UK Government will reprieve rural post offices
The trade secretary, Patricia Hewitt, is to reject a key recommendation from PostCom, the postal regulator, and extend the Pounds 150m subsidy for rural post offices to 2008.
The move, which will be announced in June, is designed to give the government more breathing space in its plans to modernise the Post Office. It will also quell rising unrest in rural communities that feared a slash-and-burn policy of the countryside network, with as many as 1,600 post offices and sub-post offices being closed.
The confidential PostCom report found that the Post Office makes a 90% loss on the rural network. The smallest 10% of offices have only 20 customers a week and lose Pounds 18 on each customer visit.
But the harsh economics -only post offices with more than 2,000 customers make a profit -will be pushed aside by Hewitt.
The government brought in a Pounds 150m-a-year subsidy last year after a storm of protest from consumer groups about the threat to local communities if post offices were shut.
The subsidy helped to slow the pace of post-office closures but the planned increase in benefit payments direct to bank accounts will add to the pressure on the network.
PostCom, which presented its advice to the government, concluded that the subsidy should be ended at the beginning of 2006. But Hewitt has decided to ignore the advice. Instead she will announce that the subsidy will be extended until 2008.
The move will take away the uncertainty faced by postmasters trying to sell up or sub-let their offices. It will also be greeted with relief by Labour MPs in rural constituencies.
The Post Office had warned that without the subsidy more closures would be inevitable.
However, the subsidy will still have to be agreed with the Treasury, to ensure it fits in with spending plans, and with the European Union, to check it conforms to rules on state aid.
The extra time will allow ministers to incorporate the future of rural post offices into reviews being conducted by the Department for Work and Pensions into benefit payments and a wider one into the issues affecting rural areas by Defra, the rural-affairs department.
