House of Commons Business, Innovation and Skills Committee
Post Office Network Transformation
Third Report of Session 2012–13
HC 84
House of Commons Business, Innovation and Skills Committee
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
HC 84 Published on 17 July 2012 by authority of the House of Commons London: The Stationery Office Limited £0.00
Business, Innovation and Skills Committee
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
Post Office Network Transformation 3
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.
Post Office Network Transformation 5
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).
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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
Post Office Network Transformation 7
• 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 and towns across the country, over 8 million customers have stopped using the Post 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
25000
20000
15000
10000
5000 Number of Post Office branches Number of Post Office
0 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
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
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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
Post Office Network Transformation 9
• 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
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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
16 Securing the Post Office network in the digital age, para 18 17 Ibid, para 13 18 Ev 45 19 Ev 45
Post Office Network Transformation 11
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 25 Securing the Post Office network in the digital age, para 36
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• 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
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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
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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
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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
16 Post Office Network Transformation
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
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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
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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
Post Office Network Transformation 19
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
20 Post Office Network Transformation
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
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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
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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
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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
24 Post Office Network Transformation
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
Post Office Network Transformation 25
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
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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
Post Office Network Transformation 27
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.
28 Post Office Network Transformation
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
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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
30 Post Office Network Transformation
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:
95 Securing the Post Office network in the digital age, para 35 96 Ibid, para 38 97 Building a Mutual Post Office: the Government’s Response”, July 2012, foreword 98 Q 73
Post Office Network Transformation 31
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
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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.
Post Office Network Transformation 33
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
34 Post Office Network Transformation
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
Post Office Network Transformation 35
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)
36 Post Office Network Transformation
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)
Post Office Network Transformation 37
Formal Minutes
Wednesday 11 July 2012
Members present:
Mr Adrian Bailey, in the Chair
Mr Brian Binley Rebecca Harris Paul Blomfield Margot 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.
38 Post Office Network Transformation
Witnesses
Tuesday 15 May 2012 Page
Andy Furey, Assistant General Secretary, Communication Workers Union, Ev 1 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
Mike O’Connor CBE, Chief Executive, Consumer Focus, Andy Burrows, Head Ev 6 of Post Office Policy, Consumer Focus, and James Lowman, Chief Executive, Association of Convenience Stores
Paula Vennells, Chief Executive, Post Office Ltd, and George Thomson, Ev 11 General Secretary, National Federation of SubPostmasters
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
Post Office Network Transformation 39
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: HC 367-I/II Where Next? Second Report/First Scrutiny of Arms Export Controls (2012): UK Strategic HC 419 Joint Report 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
Session 2010–12 First Report The New Local Enterprise Partnerships: An Initial HC 434 (HC 809) Assessment Second Report Sheffield Forgemasters HC 484 (HC 843) Third Report Government Assistance to Industry HC 561 Fourth Report / First Scrutiny of Arms Export Controls (2011): UK Strategic HC 686 Joint Report Export Controls Annual Report 2009, Quarterly Reports for 2010, licensing policy and review of export control legislation Fifth Report Government Assistance to Industry: Government HC 1038 Response to the Committee's Third Report of Session 2010–11 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 HC 1224-I proposed Adjudicator for the Groceries Code Tenth Report Pub Companies HC 1369-I/II (Cm 8222) Eleventh Report Time to bring on the referee? The Government’s HC 1546 proposed Adjudicator for the Groceries Code: Government Response to the Committee’s Ninth Report of Session 201-12 Twelfth Report Government reform of Higher Education HC 885-I/II/III (HC 286) Thirteenth Report Pre-Appointment Hearing: Appointment of Director HC 1811 of the Office for Fair Access Fourteenth Report Debt Management HC 1649 (HC 301) Fifteenth Report Stamp Prices HC 1841-I/II
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Business, Innovation and Skills Committee: Evidence Ev 1
Oral evidence
Taken before the Business, Innovation and Skills Committee on Tuesday 15 May 2012
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Margot James Paul Blomfield Simon Kirby Katy Clark Ann McKechin Julie Elliott Mr David Ward Rebecca Harris ______
Examination of Witnesses
Witnesses: 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, gave evidence.
Q1 Chair: It is 10.30. Good morning. Can I welcome wider range of services, but the consumer experience you here? Thank you for agreeing to come before the would be fairly similar. Committee. I was getting a bit worried that the Girl Andy Furey: Yes. Guides had prevented some of our witnesses from arriving. Could you just introduce yourselves for Q4 Chair: Does anybody wish to add to that? voice transcription purposes? We will start with you, Sir Barney White-Spunner: There are two things. Andy. There is the range of what people can do. Speaking Andy Furey: Andy Furey, CWU. specifically of rural areas, people rely very heavily on Sir Barney White-Spunner: Barney White-Spunner, post offices in a way maybe they do not in urban Countryside Alliance. areas, so the range of services that Locals may provide Clive Davenport: Clive Davenport, Federation of is inadequate. If you look at some of the Age Concern Small Businesses. figures, they tell you that 56% of pensioners use post Mark Baker: Mark Baker, the Vice Chairman of the offices to pay bills and 44% do so to draw cash out, Postmasters section of the CWU. and there is this issue of cash capping. That is point one. Point two is that it is not entirely clear to me Q2 Chair: Thanks very much. Before we start, we where all these Locals are going to go. Seven out of have got quite a few questions. We have only got half ten villages in this country now do not have village an hour, so do not feel obliged, each one of you, to shops. The logic that says there is going to be some answer every question. Some may well be specific to business for the Locals to latch on to, in an area where one of you. If you feel that you need to either shops are closing at a fast rate, is quite a key one. supplement or contradict what another witness has said, that is fair enough, but do not just repeat things Q5 Paul Blomfield: On that point, I wonder if you for the purpose of getting yourself on record. This could clarify what, as you understand it, is the basic question is in theory to all, although one may answer minimum platform of services that will be required of and the other supplement it. What would be the key the Locals and how that differs from what people can changes to post offices in the proposals to move to expect at the moment. Locals and Mains? Who would like to lead on that? Sir Barney White-Spunner: Paying bills. We would Andy. strongly advocate that Government services go Andy Furey: The key changes to Locals would be the through the post office in rural areas, because that removal of the fortress position, the dedicated queue would give the post office a rationale. It is being able and the privacy that goes with that, when customers to draw out full amounts of cash for pensions et al., interface with the counter clerk. There would be an and it does not look as if that may happen. I strongly amalgamation of the queue into the retail queue, so back Andy’s point about privacy, something those customers queuing for a loaf of bread, a packet pensioners mind about particularly. If you look at the of cigarettes or a bottle of wine would also have to range of services that we think Locals are not going queue with people doing postal transactions. That to produce—payment by cheque, on-demand foreign gives us deep cause for concern. We feel that that currency, passport, car tax, DVLA services, manual could impact detrimentally on the standing of the bill payments, Post Office financial services, small brand in the wider society. business facilities, manual cash deposits and withdrawals—it is quite a long list. Q3 Chair: In some respects, it would be akin to the situation you have now where retailers just sell Q6 Paul Blomfield: You think. stamps. Now fair enough, there would obviously be a Sir Barney White-Spunner: I think, yes. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /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 market moving the risk to the postmaster by moving on to and post offices have been closing for donkey’s years, variable pay. do you not think this is a reasonable compromise in Chair: Andy, we want to ask a question on this terms of sustaining the service but recognising the subsequently. We take the point, but we will come changing pattern of consumer behaviour on this? If back to it. we are to preserve some sort of network, is this not Andy Furey: Can I make the point about training better than nothing? though? The reality with training is that it is not just Clive Davenport: I would dispute that a little bit. The the new postmaster who needs to have the skills. The main problem that we have got at the moment is that range of opening hours would require more than one the survey that Consumer Focus did recently said that, person. Open all hours literally would mean two or of the 105 that have done this Local exercise, a lot of three additional people to be able to serve the the shops were not open out of hours and there were customers at seven or eight o’clock at night, so it is people being charged incorrectly for incorrect not just the new postmaster who would need those requirements for postal services. For instance, as a pre-requisite skills; it would be their support staff as sample, a large envelope went through with the well. That in itself would then become more costly, mystery shoppers and 42% had incorrect postage on because you would be having to open up longer hours there. They were classed as special deliveries at and provide a range of postal services, albeit a limited £5.40-odd before the price increases, when it should range in the Locals model. Nonetheless, it is still have been 60p. One of the concerns that we certainly costly to do that training. have is that what you are going to get, if that training Sir Barney White-Spunner: We come back again to is not improved dramatically, is a diminution of the rural community. Most of these shops or the other services and of the image of the Post Office as being retail outlets that your Local might be in tend to be such a reliable and well-known brand. It will damage one man, one woman, family affairs. To expect them the brand for many years to come if that happens. to take on the full range of services is quite an ask. Mark Baker: Could I just make a point on this? There Q8 Chair: I understand what you are saying, but is a lot of talk about longer hours and an open-plan essentially it is a training issue. If the training was service environment for customers. Actually, a adequate, then do you think that would still be valid? subpostmaster is quite at liberty to approach the Post Clive Davenport: The training would have to improve Office and do that right now. He can convert his post dramatically for that to be valid. The fundamental office to what we call an open-plan post office. He thing is what is going to happen to the ordinary post can trade all the hours his retail business trades. He offices or the sub-post offices that are already there if just needs to liaise with the Post Office to do that. The you start a Local. They are just going to disappear. advantage, of course, is that if he continues on his The people who have got the training are not going to current contract, he can keep his fixed element of pay, be employed. which then maintains the sustainability of trading in that way. Postmasters make their own assessment as Q9 Mr Binley: This point of training has been very to whether or not it will pay them to do so. If they much in my mind right from the beginning of this feel that they cannot make a living out of trading Committee’s concern into this whole matter. It seems longer hours under those conditions, then they will not to me it is not only about training; it is making sure do it. I think that is why there is a lot of resistance you get the people who are trainable. In this new age, from postmasters to this notion of having to trade unless you have people who are of entrepreneurial longer hours without a fixed element of pay. You are spirit, who can go out and do things for themselves, stacking all the odds against us. who are able to take the training and guidance, then that is most of what you are going to succeed or fail Q11 Chair: I do not want to hog the proceedings, on. Is that the case? but could you very briefly say what you would do Clive Davenport: Yes, that is quite true. It all comes differently if you did not have this model to sustain down to the image of the Post Office, the reliability the network? of the Post Office and its reputation. If that is Andy Furey: I think everybody acknowledges that damaged, you have got a serious problem. something has to be done differently and the status quo is not the answer. The Post Bank Coalition is not Q10 Mr Binley: What can the Post Office do to saying, “Let us just simply hold on to what we have”. ensure that it gets the right people? We ought to be As you know, we have been strong advocates for a thinking, at this time, of a lot of people who might post bank. The vast majority of very successful post see the Post Office as a real opportunity. Is that the office retail arms throughout the world, such as Japan, case? Are they looking? Is the outreach there to make Brazil and New Zealand, do have very successful post sure you get the right people? banks. We think that is the way forward. The reality Andy Furey: The problem here is the economics of of this model is that there is a distinct possibility you the financial model. First and foremost, the could end up with resultant unplanned closures. Once introduction of Locals and Mains removes the core a person takes over the Locals model, in due course tier payment. The core tier payment for postmasters is they might realise this does not work for them and a minimum of £10,000. We must not lose sight of the then you could have unplanned force majeure closures fact that this, ostensibly, is a cost-cutting exercise, and as a consequence of this. the purpose of this at the end is for the Post Office to We think there should be a moratorium on the plans of have a greatly reduced pay bill for postmasters, by the Post Office, and we think there should be greater cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Business, Innovation and Skills Committee: Evidence Ev 3
15 May 2012 Andy Furey, Sir Barney White-Spunner, Clive Davenport and Mark Baker dialogue with all the interested parties and not just the you provide those? As Paul said, if you can up the Post Office rolling out its plans and everybody having ante on the Locals and find a way of employing to do what the Post Office has determined. We think enough staff and providing all those services, then yes. there should be much greater scrutiny. We are pleased But at the moment, the thing would seem to be with this Committee today, but this is the first dumbing down to a level where there is a huge gap in indication of any meaningful scrutiny. We are calling rural communities for banking, for small businesses for a moratorium and a big debate in society that all and for pensioners, which is really concerning. interested stakeholders can contribute to, so that a solution can be found that gets buy-in from Q14 Mr Ward: Briefly, because we have not touched everybody. on this, is there a flipside to this in terms of extended consumer choice and extended consumer services? Q12 Chair: On the basis of what you said, it sounds Clive Davenport: We are wholly in favour of as if you would not necessarily discard the model, but consumer choice, but the main concern that we have have greater input from stakeholders and potentially— is that the Post Office has put forward this plan, and I hate the word—finesse it to suit everybody. Would £1.34 billion has been invested into this plan; there is that be a reasonable summary? no fall back. What if this plan fails? What are we Andy Furey: I think so, sir. going to do then? There is nothing there if this thing fails. Q13 Mr Ward: We have inevitably, with a general Andy Furey: May I add to that? Also, this money— opening, strayed into lots of other questions that we the £1.34 billion—is not being used to generate new already have got, so I will not ask you to repeat, but revenue, new income or new streams of work. It does in terms of the general concerns that are felt about the not create or build the new revenue. It is a sticking Locals branches in particular, is there anything plaster to resolve a problem. There are no guarantees specific you would like to add as a concern? of that. Clive Davenport: One of the concerns that we had was that the 105 Locals that were chosen were all in Q15 Mr Ward: We have also got in written evidence areas where there was not a post office anyway. The from Consumer Focus the issue of whether new response said that it was a great success, but it was a Locals, or indeed Mains, are within existing premises, great success because there was a zero base to start suggesting that, in many cases, they will have to off from. There are lies, bloody lies and statistics relocate. Can you just talk to us about the implications happening here. That is one issue that we are deeply of that, if it occurs, for providers of the services and concerned about. also consumers? The other thing, following on from what Andy said, Mark Baker: In the preference exercise that is in is that a lot more examination needs to take place of operation as we speak, postmasters are asked to give public funding for post offices. Talking to the Minister an indication as to whether or not they want to take last week, it was supposed to be the backbone of the on a new model, or whether they wish to leave the social service and the community service. Well, if the business with some compensation, provided the Government are not using it or drastically reduce the service can be transferred to another outlet. The amount they use the post offices, then they are not problem we have with that is there is insufficient supporting it. If it is a business, it needs a core to be information for a postmaster to make a proper able to support itself. If you are taking away the front decision which way he wants to go. I suspect there is office things, regardless of what the Minister and other even less information for retailers out there to have a Ministers before him have said, what is going to fill detailed understanding of what it is they are taking on. the vacuum that that has created? There was a My fear, as a postmaster, is that if the service is virtually 8% reduction in Government usage of the offloaded on to what we call ‘offsite’, when the new Post Office in the last year. If that continues, the operators realise not just the level and quality of vacuum gets bigger and bigger, and there is nothing service they will have to maintain, but the economics to fill it. That is why the Coalition was so keen to try of it all—the pay—they will say, “I took on a bad deal to expand, through the bank, the services that a bank and I’m going to dispose of it.” They will be able to could give. One other thing about Locals: because dispose of their service a lot easier and a lot quicker there are no transactions, small businesses are not than a subpostmaster currently can because he has, going to use them because they cannot. more often than not, his home involved. You hang on Sir Barney White-Spunner: Going back to Andy’s in there and you try to make a go of your post office, point, from a rural point of view, this debate cannot whereas, in the hands of operators running firstly a all be about cash. It has got to be about how you live retail business—that would be their primary focus— in a rural area and how you access all those services if they have a weak link to that, it would be disposed that somebody in a city takes for granted, particularly of. That is when you will start seeing unplanned when you do not have broadband, as an awful lot of closures. people in rural Britain do not. It is no good saying, Clive Davenport: If I could just come in here, in the “Just apply online,” because you cannot get online. interests of this meeting I went to my local postmaster Added to which, an awful lot of pensioners just will yesterday afternoon. He has two post offices. One of not get into that e-world at this stage in life. The them has been up for sale for two and a half years debate cannot just be what makes money. You have with no takers. The reason there have been no takers got some essential services that have to be provided is that there is total insecurity about the business to a rural population. The debate has to be: how do model, so no one is prepared to take it on. He is 66 cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Ev 4 Business, Innovation and Skills Committee: Evidence
15 May 2012 Andy Furey, Sir Barney White-Spunner, Clive Davenport and Mark Baker now and keen to retire, but he wants to sell his should continue. I do not like calling it a ‘social business at a reasonable price and he cannot get any network payment’; I think it is Government payment takers at all, for either of the businesses. That is the for services for the Post Office to provide to situation for postmasters. That is only one postmaster everybody throughout society, in urban, deprived and and two post offices, but that is where they are at; it all the rural areas. The reality with this model is that is very difficult. it is being presented or sold that, if you free up the space for your fortress position, then you can expand Q16 Mr Binley: How do you buck the market then, your wares, products and produce to sell more. I do Clive? Do you want a post office network that has not think there is any real evidence of that, to be continued, and maybe ever greater subsidy? You said, perfectly honest. What we have not got is a balance “What happens if the plan fails?” I am not sure that sheet of a Local operating for over a year, where it the Post Office, as it is at present constructed, is able can show how its postal services and income have to make this plan work. I have always been concerned improved to take account of the loss of the core tier about management from the times of that awful payment, and indeed how its retail arm has also hatchet man, Allan Leighton. I have said it three or improved. Most of the Locals that have been piloted four times in this place; I thought the man was so far have been in places where there has not been a disgraceful and treated the staff disgracefully. At the post office, and the post office has been restored. Of end of the day, the market has to be king. I just course the public is going to like that, because it is wonder at what level we say that you cannot buck the better than nothing. The whole economic debate about market and we have got to recognise that this is a the loss of the core tier payment needs to have greater diminishing resource that we have to manage, but we scrutiny and perhaps refinement in a wider debate. have to allow it to diminish. That creates problems for Mark Baker: If I could put that into perspective, a rural areas. postmaster colleague of mine did a quick calculation Clive Davenport: You are quite right. There has to be to replace, in his case, a £14,000 loss of core tier a model that will be useable. One of the things that I money. Acknowledging the amount of retail space he find quite surprising is that there is one massive model would free up, he would have to improve the turnover throughout this nation, but this nation is millions of of his retail business by £100,000 to get that money different things. There is no flexibility in that model back and that would leave him standing still. In my that we can see at the moment; that is one of the things own office, I did the calculation based on my post that concerns me. As Andy said, there is no feedback office remuneration. How many more products from about what we are going to do if the model fails or the post office would I have to sell to get back my what we are going to do if the revenue increases. I £10,000 core tier payment? Given that the most doubt very much that the revenue is going to increase common transaction at a branch is producing a first through postal services. When you look at Locals, class packet label, I would have to improve my sales they can only post parcels up to a certain size, so you of packet labels by 28,000 a year just to get back my are constraining the parcel market, which is the only core tier payment. That just leaves me standing still real growth market there is, because of the internet. and I am struggling on that. It just gives you an That will be growing. The biggest growth market is indication of the sort of handicap we face in trying to being constrained the moment it goes into the Local fight back against the removal of this fixed element of office, whatever they call it nowadays. our pay. I am afraid the industry has become totally reliant upon it and, as you know, if you try to come Q17 Rebecca Harris: Back to the issue of off something that you are totally reliant upon, there remuneration, which you were touching on earlier, Mr is a real risk of things falling over. Furey and Mr Baker, could you explain what the proposed changes to remuneration actually mean? Q18 Katy Clark: First of all, if I could declare an Talk about that a bit. interest, I am a member of the Communication Andy Furey: Firstly, every sub-post office receives Workers Union. A specific example I am aware of, what is called a core tier payment—the fixed pay it is because it is in the south-west of Scotland and my guaranteed. That is a minimum of £10,000 per annum. colleague, Russell Brown, has been campaigning on The proposal to move to Locals or Mains—and I think it, it is the post office in Glenluce, for which I was the Post Office will probably stress this significantly— once a Labour candidate in Galloway and Upper is voluntary, so it would mean that the postmaster Nithsdale. It closed quite recently. The previous voluntarily gives up the core tier payment. The reality, income from the post office under the traditional though, is that you would have to significantly model was about £30,000 a year. It is now a Local. improve your retail sales offer or your post office What I am told is that the new person who would like volumes and transactions to make good the loss of the to take over feels that they are just not able to do that, core tier payment. To sell products in local because the income would now be £7,000 from the convenience stores, newsagents or grocery stores to post office as a Local. What now looks likely is that make a profit margin of £10,000, you would have to they are going to have some kind of outreach service increase your turnover probably six, seven or eight there. How representative is that of what we are times. seeing? Going back to Brian’s question, the reality is that there Mark Baker: That is becoming quite a common story. is a social fabric need for post offices across the UK. It is early days, as these models are being marketed, I believe that there should be payment for services but the feedback we are getting is that interested and what was badged as the ‘social network payment’ parties outside of the Post Office are taking a look at cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Business, Innovation and Skills Committee: Evidence Ev 5
15 May 2012 Andy Furey, Sir Barney White-Spunner, Clive Davenport and Mark Baker the economics of the model and are rejecting them. postmaster and the social care he has for his You are quite right. I know the office; I think it is community. Glenluce. Is that how you say it? There is a willing candidate up there, who was prepared to be what we Q20 Mr Binley: From what you are all saying call a proper postmaster, running the facility under the collectively, it seems to me that, unless there is a current terms and conditions, but he simply cannot recognition that the post office, as constructed, is a make money out of the proposition from running it as social networking resource—that it is almost a part of a Local. He has walked away and the community are our social services—and you decide how much you the ones who lose, because they have the lowest form want to pay for that social networking resource, then of service that the Post Office can offer at the moment, nothing is going to succeed in the way that the Post which is Post Office Outreach. We are also hearing Office is now proceeding. That seems to me to be the from people who are interested in the larger, Mains conclusion of everything you are saying collectively. contracts. When they have their forecast done of what How will we then get the will of the people? That is would happen if they converted themselves, there the point you make. Do they want a social networking seems to be a pattern forming of an average drop in resource? Do you only ask in the rural areas? How do remuneration of about £4,000 to £5,000. you deal with this at a time when money is as Rebecca Harris: I have got another question, but Mr stringent as it has ever been in your lifetime or mine, Davenport wants to add something on this. almost? Clive Davenport: I just wanted to try to make the Andy Furey: May I say that I think the post office, point that basically there are two things that we are from all the evidence we have, is cherished by society, concerned about as well. That is that the public, who full stop, irrespective of whether you are towns, are the recipients of all these services, have not really villages or inner-city areas? The problem if the post had the chance to voice their opinions at all. That is office goes is the inconvenience that that creates for number one. Number two, the Government or any everybody, where there may not be bus services or Administration have to decide whether postal services even where there are bus services, because elderly are a community service or whether they are not. That people and people who have disabilities will struggle to get on a bus even if the next post office is a mile is the fundamental thing. We have got to decide that, down the road. as a community, as an entire nation. We have to Mr Binley: In my village, we do not have buses. decide that. Andy Furey: It covers the length and breadth of the Sir Barney White-Spunner: Can I just add to that? United Kingdom, irrespective of what aspects of Of course, one model does not fit all. I cannot society there are. remember who said it just now, but each area of the Sir Barney White-Spunner: There are some hard UK is very different. If you are in one of these areas figures you can put on there. Postcomm’s report in where you do not have access to these services, what 2009 looked at the social value of post offices. The do you do in the future? Where do you go? Rural Commission found that 91% of people felt the post office played a vital role in their community. Q19 Rebecca Harris: Following on from that, There is quite well researched work from the last Mr Baker, speaking from your position, in what ways couple of years to back that up. do you think the role of a subpostmaster might change under these new models? Do you see any advantages Q21 Mr Binley: You are arguing a special interest as well as the disadvantages? case that we need to see this as social networking and Mark Baker: I cannot really see any advantages for subsidise it accordingly. That is what you are telling the community with the role changing. You are quite us and that is the decision we have to make. right to highlight that there is a role change here. It Sir Barney White-Spunner: Yes, it is. may not seem much to you, but the postmaster or Clive Davenport: If, as we understand, every major postmistress actually disappears in all this. They are a country in the world subsidises its post offices to some community champion. They come into the network degree, the question that needs to be asked is: when with a slight vocation about their venture; the rest of you have got areas like New Zealand that have a post it is entrepreneurial spirit. They recognise themselves bank, how much do they subsidise it in relationship to as a community champion. You are handing over to a an area that does not have a post bank? Compare the new model in which they are not given the dignity of two. No comparison of that has been done. It could the name ‘postmaster’. They are operators of these very well be that, if you put something in place of new contracts. They are retailers first and they always already diminishing Government usage because of the will be. Therefore, I do not see how those people are internet and changes in technology, then the load to going to be able to spare the time or be able to train the taxpayer would be less. their staff to have the same dedication that a subpostmaster and his assistants have in dealing with Q22 Ann McKechin: Following on from the most vulnerable members of our society—the Brian Binley’s comments, I notice that Consumer socially vulnerable, the people who need that extra Focus, in its written submission to the Committee, help, and the people who come into the post office said that both the Government and Post Office Ltd because they know they will get that help. That is the expected relatively few branches that converted to PO bit that sent a chill down my spine when I first came Local to remain in current premises. Is it perhaps the across this plan. We are set to lose all that if this plan case that they are looking for the Tesco Express rolls out to its ultimate fruition. You lose your model, where you have a large company that is able cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Andy Furey, Sir Barney White-Spunner, Clive Davenport and Mark Baker to provide economies of scale, which has a large rejected getting involved with these new models. I network, and which effectively takes out the issue served with the Federation for 12 years at executive about subsidising small individual businesspeople? level, and I am just astounded that they could come Andy Furey: That might be the case, but the driver to this position knowing that they are not carrying here is that there is a desire by quite a significant their postmaster members with them. I think it has minority of postmasters to sell their property, to move been the root cause of much of the problems. We are on and to retire. Many of them have provided a long trying to find a solution to provide a sustainable future and loyal service to the community for many, many for the network. years. They have invested thousands of pounds of their income into that post office. They are looking Q24 Ann McKechin: I noticed that, in the for a package to go. The package in the agreement— consultation, there was actually relatively little the funding deal—is for 18 months’ money based on response. I think only 50% of subpostmasters actually the best year in the last three. I think there is responded. Did you really feel the consultation was acknowledgement that up to possibly 1,000 or 2,000 just simply a kind of tick-box exercise; that people postmasters might put their hands up to go and then, thought the conclusion was inevitable? by definition, you have to find somebody new to take Mark Baker: In a way, yes, I agree with you. It was on the Local. They will not be a postmaster and they a tick-box. We had to fill out the questionnaire based will not have the history or the heritage of serving the on very cursory information. We were being asked, community as a postmaster. “Do you want to change your life for ever?” and we had a series of four boxes to tick. People who did Q23 Ann McKechin: Mark, as you will be aware, indicate they wanted to know more are being we are going to be taking evidence later this morning interviewed as we speak and, again, they are being from the National Federation of SubPostmasters, given very basic information, but they are not given which is the only body recognised by Post Office Ltd fundamental stuff. They are not even given the pay to represent subpostmasters. How well do you think booklets that the new models will operate under, and they are doing in this job, particularly given this they are not shown the contract. Again, we are current reform process? businesspeople. We expect fundamental information Mark Baker: In a word: badly. They are supposed to like that and it is being withheld from us. be an independent trade union and, therefore, you Chair: Thank you. That concludes our questions to would expect them to come to this point with the full you. Thank you for your brevity. I will say, as I always backing of their membership, after having widely do to such panels, if you feel that there is something consulted with them. They have done neither of those that you have not said, either because we did not ask things. They have no mandate from them to be the right question or you did not think of it, please recommending that the network gets changed in this feel free to send us some supplementary evidence. way. I think this is borne out by the reaction from Similarly, if we feel there is a question that we should postmasters themselves when they were approached have asked but did not, we may do the same to you by the employer, who surveyed them at the beginning and would welcome your co-operation with your of this year. Just about two-thirds of the network has reply. Thank you very much.
Examination of Witnesses
Witnesses: 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, gave evidence.
Q25 Chair: I welcome you as our next panel. If we of the issues that have come out of those trials are could just start as we did with the previous panel, very practical operational issues, like the queues. would you like to introduce yourselves and your title? Queues will arise at certain times of the day that can James Lowman: I am James Lowman. I am Chief be very disruptive to the retail business. There are Executive of the Association of Convenience Stores. other operational issues, like if you are taking lots of Andy Burrows: I am Andy Burrows. I am Head of parcels, sometimes there is no space behind the Post Office Policy at Consumer Focus. counter to put all those parcels and to shift them Mike O’Connor: Mike O'Connor, Chief Executive, across the space and so on. There are issues about Consumer Focus. training and trying to ensure that retail staff—the point was made in the previous session about retail staff and Q26 Paul Blomfield: James, could I start with you? training. You may have someone who is working a You stated in your written evidence that the operations handful of hours a week in the store, but who you of the trials for the new models were not all initially want to give that additional skill set to be able to successful. Why did you come to that conclusion? execute post office transactions as well. There are Could you elaborate on that point? issues of training there. There are issues of support James Lowman: Yes, the results of the trials are from the Post Office. One of the issues we have been mixed. They are trials and we are waiting to get more talking to them about, in very practical terms, is the evidence. They are very location, business and problems our members are likely to get from a store-specific, in terms of how retailers fared. Some technical and systems point of view when they turn cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman the system on if they are opening up very early in the Q28 Paul Blomfield: There is a real risk that what morning. Currently, the Post Office support for those we are going to see is an incremental loss of post systems is not available at the times when retailers are office product. opening their businesses. As the new models roll out, James Lowman: It is possible, but I think then what those are the sorts of things that need to be addressed matters is whether the offer is attractive enough and and we are working with the Post Office to ensure might be applicable in another retail setting. If a they are. retailer does, for argument’s sake, take on a Local and, I have talked about some of the very practical after a couple of years decides, “This isn’t for me. It operational issues. There is the commercial reality that hasn’t worked. I’m therefore moving away from the members are finding out. They are losing the core tier network,” will the model be sufficiently attractive that payment, and they are finding out not just what they another retailer in that area might come in and run it? are then making in transactions-based payments, but We do not know the answer to that and that is clearly very important. what they can actually do with the retail space they Paul Blomfield: There are a lot of question marks. have freed up. Sometimes that can be a really James Lowman: A huge number of questions, yes. profitable new part of the retail space; sometimes less so. It depends what they can put in there. They have Q29 Paul Blomfield: to invest in that space to make it pay. It is not If I could move to Consumer Focus, I wonder if you could just outline the key something they just free up from being a fortress and points of the research that you carried out in January all of a sudden the money starts coming in. You have and February, which has got a fair amount of to invest, whether that is in bake-off, fresh coffee or publicity. whatever else the offer is. Retailers are having to Mike O’Connor: Thank you. Just to summarise, it balance out a change in income with a change in was the largest research that has ever been done on staffing costs and other costs associated with the Post Office Locals. We found that the major positive business, and the opportunity of having more retail was that consumers really welcomed the longer space. Those three things are all very site-specific. opening hours of Post Office Locals. On the negative What the trials have shown is probably generally a side, there was a problem with advice. In our mystery good news story, but there are lots of issues in those shopping, we visited every Post Office Local included details. in the research programme (105 in total), up to four times, but there were problems with advice. For Q27 Paul Blomfield: It sounds like there is a fairly example, second-class postage was only sold correctly fundamental flaw in the model, to some degree. When in one in five visits. On product availability, some of you were talking about, for example, the problems of the services consumers said they needed, and which queuing, it is almost a suggestion that the retail and are currently available across the network, will not be conventional post office product offer do not go available at most Post Office Locals. One-third of together. Most of us experience the practical problems people thought that the privacy available in a Post of queuing for a post office counter and how that is Office Local was poor. Fourthly, consistency of very different from the conventional supermarket’s service: there was a problem with the reliability of the queuing experience. Will that not lead retailers in the service at different times of the day and issues about long term, as they are looking at their business model trained staff not being available and the associated and the post office products are getting in the way of business sometimes taking priority. Finally, there was higher-profit, quicker-turnover items, to squeeze out a problem with cash withdrawals. Some Post Office that part of the offer? Locals were capping the amount of cash they would James Lowman: In some cases that might happen. pay out, for example on benefits, because they did not Retailers need to respond and be very flexible on those have the cash available. They were the five negative issues. One of the things they need to do that is a lot points we found. Of course, the purpose of a pilot is to learn and to move forward addressing these things. of staff, or a majority of staff, who are trained to We are calling on Post Office Ltd to produce an action execute post office transactions. This, to me, does not plan to address these areas. work if you do not have most staff able to do that, otherwise you do not have the flexibility that, when Q30 Paul Blomfield: Some of those are fairly there are particularly busy post office queues, you can fundamental, are they not? I read from the research put more people on to deal with that. Similarly, if the point that two thirds of customers were advised to people who transact post office transactions are not buy more expensive postage than they needed. That is happy to move across to the retail side and execute a pretty flawed experience, is it not? retail transactions, it will not work either, because you Mike O’Connor: I do not believe it needs to be are not going to get the cost savings. I think these are structural. We are asking Post Office Ltd to do things that retailers will work through in the trials. I something really quite difficult. This is the biggest agree with your overall point: there will be some planned transformation the post office network has retailers who will look at this after a period of time ever seen and we have to see transformation, because and say, “Due to these issues and looking at all the the system is not economically viable. We can argue very complex issues, operationally and commercially, about how much public subsidy is justified or not, but this does not work.” Working through the trials, there we have a duty to put the Post Office on the best are many retailers who will find it does work. I was footing we can. Therefore, if Post Office Ltd with a retailer last week who found it did. addresses these things, we believe Post Office Locals cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman can provide a more sustainable way forward—the type a key issue and we talked about it a lot this morning. of way forward we all want. We cannot go back to the Other areas? old model; we have to go forward. We want to work Mike O’Connor: Fundamentally, success will depend with Post Office Ltd to help identify these problems, on giving consumers what they want and a consistent to produce an action plan to meet consumers’ needs, high level of service, so being clear about what the to consult locally and to work with communities. This products are, making sure the products meet people’s is not an easy nut to crack. satisfaction, and making a core list of products Andy Burrows: The research speaks to the issues available. We also want to see issues about physical about training, which James touched on, about the environment and privacy addressed. Critically, support that is available to branches and about quality nothing will put people off more than having a control and the monitoring of branches to make sure negative experience, so issues around cash supply and that the quality of service that these branches are cash capping have to be considered. If you are a offering is consistent and of the high quality that pensioner and go in and only get half your pension, consumers expect. Specifically on training, one of the you are not going to want to go back there again. They things that is striking from the research is that the would be the key areas. larger convenience stores, which will play a key role in the rollout during network transformation, Q33 Paul Blomfield: They all sound fairly generally score poorer, which perhaps is not a surprise fundamental. We have heard this morning that there is given that large convenience stores will typically have concern about the pace of rollout and that there may larger numbers of part-time staff and greater staff need to be some pause for learning and some churn. That speaks to the need for greater investment moratorium. Do you agree with that? in training and making sure that the service standards Mike O’Connor: We believe Post Office Locals can can be consistent across the longer opening hours. be a success. The Post Office is a great brand. We have to go forward. I would not like us to stop going Q31 Paul Blomfield: You are absolutely right about forward because we do not have the time and we do the high levels of churn, part-time staff and so on, not have the money. I want to continue to go forward which is so different from the conventional post office at the right pace. The right pace is one that addresses counter model. Do you think that it is possible to meet these problems. I believe that Post Office Ltd can the required level of training for the range of products address these problems. Indeed, they are addressing that people expect to be available within that sort of some of these problems. I want us to continue to go work force? forward, not to stop, but to address these problems. Andy Burrows: One of the challenges that exists in the training structure that has been rolled out during Q34 Ann McKechin: Under the current system there the pilots is that, in the initial period during which is a very strict process of vetting of subpostmasters, the Local is rolled out, the feedback from operators is but there is not under this particular model. To what generally that the quality of training is very good; it extent did you consider the issues around probity and is then about the ongoing training and support, feeding trust? A key element for customers when they are into those issues of staff churn. For example, one of using the post office is that they are meeting staff who the concerns that we have heard from operators, which have been strictly vetted. would seem to be represented in some of the issues Andy Burrows: There is absolutely a key issue in around service consistency, is that the support terms of making sure that the branch environment and available to branches typically is not available. The the quality of the customer experience, including the technical assistance telephone helpline, for example, engagement with staff behind the counter, is sufficient is not available during evenings or during weekends. that consumers want to use the branch. What will be It is a combination of getting the ongoing training important there is to make sure, firstly, once network right, but also the initial support and, in effect, making transformation gets under way, that there are sufficient sure that that is appropriately provided by Post Office operators, but that those operators are of sufficiently Ltd and is not externalised, if I can put it that way, to high quality to offer the service. It is absolutely individual operators hosting the service. appropriate that those checks and that assessment are Mike O’Connor: And a way of addressing training undertaken. As the programme rolls out, the issue then needs. It is not always about training the individual; it is about ongoing monitoring. It is about quality is about product design and technology. Having the control and it is making sure that, if there are issues right technology means sometimes that the individual in the way in which services are being delivered by selling the product has to use less discretion and needs staff—if the quality of the staff advice, for example, is less training. Product design is also about that. So it not up to the level that it should be—that is identified is about product design, technology and training. through a rigorous programme of monitoring and James Lowman: It is possible, because I know of quality control. retailers who have managed to bring out effective Mike O’Connor: At the first stage as well, when you training for staff that works. They offer longer hours go from a sub-post office to a Post Office Local, you in one of the new formats, so it is possible. have got to consult the community, tell them what you Absolutely, the product design point is very important. are doing and take on board their concerns. Consumer Focus is a statutory body. We have a code of practice Q32 Paul Blomfield: Can I continue to press on that we agree with the Post Office about how these areas of improvement that you think should be changes come about and how people are consulted. If identified from the pilot so far? Training is obviously you consult the local community and get them cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman involved, that will help build trust. That consultation retained”. That is clearly not Government policy and is vital. has not been the policy of successive Governments. What we have to do, when looking at the future of the Q35 Ann McKechin: But the public do not vet post office, is acknowledge that the things Andy Furey people and they do not do a criminal check of their said about people not having to get on buses to travel record. What I am asking you is why we should now many miles down the road means numbers of post forgo that requirement. The public cannot go and offices and geographical reach, and if you want to check someone’s criminal record in the way you can retain a network of post offices, then you are going to with a subpostmaster in the current system. You are have to change the current operating model or asking the public to take a greater risk. Is that what subsidise much more heavily. The point that we make you are saying? in our submission is that we should not just think of Mike O’Connor: I agree that we should place a duty all those services—for example, bill payments, mail on Post Office Ltd to put the proper checks in place. and all these other things—only being available I am sure that they would only want to do business through post offices. They are operating in a with somebody who was reliable, so I think those competitive market, with companies such as PayPoint checks should be in place. Beyond that, you need to and Payzone, which offer bill payment services. Many engage the community, get them to know what is of my members will offer a lot of the community coming down the line and get them to understand it services we talk about with post offices, without to build that trust. Sometimes there is no trust for the having the Post Office lozenge and the post office wrong reasons; sometimes the post office is facility there. We have to acknowledge that we are in trustworthy. But moving from what you know and a competitive market and that customers can get the love to a new model is difficult. Therefore, Post Office post office services, whether it be from other retail Ltd has got to go out and sell these changes to the offers or online, and we have to exist in that market. local community. Explain them. ‘Sell’ is the wrong word, but involve local communities. Q37 Mr Binley: Does your answer and the whole James Lowman: Taking the point of view of the of your thrust not demand another question? You are people who will be coming in to operate post offices, arguing that, increasingly, there is no such thing as a of course there should be adequate checks in place standalone post office, and increasingly, the people and I absolutely support that. These are, in most cases, who provide the post office service are primarily stores that have served the community for many, many retailers. Consequently, there is a real problem about years themselves, often generations. They are subsidy between those who actually provide a post community-based businesses. I would not want the office service as a bit of their business and those other impression to stick that subpostmasters and post retailers who get no subsidy at all, particularly in rural offices are necessarily community businesses and all areas. Is there not a real issue there that we have not other retailers are not. Most convenience stores invest faced up to? in the community, supporting sports clubs or local James Lowman: Yes, I think that is absolutely right. charities. They are civic leaders, every bit as much as Mr Binley: That is the point I was trying to get to. subpostmasters. In fact, we are often talking about the Mike O’Connor: Mr Binley, could I just respond to same people already. The subpostmaster now, in most your question? You asked, “Should we not be a bit cases, is the local retailer. There are very few more honest?” I would like to ask also: should we not standalone post offices, outside of the Crown Estate, be a bit more ambitious for Post Office Ltd, insofar which are not run by someone who would describe as managing decline? I do not think consumers just themselves as a retailer first and foremost, and a want to see less; consumers will want to see more. A subpostmaster second. whole range of central and local government services could be provided through post offices. I think we Q36 Mr Binley: Post offices have been in a situation have to look for the opportunities to grow the of managed decline since the late 1970s, have they business, perhaps even beyond 11,500 outlets, perhaps not? We have lost pretty much half of all the post to more outlets, perhaps not all physical outlets; offices we had at that time. Should we not be much perhaps sometimes just using cards, etc. We must not more honest about what we are doing? Hasn’t a lot of be in a mindset of decline but a mindset of what new the problem come from holding out expectation that opportunities are available. Sometimes the is not there? Can I relate that to a statement you make Government are not providing those opportunities. in your written evidence? “Whether the Post Office For example, last year Post Office Ltd lost the green offer is attractive to retailers depends on its giro system because somebody else could do it commercial viability within this competitive market.” cheaper. I question the amount you save by going to Are you not saying exactly what I am saying, but in a provider that is cheaper, when you take into account much less blunt and slightly more camouflaged whether that is undermining the post office network words? and its social value. Perhaps that is a call for subsidy James Lowman: You are right: there is a long-term in another way, but generally I think we should be decline and that is for a number of reasons I am not ambitious about the Post Office, and front of office going to try to reprise now. A decision could be taken for Government, central and local, should be a big by the Government and by this House that says, “We part of the Post Office’s future. want to subsidise the Post Office to a significant extent moving forward to ensure that a network in its current Q38 Mr Binley: I fought to save some of my post form, or maybe going back to its previous form, is offices during the last Government’s attempt to reduce cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman the network, because people saw it as a social need. longer opening hours. For many professional people You say people want their post offices. The truth is and people in full-time work, clearly that is a big people are not prepared to pay for their post offices. asset. We know from our own research and from some That is the harsh fact. Or at least not enough people of Post Office Ltd’s research that encourages people are prepared to pay. I still come back to the question to use post offices out of hours, when previously they I put to James: should we subsidise it, recognising that would not have had the option to do so. It is about this is a part of a general retail business, when other refreshing; it is about improving the customer general retailers are not being subsidised in a given experience, making sure that that is consistent and area? How do you face that problem? high quality, and making sure the product mix is there Mike O’Connor: I think that is a problem for society. so that the post office can thrive on its own merits. Mr Binley: Not for you? Mike O’Connor: If you ask anybody whether they Q41 Simon Kirby: The question I was going to ask like to pay extra taxes, they say no. But we should put of you, James, has been answered, so I will move to the question a different way: “Is this service you are a slightly different area—that of stamp price increases getting value for money?” and subsequent revaluation of stock. Does this put post office branches at a competitive disadvantage? Q39 Mr Binley: Excuse me. I am asking the James Lowman: We looked at this beforehand and questions; you are answering them. I put the questions we asked members questions about it. Any time prices the way I want to. I would like you to answer, because go up—it happens around alcohol duty, for example— there is a real problem here of conflict between some retailers who hold stock, having bought it at the old retailers who do not offer post office services and rate, have an advantage in that they can make more some who do. I want to know how we overcome margin, but similarly, they have cash flow issues that that—how we see that as fair and just in a competitive mean they are not going to hold too much stock. I market that Mr Lowman talked about. have to say we have had nothing back from members Mike O’Connor: The market fundamentally is what on the impact of the price increase, so there is not a consumers need. I think that you should look at the great deal I can add on that. I think there are retailers issue of public subsidy. I do not think you should rule who are buying at wholesale; I get the theory that they it out just on ideological grounds. You should look at have an advantage where there is a price increase. I it in terms of what you are getting back for that, look have not got any direct evidence, I am afraid, on that. at what post offices can provide and justify subsidy in Chair: I think that concludes our section of that way. Subsidy can be about stretching the Post questioning. Can I thank you for your contribution? Office brand and making use of that public asset to provide wider services that people want. I think Q42 Katy Clark: Sorry, can I just come in on people do want these services, so you should not rule something that I did not feel came out adequately, so out subsidy. that I fully understood, in the questions? One of the points that has been made to me about Locals is that Q40 Mr Binley: I did not say I did. I am asking you they are going to offer a far smaller range of services the questions; I am not giving you the answers. I do than the conventional post office, and obviously that not know, but we need to come to some conclusions is an issue for consumers. The other point that has in our report that we will make, I assume, to the been made to me is that they may not be allowed to Minister. I am looking to understand what those offer some of the more profitable parts of the business, conclusions should be. I am not making an argument. in particular things like currency transactions, but Mr Burrows, how did you deal with that particular there is a whole range of other things. I just wonder, issue about unfair competition through subsidy? particularly for James, whether that is something that Andy Burrows: If subsidy is necessary to maintain a you are concerned about. There seems to be a lack of network and maintain access to the services of social clarity. Can you let us know exactly what you feel are and economic interest that post offices provide, then the bits of the business that are essential for Locals to it is appropriate to provide that. I think everyone offer if this is going to work from an economic point would want to see the subsidy that the post office of view? network requires to maintain the current levels of James Lowman: We have got a difficult balance access as low as possible. That requires a post office here—it relates to some of the questions we were network that, firstly, offers a range of products and asked earlier about staffing and training—in that many services that matches the changing needs of of our members will have members of staff who are customers. That might include additional banking not operating the post office very much. They are services. That might be realising the front office for filling in for a few hours here and there in the post Government proposition. But it is also about making office. Therefore, as the knowledge threshold for sure that we, as consumers, who generally love our executing a transaction properly rises, it becomes post offices but do not always want to use them with harder and you get more mistakes and issues that the frequency that we otherwise could, are encouraged come from that. So I think actually, our members to go through the door. So the post office has to offer a would overall want to go for a relatively limited range more convenient, high-quality and consistent service. of services, with the clarity that everyone would need Really, therein are both some of the risks and some of to know that, “If I want to do X, Y and Z, I can go to the opportunities for Locals. There is a tremendous my Local; if I want to do A, B and C, I have to get opportunity around most Locals branches offering on the bus and go to a bigger post office that is able cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Mike O'Connor CBE, Andy Burrows and James Lowman to execute that”. Clearly there are some areas, like Chair: That does conclude our questioning on this currency transactions and so on, which have been in particular session. Can I thank you and just repeat recent years probably where some of the growth has what I said to the other panel? If you feel that there is come, but I think some of the more exciting areas anything you would like to add and have not said going forward—biometrics, passport applications and today, please submit evidence to us. Of course, we so on and so forth—are possibly things that will not may submit further questions if we feel that there are be included in the Locals model, and something we further questions that we should have asked. Thanks will work with the Post Office on. very much. Can we have the next panel, please?
Examination of Witnesses
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 to The first one is that it is actually about transforming speak to us. If you could just introduce yourselves, the network completely. We have had, for the last two that would be helpful. decades at least, and certainly since I joined the Post George Thomson: George Thomson, the General Office seven years ago, nothing but closures. The Secretary of the National Federation of business has become a victim, and that is not the place SubPostmasters. a brand as strong as the Post Office should be. We Paula Vennells: Paula Vennells, Chief Executive of should be really strong. We should be playing to the Post Office Ltd. market competitively, just as Brian says. What that investment will do is help us transform the network Q44 Katy Clark: Thank you very much. I do not to be able to respond to that, which brings me to my think you were here in some of the previous sessions. second point. I should say that I am a member of the This money is also important because it puts us in a Communication Workers Union. I just wanted to position so that we can grow. If I have a vision, it is declare that interest. You will have seen the written to have 30,000 post office outlets, not 11,500. It is to evidence that has been submitted to this inquiry. Much have standalone electronic drop boxes for mail of that written evidence criticises the proposed packets. It is to have ATMs in railway stations. It is restructuring, basically from the point of view that it is to have identity kits in town halls and libraries, all likely to lead both to fewer services but also, probably, branded ‘Post Office’. But until we transform the basis of the current network and make it more sustainable, fewer post offices at the end of the day. Can you that becomes just an ambition. I am very confident explain, from your point of view, the rationale behind that we will get there, but the growth is important in the new Locals and Mains post office model, and why the current network. That growth will come if I run a you think they would succeed? Could you also outline network that is sustainable, because then I can go to how much of the £1.34 billion, which I understand is clients. In the last year, we have won seven out of the amount of money, in global terms, that is being seven Government contracts that we have bid for. That provided by the Government, is likely to go on is unheard of in the last decade, and that is because compensation packages to those leaving the industry? people are now beginning to believe in what we are Paula Vennells: With pleasure. I think I should say trying to do with the Post Office. The transformation first of all that I have been listening to what has been of the network to models that work and become discussed this morning, and clearly there are going to sustainable, combined with growth, are my first two be some areas where I will offer a different view. I points. am very pleased to have that opportunity. The final point is about the customers and the If I can take a number of things that you raised, on communities. These models work. We have got 200 the £1.34 billion, the most important point was the in pilot. We have got them not as you heard one that was made by Mike O’Connor, which is that previously; we have got them both in sites where there this is perhaps the biggest investment the Government were post offices and where there were not post has ever made in the post office network, certainly in offices previously. In all cases, the customer living memory and possibly ever. It is really important satisfaction is over 90%. Yes, we make mistakes. Of that it is spent well. It divides into two parts: roughly course we make mistakes. In a network this size half of it is investment and half of it is subsidy. That mistakes will always be made. Do we sell wrongly is very, very important for all of the questions that and do we overprice on mails? No. were posed about what happens, particularly within the rural network. There is a big question there. There Q45 Chair: Excuse me, can I just interrupt? You said will always be small post offices that will not get to customer satisfaction was 90%. How was that break even and will need some sort of subsidy. There measured? is no change in Government policy. The difference Paula Vennells: That is measured independently, this time, though, is that there is a further investment. Chair. It is measured quantitatively, so that it is That investment really plays to three things and these representative. I would be very happy to send a copy are the only three points I want to get across this to the Committee. In fact, the Consumer Focus morning. research shows that 75% of customers find the service cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson good or very good. If you add in those who find it figures that I have been provided are that previously satisfactory, you will probably get close to 90%. The the income would have been about £30,000 a year; it 90% figure comes from both on-site Post Office probably will be something like £7,000 a year under Locals and off-site Post Office Locals. the new Local model. Do you not think that subpostmasters will have real difficulty in surviving— Q46 Chair: Can you send us details of the body that not the ones who want to take a package but the ones carried out the survey, the questions that were asked who want to stay in the industry—with the funding and the responses? model that is on the table? Paula Vennells: I can, yes. George Thomson: It is a very good point, Katy, and George Thomson: Could I give you a specific answer the Federation made sure that anyone who wanted to to the question and a different emphasis from POL? remain on the model that they have at the moment— We support both network transformation and the new there will be at least 5,500—will retain their fixed pay. models because, quite simply, the status quo is not No one will be forced to give up their fixed pay. For sustainable. Quite simply, thousands of anyone who wants to move to a new model, it will be subpostmasters cannot sell their businesses. Clive voluntary. One of the things that was not said in the mentioned earlier someone who had been trying to last session was that, if you decide to give up your sell for two and a half years. Many subpostmasters— fixed pay and become a Main, you will receive it is nothing to do with the new models—are finding enhanced payments. The fixed pay transfers to the it impossible to sell their businesses in the current products; it does not disappear. market. In fairness to POL, I think there should have been a greater emphasis—it touches on Brian’s Q49 Katy Clark: But for the communities where point—on the fact that Mains and Locals are a new someone is leaving the industry for whatever reason, model, but the options are that, unless you are it is going to be a new model that comes in, is it not? prepared to provide a subsidy increasing up to It is going to be a Local. Are people going to be able £400 million or £500 million a year, something has to to survive and keep these services open in rural give. I support it, because up to 2,000 existing communities? subpostmasters will leave with compensation to move Paula Vennells: From all the evidence we have got on. We have thousands of members over retirement so far, yes. If you look at the economics of the Post age. Office Local model, which is probably where most of the concern lies—these are average figures, so there Q47 Katy Clark: Can I just ask Paula Vennells this are some that are slightly less and, in fact, there are question? How much of that £1.34 billion is going on some that are substantially more. The post office is those packages? If you are not able to give those now open from 7 in the morning to 10 at night, in figures today, maybe that is something that could be some cases even longer than that. First of all, that is given later. I appreciate, George Thomson, that you an 85% increase in post office hours. That does two may not know yourself the answer to that question. things. It brings additional customers to the post George Thomson: The first part is that I support office. Post offices have seen a 9% increase in post subpostmasters being able to leave and to have office custom. They have also seen roughly a 9% choices. The second issue is that about £200 million increase in their retail business. In terms of the overall will be spent on modernising both the Main branches economics, it works. The other advantage to the and the Local branches. Katy, that money is needed. operator is that the staffing model is more flexible, so The 4,000 big commercial offices have kept the whole there are either savings from the staffing model or network afloat by cross-subsidising the rural through there is productivity. You no longer have one or two the Assigned Office Payment. We all know that part people working solely behind a post office counter; of the Government’s strategy is that the £60 million those people can move and they can do other things. that is lost per annum on the Crown Offices is to be The economics of the model work. That is the whole eradicated over the next three years. Again, the 4,000 point about the pilots: that we actually try this. We commercial offices that will remain are the ones that would not want to roll this out if the economics did are underpaid to allow that cross-subsidy to go to the not work. Crown. For these three reasons—the fact that the It is, as George says, completely voluntary. There will Crown office losses will be eradicated, the fact that always be some post offices, as I said at the very there will be up to £200 million of new investment, beginning, that this will not work for. Therefore, there and the fact that there will be well over £100 million has to be a decision that a continuing subsidy is of compensation for subpostmasters to retire and be needed, and the current Government has endorsed replaced with new models off-site—we support it. that. But it is about being businesspeople too. People who see these economics and who are really good Q48 Katy Clark: You are also aware that the picture retailers have made this work. I was in a meeting last is far from all rosy and many subpostmasters are very, week with the Minister—so this was said in front of very concerned about these proposals. I am not sure the Postal Affairs Minister—where one of the if you were here in the previous session, when I raised operators, who is now running 25 of these, asked if a particular example in Glenluce, which I suspect is they could have one in every one of their 600 stores. an example that you will be aware of, with your These models work, and that is the most important accent. That is a south-west of Scotland example, thing. This is what will transform the network. We where a post office will probably turn into an outreach will have economic models that work, provided that— service, because of the new funding model. The I go back to my second point—we have growth as cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson well. We have to put more business through the post poor compared to other post offices. 64% of users offices, and that is where the Government front-office considered the level of privacy to be average or fairly work comes in. That is why that is so important. But poor.” How do you explain the difference? local government too; I would ask the Committee Paula Vennells: I think, with respect, Chair, your last members to go back and talk to your local councils figure is the other way round. I think 34% find it poor and local authorities. We can take much more work or very poor. If you add in the average to those who through the post offices. find privacy okay or fine, it is about 66%, from memory. Q50 Chair: Just before I bring you in, David, you Let me take those three areas. One of the comments I spoke earlier about the level of satisfaction being made first of all is that we have made some mistakes 90%. I believe this is based on the 200 or so pilots that and these are pilots. The point is we need to learn. you have got so far, of which 63% were effectively Secondly, the Consumer Focus research is very replacement post offices and the balance were existing helpful. I do think it is a very good report, and we post offices. Was there any difference in the levels will absolutely look at the boxes, if you have read of satisfaction between the two, given the fact that a the report, where they make their recommendations of community that had hitherto been deprived of a post things that we should look at. We will work with office is likely to have, shall we say, a much higher them. Since the last time they did their research, we level of gratitude and, potentially, satisfaction than have improved privacy. We have got a better result one that is used to an existing service? from our customers. What we are doing now, when Paula Vennells: There is. If I may, I will give you we go to every single branch to talk to the two answers to that, and they are both as important. subpostmasters, is working with them on how they The first is that, of those pilots, 50 are post offices can improve their privacy. In some cases, that means that were temporarily closed and we were struggling putting in half screens. In some cases, it means to reopen, so not unlike the situation in your painting a line on the floor. These are small constituency. Because of the new models, we convenience outlets, so you have to think carefully reopened 50 post offices, and people were overjoyed. about how you do this, and it has to be done on an That is the first point. Where we have opened a Post individual basis. Office Local in a location where either a post office In terms of the product range, I go back to my has closed or there has not been one for some while, previous points that 95% of visits are covered and the customer satisfaction stats were—I may get this over 90% of customers are satisfied with what they slightly wrong—about 98%, so very, very high. get. We will continue to work on those two areas, and Where we opened a Post Office Local where there we will listen to Consumer Focus; they are a body was an existing post office, it was lower; it was 91%. that we respect and that we work very closely with. I These models work. have no issue with them raising problems for us to Locals do not do everything that a post office would deal with, but we are dealing with them. do, and I want to cover that very openly and very overtly. They do not have 100% of the Post Office Q52 Chair: George Thomson, you looked concerned. range, because some things just cannot be done, but Do you wish to come in? that is no different from a Sainsbury’s Local versus George Thomson: I think we have to be very careful a Sainsbury’s Superstore. Please understand that they here, both as a Parliament and also as Post Office Ltd. cover 95% of post office customer visits. We are still What is wrong with the Post Office Local model? working in some areas to see where we can improve Partly it is to keep the politicians on board. It is a that range further, but there will be some where I will different model. It is better in some respects, i.e. it is simply say, “No, we cannot do this because it does more convenient and there are longer opening hours. not make sense.” The ones that often come up, That is good, but what you do lose—and we have passports and motor vehicle licences, are today to be upfront here—is a lot of the specialisation and available in only 2,900 post offices and 4,500 post knowledge that has been built up, because many offices. They are not available across the range of post people are going to leave. If you look at Consumer offices anyway. In most cases, post offices that we Focus and the report, these are two of the areas that would be talking to about the Locals model would not are not identified that I have had concerns about for have offered those services in the first place. I think over a year. of 95% of customer visits, 85% extra hours, open The third thing is, if you have got a convenience store, seven days a week, shop when you like. One other and some of the Post Office products are still advantage of these additional opening hours and the complicated—they may be over-engineered and a big growth in mails business that is coming through all of range—is it right that you are expected to give a the models, including Locals, is that we are getting service from 6.00 in the morning until 10.00 at night, younger customers in, because they are shopping early seven days a week? It keeps the politicians on board; in the morning, after work at night and at weekends. I accept that. If you go into a convenience store at 9.30 on a Sunday night, would you expect to top up Q51 Chair: Can we just concentrate on the your mobile phone? Yes. Buy a stamp? Yes. Do some satisfaction ratings? Your research does not reflect that of your gas and electricity? You would. Is it right that done by Consumer Focus. If I can just quote: “48% you would expect the staff to have the knowledge base of users considered the product range available to be to send a parcel to Poland at 9.30 on a Sunday night? average or very/fairly poor. 38% of users considered That is an unreasonable request. The danger is that the overall experience to be average or very/fairly you over-promise. What happens—and Consumer cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson
Focus identified this—is that people, although they are Q54 Chair: Could I just try to seek clarification? I meant to provide all the service at that time of night, think probably, George, you are the person to ask. do not do it, or, if they try to do it, they do not get it What will be the changes to subpostmasters’ pay once right. There is a lot of work still to be done. The status this model or two models come into effect? You quo is not sustainable. We will work with Post Office touched on this just now; if you could just elaborate. Ltd to get the Local model right, but there are George Thomson: Three things to say, nice and easy: certainly two or three things with the Local model that if someone decides that they do not want to change or have to be made better. One of them is that products they do not want to leave, they will stay on the have to be re-engineered; they have to be simplified traditional contract, i.e. fixed pay and variable pay. or mistakes will happen. The Federation has set up a Nothing changes and there will be 5,500 to 6,000 who working panel with POL to actually do that. do that. Chair: We have got some further questions on that. I do not want to over-anticipate. David Ward, you have Q55 Chair: What is the element of variable pay? been waiting very patiently. George Thomson: It varies. Variable pay depends on your commission from your transactions. Let us say Q53 Mr Ward: On the economics of this, we have an office was on £60,000. It would get roughly talked about consumer satisfaction levels, but £15,000 fixed and about £4,000 to £5,000 variable, as presumably consumers would like every shop to be a rough estimate. Basically, the traditional offices will open always. If a taxi driver is coming home at 3 am remain fixed and variable. The existing subpostmaster from a shift, he would be delighted if he could stop who wants to become a Local will get his fixed pay off and buy a stamp. Are enough stamps being sold in bought out. Let us say someone is on £20,000 at the those extended hours to cover the marginal costs of moment—£10,000 fixed and £10,000 variable. If that staying open? It is not only increased usage—which subpostmaster wants to become a Post Office Local, is the 9% figure—but whether the additional hours are he will get one-and-a-half times his £10,000, so he will get a £15,000 lump sum, but he will then have economically viable. to operate on £10,000 a year going forward, rather Paula Vennells: That is a really helpful question. If than £20,000. you look at the overall retail outlet, then the decision as to how long the retailer stays open is entirely theirs. Q56 Chair: That £10,000 is based on the variable. If it was not economic, they could shrink those hours. George Thomson: No, the £10,000 that remains is For example, we have got one at the moment that is based on variable. The £10,000 that goes is the fixed open from 6.30 in the morning to 10.30 at night; we pay that he used to get. have got some that are open from 8 in the morning Chair: Yes, that is what I am saying. until 7 in the evening. It really depends on what the George Thomson: The third lot of people is people retailer thinks they need to do. In terms of the range who decide to become a Main and they are an existing of services—they are profitable—what we are finding subpostmaster. Because they are changing their is the retail mails are selling well, because of eBay. It contract from a fixed and variable to a fully variable, is the conversation that was had previously about they will get a £10,000 lump sum for agreeing to growth in the packets market. Consumer Focus change the contract. They will then go into enhanced highlighted this in their report. This is a really good product rates that virtually make up what they have area for Post Office Locals to move into, because they lost on their fixed pay. Those are the three different can both take the packets and process them. We are things that are going to happen. Again, I have to working with Royal Mail Group to make sure that we re-emphasise the point that anyone who wants to capitalise on the growth in the collections and returns remain as they are does not lose their fixed pay. No market. Post Office Locals could do that too. So it one is having their fixed pay taken off them, unless depends on the spread of the business and the hours they volunteer to become either a new Local or a of the retail outlet. new Main. George Thomson: Take an example in a small village. Let us say there is a post office that is standalone, Q57 Margot James: George, you did touch on these with the post office, and some cards and stationery, over-engineered products before, which are a and you have another newsagent. Maybe both of them problem. Can you give any examples? The example are struggling. The good thing about Post Office Local you very briefly touched on was someone trying to is, if that subpostmaster wants to leave with send a parcel to Poland out of hours. Can you give us compensation, then the post office is offered to that some more definitive examples of what you mean by newsagent as a Post Office Local. Instead of having these over-engineered products and what might be two shops in the village that may go under because done to simplify them? they are really struggling, all of a sudden you have George Thomson: Margot, we have set up a working one viable business, where the newsagent is maybe team. That is the first thing. What do we mean by getting another £8,000, £9,000 or £10,000 salary as a products that are over-engineered? We have got the Post Office Local and is getting the additional footfall Horizon system on the counter and it is a very good that used to go to the post office. That business could system. It could be that you need to have six different be the difference between survival for that newsagent computer screens to get to the transaction. A perfect or convenience store and folding and going bankrupt, example of where products became over-engineered which is happening to many people in this very is that, three or four years ago, many of the mails difficult economic climate. products used to have stamps put on them. Let us say cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson you are sending something to Switzerland and it is 30 there is no requirement for separate queues in these grams. In the past, it would have been one stamp. It new Locals. What do you think about that? would not have taken the clerk a lot of time. Now you Paula Vennells: I smile when I answer this question, have to go through various screens; you have to print because you can imagine that we have heard them a a label; it slows it down. Now, I know Royal Mail number of times before. The queues go down. The wants that process but, over the last four or five years, average queuing time in a Post Office Local is some of the mails products in particular, for all the 48 seconds. What happens is, because you have 85% right reasons, have become far slower, far more longer hours, the business is spread over a much time-consuming and over-engineered. We will work longer period of time. Again, that has been with both Moya Greene at Royal Mail Group— independently validated. Yes, if you go in on a obviously we are separate now—and Paula at POL to Monday morning or a Tuesday morning when some make these products easier and quicker. of the pensioners go in for their pension—they like to It comes to my point, Margot, that if these products go at the same time—you will have to wait slightly take too long and it starts to hold up your retail queue longer, but nothing at all substantial has given us any because someone has got four or five parcels— problems. In the Mains post offices, the average James Lowman touched on this earlier—then quite queuing time is about two minutes, 40 seconds. We frankly that is a recipe for disaster and it suits none have done a lot of work in Post Office Ltd on queuing of us to have that as an ongoing concern. We have got in the last 12–18 months. If you look at the top 1,000 to work together to simplify the products. Again, it post offices in the country, a year ago 68% of comes back to what I said earlier on: the range of customers were served in under five minutes. That is products that a Local is expected to do is 85% of the now over 75%. I have a target that we will get to 90% products and 95% of the volumes of a traditional post in three minutes. How long it will take to get to that office. I think, quite frankly, we are kidding ourselves I am not entirely sure, but we are moving things in that that is achievable. We are trying to put too much the right direction. The Locals are just fantastic, on to a Local and, again as I said earlier on, probably because of that extra time that the post office is open. over-promising and under-delivering. I would rather It simply spreads it. That is great, because it makes we had 80% of the volumes through a Local, which the post office work. It means that we can then go to was achievable, with a few fewer products than we places like local authorities, local councils and central are trying to sell at this moment in time. Government, that are talking about giving us more work, and when they mention queuing I can say that, Q58 Margot James: That seems to make sense. I “Actually, this is what it is now looking like in the would be interested in your view on that, Paula. pilots”. Paula Vennells: George and I have a slightly different view on this, but not too much, to be fair. Another Q60 Chair: Can I just come in there? You have way of thinking about it is how we might simplify mentioned an average of 48%, but that could mask some of the products, rather than necessarily saying considerable delays for quite a lot of people at key that the current ones are over-engineered. The point times. With extended opening hours, it is reasonable about labels was made because Royal Mail has, as to assume that quite a lot of people would actually not you all know, introduced a huge amount of wait at all, if they are going in at times when there is automation. The labelling and the barcode are needed not going to be peak traffic. On the other hand, as we at the back end through the mail centres. The subpostmasters are paid more for labels, so they have have got an average, you could have some who are not lost out as a result of that, but it is a longer waiting considerably longer. process. Paula Vennells: Of course you could. There will be Where I think there is big opportunity and, therefore, some, undoubtedly, but I suppose there are two commercial opportunity, is if you look at packets, for answers to that. One is the one that you have given: instance. First of all, I certainly have not had any that some people will come back another time, and evidence of lots of queues as a result of packets but, the convenience is so much better that they can now as this is a growing part of the business, if we could do that. The second is that from the customer research move to volumetrics—prepaid boxes that are standard that we have done, it has not degraded over time. We sizes and easier to use—that would be fantastic. That have done ours fairly frequently over the last two or would be something that you would put through all of three years since we started the pilots, and satisfaction the network. It is not just something for Locals. I am has not gone down. I think we would have noticed if really pleased that George has agreed that we will big peaks in queuing were driving dissatisfaction, and work together on this, because clearly the Federation that has not been fed back. Every time we get has so much contact with subpostmasters that they see complaints about this, because clearly these are pilots what goes on day in, day out in the post office and we are learning from them, we will act on them network. I am grateful for that. and we will go and visit a local store. But that is not one of the problems that has been flagged. Q59 Margot James: Could I digress slightly from what I was going to ask and go back to the subject Q61 Mr Ward: My experience is that it is damn of separate queues, which we heard about in the last lottery tickets and scratch cards that increase queues. session? It does strike me that a number of Post Office For someone who has never had either of them, if you requirements do take some time and are completely would ban those, then I would be very happy. incompatible with a fast-moving retail queue, yet Paula Vennells: They make money out of that. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Ev 16 Business, Innovation and Skills Committee: Evidence
15 May 2012 Paula Vennells and George Thomson
George Thomson: Can I just say, Chair, that Post decisions currently taken by POL are decisions Office Locals is not perfect, but it is necessary. The specifically designed to protect the central structures reality is that the country cannot afford to have 11,800 of the company at the expense of the whole.” I just traditional offices. It has to change and it has to wondered to what extent or how you would respond change now. People have been asking for a to that criticism as being fair. moratorium. We were the first organisation to raise the Paula Vennells: The Post Office cost base is post bank five years ago at the national conference; approximately £1 billion, and 90% of that cost goes people are presenting post bank as John Wayne and to supporting the network. My first contention is that the Seventh Cavalry. I had four or five discussions so much does not stick to the sides at all. Half of that with Peter Mandelson, who said, “Look, George, it is subpostmaster remuneration. A significant amount would cost £2 billion. We are not going to do it.” I had of the cash distribution that goes through our two discussions with Ken Clarke when we thought the economy—14p in every pound—comes through a Conservatives were going to win the election. Ken post office. We run hugely secure—as you can was exactly the same: “It is going to be £2 billion; we imagine—and costly cash centres and a distribution own the Royal Bank; we own half of Lloyds TSB; we network to enable that to be there. There is a big ain’t going to do it.” I had the same discussion with technology investment. Most of our cost—I would be Vince Cable and Ed Davey, with exactly the same very happy to supply that to the Committee—is answers. I support a post bank but, in the immediate invested on the network. I have worked in commercial future, it is not on the horizon and it is a little bit businesses before; there is always, in any business, unfair to try to kid people on that it is John Wayne opportunity to take costs out centrally. We do that and the Seventh Cavalry riding over the hill and it can continuously. keep the network at 11,800. It is intrinsically dishonest. Q65 Ann McKechin: Would that be in line with other continental models about the way post offices Q62 Margot James: I was going to ask about the are operated, in terms of that split? Horizon computer system. I think I heard you say it George Thomson: What I do know is that our was quite a good system, but written evidence we members run 97% of all branches; 3% are run by the have received shows that there have been a lot of Post Office as Crown Offices. Because technology is problems with it. It is a slow system and it does not changing and because the customer base is changing, allow subpostmasters to find where an error has in the year 2010–11, subpostmasters’ income, occurred and to rectify the error before having to including the franchises, was in the region of repay the losses. What is your estimate of this system? £480 million. In the year just finished, that has slipped Would we be much better off with a simpler system to £470 million, so it is actually down by £10 million. that can be operated by less specialist staff? When we talk about central costs, for example, the George Thomson: It is a robust system. Could it be Labour Government twice and the Coalition once made simpler? Absolutely. We have to be careful, have said: “The Crown Offices are losing £60 million because some people present it as not being a robust a year; you have to get them to break even. You have system and say it is systemically faulty and creates to look at the staffing, look at where they are and all errors. That is not the case. As far as we are these things”. That has never happened. I know Paula concerned, usually what happens is that an error and her team will look at that from September. comes to light when there is an audit visit and I know Brian Binley had a go at Allan Leighton. For sometimes that error has been covered up for five, six the cash in transit, the cost of supplying the cash is or seven months. What we have found is that what about £130 million a year. One of the things people say the system does not show is massive Allan Leighton was going to do about seven years overages, but, actually, it shows massive shortages. In ago was put that out to competitive tendering and he other words, every case has to be judged on its merits reckoned it would have saved about £30 million a but, as far as the Federation is concerned, it does not year. There is that issue as well. I know these are look like there are any systemic problems with difficult times. The other issue—this is what we are Horizon. Usually, it is after an audit visit that people talking about with central costs—is that we are an claim a big shortage is associated with Horizon. It is organisation that does not represent staff. We not the case. represent self-employed small businesspeople, the National Federation of SubPostmasters. One of the Q63 Ann McKechin: Ms Vennells, I wonder if I biggest other costs of Post Office Ltd, even after the could just clarify one point with you. In your earlier changes with the Government taking over the pension evidence to my colleague, Katy Clark, you said that deficit, is the payment into Post Office Ltd’s pension the Government funding would be divided roughly 50/ contributions. I know it is difficult, but our members 50 between investment and subsidy. Am I right in are trying to make a living. That will be as much as thinking that the compensation payments would what our reduced subsidy is going to be in three or entirely come out of the investment stream and not four years’ time. the subsidy stream? Paula Vennells: Yes, that is right. Q66 Ann McKechin: Thank you for that, Mr Thomson, because that comes to my next point about Q64 Ann McKechin: Thank you very much for that. the issue of mutualisation, which is the Government’s The National Federation of SubPostmasters, in their ultimate plan. It is probably on the basis that the written evidence to the Committee, stated that: “Many public have a view that, as at present, the vast majority cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson of people who are providing postal services through growth in post offices in some of the multiples? Very the network, as you said, Mr Thomson, are possibly, if that is what communities need. We have self-employed independent retailers. However, if you to find the best place to put the post office. My guess, look at this model, it would appear to me that it is though, is that they will still, in five years’ time, be exactly the model that would suit your Tesco run in the vast majority of cases by independent Expresses and your Sainsbury’s Locals. Five years retailers, because that is what actually works in from now, how much of that network do you think communities. There is no conflict here, as far as I will be in the hands of the 10 largest retailers in the can see. UK? George Thomson: I think that is an excellent question Q69 Ann McKechin: That is why I am asking and I have a difference of opinion with Post Office whether the mutual model is a suitable model, if we Ltd. I think that the new Local model in particular are going to have a larger proportion of the network lends itself to family-run businesses, where you have actually owned by large multinational companies, as someone you can trust on site from early in the opposed to independent self-employed postmasters, morning until late at night. About six years ago, which has been the previous tradition. There does something called the combi till was trialled by some seem to be a huge growth going into the local market of the multiples like SPAR and the Co-op. What they model by Sainsbury’s and Tesco in particular and by found is, late at night, when you did not have the a number of other retailers. It is a growing trend. I am managerial processes in place, the number of error just suggesting to you that a mutual model may not notices, where you got transactions wrong, exploded. be one that would necessarily suit that type of set-up. More importantly, the amount of money going What do you think? What sort of mutual structure do missing from the post office till exploded as well. So you think would work to cover the mixture of I am not convinced. I have this debate with the Post businesses that you are now dealing with? Office all the time. I actually think that Post Office Paula Vennells: This is an important area to go into, Locals and the new Mains can take us back to a time I think, and there are two or three points to be made. when independents, which still dominate the network, Firstly, we have no idea currently as to what mutual dominate more. I do not think that the Local model is model the Government are going to propose. As you as attractive to the mutual as what is being expressed know, they went out to consultation and I understand by the Post Office. I have to say that Tesco, through that their response is due back some time in the next their One Stop, may be interested, but I have said to couple of months. Until we get to that, it is difficult the Post Office on many occasions that— to even guess what the mutual model might be. There are lots of different models and they are all pretty Q67 Ann McKechin: Mr Thomson, can I just say successful where they have been in existence for some that, in about a mile and a half radius from my time. The Co-op is a good example of a membership constituency office, I now have about five Tesco model, which is customer-related. John Lewis is the Expresses, compared to none five years ago. They are one that is usually quoted as an employee model. My now dominating many urban areas of this country. I sense is that the Post Office would have to be would be interested to hear Ms Vennells’ opinion, but something that spans a huge number of stakeholders. what percentage do you think? You are saying that, The only point I really want to make today on five years from now, you do not think they will have mutualisation is we cannot get there until I have got a more significant presence. I do not know if this business in a sustainable economic state, because Ms Vennells might have a different view. you cannot really mutualise something that does not George Thomson: No, I do not, but if I can just finish make any money. I do not think you can take a on that point, I have also warned the Post Office they network that has systemic problems in terms of are on every village high street in Britain and in every economics and then mutualise it. However, having town in Britain and they have to be very careful that told you that I believe that is entirely doable, it does they do not get into bed with Tesco, because Tesco is then make mutualisation a possibility. The second seen as actually damaging local retail and damaging point about mutualisation is that, if we believe it is local high streets. I think it is important to the brand doable because we have created a sustainable Post of Post Office Ltd that we are very cautious about any Office, what it could do is group together the people future dealings with One Stop, which is part of Tesco. you have heard from today. We had a very useful meeting last week with the Minister; a number of us Q68 Ann McKechin: Ms Vennells, I would be sat around the room and talked about how you might interested to have your opinion. make a post office work in a mutual world. What Paula Vennells: I am not sure that we had a particular tends to happen then is that people listen to each other. debate about this. We already have a couple of I think it would be very good for the Post Office to thousand post offices that are run by various different formalise some of this stakeholder input, but it cannot multiple retailers. Sainsbury’s has some; Tesco has be done until I have transformed the network and until some; One Stop does; McColl does. Far more are run I have got some growth through the doors and we by the Co-op, which plays to the mutual question I have got communities confident that they are keeping think you started on, and far more are run by the post offices. SPAR and the convenience store networks, which James represents as well. We have a mixed economy Q70 Ann McKechin: Could I just ask one other of post offices, and we have, in my view, the right point on this matter? Under the current scheme, there solution that works in communities. Will we have a are no controls on the way on which departures from cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Ev 18 Business, Innovation and Skills Committee: Evidence
15 May 2012 Paula Vennells and George Thomson businesses occur. When people retire, give up or sell Committee, on the economics of the Locals that you their businesses, you have no control over where that think are working? Can you provide us with as much may occur. They may cluster in one part of the of that as you can, but can you also give us the figures country or in certain communities. To what extent do for where it is not going to work? We know that many you think mutualisation can either help or not help of the Post Office Locals that have been advertised on maintain the numbers within the network, particularly your website actually have not been taken up. They in rural areas and also in areas of social deprivation, have been withdrawn from your website and we now where, I have to say, the demand for services can be have outreach services or we are going to get outreach just as great as in rural areas and, in fact, people are services. What we are talking about for a future much more dependent on those services? Could I ask network is probably going to look very different. I Ms Vennells first of all, and I will come back to you, think you need to be honest about that. Mr Thomson? George Thomson: Katy, on that particular point, I Paula Vennells: It would be critical that whatever have a lot of sympathy if the post office is the last legislation or vote went through on mutualisation shop in the village. It would be different if that shop protected the network—and that it protected it from was really successful and maybe turning over demutualisation. As I understand it, that is entirely the £1 million in its retail. Would it need some kind of Government’s position. Whatever you do, you have to fixed-pay subsidy from the Post Office? No, it would look after this institution very carefully indeed. The not. But where MPs have got to be careful is that, if point is well made, and I have heard nothing to the a post office is the last retail shop in the village, you contrary from any conversations with Government could well be right that, if its turnover is quite small about that. and what is on offer is just a Local without fixed pay, that community could lose its shop and its post office. Q71 Ann McKechin: Thank you. Mr Thomson, did I think, even after all these plans are finished, the you want to contribute? Government will still be putting something like George Thomson: Mutualisation of the Post Office £60 million a year as a payment into the post office network was actually the brainchild of my good network, even beyond 2015. There are about 2,000 colleague sitting behind me, Mervyn Jones, about four post offices that are the last shop in the village. We and a half years ago. I think it came, Ann, from the are putting £60 million in a year. If I was an MP, I fact that subpostmasters felt they were at the bottom would to say to Post Office Ltd that, if the last shop of the food chain and, although we could make in the village is a post office and it does not have representations, on too many occasions our views sufficient retail turnover to stand on its own without a were ignored, even though we had £2 billion invested fixed element to the post office pay, “We would expect and we had 97%. What we have said to the some kind of fixed pay to be on offer as well as Government is that we are looking for the equivalent variable pay”. None of you should forget that, because of a BBC Trust model, where the shares would be that is going to be very important in the next two or held in trust; as long as you are a subpostmaster, you three years; I agree with you. have the shares in Post Office Ltd, and when you Paula Vennells: That is entirely the policy. That is leave, just like John Lewis, you leave the shares precisely the policy. behind. We believe that what it really is about is a heart-and-mind exercise. There are a lot of tough Q73 Katy Clark: But do you not understand that we decisions to be made, not just with subpostmasters but are concerned we are going to end up with all sorts of with staff as well. We believe in the hearts and minds outreach services? working together, turning this company around and if, Paula Vennells: I do, absolutely. Forgive me; I was in the future, it does not work, it will be our fault. We smiling because George was, I think, implying that will no longer be in the situation myself and Billy maybe that was not the case. What is very clear is Hayes have been in for years, where we blame the that, particularly for rural post offices—and I Government, Tory and Labour, for all the problems. understand the concern; I go and see them and I know Let us take ownership of the company and let us work them—there will always be some that cannot survive together to make it the success that Paula, her team profitably. It is our policy that we would continue to and the Federation are looking to achieve. support those. The only way we can do through that is through Government subsidy, so that subsidy has to Q72 Katy Clark: That is all very well, but we continue. There is no intention at all to stop the represent constituents who want this service. What we subsidy. I make an offer through the Chair to the need to know is what this future Post Office is going whole of the Committee, either individually or to to look like. We have real concerns about the come along and meet you as a Committee, to take you economics. It might work for some people—I am not through whatever figures you need to see, because it saying it will not work in certain communities—but is important you understand this. Perhaps the most the reality is that a lot of postal services have a retail important point to take away is that that is not outlet now. I represent an area where there are lots of changing. The programme itself is entirely voluntary. post offices in small communities where they already People only volunteer for this if they think it will have retail trade. I frankly cannot see what is really work for them. We then only ‘allow’ them to do it if significantly different with what is on offer, other than we think they have a business case that stacks up, so that there is going to be less money as an income we would not be putting into a rural post office a Post stream as they go forward. Can you actually give us Office Local model where we knew it would not the figures? What information can you give us, as a work. That would be irresponsible. We are also still cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
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15 May 2012 Paula Vennells and George Thomson obliged by Government to keep all of these post members and failing to negotiate, with one submission offices open. describing the National Federation of SubPostmasters That brings me to another helpful point, which is that, as Post Office Ltd’s “business partners”. A National in the last 12 months, we only had two post office Federation member claims that “A miniscule amount closures—two net closures. Net closures previously, of information … has been provided” by both Post in the last decade, have run between 100 and 200 a Office Ltd and yourselves, and another states that year. That is how we have got down from 18,000 post members have been denied information because of offices to the 11,800 we have got today. The reason confidentiality agreements. Why have you not those net closures are so many fewer is that, in a properly consulted your members? number of places—I mentioned there were 50 in the George Thomson: These comments are without pilots—we have now been able to go in and put in a foundation. The reality is, Julie, we had a conference model that works. Every time a post office closes, it last year that fully endorsed our position. We had a is not because we close them anymore—that has special conference at Buxton in November—half of it completely gone—it is sadly because people have died was about network transformation—that fully or taken ill or they decide they want to sell their post endorsed our position. We have had a series of joint office on. We are then obliged to go back and replace regional meetings with the Post Office, which fully that post office in that community. Where we can, we endorsed our position. Myself and my good colleague, put back what is there in the same place, because it is Mervyn Jones, behind me here, went around the easier for the community. If we cannot do that, we country. look around for something else. What we now have, More importantly, we have something like 53 with the Post Office Local model, is in some cases branches throughout the UK and in the last two a better model that means we have got more people months every single branch agreed to have a joint interested in taking post offices. That is why we have meeting, a joint presentation to the members, on got fewer permanent closures now. I need to give you network transformation. So we have engaged with our a balanced view. It is not perfect for everywhere. members. Out of the whole of last year, not one There are lessons we still have to learn and we will motion came forward saying we should not support work with Consumer Focus on everything they have network transformation. At this year’s conference, identified. But economically, from the pilots and the there is only one motion from one branch saying that work we have done, I think this gives us hope for the we should withdraw our support for network Post Office for the future. transformation. Can I also say, in the Government’s figures, there are 8,800 independent-run post offices in the UK? Some Q74 Julie Elliott: George, you have given us some 7,300 of these branches are run by our members. We reasons why you are in favour of this Post Office have 6,400 members, but some of them have Locals model, but I would like to ask you a question outreaches, so 7,300 of the 8,800 independent specifically around your members. These Post Office branches are run by our members, which is a big Locals are designed to be operated by retail assistants, penetration. I have got to admit that, since the CWU rather than specialist post office staff, and yet your spent about £200,000 last September, we have had members are specialist post office staff. Can you 103 resignations in the last eight months from the explain why you are in the position you are in? Federation. I can only assume that, in spending the George Thomson: Yes, fairly easily. The estimates £200,000, the CWU has managed to take 100 of our that we have made—and in fairness the Post Office members. But 7,300 independent branches are run by has made them as well—are that we reckon, of the NFSP members. We consult our members. We have 2,000 Post Office Locals, something like only 200 will had the conferences and we have had the meetings. It be run by existing subpostmasters. About 1,800 will has the overwhelming support of our membership. be off-site conversions; that is new retailers. We are comfortable because these 1,700 or 1,800 who do not Q76 Julie Elliott: The conferences, were they want to stay will be given compensation. We have delegate conferences or were they all-member over 1,000 members who are over retirement age. meetings? Some of them are well into their 70s and some of George Thomson: They were delegate conferences, them are very ill as well, and they are desperate to very much like Parliament. leave, because the post office model as it stands is not working. It is difficult to sell your office. That is why Q77 Julie Elliott: In terms of the comments in the we are comfortable: because about 1,800 of the question that I asked, why do you think that the existing subpostmasters will, if you like, take overwhelming amount of written evidence is saying compensation—the Queen’s shilling, as we call it— the things that it is saying, which is very different and leave and the premises or the products will be from what you are saying? These are your members. relocated into a convenience store or a newsagent. George Thomson: Some of them are our members. It That is why we are so relaxed about it. is very easy to have a campaign to get 50 or 100 members to write in to say critical things about Q75 Julie Elliott: Much of our written evidence— network transformation. I am saying that this is again, this is to you, George—criticises your actually one union trying to damage another. That is organisation in terms of both failing to consult your the reason. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:28] Job: 020904 Unit: PG01 Source: /MILES/PKU/INPUT/020904/020904_o001_MP BISC 15 05 12 (Uncorrected).xml
Ev 20 Business, Innovation and Skills Committee: Evidence
15 May 2012 Paula Vennells and George Thomson
Q78 Julie Elliott: I am asking particularly about Subpostmasters did not benefit to the same extent as comments that have come from your members. Is it retailers. We got the 7%, but we did not benefit from true that you have denied information because you buying stock at a cheaper price and selling it at a more have confidentiality agreements? expensive price. George Thomson: Absolutely not. The reality is that we have been very open with our members. The Q80 Chair: Did Royal Mail restrict the sale of contracts that are being dealt with at the moment are stamps to non-post offices—to normal retail? in a place that, before anyone signs up to change to a George Thomson: We are the front shop and Moya new model, they will know the pay rates. The pay wants us to be the front shop, with 11,800 branches. rates have been explained to them already when they Royal Mail was acutely aware that there would be have their visits. No one will be expected to sign up absolutely no profiteering from post office branches, to either a Local or a Main without seeing the contract because the revaluation meant that actually we would and knowing exactly what the pay rates are. When the only get 7% on the new price and not make extra visits take place with the field change advisers, they money from buying them cheap and selling them at are actually being told what the rates are for the the more expensive price later on. Royal Mail Locals and what the rates are for the Mains. Individual obviously was aware of that, but they did restrict them subpostmasters have choices. All we have done, Julie, to some retailers, because a lot of them were trying to is give postmasters choices about leaving the industry stockpile, not just to sell to the public before the price with some money, staying as they are with their fixed went up. Some of them tried to buy them to stockpile pay or moving to a new model. Quite frankly, I would until 30 April and make 23 pence a stamp, rather than do everything again exactly the same as we have done 3 pence a stamp. it in the past. We have got a great deal for our members. What I will say is this: the high street is a Q81 Chair: Did they restrict them to post offices as difficult place. Many retailers are going under well? financially—newsagents and convenience stores. George Thomson: No, they did not. Uniquely, this is the third time, in 10 years working with the Post Office, that we have got Government Q82 Chair: Paula Vennells, in a lot of the evidence money to restructure the post office network. That is that we took previously people said that there had a big achievement in anybody’s language. been limited opportunity for public engagement. Would you like to comment on that? Q79 Chair: Could I just ask about stamp prices? I Paula Vennells: Yes. I am grateful to Consumer Focus, have been asking the Royal Mail whether post offices who raised this point. We work with them, as Mike said will be disadvantaged by having their stock revalued earlier, within a code of practice. There has been at higher prices. I may say I did have this brought to sufficient consultation on the overall network my attention by a subpostmaster. The response we got transformation programme. What is probably most was not entirely clear. What is the situation? important going forward—I think the concern is George Thomson: The situation is this: the stock is primarily around the Locals—is that where we move a revalued. Subpostmasters make 7% on a first-class Post Office Local branch to a different site, there will be book of stamps. When the stamps went up on proper code of practice consultation with that 30 April, there was a revaluation that meant that community in every single case. We will speak to them subpostmasters made 7% of the new price, not 7% of beforehand; we will take feedback afterwards. Indeed, the old price. They got 7% on a bigger piece of the what we have recently agreed with Consumer Focus as cake. James Lowman tried to explain it, but basically well, just to show you that we are working together and we are different from retailers. What happens with evolving things, is that where there is a change on site— retailers is they purchase the stock; subpostmasters do so the post office stays in the same retail outlet—we will not purchase the stock. It is Royal Mail’s stock until also communicate with the community. We will engage we sell it. If retailers managed to buy a lot of stamps, them beforehand and we will then take their feedback instead of making about 3 pence for a first-class afterwards, so that we do understand that it is working stamp, as our members make and retailers were for them. The Government policy, as you know, was making until the price went up, some were able to published in December 2010, so it has been around for make about 23 pence a stamp, hence Royal Mail was quite some time. trying to restrict it and make sure they came through Chair: Okay, thanks very much. I will repeat what I the Post Office. The reason the stamp prices are going have said to other panels: if there is anything further up is not so that retailers can make 23 pence profit on that you would like to submit to us, please feel free a first-class stamp instead of 3 pence. The reason why to do so. Of course, we may do the same to you. stamps went up was to protect the universal service. Thanks very much. cobber Pack: U PL: COE1 [SO] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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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 November 2010 set out the Government’s commitment to maintain the national post office network at around its current size and to safeguard its future. This policy reflects the vital importance of post offices as valuable social and economic assets of the communities they serve and also recognises the need to modernise the network to secure a sustainable future. 2. To enable these commitments to be met, the Government is providing £1.34 billion over four years to 2015 to Post Office Ltd. The Government is also clear that the previous policy of closing post offices to cut losses failed to address the real economic challenges facing the network. It has therefore made a further commitment that there will be no programme of post office closures on its watch. In turn, Post Office Ltd is required to maintain a network of at least 11,500 branches which is also in full compliance with the access criteria, set by Government in 2007. 3. Post Office Ltd is about to launch the largest investment programme in its history to address the underlying economics 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 200 pilot branches operating to these new models are up and running. Contrary to claims that have been made, the Local pilots have not been limited to areas where the previous post office had either permanently closed or been closed for a long time. In fact, out of over 150 locations in which the Local model is now operating, over one 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 pilot branches. 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 retail environment 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 these objectives by addressing the economics and lack of flexibility of the traditional sub post office 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. 5. The new post office operating models have been designed with viability for the subpostmaster, the sustainability of the network and the needs of customers in mind. Against the background of the requirement for 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. Service enhancements, in the form of longer opening hours for example will, in the context of Post Office Ltd’s wider strategic direction, make these post offices more sustainable into the long term whilst providing customers with a significant improvement in access to services. 6. 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 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. The circumstances of any changes to the post office operating model will vary location by location and require local consideration. A national consultation on the transformation 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 Office services and those who rely on and use these services on a daily basis, including small businesses, rural communities and pensioners throughout the country. As you will be aware, we have called on the government and Post Office Ltd to establish a Post Bank through the network, in order to help sustain the business and to meet customer needs. Since our inception in 2009, we have pressed both the previous and current governments to create a publicly owned Post Bank through the network, in order to help sustain the business and meet customer need, as well as bringing diversity to the retail banking system and supporting local economies and micro and small sized businesses. We are disappointed that the Coalition Government does not agree with us that Post Bank would secure the future viability of the Post Office network. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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We are concerned that the government’s policy statement, Securing the Post Office Network in the Digital Age, which sets out its “vision” to secure the network until 2015, will not bring the revenue needed to sustain the 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 lead to an unrecognisable, diminished skeleton service. It’s also a change that has not been presented to the British public 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, which could 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 Post Office Ltd (POL) as part of the comprehensive spending review. Part of this money is to oversee the network transformation programme. The document also cites two areas with “real growth potential”: front office for Government and financial services.
The Locals and Main Models As part of the network transformation programme, Post Office Ltd has undertaken to convert around 2,000 sub post offices to a new Locals model, and around 4,000 branches to a new Main Post Office model, by the end of the current Parliament. This means transforming over 50% of the current branch network over three years. The Locals conversion programme, which will affect 20% of the network, will mean that fewer services than are currently available will be provided. Consumer Focus has described the challenges presented by this as being “as significant, if not more challenging, than [in] previous restructure exercises”. We have a number of concerns over the plans, in particular regarding: the piloting and consultation on the Locals model; the service Locals branches will provide; security for postmasters and the sustainability of the new models. Both the Locals and Main Post Office models involve changes to remuneration, with pay becoming entirely variable and the current core-tier fixed payments being removed. The new remuneration arrangements could make 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 with a 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 offices closing with Locals services transferring to nearby shops, petrol stations or other existing retail facilities as a result 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 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”. The location of Main and Locals branches is additionally not yet 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 with Locals. However, the trials of the model have been limited: it has only been piloted in areas where a Post Office had been closed on a long term or a permanent basis, and where the provision of any Post Office service is, 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 surveyed customers opting to use other Post Office branches instead (in order to access a broader product range, for instance). Consumer Focus’ research into the pilot areas has also questioned Post Office Ltd’s claims. Its report, Local but Limited? (published in April 2011), highlighted a number of problems with Locals and questioned the level of 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” compared with 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 2011 and, with the rollout of the model scheduled to commence from April 2012, this means there is limited opportunity 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: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Services Under the proposals to convert around 2,000 branches to the Locals model, over a fifth of the current branch network will offer fewer services than at present, downgrading the provision. The services which will not be provided 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 questions whether the rollout of the Locals model would be consistent with expanding the services the Post Office provides, particularly in relation to banking and government services, despite the government’s pledge to transform the Post Office into the “front office for Government”. The Consumer Focus report has also highlighted problems with caps being applied to services which Locals are intended to provide. For instance, cash and benefit withdrawals were being capped in a number of Locals branches because the retailer—which does not receive working cash from Post Office Ltd—did not have sufficient 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 be dealing with banking transactions late into the night, without a dedicated fortress counter. This increases the risk 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 the removal of core-tier fixed payments, which are currently provided alongside commission payments per transaction. For many sub-post offices the fixed payment equates to over 50% of their income and this change in remuneration is likely to mean the “conversion” programme will involve a significant number of sub-post offices 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 because of 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-postmasters whether they wish to: a) remain as they are b) convert to a main or local or c) leave the business with compensation 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, we understand 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 providing financial services, or acting as the “front office for government”, and over the lack of progress which has been made 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 24 January 2012, updating Parliament on developments with their policy, highlighted how little developments had proceeded. Just the UK Borders Agency (Identity Verification) work, worth up to £36 million over the life of the contract, has been won. The extra revenue is essential; however, we are concerned that it won’t bring much needed 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 will transfer to PayPoint 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 addition, the promise for a Post Office Financial Services Children’s Account to be introduced in spring 2010 is yet to be delivered. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Clearly, this indicates that there is a total contradiction from Government, with the Minister claiming he wants 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 for the 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 tackle some of the financial challenges facing the network. We believe the change will not create a sustainable post office model, nor will it increase revenues. 3. Post Office Ltd’s plans will mean a fundamental shift in the way the business currently operates, with changes to the services being provided. We are concerned that there is little public awareness or scrutiny of these plans. Any post office strategy needs to take into account, not just financial sustainability, but the need to safeguard a valued public service. 4. We call for a full national public consultation before Post Office Ltd proceeds with the proposed rollout of the Locals model. 5. Front Office for Government—whilst we welcome the statement in the BIS paper that the Post Office will become the “front office for Government”, it is questionable, a year on, whether this will be delivered. POL’s revenues from Government services are falling; 7.4% decline in its total revenue in 2010–11 came as a result of 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 Office as 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 BIS Committee Post Office Network Transformation inquiry. ACS represents 33,500 local shops, 4,000 of these include Post Offices. Most other stores in ACS membership include some form of service offering which may compete 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 sustainable network which benefits Post Office Ltd (POL), retailers and the communities they serve. However, if the network transformation project is to be successful it is important that POL works with retailers to ensure the models, and the operational implications of running them, are able to provide a comprehensive and attractive package 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 that there will be no programme of Post Office closures under this Government. The Post Office network provides important 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 the changes to the network are important to ensure that the Post Office can compete and succeed on the open market, 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 takes account of the current profile of the Post Office network and the development of related services. Therefore, we believe 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 closure programmes and through insolvency. Few professional retailers wish to purchase stand alone Post Office sites under the existing business structure. This led to a trend of Post Offices increasingly being situated within a retail shop. Brought into a wider retail offer, Post Offices can make an important contribution to convenience stores. As well as offering remuneration on transactions, Post Offices can bring customers into the store and this footfall can generate additional income for retailers. The new Local and Main models aim to build on this and make the Post Office offer more successful, accessible and attractive to both retailers and customers. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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8. However, the development of the Post Office in convenience stores cannot be viewed in isolation. In recent years, we have also seen the growth of other models which offer some of the services traditionally only available through Post Offices. The mechanism for executing bill payment services, for example, outside of Post Offices (usually through one of two companies, Paypoint or Payzone) has been extended to other services such as London congestion charge payments. Other services such as foreign exchange, cash machines and money transfer are also offered in non-Post Office convenience stores through third party suppliers, and even mail services can be offered through third parties. 9. In this context, whether the Post Office offer 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.
ACS Role and Approach to the New Models 10. The network transformation project aims to integrate Post Office services into the heart of the retail space by delivering Post Office services over the counter in stores through the Local and Main models. Given this, 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 all initially successful, POL has been working closely with retailers to understand and address the issues which have arisen. ACS will continue to work closely with POL and the Department for Business, Innovation and Skills on behalf of members, to ensure that the new operating models are a viable way forward for both retailers 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 recent months. We believe significant progress has been made in several areas, although we do recognise there are a number of issues still to be resolved. Below we have set out the key areas of on-going work which we believe are 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 available in stores. In light of this feedback, POL announced increased training for staff which is now available until 6.00 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 and weekends unable to access this training. We would welcome further consideration of what measures could be introduced 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 Office helpline. Under the existing operating structure, Post Office services were delivered in core office hours, and therefore the support services were also limited to this time. The new models will see Post Office services being delivered around the clock, however the support services for businesses appear to have remained at the standard 9–5 operating hours. We recognise that POL has looked into this and, in response to feedback, has announced plans to increase the helpline hours from 8.00 am until 10.00 pm. While this is a significant step in the 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 PO systems first come online, often at 6.00 am, as if issues are to arise, these are often identified when the system is first turned on in the morning. Ideally, support services should be in place during all hours that Post Office services 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. Currently problems are resolved within 48 hours, however this can cause significant disruption and dissatisfaction among customers during that time. Retailers would like to see this timeframe significantly reduced. We welcome the commitment given by POL that this will be looked at further, and we look forward to being updated in due course.
(c) Product mix Designing the correct product mix that is right for both retail and customers is a difficult balance. ACS recognises the need to offer enough of the range so as to still be attractive to customers, however it is also important that products are easy for staff to understand and are not so complicated that they impact on transaction times. We would request that retailer feedback in this area is carefully considered, and that work to streamline and simplify existing products has active retailer input to ensure the products are suitable for delivery in the new formats. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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(d) Restrictions The Post Office network provides key services to the whole of the UK and is designated as providing services of general economic interest. Therefore it is permitted to impose certain restrictions on stores in order to maintain the network. However, with an increasingly competitive market for the services Post Offices provide, ACS believes the current restrictions policy need to be reviewed. We welcome the undertaking by POL to conduct a review of this policy, and understand that they are engaging directly with retailers on this issue. 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 has looked at this matter and proposed a permanent exemption for all new Locals, the technical reasons for granting this exemption can and should also be applied to all other Post Office models, and for those transferring to a Local. If not, the current policy will create a two-tier system which would penalise those retailers who have demonstrated continued support for the Post Office. ACS believes lottery payments should be removed as a condition 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 use for staff. While we recognise there are significant obstacles achieving this, we would welcome on-going discussions 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 and the cost savings the new models could bring to stores. In addition, the estimates provided do not always take into account the impact of the loss of core tier payment (for Locals), or the costs to retailers of refurbishing and equipping the additional retail space in their stores. While this latter point is not directly linked to the Post Office offer, it is a resulting cost for those who transfer to a Local model, and therefore a relevant factor to the viability of transferring to the new models. ACS has been informed that more detailed information from the trials is currently being collated. Given the imminent roll-out of the new models, it would be disappointing if a lack of information meant that some retailers felt they were unable to fully consider all the options available. We would welcome additional commitments to ensure this work is expedited and communicated to all relevant parties at the earliest opportunity.
(g) Customer information Another area raised by retailers who have operated trials is that they are currently not able to take advantage of the additional Post Office hours as the majority of customers are unaware of the changes taking place in the network, and the benefits that the new models can bring. We welcome POLs commitment to support retailers in 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 has been made in many of these areas, and looks forward to continuing to work closely with POL throughout the roll-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 across the economy. Consumer Focus investigates complaints from MPs, Councillors and others dissatisfied with the Post Office Ltd (POL) process of consultation and communication around changes to the Post Office network, for example when 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 to investigate 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 than half of the network, to new operating formats before 2015. Consumer Focus expects that the Network cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Transformation exercise will see the conversion of one in five sub-post offices into Post Office Locals (PO Locals) 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 than originally envisaged, in summer 2012. POL has advised Consumer Focus that it expects around 1,200 branch conversions 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 following further piloting.1
1.3 Consumer Focus recognises that change is necessary in order to maintain consumer access, on a universal basis, 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 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” for local and central Government services, will be required. The Post Office will also need to invest in service standards and consumer experience offered through its branches if it is to arrest the long-term decline in its customer base and attract new customers.
1.4 Such a radical restructuring, as proposed by this network transformation programme, needs to be implemented in a way which is driven by consumers’ needs. The proposed restructure will not result in a net reduction in the number of branches, and is necessary in order to secure a sustainable and affordable network for the long-term. However, this programme of network transformation will inevitably necessitate significant changes in local provision and, as such, carries considerable challenges for Post Office Ltd and, in terms of implementation, for consumers.
1.5 Without effective implementation of the rollout, there is a significant risk that the potential consumer benefits of the new operating models will not be realised. Our detailed research2 in to the impact of this network transformation programme on consumers underpins the need for service issues to be quickly addressed if 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 be suitable in terms of the adequacy of service standards; the consistency of provision it offers; and the model’s attractiveness 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 include convenience stores, petrol stations or corner shops. Transactions are undertaken from the main retail counter and 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 more restricted range of products and services than currently available at their local sub-post office with some banking 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 these shortcomings are promptly addressed they could be replicated across the 2,000 branches to be converted into the 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 outlets can often be small and busy, with a poor layout, leading to privacy issues at PO Locals, with some 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 be poor. Some consumers are unwilling to use the PO Local to undertake sensitive, high value or confidential transactions. Limited space and poor branch layout have also led some consumers to have concerns over accessibility and security. 1 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.pdf 2 Local but limited?, Consumer Focus, Apr 2011; available at www.consumerfocus.org.uk/files/2011/03/local_but_limited.pdf Staying Local: the future of the Post Office network, Consumer Focus Wales, Feb 2012; available at www.consumerfocus.org.uk/wales/files/2012/02/Staying-local-INTERACTIVE.pdf; Additionally, Consumer Focus current research programme, of relevance to network transformation issues, includes strands which will update our work in Local but Limited? through testing consumer experiences in PO Local locations; assessing service standards and the quality of product advice in PO Local locations; and assessing consumer experience of POL communication and 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 cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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— Products and services: although PO Locals offer a core range of post office products and services, our research found that 20% of service users find the range of products and services available to be poor. Almost half of service users (46%) say they have had to use another post office specifically because the PO Local does not offer a particular service, with one-third of service 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 through a PO Local, but available through all sub-post offices, including paying paper-based bills and making cash withdrawals or deposits using passbooks or deposit slips. Some products, including car 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 is reported 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 Local branches counter staff refused to undertake transactions for large or heavy parcels: this is likely to 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 when undertaking 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 undertaking financial, and other, more complex, transactions. — Access to cash: the qualitative element of our research found that in some locations the PO Local operator placed a cap on the amount of cash or pensions and benefits that a customer could withdraw. In some instances, the PO Local ran out of money altogether. One participant advised that she now used the PO Local to withdraw enough money to get the bus to the nearest alternative post office where she withdraws her weekly benefit. — Opening hours: despite the potential for PO Locals to provide post office products and services over longer opening hours, our research4 and on-the-ground monitoring has found that this is not always the case. In some instances, although the retail outlet may be open until late, post office 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 to understand the 23% of consumers who do not use PO Locals but, in a majority of cases, use other post offices regularly. 60% of those who do not use PO Locals use alternative post offices at 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 the retail premises offered post office products and services. Only 13% identified convenience to where 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 current premises operated by the current sub-postmaster. As a result, the majority of consumers impacted by these changes 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 of the PO Mains concept should be largely beneficial for consumers if, and when, the conversion exercise is successfully completed. 2.5 However, it is possible that a number of conversions into PO Mains could also result in the physical relocation of the Post Office branch—in some instances on a planned basis, for example, where larger premises are required, but in other instances the new operator contract may not be sufficiently commercially attractive to 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 Government noted that “the Crown network is currently loss making, and this is not acceptable. POL is committed to eradicating 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.pdf Staying Local: the future of the Post Office network, Consumer Focus Wales, Feb 2012; available at www.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 at www.bis.gov.uk/assets/biscore/business-sectors/docs/s/10–1260-securing-the-post-office-network.pdf cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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3.2 A long-standing moratorium on planned changes to the Crown Office network is scheduled to end in Autumn 2012. In addition to the changes proposed as part of the network transformation programme it is conceivable that a programme of planned changes to the Crown Office network, to reduce losses which remain stubbornly 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 during 2007 and 2008. Consumer Focus expects to publish research before Summer on consumers’ experience of service standards and accessibility of High Street branches including Crown post offices and WHSmith branches.
4. Implementation of the Network Transformation Programme 4.1 We are concerned that the design and implementation of the network transformation programme secures the viability of the network by providing the greatest range of services in the most convenient and suitable locations to meet consumer needs. 4.2 There are a number of risks associated with a programme of this scale and character. Unless the rollout is implemented effectively, there is a risk that the potential consumer benefits of the new operating model will not be realised. The new timescales for implementation make it exceptionally demanding for POL to adequately address 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 post offices; and — the new operating models capacity to secure long-term post office provision, through the widest and 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 restructuring programmes with changes planned on a strategic basis and shaped by specific criteria relating to consumer access and the needs of local communities. 4.4 Crucially, Government has determined that this network transformation programme should operate on a voluntary exit basis. A preference exercise has recently been completed whereby sub-postmasters were asked to outline whether they wish to leave the network on a compensated basis; convert to a PO Locals or PO Mains operating 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 optimal means 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 both for undertaking a sub-postmaster preference exercise and for the perceived overreliance on the results of this exercise 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 strategic focus. 4.6 Although this network transformation programme is not about reducing the number of post office branches, it will result in significant changes in local provision. Changes of this nature could therefore generate exceptionally high levels of consumer and stakeholder interest. The previous Network Change Programme generated 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 Focus predecessor body, Postwatch (which received 15,000 items of correspondence alone). Consumer focus will need 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 Partner Outreach services, which are broadly a similar service offer to PO Locals, where post office products and services 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 response is 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 the PO 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 changes which will take place in local communities. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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5. Role of Consumer Focus 5.1 Currently, the task of tracking changes in the post office network, and their impact on consumers, is undertaken by Consumer Focus. We have an agreed Code of Practice with POL which sets out POL’s responsibilities to communicate and consult with elected representatives, other stakeholders and local communities when it proposes to make changes to local service provision. The Code of Practice is currently being 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 risk that without strong and appropriately resourced consumer representation hardwired into the process, POL will be poorly equipped to implement changes in the consumer interest—potentially leading to poorly implemented proposals and unplanned and unmanaged migration to other post offices. 5.3 Consumer Focus recommends the following principles should inform the design and delivery of this network transformation programme: — effective consumer protection is required, necessitating scrutiny of the programme and how it operates, 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 and the programme needs to be designed to accomodate this as an essential feature in discharging scrutiny of the process and maintaining accountability; and — the design of the programme needs to positively absorb the lessons learned from previous changes to the post office network while also reflecting the likely outcomes for consumers this programme will generate.
6. POLs Consultation And Communications Strategy 6.1 Consumer Focus research demonstrates the particular importance of effective consultation and communication with elected representatives, other stakeholders, and local communities when changes are proposed to post office provision. 6.2 Consumer Focus continues to have a constructive dialogue with POL to offer guidance on their communication and consultation programme. However, our “Local but Limited?”6 research found significant shortcomings 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% were unaware that a consultation had taken place; and 65% noted that they had not received enough information about the PO Local prior to opening. 6.3 It would be particularly disappointing if legitimate concerns about POL’s past shortcomings in adequately communicating and consulting effectively with consumers, including from Consumer Focus and the predecessor to the Business, Innovation and Skills Select Committee, failed to result in an improvement in POL’s consultation 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 their representatives, during the network transformation programme, there is a significant risk that the result will be proposals being implemented that are based on a partial and potentially flawed understanding of local consumer needs. 6.5 This, in turn, could potentially lead to unplanned migration to, and quality of service failures in, other parts of the network. This is a significant risk with network-wide implications given the wider volume of changes 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 that operators are able to offer post office products and services on a consistent basis and with high quality service standards. If fewer premises are willing to operate PO Locals this would represent a major constraint on POL’s ability 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 retailers are unable to operate a PO Local on what will inevitably be less preferential terms. Even if operators come forward, the funding package they receive is likely to shape the service standards they can provide—reduced operator remuneration is likely to result in fewer staff able to process post office product and services transactions and with a more variable standard of service. 7.3 Additionally, Consumer Focus has concerns regarding the training and ongoing support available to PO Locals operators—although POL provides initial in-branch training to staff, the costs of training additional staff 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 cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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with high staff turnover and a large number of part-time staff, maintaining service standards in the long-term could prove particularly challenging. 7.4 Uncertainty exists about whether sufficient numbers of sub-postmasters will agree to convert to one of the new post office operating models. Significant changes to operating contracts and the discontinuation of a fixed 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 which a PO Local or PO Main is in operation. Effectively, this means that sub-postmasters who convert to a new operating format will be guaranteed equivalent income during this period and will also qualify for additional modernisation and investment funds. 7.6 However, it is uncertain whether many operators will find the operating models commercially sustainable after this initial period, and therefore what the long-term impacts will be of moving to the new PO Locals and PO 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, viable network. 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 to its customers, face-to-face, in their local communities. Increasing, for example, the range of government services and financial products on offer via the Post Office would improve access to these important services for consumers and would help to support a growing, thriving and sustainable post office network—which would 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 local government services, and additional banking services, are necessary for the post office network to become truly sustainable.
“Front office” for Government services 8.4 Consumer Focus welcomes the Government’s announcement8 that it intends for the post office network to become a “front office” for central and local authority services. We are currently undertaking research to understand the consumer appetite for the Post Office to offer a range of products and services including, but not limited to, transactional services; identity applications; biometric capture of personal data; and to support the delivery of Universal Credit. 8.5 While Government anticipates that 80% of Universal Credit recipients will apply for and manage their benefits online, as part of its “digital by default” initiative, it is likely that the Post Office could play a valuable role in providing face-to-face services for those who are unable or unwilling to manage their benefits in this 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 put banking services, delivered by a trusted provider, back into communities. A greater role in financial services for post offices would benefit all post office users but could particularly help low-income customers; small businesses; 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 capacity of credit unions including the potential funding of a joint platform that would enable consumers to access credit 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 of the poorest people in the UK could be lifted out of financial exclusion if a new, simple-to-use, bank account was launched by the post office network. It called on the UK Government to introduce a tailored bank account product as part of its plans to introduce banking services through the Post Office. This would be offered as a successor to the existing Post Office Card Account (POCA) and would provide an expanded range of transactional banking features including universal ATM access; debit card functionality; and a modified bill payment facility. This facility would enable low-income consumers to benefit from cheaper bill payment options 7 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.pdf 8 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.pdf 9 Opportunity Knocks, Consumer Focus, Jan 2010; available at www.consumerfocus.org.uk/files/2010/10/Opportunity-knocks-web.pdf cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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but provide them with greater control and certainty over payments than conventional Direct Debit facilities allow. 8.10 Consumer Focus is currently exploring the scope for this type of account, with potentially additional budgetary features, to support the introduction of Universal Credit. Among the biggest challenges for the millions 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 to similar timescales. The transition to Universal Credit represents a challenging period with low-income consumers being required to adjust to the new payment timescales without facing significant budgetary disruption. 8.11 These risks are exacerbated by the fact that 1.75 million adults do not have access to a transactional bank 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 through a POCA and there is considerable scope to develop post office based solutions to support the budgetary risk presented 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 commissioned comprehensive research to gain an up to date understanding of consumers’ experiences, attitudes and views in areas where the Post Office (PO) Local model has been piloted, and to assess service standards, including the consistency 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 a post office previously, and were designed to plug gaps in service provision, or replace long-term closures. In some locations, communities had been without a post office for more than two years. The Network Transformation programme will see existing branches transformed to one or other of the new operating models—with a number of those branches relocating to different premises. The reactions of consumers to transformed local post office provision may be very different from, and perhaps less positive than, the experience 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 outlet had 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 with PO Local users and non-users across the UK. Locations were selected to provide a range of customer experiences and a range of operating formats. Non-user focus group participants were screened to identify those who used other post office branches but had opted not to use the PO Local because of one or more of its service attributes. 1.3 A mystery shopping exercise was also undertaken. A total of 362 visits were carried out with a minimum of one to four visits performed in each of the 105 PO Local branches. Mystery shoppers were each allocated two out of a total of five scenarios that were designed to test the quality of product and pricing advice they received (724 scenarios were tested overall). Each mystery shopper also reported on general service standards and the branch environment.
2. The Consumer Interest 2.1 Our research identifies that consumers greatly value extended opening hours but that there are a number of areas where improvements are needed if the PO Local model is to be rolled out successfully. Without attention, 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 raise questions about the operating model and the ability of operators to offer the consistent, reliable and high quality service standards that consumers expect. 2.2 Consumer Focus will continue to monitor service standards, as a priority, once Network Transformation gets underway. As part of the Government consumer landscape reforms, Consumer Focus will hand over responsibility for general advocacy to the Citizens Advice service in April 2013. However we will continue to discharge our responsibilities to post office users through the creation of a new Regulated Industries Unit. It is intended that this Unit, holding as it will Consumer Focus’s existing responsibilities in the energy and postal services sectors, will transfer to the Citizens Advice service in 2014. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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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% 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,10 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. 3.2 Conversely, many users expect to be able to access core post office products and services at the PO Local, including paying paper bills (31%); cheque deposit (29%); the Local Collect service—pick-up parcels that couldn’t be delivered to the recipients’ address (26%); and banking transactions using a passbook or deposit slips (22%). 3.3 Although many consumers are broadly satisfied with the products available, one in five (21%) say PO Locals offer only some or few of the products they need and almost two-thirds (61%) have had to use another branch because a product or service was not available. Two-fifths of users (38%) have actively tried and been unable to access a product or service at a PO Local branch and more than one in five (22%) consumers participating 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 their use 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 Local branch, so consumers can reasonably know which services they can access at that outlet and which services they will have to access at another outlet. The core range of services should include a number of products not currently 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 collection services, 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 impact of this change. Information should be made readily available, in a clear format, in every PO Local providing full details of which products and services are available in the outlet together with information on which other post office outlets nearby offer products and services that are not available as part of the standard menu in that 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 worse than 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. Consumers must feel confident and secure when undertaking any transactions—but some consumers tell us they are reluctant 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 for their usage of post offices and one in five (20%) of those who use PO Locals for some basic transactions told us they use other post office outlets because of concerns about privacy, staff training, or because they generally feel 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 the geographic locations of the store. For example, in one focus group there was particular anxiety expressed that the 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 when in-branch privacy is poor and the immediate external environment sometimes felt threatening. The interplay in this example between the external and internal environment underlines the importance of effective consultation taking 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 services will be provided from, have also been identified in our research. While 87% of branches were found to have doors wide enough for wheelchair access, 10% did not have level access to the premises. 80% of aisles in outlets 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 reported that low-level counters are available in only one-third of PO Locals outlets; low-level scales have been installed in 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 the branch, the internal layout and counter services are appropriate for access by all with best practice guidelines 10 From a valid account. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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developed. Before and during the programme, we expect POL to regularly review and learn from completed changes; 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 product and pricing advice—for example, a basic transaction such as posting a large second class letter was sold correctly in only one in five visits, dropping to only 15% of visits during extended opening hours; large or heavy parcel (up to 20 kg) 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. 5.3 Consumers strongly welcome extended opening hours, but there are concerns about whether all PO Locals open when they should; and we have found significant evidence of unplanned breaks in service and inconsistent and unreliable provision. One in 10 users (11%) state that PO Locals are supposed to operate longer hours but they think services are not available at these times and in 7% of outlets, our mystery shoppers found 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 other post 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 but wasn’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 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. 5.6 POL should take action to make necessary improvements to the consistency and reliability of branch opening 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 offer service reliability that is comparable with other post office operating models, but also other retail, bill payment and cash distribution networks—to ensure consumers have confidence in the availability and ongoing consistency of the service. 5.7 Before the programme starts, POL should develop a demonstrably robust action plan that can reassure stakeholders there is a coherent strategy for bringing service standards up to a satisfactory level which includes the development of robust service level agreements with operators that carry sanctions if service standards fall short. Once the network transformation programme gets underway, POL should commit additional resource to ensuring its quality control, monitoring and compliance processes are sufficient—and operators are able to deliver 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, or stop making cash payments altogether. 6.2 In PO Locals that do not receive cash supplies from POL—the “operator cash” model—mystery shoppers were unable to withdraw cash in 10% of visits where they should have been able to do so. Around 3% of customers using “operator cash” Locals reported that they have been unable to withdraw all or some of their money 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’t make a cash withdrawal. 6.3 Through our on-the-ground monitoring, including proactive contact from stakeholders, we are aware of problems in over 20% of “operator cash” locations and in 12% of all PO Local branches.12 This suggests a widespread, even systemic, issue with the operating model—the scale of this problem cannot be credibly explained 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 Annual Report (2010). 12 Figures based on PO Local outlets open in February 2012. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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6.4 The ability to make cash withdrawals and undertake basic cash transactions will be a key future revenue stream for post offices—and problems in withdrawing pensions and benefits risks considerable detriment for elderly 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 if the 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 do not use PO Locals use alternative post offices each month and almost one in five PO Local users (18%) say they 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 Local premises and its suitability; or because they were unaware the branch offered post office services. There may be significant implications for the rest of the network if this results in similarly high levels of migration to or usage 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 Government envisaging that the PO Local model would “become the mainstay” of the network over time,13 it is essential that 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 offering these services—mainly due to their inability to meet needs in relation to privacy and perceptions of security and personal safety. 48% of users think that a PO Local is a suitable outlet for conducting more cash and banking 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” for central and local government services, for example, providing services such as identify 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, for example in identity verification.14
8.4 When consumers were asked if they thought their PO Local was a suitable outlet for confirming their details for Government departments, for example confirming their status for receiving benefits, 37% of PO Local 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 the environment in which they can access these services must be acceptable to them. Improvements to address privacy and security concerns could allow PO Locals to successfully attract greater numbers of consumers to undertake financial and other sensitive transactions over the Locals counter. POL should ensure the future delivery 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 to capitalise on the dramatic growth of fulfilment mail15 (the delivery of goods and services online) and the corresponding growth in home shopping returns.16 PO Locals are exceptionally well-placed to meet the growing 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 Credit following confirmation from the DWP Minister, Steve Webb, that DWP is working closely “with the banking sector, credit unions, and Post Office Ltd to explore the opportunity to create cost-effective budgeting accounts that would provide access to mainstream banking facilities such as regular payment facilities” (Issued in a written answer to the House of Commons on 21 February 2012). 15 43% of residents expected to be doing more shopping online for goods that are sent by post in three years time. Consumer Focus 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 before Christmas. During the first week of December 2011, it estimates that over two million parcels were returned. Collect+ expanded its 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 inconvenient location, opening hours, Consumer Focus and Postcomm (2010), Residential Customer Needs from a Universal Postal Service in the UK. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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8.7 The value of parcel services to small and micro businesses is also underlined by forthcoming research undertaken for Consumer Focus Post in Northern Ireland. This finds that 50% of these businesses would be negatively affected by post offices not accepting parcels over 6 kg, with 59% negatively affected if they could no 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, presumably because of space restrictions in certain outlets, it would be a major missed opportunity to position the post office 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 consumers likely 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 have sufficient space and well trained staff capable of offering the full range of parcel services. POL should review the exclusion of the Local Collect service from most Locals branches. In considering how to overcome space constraint barriers and other concerns, lessons can be learnt from some multiple operators who have commissioned innovative counter storage and space solutions in order to maximise the available space—but perhaps 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 Transformation Programme
9.1 POL must ensure the PO Locals operating model meets consumers’ needs, but is also suitably attractive to large chain convenience store operators and sub-postmasters that may be interested in converting to the Locals format. Large chain convenience stores will play a critical role in ensuring the model is rolled out in a strategic 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, 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.
9.3 Close scrutiny of the rollout will be needed, particularly to determine whether operators are able to offer sufficiently high quality service standards, and able to maintain them, as the programme rolls out—and to assess whether POL is able to attract the widest possible “footprint” of potential host retailers to ensure that PO 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 the implementation process for PO Locals is designed and delivered in an effective and strategic way. It seems clear that the challenges associated with Network Transformation are just as demanding, if not more so, as previous large-scale post office network change programmes. 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.
9.5 POL will need to carefully monitor whether the rollout of PO Locals results in migration to other branches, and respond accordingly to ensure other post offices can, in turn, respond effectively to any increased custom.
9.6 Millions of consumers will be affected by this transformation of the Post Office network. It is therefore crucial that POL delivers this comprehensive set of changes in an effective and consumer-oriented way. Our handling of previous and ongoing network changes suggests there is a risk that, without strong consumer representation “hardwired” into the process, POL may be ill equipped to implement changes in the consumer interest.
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 decisions to 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. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Written evidence submitted by the National Federation of SubPostmasters (PONT 03) 1. Executive Summary 1.1 Post offices offer a uniquely wide range of services under one roof and play critical roles supporting local communities and underpinning local economies. However, our national post office network is under considerable pressure due to trends in retailing, technological innovations and reductions in the number of government services offered through post offices. Subpostmasters are increasingly struggling to make a living from 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 Office services. 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 combined service will attract customers for both retail and Post Office business. For Post Office Ltd (POL) the programme delivers a lower cost operating model. The public benefits from the retention of a local Post Office service and the longer hours the service will be available. 1.5 The network transformation programme is vital, as fundamental strategic change is urgently required in the post office network. Without significant action thousands of post offices would close as subpostmasters hand 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 by reducing its cost base and providing investment funds; it is only one 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; and the provision of a comprehensive range of Post Office and high street banking and financial services. It is also crucial 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 organisation which represents subpostmasters. Subpostmasters are independent business people who act as agents to Post Office Ltd (POL) and run sub post offices, which make up 97% of the national post office network. The NFSP is 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 into the government’s post office network transformation programme. This is the NFSP’s written submission to the 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 post offices are run alongside a shop, and post office shops play important roles in providing local retail including stationery, newspapers, food and household goods. 4.1.2 With 11,500 outlets, the post office network provides easy public access to these essential services throughout the UK, including remote rural communities and deprived urban areas. Government access criteria require 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 people conduct almost 60 million transactions. Research finds 98% of households use a post office, and 49% of consumers 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 network in supporting local communities above and beyond that of providing Post Office and retail services. This includes providing assistance for vulnerable residents—interpreting official letters, fielding lost property, taking messages and offering emotional support. Post offices also provide a focal point for communities by offering a place to come together and a venue for agencies like the police, local authorities and tourist attractions to offer information and services. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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4.2.2 Although all sections of society use post offices, certain sections of the population are more reliant on the 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 disabled people 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 the UK, 14p is handled through post offices, and over £80 billion of cash a year passes through the network. The post office network is bigger than the UK’s retail bank and building society branch networks combined, and its 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 is key to the survival of retail and other services in many communities. Cash is often spent near to where it is withdrawn—people who take out money from a bank or cashpoint spend 50–67% in nearby shops.(6) A study of post offices in Manchester concluded each post office contributes around £310,000 to the local economy each 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 4.5 million small businesses in the UK, accounting for 49% of total private sector turnover. The Federation of Small Businesses (FSB) finds 88% of small businesses use a post office for mails services.(8) The FSB reports 20% 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 is in part due to trends in retailing and technological innovations. Long-term lack of investment has also taken its toll. A further blow to the network’s fortunes came in 2003, when the government introduced the direct payment of state pensions and benefits straight into bank accounts. Two major government closure programmes resulted in the closure of 7,000 post offices over the past decade, in an attempt to boost the viability of the remaining 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 (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 drawings from their post office at all.(10) Since this time, internal research for the NFSP shows further reductions and an ongoing 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 Department for 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 a network of around 11,500 branches is to be maintained and provided the assurance that there will be no further programme of post office closures. 4.4.4 The government has allocated £1.34 billion funding for the post office network between 2011 and 2015. A significant proportion (48%) of the funding will maintain the Social Network Payment, the government’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 transformation programme.
5. The Network Transformation Programme 5.1 The 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, the operating models 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. Investment funding is available to pay for these developments. 5.3 The NFSP believes the network transformation programme is vital, as a fundamental change is urgently required in the post office network. The network simply cannot survive as it is. If action is not taken the network will change anyway—post offices will close as subpostmasters are unable to sustain them. It is better to have a planned, funded programme to maintain the network at its present level than to have thousands of subpostmasters forced to leave because they can no longer afford to run a post office. Unstructured mass post office closures would leave substantial gaps in the national provision and millions of people without local access to Post Office services.
6. Post Office Local 6.1 The development of Post Office Locals is central to the network transformation programme. This model is designed for small sub post offices in suburban and rural areas; and intended to be integrated into an existing cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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retail business such as a convenience store. The model has been piloted for several years (originally as “Post Office Essentials”). 6.2 In a Local, Post Office services are transacted from a retail counter for as long as the retail operation is open. 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 up space for retail. POL has found that some pilot branches have seen retail sales increase by up to 25% as a result of removing the fortress position. 6.4 Locals are designed to be operated by retail assistants, rather than specialist Post Office staff. This arrangement facilitates staff efficiencies, as each staff member is able to process both retail sales and Post Office services from one location. 6.5 Post Office Locals provide a wide range of Post Office services including mails services, banking withdrawals 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 to cover the cost of setting up the new operating model. The funding will pay for installation of the Horizon computer terminal, through which all Post Office transactions are carried out, on the retail counter. It will also pay for new internal and external signage; a window display; safes and the integration of the Post Office and retail counters. 6.7 Although Post Office Locals will be created through subpostmasters converting their traditional post offices, it is anticipated that many Locals will be operated by people running existing retail businesses who have 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 dedicated Post Office area offering an extensive range of Post Office products during core hours. All Main Post Offices will provide all Post Office services, with the exception of Lottery, ATMs and biometric data capture services in some offices. 7.2 In Main Post Offices with attached retail businesses, Post Office services will also be available during the longer hours that the retail business is open. During these non-core hours Post Office services will be accessed via a Post Office service point on the retail counter. The services available on this counter will match those available in the Local model. 7.3 Subpostmasters converting their traditional post office to a Post Office Main will receive investment funding of up to £45,000 depending on the size of their post office and future business potential. The funding will 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 Office services, 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 many cases, the outcome will be more viable local services. For example, a joint shop/post office may be more financially sustainable than two separate enterprises trying to remain open independently. A further benefit for customers will be the longer opening hours for Post Office services at both Post Office Locals and Main Post Offices with attached retail businesses. 8.2 However, whilst network transformation should do the vital job of helping to stabilise the post office network, under the new model it is inevitable that many Post Office outlets will not be as specialist as they once were. 8.3 Research studies looking at pilot Post Office Locals raise some concerns about the limited knowledge and experience of staff providing Post Office services at Locals.(12), (13) Clearly for the restructuring programme to succeed, it is essential the staff have the requisite skills and knowledge to provide the service that is due to be offered. The NFSP is working with POL to address this issue. The NFSP holds the problem partly arises because some current Post Office products are over-engineered. A simplification of the administrative processes for 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 as possible (compared with those offered at the previous traditional post office); this ambition runs the risk of making the model over-complicated. POL needs to consider carefully the range of services that are available through Post Office Locals—a slimmed down range of services may result in a more viable model. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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8.5 Concerns have been expressed about reduced privacy and space in the new models of post offices. The NFSP agrees that in some places there will not be the space or privacy that was available in a traditional post office. 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 capping cash 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 incidents could have happened in a traditional office, for example when a nearby post office closes on a temporary basis for 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 works financially 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 model subpostmasters operating Post Office Locals and Main Post Offices are paid directly for each transaction undertaken. POL does not provide any fixed pay element for these post offices, and is not liable for pay to cover subpostmasters’ sickness or holidays. 9.3 Network transformation gives subpostmasters options about their future. In December 2011 POL undertook a preference exercise—surveying all subpostmasters asking them about what they wanted to do with their offices. 9.4 For individual subpostmasters network transformation is a voluntary programme—subpostmasters can opt 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 operator can be found and POL agrees to relocate the post office, the subpostmaster will receive a contract termination payment 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 to a Post Office Local or Main. POL will take individual subpostmasters’ preferences into account when deciding whether to convert an individual post office from a traditional office to a Post Office Local or a Main Post Office. From spring 2012 POL is visiting subpostmasters who are interested in converting to a new model to assess the suitability of their post office. 9.7 For subpostmasters running a Main or Local, there are a number of advantages over running a traditional post office. The new models offer opportunities for staffing efficiencies; more space for retail; funds to improve their offices; and longer opening hours for Post Office services which have the potential to bring more customers in through the door. 9.8 Subpostmasters operating the new models are subject to terms and conditions that are more commercial than 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 for the post office is available. In recognition of the differences between the two sets of arrangements subpostmasters who convert to a Local will receive a payment equivalent to 1.5 times the difference between their annual remuneration received under the subpostmaster contract and the expected fees for the first year of operation of their Local. Subpostmasters running a Main Post Office receive enhanced payment rates on their transactions. 9.9 There are a range of outstanding issues regarding the new contracts for Main Post Offices—including requirements to set up as a limited company, VAT issues, National Insurance issues and the opening hours for the 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 post office network, by reducing its cost base and providing investment funds. However, the programme is only one part of the solution. For the Post Office to regain a secure footing, it also urgently needs to bring in additional income 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. The government says the front office for government is one of two areas with the potential to boost significantly Post Office revenues.(14) 10.2.2 This proposal builds on the many central and local government services already available at post offices. Services could include identity verification; notifying government of a change in circumstances; assisted cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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applications; and payment services enabling the public to make and receive payments to and from public bodies. The NFSP supports these plans, which need to translate into significant amounts of additional work across 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 financial services. The government proposes that the Post Office expands further into financial services. This should include developing new Post Office financial services products, and making all UK current accounts accessible through 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 access their entitlements, runs out in 2015. However, the account remains an important and popular service for pensioners and benefits claimants, and brings income for subpostmasters and people in through the door. The NFSP believes there should be a Post Office-based solution to the continuation of the POCA. We also support the 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 Mail Group, it is vital that the new Royal Mail sees post offices as its shop front on the high street. The recent signing of a 10 year Inter Business Agreement between the two companies should help ensure this; but POL must continue to have a close working relationship with Royal Mail beyond the initial 10 years of the agreement. 10.4.2 Income from mail transactions accounts for one-third of total post office income; and postal services are the reason for around half of all post office visits. However, with the mails sector undergoing considerable change it is vital that post offices adapt their mails services to reflect developments in the market. This may include offering services like Local Collect (enabling customers to collect undelivered parcels from their local post 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 POL infrastructure and support those post offices that are not commercially viable. The NFSP foresees an ongoing need for this network subsidy, and at a realistic level. The NFSP would like to see it ring-fenced and used transparently 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 of the network. Previous grant schemes for post offices have been shown to be particularly effective and the NFSP 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 believes a 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 currently taken by POL are decisions specifically designed to protect the central structures of the company at the expense of the whole. A mutualised POL would also be able to take advantage of the many benefits realised by businesses 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 NFSP is very concerned about the serious problems currently affecting our high streets. Both central and local government need to take decisive action on this issue—including through planning reforms; taxation of supermarket and out-of-town retail centres; tackling the pricing behaviour of large retailers; levies; addressing competition 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 shopping habits have led to fewer people coming in through the post office door. In turn, this has resulted in reduced income for many subpostmasters leaving them struggling to make a living from their post offices. This is a situation which cannot continue—it is unsustainable. Subpostmasters need to know their businesses have futures and are worth investing in. Customers need to know their post offices will stay open and continue to provide 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 cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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will help sustain the network at 11,500 outlets. Customers will benefit from the retention of a local Post Office service and longer opening hours. POL and subpostmasters will benefit from a lower cost model and more sustainable businesses. However, it also has to be acknowledged that under the new model many post office outlets 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 or with 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 Urban Post 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 postal services 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 the Digital 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 for Welsh consumers. (14) See 11.
Written evidence submitted by Post Office Limited (PONT 12) 1. Executive Summary 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 helps to make it one of the nation’s most valued and treasured organisations. In 2009 an independent piece of research was 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 an increasingly digital world. 1.5 Government policy until 2009 was to address this fall in income through drastically reducing the cost base. 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 to ensure this happens—to reverse the decline by maintaining the network size, modernising branches, improving customer 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 stated by Government in its November 2010 document “Securing the Post Office Network in the Digital Age” which outlined £1.34 billion of funding to 2015 to support the strategy. A copy of the Government document is included with this submission. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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1.8 Income is growing in Government Services with the Post Office competing for and winning six new contracts 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 Telephony markets 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 an ever 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 customer experience, improve the retailer’s profitability and reduce overall operating costs for the Post Office, and therefore the tax payer. 2.3 Extended opening hours, modern environments, and the unrivalled access and trust that our subpostmasters and their teams hold in communities also mean we can serve the needs of our existing and future clients better. Revenue growth is intrinsically linked to this transformation programme. Ultimately the two together equal sustainability. 2.4 Over the next three years we will be working with subpostmasters to develop around 6,000 new style Post 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 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. 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 longer opening 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 Office footfall with indications that this is an increasing trend. And queues are being reduced as customers take advantage of early morning and after work visits. For example, 22% of visits to the Post Office local format fall into these “non-traditional” hours. Compared to traditional Post Office branches, opening hours in locations that 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 their retail businesses. The new formats allow for more retail space in their store, as well as opportunities for more efficient 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 these formats 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 size as at present—over 11,500 branches) will be made up of subpostmasters staying on their existing operating formats.
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 the product set available at the local format branches so the vast majority of products remain available after a branch 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 support offered 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 customers have cited privacy as an issue and we continue to test different ways of overcoming this with individual branches. 20 Not published. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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3.5 We will continue to closely monitor the pilot branches through until June. We are however seeing that both the main and the local formats are operationally stable, receiving good levels of customer satisfaction and growth. Overall this shows that they can be a viable and sustainable part of a profitable business for subpostmasters. 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 team are 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 investment opportunities and the new formats, and there are over 3,000 who wish to discuss the opportunity further. Every single 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 branch and 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 who have 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 roll out more widely later in the summer. 4.5 As the funding from Government is staggered over the next three years, branches receiving investment will be spread over this period. 4.6 Our detailed Code of Practice will be followed as we communicate potential changes to customers and opinion formers, and instigate local consultation processes—for example in those cases where the Post Office may 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 and secure 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 Board including non-executive directors. The Postal Services Act has made clear that the company will remain 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 businesses in the UK) per week through a network of over 11,500 Post Office branches. 373 of these branches are operated directly by Post Office Ltd, all the others are agency branches operated by independent business 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 stock distribution system, an integrated computer system for handling transactions and with full operational, product and marketing support. — In 2010–11—Post Office Ltd made a profit of £21 million. In this year there was a Government subsidy 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 key part 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 Ltd is committed to maintaining the size of this network, retain its social value and use it as a platform for 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 the Post Office typically has one, possibly two counter positions. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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— 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 most 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. — The Post Office will invest into the store to help set up this operation, and will make a transition payment 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 is outweighed by additional retail revenue from enhanced retail space, better use of their staff hours and increased Post Office customer numbers attracted by more convenient opening hours. The approach is more 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 Post Office Ltd to run—also mean that future demands to Government for subsidy to keep Post Offices open 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 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. — In addition, investment is made to put the equivalent of a “Local” on the front retail till of the overall store. This part of the Post Office operation can remain open all the hours the store is open. The main part of the branch may also open longer hours than at present. — The Post Office will invest into the branch to support the format. — 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. — Loss of fixed pay is outweighed by transactional rates paid, by increased custom as a result of opening hours and better customer environment, by better use of space in the store enhancing potential retail earnings and, as with the local model, from new business that is attracted to a revitalised network. — The overall profitability of running the Post Office for the subpostmaster can be enhanced. — Post Office branches that are more profitable for their operators and more cost effective for Post Office Ltd to run—also mean that future demands to Government for subsidy to keep Post Offices open will be reduced.
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 more information 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 Office Local 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 Network Transformation Programme pilot phase. This has been done using interviewer administered exit interviews with cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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customers who have just completed their visit to branch, meaning their Post Office experience will be fresh in their minds. This has been conducted in a number of projects, all of which have involved interviewing large samples of customers across representative geographic samples of Local branches. All projects have shown high levels of customer satisfaction, as detailed below, based on the question “How satisfied 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 “Post Office Essentials”). Post Office conducted in-branch customer research in 2009 (within a month of the new branches opening) and again in 2010 and 2011 to track the impact of the new operating model. This was across 25 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 research was conducted on two occasions post-conversion, once a minimum of six weeks after the changes had been implemented at each branch (January 2012), then again a minimum of three months after the changes (March 2012). 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 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.
Summary In summary, these three studies have involved interviewing more than 5,000 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.
Overall context of the research Research was conducted by Brass, an independent market research agency, based in Leeds. It has been in business for almost 30 years. Over this time it has grown significantly and has developed its insight services to 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 help them address a variety of business challenges through effective customer insight. It has strength in both business-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 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. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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How the Post Office Local economics stack up—The local model offers longer opening hours to customers and better profitability to subpostmasters. By doing both of these it plays its part in Post Office 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 office assistant, is removed and the Post Office is moved from the back of the store to the retail till area. — This has big advantages for the subpostmaster as valuable space (typically 100 sq feet) is released for more retail—so retail sales can be increased. Retailers will have a revenue return per square foot of retail space and a profit margin on that revenue. This will differ between retailers—but additional released retail space will typically enhance profitability for the operator. — A further advantage is that the subpostmaster can use their staff efficiently—as they no longer have someone closed off behind a screen. Putting the Post Office services onto the front till, and making sure that transactions are straightforward to perform, means that Post Office services are available 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 a payment for every transaction performed. In effect the Post Office is no longer buying/paying for the retail space/footprint that was formerly required. — The equation for the subpostmaster is—that the extra retail sales from extra space, and the increase in both retail and post office customers due to greater customer convenience, coupled with the more efficient use of staff, can more than make up for the absence of fixed pay—the result 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 they can refit their store for the new format and making a payment which is equivalent to continuing to pay the fixed pay element for 18 months—this will enable them to adjust their costs and revenues as they move towards higher profitability. The economics may differ case by case—for example, for an on-site conversion to a Post Office Local it will depend on the retail potential in the location and the subpostmasters current cost structure. 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 retail space makes this an attractive proposition and potentially increases the number of retailers who are willing to come forward to operate Post Offices. They will consider the marginal cost of operating the Post Office in their store against the benefit of remuneration for Post Office transactions and any additional retail benefits they will gain from increased footfall. Again, retailers will take on the model if it makes economic sense for them to do so.
It is also important to highlight that the changes that we are proposing under Network Transformation cover 6,000 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 wants to stay on their existing contract can do so. However, for those where the economics of the Local work—the opportunity 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 for it (such as cash provision or computer systems). The network is the absolute heart of our business—that is why we have an investment programme to maintain its size and to boost growth in revenues through the 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. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Vetting Checks
There was some discussion at the committee regarding the vetting and checking arrangements for the Post Office 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 whichever contract/format is operated. Exactly the same checks are completed for the Post Office Local and Main contracts as 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-site conversions to the new model and off-site. Some of our pilots have been in operation for over three years and we continue to learn lessons and make improvements to the model. These include—adding to the product range, enhancing the training of staff and improving support for branches (eg extending the subpostmaster helpline hours to match extended branch opening hours). We have welcomed the recent report from Consumer Focus; we continue to seek to develop things further and will be working with the Consumer Focus team on local communication and consultation arrangements.
As we move forward with our pilots, adding more local branches, we will continue to develop the models and the processes for introducing this investment into the network. We recognise the importance of keeping Members of Parliament fully informed through this developing process and are intending to write shortly to all MPs to provide a dedicated point of contact in Post Office Ltd should they have enquiries or questions about this investment activity. We will of course keep MPs fully aware of any investment which may be proposed 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 our branch model office facility here in Old Street, where the latest equipment and processes used in our branch network can be seen. Paula Vennells Chief 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 Humphreys Stakeholder Relations Post Office Ltd 11 June 2012 cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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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 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 most 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. — The Post Office will invest into the store to help set up this operation, and will make a transition payment 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 is outweighed by additional retail revenue from enhanced retail space, better use of their staff hours and increased Post Office customer numbers attracted by more convenient opening hours. The approach is more 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 Post Office Ltd to run—also mean that future demands to Government for subsidy to keep Post Offices open will be reduced.
2. Post Office Local—Compensation and Investment Under the Network Transformation Programme the compensation and investment proposals for Post Office Local cover three broad scenarios as follows: — A subpostmaster who may be interested in transforming their existing branch to the new Post Office 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 they are, 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 place where Post Office Ltd believe that a new post office model can be successful and, in the case of subpostmasters wishing to leave the network, where a suitable alternative is available to provide post office service. A change will only take place where Post Office Ltd makes a decision to proceed to the Post Office Local model and with the Subpostmasters consent.
2.1 A subpostmaster who may be interested in transforming their existing branch to the new Post Office Local model Where Post Office Ltd decide to proceed with a change of branch to a Post Office Local under the Network Transformation programme Post Office Ltd will invest up to £10,000 in the Subpostmasters branch. This investment 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 between the best annual remuneration from the last three full financial years that was received under their subpostmaster contract (excluding any exceptional one-off payments such as colleague share dividends), and the expected fees for the first year of operation of the Local branch, which is based on Post Office Ltd’s knowledge of the existing customer transactions. Post Office Ltd will support the subpostmaster through the transition and help them manage the change from the current ways of working to the new operating model. Post Office Ltd will also help to resolve any implementation issues and provide the subpostmaster and their team with open plan working, operational and customer service training. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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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 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. If an applicant is appointed on the basis of a Post Office Local operating model the incoming operator would be eligible for the investment of up to £10,000 to cover the costs of setting up the Post Office local operating model (as set out in (1) above). In addition, if the appointment is advertised as a Local Post Office model and a successful applicant is appointed, the outgoing subpostmaster would receive a payment from Post Office Ltd equivalent to 1.5 times the difference between the best annual remuneration at their branch from the last three full financial years that they received under their subpostmaster contract (excluding any exceptional one-off payments such as colleague share 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 option would 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 want to run a Post Office branch. If this is the case, Post Office Ltd would work with the Subpostmaster to try to find a suitable alternative operator 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 full financial 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 a local public consultation to give customers and others the chance to have their say on the proposal. This is likely to last six weeks. If a Subpostmaster is interested in leaving the network, it has been emphasised that this is a three-year phased programme of modernisation and investment and, even where it’s possible to relocate the branch, this may take some time. Where Post Office Ltd decide to proceed with an appointment on the basis of a Post Office Local operating model the incoming operator would be eligible for the investment of up to £10,000 to cover the costs of setting up 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 only take place where a suitable alternative post office service can be established to ensure that a sustainable post office service can be maintained. A change will only take place where Post Office Ltd makes a decision to proceed 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 their document “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 the four 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 Subsidy will continue and will be around 48% of the funding. The investment and compensation elements of network modernisation will be around 37% of the funding. The breakdown between investment and compensation will cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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be dependent on the mix of branches converting to the new models and subpostmasters leaving the network with 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 Main Post 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 this opportunity to provide some feedback on the Network transformation programme currently being piloted by Post Office Ltd (POL). Firstly, I would like to point out that as one member of one of the largest group of stakeholders in the post office network ie the Subpostmasters, I was given zero opportunity to be involved in the development of this change programme. At no time were we approached to give our ideas, approval of ideas or feedback on the decisions 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 you expect to implement this change. We work at the coal face and know this business inside out. We know what our customers want, need and expect from the post office and we provide that on a daily basis in a myriad of ways many of which are unpaid. We also provide premises for POL to enable them to conduct their business free 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 our future without consulting us. In my personal situation, I poured my life savings into buying my post office. I took on a mortgage to buy the building which was valued according to my post office income. The removal of the AOP payment will reduce the value of my business by more than half and leave me with a mortgage I cannot afford and an unviable business to prospective purchasers and bankruptcy for me. This in turn will lead to a village with no post office and no chance of regaining one—a situation increasingly being covered by the media 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 getting rid of subpostmasters without the need to pay compensation. Of the three options available to me, only one is realistic and that is to stay as I am. This is no guarantee of long term survival and very much feels like we are to be left to dwindle in the background with bankruptcy yet again the resulting outcome. From the miniscule amount of information which has been provided by POL/NFSP, a post office such as mine would not attract the new government work being discussed and will find it difficult to grow and remain successful. AT the NFSP meeting I went to last year, I told the NFSP representative my situation and his words to me were “well you’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 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 due to the horror stories they have heard from a retired SPMR who stays in the village about what it is like to deal with POL. Therefore, I can only stay as I am and with the threat of the AOP being taken away, I face bankruptcy. My AOP represents almost 70% of my post office income. My retail side makes a small profit and is therefore just managing to pay to keep the post office open. When I lose my AOP I will have no choice but to close my door and find a job—I don’t know many people who could survive on a 70% pay cut. So, I will have to close through no choice of my own with no compensation for the loss I will face due to changes being made outwith my control. This is a very real and frightening threat for many, 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 office and 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 documentation and changes to procedures. They often need longer time spent with them just for simple tasks such as withdrawing cash from their account. This scenario would not work with a bunch of tradesmen standing behind wanting to get their lunch and get out asap. The need for privacy is very important to people when dealing with financial tasks—even if it is just withdrawing cash from their account. I also have a high percentage of E-bay/small business customers who come in with large bags of mail, leave it with me and come back later to pay—this is not a service which I believe locals would provide in any form. Some of the results of polls on customers experience of the new local model is very positive however, often they are customers who had no service due to their post office being closed in previous closure programmes then were provided with a post office local—these people are obviously going to be happy to have any service rather than none at all. I would ask that the surveyors come to my village and ask my customers if they would like to lose what they currently have but gain a post office local. It may be available for longer hours but most of them would be unable to carry out the transaction which they normally do with me. Furthermore, when I leave the village, the chances cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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of there ever being a post office in this village again are remote to say the least—no business banking manager in their right mind would finance anyone wanting to buy my post office on the new local contract—the maths do not add up—the risk of financial failure would prevent the loan application going through. This is not a transformation programme—this is a closure programme. The changes being implemented will result in post offices 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 the professionalism and respect which comes with the job and says to the customer that the person dealing with your postal/financial requirements need only be able to sell a pint of milk—in no way do I mean to disrespect shop assistants however, it is POL themselves who set such strict criteria on who is permitted to work behind the counter and yet it seems with the removal of the fortress comes the removal of this criteria. There are undoubtedly going to be people working in these new locals who would never get past the vetting system currently in place. Whilst I could go on at length and give many more examples of how this NT programme is damaging, I think the main point is this, thousands of small subpostoffices are in danger and POL/the government are painting over the danger with their so called positive pilot scheme results—and neither the public nor local councillors 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 the business—it is short term planning with no thought to the unintended consequences, it favours the larger offices through sacrificing the smaller ones and it is immoral to intrinsically change an organisation without consulting the 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 the same” 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 customers have grave concerns that they may lose their Post Office. If the current “Core Tier Payment” is removed from my 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 am asked for advice on a daily basis. I think the Committee would agree that 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. Would you please reconsider Network Transformation and ensure that rural Post Offices that wish to remain as they are, are not penalised for wanting to provide excellent customer service and service to the community as 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 my concern with the way that network transformation is being managed. I have been a serving postmaster since 1996 and have experienced the decline in the way the network has been managed over the years. We are now at crisis point and this is not entirely due to a change in shopping habits as is constantly portrayed by POL and their business partners, the Federation of Sub Postmasters, of which I was a member for 15 years. My concerns are as follows: 1. Although many postmasters called for a full consultation on the proposed new models we were repeatedly denied this by POL and the FED. We also called for a vote which is the right of union members but this was denied us by the FED. We have not been allowed to comment on the changes or have any input at all with only the FED executive having any say. We have been denied information and told that confidentiality agreements have been signed between the two parties which excludes information being given to the very members of the union whose dues fund them and whose 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. Although originally we were told that the product payments we currently receive would be enhanced on moving to the new model this has since been reneged upon and at present our existing pay is borderline economic for supporting offices. In my own instance I used to employ two counter clerks but now employ one person on much reduced hours. The loss of 50% of my pay effectively makes me unable to trade and unable to sell. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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3. As a postmaster I feel that the “front office for government” proposal is dishonest. On the one hand Ed Davey said he wanted to make this happen but on the other hand he admitted that there was nothing he could do to award contracts to POL. On the counter all we see is business taken away and nothing coming on. The new passport business supports the Crown network not the rest of us. The proposed pension credit form filling service will not result in any significant income. I will 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 has come 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 currently provided up and down the country. POs are the perfect place to provide financial services to the more vulnerable and economically challenged people in the country. The banks are not interested in those on low incomes or receiving benefits and many elderly people use their local PO to obtain advice that is not available from banks. Every week I assist people with understanding their bills and 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 of approximately 50% of our pay, stay as we are with the real possibility of being further bled of work by being denied the opportunity to transact any new products or to close. If we opt for closure this is with the proviso that we will receive some compensation if PO Ltd find a replacement outlet, none if they do not. The closure option will be the only one open to thousands of postmasters due to the fact 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 provide everything via the internet to the detriment of the vulnerable section of society. After making it impossible for us to trade, the final nail in the coffin is to link the compensation payment with a reliance on POL finding another outlet. This is grossly unfair and postmasters should be compensated for the loss of their business whilst the onus to replace the service should be the entire responsibility of POL. By linking the compensation payment it leaves the process very open to abuse and manipulation. 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 be brought to members’ attention.
It is unfortunate that Royal Mail and Post Office Ltd are being treated as two distinct entities with separate sets of problems, rather than as integral parts of a communication system. The raison d’etre of the postal system is to maintain a network connecting individuals and communities across the country and the outside world. 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 on Royal 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 enable villages 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 core service, to increase overall revenue or make up for business lost from public agencies and utilities. This is surely a wild goose chase, since the additional services yield only small margins, yet increase financial and operational responsibilities and system overheads for sub-postmatsers and their staff. It is worth pointing out that many of the financial services would have been provided by banks, had they not largely deserted rural areas 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 village shop. It is too much to expect that this position can be reversed. POL’s “Local” model aims indirectly at saving staffing cost by assuming shop staff will undertake post office transactions concomitantly with retailing, but there still remain substantial overhead charges due to the computerised systems required to interface with financial institutions and with POL’s centralised management. It seems highly likely that the “Local” model can 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 be locked into POL’s Horizon and centralised security systems and which can operate independently of POL’s management system. As a variation on this model the cost of having the facility to do financial transactions could with some justification be supported by the banks, which are effectively gaining the business of their rural customers on the cheap. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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Devising a simple model that concentrates on the core and unique public service of mail transmission would enable 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 not worthwhile continuing under POL’s terms. On the other hand a simpler low-cost model would change the picture 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 survival and viability. This is a shaky foundation on which to maintain a nation-wide public service and requires a subtle 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 Local model results in a marked loss of income and potential increase in operating costs for many of these rural sub post offices. It is very hard to reconcile the target of implementing 2000 PO Locals with a commitment to maintaining the network at its current size. PO Local is not appropriate for many locations where nevertheless it is currently the only contract being offered to prospective operators. A reduction in income will result in shop/post office closures in the long term. A more rigorous “horses for courses” approach is needed to avoid this outcome.
2. Introduction 2.1 The Rural Shops Alliance represents the views of about 7,500 rural shops in England. Of these, about half have a post office as part of their offer. The vast majority of these are general or convenience stores, often the only shop in their community. For many, the sub post office remuneration is a key part of their financial viability. Few are large enough to become Post Office Main branches and hence our comments relate primarily to the PO Local concept. We frequently visit and support rural post offices; our comments are largely informed by these contacts. We have cordial relations with Post Office Ltd. and hold regular meetings with their management. 2.2 Many of the businesses we represent are crucial centres of community life in their village. A village without a shop is a very different place from one with this facility. It is hard to quantify this very real community 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 of rural post offices through a subsidy of £150 million per annum to help Post Office Ltd. (POL) support the rural 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. Today that relationship is in the process of being reversed. In particular, the very limited income from a PO Local needs 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 and implement 2,000 PO Locals over the next couple of years. We believe that these objectives are incompatible with 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 operator than they would have received through a normal sub postmaster contract. The RSA has modelled the costs and benefits for a sub post office switching to the PO Local format and we find it nearly impossible to input realistic assumptions that would make the operator better off. This model is based entirely on POL’s own descriptions of the Local concept and is totally objective—there are no hidden assumptions. Access to this spreadsheet is available through our website www.ruralshops.org.uk and we would be very happy for the Committee 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 it generates can produce sufficient extra sales to justify the staff and space costs of operating it. Few of these will 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 given level of Post Office business. There is no fixed core payment or holiday and sick payments. Income is based cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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solely on fees for each transaction effected. The full list of these fees is long and complex but here are a few examples of the value different transactions provide to the sub postmaster: Customer withdrawing cash via a Link debit card 17.5p fee Royal Mail 2nd class postage label 11.7p fee Selling an e phone top-up 3.5% of value PO Card Account payments 0.125p per £ paid out Selling 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!) would earn 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 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. 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 additional sales. For the vast majority of rural shops, this is an impossible “ask”. Voluntary conversion from a sub post office to a PO Local format would lead to a loss of income for the vast majority of shops, a fact reflected in the 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 shop counter and the PO counter adjacent. To a degree, this is undoubtedly true, as thousands of POs which already have 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 trained and competent to handle PO business. Many retailers use a lot of part time staff and staff turnover is notoriously high in the retail industry. The PO Horizon computer system was originally designed decades ago for use by fully trained staff, although there have been updates along the way. Staff need proper training and to use it regularly to be fully competent. This is a particular problem for community run shops operated by unpaid volunteers (where there may be 30 or more people serving each week, all needing training) and commercial shops employing staff for particular shifts—often Sunday morning staff, mainly selling newspapers for a couple of 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 opening hours. This may be different in urban locations and it is also not true in some rural locations, where good passing 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 people are their largest operating cost and try not to have staff idle—they have to maximise staff utilisation. In between 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 is nearer £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 payments actually cover the staff time needed to effect them, yet alone make any contribution to overheads or generate a profit. In the example of a customer buying one stamp, then clearly the time taken far exceeds the income from 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 operator is getting a decent salary. They expect a level of service commensurate with this. If the reality is going to be a semi-trained shop assistant multitasking between shop and post office, then customers need to know this and to adjust their expectations. The reality is that one person juggling a shop queue and a post office queue is in real danger of satisfying neither fully. In some businesses, two people are employed, rather negating the premise of PO Local and probably ensuring the operator makes a net loss on the PO business. We do know a couple of businesses where the proprietor does prioritise serving the shop queue, explaining to anybody complaining that he makes money from the shop whereas the post office counter is only there as a community service. We are also aware of places where the post office is in reality closed at certain times the shop is open, in breach of 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 PO Locals. Whenever a sub postmaster resigns or tries to sell their business, then any replacement is likely to be offered a PO Local contract. When a new operator takes this on board, the result is a financially weaker cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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business. Anecdotally, the uncertainty surrounding future income is already being reflected in increased difficulty 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 visiting stores. 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 the premises to keep the service going for the benefit of the community. The shop is rented out to a commercial operator, who has a PO Local contract. However, there has been considerable dissatisfaction in the village regarding the services available from a PO Local and the operator has found it very difficult to make the whole business viable with only a limited income from the post office. It seems possible that it will be very difficult to 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 former agricultural 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 impossible to operate this with the numbers of unpaid volunteer staff that would be involved; the income would certainly not 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 and the 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 stand empty 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 service to the community. It was very well supported, to such an extent that it was necessary to either have two members of staff on duty (resulting in trading at a loss) or else shop sales suffered as customers were put off by the long queues. At Christmas, finding the physical space for parcels awaiting collection by Royal Mail was a real problem. These issues were never solved before the post office was targeted in a robbery. This resulted in the proprietor deciding that with a young family in the residential premises above the shop she was not prepared risk a repeat by continuing to have the post office on the premises. This PO Local has closed and the 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 position in order for subsidies to be withdrawn and the business readied for the planned mutualisation POL management need to be commended for making a good attempt at an impossible task. We would expect the widespread implementation of PO Local to lead to closures in the long-term. Reduced financial returns will lead to weakened businesses, with inadequate funding for re-investment and ultimate closure—albeit in some cases several years hence. These recommendations are all put forward with the intention of improving the implementation 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. This form needs radical simplification and to be rewritten to reflect the reality of the same staff running a combined shop and PO Local. 8.3 The post office Horizon computer system was designed for operation by dedicated PO staff. It is decades old in structure and by modern standards is slow, unforgiving and quite cumbersome. It needs staff to be practiced in its operation and is less intuitive in operation than more modern platforms. There is a need for a new simpler system designed from the outset for operation by semi-trained staff. We are aware of the significant cost implications of this suggestion. 8.4 There is widespread uncertainty about the long term future of sub post offices. Different messages have apparently come from different parts of POL and the NFSP. Will the PO Local model be limited to just 2000 outlets? What happens to businesses put up for sale—will a new operator only be offered PO Local? The cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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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. 8.5 The requirement for the PO Local to be open all the hours the host shop is open needs to be relaxed a bit. 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 cost service 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 some closing, 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 and the cost-savings that will result from it, but we believe that this is not the intention of the programme. Measures need to put in place to ensure that it remains financially viable to operate a post office service in smaller rural locations. Kenneth Parsons Chief 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 have suffered losses they cannot explain and have been subject to disciplinary measures by POL. All are adamant that they or their staff have not stolen any money. They claim that the Horizon system (by which we mean both Horizon OnLine and its predecessor Horizon), an electronic point of sale and accounting system POL require them to use, has caused the errors or not enabled them to work out why the errors have appeared in the first place. They claim there has been no real investigation by POL as to the cause of the losses that have appeared—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 four or five week period) a SPM must balance his accounts and send a declaration, plus any related receipts, cheques and cash to POL. The Horizon system will produce figures based on the transactions that have taken place as to what he cash and stock total at the sub post office should be. The SPM will then have to count the stock and 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 than Horizon believes there should be, the SPM must make good this loss if it was caused by his/her error or that of an employee. It is also the case that if the SPM has more cash than the Horizon system believes there should be, the SPM is entitled to take the surplus money from the system. At the Crown offices, the larger post offices run by POL, the managers do not have to repay these losses as they are written off by POL—these losses are reportedly 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 the Horizon system: “Settle Centrally” or “Make Good Loss”. Settle centrally means that, according to POL, the loss can be investigated. However the description of this from SPMs is that it just means the loss will be taken from the SPMs remuneration either as a lump payment or in stages. If “make good loss” is selected the SPM must make good the loss there and then out of their own pocket. One of these options must be selected otherwise 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 they haven’t. The reasons they do this vary, but are typically related to an inability to pay (often due to have made various repayments previously) and a desire to keep the post office open for their community. When doing the above an SPM is committing false accounting, albeit not to enrich themselves, or deny POL what is rightfully theirs. cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
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9. If a SPM, over a period of time, settles centrally lots of losses or appears to POL to making good lots of losses they will be audited. If discrepancies are found at audit, a SPM will be suspended and all the accounts papers at the post office will be taken away for investigation. The SPM will not be allowed to go behind the post 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 the papers or the post office system the SPM’s ability to do this is extremely limited. Typically the SPM’s contract will 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 between losses that may be the fault of the SPM and those which may have been caused by something else. SPMs have no opportunity to investigate the reason for the loss, nor do POL seem inclined to do so either. It is far from clear 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 advised by their legal advisors to plead guilty to false accounting, as in the above circumstances they will have committed it. Many will be charged with theft or fraud but these charges are typically dropped in these circumstances. 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 or computer literacy skills. Very few of the SPM’s had any experience or qualifications in accounting before taking 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 appointment as 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 when a paper based accounting system, with a full paper audit trail, was used. SPM’s are routinely not provided with this contract for services until they have purchased the sub-post office and completed the interview and training process. The SPMs are typically not made aware of the onerous sections of the contract, specifically those sections 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 prior to an SPM commencing their contract. This tends to vary between two days and two weeks. The training typically focuses on sales technique with very little focus on accounting skills. When an SPM starts they are typically accompanied by a trainer for their first week who shows them how to use the system, in their own post office. The majority of SPM’s believe that their training was not adequate, in particular in relation to the accounting and balancing procedures and what to do if a loss occurs. Requests for further training are denied and there is no possibility for a SPM to obtain further training on the Horizon system without it being provided by 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 system communication or electrical faults. The technical reasons why the errors are occurring is not the main issue that needs to be addressed, instead it is that the Horizon system does not allow SPMs to find where an error has occurred and rectify before having to repay losses. 17. National Federation of Sub-Postmasters—The NFSP are the trade association for SPM’s. They negotiate with POL on behalf of SPM’s and provide representation at disciplinary meetings. They state publicly that there are no issues with Horizon. Many SPMs report that they receive no useful assistance from the NFSP when they have accounting difficulties. The Communications Workers Union, the relevant union for POL employees, have recently set up a branch to assist and represent SPM’s. This has been set up by former executive members of the NFSP. Many SPMs are now seeking assistance from the CWU as opposed to the 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 private side, The business was small enough to be closed (with 7/3 times salary compensation) as uneconomic on the first 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 new business came as other offices nearby closed. I have been able to stay open because I own the property and am 69. cobber Pack: U PL: COE1 [O] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
Business, Innovation and Skills Committee: Evidence Ev 59
The great injustice now is that if I can now leave the Network, the compensation is only 3/2 times a significantly reduced salary. Sale of the office has not been a practical proposition with the general decline of the Network. I hope you will agree there is an injustice for these types of office and can recommend a greater level of compensation 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 are restricted 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 was amazed to hear one of the member of the Committee claim that she had received correspondence from a member of the Federation of Sub Postmasters stating that the Federation had not properly kept subpostmasters informed 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 NFSP detailing the changes under NT. 2. Early November Post Office Ltd arranged a series of events throughout the UK so that subpostmasters could be given details of NT. We attended the Birmingham event which was very well attended with Paula Vennels for POL and George Thomson for the NFSP along with others of each organisation giving the presentation. After the presentation there was a comprehensive question and answer session. 3. A month later the NFSP arranged their own events throughout the UK, we again attended the Birmingham 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 (General Secretary), Kim Ledgar (President) and Mervyn Jones (Executive Officer) the members attending had 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 an example we had our Executive Officer (Kym Ledgar) in attendance at all meetings which had a section devoted to NT. 5. Early May 2012 Post Office Ltd and the Federation arranged a meeting for members of the Midlands region at the Moat House, Acton Trussell to give another joint presentation with regards to 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 NFSP have 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 BIS Select 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 two weeks training. At the end of these two weeks he is expected to conform to the standards required of him by POL, including the trust and responsibility of dealing with and accounting for large amounts of cash and value stock on a daily basis. If he makes mistakes then from day one he is liable for any losses incurred. It is inevitable that ALL subpostmasters make mistakes early in and losses do occur. It may be months before things settle down and he acquires the experience necessary to run his office without regular losses. On taking office he inherits also the need to train new staff and to keep existing staff up to date with changes in procedures as they occur and in the case of POL they occur on a weekly basis and are communicated to SPMRs by means of an internal publication called Branch Focus. If he fails to do this then he is liable to financial penalties by POL 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 provide him with the knowledge he requires to keep his PO running smoothly and within POL guidelines. It does not exist. POL refer to HOL help screens as their manual and for anybody who is familiar at all with on line help some systems are good and others are bad and HOL is utterly and completely useless—more often than not completely out of date. If HOL online cannot provide the answers then a postmaster can call the help desk cobber Pack: U PL: COE1 [E] Processed: [13-07-2012 14:36] Job: 020904 Unit: PG02 Source: /MILES/PKU/INPUT/020904/020904_w016_michelle_PONT 16 Tim McCormack.xml
Ev 60 Business, Innovation and Skills Committee: Evidence
which is staffed by very knowledgeable people yet even they refer to HOL online first, second they ask a colleague and third they tell you they will get back to you later—meanwhile your customer is waiting for an answer and the queue is building. And when the help line fails completely as it did recently during the stamp shortage crisis—a voice message was being played to all callers advising them “whatever the problem just try and sort it out yourself”. So the SPMR can start wading through volumes and volumes of Branch Focus magazines 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 paid significantly less than now to do the same job and therefore have less resources available to cover the cost of adequate training but also one of the fundamental problems of POL senior management who cannot recognise the shortcomings of their own systems. There comes a time when you, the Government, have to start questioning if the main problem with the post office is not the size of the network but the people who are managing it. 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. These are the prime requirements and they have remained the same ever since the 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 steady stream of suitable applicants willing to replace those who wish to move on for whatever reason. The network can be said to be in equilibrium while this state exists. Network Transformation will destroy that equilibrium. The steady stream of applicants will rapidly diminish as the return on the investment decreases and the level of knowledge required increases, and without these applicants 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 being a small part of the subpostmaster’s business, the very important attributes for a subposmaster stated above 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. Even then the network faces further trouble ahead as Ms Vennells has expressed her vision of 20,000 PO Basics 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 what the electorate of Britain want then so be it and politicians responsible for the demise of the traditional post office network will no doubt be re-elected en masse. Personally I don’t think this is what the people who elected 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 the nails on the head and I see is not only perfectly aware of the dangers of NT but more importantly the relevance of the social value aspects of the traditional post office that NT seeks to destroy. The problems facing the Post Office 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 those necessary to put a hold on this ill thought, ill timed and extremely wasteful plan until such time as a better alternative is found. 21 May 2012
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