UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 276-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

trade and industry COMMITTEE

 

 

post office network

 

 

Wednesday 24 January 2007

RT HON ALISTAIR DARLING MP, JIM FITZPATRICK MP,
MS ELIZABETH BAKER and MR MIKE WHITHEAD

Evidence heard in Public Questions 1 - 142

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Trade and Industry Committee

on Wednesday 24 January 2007

Members present

Peter Luff, in the Chair

Roger Berry

Mr Peter Bone

Mr Michael Clapham

Miss Julie Kirkbride

Judy Mallaber

Rob Marris

Anne Moffat

Mr Mike Weir

Mr Anthony Wright

________________

Witnesses: Mr Alistair Darling, a Member of the House, Secretary of State for Trade and Industry, Jim Fitzpatrick, a Member of the House, Parliamentary Under-Secretary of State for Employment Relations and Postal Services, Ms Elizabeth Baker, Director, Postal Services Policy, and Mr Mike Whitehead, Assistant Director, Postal Services Policy, Department of Trade and Industry, gave evidence.

Q1 Chairman: Secretary of State, thank you very much for coming and agreeing at relatively short notice to this evidence session. We are very grateful indeed to you and your colleagues. I always begin by asking the team to introduce themselves for the record and I would like to do that now.

Mr Darling: Let me introduce my colleagues: Jim Fitzpatrick who has responsibility for, amongst other things, on a day-to-day basis, the Royal Mail and the Post Office. I also have Dr Elizabeth Baker, who is a director of the Royal Mail and Postal Services Policy Group within the Department of Trade and Industry, and Mike Whitehead, who is the assistant director of the Post Office Network Policy and has the advantage of having been dealing with this matter for some years - and therefore remembers the last time!

Q2 Chairman: I am not sure whether that is an advantage or not. Secretary of State, we are concentrating today on the post office network and most of our questions are about that but I would like to begin by asking about the financial package and the investigations over that and particularly the share ownership proposals put forward by the Royal Mail group for the whole group. There has been some speculation in the press recently. It has been a long time waiting for the final decision on the financing package. Where are we?

Mr Darling: I would be very happy to do that. If you will forgive me, it may take a little time for me to set out the position but it will be helpful to the Committee if I do that. There are two aspects of this. One is the financial package of support that I announced for the Post Office last May and the other is that now the Post Office can put in place a system that rewards employees of the Royal Mail and allows them to gain from the increasing value of the company as improvements are made to its performance. The company put forward proposals some considerable time ago, basically putting in place an employee share-ownership scheme. The Government has been considering that. When I became Secretary of State of Trade and Industry in May last year, I asked for the company and the DTI to engage in detailed work to see whether or not such a scheme would work, what its costs were, what the implications were. I did this because, as I have made clear on a number of occasions, I think rewarding employees for their effort, particularly in the case of the Royal Mail which needs to undergo some quite fundamental changes in the way it works because of the competitive pressures that it faces, is a good thing. It is not the only way in which you can reward staff and I was very clear that if we were going to agree to such a scheme we had to be satisfied that it was affordable, that it was the right thing to do and I also wanted to look at alternatives. For various reasons, partly because of the company's general financial position, it was not until the autumn that we were in a position to see the numbers, to see what they would actually mean. The position we are currently in is that I have said on the information I now have I could not agree to an employee share-ownership scheme. I think the biggest thing in my mind is the cost of it. If you give away 20 per cent of a company, there is an upfront cost. It scores in public expenditure terms; it would have to be factored into our spending review settlement. Of course, when the employees cash in their shares in five or six years or whenever, there is also a hit to the public finances because, of course, as they are cashed in, the Royal Mail has to finance that and when you consider there are 200,000 or so employees in the Royal Mail, that could be unpredictable and, again, it is a largish sum that would have to be factored into it. On top of that, of course, if we were to introduce such a scheme we would need primary legislation which would take at least 18 months by the time it was through the House, in place and so on. Because I was anxious to ensure that there is in place a scheme that allows employees to participate in the increasing value of their company, the Government and the Royal Mail have been in discussions over the last few weeks in relation to a scheme that would allow employees to benefit from the increasing value of their company, because it is important that their rewards are aligned with what the company is trying to do. Those discussions are at a fairly advanced stage. They need to be concluded pretty quickly for a number of reasons but at the moment are subject to some quite detailed discussions. My intention is to report to the House once we have an agreement, so that people can see what exactly has been agreed. On this aspect of your question, we have decided not to go down the road of an employee share-ownership scheme but we do want to put in place a scheme that would give in general terms an equivalent benefit. I am in complete agreement with Allan Leighton, the Chairman of the Royal Mail who is leading these discussions that, given the scale of the challenges that are in front of the Royal Mail, it is only right that there should be a reward for employees.

Q3 Chairman: I do not want to pre-judge this Committee's reaction to that remark, but I think that will command some support on this Committee. We were very concerned about the proposals of the Royal Mail. They failed to provide us with any evidence justifying their claims for the share-ownership scheme, despite our requests, and I suspect what you are working towards - profit share with knobs on - might be much more acceptable to this Committee, but I could be wrong.

Mr Darling: I did read your conclusions on that. As with all these things, you can make a case for and against each particular type of incentive. Obviously I have to have regard to the public expenditure implications. The Government, one way or another, is making very, very substantial sums available to support the Royal Mail and the Post Office, as we will come on to. In May of this year - and I reported this to the House - it approaches £1.7 billion to help the company restructure, to make the changes, also to help them in relation to their pension deficit which they now have. That is a crucial part to helping the Royal Mail. The Committee and others will have seen that the Royal Mail has lost a number of contracts over the last few weeks. That is a matter of great concern, not just to the Royal Mail group but to the Government which is the owner of it and the sole shareholder.

Q4 Chairman: One of the biggest contractors in the Department of Work and Pensions' contract.

Mr Darling: But it is not just that, it is other contracts with private sector people. I would say to the Committee and through the Committee to our colleagues in the House and outside, that the Royal Mail faces formidable competitive pressures. There are a lot of people now coming into the market who are competing fiercely and aggressively and the Royal Mail has to make some pretty fundamental changes to the way in which it works. But I strongly believe that, as the company changes - and remember this company has made a lot of improvements since Allan Leighton and Adam Crozier took it over four years ago: it has turned a lot of the problems around but it has an awful lot more work to do - it is right that all of the staff, from the board down to the people who work on the shopfloor, can benefit from the increased value of this company. That is why I think a scheme of the sort that I have set up is something that we ought to support. We have put in place a substantial financial package. Of course it is subject to state aid scrutiny by the European Union, but there is a pretty substantial package. We have done that because we believe it is the right thing to do, but the postal market in Britain and across the world is becoming very competitive and anyone who thinks they do not have to change, they do not have to step up a gear, are fooling themselves and doing no one any favours whatsoever.

Q5 Chairman: That is a very helpful statement, Secretary of State. The competitive pressures of which you speak underline the need for urgency in resolving these questions in relation to incentive schemes and the financial package as well.

Mr Darling: Absolutely. The board knows that and Allan Leighton is working very hard to try to resolve the outstanding matters that we have.

Q6 Chairman: As I am sure your officials are as well.

Mr Darling: Both sides are, yes.

Chairman: Excellent. I think we can move on to the main subject of questioning for this session, the network itself. I turn to my colleague Julie Kirkbride.

Q7 Miss Kirkbride: Thank you for coming, Secretary of State. Your consultation paper says that at present the subsidy for the post office network is too high and that more, rightly, needs to be done to bridge the gap between costs and revenues. Given that that gap is never likely to be fully bridged and that there will be a need for subsidy, what target level of subsidy do you envisage for the future?

Mr Darling: You are absolutely right. As I said in the House on 14 December and at the debate we had earlier this month, there is no question whatsoever of the post office network being commercially viable. There are about 4,000 branches that are now commercially viable. I understand that with some considerable effort between 1,000 and 2,000 could become commercially viable but a national network of the sort that we think is necessary to serve the length and breadth of the country is never going to be commercially viable. I said when I made my statement to the House that the annual subsidy for the network, which is about £150 million, will remain at that level up until 2011, which is the spending period we are talking about. In addition to that, of course, we are making money available. The whole package is worth about £1.7 billion; of which the sum we announced last financial year, this financial year, has been in the public domain before, but the rest of it takes you up to 2011. That is to support the network. It will meet compensation payments, it will meet some of the continuing losses and other restructuring costs as well, but it is a very substantial amount of money. It is subject to state aid, as I say, but I hope we can get clearance for that. As you rightly say, the network cannot be commercial but, basically, as I said to the House, we are spending very substantial sums of money indeed. The subsidy will remain about the same but I had to do something about a network that was losing £2 million a week every week. Last year, it had gone up to £4 million; this year, if we did not do anything, it was heading up towards £5 million a week. You just cannot carry on like that. The other thing I was influenced by was the Federation of Postmasters saying to us that the present situation is not sustainable. There were places where they reckoned postmasters and mistresses could make a go of things, if only the Post Office would recognise that in some areas you may have three post offices: two could survive, three cannot, and why do we not do something about it. That is what largely drove me to say that we do need to reduce the size of the network, but, as I said before, at about 12,000, it is still greater than the sum of all the UK bank branches in the country.

Q8 Miss Kirkbride: Given the social importance of the post office network, are you able to say that, at least in principle, the subsidy should carry on beyond 2011? It is never going to be viable. There will always be a subsidy for maintaining a wider nationwide network.

Mr Darling: I will put it this way: if any government of the future wishes to maintain a national network where people can get to a post office to get their pensions, benefits or whatever, it is inconceivable to my mind that it will ever be commercially viable and therefore it needs a public subsidy. When it comes to 2011, we will be into the next spending review and we will carry on, but of course it does need a government that is able and willing to spend that money. I can speak for the Government of which I am a member. I certainly believe that is necessary. Of course I cannot bind other governments of different political views. They might take a different view. Perhaps you are in a better position than I am to throw some light on that.

Q9 Miss Kirkbride: I am sure the Post Office will have friends amongst the new Conservative Government after the next election, Secretary of State, so we will not worry about that.

Mr Darling: It is a fine spending commitment you have just given.

Q10 Miss Kirkbride: As a backbencher, I am allowed to. I do not think I have a problem there.

Mr Darling: Do not bank on it!

Q11 Miss Kirkbride: Quite. The boys at the back, are they taking notes? Your paper states that there will be a maximum of 2,500 compensated closures. For clarification is that for the sub post office network only?

Mr Darling: The 2,500 refers to the sub postmasters. Remember, most of the network is owned by private businesses. These are people who have contracts with the Post Office. They are the people we are talking about. We will pay for up to 2,500 people to leave the post office service. In addition, there are about 480 Crown post offices which the Post Office itself is reviewing, not least because they contribute about £590 million a year loss to the Post Office at the moment. That is due to go up, they think, to about £70 million, so they need to do something about it. I understand that we are talking about a comparatively small number of them having to close - maybe under 25 or something like that - but, given the Crown post offices provide a lot of the businesses - about 60 per cent of the financial services, for example - they are very important. The Post Office, as you know, is in negotiation not just with its staff but with others. It is looking, where possible, to enter into partnerships with companies like W H Smith, for example, where you get more footfall and therefore you are in a better position to guarantee a future. But, of the 480 Crown offices, a lot of them are very good revenue earners. They tend to be in busier places, on the busier high streets, and therefore they are important, but the 2,500 refers to the contracted side of things, not the Crown element.

Q12 Miss Kirkbride: The £1.7 billion compensation for the Crown post office closures will also come out of that money.

Mr Darling: It is not £1.7 billion for the Crown post offices.

Q13 Miss Kirkbride: No, the £1.7 billion overall package. The compensation for the Crown post offices will also come out of the package.

Mr Darling: That is the total package, so within that they have to cover all these things. As I say, the Crown element is the comparatively small part. The lion's share, if you like, is in relation to what most people would refer to as the "post office network".

Q14 Miss Kirkbride: What about people who might want to retire in the meantime? If you are a postmaster at the moment, are you hoping that some of these might retire early and be a little cheaper?

Mr Darling: It might be helpful if I explain what we are proposing - and remember this is all subject to the consultation taking place just now. We are getting a lot of representations on precisely how we will do this, so, by the time I report to the House in, probably, March there may be some changes. For each area the Post Office will identify, using the access criteria that I set out in the consultation paper, how many post offices it needs to meet those criteria. It will take into account the fact that there is a fairly large number of postmasters and mistresses - I cannot give you a precise number for obvious reasons but there could well be over 2,000 people - wanting out. In an area you may get a number of postmasters and mistresses saying, "We want to go." It could be, as a result of that, the desired outcome is achieved and that you have the right spread of post offices applying the criteria. The chances are, however, things being what they are, that it may not be as neat as that. I want the Post Office - and it is doing a lot of work for us at the moment - to be in a position to say, "Here is an area. Ten postmasters want out. They are perhaps in the wrong places, but perhaps we could persuade another postmaster to go to where a retiree is coming out, where there is a better market" and so move things around. The long and the short of it is that we are asking them to manage the thing. It has not happened up until now. A lot of our colleagues have complained that there are haphazard closures going on in areas, so you suddenly get a great gap with people not being able to use the post office. We do not want that. In any other business, people looking at their outlets will say, "Do we have the right coverage? Let's take account of retirees. Let's take account of low usage. Let's take account of a new shopping development" or whatever and that is what they will be doing. After all this process has finished, once we have got the 2,500, once we have got the network, if you get a postmaster or mistress saying, "I want out," if that would result in the access criteria not being met it is then for the post office to fill that vacancy so that they get back to the position they were in. It is always going to be the case that as people get older they will be coming out of the industry, but we want to get a network. That is why I thought it was much better to set out a national criteria based on distance, which would mean there was some public reference point as to where there ought to be a post office.

Q15 Miss Kirkbride: Because of that national network and the criteria you have set out, you believe that 11,600 post offices is the right figure.

Mr Darling: It is about that, but, remember, you are also adding back in about 500 remoter post offices, post offices in community centres, pubs, mobile post offices and so on. There is a lot of evidence from what post offices have done now where you can provide a more popular service. There are examples, even, where people can take people's money to their own front door. That seems to me to be a good service, if you can do that. As I said in December, with a big of imagination we can provide a more flexible service and, indeed, do what any other business is doing. Every other business in the land, to keep customers, asks, "What does my customer want?" rather than "What do I want?" If you can make changes to achieve that, then you should do it.

Q16 Roger Berry: There is a sub post office strategy and a Crown post office strategy. How are the two related?

Mr Darling: In relation to the exercise I have just been describing to Julie Kirkbride, if you take a particular area the Post Office will look at the Crown post offices in conjunction with the sub post offices. It would be a nonsense to look at them separately because, clearly, a post office is a post office.

Q17 Roger Berry: Exactly. My recollection of the Urban Regeneration Scheme, which was not that long ago, is that is precisely what happened then, which is why I am asking the question. They will be looked at together.

Mr Darling: Yes.

Roger Berry: Fine. That will do. Thank you.

Q18 Mr Wright: On the question of the Crown post offices, you mentioned the figure of 480 Crown post offices. That number is going to be reduced and I forget the figure that you mentioned.

Mr Darling: I cannot give you a definite figure because the negotiation is going now but it will be a comparatively small number and I think less than about 25. I cannot give you an exact figure because it is subject to negotiation, subject to discussion, and I do not want to mislead you in any way. I just want to give you a ballpark figure because the lion's share of them will continue. Many of them, though, could end up in joint ventures or franchising. That means there is still a post office there but it may be in the same place as W H Smith, for example, or somebody else.

Q19 Mr Wright: We will take that on board. If there is a transference of the employees over to these franchises from the Crown post office network, will the employees enjoy the benefits of TUPE. Could you give that as a guarantee?

Mr Darling: That is something that the company is discussing with its employees at the moment. I think it is best that ministers do not get in the way of those discussions.

Q20 Mr Wright: The question of the Crown post office closures, whether there are 25 or however many there are, during the programme would you be prepared to suspend those closures in the franchises until such time as all of the discussions and negotiations have been finished?

Mr Darling: No, I am not sure I would want to give that commitment, partly because the post offices are already in fairly advanced discussions in relation to a number of post offices at the moment and I would not want to do something that got in the way of what might be a satisfactory outcome. Remember this is an 18-month process and I really do not want to stop anything that might be done to the Crown post offices which might improve the services they provide for 18 months, for example. As we go through areas, wherever it is, it is only right that you should look at both the Crown and the sub postmasters and mistresses offices at the same time.

Q21 Mr Wright: Would you agree that, whilst you do not want to give a commitment through the negotiations it would be beneficial if TUPE arrangements could be negotiated with the trade unions?

Mr Darling: I think it is entirely desirable that there should be proper discussions between the unions and the Post Office and those discussions are going on at the moment. I do not think it would really benefit from me commenting from outside.

Q22 Roger Berry: Given that the two exercises are taking place together, the proximity to Crown post offices will count in the proposed access criteria, so I now understand that part of it. In your statement in December you used the phrase - and I think you used it this afternoon - about wanting to have the right post office in the right place. The consultation paper accepts that coverage will need to be maintained in the face of natural wastage, which is something we are all very familiar with. Could you say a little bit more about how this would work? In the consultation document you talk about the restructuring programme operating until 2009. How will that process work, of trying to get the right post offices in the right place whilst addressing the need to compensate those who lose their jobs?

Mr Darling: Before I come on to that, Jim Fitzpatrick has reminded me that there are national agreements in relation to discussions on closures and TUPE and so on, but, as I say, those discussions are continuing. On Roger Berry's point, what will happen is that from about the summer of this year the Post Office will be able to publish proposals. In as far as you can do this, they will try to do it in an area that is aligned to parliamentary constituencies, so that MPs will have an opportunity to make their comments, and they will look at the Post Office provision there. For this purpose, a Crown post office and a post office operated by a sub postmaster or mistress clearly is "a post office", so they will look and see, applying the access criteria, depending on whether it is an urban or rural area or whatever, what should the pattern look like. Of course, I have always made it clear - I think I was asked about this in the debate earlier this month - that they will take into account things on an area level that you do need to take account of. For example, if there is a natural boundary, a mountain or something, you might need to make some adjustments.

Q23 Chairman: We will come on to the criteria in some detail later.

Mr Darling: Yes. I was just trying to explain it in general terms. Basically, if you are asking how do you look at the things together, this gives you an opportunity to look at the disposition of the Crown and sub post offices. It also allows you - and I think this is happening already, because a lot of postmasters are indicating in some areas that they want to go - to try to marry up who wants to go voluntarily, who wants to go as part of the compensation scheme, who wants to stay, and then how do you get within that area a network that meets the criteria that we have set out.

Q24 Roger Berry: You mentioned about looking perhaps at the basis of parliamentary constituencies and consulting MPs, which of course is what happened last time: we were consulted or captured, depending on which term you want to use. Where do local councils come into this? With the Urban Reinvention Programme, local councils came into this whole process way after that and justifiably felt they had a contribution to make to coming up with a plan for their communities.

Mr Darling: I think I said in reply to Julie's question that all this is subject to consultation. Over the last month or so, a number of representations have been made to me about the consultation process by Postwatch and by other people as well. I think every single one of us who were Members of Parliament in the last Parliament knows full well that there were some consultations that were more successful than others. I believe it is very important that if people ask their opinion they should be asked for their opinion genuinely. I also think that this time the Post Office needs to do a good job and make sure that all the information that is available is available.

Q25 Chairman: We want to come to the consultation in a little more detail later as well.

Mr Darling: I am sorry, I thought that was what Roger was asking.

Chairman: We will come back to that in more detail.

Q26 Roger Berry: How do you intend to encourage sub postmasters to move to areas where the incumbent might want to retire and we want to keep it open. What specific incentives ----

Mr Darling: Clearly this is something the Post Office needs to think about. The money we have given includes money that will allow them to do some restructuring. One of the things that was put to me by the National Federation, who of course represent most of the postmasters .... The copyright on the phrase "the right post office in the right place" belongs to Colin Baker and not me but I thought it was quite a good phrase. Here is somebody who has given a large part of his professional life to fighting for postmasters. He is a realist, he wants to do the best he can for his members, and he made the point that actually the postal network would benefit from a spot of management. If you have a situation where somebody wants out but they are in a prime site, it makes sense to go to somebody who is maybe in not   a good site and say, "Would you like to take over the post office that is doing quite well because that might be better for you."

Q27 Roger Berry: I am sure that makes sense. The question, of course, is how you intend to do that.

Mr Darling: That is for the Post Office to do. It is my job as the Secretary of State and the Government's job to make sure the Post Office is properly funded, to make sure there is a framework against which they can operate, but, as for the day-to-day management, that has to be for the Post Office and the Royal Mail too.

Q28 Chairman: My concern, Secretary of State, is you are announcing 2,500 closures, effectively, but, after that process has concluded, more sub postmasters will want to retire and there may not be people to take those places. 2,500 is not the end of the story. There could be a lot more closures afterwards.

Mr Darling: No, I do not believe there will. Suppose we did absolutely nothing - and I do not think anyone is arguing that - the only evidence is that post offices will close at the rate of about 300 a year, and I suspect it will increase because of various other factors if we did not do anything. The reason I have said we need to make a structural change now and bring the network down by 2,500 is because I think on the level of financial support we are providing we can do that. I also think that will enable the Post Office to be in a position - when every year there will be people coming forward saying, I want out. I am too old. I want to retire or whatever - to be able to say, "This person wants out, what are the alternatives?" The alternative might be another postmaster; it might be a community-backed venture, which is about 150 in the network just now; it might be a whole range of different solutions. But the point I made in the House the other day is that if we do not take the bull by the horns it will just be a drip, drip effect, which would be disastrous.

Q29 Chairman: You are saying that by doing this you create a sustainable and viable network and where a sub postmaster wants to retire subsequently it is your view that an alternative arrangement can be put in place or a new sub postmaster encouraged to take on the site.

Mr Darling: Yes.

Q30 Chairman: And this 11,600 figure is a stable figure for the medium term.

Mr Darling: Yes, because I have laid down the national criteria that need to be applied and that is what the Post Office needs to stick to. In other words, if somebody comes out of an urban area and that means they cannot hit the criteria, they have to find somebody else.

Q31 Chairman: That is helpful. I have two technical points before I bring in Judy Mallaber, tax treatment of the compensation package. After the experience of the Urban Reinvention Programme, is it taxable for the sub postmasters?

Mr Whitehead: Yes, Chairman. The first £30,000 is exempt from tax and then above £30,000 it falls within a tax liability according to -----

Q32 Chairman: As income?

Mr Whitehead: Yes.

Q33 Chairman: Thank you very much. In urban areas when post offices closed, there was typically another use for the post office. In villages that is less likely to be the case. Will there be any consultation between you and the Department for Communities and Local Government on change of use and planning policies for these, that otherwise could be gaping holes at the heart of a community?

Mr Darling: I have had discussions with the department. I think it is fair to say there is quite a variation between the attitude of local authority planning authorities up and down the country. I am afraid this is an example of where you can get a complete conflict of interest. You can get a postmaster wanting out - he has got his post office and it could sell for an awful lot more as a house than it can there. The local planning committee might take the view that it wants to preserve shops in its high street, and it will say, "No, you are not converting that into a house because we think it could be another retail outlet." On the basis that we have devolved planning to local authorities, I think it would be difficult for us to insist that, come what may, if a postmaster wanted out - and remember the shop may predominantly be a grocer or something like that. I think there are difficulties here. The other thing I have to say is that, whilst this problem has been raised with me, the DCLG tell me that they have not been inundated with requests of this nature. It is something we will keep under review, but, like so many matters, it is not straightforward.

Q34 Judy Mallaber: You used the phrase "haphazard closures" to an earlier question and you said that some consultations have been better than others. There have been some concerns expressed that the wrong sub post offices were closed under the Urban Reinvention Programme. Would there be scope to reopen any of those post offices, if that fitted into the plan once the consultation had taken place?

Mr Darling: Yes, we will have to reopen them, not just because, as you say, it may be the wrong decision was made. I have come across cases where the postmaster himself is saying, "Look, this was not a good decision at all because the sums just do not add up" and other people are saying "It is the wrong decision because people could not get to it," but because the access criteria and the criteria for post offices is now different from what it was under the Urban Reinvention Programme, we will need to look at them. The only thing I would say to you is that you could not sensibly look at an area afresh, if you like, to make sure the right post office is in the right place if you ignored those post offices being subject to some consultation last time. Prior to me publishing proposals, I asked various people, including the Federation, "Would it make sense to look at these things again?" and the predominant view was that if you did not you would create far more difficulties than you would resolve. This is the time, when there is quite a step-change in approach, for us to look at areas on a proper basis so that we can then decide what the appropriate network ought to be.

Q35 Judy Mallaber: Looking into the future, can we presume that if we have an area of rapid growth and new build that would be the provision for adding new post offices in that situation on top of the network that would have been agreed as part of this current round of consultations?

Mr Darling: Yes, because the criteria are national criteria. If, for example, you built an entire new town of a large number of people in an area where there are no post offices, in order to let yourself within the national criteria set out in the consultation document you would have to provide a post office. In the next five years I am not sure if that problem will arise or not but the criteria are national criteria.

Q36 Judy Mallaber: The Post Office will be expected to keep this under continued review.

Mr Darling: It will have to because nothing is static. As I say, 300 postmasters, or thereabouts, come out of the industry every year. The figure is a bit lower at the moment because people have been waiting to see what we would do now. Therefore, there will be 300 instances or so every year where the Post Office will have to say, "So-and-so is retiring, what do we do about this?" There is nothing new in this. This has been going on for 60 years.

Q37 Chairman: What is new, Secretary of State, is your Government is proposing a massive increase in house building in many parts of the country. That means there will be large new communities developed. I understand your last answer - very encouraging - to say that, where those large new communities are developed, the Post Office will be under an obligation to open new offices.

Mr Darling: The obligation on the Post Office is to meet the criteria that I have set out. If they do not meet it, then they will have to do something about it. I said to Judy Mallaber that whether or not that situation would arise in the next five years is something that I am not in a position to say yea or nay to.

Chairman: That is an encouraging answer too. You are doing very well, Secretary of State. We are very pleased.

Q38 Anne Moffat: Secretary of State, you have already answered a couple of my questions on the £1.7 billion package. You have spoken about how it will be allocated but you have also said that when you announced it that would be subject to European state aid approval. What would happen if that was refused? Is that likely?

Mr Darling: I hope not. One has to say that we have got about the only liberalised market in Europe. It would be ironic if the European Union found that what we did was wrong and that what every other European Union Member State was doing was right. So far, we do not anticipate that. It is quite acceptable in state aid rules that governments do support post office networks, for example, so I am reasonably optimistic, but, as I am aware that those in Brussels who do these things study our proceedings probably more careful than you and I do, I should make clear that I very much accept they have the right to look at it and to ask us questions and see whether or not we have done the right thing. But I hope we have.

Q39 Anne Moffat: You do not feel the need to have a plan B, you are that confident.

Mr Darling: No.

Q40 Chairman: We shall move on, Secretary of State, to the national access criteria. Could I begin by asking you a very straightforward question about a change of policy, apparently, or a change of view within government. The year 2000 Performance and Innovation Unit Report came out specifically against numerical access criteria but that is not what you are advocating. Why?

Mr Darling: Because I took the view that the policy I had set out was better and one that I think I am entitled to take. I did think about this long and hard and it has to be said that, had the policy that we set out in 2001 proved to have no difficulties whatsoever then one would be reluctant to depart from it. If we stand back, what is it that I think is important? The important thing is to have a national network of post offices. Why? Because, on any view, for the foreseeable future, at the very minimum there will be some people who will not be able to get their money from the banking system, pensions, benefits and so on, and the state has a clear obligation to make sure they have the means to do so. The post office network is also a way of providing other goods and services, particularly in rural areas where there are not banks or there are not nearly so many banks, and I think there is a very clear social need for it. I have always been clear about that, both before and after I published the consultation document. How do you achieve that? The most obvious one is to make sure you have a reasonable distribution of post offices. We published a criterion which is in here that nationally 99 per cent would be within three miles and 90 per cent of the population within one mile and so on.

Q41 Chairman: We will come on to the detail. You think the old policy was bad and the new one is better. That is a helpful answer.

Mr Darling: That is the long and the short of it, yes.

Q42 Chairman: Before I bring in Peter Bone, could I just ask you a question. What is a mile? The reason I ask that is because the Westlands Post Office, for example, in my constituency, is, if you drive, 2.4 miles to the town centre where the Crown office is. As the crow flies, it is less than a mile, and it is separated by a very dangerous road. That means that you could, under your access criteria, close the sub post office on Westlands. Is it as the crow flies or is it the most convenient journey?

Mr Darling: I think we have to recognise that we are not all crows and that most of us have to get to post offices by conventional means. As part of what we are getting in the consultation, we are looking to try to make sure you take account of things like a six-lane motorway or a mountain or a river or whatever. Also, one of the things Postwatch have been asking us to look at is in terms of transport links, for example.

Q43 Chairman: Is the mile as the crow flies or is it via the most convenient route?

Mr Darling: In many areas a mile will be a mile.

Q44 Chairman: A strict radius, with a compass.

Mr Darling: You can see where you go. In some rural areas, or even in urban areas where there is some natural boundary, then we have to use some common sense.

Q45 Chairman: We will come on to that in more detail but you have suggested there is some flexibility in this mile criteria.

Mr Darling: I think we have to avoid being daft but equally we have to avoid being daft the other way, saying nobody lives within a mile of a post office because you have to go around a car at one point.

Q46 Mr Bone: The Deputy Prime Minister, who seems to have a role in the post offices said in answer to an oral question to me that 99 per cent of people live within one mile of a post office. Was he right?

Mr Darling: Ninety-nine per cent of all people?

Q47 Mr Bone: That is what he said.

Mr Darling: Not having the benefit of Hansard in front of me, I do not know what he said. The criteria that we have laid out are in here - and I will not go through them line by line - but quite clearly 99 per cent of all people do not live within one mile of a post office.

Chairman: Thank you. That is fine. The Deputy Prime Minister is wrong about that.

Q48 Mr Bone: It appears from these confusing figures we are getting that about 20 per cent of people in rural areas do not live within a mile of a post office at the moment.

Mr Darling: We never said that they did. If you look at the rural criteria, we are saying that 95 per cent of the rural population should be within three miles and 99 per cent of the population in postcode districts within six miles. We have never said that 99 per cent in rural areas live within a mile of a post office. Manifestly, they do not.

Q49 Mr Bone: I think we are establishing that there is considerable confusion around these figures.

Mr Darling: On your part, not mine.

Q50 Mr Bone: No, there is not actually. I have done a little more homework on this. Twenty per cent in rural areas clearly do not live within a mile of a post office. Now you are changing the criteria. You are now saying 95 per cent but you are changing the distance. You are moving it to three miles. What on earth was the basis for moving it?

Mr Darling: If anyone is confused, I think it is you, with respect. Why do you not look at what is in the consultation document that we set out. They are the criteria on which I propose to operate. As I said to your Chairman, it is different from what we have done in the past but nobody has ever suggested to the best of my knowledge that 99 per cent of people live within a mile of a post office. You only have to go to rural Scotland or rural Wales to see that is not the case. Indeed, I dare say someone will ask me about the 38 postal districts - one in particular, since he has one of these coveted districts - and I intend to demonstrate quite graphically the problem that we face. However, I am setting out a criterion, a benchmark, if you like, that allows the post office to do some decent planning and to get a national network.

Q51 Mr Bone: I understand that for the poll of the post offices that the Government wants to do they have moved the criteria from one mile to three miles in rural areas and I want to know why.

Mr Darling: There is consideration in rural areas. It is not a practical proposition to have 99 per cent of the population within one mile, unless, of course, you are proposing to embark on quite a major expansion proposal and get it right.

Q52 Mr Bone: I am not making myself clear. That is not the question. The question is: Why have you moved away from the benchmark of one mile to three miles? You could have said, "We plan to have 60 per cent of the rural post offices within one mile." Why have you moved away from that benchmark?

Mr Darling: I shall ask Mike Whitehead, if I may, but I think I am right in saying that there is no criteria at the moment that says you have to be within a mile of a rural post office. None.

Q53 Chairman: There is a statistic which says how many are but not a benchmark. Is that right?

Mr Darling: There will be lost of statistics, no doubt, but the only criteria that are around are the ones in the consultation document. If it helps you resolve your confusion, read the consultation document. You will see the criteria there.

Q54 Mr Bone: We are clearly going to have agreement on the second part because we are using the Government Performance and Innovation Unit. They clearly state, using your new criteria, that up to two-thirds of new post offices could be closed and still be within your new criteria, which would mean the closure of 5,000 rural post offices. When you go to urban post offices, if the new criteria were in place, 3,000 could close. You could have a total of 8,000 post offices closing and still meet your access criteria. How do you balance that up with the 2,500?

Mr Darling: I am proposing to reduce the network by 2,500. I am not proposing to do more than that.

Q55 Mr Bone: But your criteria would allow that to happen.

Mr Darling: I believe the criteria we have set out would allow us to operate a network that would be 2,500 less than we have at the present time. I am not sure where you got the other numbers from but they are your numbers, they are not mine.

Q56 Mr Bone: We must be fair on this, Mr Chairman. This is from the Government's Performance and Innovation Unit. It is not my figures; it is the Government's figures.

Mr Darling: Firstly, I do not think it exists any more, but, secondly, it has never looked at the proposals that I published last December. It does not exist any more, does it?

Mr Whitehead: Not in its present form.

Q57 Mr Bone: The fact that it has been abolished means that what they originally said was wrong.

Mr Darling: It means your whole argument falls apart.

Q58 Mr Bone: I give up, Mr Chairman.

Mr Darling: Good.

Q59 Chairman: This is quite an important point and I want to make sure I have understood it. The PIU report said, as I understand it, that 99 per cent coverage at three miles could mean that two-thirds of rural post offices closed. That was their figure in 2000. We have already established it was not a very good report. Now you are going to 95 per cent for three miles, which means to my very simple mind that more than two-thirds of rural post offices could close if that PIU report is accurate.

Mr Darling: I do not think that is right, and I will ask Mike Whitehead to expand on this. We did a lot of work on this over the summer, leading up to the announcement in December. If we apply the criteria that I have set out, we can end up with a network that would be about 2,500 less than at this present time; still about 12,000 if you include the remote services being provided. I believe that will allow us to meet the national criteria. I dare say that you can get somebody to look at the figures any way you want and you can come up with a number greater than that but the Government's position is as I set out.

Q60 Chairman: I have in front of me the PIU report from 2000 - and I quote word for word - "But the PIU's analysis showed that it would be possible for the Post Office to close down two-thirds of its rural outlets while still ensuring that 99 per cent of people in rural areas live within three miles of a post office." You are saying that was wrong. Why should I believe that what you are saying is right?

Mr Darling: There were about 19,000 post offices, if I remember rightly, at the time they wrote their report.

Q61 Chairman: That could be the explanation in part.

Mr Darling: I am saying to you that clearly there would have been no point in setting out the criteria that I set out if it did not result in the distribution of post offices that the Government intends. I believe that this is the outcome. That is what we are working towards. Part of the consultation period is to allow this Committee and indeed others to respond to what we are doing, but we put these proposals forward in good faith. I believe the outcome will be as I stated.

Q62 Chairman: I do not think we have covered the breakdown between urban and rural. If we have, I apologise. We have heard a suggestion recently that it has been half urban, half rural. Can you confirm?

Mr Darling: I am not in a position to tell you it will be half and half. I am in a position to say that, if you look at the post offices that will go, there will be both urban and rural, self-evidently - partly for the reasons I have set out - but, as to the proportions, no. We cannot do that because the Post Office have not actually done the work yet.

Q63 Mr Bone: Can we be clear on this, Secretary of State. Perhaps I was baiting you a little bit at the beginning but are you saying that if we stick to these criteria you are proposing only 2,500 post offices would be allowed to closed.

Mr Darling: That is what the Government is proposing, that we close 2,500 post offices. Of course, I have mentioned the Crown post offices' position and I have also said that in years to come there will be closures, but those will almost certainly need to be replaced. I am quite clear that if you do not have about 12,000-odd post offices you will not get the national network that we need. I do not know if someone is going to come on to the 38 postal districts. There is something there we perhaps should clarify but you may be coming on to that.

Chairman: I am very grateful to you: you have correctly anticipated the next series of questions. Mike Weir.

Q64 Mr Weir: The criteria allow for a percentage of the population to be somewhat further than either one or three miles from their nearest post office. Would it not be useful for members of the public and Parliament to have access to information on how post offices in their communities or constituencies fare against these criteria and so understand how the criteria might affect them?

Mr Darling: I think it was Roger Berry who asked me about this - the lessons from last time, if you like - and if you take a particular area, whether it is your area or anybody else's, it is necessary, when the post office puts proposals, to tell people how they reach that proposed solution. In other words, if they say, "Here is a post office: x per cent of the population are within so many miles" so that you can actually see how they made those calculations, that is quite important. It is all part of the process of being open with people. It would be nice if there were some sort of national consensus over it, though perhaps that is too much to expect, but the one way to antagonise people is to withhold information from them which we might legitimately expect to get.

Q65 Mr Weir: Under the Urban Reinvention Programme in my own area, I put this very point to the Post Office and they assured me they were looking at the town of Arbroath, for example, as a unitary and to see how many post offices were needed there, and then the next week I got a letter from them saying that a post office was closing there. There seemed to be no overall look at an area. You have talked about parliamentary constituencies. I have one post office in my constituency, Edzell, which is right on the border of the adjacent parliamentary constituency. Is there going to be flexibility to reflect the fact that sometimes a business crosses over parliamentary boundaries?

Mr Darling: I said, again to Roger Berry, I think, that the intention is to look at these things and try to align them with parliamentary constituencies but clearly there is a number of areas where that is not a sensible thing to do. It is not just rural constituencies. I do not know enough about Edzell post office to know where its main business is coming from but it is quite possible that it would come from somebody else's constituency. Let's face it, most of our constituents do not identify usually with their constituency but rather with the area they are familiar with. If you take an area like a city, like Edinburgh, for example, there will be lots of people using particular post offices in my constituency that live somewhere else. You might want to look at a city or an area that covered the Edzell post office in a slightly different way. Would it be helpful if I said something to you in relation to the 38 postal districts? It does affect you and you may be interested in it.

Q66 Mr Wright: I am just coming on to that. The Secretary of State said I have one and in fact I have two, because, although it is a Perthshire postcode, it crosses the border. Not only that but I happen to live right in the middle of one of these exempted areas, so it is of great interest to me what you are going to say about this. The majority of these 38 exempted areas are in Scotland, mostly in the Highlands, islands, Perthshire and Angus. Why should they be exempt?

Mr Darling: They are exempted mainly because their populations are much lower than anywhere else in the United Kingdom. You are right. If you had 38, 37 of them are in Scotland, most of them in the Highlands. There is one in Northern England around Hexham. The position there is that very often you have a very low population. If you were to try to apply the national criteria you would end up having to build quite a lot of post offices. Let me give you an example. This may help the Committee. If you look at the postal district IV4, of which the Committee is no doubt intimately aware.

Q67 Chairman: Inverness, is it?

Mr Darling: It is Inverness - so that is your starter for ten. It is slightly to the south and west, around Loch Ness. There are 510 people living there. There are 19 post offices serving 510 people and yet almost half the people do not live within six miles of a post office. Let me take another one, IV27. If you imagine the weather forecast and look at Cape Wrath - it is that top triangle of Scotland where you can walk for two or three days and not see anybody - 1,500 people live there. There are 12 post offices serving those 1,500 people and yet just under 27 per cent live more than six miles away. Clearly, if you applied the national criteria, you would be building post offices to serve maybe one or two people and that would not make any sense. I can tell the Committee that it follows, because it does not meet the criteria, that there will not in fact be any compulsory closures in any of those 38 districts. In those areas, it is the case that we will not fail to meet the national criteria. That has been the case for some considerable time, but it also follows, because of that very fact, that there will not be any closure in those 38 districts. I am happy to provide the Committee with the details in writing if you would like me to, since there are rather a lot of them and I do not suppose everybody is familiar with the postal districts.

Q68 Mr Weir: That is very interesting and welcome.

Mr Darling: I thought you would be more cheerful than that! It has maybe ruined your campaign against post office closures.

Q69 Mr Weir: Not at all. I was going to ask about DD9, which is the one I know best for obvious reasons. DD9 covers a large area taking in the town of Brechin all the way up to the top of Glenesk. There are four post offices in DD9, two in the town of Brechin and two just outside, one being Edzell and one being Little Brechin. There is a vast area going up Glenesk, Glenmark, all the way up Invermark, where there is nothing. There used to be a post office at Halfside, up Glenesk. Is it the case that these areas, where post offices have previously been closed under the criteria, may have to build new post offices? Equally, these people are being left without postal services. For example, why are you not looking at outreach services to go into these areas which have now, in the likes of Glenesk, not had a post office service for some years because the post office closed?

Mr Darling: There might well be a case for doing outreach services in areas like that. Just looking at DD9, according to the information I have, 94.3 per cent of the population live within six miles of the post office. I agree with you, that means that about six per cent do not. You are right there are four post offices and there will be no compulsory closures of those four post offices and I am sure you will be very keen to impart that good news to the postmasters there. Going back, I picked IV4 because it illustrates the problem. You have 500 people and 19 post offices - which gives you a ratio that other parts of the country do not have - and yet almost half of the population live more than six miles away. It would not be a practical proposition to be opening new post offices to serve all these people because it just would not work.

Q70 Mr Weir: With respect, that was not the question I asked. I did not ask you to open new post offices. I asked you about outreach services.

Mr Darling: And I said: Yes, that is a possibility. It is. One of the things the Post Office is looking at is how they can get postal services to new customers, so, yes, that is something.

Q71 Rob Marris: I would like to ask you what you mean by building post offices.

Mr Darling: Opening new ones.

Q72 Rob Marris: You said "building" at one point. It will not surprise you to know I have been on a parliamentary visit to one of the 19 in IV4, which I believe is the smallest post office in the United Kingdom. You may know it. It is about one metre by one metre. It is a cupboard in somebody's house by the lake.

Mr Darling: The loch.

Q73 Rob Marris: I am English. I call it a lake, so it is by the lake.

Mr Darling: No, it is not.

Q74 Rob Marris: You now clarify it. When you say opening post offices, it could be one like that, in theory.

Mr Darling: Yes. Firstly, it is a loch - right? We only have one lake and it is a loch. In relation to what you are saying, I was making a general point that if you want to get up to the national criteria in the 38 districts you might indeed have to be building them. I am saying that we are not proposing to do that. I said that we are not going to close any post offices in those 38 districts under the scheme, but I also said to Mike Weir a few moments ago that it could well be that some different form of providing a service might be considered. Whether it would work or not, I cannot say. You are absolutely right, a lot of these post offices are not the sort of post office that you might imagine: on the high street, with bright lights; they are in somebody's house or in the corner of a shop and so on, but it could be that those services could be provided in a different way.

Q75 Miss Kirkbride: You probably do not have these figures to hand, but, for the Committee's interest, could you tell us, of these 38 areas, how many post offices there are, how many people they serve and what subsidy is on them.

Mr Darling: I certainly cannot give you the last figure offhand. In the time available, even with the most agile mental arithmetic, I would not be able to give you the total population.

Q76 Chairman: Write to us.

Mr Darling: We might have a stab at it.

Mr Whitehead: The total population of the 38 districts is around 41,000, which is an average of just over 1,000 per postcode district which is affected by this situation. Throughout the rest of the country, the average population per postcode district is around 20,000, 21,000. They are very small groups of population on average.

Mr Darling: We will give you further details.

Mr Whitehead: We can supply the details, apart from the subsidy per office.

Chairman: That is a helpful indication. Thank you very much.

Q77 Judy Mallaber: The distance criteria are, in a sense, arbitrary, and you did earlier start to move on to talking about some other criteria that might be taken into account if we were not going to be, as you put it, "daft" in how we develop those programmes. Could I start with one area of potential factors which are broader factors than you mentioned earlier, like the number of customers, the quality of the Post Office and its range of services. Are those issues that should be taken into account as well as distance?

Mr Darling: The overarching criteria will be the ones we have talked about several times this afternoon. When the Post Office is looking at particular areas, it will take account of, for example: Is the post office heavily loss-making? To give you an example: in a town you have three post offices. On the criteria: two could serve and meet those criteria, so one post office might be the subject of closure. If you looked at the three and one was very profitable, one was on the margins, one was making a great losses, you might decide to close the loss-making one and that might help the one that was on the margins, and so on. They will be looking at what is practical and so on. I was at pains to say on 14 December - because there was a feeling last autumn: "They will go through all the loss-making ones" - that there are lots of post offices, those which are seeing a handful of people every week - and Rob Marris has given an example - where there will not be that many people but the individual transactions are quite high, but it will be kept open because to take it away would mean there would not be a post office for an even greater distance. Yes, the Post Office will look at that, but one of the things we are using this consultation period to do is to get views from people as to the various things they think ought to be taken into account. My overarching objective is to provide a network which fits with the criteria that I set out.

Q78 Judy Mallaber: Could we go through some of the other practical issues we started to touch on earlier. I have a list of those that have occurred to us. Practical accessibility, not just raw distance; for example, actual road distance, whether you have a steep hill, public transport, whether you can get there, whether somebody has to go through an area that has very high crime or antisocial behaviour. There are all sorts of factors that could be taken into account. Are they ones which could be looked at in conjunction with the criteria you have laid down? If I get a proposal saying: "This one is going to close" are those factors I will then be able to argue back, saying, "There are these reasons why: I really cannot expect a pensioner to walk up this steep hill or through that horrible area to get to the post office"?

Mr Darling: I think the answer to your question is this: of course, especially at this stage, I will look at anything the Committee or you as an individual or, indeed, anybody else who responds to the consultation process puts forward. We are going to have to reach a view at the end of this as to what sort of things will or will not be taken into account, because it would be unfair if something is taken into account in one area but not in another area. The caveat I would have to enter is that I want to avoid getting ourselves into a situation where it becomes virtually impossible to do anything because if you have enough criteria then it will not be possible to make any changes whatsoever. Going back to the very first question I was asked by the Chairman and Julie Kirkbride, we need to do something about the size of this network if it is going to be sustainable in the future for any government. I did also say that we need to be sensible about the way in which you apply these things. Mike Whitehead was the official responsible for the policy behind the Urban Reinvention Programme and it might be helpful to ask if he has any observations on the point Judy Mallaber was making.

Q79 Judy Mallaber: There are two phases. You could say. "At the end of this phase we are going to rule out what you said about steep hills" or whatever it is, so you could be going to rule out everything at this stage, or you could be saying, "There is a list of factors which if they were acute could be taken into account in a sensible analysis when it comes to it."

Mr Darling: I am prepared to listen to what anyone has to say but, by the time we report to the House at the end of the consultation period, people will be entitled to have a reasonable understanding of what the rules are rather than getting into a situation where people are not really sure at all.

Mr Whitehead: As the Secretary of State says, we are not ruling anything out at this stage. There are discussions underway at the moment between Post Office Ltd and Postwatch who will have quite a significant role in assessing the proposals at the local areas when they are being formulated. They are in detailed discussions about the range of factors, beyond those that are just flagged up in the consultation document, which will be taken into consideration as proposals are being developed.

Q80 Chairman: Could you think of putting a measure of socio-economic need into the access criteria as well - outside our top ten per cent, in the most deprived wards? Again, going back to Westlands post office, it is in a deprived area, not top ten per cent. It should get a little bit of weighting at the margins in considering whether to close or not to close.

Mr Darling: I am certainly prepared to look at representations of that but I think we need to avoid a situation where the criteria become so complex that we lose site of what we are trying to do. We are trying to be sensible about these things. In a network that is not commercial, obviously the social considerations are important. We want to avoid a situation where, basically, you cannot do anything because you have so many criteria that you are paralysed.

Q81 Judy Mallaber: Could I move on to the question about how the thresholds are going to be applied in practice. You said you would be looking at things on a constituency basis or maybe a group of constituencies or part of Edinburgh or whatever. When you are looking at these criteria, are they going to be applied in terms of those percentages and so on within each of those area plans or is it just that they have to even out over the country as a whole? To which areas are the thresholds going to be applied?

Mr Darling: They would have to apply to the areas concerned. You could not have a situation where somebody in your constituency was 20 miles away from a post office and you assured them, "But don't worry, looked at as an average over the country you are actually within three miles of it."

Q82 Judy Mallaber: Mike cannot come and argue "I have to get all mine within three miles" and I then have mine going 20 miles.

Mr Darling: No. I think the criteria have to mean something to people. You cannot possibly argue that you have met the goal because you have grossly overprovided in one corner of the kingdom and you have grossly underprovided in another.

Q83 Mr Clapham: Secretary of State, I hear what you say about the need to take a reasonable approach in the way in which you apply the criteria but there is also a reference in the document at 5.2 to an additional criterion being used to safeguard post offices in a rural or deprived urban area. Could you say a little about what that additional criterion may be.

Mr Darling: It is really what I have just been saying over the last few minutes. My starting point is that there needs to be national criteria that people can point to but there will be areas where you need to take a sensible view of things, whether it is natural boundaries, whether it is particular incidents of deprivation. I am using this consultation period for just now to look at all the things that people have said to us and then in March, when we publish our conclusions, we can be a little bit more definite. I welcome people's suggestions, but, as I have said on a couple of occasions now, we need to make sure that we have got something that is understandable and workable.

Q84 Mr Clapham: In terms of the way in which the criteria may be used in some areas and we see post offices closed, will it be transparent? Can it be questioned by the local community, by the Member of Parliament, for example?

Mr Darling: Yes. What will happen is the Post Office will put forward proposals, the local MP and anyone in the locality will be able to respond. I did say earlier that we need to avoid some of the problems that arose the last time. Certainly in my experience as a constituency MP there were times when it was rather more difficult than you would like to get some basic information out of people. One of the things that I think it is also fair to know is, if the local postmaster or mistress say they want to go, that people should be told that. Sometimes the impression was created last time that they did not want to go. I think we have all had that experience.

Q85 Mr Clapham: In terms of the way in which it is going to be approached, there is likely to be, is there not, the involvement of the local authorities. In many of my rural areas, I have 13 parish councils.

Mr Darling: The answer is yes. If you have a consultation period, there is nobody that is not allowed to respond to it . Obviously when the Post Office start this process they will do their best to write to all the people they have on the books, as it were, who have a legitimate interest. Local authorities, parish councils and so on are very much part of that. I cannot think of anybody who would not be able to respond.

Q86 Mr Clapham: The reason I am asking about parish councils is that quite often it is an area that is missed in consultation. It tends to go out to the large council but the parish council tends to be missed.

Mr Darling: We will try to make sure it does not happen.

Chairman: We will go into more detail on the closure process.

Q87 Mr Wright: You have really answered the questions I was going to ask in terms of the difficulties we had over the Urban Reinvention Programme and the difficulties experienced by local people in responding to the consultations. In terms of the lessons that we have learned, we are not going to go through the same process again, are we? Could you just go into detail about what the process is going to be. How will the Post Office connect with customers, with the local community in trying to reach them through the consultation process?

Mr Darling: I cannot give you a detailed account just now. Indeed, it would be wrong of me to do so because I am consulting and if I pre-empt that by saying "This is the process" then people would be understandably concerned. I think we can learn. It might be helpful if Mike were to explain some of the things that we have learned from the last experience. Again, it would be helpful when this Committee comes to do its report to know if there are things that Members have within their own memory that did not work. We do not want to repeat things that went wrong last time. Mike, if I remember rightly, the process started off in a most difficult manner and by the end of it a number of lessons had been learned. I think there are things that we need to do better next time.

Mr Whitehead: Yes. Last time it started off with individual post offices being put out as proposals without any sort of pattern or grouping. That was moved to the approach of using area plans based on parliamentary constituencies and then at a slightly later stage the consultation period was lengthened from four weeks to six weeks and provision was made to extend it again if it covered public holidays. There was also a process for bringing Members of Parliament and local authorities into the consultation process at an earlier stage than being the case at the start of the programme. That is going to be the starting point, we believe, this time around. That will be the sort of approach that we will be looking to follow.

Mr Wright: I had an experience in the Urban Reinvention Programme where one of my post office proposed closures was opposed by the local community, by the local authority, by myself and supported by Postwatch, yet it still closed, and there were real reasons for that. In terms of that, have we learned lessons from that point of view, that a consultation should be a true consultation. Where there is a proven need by the watchdog, that should be taken into account and, indeed, should be acted upon.

Q88 Chairman: Could I reinforce Tony's point. I get consulted by the President of the Post Office on closures. I am not being consulted; I am being told what is about to happen.

Mr Darling: I want the consultation to be a genuine process but I cannot say to you that - having consulted and if there is a number of objections - the Post Office does not take a different view. At some point they have to make a decision but it has to be a reasonable decision. It has to be based on the evidence they get and the evidence they had already. I want the process to be open. I want people to be able to have a genuine say. I understand the point you make. I think all of us will have had experience with various bodies, both public and private, frankly, where your opinion is being asked and you get the impression that it is not quite as significant.

Jim Fitzpatrick: Mike and I attended Postwatch national council yesterday. It is the second meeting we have had with that collective in the past month: I know the Secretary of State met with the leadership of Postwatch two or three weeks ago and I met with them last week. Notwithstanding the inability to give conclusions today, we are doing everything we can to refine the exercise that Postwatch will conduct in due course by engaging with them, as well as others, as much as we can at the moment, so that, as we described earlier on, having learned the lessons from the Urban Reinvention Programme and listened to those who will be undertaking the real consultation when Post Office Ltd come forward with their restructuring proposals in due course, we hope to be in the best possible place to make sure it is as effective as possible.

Q89 Mr Wright: My bone of contention was not necessarily with the process. In terms of the consultation from the four post offices that were closed in the Urban Reinvention Programme in my constituency, three of which were supported by Postwatch - and indeed there was very little opposition to that - but this particular one gained the support of Postwatch. Whilst I accept the argument that, yes, we can go out to consultation but the due process has to be seen to be done, once you get the watchdog on your side to suggest that that post office should not shut, it is very difficult to go back to the community to say, "It was a true consultation. We went to an independent watchdog. They supported us but unfortunately the Post Office said, 'Sorry, a waste of time, it is going to shut'." I believe we need to give more strength to Postwatch if they say in their opinion and it was a measured opinion that that post office should remain open. I am sure other colleagues can give exactly the same picture, though I believe that, where those circumstances prevail, if they are given those powers then that should certainly weigh very, very heavily on the Post Office to reconsider.

Mr Darling: As Jim said, I have spoken to Postwatch fairly recently. They are quite clear they do not want to be the judges. They want to make sure they have a proper process, they want to look at the proposals, they want to be able to make their representations, but they do not want to be in a situation where they are the people who decide yes or no. I understand that in any consultation you will get a lot of evidence pointing in one direction and maybe the decision goes a different way. It is important is that you have a transparent process. People may not always like the decision, and that is inevitable in any decision-making process, but they can see there was fair play. As I said a few moments ago to Judy Mallaber, over the next few weeks I want to reflect on what people have got to say with a view to us coming up with criteria and a process that is clear to people before the proposals are made.

Q90 Roger Berry: The word "consultation" is being used in different senses here, which is why Mr Whitehead could say, in a sense, getting local councils involved "at an earlier stage". The process with the Urban Reinvention Programme last time was quite simple. The Post Office came forward with a proposal to close x post offices in a particular area and then there was the consultation. The criticism that many of us made at the time, particularly local councils, was that they were not involved in a prior discussion with the Post Office so that they could inform the Post Office of their local knowledge and that might influence the package that goes out for consultation. There might be agreement that x post offices out of y should be closed, but there might be great debate about which should be the ones to be put up for a formal consultation exercise for closure. When, Mr Whitehead, you referred to local councils being involved at an earlier stage this time, presumably that can only mean before a final set of proposals for formal consultation are put out for the public. Am I right?

Mr Darling: We are not talking about two consultations. In a particular area the Post Office needs to do its homework. It needs to talk to councils about planning consents there may be in the pipeline. Maybe they will want to talk to their views on particular needs and particular area transport links and so on.

Q91 Roger Berry: They did not do that last time, so is that what they are going to do this time?

Mr Darling: That is not a formal consultation as such.

Q92 Roger Berry: Just to be clear, Secretary of State, that dialogue with the local council before they put out a proposal for consultation will take place this time, will it? It certainly did not take place last time. And I welcome it. I am delighted.

Mr Darling: What is necessary is for the Post Office to do their homework. The whole purpose of the consultation period, of course, is to allow people to say, "No, you are not right. We can make a different case and that needs to be considered." Tony was mentioning Postwatch. About - I do not know - 60 or 70 proposals were withdrawn outright as a result of what Postwatch said and - I do not know - about 15 per cent were altered as a result. So Postwatch did then and will in the future have some influence. Do you want to add to what you were saying?

Q93 Roger Berry: With respect, was the answer to my question yes or no?

Mr Darling: Which particular question?

Q94 Roger Berry: With respect, the one question I asked last time. Is the implication of local councils being involved "at an earlier stage" that there will be dialogue in the areas to which you specifically referred with the local council in terms of special local needs, et cetera, before the formal proposal is put down on paper and then goes out to consultation.

Mr Darling: Yes. I mean, the Post Office ----

Q95 Roger Berry: Is it yes?

Mr Darling: Yes.

Q96 Roger Berry: Thank you.

Mr Darling: I do not want to be in a position where you have one impression and I have another. There will not be two formal consultations, if you like.

Q97 Roger Berry: I know that.

Mr Darling: The Post Office consults with councils and anyone else and then another thing is put out. The Post Office has a certain amount of basic information. It will need, no doubt, to check things, to ask things and so on. Certainly the complaint that was made in some consultations last time was that a lot of this came as news to the local authority and that is a situation that I would dearly like to avoid.

Mr Whitehead: The idea is to improve the homework, to make sure that the contacts with local authorities comes in at an earlier stage and feeds in before the proposals are being developed.

Q98 Roger Berry: In my constituency there were proposals to close two sub post offices. In relation to one of them, I got the impression that more people were campaigning to keep it open than were actually using it. But the information on footfall and revenues and so on of that sub post office was not available. Strictly commercially confidential, that information was not accessible. I eventually did get the figures. The figures would have demonstrated that not a lot of people were using this sub post office. If we are going to have a transparent consultation, as you have rightly said, Secretary of State, how can we give people access to some of the information without breaching commercial confidentiality, which I understand is a problem? Because, in some cases, if you look at the figures and the Post Office looks at the figures, they know privately that this post office is going to be very difficult to sustain: this is the marginal one. How can we get serious consultation when people are aware of some of these difficult circumstances?

Mr Darling: I have some considerable sympathy with you in relation to this. I think most Members of Parliament do. We need to put as much information as possible in the public domain. In relation to footfall, for example, whilst on one level you could argue it is commercially confidential, clearly anyone seeking to buy that post office or take it over would want to know those numbers. I certainly agree with you that if it is the case that the post office is being used by a handful of people then people should be told that. As you say, there have been cases where you have a meeting of 2,000 people and if only the 2,000 people all used the post office then the problem would not have arisen in the first place. I think it is important and I will do everything I possibly can to make sure that information is out. One of the other things that was not available last time was the fact that sometimes postmasters had asked the Post Office to go. Petitions were sometimes being run from the Post Office to keep it open. I think we need to avoid getting ourselves into that situation. I should make one thing clear for postmasters and mistresses: where you are dealing with personal information, like their income and so on, I can quite see that they are entitled to the same degree of privacy that anybody else would expect them to get, but where the public need to know something, if the Post Office assertion is "Nobody is using this post office," you then have to come up with the facts.

Q99 Roger Berry: The period you are suggesting for local consultation is six weeks. As you know the last time the Committee looked at this it felt that was not sufficient. Government practice recommends 12 weeks. Will you extend the period of local consultation to that 12 weeks, to allow stakeholders to have a proper say in the future of their local post offices?

Mr Darling: I think I am right in saying we discussed this with Postwatch about a year ago and they agreed with us that six weeks was appropriate plus public holidays, if there are any, falling within that period. The contrary argument is: the longer it goes on, the greater the uncertainty, which could affect the wellbeing or viability of a branch. I think it was a year ago since Postwatch last canvassed opinion.

Mr Whitehead: There was a subsequent renegotiation of the code of practice relating to post office closures and relocations which agreed on six weeks as being the appropriate for local proposals.

Mr Darling: Twelve weeks is normal for national proposals. For example, this one is a 12-week consultation.

Q100 Chairman: Postwatch have written to the Committee ahead of this meeting. They say, "As noted above, an unreasonably brief consultation period at local level with MPs, local authorities, customers and others will not have the 12-week consultation period recommended by the Trade & Industry Committee." They have suggested to us they want 12 weeks.

Mr Darling: They have raised these matters with us. All I am saying to you is that a year ago they thought six weeks was appropriate.

Q101 Chairman: You have changed your mind about the PIU report and they have changed their minds here.

Mr Darling: I have no problem with them changing their minds whatsoever; I am just telling you that 12 months ago they suggested that six weeks was adequate. I am mindful of the fact that postmasters sometimes say to us, "The longer you keep this going, the more difficult it becomes for us" and we have to take that into account too.

Q102 Roger Berry: In a sense, the uncertainty has started now and there is something a little strange when the consultation on the broader principles is going to be for 12 weeks and the consultation for the detail, the things that really matter in individual communities, would last for only six weeks. Is that not a strange way to do it?

Mr Darling: It is not strange at all. In one case we are following Cabinet Office guidelines, which is 12 weeks for government consultations, and in the other we are following what was agreed with Postwatch 12 months ago, which was six weeks. I quite accept, as the Chairman has said, they have changed their minds. However, at the time that we published this we had agreed six weeks, so I think it is entirely consistent with what the going rate was at the time.

Roger Berry: Okay. I give up.

Chairman: We might return to this, Secretary of State. Before I bring in Rob Marris, Judy Mallaber wants to say something.

Q103 Judy Mallaber: You do have to accept the cycle of meetings of, say, local organisations that would want to be consulted. Six weeks is not necessarily satisfactory for organisations that find it hard to organise themselves. My question was following on from the previous one about this taking the knowledge of local authorities, the dialogue, with them at an early stage. Can you give an assurance that that is going to be with each of the levels of local authorities? I have three tiers of council in my area and in some areas the county and the town council are in a better position to feed that dialogue than the borough might be. You would not just be going to add one level of local government and not consulting the rest.

Mr Darling: The Post Office have to go to the appropriate council to find out whatever information they require. You are quite right in saying that doing the necessary local consultation is not achieved simply because you went to one particular council, if the other level or levels had the information you need. As I have said, we need to make sure the homework is done properly, so the consultation can be conducted in the best way possible. We would also need to make sure that the information that is gathered (unless it impinges on somebody's individual personal circumstances where they are entitled to their privacy), things like footfall and who uses post offices, is a very relevant consideration.

Chairman: We may return to this as well. We will move the subject to the Post Office card account.

Q104 Rob Marris: It will not surprise you, Secretary of State, that I want to ask you on this. You and I have been batting this around for several years since I was on the Work and Pensions Select Committee and you were Secretary of State for Work and Pensions with the Post Office card account. My understanding is that over four million people use a Post Office card account to get their benefits and pensions and that the Post Office card account is quite an important source of income for any sub postmasters and mistresses - although it costs the DWP £1 per transaction in contradistinction to about one penny per transaction for bank transfers. The DWP contract expires in 2010. There now seems to have been a change of heart in government and the possibility of renewing that contract in some form is being discussed. I understand from papers from your department that the envisaged Post Office card account mark II would have the same eligibility criteria as the current account but would include similar features to the current one. Could you say what features would not be similar?

Mr Darling: On one point of detail, my understanding is the Post Office card account costs 80 pence, not £1, but you are right that pension or benefit direct into an account is just less than a penny. Therefore, in DWP terms, clearly there is quite a significant impact on its administrative costs. In relation to the Post Office card account, you are right, there are about four million card holders. The Government did decide it would continue the Post Office card account after 2010. I looked at this quite carefully. I am quite clear that you need the Post Office card account not just because it is desirable that the Post Office should have a product to sell but also because there are people who will not, for one reason or another, be able to get their money through the bank and a Post Office card account is the right thing to do. Incidentally, for the sake of completeness, there are other bank accounts which the Post Office can operate which does help them on footfall. You are also right in saying the Post Office card account is one of the things which brings people into a post office, which is very important in terms of, again, footfall. We are proposing to have a successor to the Post Office card account. We want it to do what it can do now. When we say that it may have different functionality that is because the DWP is looking to see what else they could put on to it to make it a slightly more attractive proposition. They have not reached that stage yet, so, no, I cannot tell you exactly what it would be. They are considering that. This is a tender process that will happen in the next couple of years or so.

Q105 Rob Marris: That would be additional features, not a subtraction of features.

Mr Darling: The basic product will maintain what we have at the moment, but at the moment it has its limitations and I think they would like to see what you can do to improve it. As I said in the House on 14 December, of course, because of European Union law we do have to tender this product.

Q106 Rob Marris: Could you design the account so you did not have to put it out to tender? Or would that design out its usefulness if one were to adopt that approach?

Mr Darling: I suspect you are right, that if you designed it out to being something that was not terribly useful then perhaps it would not attract the interests in the European Union. But we did take legal advice. Believe me, it would have been much easier for a whole host of reasons; not least I would have preferred to have said, "Look we are just going to continue the thing," for us to have done so. But the overwhelming legal advice, you will appreciate - and I am sure the Committee would agree with this - is that the Government has to obey the law. The best advice we have is that we have to put this out to tender and that is something that we will have to do. It would be a really disastrous if we did the wrong thing, someone challenged it and you lost two years. The long and the short of it is I want the Post Office card account to continue; it is my intention that it should do so, so we continue to offer that service to people.

Q107 Rob Marris: Did you get legal advice on what could be done to increase the chances of the Post Office winning that tender, what legitimately the Government might be able to do within European Union rules?

Mr Darling: The legal advice we obtained was whether or not we had to tender it. We will have to consider how we specify it. If you will forgive me, this is an area where the Government will have to do some thinking. We will no doubt get lots of legal advice which will be of great interest to other people as well. We are reflecting on that but we will stick within the law.

Q108 Rob Marris: We have been talking about the viability of the Post Office network, which is not viable at its current numbers. I think there is general agreement on that. How adversely would the viability of that network be affected if the Post Office did not win that contract for the Post Office card account mark II?

Mr Darling: We have not done any calculations on that basis because we are hopeful that the Post Office will win it. The viability of the network depends on a number of factors.

Q109 Rob Marris: Most commercial organisations, I would have thought, would have had a plan B. We are talking about something three years away, which is a fairly short timeframe. Is it not March 2010?

Mr Darling: It runs out in 2010.

Q110 Rob Marris: And there is no plan B at the moment.

Mr Darling: The Government has all sorts of plans, B, C, D, E and F. I am anxious not to get myself into a position where I expose the Post Office to more difficulty than I need to.

Q111 Rob Marris: I think you may need to, Secretary of State. Correct me if I am wrong, you are indicating today that the Post Office and your Department have done no work as to the viability or otherwise of the Post Office network.

Mr Darling: No, that is not what I said.

Q112 Rob Marris: That is what I wanted to get clear from you.

Mr Darling: We do lots of work on all sorts of scenarios affecting Royal Mail and the Post Office - and the two are pretty linked. You asked me specifically about the tender process. That is clearly something we have to take into account. We have to tender but to run up the flag of defeat at this stage would not be advisable.

Q113 Rob Marris: Has the Post Office or your department done any work on the viability of the Post Office network if DWP does not award that contract, Post Office card account mark II, to the Post Office?

Mr Darling: We are not working on a detailed plan that pre-supposes the Government does not win this contract. However, all the time, given the amount of money involved, I am looking at all sorts of things that might be necessary for the Royal Mail and for the Post Office. It makes sense to do that.

Q114 Rob Marris: Do I deduce that you have done some work but no detailed plan?

Mr Darling: I am saying to you that our proposal at the moment is to tender. I hope the Post Office will win this contract - I very much hope it will - but there are all sorts of things going to happen to the Post Office between now and the next three years, and of course the Government has to look at these things and the Government does an awful lot of forward planning in relation to the Post Office and the Royal Mail, as you would expect. However, one of the things I am very conscious of is that here we are trying to support something that is a public service. There are others out there who commercially would not mind a slice of the action and who are extremely interested in all sorts of things we might be doing or considerations that might be crossing our minds and so on, and there is sometimes a very fine line to tread here between being terribly helpful and terribly foolish.

Rob Marris: I want you to win the contract, absolutely, and you tantalise me with the glimpse of all the kinds of things that might happen in the next three years but I will not succumb to that temptation.

Q115 Chairman: Could I ask one question about the functionality of the Post Office card account. I have had complaints from my sub postmasters that they cannot even correct an error if they withdraw too much money by mistake. If they press an extra nought and the person gets £600 rather than £60 out, they cannot even correct that mistake. Will you at least make sure that mistakes can be corrected? - and this means allowing deposits to be made in the Post Office card account.

Mr Darling: If that has happened, I will certainly look at it. It surprises me, given the fact that we spent £500 million on the Horizon computer, that it cannot correct any mistakes.

Rob Marris: Nothing in IT should be surprising.

Q116 Chairman: I am told it happens and it cannot even correct a simple mistake. The poor old-age pensioner walked out with her entire life savings instead of just the money she wanted.

Mr Darling: As Rob has just said, perhaps with IT projects nothing should surprise you, but that one does. I will come back to you on that. Perhaps you could let me have the details, in case it is a single computer problem as opposed to a systemic problem

Q117 Mr Weir: We talked earlier about outreach services. Could you tell us what levels of satisfaction are being seen from those who have been involved in the Outreach trials so far? There are some interesting comments in your consultation documents dealing with some of the things that have been done.

Mr Darling: I am told that quite a large percentage of people have expressed themselves to be very satisfied. I cannot tell you how representative that sample was, but that is the sort of independent analysis that was been done for the Post Office. Once people see what is on offer, rather than put the theory to them, they quite like it. I think people quite like the mobile post offices. Two or three times on the television I have seen post offices in the pub, which people in the pub quite appreciate - I hope not for immediate consumption! There is work that is published by the Post Office and I will happily send it to the Committee.

Q118 Chairman: We approve of this innovation heartily. It is happening in my own constituency too.

Mr Darling: I think I am right in saying there is stuff and they have published it, but, if they have not, I will see if we can get it published so you can see it.

Q119 Mr Weir: How quickly do you see a roll out of these services to rural areas like mine, for example?

Mr Darling: I hope we can do it reasonably quickly. We are talking to the Post Office as to how they can do that. If it works, then you want to see it expanded. Perhaps, again, it would be helpful if we or the Post Office could let you have a note on what the prospects are there.

Q120 Chairman: Could we turn to making the network viable, not just through subsidy and through rationalisation but giving it business. Could I just ask you whether you accept that government policy has withdrawn business from the sub post office network. I do not think we have pinned you down on this yet, despite several attempts in the past.

Mr Darling: As I said on 14 December, when I published the statement, the fundamental problem the Post Office faces is that for over a number of years now - and you can track this back since the mid seventies - people's habits have been changing.

Q121 Chairman: That is not in dispute: the internet is there and it is a reality. But government has withdrawn services ahead of that natural process.

Mr Darling: I was going on to say that, since the mid 1980s, people have been having pensions and benefits paid into their own account. There is no doubt about that. The percentage has been increasing all the time. Yes, it is the case - and Rob Marris mentioned this - that departments like the Department of Work and Pensions - and I was Secretary of State there - are under understandable pressure to reduce their administrative overheads. Without digressing too much, when I became Secretary of State for social security we were still paying out money on Giros that were based on wartime ration books. They had not changed in 50 years, which was frankly ridiculous. They were wide open to fraud, to theft. It was not effective. Yes, of course, as the Government becomes more efficient in what it does, in making payments and so on, all these things cumulatively do have an effect on banks and on post offices. If you look at the mail business, for example, email is having a profound effect on the way people communicate - although, interestingly, the internet and eBay, for example, is resulting in an increase in parcel business. We have to support the Post Office when dealing with these changes.

Q122 Chairman: I think we can settle that as a compromise situation. I am grateful for some accommodation in your position. You have taken decisions which have removed business from the Post Office network.

Mr Darling: I am saying that people's changing habits ----

Q123 Chairman: Which the Government has actively encouraged.

Mr Darling: What I think is best is the Government is transparent about the amount of money it gives the Post Office. Let me give you another example where the same accusation has been made in relation to the DVLA for example. By a happy coincidence, I was Secretary of State for Transport.

Q124 Chairman: There are a lot of bodies buried around the place!

Mr Darling: You may say that I fully deserve to be Secretary of State for Trade & Industry where the chickens all come home to roost! There is a case where people say, "We would like to be able to renew our tax disc in the evening when it is convenient to us." For a government to say, "You cannot do it," despite the fact that technically you can do it is daft. Of course that has a knock-on effect. If more and more people renew their tax disc online and not through their post office, of course there is an effect, but to turn round to people and say, "No, you cannot do any of these thing" does not work. However, none of that helps us because we need to be concerned with how we support the network that is left and the right thing to do is to be transparent subsidy.

Chairman: Roger Berry mouths: "You are not going to get anywhere" and he is right.

Roger Berry: That is not true.

Q125 Chairman: I am sorry, I misunderstood. My lip-reading is bad.

Mr Darling: He said he was in full support of what I was saying, I think you will find!

Q126 Chairman: Let us look positively at the future. What about sub postmasters being able to act freely to enter into partnerships with competitors of the Royal Mail Group, like the Parcel Force competitors, internet vendors, catalogue companies and that kind of thing?

Mr Darling: This is something which you touched on on the floor of the House the other day. If we look at the mail business, since liberalisation of the market, it is open to anybody to go to the Post Office and say, "Look, we want to distribute our mail, we want to use your network." If the negotiation does not work out, you can go to Postcom, and there have been some examples where Postcom and a price has been fixed and so on. In relation to individual postmasters, subject to what I am about to say, being businesses they can enter into any business relationship they think appropriate, and, as you know, most of them do other things like groceries or whatever, which has always been the case. Where I think the difficulty arises is this: the Post Office does have national agreements in relation to travel insurance; for example, in relation to paying certain utility bills (Centrica, for example). They say there that you cannot bring in business which competes with that, nor will they allow businesses to come in and cherry-pick the bits they have got. Interestingly, the Federation of Postmasters also say to us that they support the idea of there being certain Post Office brands. Because the Post Office can enter into a national agreement, it can protect the whole network. I think I said to you in reply that one of the concerns they have is that the very post offices that we are all bothered about, say the majority that are not commercially viable, are not the ones which are going to get this additional business because the ones that will be cherry-picked are the ones that are doing all right. My view is that I accept there are cases where there is a commercial case, and it is for the good of the network that you have these nationally protected products, if you like, in that you do not allow competition. But the whole idea of providing a liberalised market was to open the thing up. The ultimate arbiter here ought to be Postcom rather than ministers of the day or the Post Office and so on.

Q127 Chairman: A philosophical point underpinning this is that for most of these businesses we are talking about post offices all the time, when actually we are talking about rural shops and urban shops typically, of which the post office is a part of their business - sometimes a large part, sometimes a modest part - and what happens in that part then dictates their commercial freedom with the other part of their business. For example, they cannot take PayPoint, which large numbers of postmasters are desperate to take on but they are not allowed to.

Mr Darling: They can take PayPoint - and, indeed, many of them do have PayPoint - but they cannot use PayPoint to offer a service that competes with one that the post office has a contract for.

Q128 Chairman: This is the argument about monopolists down the years.

Mr Darling: It does raise a profound issue, because the Post Office has a number of contracts where they have a national agreement to sell a particular product, whether it is a banking product, travel insurance, whatever. They have that. The deal is that they sell it throughout all or most of their outlets, and that allows them to support the network, which is why the national federation say that is a good thing. Obviously, if they were to say to whomever they have entered the contract with, "But, by the way, we will let your key competitor into the post offices which have lots of people coming in," then they may not get the same national deal. You could take the view that the Post Office should not have any national deals at all. That is the extreme. You could take that view and say to individual postmasters: "Make your own agreements. Bring in whoever you want. That's fine" except that most postmasters and mistresses are in no position to negotiate anything like the sort of contracts that a national organisation could do. So, yes, there is a conflict there. We are trying - and we have probably not reached the endpoint yet - to balance the advantages that national agreements can bring with allowing postmasters to get their extra business in.

Q129 Chairman: The BBC contract for licence renewal, which is now not available through post offices, it is only available through PayPoint. Because of economics, PayPoint will only be installed in areas where there is a reasonable level of business for their terminal. I look at a map of my constituency and I now see that all my rural constituents cannot pay their licence fees using a local facility because there is no PayPoint anywhere in the rural parts of my constituency but lots of post offices. If only PayPoint could be put in some of the rural post offices, then they would be included again in a financial sense to this particular product.

Mr Darling: About 1,400 post offices have PayPoint at the moment. It was the BBC that decided they were going to sell their licences through there. They did it because of the financial savings.

Q130 Chairman: And of course some of the other innovations that were offered by changing the mechanism of payment.

Mr Darling: Yes, but predominantly they were looking to save money, and like any other organisation they decided to do that. The position is, though, that post offices can offer services as long as they are not competing with what the Royal Mail are doing. I agree with you that the advantage of the Post Office network is that it does have a truly national network. PayPoint does not. I checked the position in my own constituency. As it happens, there is broadly the same number of PayPoints as there are post offices, but I suspect in rural areas that will not be the position.

Q131 Chairman: I have six PayPoints and 29 post offices.

Mr Darling: I could well imagine that is the position. One of the reasons I want to make sure there is a national network is so that, from the Government's point of view - and the BBC is not the Government - we can provide services that we need to do nationally. This is one of the things I looked at because, at first blush, you think, "Why not just open the doors to anybody," but I can quite see that if you have a national contract that is supporting the network and you the undermine that, you could create more problems than it solves. One final point: the number of letters being sent in the country at the moment, as I understand it, is broadly static. I suspect, if anybody else comes in, it would be substitution rather than new business. It is not the same for parcels, but for letters that is certainly the case.

Q132 Chairman: Let us look at the question of the Post Office itself and its ability to introduce new products - Post Office Counters Limited. To what extent do contracts with banks and financial institutions it has at national level inhibit its ability to offer its own new financial products?

Mr Darling: I am not aware that it does, but before I was definitive on that I would want to write to you. I think you met Alan Cook, who is the Chief Executive. I am not sure if you have met him this time round but you certainly met him on previous occasions. He wants to expand the amount of financial services the Post Office offers. He very much sees that as being the key thing in the future. Since he has become Chief Executive, he has brought new products into it. Again, one of the things he can offer is a national network, perhaps to banks which do not have a national network, which is why I am a bit wary. Another competitor could come in and, let us be clear about it, they will go into the branches where the customers are; they will not go into the rural post offices. I think we have to be careful that we strike the right balance between having an open market and not really destroying the very thing that we want to protect.

Q133 Chairman: I am anxious to ensure that post offices are enterprising at local level and the Post Office is enterprising at national level as well.

Mr Darling: I very much agree with that. It is striking that balance. If this is an area which obviously you do want to pursue, I am happy to let you have some further information on the points you raise and you may want to see Alan Cook as well.

Q134 Chairman: I am concerned and this Committee has been concerned that post offices have not always paid economic rates for their services. With a foreign exchange, in particular, it is thought that the handling fee payable to the post offices does not reflect the commercial value of the operation. For example, Lottery terminals in post offices. The Post Office Counters creams off one per cent of the five per cent - so four per cent goes to the sub post office and one per cent to Post Office Counters Ltd nationally - only because that terminal happens to be in a facility where there is a post office. It seems there is some scope for Post Office Counters being a bit more generous for some sub post offices.

Mr Darling: I think you looked at this at the end of 2004, or maybe your report you published early in 2005. I did have a look at this and essentially I would say two things. Firstly, it would not do Post Office Ltd any good at all to be entering into a series of uneconomic contracts because that would just add to the problems they have. They have to be economic about these things, as a commercial organisation should, but equally they have to make sure that vis-à-vis their dealings with the sub postmasters - and there is a contract there as well - the economics stack up there as well. Otherwise we are just going to end up with a situation where more and more people are running up bigger and bigger losses.

Q135 Chairman: Finally on this subject, I had a rather good letter from one of my postmasters recently objecting to the fact he was expected to hand out copies of the summary Budget document on behalf of the Chancellor of the Exchequer, saying that he thought this was a very important service he was providing and that he should be paid a decent fee for doing so rather than getting it just for nothing. What about the Government using sub post offices as a proper shop window for all their services and paying a bit of money for that very important service, drawing the attention, often of deprived communities, to the range of services available there to help them?

Mr Darling: I am sure the thousands of people who flocked in to get a copy of the Chancellor's Budget would of course buy other things in the shop as well and it would be a very attractive loss leader! We do need to look at what information is on offer. I was in a post office in my constituency at the weekend and I was looking at what was about. Most of them were Post Office products. I know there have been problems in the past. I know the DWP, for example, used to put a lot of pensions information there. Indeed, one of the problems that arose in relation to the pensions information was provided with Serps and the leaflets were still there some time after it became apparent that the information had changed.

Q136 Chairman: Online terminals make all that easier now.

Mr Darling: Yes, except not everybody is getting their information from online terminals.

Q137 Chairman: You could use post offices as access point for the internet as well.

Mr Darling: You could. This was one of the things we looked at five or six years ago, although the initial evidence was not encouraging, in that I think I am right in saying over 80 per cent of people said they could get the information they were being offered elsewhere. Actually this was another PIU report, if I remember rightly.

Q138 Mr Clapham: The consultation document, Secretary of State, refers to the possibility of community ownership, different forms of ownership - maybe a local mutual, maybe a cooperative. Is there any evidence that such type of ownership could maintain the service in areas where there is a vulnerability?

Mr Darling: Yes, there is. I think I am right in saying there are 150 of them in the whole country. There are various forms and some of them are companies limited by guarantee, some of them are charitable. There are some that take advantage of various local grants and so on and they put a package together. It very often is not just a post office but a shop, petrol station or something like that. So, yes, they can work. Clearly there has to be somebody who is the designated postmaster or mistress for accounting purposes but there are many examples of where this works well and I would like to see more of it.

Q139 Mr Clapham: I understand that the licensing arrangement is that there must be a named person, but, from what you are saying, that has not been a barrier.

Mr Darling: I am not aware that it is, although I would be foolish to say that it has not been a problem somewhere. For obvious reasons, you need to have somebody who is in charge of the money. If you have a committee, as you know, it is not always satisfactory. As I understand it, you get the postmaster, you have a nominated deputy, and they can operate the Post Office business - and obviously you need somebody who knows how to work the IT and people who know what the rules are answer so on. You do need to know because if anything goes wrong and the Post Office go to see it, they have to find out who was dealing with the cash or who was selling a particular product at the time. But I am not aware that it has been a problem. I do think community ownership is a good thing for two reasons. One, I think it is good per se, but, also, in an area where people say, "Look, we want to keep the post office," if it is opened by a community then there is a greater chance that people will say, "It is ours. Instead of going into town, why don't we go to the local village post office?"

Q140 Mr Clapham: The 150 alternative ownership post offices that you referred to, are they in a particular area? Are they more rural? Is there any evidence of such ownership in some of the urban areas?

Mr Darling: I think they are nearly all rural. Again, as this is public knowledge, I do not see any reason why we should not let you know where they are.

Chairman: Finally, Rob Marris.

Q141 Rob Marris: I have never been a big fan of Postwatch, Secretary of State, even when we got Postwatch and Postcom, but it did do better over the Urban Reinvention Programme in Postwatch, I think. I understand that Postwatch is due to be merged into some kind of wide consumer body in about mid 2008 which will be when you are still going through or have just gone through the Post Office restructuring and all the sorts of things we have talked about earlier today. Do you think there will be the voice of the consumer or will it get lost because of that merger?

Mr Darling: Again, there are two points here. The House of Commons is about to debate the Bill that would achieve this and the House of Commons will express a view as to whether it is a good thing or not. As it is a Government policy ----

Q142 Rob Marris: It is a Government Bill

Mr Darling: It is, therefore it must be a good thing. Amongst other things, we are bringing together Energywatch, Postwatch, National Consumer Council into one single body. Postwatch have said to me, "This is likely to be happening when we are busy giving you advice on post offices." That is something I am reflecting upon. There are downsides to putting it off: costs and uncertainty among staff - which they are equally aware of - but obviously that is something I will look at.

Chairman: Secretary of State, that concludes our evidence session. As always you have been an extremely cooperative and helpful witness, even occasionally frank. We are very grateful to you. You have promised us some things in writing. We look forward to getting them. Thank you very much.