.

The Economics of the Post Office Local Model

We discussed the economics of the Post Office Local operating model and I agreed to set this out:

Voluntary—any move to the new Post Office Local model is entirely voluntary on the part of thesubpostmaster. They will only move to the new operating model if the economics stack up for themand we will only introduce the new model where there is a robust business plan and where we aresure it can be successful and sustainable.

Stay as you are—any subpostmaster who wants to stay on their current contract terms—if that worksbest for them—can do so.



How the Post Office Local economics stack up—The local model offers longer opening hours tocustomers and better profitability to subpostmasters. By doing both of these it plays its part in PostOffice Ltd’s growth agenda and its ability to sustain the current size of the network.

— Locals are designed to be attractive in small to medium post offices with a good retail offer.

— The discrete “fortress” position, with a screen between the customer and the post officeassistant, is removed and the Post Office is moved from the back of the store to the retailtill area.

— This has big advantages for the subpostmaster as valuable space (typically 100 sq feet) isreleased for more retail—so retail sales can be increased. Retailers will have a revenue returnper square foot of retail space and a profit margin on that revenue. This will differ betweenretailers—but additional released retail space will typically enhance profitability for theoperator.

— A further advantage is that the subpostmaster can use their staff efficiently—as they no longerhave someone closed off behind a screen. Putting the Post Office services onto the front till, andmaking sure that transactions are straightforward to perform, means that Post Office services areavailable for all the hours the retail shop is open—perhaps 8am-10pm for seven days a week.Our trials are showing an average 9% growth in Post Office customers and an average 9%growth in retail sales in these formats.

— Our remuneration structure for Locals means we don’t provide fixed pay but we do make apayment for every transaction performed. In effect the Post Office is no longer buying/payingfor the retail space/footprint that was formerly required.

— The equation for the subpostmaster is—that the extra retail sales from extra space, and theincrease in both retail and post office customers due to greater customer convenience, coupledwith the more efficient use of staff, can more than make up for the absence of fixed pay—theresult is more profitable overall for the subpostmaster as well as more convenient for customers.

— To help the subpostmaster make this transition—we are investing £10,000 per branch so theycan refit their store for the new format and making a payment which is equivalent to continuingto pay the fixed pay element for 18 months—this will enable them to adjust their costs andrevenues as they move towards higher profitability.

The economics may differ case by case—for example, for an on-site conversion to a Post OfficeLocal it will depend on the retail potential in the location and the subpostmasters current coststructure. That is why any change is entirely voluntary for subpostmasters.

In the case of an offsite conversion to a Post Office Local—the economics for the subpostmaster are different.The opportunity to offer a Post Office service to the local community without having to forego valuable retailspace makes this an attractive proposition and potentially increases the number of retailers who are willing tocome forward to operate Post Offices. They will consider the marginal cost of operating the Post Office intheir store against the benefit of remuneration for Post Office transactions and any additional retail benefitsthey will gain from increased footfall. Again, retailers will take on the model if it makes economic sense forthem to do so.

It is also important to highlight that the changes that we are proposing under Network Transformation cover6,000 of the 11,800 Post Offices and the vast majority of the change, 4,000 branches, is to the Mains model.We envisage the Post Office local model in around 2,000 Post Offices by 2015. Any subpostmaster who wantsto stay on their existing contract can do so. However, for those where the economics of the Local work—theopportunity for them to move onto this new model, with its more convenient opening hours for customers,is available.

Post Office Ltd Cost Base

We discussed the breakdown of Post Office Ltd costs and I said that I would provide more detail on this.

The vast majority of Post Office expenditure is directly on the Post Office Network or on direct support forit (such as cash provision or computer systems). The network is the absolute heart of our business—thatis why we have an investment programme to maintain its size and to boost growth in revenues throughthe network.

If we look at our annual cost base of around £1bn (excluding cost of sales), we can see that:

— Agents Pay is around £485 million.

— Crown Staff and Property is around £170 million.

— The direct network backup costs of IT/Cash Supply/training/security etc is around £235 million.

Together these figures come to around 90% of our cost base with the balance covering central functions,product developments, marketing, accounting, investment etc.



Vetting Checks

There was some discussion at the committee regarding the vetting and checking arrangements for the PostOffice Local and Mains contracts. I thought it may be helpful to provide clarification on this point.

The strict checking and vetting process that we have in place—which include Criminal Records Bureau(CRB), County Court Judgment (CCJ) and right to work checks—are carried out in all cases whichevercontract/format is operated. Exactly the same checks are completed for the Post Office Local and Main contractsas those carried out for traditional Sub-Post Offices.

Moving Forward

As I highlighted at the committee session we have introduced over 200 pilots covering both on-siteconversions to the new model and off-site. Some of our pilots have been in operation for over three years andwe continue to learn lessons and make improvements to the model. These include—adding to the productrange, enhancing the training of staff and improving support for branches (eg extending the subpostmasterhelpline hours to match extended branch opening hours). We have welcomed the recent report from ConsumerFocus; we continue to seek to develop things further and will be working with the Consumer Focus team onlocal communication and consultation arrangements.

As we move forward with our pilots, adding more local branches, we will continue to develop the modelsand the processes for introducing this investment into the network. We recognise the importance of keepingMembers of Parliament fully informed through this developing process and are intending to write shortly toall MPs to provide a dedicated point of contact in Post Office Ltd should they have enquiries or questionsabout this investment activity. We will of course keep MPs fully aware of any investment which may beproposed in their constituencies.

If your committee requires any further information as part of your enquiry then please let me know. Also,if it would assist, I would be pleased to arrange a demonstration for you and/or committee members at ourbranch model office facility here in Old Street, where the latest equipment and processes used in our branchnetwork can be seen.

Paula VennellsChief Executive

May 2012

Further supplementary written evidence submitted by Post Office Limited (PONT 12B)

Set out below is the age range of agents as requested.

AGENTS’ AGE BANDS

Age Banding

Under 20 0.00%20–29 2.36%30–39 10.77%40–49 26.11%50–59 35.16%60–69 21.21%70–79 3.72%80+ 0.63%

Martin HumphreysStakeholder RelationsPost Office Ltd

11 June 2012



Further supplementary written evidence submitted by Post Office Limited (PONT 12C)

1. Post Office Local—General Information— The local format is designed to be attractive primarily in convenience type retail stores where the

Post Office typically has one, possibly two counter positions.

— The format replaces the closed in “fortress” Post Office position at the back of the retail store withan open plan position typically next to the retail tills at the front of the store.

— It allows the processes for the subpostmaster and staff to handle services as straightforward andquickly as possible to avoid queues.

— As a result, the format can release the space formerly taken up by the Post Office fortress which canbe used to gain more retail sales space (with accompanying revenues). It also enables thesubpostmaster to make the most effective use of their staff (they don’t have someone sitting behinda screen isolated from the rest of the store—even if there are no Post Office customers).

— Integration into the store also means that the Post Office can be open the same hours as the rest ofthe store—in modern convenience stores this means early morning, evening and Sunday opening.

— The Post Office will invest into the store to help set up this operation, and will make a transitionpayment to the subpostmaster to give them time to adapt their internal cost structures.


— As a result of this approach the subpostmaster gains in overall profitability as loss of fixed pay isoutweighed by additional retail revenue from enhanced retail space, better use of their staff hours andincreased Post Office customer numbers attracted by more convenient opening hours. The approach ismore cost effective for Post Office Ltd to operate its network into the long term.


2. Post Office Local—Compensation and Investment

Under the Network Transformation Programme the compensation and investment proposals for Post OfficeLocal cover three broad scenarios as follows:

— A subpostmaster who may be interested in transforming their existing branch to the new PostOffice Local model.

— A subpostmaster who may be looking to sell their business.

— A subpostmaster who may be interested in leaving the network.

All subpostmasters have had the opportunity to complete a survey to indicate if they want to stay as theyare, transform their branch or leave the network.

It is important to note that the change programme is entirely voluntary but a change will only take placewhere Post Office Ltd believe that a new post office model can be successful and, in the case of subpostmasterswishing to leave the network, where a suitable alternative is available to provide post office service. A changewill only take place where Post Office Ltd makes a decision to proceed to the Post Office Local model andwith the Subpostmasters consent.

2.1 A subpostmaster who may be interested in transforming their existing branch to the new Post OfficeLocal model

Where Post Office Ltd decide to proceed with a change of branch to a Post Office Local under the NetworkTransformation programme Post Office Ltd will invest up to £10,000 in the Subpostmasters branch. Thisinvestment will cover the cost of setting up the Local operating model in the branch and includes:

— Installation of the Horizon equipment on to the retail counter.

— Installation of modern internal and external signage and a window display.

— Provision of two safes—one for a back office and another working safe near the retail counter.

— Integration of the Post Office and retail counters.

On top of this, the Subpostmaster would receive a payment equivalent to 1.5 times the difference betweenthe best annual remuneration from the last three full financial years that was received under their subpostmastercontract (excluding any exceptional one-off payments such as colleague share dividends), and the expectedfees for the first year of operation of the Local branch, which is based on Post Office Ltd’s knowledge of theexisting customer transactions.

Post Office Ltd will support the subpostmaster through the transition and help them manage the change fromthe current ways of working to the new operating model. Post Office Ltd will also help to resolve anyimplementation issues and provide the subpostmaster and their team with open plan working, operational andcustomer service training.



2.2 A subpostmaster who may be looking to sell their businesses

Where a Subpostmaster is looking to sell their branch, Post Office Ltd will meet with them to establish iftheir branch is suitable for conversion to the new operating model.

If it is decided that a new operating model would be most suitable and appropriate at that time then PostOffice Ltd would advertise the vacancy and also make sure that all the necessary details are provided toapplicants.

If an applicant is appointed on the basis of a Post Office Local operating model the incoming operator wouldbe eligible for the investment of up to £10,000 to cover the costs of setting up the Post Office local operatingmodel (as set out in (1) above).

In addition, if the appointment is advertised as a Local Post Office model and a successful applicant isappointed, the outgoing subpostmaster would receive a payment from Post Office Ltd equivalent to 1.5 timesthe difference between the best annual remuneration at their branch from the last three full financial years thatthey received under their subpostmaster contract (excluding any exceptional one-off payments such as colleagueshare dividends), and the projected fees for the first year of operation of a Local branch.

Note: There will be some circumstances in which Post Office Ltd decides that the most appropriate optionwould be for the appointment to be made on the current operating model.

2.3 A subpostmaster who may be interested in leaving the network

There could also be an opportunity for Subpostmasters to leave the network if they feel they no longer wantto run a Post Office branch.

If this is the case, Post Office Ltd would work with the Subpostmaster to try to find a suitable alternativeoperator and premises nearby.

And, if a suitable new location and operator can be found, and Post Office Ltd agrees to relocate the branch,the exiting subpostmaster would receive a termination payment, for loss of office, when they leave the network.

This payment would be the equivalent of 18 months’ remuneration based on the best in the last three fullfinancial years (excluding any exceptional one-off payments and colleague share payments).

If Post Office Ltd did propose moving the branch to a different location, Post Office Ltd would carry out alocal public consultation to give customers and others the chance to have their say on the proposal. This islikely to last six weeks.

If a Subpostmaster is interested in leaving the network, it has been emphasised that this is a three-yearphased programme of modernisation and investment and, even where it’s possible to relocate the branch, thismay take some time.

Where Post Office Ltd decide to proceed with an appointment on the basis of a Post Office Local operatingmodel the incoming operator would be eligible for the investment of up to £10,000 to cover the costs of settingup the Post Office local operating model (as set out in (1) above).

Note: It is important to note that a change on the basis of a subpostmaster leaving the network will onlytake place where a suitable alternative post office service can be established to ensure that a sustainable postoffice service can be maintained. A change will only take place where Post Office Ltd makes a decision toproceed to the Post Office Local model.

3. Government Funding

The Government set out their policy on the future of the Post Office network in November 2010 in theirdocument “BIS—Securing the Post Office in the digital age”

http://www.bis.gov.uk/assets/biscore/business-sectors/docs/s/10–1260-securing-the-post-office-network

The Government have committed £1.34 billion in funding to modernise the Post Office network over thefour years of the spending review period to March 2015.

The profile of funding by year is shown on Page 18 of the document as follows:

FUNDING BY YEAR

2011–12 2012–13 2013–14 2014–15

£180m £410m £415m £330m

The breakdown of the Post Office investment is shown on page 19 and indicates that the Network Subsidywill continue and will be around 48% of the funding. The investment and compensation elements of networkmodernisation will be around 37% of the funding. The breakdown between investment and compensation will



be dependent on the mix of branches converting to the new models and subpostmasters leaving the networkwith new operators coming in.

4. The Post Office Network at end March 2012

There were 11,818 Post Offices at the end of March 2012 which includes 373 Crown Post Offices, 25 MainPost Offices and 176 Post Office Locals.

27 June 2012

Written evidence submitted by Debi Kemp (PONT 07)

I am the Subpostmistress of a small rural village post office in Scotland and would like to take thisopportunity to provide some feedback on the Network transformation programme currently being piloted byPost Office Ltd (POL).

Firstly, I would like to point out that as one member of one of the largest group of stakeholders in the postoffice network ie the Subpostmasters, I was given zero opportunity to be involved in the development of thischange programme. At no time were we approached to give our ideas, approval of ideas or feedback on thedecisions being made. I find this top-down approach to change to be wrong on two fundamental counts. Firstly,it is non-business minded to charge ahead with a change programme without consulting the very people youexpect to implement this change. We work at the coal face and know this business inside out. We know whatour customers want, need and expect from the post office and we provide that on a daily basis in a myriad ofways many of which are unpaid. We also provide premises for POL to enable them to conduct their businessfree of charge and yet we do not merit any input to decision making, as far as POL are concerned. Secondly,it is morally reprehensible for POL to make changes to our businesses which pose a very real threat to ourfuture without consulting us. In my personal situation, I poured my life savings into buying my post office. Itook on a mortgage to buy the building which was valued according to my post office income. The removalof the AOP payment will reduce the value of my business by more than half and leave me with a mortgage Icannot afford and an unviable business to prospective purchasers and bankruptcy for me. This in turn will leadto a village with no post office and no chance of regaining one—a situation increasingly being covered by themedia up and down the country.

Secondly, My view of three options available in this new model is that it is POL’s new method of gettingrid of subpostmasters without the need to pay compensation. Of the three options available to me, only one isrealistic and that is to stay as I am. This is no guarantee of long term survival and very much feels like we areto be left to dwindle in the background with bankruptcy yet again the resulting outcome. From the minisculeamount of information which has been provided by POL/NFSP, a post office such as mine would not attractthe new government work being discussed and will find it difficult to grow and remain successful. AT theNFSP meeting I went to last year, I told the NFSP representative my situation and his words to me were “wellyou’re in trouble then” … this says it all.

There is no way I could change to a local—as I intimated earlier, I am a small village post office with avery small retail side—cards, stationery, gifts etc so my retail side is too small to be a local and neither of theother two businesses in my village—a fair sized convenience store and a pub are the least bit interested inhaving to deal with POL due to the horror stories they have heard from a retired SPMR who stays in thevillage about what it is like to deal with POL. Therefore, I can only stay as I am and with the threat of theAOP being taken away, I face bankruptcy. My AOP represents almost 70% of my post office income. Myretail side makes a small profit and is therefore just managing to pay to keep the post office open. When I losemy AOP I will have no choice but to close my door and find a job—I don’t know many people who couldsurvive on a 70% pay cut. So, I will have to close through no choice of my own with no compensation for theloss I will face due to changes being made outwith my control. This is a very real and frightening threat formany, many Subpostmasters/mistresses across the country.

The local model is not suitable for a village such as mine. We are seven miles away from a crown officeand the restricted services which a local would provide would not be sufficient to meet the populations needs.My customers are mostly pensioners and rely heavily on me to help them with understanding documentationand changes to procedures. They often need longer time spent with them just for simple tasks such aswithdrawing cash from their account. This scenario would not work with a bunch of tradesmen standing behindwanting to get their lunch and get out asap. The need for privacy is very important to people when dealingwith financial tasks—even if it is just withdrawing cash from their account. I also have a high percentage ofE-bay/small business customers who come in with large bags of mail, leave it with me and come back later topay—this is not a service which I believe locals would provide in any form. Some of the results of polls oncustomers experience of the new local model is very positive however, often they are customers who had noservice due to their post office being closed in previous closure programmes then were provided with a postoffice local—these people are obviously going to be happy to have any service rather than none at all. I wouldask that the surveyors come to my village and ask my customers if they would like to lose what they currentlyhave but gain a post office local. It may be available for longer hours but most of them would be unable tocarry out the transaction which they normally do with me. Furthermore, when I leave the village, the chances



of there ever being a post office in this village again are remote to say the least—no business banking managerin their right mind would finance anyone wanting to buy my post office on the new local contract—the mathsdo not add up—the risk of financial failure would prevent the loan application going through. This is not atransformation programme—this is a closure programme. The changes being implemented will result in postoffices like mine being closed—this is surely the definition of a closure programme.

I also believe, this move to locals and basics will damage heavily, the post office brand—it takes away theprofessionalism and respect which comes with the job and says to the customer that the person dealing withyour postal/financial requirements need only be able to sell a pint of milk—in no way do I mean to disrespectshop assistants however, it is POL themselves who set such strict criteria on who is permitted to work behindthe counter and yet it seems with the removal of the fortress comes the removal of this criteria. There areundoubtedly going to be people working in these new locals who would never get past the vetting systemcurrently in place.

Whilst I could go on at length and give many more examples of how this NT programme is damaging, Ithink the main point is this, thousands of small subpostoffices are in danger and POL/the government arepainting over the danger with their so called positive pilot scheme results—and neither the public nor localcouncillors seem to have any idea what is going on. If this programme is not stopped NOW and reconsidered,the damage will be done and it will be too late to fix it. What they are doing is not in the interests of thebusiness—it is short term planning with no thought to the unintended consequences, it favours the larger officesthrough sacrificing the smaller ones and it is immoral to intrinsically change an organisation without consultingthe majority stakeholders in the business beforehand ie the SPMR’s who enable POL to carry out their business.

23 February 2012

Written evidence submitted by Carole Campbell (PONT 06)

I run a rural Post Office from inside my Village Shop. It is greatly valued but is not suitable to become a“Local” ie using money from the retail side to “fund” the Post Office side.

Subpostmasters were asked their views on Network Transformation and whether they wanted to “stay thesame” as they are, in which case they would not receive any funding for their branch.

I believe the Network Transformation as it currently is not beneficial to any rural branch and my customershave grave concerns that they may lose their Post Office. If the current “Core Tier Payment” is removed frommy salary and I am paid “per transaction” I would not survive as a full-time Post Office.

As a Subpostmistress I have excellent knowledge about many subjects, from mail to insurances, and I amasked for advice on a daily basis. I think the Committee would agree that the loss of a Rural Sub-Post Officeis very damaging to the Community as a whole and I know my customers are very upset at the prospect oflosing theirs.

Would you please reconsider Network Transformation and ensure that rural Post Offices that wish to remainas they are, are not penalised for wanting to provide excellent customer service and service to the communityas whole.

24 February 2012

Written evidence submitted by Maureen Coston (PONT 04)

I am the Sub Postmaster of Ashwell PO in Herts and I am submitting this to your inquiry to express myconcern with the way that network transformation is being managed. I have been a serving postmaster since1996 and have experienced the decline in the way the network has been managed over the years. We are nowat crisis point and this is not entirely due to a change in shopping habits as is constantly portrayed by POLand their business partners, the Federation of Sub Postmasters, of which I was a member for 15 years. Myconcerns are as follows:

1. Although many postmasters called for a full consultation on the proposed new models we wererepeatedly denied this by POL and the FED. We also called for a vote which is the right of unionmembers but this was denied us by the FED. We have not been allowed to comment on the changesor have any input at all with only the FED executive having any say. We have been deniedinformation and told that confidentiality agreements have been signed between the two parties whichexcludes information being given to the very members of the union whose dues fund them andwhose rights and businesses they are sworn to protect and represent.

2. The loss of our core tier payment will make thousands of post offices unable to trade. Althoughoriginally we were told that the product payments we currently receive would be enhanced onmoving to the new model this has since been reneged upon and at present our existing pay isborderline economic for supporting offices. In my own instance I used to employ two counter clerksbut now employ one person on much reduced hours. The loss of 50% of my pay effectively makesme unable to trade and unable to sell.



3. As a postmaster I feel that the “front office for government” proposal is dishonest. On the onehand Ed Davey said he wanted to make this happen but on the other hand he admitted that therewas nothing he could do to award contracts to POL. On the counter all we see is business takenaway and nothing coming on. The new passport business supports the Crown network not the restof us. The proposed pension credit form filling service will not result in any significant income. Iwill probably earn less than £10 per annum from this. We have lost National Savings, green giros,TV licensing, European Health Cards, prescription prepayment applications and nothing new hascome to us. We are effectively being starved of business.

4. The Local model is a bad replacement for the professional and dedicated service which is currentlyprovided up and down the country. POs are the perfect place to provide financial services to themore vulnerable and economically challenged people in the country. The banks are not interested inthose on low incomes or receiving benefits and many elderly people use their local PO to obtainadvice that is not available from banks. Every week I assist people with understanding their billsand help vulnerable customers to access their money.

5. The choices we have been given in this process are to change to a local with the resultant loss ofapproximately 50% of our pay, stay as we are with the real possibility of being further bled of workby being denied the opportunity to transact any new products or to close. If we opt for closure thisis with the proviso that we will receive some compensation if PO Ltd find a replacement outlet, noneif they do not. The closure option will be the only one open to thousands of postmasters due to thefact that the loss of 50% pay is unsustainable, our offices are unsalable due to the loss of products,failure by successive governments to fulfil promises of work and the relentless drive to provideeverything via the internet to the detriment of the vulnerable section of society. After making itimpossible for us to trade, the final nail in the coffin is to link the compensation payment with areliance on POL finding another outlet. This is grossly unfair and postmasters should be compensatedfor the loss of their business whilst the onus to replace the service should be the entire responsibilityof POL. By linking the compensation payment it leaves the process very open to abuse andmanipulation.

9 March 2012

Written evidence submitted by Christopher Swain, Chairman, Henham Village Shop Association Ltd(PONT 09)

I refer to the forthcoming BIS Committee hearings and would be grateful if this aide memoire could bebrought to members’ attention.

It is unfortunate that Royal Mail and Post Office Ltd are being treated as two distinct entities with separatesets of problems, rather than as integral parts of a communication system. The raison d’etre of the postalsystem is to maintain a network connecting individuals and communities across the country and the outsideworld. As such, it is part of the social infrastructure of the country as well as economically important,particularly in rural areas. Viewed this way the facility to send mail and the universal delivery obligation onRoyal Mail are as important to each other as the two blades of a pair of scissors.

It also means that every effort should be made to retain existing post offices, and preferably to enablevillages that have lost them to re-establish some kind of facility for sending mail.

The thrust of POL policy for a long time has been to look for additional services to add onto the coreservice, to increase overall revenue or make up for business lost from public agencies and utilities. This issurely a wild goose chase, since the additional services yield only small margins, yet increase financial andoperational responsibilities and system overheads for sub-postmatsers and their staff. It is worth pointing outthat many of the financial services would have been provided by banks, had they not largely deserted ruralareas for lack of profitability.

In the past it used to be the case that the Post Office fee helped to underwrite the viability of the villageshop. It is too much to expect that this position can be reversed. POL’s “Local” model aims indirectly at savingstaffing cost by assuming shop staff will undertake post office transactions concomitantly with retailing, butthere still remain substantial overhead charges due to the computerised systems required to interface withfinancial institutions and with POL’s centralised management. It seems highly likely that the “Local” modelcan only work in a substantial retail outlet and not in the average village shop.

What is required is a simpler business model that provides the facility to send mail without the need to belocked into POL’s Horizon and centralised security systems and which can operate independently of POL’smanagement system. As a variation on this model the cost of having the facility to do financial transactionscould with some justification be supported by the banks, which are effectively gaining the business of theirrural customers on the cheap.



Devising a simple model that concentrates on the core and unique public service of mail transmission wouldenable it to be undertaken by community groups as well as small village shops. At present it is not practical,even were it allowed by POL, to operate except with trained, dedicated and paid staff.

As is noted in EDM 2841 there is a likelihood that many sub-post office operators may find that it is notworthwhile continuing under POL’s terms. On the other hand a simpler low-cost model would change thepicture radically and make it possible for new post offices to be set up.

The fundamental problem is that sub-post offices are individual businesses concerned with their own survivaland viability. This is a shaky foundation on which to maintain a nation-wide public service and requires asubtle and varied approach if its obligations are to be fulfilled.

24 April 2012

Written evidence submitted by the Rural Shops Alliance (PONT 10)

1. Summary

The introduction of the PO Local format will affect hundreds of rural Post Offices. The Post Office Localmodel results in a marked loss of income and potential increase in operating costs for many of these rural subpost offices. It is very hard to reconcile the target of implementing 2000 PO Locals with a commitment tomaintaining the network at its current size. PO Local is not appropriate for many locations where neverthelessit is currently the only contract being offered to prospective operators. A reduction in income will result inshop/post office closures in the long term. A more rigorous “horses for courses” approach is needed to avoidthis outcome.

2. Introduction

2.1 The Rural Shops Alliance represents the views of about 7,500 rural shops in England. Of these, abouthalf have a post office as part of their offer. The vast majority of these are general or convenience stores, oftenthe only shop in their community. For many, the sub post office remuneration is a key part of their financialviability. Few are large enough to become Post Office Main branches and hence our comments relate primarilyto the PO Local concept. We frequently visit and support rural post offices; our comments are largely informedby these contacts. We have cordial relations with Post Office Ltd. and hold regular meetings with theirmanagement.

2.2 Many of the businesses we represent are crucial centres of community life in their village. A villagewithout a shop is a very different place from one with this facility. It is hard to quantify this very realcommunity benefit, although some estate agents estimate that the presence of a shop/post office can add 10%or more to the value of a house in a village. Historically, Government has recognised the social importance ofrural post offices through a subsidy of £150 million per annum to help Post Office Ltd. (POL) support therural network.

3. The Key Issue

3.1 It has been the case for decades that many rural shops/post offices have depended on two income streams,with the shop side and the sub post office supporting each other. Twenty years ago the post office income,largely derived from stable government and postal business, was often seen to support the retail side. Todaythat relationship is in the process of being reversed. In particular, the very limited income from a PO Localneeds a strong and profitable retail side to support it.

3.2 POL is charged by the Department for BIS to: Maintain the branch network at its current size andimplement 2,000 PO Locals over the next couple of years. We believe that these objectives are incompatiblewith each other and that POL management have been set an impossible task.

3.3. The key problem with PO Local is that in most locations it generates far less income to the operatorthan they would have received through a normal sub postmaster contract. The RSA has modelled the costs andbenefits for a sub post office switching to the PO Local format and we find it nearly impossible to inputrealistic assumptions that would make the operator better off. This model is based entirely on POL’s owndescriptions of the Local concept and is totally objective—there are no hidden assumptions. Access to thisspreadsheet is available through our website www.ruralshops.org.uk and we would be very happy for theCommittee to access it to understand the implications of the PO Local format.

3.4 PO Local can make commercial sense in large convenience stores, where the additional footfall itgenerates can produce sufficient extra sales to justify the staff and space costs of operating it. Few of thesewill be in rural areas where the social value of the post office branch is most apparent.

4.0 Analysis—Income to the Operator

4.1 The crucial part of the PO Local model for an operator is that it generates far less income for a givenlevel of Post Office business. There is no fixed core payment or holiday and sick payments. Income is based



solely on fees for each transaction effected. The full list of these fees is long and complex but here are a fewexamples of the value different transactions provide to the sub postmaster:

Customer withdrawing cash via a Link debit card 17.5p feeRoyal Mail 2nd class postage label 11.7p feeSelling an e phone top-up 3.5% of valuePO Card Account payments 0.125p per £ paid outSelling 2nd class stamps 2.25% of value

Selling a 50p second class stamp (and yes, some customers do really come to buy just one stamp!) wouldearn 2.25% of 50p or just over 1p for the transaction.

4.2 The balance of income for a post office between the core payment and transaction fees obviously dependson the specific PO contract and the level of business, but a typical rural shop with a PO might receive a POincome of £12,000 per year, of which something like £8,400 would be the core payment, £3,600 transactionfees.

4.3 Replacing an income of £8,400 with additional shop sales would demand a sales increase of perhaps£84,000 (assuming a gross profit of 20%, reducing to a net profit of 10% after shop costs, on these additionalsales. For the vast majority of rural shops, this is an impossible “ask”. Voluntary conversion from a sub postoffice to a PO Local format would lead to a loss of income for the vast majority of shops, a fact reflected inthe POL financial compensation package on offer for those that do so.

5. Analysis—Cost to the Operator

5.1 The PO Local model is based partly on the concept that staff utilisation is improved by having the shopcounter and the PO counter adjacent. To a degree, this is undoubtedly true, as thousands of POs which alreadyhave this configuration will testify. However, the PO Local format does throw up some staffing issues:

5.2 perating the post office for the same hours as the host shop means that all counter staff need to be trainedand competent to handle PO business. Many retailers use a lot of part time staff and staff turnover is notoriouslyhigh in the retail industry. The PO Horizon computer system was originally designed decades ago for use byfully trained staff, although there have been updates along the way. Staff need proper training and to use itregularly to be fully competent. This is a particular problem for community run shops operated by unpaidvolunteers (where there may be 30 or more people serving each week, all needing training) and commercialshops employing staff for particular shifts—often Sunday morning staff, mainly selling newspapers for a coupleof hours, would not be as skilled, for example.

5.3 In rural areas, for many shops there is relatively little extra business to be garnered from longer openinghours. This may be different in urban locations and it is also not true in some rural locations, where goodpassing trade can mean longer opening hours are actually productive.

5.4 Staff time spent on post office business is not free. Proprietors are usually only too aware that peopleare their largest operating cost and try not to have staff idle—they have to maximise staff utilisation. Inbetween customers, assistants are usually expected to shelf fill, check date codes or carry out similar shop-floor functions.

5.5 A typical shop assistant rate of pay would be £6.25 an hour (a bit above National Minimum Wage).With on-costs such as national insurance, holiday pay, sick pay, pensions, etc, the cost of an hour worked isnearer £7.50 per hour, or 12.5p per minute. Some earn more.

5.6 Without a core payment for running a post office, it is questionable whether the transaction paymentsactually cover the staff time needed to effect them, yet alone make any contribution to overheads or generatea profit. In the example of a customer buying one stamp, then clearly the time taken far exceeds the incomefrom the transaction, whilst other transactions may generate a modest surplus.

5.7 Many customers see the Post Office as a trusted government service for which they assume the operatoris getting a decent salary. They expect a level of service commensurate with this. If the reality is going to bea semi-trained shop assistant multitasking between shop and post office, then customers need to know this andto adjust their expectations. The reality is that one person juggling a shop queue and a post office queue is inreal danger of satisfying neither fully. In some businesses, two people are employed, rather negating the premiseof PO Local and probably ensuring the operator makes a net loss on the PO business. We do know a coupleof businesses where the proprietor does prioritise serving the shop queue, explaining to anybody complainingthat he makes money from the shop whereas the post office counter is only there as a community service. Weare also aware of places where the post office is in reality closed at certain times the shop is open, in breachof the contract but an understandable attempt to contain costs.

6. The Long Term

6.1 POL is working hard to meet the Department for Business, Innovation and Skills’ target of 2,000 POLocals. Whenever a sub postmaster resigns or tries to sell their business, then any replacement is likely to beoffered a PO Local contract. When a new operator takes this on board, the result is a financially weaker



business. Anecdotally, the uncertainty surrounding future income is already being reflected in increaseddifficulty in selling post offices on as going concerns. There are currently at least 1,000 post offices up for sale(source: Daltons Weekly)—the true figure is likely to be much higher than that.

7. Case Studies

These four brief cases are not a representative sample but merely cases we have encountered whilst visitingstores. They do illustrate some of the problems that can emerge from the PO Local model in small shops.

7.1 Bishampton, Worcestershire

The commercial shop and post office closed. The parish council has taken out a large loan to buy thepremises to keep the service going for the benefit of the community. The shop is rented out to a commercialoperator, who has a PO Local contract. However, there has been considerable dissatisfaction in the villageregarding the services available from a PO Local and the operator has found it very difficult to make the wholebusiness viable with only a limited income from the post office. It seems possible that it will be very difficultto find successors to them when the time comes for the current proprietors to move on.

7.2 Payhembury, Devon

The commercial shop and post office closed. The community has set up a replacement shop in a formeragricultural building in the village, sharing a shop manager with another village 3 miles away to save costs.POL is only offering a PO Local contract. The shop committee has taken the view that it would be impossibleto operate this with the numbers of unpaid volunteer staff that would be involved; the income would certainlynot provide enough to employ paid staff. As a result, the village is without a post office.

7.3 Sherborne West, Dorset

The sub postmistress wanted to retire. After trying to sell the business as a going concern, she resigned andthe business closed. Although as a sub post office with a limited retail offer it produced an acceptable income,as a PO Local the gross income (before any costs) from the Post Office would amount to about £2.50 per hour.The purpose-built premises, owned by the district council and offered at a very attractive rent, currently standempty in consequence.

7.4 Abbots Bromley, Staffordshire

The post office in the village closed and the proprietor of the general stores installed a PO Local as a serviceto the community. It was very well supported, to such an extent that it was necessary to either have twomembers of staff on duty (resulting in trading at a loss) or else shop sales suffered as customers were put offby the long queues. At Christmas, finding the physical space for parcels awaiting collection by Royal Mailwas a real problem. These issues were never solved before the post office was targeted in a robbery. Thisresulted in the proprietor deciding that with a young family in the residential premises above the shop she wasnot prepared risk a repeat by continuing to have the post office on the premises. This PO Local has closed andthe village is now without a post office.

8. Specific Recommendations

8.1 Clearly it is nearly impossible to square the circle of the need for POL to improve its financial positionin order for subsidies to be withdrawn and the business readied for the planned mutualisation POL managementneed to be commended for making a good attempt at an impossible task. We would expect the widespreadimplementation of PO Local to lead to closures in the long-term. Reduced financial returns will lead toweakened businesses, with inadequate funding for re-investment and ultimate closure—albeit in some casesseveral years hence. These recommendations are all put forward with the intention of improving theimplementation of the PO Local model.

8.2 The application process for a prospective operator of a PO Local is the same as for a full sub post office.This spreadsheet is highly detailed and assumes that the shop and post office will be manned separately. Thisform needs radical simplification and to be rewritten to reflect the reality of the same staff running a combinedshop and PO Local.

8.3 The post office Horizon computer system was designed for operation by dedicated PO staff. It is decadesold in structure and by modern standards is slow, unforgiving and quite cumbersome. It needs staff to bepracticed in its operation and is less intuitive in operation than more modern platforms. There is a need for anew simpler system designed from the outset for operation by semi-trained staff. We are aware of the significantcost implications of this suggestion.

8.4 There is widespread uncertainty about the long term future of sub post offices. Different messages haveapparently come from different parts of POL and the NFSP. Will the PO Local model be limited to just 2000outlets? What happens to businesses put up for sale—will a new operator only be offered PO Local? The



situation needs to be clarified for sub postmasters—POL and the NFSP need to be absolutely clear on the rulesof the game and to communicate this information clearly to those involved.

8.5 The requirement for the PO Local to be open all the hours the host shop is open needs to be relaxed abit. In particular, late nights and Sunday mornings should be optional.

8.6 Customers’ expectations need to be aligned with what a PO Local can actually deliver. It is a low costservice and at times cannot deliver the privacy, speed and in-depth staff knowledge that some customers expect.

9. Conclusion

The PO Local model can work in specific circumstances but its widespread adoption in small rural shops/post offices will lead to these businesses becoming less financially viable. This in turn will lead to someclosing, although this is not the intention of the programme. It may be that the Department for Business,Innovation and Skills is able to accept this as collateral damage for the implementation of the programme andthe cost-savings that will result from it, but we believe that this is not the intention of the programme. Measuresneed to put in place to ensure that it remains financially viable to operate a post office service in smallerrural locations.

Kenneth ParsonsChief Executive

26 April 2012

Written evidence submitted by Shoosmiths (PONT 14)

Summary of Issues Affecting Sub-Postmasters

1. Sub-post offices make up the vast majority of the Post Office Network. A sub-postmaster or sub-postmistress (“SPM”) is a self employed manager of a sub-post office. They contract with Post Office Limited(“POL”) to provide this service.

2. Access Legal from Shoosmiths, a national law firm, have been contacted by almost 100 SPM’s who havesuffered losses they cannot explain and have been subject to disciplinary measures by POL. All are adamantthat they or their staff have not stolen any money. They claim that the Horizon system (by which we meanboth Horizon OnLine and its predecessor Horizon), an electronic point of sale and accounting system POLrequire them to use, has caused the errors or not enabled them to work out why the errors have appeared inthe first place. They claim there has been no real investigation by POL as to the cause of the losses that haveappeared—SPM’s are expected to pay it back regardless of how it was caused.

3. POL are adamant that the Horizon system has no faults.

4. Those SPMs have told us that:

Horizon and the Balancing of Accounts

5. All transactions in a sub-post office are processed through Horizon. At the end of a trading period (a fouror five week period) a SPM must balance his accounts and send a declaration, plus any related receipts, chequesand cash to POL. The Horizon system will produce figures based on the transactions that have taken place asto what he cash and stock total at the sub post office should be. The SPM will then have to count the stockand cash held to check it matches up.

6. When an SPM has completed a cash and stock check and discovers that there is less cash or stock thanHorizon believes there should be, the SPM must make good this loss if it was caused by his/her error or thatof an employee. It is also the case that if the SPM has more cash than the Horizon system believes there shouldbe, the SPM is entitled to take the surplus money from the system. At the Crown offices, the larger post officesrun by POL, the managers do not have to repay these losses as they are written off by POL—these losses arereportedly in the millions per year.

7. If the SPM is ever faced with a loss when balancing, the SPM is presented with two options on theHorizon system: “Settle Centrally” or “Make Good Loss”. Settle centrally means that, according to POL, theloss can be investigated. However the description of this from SPMs is that it just means the loss will be takenfrom the SPMs remuneration either as a lump payment or in stages. If “make good loss” is selected the SPMmust make good the loss there and then out of their own pocket. One of these options must be selectedotherwise an SPM will not be able to trade the following day.

8. Some of the SPMs have told Horizon that they have made good the losses when in actual fact theyhaven’t. The reasons they do this vary, but are typically related to an inability to pay (often due to have madevarious repayments previously) and a desire to keep the post office open for their community. When doingthe above an SPM is committing false accounting, albeit not to enrich themselves, or deny POL what isrightfully theirs.



9. If a SPM, over a period of time, settles centrally lots of losses or appears to POL to making good lots oflosses they will be audited. If discrepancies are found at audit, a SPM will be suspended and all the accountspapers at the post office will be taken away for investigation. The SPM will not be allowed to go behind thepost office counters in their shop. The losses at this stage have been between £6,000.00 and £150,000.00.

10. The SPM then has, according to POL, an opportunity to explain the losses but without access to thepapers or the post office system the SPM’s ability to do this is extremely limited. Typically the SPM’s contractwill be terminated and POL will request that any losses are repaid under the Contract.

11. POL will ask an SPM to repay all losses that occur and as such there appears no distinction betweenlosses that may be the fault of the SPM and those which may have been caused by something else. SPMs haveno opportunity to investigate the reason for the loss, nor do POL seem inclined to do so either. It is far fromclear whether when there is a loss in a sub post office that POL have actually lost any money.

12. If the loss is not repaid POL will prosecute the SPM for false accounting. SPMs are typically advisedby their legal advisors to plead guilty to false accounting, as in the above circumstances they will havecommitted it. Many will be charged with theft or fraud but these charges are typically dropped in thesecircumstances. SPMs have been imprisoned as a result of convictions for false accounting.

Other Relevant Issues

13. Interview—At interview for the position of SPM most are not questioned about their accounting orcomputer literacy skills. Very few of the SPM’s had any experience or qualifications in accounting beforetaking on the role of SPM, although even those with accounting qualifications have struggled with Horizon.The SPMs are then expected to take over the full accounting and balancing procedures upon their appointmentas SPM without even basic knowledge of the same.

14. Contract—The contract with POL is a standard form 100 page contract that was drawn up in 1994 whena paper based accounting system, with a full paper audit trail, was used. SPM’s are routinely not provided withthis contract for services until they have purchased the sub-post office and completed the interview and trainingprocess. The SPMs are typically not made aware of the onerous sections of the contract, specifically thosesections relating to repayment of losses, termination of the contract and lack of compensation for loss of office.

15. Training—POL provide training for SPMs on how to use the Horizon system which is undertaken priorto an SPM commencing their contract. This tends to vary between two days and two weeks. The trainingtypically focuses on sales technique with very little focus on accounting skills. When an SPM starts they aretypically accompanied by a trainer for their first week who shows them how to use the system, in their ownpost office. The majority of SPM’s believe that their training was not adequate, in particular in relation to theaccounting and balancing procedures and what to do if a loss occurs. Requests for further training are deniedand there is no possibility for a SPM to obtain further training on the Horizon system without it being providedby POL. The support provided by the Helpline POL operate to assist SPMs is reported to be inadequate.

16. Faults with Horizon—It appears that there are numerous ways in which these losses could have occurred,whether it is as a result of system errors, human errors when entering data, faults with cross systemcommunication or electrical faults. The technical reasons why the errors are occurring is not the main issuethat needs to be addressed, instead it is that the Horizon system does not allow SPMs to find where an errorhas occurred and rectify before having to repay losses.

17. National Federation of Sub-Postmasters—The NFSP are the trade association for SPM’s. They negotiatewith POL on behalf of SPM’s and provide representation at disciplinary meetings. They state publicly thatthere are no issues with Horizon. Many SPMs report that they receive no useful assistance from the NFSPwhen they have accounting difficulties. The Communications Workers Union, the relevant union for POLemployees, have recently set up a branch to assist and represent SPM’s. This has been set up by formerexecutive members of the NFSP. Many SPMs are now seeking assistance from the CWU as opposed tothe NFSP.

5 May 2012

Written evidence submitted by John Parr (PONT 13)

I am a subpostmaster, on my own, at a small urban deprived office in south Manchester, with a trivial privateside, The business was small enough to be closed (with 7/3 times salary compensation) as uneconomic on thefirst Network review. This did not happen as the government insisted offices in deprived areas remain open.However, neither the government nor POL subsidised the subpostmaster to ensure it could remain viably open.

The same thing happened on the second review some years later.

Business meanwhile has declined as POL lost contracts and customers were pushed into banks. No newbusiness came as other offices nearby closed.

I have been able to stay open because I own the property and am 69.



The great injustice now is that if I can now leave the Network, the compensation is only 3/2 times asignificantly reduced salary. Sale of the office has not been a practical proposition with the general decline ofthe Network.

I hope you will agree there is an injustice for these types of office and can recommend a greater level ofcompensation for those leaving and some form of subsidy for those that have to remain.

I have raised the questions with Vince Cable—no response, and with PO—the impression I have is POL arerestricted by government.

Please give some thought to this.

9 May 2012

Written evidence submitted by Christine Mary Birch (PONT 15)

I watched the very informative session on Post Office Network Transformation on 15 May, however I wasamazed to hear one of the member of the Committee claim that she had received correspondence from amember of the Federation of Sub Postmasters stating that the Federation had not properly kept subpostmastersinformed with regards to NT. May I as a subpostmistress please quote my own experience.

1. During 2011 we have received a selection of leaflets from both Post Office Ltd and the NFSPdetailing the changes under NT.

2. Early November Post Office Ltd arranged a series of events throughout the UK so thatsubpostmasters could be given details of NT. We attended the Birmingham event which was verywell attended with Paula Vennels for POL and George Thomson for the NFSP along with others ofeach organisation giving the presentation. After the presentation there was a comprehensive questionand answer session.

3. A month later the NFSP arranged their own events throughout the UK, we again attended theBirmingham meeting, although not as well attended as the first meeting due to similarity of content,it nevertheless had a good number of Federation members. Presented by George Thomson (GeneralSecretary), Kim Ledgar (President) and Mervyn Jones (Executive Officer) the members attendinghad an excellent opportunity to question them with regards to NT.

4. Each branch of the NFSP has usually four branch meetings a year, if ours was to be used as anexample we had our Executive Officer (Kym Ledgar) in attendance at all meetings which had asection devoted to NT.

5. Early May 2012 Post Office Ltd and the Federation arranged a meeting for members of theMidlands region at the Moat House, Acton Trussell to give another joint presentation with regardsto Network Transformation.

I have to conclude that following all of these I would say that I personally favour Network Transformation,however even those who wish to remain as they are, cannot in any way claim that either POL or the NFSPhave not tried very hard to keep them fully informed.

15 May 2012

Written evidence submitted by Tim McCormack (PONT 16)

I am the owner of Duns Post Office and I provided you with some written evidence prior to the recent BISSelect Committee hearing into Post Office Ltd’s Network Transformation Project.

I was interested to observe the recent debate on Parliament TV and I provide these comments as feedback.

Training—when a subpostmaster takes on a Post Office for the first time he is at best provided with twoweeks training. At the end of these two weeks he is expected to conform to the standards required of him byPOL, including the trust and responsibility of dealing with and accounting for large amounts of cash and valuestock on a daily basis. If he makes mistakes then from day one he is liable for any losses incurred. It isinevitable that ALL subpostmasters make mistakes early in and losses do occur. It may be months before thingssettle down and he acquires the experience necessary to run his office without regular losses. On taking officehe inherits also the need to train new staff and to keep existing staff up to date with changes in procedures asthey occur and in the case of POL they occur on a weekly basis and are communicated to SPMRs by meansof an internal publication called Branch Focus. If he fails to do this then he is liable to financial penalties byPOL and/or more losses due to incorrect processing.

So where is the operational manual that is the failsafe mechanism in all this that he can rely on to providehim with the knowledge he requires to keep his PO running smoothly and within POL guidelines. It does notexist. POL refer to HOL help screens as their manual and for anybody who is familiar at all with on line helpsome systems are good and others are bad and HOL is utterly and completely useless—more often than notcompletely out of date. If HOL online cannot provide the answers then a postmaster can call the help desk



which is staffed by very knowledgeable people yet even they refer to HOL online first, second they ask acolleague and third they tell you they will get back to you later—meanwhile your customer is waiting for ananswer and the queue is building. And when the help line fails completely as it did recently during the stampshortage crisis—a voice message was being played to all callers advising them “whatever the problem just tryand sort it out yourself”. So the SPMR can start wading through volumes and volumes of Branch Focusmagazines until he finds his answer—ludicrous.

I write this not only as one of the shortcomings of the PO Local model where operators will be paidsignificantly less than now to do the same job and therefore have less resources available to cover the cost ofadequate training but also one of the fundamental problems of POL senior management who cannot recognisethe shortcomings of their own systems. There comes a time when you, the Government, have to startquestioning if the main problem with the post office is not the size of the network but the people who aremanaging it.

The right person to run a sub post office is one who first of all is willing to invest capital, time and effortin order to achieve a suitable return on their investment. They must be intelligent, trustworthy, able to gain theknowledge and experience required as well as willing to provide the support that is required of them to thelocal community. Above all they must demonstrate the patience and care required when dealing with their mostimportant customers, the elderly. These are the prime requirements and they have remained the same ever sincethe sub post office network of self employed postmasters was borne.

The network is sustainable, a key government requirement, because there has been, up until now, a steadystream of suitable applicants willing to replace those who wish to move on for whatever reason. The networkcan be said to be in equilibrium while this state exists.

Network Transformation will destroy that equilibrium. The steady stream of applicants will rapidly diminishas the return on the investment decreases and the level of knowledge required increases, and without theseapplicants the network will implode to its critical mass estimated to be around 7,500 offices, outreaches etc.

Not only that but with the post office becoming a small part of a large shop rather than the retail side beinga small part of the subpostmaster’s business, the very important attributes for a subposmaster stated above willno longer be required. As a consequence the elderly will suffer as impatient retail queues gather behind themas they attempt to have perhaps their only social conversation of the day with the counter staff.

Even then the network faces further trouble ahead as Ms Vennells has expressed her vision of 20,000 POBasics servicing prepaid postal items and bill payments ala Paypoint. A killer blow to the remaining 7,500.

In doing so Ms Vennells target may be met of making POL a profitable company. Fine. Great. If that is whatthe electorate of Britain want then so be it and politicians responsible for the demise of the traditional postoffice network will no doubt be re-elected en masse. Personally I don’t think this is what the people whoelected you want and I am sure in due course they will tell the politicians that at the voting booth.

Finally I would like to congratulate Mr Binley on his comments, all of which were so astute. He hits all thenails on the head and I see is not only perfectly aware of the dangers of NT but more importantly the relevanceof the social value aspects of the traditional post office that NT seeks to destroy. The problems facing the PostOffice could most easily be resolved by appointing him Managing Director.

I thank you and your colleagues for taking an interest in our predicament and I hope you can persuade thosenecessary to put a hold on this ill thought, ill timed and extremely wasteful plan until such time as a betteralternative is found.

21 May 2012

Printed in the United Kingdom by The Stationery Office Limited07/2012 020904 19585

post office network transformation · post office network transformation 3 summary the...

Documents