UK Government to end pounds 1bn account card after 2010

The loss of key government contracts with the Royal Mail could lead to thousands of the country's post offices having to close, it was claimed last night.

The Department for Work and Pensions has decided not to extend the pounds 1bn contract for the Post Office account card, which is used by 4 million people to draw their pensions and benefits, when it expires in 2010. Meanwhile, a change in the passport application process will also hit Royal Mail revenues.

Baroness Prosser, a non-executive director of Royal Mail, has told the House of Lords that as well as the decision not to renew the card account contract – which, according to the Work and Pension Department, is worth pounds 1bn from 2003 to 2010 – the government's plans to set up high street offices to vet passport applications would "dig into" the pounds 12m that the Post Office made from processing passports.

She told peers: "It is simply not possible to maintain the service politically demanded while at the same time being deprived of the wherewithal to underwrite the cost of that service."

Insiders were also understood to be concerned about the Department for Transport's recent announcement that motorists could renew their car tax online. They claimed the announcement did not point out that car tax renewal could still be done through post offices, too.

Some within the industry contrast recent government decisions with Tony Blair's support for the post office network in the foreword to an official report five years ago, entitled "Counter revolution – modernising the Post Office network".

The prime minister wrote then: "Especially in rural areas, and in disadvantaged parts of our towns and cities, post offices play an important role in communities across the country: keeping services going, supporting the vulnerable, acting as a focal point. The government values the Post Office network. We want to see it thrive."

Colin Baker, general secretary of the National Federation of Sub-Postmasters, which represents about three-quarters of Britain's sub-postmasters and mistresses, predicted yesterday that the ending of the card account contract would wreak havoc among the 14,400-strong Post Office network. As well as the direct loss of revenue from the ending of the service, he said, there would be a fall-off in sales of other goods in the stores which host many sub-post offices.

"I believe this will close thousands of post offices and restrict people's choice – a choice they fought to preserve," said Mr Baker. "The government has to make up its mind about what it wants from the Post Office. I will be taking this up at the very highest level."

The government's decision is the latest blow for the Post Office. In recent years the decision to allow pensions and bene fits to be paid directly into bank and building society accounts as well as through post offices has opened a huge hole in the pounds 400m a year it received from operating the benefit payment services. The number of people picking up their payments from post offices, and therefore visiting the stores, has fallen from around 13 million to somewhere over 4 million.

The Post Office has sought to build up its financial services business to compensate for the loss of government revenues. But Baroness Prosser told peers: "The competition from high street banks not constrained by the requirement to support such a large branch network is very fierce."

The Work and Pensions Department argues that though less than a quarter of people now use the Post Office to obtain their benefits and pensions, it accounts for 80% of the administration costs. In other words, persuading people to use their own bank and building society ac counts would save the government money. It also argues that people will still be able to obtain money paid directly into their bank accounts through the Post Office and that the card account lacked facilities available through other bank accounts, such as direct debits and limits on withdrawals.

A government spokeswoman acknowledged there would be concerns that the decision could have a knock-on effect on the number of customers using the network. "We are aware people will worry about the business angle in terms of the footfall [the number of people using the stores]." But she said people would be able to continue using post offices. "We don't want people to have to go further afield to pick up their money.

"We will be looking at the best way to manage change and hopefully working with the Post Office so as to maximise their business rather than this being seen as something negative."

'It is not possible to maintain the service while being deprived of the wherewithal' Baroness Prosser, Post Office director

Local post office at Marsden, West Yorkshire. The National Federation of Sub Postmasters said many of the 14,400 offices could close Photograph: Don McPhee

Blair urged to rescue Post Office contract for benefit payments ROYAL MAIL
Financial Times UK, London Ed2, Sec. NATIONAL NEWS BUSINESS & ECONOMY, p 4 01-20-2006
By By CHRISTOPHER ADAMS and JEAN EAGLESHAM

Royal Mail is lobbying the government to reverse a decision to end a Pounds 1bn contract for the payment of benefits through post offices.

Subpostmasters have asked Tony Blair to intervene personally to overturn the move by the Department for Work and Pensions, which they warn would "inevitably accelerate the decline" of the post office network, closing thousands of branches.

The government was yesterday forced on to the defensive over its move to end funding for Post Office card accounts, used to pay pensions and benefits to more than 4m people, when the contract ends in 2010.

Alan Johnson, the trade and industry secretary, told MPs there needed to be "discussions between DWP and the Post Office to see how the situation will emerge post-2010". The government is understood to be looking at a range of options.

The National Federation of SubPostmasters has written to the prime minister attacking the DWP's "devastating" decision, which it warned would have "disastrous consequences for the post office network".

Colin Baker, the federation's general secretary, also criticised other departments for "effectively driving people away from post offices" by promoting a new online service for car tax discs and developing an alternative network for passport applications.

"All this leads to strong doubts over the government's commitment to the post office network," Mr Baker warned Mr Blair in his letter.

Ministers defended the contract decision, saying it had always been clear the subsidised account was an interim arrangement to ease the transition from benefits and pensions being paid over the post office counter to payments direct to bank and building society accounts.

James Plaskitt, a DWP minister, told BBC radio's PM programme that the contract "did not have a life beyond 2010. It is actually an expensive way for the DWP to pay out benefits. It costs a pound for us to put an amount in a post office card account as opposed to a penny to put it into a bank account".

But the government will have to reconcile this drive to cut the DWP's costs with its publicly stated commitment to support the post office network, particularly in rural areas.

Royal Mail, the state-owned postal operator that operates the post office network, refused to comment. But executives are understood to be in talks with ministers in a bid to reverse the DWP's move, which they fear could double the Pounds 110m losses sustained by Post Office Limited in its last financial year.

The subpostmasters' anger and sense of betrayal over the government's decision on the contract stems partly from a deep-seated insecurity about its long-term future. The network has suffered a body blow, as Mr Baker put it, in recent years from the government's decision to allow benefits to be paid directly into bank and building society accounts, as well as over the post office counter.

Fewer than a quarter of pensioners and benefits claimants now use the post office network, which has lost much of the Pounds 400m income it used to gain from the government as a result.

Allan Leighton, Royal Mail's chairman, has said the government needs to provide a "long-term funding resolution" for the Post Office. In particular, ministers have yet to make a decision on what – if any – support will replace the existing Pounds 150m-a-year subsidy for the rural post office network when it ends in 2008. Without such support, significant closures are likely. In the past two years, about 2,500 post offices have shut, leaving 14,500.

DWP officials stressed that people would still be able to receive their payments at post offices after 2010, provided they opened bank accounts. But such assurances were not enough to stave off attacks from Tory MPs.

David Ruffley, shadow minister for welfare reform, said: "We are concerned about the effect this move will have on the more vulnerable, for whom claiming benefits is already a highly convoluted process."

"We're now seeing real concern about the future of this network . . . Does he (Mr Johnson) not understand that small post offices are the absolute core of their local communities and if they go then a very valuable part of the local community goes as well?"

The trade and industry secretary said 3,000 rural post offices had closed between 1979 and 1997, the period of the last Conservative government. "What we've tried to do is get a grip of this problem . . . to allow the transition from the old days when it was the only place you could buy a stamp and collect your pension to the current 21st century."

In the Commons, Charles Hendry, Conservative MP for Wealden, warned Mr Johnson of the likely impact on the rural post office network and small towns and villages.