UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 84-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

Post Office Network Transformation

Tuesday 15 May 2012

Andy Furey, Sir Barney WhiteSpunner, Clive Davenport
and Mark Baker

Mike O’Connor, Andy Burrows and James Lowman

Paula Vennells and George Thomson

Evidence heard in Public Questions 1 - 82

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Tuesday 15 May 2012

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Katy Clark

Julie Elliott

Rebecca Harris

Margot James

Simon Kirby

Ann McKechin

Mr David Ward

________________

Examination of Witnesses

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

Q1 Chair: It is 10.30. Good morning. Can I welcome you here? Thank you for agreeing to come before the Committee. I was getting a bit worried that the Girl Guides had prevented some of our witnesses from arriving. Could you just introduce yourselves for voice transcription purposes? We will start with you, Andy.

Andy Furey: Andy Furey, CWU.

Sir Barney White-Spunner: Barney WhiteSpunner, Countryside Alliance.

Clive Davenport: Clive Davenport, Federation of Small Businesses.

Mark Baker: Mark Baker, the Vice Chairman of the Postmasters section of the CWU.

Q2 Chair: Thanks very much. Before we start, we have got quite a few questions. We have only got half an hour, so do not feel obliged, each one of you, to answer every question. Some may well be specific to one of you. If you feel that you need to either supplement or contradict what another witness has said, that is fair enough, but do not just repeat things for the purpose of getting yourself on record. This question is in theory to all, although one may answer and the other supplement it. What would be the key changes to post offices in the proposals to move to Locals and Mains? Who would like to lead on that? Andy.

Andy Furey: The key changes to Locals would be the removal of the fortress position, the dedicated queue and the privacy that goes with that, when customers interface with the counter clerk. There would be an amalgamation of the queue into the retail queue, so those customers queuing for a loaf of bread, a packet of cigarettes or a bottle of wine would also have to queue with people doing postal transactions. That gives us deep cause for concern. We feel that that could impact detrimentally on the standing of the brand in the wider society.

Q3 Chair: In some respects, it would be akin to the situation you have now where retailers just sell stamps. Now fair enough, there would obviously be a wider range of services, but the consumer experience would be fairly similar.

Andy Furey: Yes.

Q4 Chair: Does anybody wish to add to that?

Sir Barney White-Spunner: There are two things. There is the range of what people can do. Speaking specifically of rural areas, people rely very heavily on post offices in a way maybe they do not in urban areas, so the range of services that Locals may provide is inadequate. If you look at some of the Age Concern figures, they tell you that 56% of pensioners use post offices to pay bills and 44% do so to draw cash out, and there is this issue of cash capping. That is point one. Point two is that it is not entirely clear to me where all these Locals are going to go. Seven out of ten villages in this country now do not have village shops. The logic that says there is going to be some business for the Locals to latch on to, in an area where shops are closing at a fast rate, is quite a key one.

Q5 Paul Blomfield: On that point, I wonder if you could clarify what, as you understand it, is the basic minimum platform of services that will be required of the Locals and how that differs from what people can expect at the moment.

Sir Barney White-Spunner: Paying bills. We would strongly advocate that Government services go through the post office in rural areas, because that would give the post office a rationale. It is being able to draw out full amounts of cash for pensions et al., and it does not look as if that may happen. I strongly back Andy’s point about privacy, something pensioners mind about particularly. If you look at the range of services that we think Locals are not going to produce-payment by cheque, ondemand foreign currency, passport, car tax, DVLA services, manual bill payments, Post Office financial services, small business facilities, manual cash deposits and withdrawals-it is quite a long list.

Q6 Paul Blomfield: You think.

Sir Barney White-Spunner: I think, yes.

Q7 Chair: Given the fact that it is a declining market and post offices have been closing for donkey’s years, do you not think this is a reasonable compromise in terms of sustaining the service but recognising the changing pattern of consumer behaviour on this? If we are to preserve some sort of network, is this not better than nothing?

Clive Davenport: I would dispute that a little bit. The main problem that we have got at the moment is that the survey that Consumer Focus did recently said that, of the 105 that have done this Local exercise, a lot of the shops were not open out of hours and there were people being charged incorrectly for incorrect requirements for postal services. For instance, as a sample, a large envelope went through with the mystery shoppers and 42% had incorrect postage on there. They were classed as special deliveries at £5.40odd before the price increases, when it should have been 60p. One of the concerns that we certainly have is that what you are going to get, if that training is not improved dramatically, is a diminution of services and of the image of the Post Office as being such a reliable and wellknown brand. It will damage the brand for many years to come if that happens.

Q8 Chair: I understand what you are saying, but essentially it is a training issue. If the training was adequate, then do you think that would still be valid?

Clive Davenport: The training would have to improve dramatically for that to be valid. The fundamental thing is what is going to happen to the ordinary post offices or the subpost offices that are already there if you start a Local. They are just going to disappear. The people who have got the training are not going to be employed.

Q9 Mr Binley: This point of training has been very much in my mind right from the beginning of this Committee’s concern into this whole matter. It seems to me it is not only about training; it is making sure you get the people who are trainable. In this new age, unless you have people who are of entrepreneurial spirit, who can go out and do things for themselves, who are able to take the training and guidance, then that is most of what you are going to succeed or fail on. Is that the case?

Clive Davenport: Yes, that is quite true. It all comes down to the image of the Post Office, the reliability of the Post Office and its reputation. If that is damaged, you have got a serious problem.

Q10 Mr Binley: What can the Post Office do to ensure that it gets the right people? We ought to be thinking, at this time, of a lot of people who might see the Post Office as a real opportunity. Is that the case? Are they looking? Is the outreach there to make sure you get the right people?

Andy Furey: The problem here is the economics of the financial model. First and foremost, the introduction of Locals and Mains removes the core tier payment. The core tier payment for postmasters is a minimum of £10,000. We must not lose sight of the fact that this, ostensibly, is a costcutting exercise, and the purpose of this at the end is for the Post Office to have a greatly reduced pay bill for postmasters, by moving the risk to the postmaster by moving on to variable pay.

Chair: Andy, we want to ask a question on this subsequently. We take the point, but we will come back to it.

Andy Furey: Can I make the point about training though? The reality with training is that it is not just the new postmaster who needs to have the skills. The range of opening hours would require more than one person. Open all hours literally would mean two or three additional people to be able to serve the customers at seven or eight o’clock at night, so it is not just the new postmaster who would need those prerequisite skills; it would be their support staff as well. That in itself would then become more costly, because you would be having to open up longer hours and provide a range of postal services, albeit a limited range in the Locals model. Nonetheless, it is still costly to do that training.

Sir Barney White-Spunner: We come back again to the rural community. Most of these shops or the other retail outlets that your Local might be in tend to be one man, one woman, family affairs. To expect them to take on the full range of services is quite an ask.

Mark Baker: Could I just make a point on this? There is a lot of talk about longer hours and an openplan service environment for customers. Actually, a subpostmaster is quite at liberty to approach the Post Office and do that right now. He can convert his post office to what we call an openplan post office. He can trade all the hours his retail business trades. He just needs to liaise with the Post Office to do that. The advantage, of course, is that if he continues on his current contract, he can keep his fixed element of pay, which then maintains the sustainability of trading in that way. Postmasters make their own assessment as to whether or not it will pay them to do so. If they feel that they cannot make a living out of trading longer hours under those conditions, then they will not do it. I think that is why there is a lot of resistance from postmasters to this notion of having to trade longer hours without a fixed element of pay. You are stacking all the odds against us.

Q11 Chair: I do not want to hog the proceedings, but could you very briefly say what you would do differently if you did not have this model to sustain the network?

Andy Furey: I think everybody acknowledges that something has to be done differently and the status quo is not the answer. The Post Bank Coalition is not saying, "Let us just simply hold on to what we have". As you know, we have been strong advocates for a post bank. The vast majority of very successful post office retail arms throughout the world, such as Japan, Brazil and New Zealand, do have very successful post banks. We think that is the way forward. The reality of this model is that there is a distinct possibility you could end up with resultant unplanned closures. Once a person takes over the Locals model, in due course they might realise this does not work for them and then you could have unplanned force majeure closures as a consequence of this.

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

Q12 Chair: On the basis of what you said, it sounds as if you would not necessarily discard the model, but have greater input from stakeholders and potentially-I hate the word-finesse it to suit everybody. Would that be a reasonable summary?

Andy Furey: I think so, sir.

Q13 Mr Ward: We have inevitably, with a general opening, strayed into lots of other questions that we already have got, so I will not ask you to repeat, but in terms of the general concerns that are felt about the Locals branches in particular, is there anything specific you would like to add as a concern?

Clive Davenport: One of the concerns that we had was that the 105 Locals that were chosen were all in areas where there was not a post office anyway. The response said that it was a great success, but it was a great success because there was a zero base to start off from. There are lies, bloody lies and statistics happening here. That is one issue that we are deeply concerned about.

The other thing, following on from what Andy said, is that a lot more examination needs to take place of public funding for post offices. Talking to the Minister last week, it was supposed to be the backbone of the social service and the community service. Well, if the Government are not using it or drastically reduce the amount they use the post offices, then they are not supporting it. If it is a business, it needs a core to be able to support itself. If you are taking away the front office things, regardless of what the Minister and other Ministers before him have said, what is going to fill the vacuum that that has created? There was a virtually 8% reduction in Government usage of the Post Office in the last year. If that continues, the vacuum gets bigger and bigger, and there is nothing to fill it. That is why the Coalition was so keen to try to expand, through the bank, the services that a bank could give. One other thing about Locals: because there are no transactions, small businesses are not going to use them because they cannot.

Sir Barney White-Spunner: Going back to Andy’s point, from a rural point of view, this debate cannot all be about cash. It has got to be about how you live in a rural area and how you access all those services that somebody in a city takes for granted, particularly when you do not have broadband, as an awful lot of people in rural Britain do not. It is no good saying, "Just apply online," because you cannot get online. Added to which, an awful lot of pensioners just will not get into that eworld at this stage in life. The debate cannot just be what makes money. You have got some essential services that have to be provided to a rural population. The debate has to be: how do you provide those? As Paul said, if you can up the ante on the Locals and find a way of employing enough staff and providing all those services, then yes. But at the moment, the thing would seem to be dumbing down to a level where there is a huge gap in rural communities for banking, for small businesses and for pensioners, which is really concerning.

Q14 Mr Ward: Briefly, because we have not touched on this, is there a flipside to this in terms of extended consumer choice and extended consumer services?

Clive Davenport: We are wholly in favour of consumer choice, but the main concern that we have is that the Post Office has put forward this plan, and £1.34 billion has been invested into this plan; there is no fall back. What if this plan fails? What are we going to do then? There is nothing there if this thing fails.

Andy Furey: May I add to that? Also, this money-the £1.34 billion-is not being used to generate new revenue, new income or new streams of work. It does not create or build the new revenue. It is a sticking plaster to resolve a problem. There are no guarantees of that.

Q15 Mr Ward: We have also got in written evidence from Consumer Focus the issue of whether new Locals, or indeed Mains, are within existing premises, suggesting that, in many cases, they will have to relocate. Can you just talk to us about the implications of that, if it occurs, for providers of the services and also consumers?

Mark Baker: In the preference exercise that is in operation as we speak, postmasters are asked to give an indication as to whether or not they want to take on a new model, or whether they wish to leave the business with some compensation, provided the service can be transferred to another outlet. The problem we have with that is there is insufficient information for a postmaster to make a proper decision which way he wants to go. I suspect there is even less information for retailers out there to have a detailed understanding of what it is they are taking on. My fear, as a postmaster, is that if the service is offloaded on to what we call ‘offsite’, when the new operators realise not just the level and quality of service they will have to maintain, but the economics of it all-the pay-they will say, "I took on a bad deal and I’m going to dispose of it." They will be able to dispose of their service a lot easier and a lot quicker than a subpostmaster currently can because he has, more often than not, his home involved. You hang on in there and you try to make a go of your post office, whereas, in the hands of operators running firstly a retail business-that would be their primary focus-if they have a weak link to that, it would be disposed of. That is when you will start seeing unplanned closures.

Clive Davenport: If I could just come in here, in the interests of this meeting I went to my local postmaster yesterday afternoon. He has two post offices. One of them has been up for sale for two and a half years with no takers. The reason there have been no takers is that there is total insecurity about the business model, so no one is prepared to take it on. He is 66 now and keen to retire, but he wants to sell his business at a reasonable price and he cannot get any takers at all, for either of the businesses. That is the situation for postmasters. That is only one postmaster and two post offices, but that is where they are at; it is very difficult.

Q16 Mr Binley: How do you buck the market then, Clive? Do you want a post office network that has continued, and maybe ever greater subsidy? You said, "What happens if the plan fails?" I am not sure that the Post Office, as it is at present constructed, is able to make this plan work. I have always been concerned about management from the times of that awful hatchet man, Allan Leighton. I have said it three or four times in this place; I thought the man was disgraceful and treated the staff disgracefully. At the end of the day, the market has to be king. I just wonder at what level we say that you cannot buck the market and we have got to recognise that this is a diminishing resource that we have to manage, but we have to allow it to diminish. That creates problems for rural areas.

Clive Davenport: You are quite right. There has to be a model that will be useable. One of the things that I find quite surprising is that there is one massive model throughout this nation, but this nation is millions of different things. There is no flexibility in that model that we can see at the moment; that is one of the things that concerns me. As Andy said, there is no feedback about what we are going to do if the model fails or what we are going to do if the revenue increases. I doubt very much that the revenue is going to increase through postal services. When you look at Locals, they can only post parcels up to a certain size, so you are constraining the parcel market, which is the only real growth market there is, because of the internet. That will be growing. The biggest growth market is being constrained the moment it goes into the Local office, whatever they call it nowadays.

Q17 Rebecca Harris: Back to the issue of remuneration, which you were touching on earlier, Mr Furey and Mr Baker, could you explain what the proposed changes to remuneration actually mean? Talk about that a bit.

Andy Furey: Firstly, every subpost office receives what is called a core tier payment-the fixed pay it is guaranteed. That is a minimum of £10,000 per annum. The proposal to move to Locals or Mains-and I think the Post Office will probably stress this significantly-is voluntary, so it would mean that the postmaster voluntarily gives up the core tier payment. The reality, though, is that you would have to significantly improve your retail sales offer or your post office volumes and transactions to make good the loss of the core tier payment. To sell products in local convenience stores, newsagents or grocery stores to make a profit margin of £10,000, you would have to increase your turnover probably six, seven or eight times.

Going back to Brian’s question, the reality is that there is a social fabric need for post offices across the UK. I believe that there should be payment for services and what was badged as the ‘social network payment’ should continue. I do not like calling it a ‘social network payment’; I think it is Government payment for services for the Post Office to provide to everybody throughout society, in urban, deprived and all the rural areas. The reality with this model is that it is being presented or sold that, if you free up the space for your fortress position, then you can expand your wares, products and produce to sell more. I do not think there is any real evidence of that, to be perfectly honest. What we have not got is a balance sheet of a Local operating for over a year, where it can show how its postal services and income have improved to take account of the loss of the core tier payment, and indeed how its retail arm has also improved. Most of the Locals that have been piloted so far have been in places where there has not been a post office, and the post office has been restored. Of course the public is going to like that, because it is better than nothing. The whole economic debate about the loss of the core tier payment needs to have greater scrutiny and perhaps refinement in a wider debate.

Mark Baker: If I could put that into perspective, a postmaster colleague of mine did a quick calculation to replace, in his case, a £14,000 loss of core tier money. Acknowledging the amount of retail space he would free up, he would have to improve the turnover of his retail business by £100,000 to get that money back and that would leave him standing still. In my own office, I did the calculation based on my post office remuneration. How many more products from the post office would I have to sell to get back my £10,000 core tier payment? Given that the most common transaction at a branch is producing a first class packet label, I would have to improve my sales of packet labels by 28,000 a year just to get back my core tier payment. That just leaves me standing still and I am struggling on that. It just gives you an indication of the sort of handicap we face in trying to fight back against the removal of this fixed element of our pay. I am afraid the industry has become totally reliant upon it and, as you know, if you try to come off something that you are totally reliant upon, there is a real risk of things falling over.

Q18 Katy Clark: First of all, if I could declare an interest, I am a member of the Communication Workers Union. A specific example I am aware of, because it is in the southwest of Scotland and my colleague, Russell Brown, has been campaigning on it, it is the post office in Glenluce, for which I was once a Labour candidate in Galloway and Upper Nithsdale. It closed quite recently. The previous income from the post office under the traditional model was about £30,000 a year. It is now a Local. What I am told is that the new person who would like to take over feels that they are just not able to do that, because the income would now be £7,000 from the post office as a Local. What now looks likely is that they are going to have some kind of outreach service there. How representative is that of what we are seeing?

Mark Baker: That is becoming quite a common story. It is early days, as these models are being marketed, but the feedback we are getting is that interested parties outside of the Post Office are taking a look at the economics of the model and are rejecting them. You are quite right. I know the office; I think it is Glenluce. Is that how you say it? There is a willing candidate up there, who was prepared to be what we call a proper postmaster, running the facility under the current terms and conditions, but he simply cannot make money out of the proposition from running it as a Local. He has walked away and the community are the ones who lose, because they have the lowest form of service that the Post Office can offer at the moment, which is Post Office Outreach. We are also hearing from people who are interested in the larger, Mains contracts. When they have their forecast done of what would happen if they converted themselves, there seems to be a pattern forming of an average drop in remuneration of about £4,000 to £5,000.

Rebecca Harris: I have got another question, but Mr Davenport wants to add something on this.

Clive Davenport: I just wanted to try to make the point that basically there are two things that we are concerned about as well. That is that the public, who are the recipients of all these services, have not really had the chance to voice their opinions at all. That is number one. Number two, the Government or any Administration have to decide whether postal services are a community service or whether they are not. That is the fundamental thing. We have got to decide that, as a community, as an entire nation. We have to decide that.

Sir Barney White-Spunner: Can I just add to that? Of course, one model does not fit all. I cannot remember who said it just now, but each area of the UK is very different. If you are in one of these areas where you do not have access to these services, what do you do in the future? Where do you go?

Q19 Rebecca Harris: Following on from that, Mr Baker, speaking from your position, in what ways do you think the role of a subpostmaster might change under these new models? Do you see any advantages as well as the disadvantages?

Mark Baker: I cannot really see any advantages for the community with the role changing. You are quite right to highlight that there is a role change here. It may not seem much to you, but the postmaster or postmistress actually disappears in all this. They are a community champion. They come into the network with a slight vocation about their venture; the rest of it is entrepreneurial spirit. They recognise themselves as a community champion. You are handing over to a new model in which they are not given the dignity of the name ‘postmaster’. They are operators of these new contracts. They are retailers first and they always will be. Therefore, I do not see how those people are going to be able to spare the time or be able to train their staff to have the same dedication that a subpostmaster and his assistants have in dealing with the most vulnerable members of our society-the socially vulnerable, the people who need that extra help, and the people who come into the post office because they know they will get that help. That is the bit that sent a chill down my spine when I first came across this plan. We are set to lose all that if this plan rolls out to its ultimate fruition. You lose your postmaster and the social care he has for his community.

Q20 Mr Binley: From what you are all saying collectively, it seems to me that, unless there is a recognition that the post office, as constructed, is a social networking resource – that it is almost a part of our social services – and you decide how much you want to pay for that social networking resource, then nothing is going to succeed in the way that the Post Office is now proceeding. That seems to me to be the conclusion of everything you are saying collectively. How will we then get the will of the people? That is the point you make. Do they want a social networking resource? Do you only ask in the rural areas? How do you deal with this at a time when money is as stringent as it has ever been in your lifetime or mine, almost?

Andy Furey: May I say that I think the post office, from all the evidence we have, is cherished by society, full stop, irrespective of whether you are towns, villages or innercity areas? The problem if the post office goes is the inconvenience that that creates for everybody, where there may not be bus services or even where there are bus services, because elderly people and people who have disabilities will struggle to get on a bus even if the next post office is a mile down the road.

Mr Binley: In my village, we do not have buses.

Andy Furey: It covers the length and breadth of the United Kingdom, irrespective of what aspects of society there are.

Sir Barney White-Spunner: There are some hard figures you can put on there. The New Economics Foundation’s report in 2009 looked at the social value of post offices. The Rural Commission found that 91% of people felt the post office played a vital role in their community. There is quite well researched work from the last couple of years to back that up.

Q21 Mr Binley: You are arguing a special interest case that we need to see this as social networking and subsidise it accordingly. That is what you are telling us and that is the decision we have to make.

Sir Barney White-Spunner: Yes, it is.

Clive Davenport: If, as we understand, every major country in the world subsidises its post offices to some degree, the question that needs to be asked is: when you have got areas like New Zealand that have a post bank, how much do they subsidise it in relationship to an area that does not have a post bank? Compare the two. No comparison of that has been done. It could very well be that, if you put something in place of already diminishing Government usage because of the internet and changes in technology, then the load to the taxpayer would be less.

Q22 Ann McKechin: Following on from Brian Binley’s comments, I notice that Consumer Focus, in its written submission to the Committee, said that both the Government and Post Office Ltd expected relatively few branches that converted to PO Local to remain in current premises. Is it perhaps the case that they are looking for the Tesco Express model, where you have a large company that is able to provide economies of scale, which has a large network, and which effectively takes out the issue about subsidising small individual businesspeople?

Andy Furey: That might be the case, but the driver here is that there is a desire by quite a significant minority of postmasters to sell their property, to move on and to retire. Many of them have provided a long and loyal service to the community for many, many years. They have invested thousands of pounds of their income into that post office. They are looking for a package to go. The package in the agreement – the funding deal – is for 18 months’ money based on the best year in the last three. I think there is acknowledgement that up to possibly 1,000 or 2,000 postmasters might put their hands up to go and then, by definition, you have to find somebody new to take on the Local. They will not be a postmaster and they will not have the history or the heritage of serving the community as a postmaster.

Q23 Ann McKechin: Mark, as you will be aware, we are going to be taking evidence later this morning from the National Federation of SubPostmasters, which is the only body recognised by Post Office Ltd to represent subpostmasters. How well do you think they are doing in this job, particularly given this current reform process?

Mark Baker: In a word: badly. They are supposed to be an independent trade union and, therefore, you would expect them to come to this point with the full backing of their membership, after having widely consulted with them. They have done neither of those things. They have no mandate from them to be recommending that the network gets changed in this way. I think this is borne out by the reaction from postmasters themselves when they were approached by the employer, who surveyed them at the beginning of this year. Just about twothirds of the network has rejected getting involved with these new models. I served with the Federation for 12 years at executive level, and I am just astounded that they could come to this position knowing that they are not carrying their postmaster members with them. I think it has been the root cause of much of the problems. We are trying to find a solution to provide a sustainable future for the network.

Q24 Ann McKechin: I noticed that, in the consultation, there was actually relatively little response. I think only 50% of subpostmasters actually responded. Did you really feel the consultation was just simply a kind of tickbox exercise; that people thought the conclusion was inevitable?

Mark Baker: In a way, yes, I agree with you. It was a tickbox. We had to fill out the questionnaire based on very cursory information. We were being asked, "Do you want to change your life for ever?" and we had a series of four boxes to tick. People who did indicate they wanted to know more are being interviewed as we speak and, again, they are being given very basic information, but they are not given fundamental stuff. They are not even given the pay booklets that the new models will operate under, and they are not shown the contract. Again, we are businesspeople. We expect fundamental information like that and it is being withheld from us.

Chair: Thank you. That concludes our questions to you. Thank you for your brevity. I will say, as I always do to such panels, if you feel that there is something that you have not said, either because we did not ask the right question or you did not think of it, please feel free to send us some supplementary evidence. Similarly, if we feel there is a question that we should have asked but did not, we may do the same to you and would welcome your co-operation with your reply. Thank you very much.

Examination of Witnesses

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

Q25 Chair: I welcome you as our next panel. If we could just start as we did with the previous panel, would you like to introduce yourselves and your title?

James Lowman: I am James Lowman. I am Chief Executive of the Association of Convenience Stores.

Andy Burrows: I am Andy Burrows. I am Head of Post Office Policy at Consumer Focus.

Mike O’Connor: Mike O'Connor, Chief Executive, Consumer Focus.

Q26 Paul Blomfield: James, could I start with you? You stated in your written evidence that the operations of the trials for the new models were not all initially successful. Why did you come to that conclusion? Could you elaborate on that point?

James Lowman: Yes, the results of the trials are mixed. They are trials and we are waiting to get more evidence. They are very location, business and storespecific, in terms of how retailers fared. Some of the issues that have come out of those trials are very practical operational issues, like the queues. Queues will arise at certain times of the day that can be very disruptive to the retail business. There are other operational issues, like if you are taking lots of parcels, sometimes there is no space behind the counter to put all those parcels and to shift them across the space and so on. There are issues about training and trying to ensure that retail staff-the point was made in the previous session about retail staff and training. You may have someone who is working a handful of hours a week in the store, but who you want to give that additional skill set to be able to execute post office transactions as well. There are issues of training there. There are issues of support from the Post Office. One of the issues we have been talking to them about, in very practical terms, is the problems our members are likely to get from a technical and systems point of view when they turn the system on if they are opening up very early in the morning. Currently, the Post Office support for those systems is not available at the times when retailers are opening their businesses. As the new models roll out, those are the sorts of things that need to be addressed and we are working with the Post Office to ensure they are.

I have talked about some of the very practical operational issues. There is the commercial reality that members are finding out. They are losing the core tier payment, and they are finding out not just what they are then making in transactionsbased payments, but what they can actually do with the retail space they have freed up. Sometimes that can be a really profitable new part of the retail space; sometimes less so. It depends what they can put in there. They have to invest in that space to make it pay. It is not something they just free up from being a fortress and all of a sudden the money starts coming in. You have to invest, whether that is in bakeoff, fresh coffee or whatever else the offer is. Retailers are having to balance out a change in income with a change in staffing costs and other costs associated with the business, and the opportunity of having more retail space. Those three things are all very sitespecific. What the trials have shown is probably generally a good news story, but there are lots of issues in those details.

Q27 Paul Blomfield: It sounds like there is a fairly fundamental flaw in the model, to some degree. When you were talking about, for example, the problems of queuing, it is almost a suggestion that the retail and conventional post office product offer do not go together. Most of us experience the practical problems of queuing for a post office counter and how that is very different from the conventional supermarket’s queuing experience. Will that not lead retailers in the long term, as they are looking at their business model and the post office products are getting in the way of higherprofit, quickerturnover items, to squeeze out that part of the offer?

James Lowman: In some cases that might happen. Retailers need to respond and be very flexible on those issues. One of the things they need to do that is a lot of staff, or a majority of staff, who are trained to execute post office transactions. This, to me, does not work if you do not have most staff able to do that, otherwise you do not have the flexibility that, when there are particularly busy post office queues, you can put more people on to deal with that. Similarly, if people who transact post office transactions are not happy to move across to the retail side and execute retail transactions, it will not work either, because you are not going to get the cost savings. I think these are things that retailers will work through in the trials. I agree with your overall point: there will be some retailers who will look at this after a period of time and say, "Due to these issues and looking at all the very complex issues, operationally and commercially, this does not work." Working through the trials, there are many retailers who will find it does work. I was with a retailer last week who found it did.

Q28 Paul Blomfield: There is a real risk that what we are going to see is an incremental loss of post office product.

James Lowman: It is possible, but I think then what matters is whether the offer is attractive enough and might be applicable in another retail setting. If a retailer does, for argument’s sake, take on a Local and, after a couple of years decides, "This isn’t for me. It hasn’t worked. I’m therefore moving away from the network," will the model be sufficiently attractive that another retailer in that area might come in and run it? We do not know the answer to that and that is clearly very important.

Paul Blomfield: There are a lot of question marks.

James Lowman: A huge number of questions, yes.

Q29 Paul Blomfield: If I could move to Consumer Focus, I wonder if you could just outline the key points of the research that you carried out in January and February, which has got a fair amount of publicity.

Mike O’Connor: Thank you. Just to summarise, it was the largest research that has ever been done on Post Office Locals. We found that the major positive was that consumers really welcomed the longer opening hours of Post Office Locals. On the negative side, there was a problem with advice. In our mystery shopping, we visited every Post Office Local up to four times, but there were problems with advice. For example, secondclass postage was only sold correctly in one of five visits. On product availability, some of the services consumers said they needed, and which are currently available across the network, will not be available at most Post Office Locals. Onethird of people thought that the privacy available in a Post Office Local was poor. Fourthly, consistency of service: there was a problem with the reliability of the service at different times of the day and issues about trained staff not being available and the associated business sometimes taking priority. Finally, there was a problem with cash withdrawals. Some Post Office Locals were capping the amount of cash they would pay out, for example on benefits, because they did not have the cash available. They were the five negative points we found. Of course, the purpose of a pilot is to learn and to move forward addressing these things. We are calling on Post Office Ltd to produce an action plan to address these areas.

Q30 Paul Blomfield: Some of those are fairly fundamental, are they not? I read from the research the point that two thirds of customers were advised to buy more expensive postage than they needed. That is a pretty flawed experience, is it not?

Mike O’Connor: I do not believe it needs to be structural. We are asking Post Office Ltd to do something really quite difficult. This is the biggest planned transformation the post office network has ever seen and we have to see transformation, because the system is not economically viable. We can argue about how much public subsidy is justified or not, but we have a duty to put the Post Office on the best footing we can. Therefore, if Post Office Ltd addresses these things, we believe Post Office Locals can provide a more sustainable way forward-the type of way forward we all want. We cannot go back to the old model; we have to go forward. We want to work with Post Office Ltd to help identify these problems, to produce an action plan to meet consumers’ needs, to consult locally and to work with communities. This is not an easy nut to crack.

Andy Burrows: The research speaks to the issues about training, which James touched on, about the support that is available to branches and about quality control and the monitoring of branches to make sure that the quality of service that these branches are offering is consistent and of the high quality that consumers expect. Specifically on training, one of the things that is striking from the research is that the larger convenience stores, which will play a key role in the rollout during network transformation, generally score poorer, which perhaps is not a surprise given that large convenience stores will typically have larger numbers of parttime staff and greater staff churn. That speaks to the need for greater investment in training and making sure that the service standards can be consistent across the longer opening hours.

Q31 Paul Blomfield: You are absolutely right about the high levels of churn, parttime staff and so on, which is so different from the conventional post office counter model. Do you think that it is possible to meet the required level of training for the range of products that people expect to be available within that sort of work force?

Andy Burrows: One of the challenges that exists in the training structure that has been rolled out during the pilots is that, in the initial period during which the Local is rolled out, the feedback from operators is generally that the quality of training is very good; it is then about the ongoing training and support, feeding into those issues of staff churn. For example, one of the concerns that we have heard from operators, which would seem to be represented in some of the issues around service consistency, is that the support available to branches typically is not available. The technical assistance telephone helpline, for example, is not available during evenings or during weekends. It is a combination of getting the ongoing training right, but also the initial support and, in effect, making sure that that is appropriately provided by Post Office Ltd and is not externalised, if I can put it that way, to individual operators hosting the service.

Mike O’Connor: And a way of addressing training needs. It is not always about training the individual; it is about product design and technology. Having the right technology means sometimes that the individual selling the product has to use less discretion and needs less training. Product design is also about that. So it is about product design, technology and training.

James Lowman: It is possible, because I know of retailers who have managed to bring out effective training for staff that works. They offer longer hours in one of the new formats, so it is possible. Absolutely, the product design point is very important.

Q32 Paul Blomfield: Can I continue to press on areas of improvement that you think should be identified from the pilot so far? Training is obviously a key issue and we talked about it a lot this morning. Other areas?

Mike O’Connor: Fundamentally, success will depend on giving consumers what they want and a consistent high level of service, so being clear about what the products are, making sure the products meet people’s satisfaction, and making a core list of products available. We also want to see issues about physical environment and privacy addressed. Critically, nothing will put people off more than having a negative experience, so issues around cash supply and cash capping have to be considered. If you are a pensioner and go in and only get half your pension, you are not going to want to go back there again. They would be the key areas.

Q33 Paul Blomfield: They all sound fairly fundamental. We have heard this morning that there is concern about the pace of rollout and that there may need to be some pause for learning and some moratorium. Do you agree with that?

Mike O’Connor: We believe Post Office Locals can be a success. The Post Office is a great brand. We have to go forward. I would not like us to stop going forward because we do not have the time and we do not have the money. I want to continue to go forward at the right pace. The right pace is one that addresses these problems. I believe that Post Office Locals can address these problems. Indeed, they are addressing some of these problems. I want us to continue to go forward, not to stop, but to address these problems.

Q34 Ann McKechin: Under the current system there is a very strict process of vetting of subpostmasters, but there is not under this particular model. To what extent did you consider the issues around probity and trust? A key element for customers when they are using the post office is that they are meeting staff who have been strictly vetted.

Andy Burrows: There is absolutely a key issue in terms of making sure that the branch environment and the quality of the customer experience, including the engagement with staff behind the counter, is sufficient that consumers want to use the branch. What will be important there is to make sure, firstly, once network transformation gets under way, that there are sufficient operators, but that those operators are of sufficiently high quality to offer the service. It is absolutely appropriate that those checks and that assessment are undertaken. As the programme rolls out, the issue then is about ongoing monitoring. It is about quality control and it is making sure that, if there are issues in the way in which services are being delivered by staff-if the quality of the staff advice, for example, is not up to the level that it should be-that is identified through a rigorous programme of monitoring and quality control.

Mike O’Connor: At the first stage as well, when you go from a subpost office to a Post Office Local, you have got to consult the community, tell them what you are doing and take on board their concerns. Consumer Focus is a statutory body. We have a code of practice that we agree with the Post Office about how these changes come about and how people are consulted. If you consult the local community and get them involved, that will help build trust. That consultation is vital.

Q35 Ann McKechin: But the public do not vet people and they do not do a criminal check of their record. What I am asking you is why we should now forgo that requirement. The public cannot go and check someone’s criminal record in the way you can with a subpostmaster in the current system. You are asking the public to take a greater risk. Is that what you are saying?

Mike O’Connor: I agree that we should place a duty on Post Office Ltd to put the proper checks in place. I am sure that they would only want to do business with somebody who was reliable, so I think those checks should be in place. Beyond that, you need to engage the community, get them to know what is coming down the line and get them to understand it to build that trust. Sometimes there is no trust for the wrong reasons; sometimes the post office is trustworthy. But moving from what you know and love to a new model is difficult. Therefore, Post Office Ltd has got to go out and sell these changes to the local community. Explain them. ‘Sell’ is the wrong word, but involve local communities.

James Lowman: Taking the point of view of the people who will be coming in to operate post offices, of course there should be adequate checks in place and I absolutely support that. These are, in most cases, stores that have served the community for many, many years themselves, often generations. They are communitybased businesses. I would not want the impression to stick that subpostmasters and post offices are necessarily community businesses and all other retailers are not. Most convenience stores invest in the community, supporting sports clubs or local charities. They are civic leaders, every bit as much as subpostmasters. In fact, we are often talking about the same people already. The subpostmaster now, in most cases, is the local retailer. There are very few standalone post offices, outside of the Crown Estate, which are not run by someone who would describe themselves as a retailer first and foremost, and a subpostmaster second.

Q36 Mr Binley: Post offices have been in a situation of managed decline since the late 1970s, have they not? We have lost pretty much half of all the post offices we had at that time. Should we not be much more honest about what we are doing? Hasn’t a lot of the problem come from holding out expectation that is not there? Can I relate that to a statement you make in your written evidence? "Whether the Post Office offer is attractive to retailers depends on its commercial viability within this competitive market." Are you not saying exactly what I am saying, but in much less blunt and slightly more camouflaged words?

James Lowman: You are right: there is a longterm decline and that is for a number of reasons I am not going to try to reprise now. A decision could be taken by the Government and by this House that says, "We want to subsidise the Post Office to a significant extent moving forward to ensure that a network in its current form, or maybe going back to its previous form, is retained". That is clearly not Government policy and has not been the policy of successive Governments.

What we have to do, when looking at the future of the post office, is acknowledge that the things Andy Furey said about people not having to get on buses to travel many miles down the road means numbers of post offices and geographical reach, and if you want to retain a network of post offices, then you are going to have to change the current operating model or subsidise much more heavily. The point that we make in our submission is that we should not just think of all those services-for example, bill payments, mail and all these other things-only being available through post offices. They are operating in a competitive market, with companies such as PayPoint and Payzone, which offer bill payment services. Many of my members will offer a lot of the community services we talk about with post offices, without having the Post Office lozenge and the post office facility there. We have to acknowledge that we are in a competitive market and that customers can get the post office services, whether it be from other retail offers or online, and we have to exist in that market.

Q37 Mr Binley: Does your answer and the whole of your thrust not demand another question? You are arguing that, increasingly, there is no such thing as a standalone post office, and increasingly, the people who provide the post office service are primarily retailers. Consequently, there is a real problem about subsidy between those who actually provide a post office service as a bit of their business and those other retailers who get no subsidy at all, particularly in rural areas. Is there not a real issue there that we have not faced up to?

James Lowman: Yes, I think that is absolutely right.

Mr Binley: That is the point I was trying to get to.

Mike O’Connor: Mr Binley, could I just respond to your question? You asked, "Should we not be a bit more honest?" I would like to ask also: should we not be a bit more ambitious for Post Office Ltd, insofar as managing decline? I do not think consumers just want to see less; consumers will want to see more. A whole range of central and local government services could be provided through post offices. I think we have to look for the opportunities to grow the business, perhaps even beyond 11,500 outlets, perhaps to more outlets, perhaps not all physical outlets; perhaps sometimes just using cards, etc. We must not be in a mindset of decline but a mindset of what new opportunities are available. Sometimes the Government are not providing those opportunities. For example, last year Post Office Ltd lost the green giro system because somebody else could do it cheaper. I question the amount you save by going to a provider that is cheaper, when you take into account whether that is undermining the post office network and its social value. Perhaps that is a call for subsidy in another way, but generally I think we should be ambitious about the Post Office, and front of office for Government, central and local, should be a big part of the Post Office’s future.

Q38 Mr Binley: I fought to save some of my post offices during the last Government’s attempt to reduce the network, because people saw it as a social need. You say people want their post offices. The truth is people are not prepared to pay for their post offices. That is the harsh fact. Or at least not enough people are prepared to pay. I still come back to the question I put to James: should we subsidise it, recognising that this is a part of a general retail business, when other general retailers are not being subsidised in a given area? How do you face that problem?

Mike O’Connor: I think that is a problem for society.

Mr Binley: Not for you?

Mike O’Connor: If you ask anybody whether they like to pay extra taxes, they say no. But we should put the question a different way: "Is this service you are getting value for money?"

Q39 Mr Binley: Excuse me. I am asking the questions; you are answering them. I put the questions the way I want to. I would like you to answer, because there is a real problem here of conflict between some retailers who do not offer post office services and some who do. I want to know how we overcome that – how we see that as fair and just in a competitive market that Mr Lowman talked about.

Mike O’Connor: The market fundamentally is what consumers need. I think that you should look at the issue of public subsidy. I do not think you should rule it out just on ideological grounds. You should look at it in terms of what you are getting back for that, look at what post offices can provide and justify subsidy in that way. Subsidy can be about stretching the Post Office brand and making use of that public asset to provide wider services that people want. I think people do want these services, so you should not rule out subsidy.

Q40 Mr Binley: I did not say I did. I am asking you the questions; I am not giving you the answers. I do not know, but we need to come to some conclusions in our report that we will make, I assume, to the Minister. I am looking to understand what those conclusions should be. I am not making an argument. Mr Burrows, how did you deal with that particular issue about unfair competition through subsidy?

Andy Burrows: If subsidy is necessary to maintain a network and maintain access to the services of social and economic interest that post offices provide, then it is appropriate to provide that. I think everyone would want to see the subsidy that the post office network requires to maintain the current levels of access as low as possible. That requires a post office network that, firstly, offers a range of products and services that matches the changing needs of customers. That might include additional banking services. That might be realising the front office for Government proposition. But it is also about making sure that we, as consumers, who generally love our post offices but do not always want to use them with the frequency that we otherwise could, are encouraged to go through the door. So the post office has to offer a more convenient, high-quality and consistent service. Really, therein are both some of the risks and some of the opportunities for Locals. There is a tremendous opportunity around most Locals branches offering longer opening hours. For many professional people and people in fulltime work, clearly that is a big asset. We know from our own research and from some of Post Office Ltd’s research that encourages people to use post offices out of hours, when previously they would not have had the option to do so. It is about refreshing; it is about improving the customer experience, making sure that that is consistent and high quality, and making sure the product mix is there so that the post office can thrive on its own merits.

Q41 Simon Kirby: The question I was going to ask of you, James, has been answered, so I will move to a slightly different area-that of stamp price increases and subsequent revaluation of stock. Does this put post office branches at a competitive disadvantage?

James Lowman: We looked at this beforehand and we asked members questions about it. Any time prices go up-it happens around alcohol duty, for example-retailers who hold stock, having bought it at the old rate, have an advantage in that they can make more margin, but similarly, they have cash flow issues that mean they are not going to hold too much stock. I have to say we have had nothing back from members on the impact of the price increase, so there is not a great deal I can add on that. I think there are retailers who are buying at wholesale; I get the theory that they have an advantage where there is a price increase. I have not got any direct evidence, I am afraid, on that.

Chair: I think that concludes our section of questioning. Can I thank you for your contribution?

Q42 Katy Clark: Sorry, can I just come in on something that I did not feel came out adequately, so that I fully understood, in the questions? One of the points that has been made to me about Locals is that they are going to offer a far smaller range of services than the conventional post office, and obviously that is an issue for consumers. The other point that has been made to me is that they may not be allowed to offer some of the more profitable parts of the business, in particular things like currency transactions, but there is a whole range of other things. I just wonder, particularly for James, whether that is something that you are concerned about. There seems to be a lack of clarity. Can you let us know exactly what you feel are the bits of the business that are essential for Locals to offer if this is going to work from an economic point of view?

James Lowman: We have got a difficult balance here-it relates to some of the questions we were asked earlier about staffing and training-in that many of our members will have members of staff who are not operating the post office very much. They are filling in for a few hours here and there in the post office. Therefore, as the knowledge threshold for executing a transaction properly rises, it becomes harder and you get more mistakes and issues that come from that. So I think actually, our members would overall want to go for a relatively limited range of services, with the clarity that everyone would need to know that, "If I want to do X, Y and Z, I can go to my Local; if I want to do A, B and C, I have to get on the bus and go to a bigger post office that is able to execute that". Clearly there are some areas, like currency transactions and so on, which have been in recent years probably where some of the growth has come, but I think some of the more exciting areas going forward – biometrics, passport applications and so on and so forth – are possibly things that will not be included in the Locals model, and something we will work with the Post Office on.

Chair: That does conclude our questioning on this particular session. Can I thank you and just repeat what I said to the other panel? If you feel that there is anything you would like to add and have not said today, please submit evidence to us. Of course, we may submit further questions if we feel that there are further questions that we should have asked. Thanks very much. Can we have the next panel, please?

Examination of Witnesses

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

Q43 Chair: Welcome, and thank you for agreeing to speak to us. If you could just introduce yourselves, that would be helpful.

George Thomson: George Thomson, the General Secretary of the National Federation of SubPostmasters.

Paula Vennells: Paula Vennells, Chief Executive of Post Office Ltd.

Q44 Katy Clark: Thank you very much. I do not think you were here in some of the previous sessions. I should say that I am a member of the Communication Workers Union. I just wanted to declare that interest. You will have seen the written evidence that has been submitted to this inquiry. Much of that written evidence criticises the proposed restructuring, basically from the point of view that it is likely to lead both to fewer services but also, probably, fewer post offices at the end of the day. Can you explain, from your point of view, the rationale behind the new Locals and Mains post office model, and why you think they would succeed? Could you also outline how much of the £1.34 billion, which I understand is the amount of money, in global terms, that is being provided by the Government, is likely to go on compensation packages to those leaving the industry?

Paula Vennells: With pleasure. I think I should say first of all that I have been listening to what has been discussed this morning, and clearly there are going to be some areas where I will offer a different view. I am very pleased to have that opportunity.

If I can take a number of things that you raised, on the £1.34 billion, the most important point was the one that was made by Mike O’Connor, which is that this is perhaps the biggest investment the Government has ever made in the post office network, certainly in living memory and possibly ever. It is really important that it is spent well. It divides into two parts: roughly half of it is investment and half of it is subsidy. That is very, very important for all of the questions that were posed about what happens, particularly within the rural network. There is a big question there. There will always be small post offices that will not get to break even and will need some sort of subsidy. There is no change in Government policy. The difference this time, though, is that there is a further investment. That investment really plays to three things and these are the only three points I want to get across this morning.

The first one is that it is actually about transforming the network completely. We have had, for the last two decades at least, and certainly since I joined the Post Office seven years ago, nothing but closures. The business has become a victim, and that is not the place a brand as strong as the Post Office should be. We should be really strong. We should be playing to the market competitively, just as Brian says. What that investment will do is help us transform the network to be able to respond to that, which brings me to my second point.

This money is also important because it puts us in a position so that we can grow. If I have a vision, it is to have 30,000 post office outlets, not 11,500. It is to have standalone electronic drop boxes for mail packets. It is to have ATMs in railway stations. It is to have identity kit in town halls and libraries, all branded ‘Post Office’. But until we transform the basis of the current network and make it more sustainable, that becomes just an ambition. I am very confident that we will get there, but the growth is important in the current network. That growth will come if I run a network that is sustainable, because then I can go to clients. In the last year, we have won seven out of seven Government contracts that we have bid for. That is unheard of in the last decade, and that is because people are now beginning to believe in what we are trying to do with the Post Office. The transformation of the network to models that work and become sustainable, combined with growth, are my first two points.

The final point is about the customers and the communities. These models work. We have got 200 in pilot. We have got them not as you heard previously; we have got them both in sites where there were post offices and where there were not post offices previously. In all cases, the customer satisfaction is over 90%. Yes, we make mistakes. Of course we make mistakes. In a network this size mistakes will always be made. Do we sell wrongly and do we overprice on mails? No.

Q45 Chair: Excuse me, can I just interrupt? You said customer satisfaction was 90%. How was that measured?

Paula Vennells: That is measured independently, Chair. It is measured quantitatively, so that it is representative. I would be very happy to send a copy to the Committee. In fact, the Consumer Focus research shows that 75% of customers find the service good or very good. If you add in those who find it satisfactory, you will probably get close to 90%. The 90% figure comes from both onsite Post Office Locals and offsite Post Office Locals.

Q46 Chair: Can you send us details of the body that carried out the survey, the questions that were asked and the responses?

Paula Vennells: I can, yes.

George Thomson: Could I give you a specific answer to the question and a different emphasis from POL? We support both network transformation and the new models because, quite simply, the status quo is not sustainable. Quite simply, thousands of subpostmasters cannot sell their businesses. Clive mentioned earlier someone who had been trying to sell for two and a half years. Many subpostmasters-it is nothing to do with the new models-are finding it impossible to sell their businesses in the current market. In fairness to POL, I think there should have been a greater emphasis-it touches on Brian’s point-on the fact that Mains and Locals are a new model, but the options are that, unless you are prepared to provide a subsidy increasing up to £400 million or £500 million a year, something has to give. I support it, because up to 2,000 existing subpostmasters will leave with compensation to move on. We have thousands of members over retirement age.

Q47 Katy Clark: Can I just ask Paula Vennells this question? How much of that £1.34 billion is going on those packages? If you are not able to give those figures today, maybe that is something that could be given later. I appreciate, George Thomson, that you may not know yourself the answer to that question.

George Thomson: The first part is that I support subpostmasters being able to leave and to have choices. The second issue is that about £200 million will be spent on modernising both the Main branches and the Local branches. Katy, that money is needed. The 4,000 big commercial offices have kept the whole network afloat by crosssubsidising the rural through the Assigned Office Payment. We all know that part of the Government’s strategy is that the £60 million that is lost per annum on the Crown Offices is to be eradicated over the next three years. Again, the 4,000 commercial offices that will remain are the ones that are underpaid to allow that crosssubsidy to go to the Crown. For these three reasons-the fact that the Crown office losses will be eradicated, the fact that there will be up to £200 million of new investment, and the fact that there will be well over £100 million of compensation for subpostmasters to retire and be replaced with new models offsite-we support it.

Q48 Katy Clark: You are also aware that the picture is far from all rosy and many subpostmasters are very, very concerned about these proposals. I am not sure if you were here in the previous session, when I raised a particular example in Glenluce, which I suspect is an example that you will be aware of, with your accent. That is a southwest of Scotland example, where a post office will probably turn into an outreach service, because of the new funding model. The figures that I have been provided are that previously the income would have been about £30,000 a year; it probably will be something like £7,000 a year under the new Local model. Do you not think that subpostmasters will have real difficulty in surviving-not the ones who want to take a package but the ones who want to stay in the industry-with the funding model that is on the table?

George Thomson: It is a very good point, Katy, and the Federation made sure that anyone who wanted to remain on the model that they have at the moment-there will be at least 5,500-will retain their fixed pay. No one will be forced to give up their fixed pay. For anyone who wants to move to a new model, it will be voluntary. One of the things that was not said in the last session was that, if you decide to give up your fixed pay and become a Main, you will receive enhanced payments. The fixed pay transfers to the products; it does not disappear.

Q49 Katy Clark: But for the communities where someone is leaving the industry for whatever reason, it is going to be a new model that comes in, is it not? It is going to be a Local. Are people going to be able to survive and keep these services open in rural communities?

Paula Vennells: From all the evidence we have got so far, yes. If you look at the economics of the Post Office Local model, which is probably where most of the concern lies-these are average figures, so there are some that are slightly less and, in fact, there are some that are substantially more. The post office is now open from 7 in the morning to 10 at night, in some cases even longer than that. First of all, that is an 85% increase in post office hours. That does two things. It brings additional customers to the post office. Post offices have seen a 9% increase in post office custom. They have also seen roughly a 9% increase in their retail business. In terms of the overall economics, it works. The other advantage to the operator is that the staffing model is more flexible, so there are either savings from the staffing model or there is productivity. You no longer have one or two people working solely behind a post office counter; those people can move and they can do other things. The economics of the model work. That is the whole point about the pilots: that we actually try this. We would not want to roll this out if the economics did not work.

It is, as George says, completely voluntary. There will always be some post offices, as I said at the very beginning, that this will not work for. Therefore, there has to be a decision that a continuing subsidy is needed, and the current Government has endorsed that. But it is about being businesspeople too. People who see these economics and who are really good retailers have made this work. I was in a meeting last week with the Minister-so this was said in front of the Postal Affairs Minister-where one of the operators, who is now running 25 of these, asked if they could have one in every one of their 600 stores. These models work, and that is the most important thing. This is what will transform the network. We will have economic models that work, provided that-I go back to my second point-we have growth as well. We have to put more business through the post offices, and that is where the Government frontoffice work comes in. That is why that is so important. But local government too; I would ask the Committee members to go back and talk to your local councils and local authorities. We can take much more work through the post offices.

Q50 Chair: Just before I bring you in, David, you spoke earlier about the level of satisfaction being 90%. I believe this is based on the 200 or so pilots that you have got so far, of which 63% were effectively replacement post offices and the balance were existing post offices. Was there any difference in the levels of satisfaction between the two, given the fact that a community that had hitherto been deprived of a post office is likely to have, shall we say, a much higher level of gratitude and, potentially, satisfaction than one that is used to an existing service?

Paula Vennells: There is. If I may, I will give you two answers to that, and they are both as important. The first is that, of those pilots, 50 are post offices that were temporarily closed and we were struggling to reopen, so not unlike the situation in your constituency. Because of the new models, we reopened 50 post offices, and people were overjoyed. That is the first point. Where we have opened a Post Office Local in a location where either a post office has closed or there has not been one for some while, the customer satisfaction stats were-I may get this slightly wrong-about 98%, so very, very high. Where we opened a Post Office Local where there was an existing post office, it was lower; it was 91%. These models work.

Locals do not do everything that a post office would do, and I want to cover that very openly and very overtly. They do not have 100% of the Post Office range, because some things just cannot be done, but that is no different from a Sainsbury’s Local versus a Sainsbury’s Superstore. Please understand that they cover 95% of post office customer visits. We are still working in some areas to see where we can improve that range further, but there will be some where I will simply say, "No, we cannot do this because it does not make sense." The ones that often come up, passports and motor vehicle licences, are today available in only 2,900 post offices and 4,500 post offices. They are not available across the range of post offices anyway. In most cases, post offices that we would be talking to about the Locals model would not have offered those services in the first place. I think of 95% of customer visits, 85% extra hours, open seven days a week, shop when you like. One other advantage of these additional opening hours and the growth in mails business that is coming through all of the models, including Locals, is that we are getting younger customers in, because they are shopping early in the morning, after work at night and at weekends.

Q51 Chair: Can we just concentrate on the satisfaction ratings? Your research does not reflect that done by Consumer Focus. If I can just quote: "48% of users considered the product range available to be average or very/fairly poor. 38% of users considered the overall experience to be average or very/fairly poor compared to other post offices. 64% of users considered the level of privacy to be average or fairly poor." How do you explain the difference?

Paula Vennells: I think, with respect, Chair, your last figure is the other way round. I think 34% find it poor or very poor. If you add in the average to those who find privacy okay or fine, it is about 66%, from memory.

Let me take those three areas. One of the comments I made first of all is that we have made some mistakes and these are pilots. The point is we need to learn. Secondly, the Consumer Focus research is very helpful. I do think it is a very good report, and we will absolutely look at the boxes, if you have read the report, where they make their recommendations of things that we should look at. We will work with them. Since the last time they did their research, we have improved privacy. We have got a better result from our customers. What we are doing now, when we go to every single branch to talk to the subpostmasters, is working with them on how they can improve their privacy. In some cases, that means putting in half screens. In some cases, it means painting a line on the floor. These are small convenience outlets, so you have to think carefully about how you do this, and it has to be done on an individual basis.

In terms of the product range, I go back to my previous points that 95% of visits are covered and over 90% of customers are satisfied with what they get. We will continue to work on those two areas, and we will listen to Consumer Focus; they are a body that we respect and that we work very closely with. I have no issue with them raising problems for us to deal with, but we are dealing with them.

Q52 Chair: George Thomson, you looked concerned. Do you wish to come in?

George Thomson: I think we have to be very careful here, both as a Parliament and also as Post Office Ltd. What is wrong with the Post Office Local model? Partly it is to keep the politicians on board. It is a different model. It is better in some respects, i.e. it is more convenient and there are longer opening hours. That is good, but what you do lose – and we have to be upfront here – is a lot of the specialisation and knowledge that has been built up, because many people are going to leave. If you look at Consumer Focus and the report, these are two of the areas that are not identified that I have had concerns about for over a year.

The third thing is, if you have got a convenience store, and some of the Post Office products are still complicated-they may be overengineered and a big range-is it right that you are expected to give a service from 6.00 in the morning until 10.00 at night, seven days a week? It keeps the politicians on board; I accept that. If you go into a convenience store at 9.30 on a Sunday night, would you expect to top up your mobile phone? Yes. Buy a stamp? Yes. Do some of your gas and electricity? You would. Is it right that you would expect the staff to have the knowledge base to send a parcel to Poland at 9.30 on a Sunday night? That is an unreasonable request. The danger is that you overpromise. What happens – and Consumer Focus identified this – is that people, although they are meant to provide all the service at that time of night, do not do it, or, if they try to do it, they do not get it right. There is a lot of work still to be done. The status quo is not sustainable. We will work with Post Office Ltd to get the Local model right, but there are certainly two or three things with the Local model that have to be made better. One of them is that products have to be reengineered; they have to be simplified or mistakes will happen. The Federation has set up a working panel with POL to actually do that.

Chair: We have got some further questions on that. I do not want to overanticipate. David Ward, you have been waiting very patiently.

Q53 Mr Ward: On the economics of this, we have talked about consumer satisfaction levels, but presumably consumers would like every shop to be open always. If a taxi driver is coming home at 3 am from a shift, he would be delighted if he could stop off and buy a stamp. Are enough stamps being sold in those extended hours to cover the marginal costs of staying open? It is not only increased usage-which is the 9% figure-but whether the additional hours are economically viable.

Paula Vennells: That is a really helpful question. If you look at the overall retail outlet, then the decision as to how long the retailer stays open is entirely theirs. If it was not economic, they could shrink those hours. For example, we have got one at the moment that is open from 6.30 in the morning to 10.30 at night; we have got some that are open from 8 in the morning until 7 in the evening. It really depends on what the retailer thinks they need to do. In terms of the range of services-they are profitable-what we are finding is the retail mails are selling well, because of eBay. It is the conversation that was had previously about growth in the packets market. Consumer Focus highlighted this in their report. This is a really good area for Post Office Locals to move into, because they can both take the packets and process them. We are working with Royal Mail Group to make sure that we capitalise on the growth in the collections and returns market. Post Office Locals could do that too. So it depends on the spread of the business and the hours of the retail outlet.

George Thomson: Take an example in a small village. Let us say there is a post office that is standalone, with the post office, and some cards and stationery, and you have another newsagent. Maybe both of them are struggling. The good thing about Post Office Local is, if that subpostmaster wants to leave with compensation, then the post office is offered to that newsagent as a Post Office Local. Instead of having two shops in the village that may go under because they are really struggling, all of a sudden you have one viable business, where the newsagent is maybe getting another £8,000, £9,000 or £10,000 salary as a Post Office Local and is getting the additional footfall that used to go to the post office. That business could be the difference between survival for that newsagent or convenience store and folding and going bankrupt, which is happening to many people in this very difficult economic climate.

Q54 Chair: Could I just try to seek clarification? I think probably, George, you are the person to ask. What will be the changes to subpostmasters’ pay once this model or two models come into effect? You touched on this just now; if you could just elaborate.

George Thomson: Three things to say, nice and easy: if someone decides that they do not want to change or they do not want to leave, they will stay on the traditional contract, i.e. fixed pay and variable pay. Nothing changes and there will be 5,500 to 6,000 who do that.

Q55 Chair: What is the element of variable pay?

George Thomson: It varies. Variable pay depends on your commission from your transactions. Let us say an office was on £60,000. It would get roughly £15,000 fixed and about £4,000 to £5,000 variable, as a rough estimate. Basically, the traditional offices will remain fixed and variable. The existing subpostmaster who wants to become a Local will get his fixed pay bought out. Let us say someone is on £20,000 at the moment-£10,000 fixed and £10,000 variable. If that subpostmaster wants to become a Post Office Local, he will get oneandahalf times his £10,000, so he will get a £15,000 lump sum, but he will then have to operate on £10,000 a year going forward, rather than £20,000.

Q56 Chair: That £10,000 is based on the variable.

George Thomson: No, the £10,000 that remains is based on variable. The £10,000 that goes is the fixed pay that he used to get.

Chair: Yes, that is what I am saying.

George Thomson: The third lot of people is people who decide to become a Main and they are an existing subpostmaster. Because they are changing their contract from a fixed and variable to a fully variable, they will get a £10,000 lump sum for agreeing to change the contract. They will then go into enhanced product rates that virtually make up what they have lost on their fixed pay. Those are the three different things that are going to happen. Again, I have to reemphasise the point that anyone who wants to remain as they are does not lose their fixed pay. No one is having their fixed pay taken off them, unless they volunteer to become either a new Local or a new Main.

Q57 Margot James: George, you did touch on these overengineered products before, which are a problem. Can you give any examples? The example you very briefly touched on was someone trying to send a parcel to Poland out of hours. Can you give us some more definitive examples of what you mean by these overengineered products and what might be done to simplify them?

George Thomson: Margot, we have set up a working team. That is the first thing. What do we mean by products that are overengineered? We have got the Horizon system on the counter and it is a very good system. It could be that you need to have six different computer screens to get to the transaction. A perfect example of where products became overengineered is that, three or four years ago, many of the mails products used to have stamps put on them. Let us say you are sending something to Switzerland and it is 30 grams. In the past, it would have been one stamp. It would not have taken the clerk a lot of time. Now you have to go through various screens; you have to print a label; it slows it down. Now, I know Royal Mail wants that process but, over the last four or five years, some of the mails products in particular, for all the right reasons, have become far slower, far more timeconsuming and overengineered. We will work with both Moya Greene at Royal Mail Group – obviously we are separate now – and Paula at POL to make these products easier and quicker.

It comes to my point, Margot, that if these products take too long and it starts to hold up your retail queue because someone has got four or five parcels-James Lowman touched on this earlier-then quite frankly that is a recipe for disaster and it suits none of us to have that as an ongoing concern. We have got to work together to simplify the products. Again, it comes back to what I said earlier on: the range of products that a Local is expected to do is 85% of the products and 95% of the volumes of a traditional post office. I think, quite frankly, we are kidding ourselves that that is achievable. We are trying to put too much on to a Local and, again as I said earlier on, probably overpromising and underdelivering. I would rather we had 80% of the volumes through a Local, which was achievable, with a few fewer products than we are trying to sell at this moment in time.

Q58 Margot James: That seems to make sense. I would be interested in your view on that, Paula.

Paula Vennells: George and I have a slightly different view on this, but not too much, to be fair. Another way of thinking about it is how we might simplify some of the products, rather than necessarily saying that the current ones are overengineered. The point about labels was made because Royal Mail has, as you all know, introduced a huge amount of automation. The labelling and the barcode are needed at the back end through the mail centres. The subpostmasters are paid more for labels, so they have not lost out as a result of that, but it is a longer process.

Where I think there is big opportunity and, therefore, commercial opportunity, is if you look at packets, for instance. First of all, I certainly have not had any evidence of lots of queues as a result of packets but, as this is a growing part of the business, if we could move to volumetrics-prepaid boxes that are standard sizes and easier to use-that would be fantastic. That would be something that you would put through all of the network. It is not just something for Locals. I am really pleased that George has agreed that we will work together on this, because clearly the Federation has so much contact with subpostmasters that they see what goes on day in, day out in the post office network. I am grateful for that.

Q59 Margot James: Could I digress slightly from what I was going to ask and go back to the subject of separate queues, which we heard about in the last session? It does strike me that a number of Post Office requirements do take some time and are completely incompatible with a fastmoving retail queue, yet there is no requirement for separate queues in these new Locals. What do you think about that?

Paula Vennells: I smile when I answer this question, because you can imagine that we have heard them a number of times before. The queues go down. The average queuing time in a Post Office Local is 48 seconds. What happens is, because you have 85% longer hours, the business is spread over a much longer period of time. Again, that has been independently validated. Yes, if you go in on a Monday morning or a Tuesday morning when some of the pensioners go in for their pension-they like to go at the same time-you will have to wait slightly longer, but nothing at all substantial has given us any problems. In the Mains post offices, the average queuing time is about two minutes, 40 seconds. We have done a lot of work in Post Office Ltd on queuing in the last 1218 months. If you look at the top 1,000 post offices in the country, a year ago 68% of customers were served in under five minutes. That is now over 75%. I have a target that we will get to 90% in three minutes. How long it will take to get to that I am not entirely sure, but we are moving things in the right direction. The Locals are just fantastic, because of that extra time that the post office is open. It simply spreads it. That is great, because it makes the post office work. It means that we can then go to places like local authorities, local councils and central Government, that are talking about giving us more work, and when they mention queuing I can say that, "Actually, this is what it is now looking like in the pilots".

Q60 Chair: Can I just come in there? You have mentioned an average of 48%, but that could mask considerable delays for quite a lot of people at key times. With extended opening hours, it is reasonable to assume that quite a lot of people would actually not wait at all, if they are going in at times when there is not going to be peak traffic. On the other hand, as we have got an average, you could have some who are waiting considerably longer.

Paula Vennells: Of course you could. There will be some, undoubtedly, but I suppose there are two answers to that. One is the one that you have given: that some people will come back another time, and the convenience is so much better that they can now do that. The second is that from the customer research that we have done, it has not degraded over time. We have done ours fairly frequently over the last two or three years since we started the pilots, and satisfaction has not gone down. I think we would have noticed if big peaks in queuing were driving dissatisfaction, and that has not been fed back. Every time we get complaints about this, because clearly these are pilots and we are learning from them, we will act on them and we will go and visit a local store. But that is not one of the problems that has been flagged.

Q61 Mr Ward: My experience is that it is damn lottery tickets and scratch cards that increase queues. For someone who has never had either of them, if you would ban those, then I would be very happy.

Paula Vennells: They make money out of that.

George Thomson: Can I just say, Chair, that Post Office Locals is not perfect, but it is necessary. The reality is that the country cannot afford to have 11,800 traditional offices. It has to change and it has to change now. People have been asking for a moratorium. We were the first organisation to raise the post bank five years ago at the national conference; people are presenting post bank as John Wayne and the Seventh Cavalry. I had four or five discussions with Peter Mandelson, who said, "Look, George, it would cost £2 billion. We are not going to do it." I had two discussions with Ken Clarke when we thought the Conservatives were going to win the election. Ken was exactly the same: "It is going to be £2 billion; we own the Royal Bank; we own half of Lloyds TSB; we ain’t going to do it." I had the same discussion with Vince Cable and Ed Davey, with exactly the same answers. I support a post bank but, in the immediate future, it is not on the horizon and it is a little bit unfair to try to kid people on that it is John Wayne and the Seventh Cavalry riding over the hill and it can keep the network at 11,800. It is intrinsically dishonest.

Q62 Margot James: I was going to ask about the Horizon computer system. I think I heard you say it was quite a good system, but written evidence we have received shows that there have been a lot of problems with it. It is a slow system and it does not allow subpostmasters to find where an error has occurred and to rectify the error before having to repay the losses. What is your estimate of this system? Would we be much better off with a simpler system that can be operated by less specialist staff?

George Thomson: It is a robust system. Could it be made simpler? Absolutely. We have to be careful, because some people present it as not being a robust system and say it is systemically faulty and creates errors. That is not the case. As far as we are concerned, usually what happens is that an error comes to light when there is an audit visit and sometimes that error has been covered up for five, six or seven months. What we have found is that what people say the system does not show is massive overages, but, actually, it shows massive shortages. In other words, every case has to be judged on its merits but, as far as the Federation is concerned, it does not look like there are any systemic problems with Horizon. Usually, it is after an audit visit that people claim a big shortage is associated with Horizon. It is not the case.

Q63 Ann McKechin: Ms Vennells, I wonder if I could just clarify one point with you. In your earlier evidence to my colleague, Katy Clark, you said that the Government funding would be divided roughly 50/50 between investment and subsidy. Am I right in thinking that the compensation payments would entirely come out of the investment stream and not the subsidy stream?

Paula Vennells: Yes, that is right.

Q64 Ann McKechin: Thank you very much for that. The National Federation of SubPostmasters, in their written evidence to the Committee, stated that: "Many decisions currently taken by POL are decisions specifically designed to protect the central structures of the company at the expense of the whole." I just wondered to what extent or how you would respond to that criticism as being fair.

Paula Vennells: The Post Office cost base is approximately £1 billion, and 90% of that cost goes to supporting the network. My first contention is that so much does not stick to the sides at all. Half of that is subpostmaster remuneration. A significant amount of the cash distribution that goes through our economy-14p in every pound-comes through a post office. We run hugely secure-as you can imagine-and costly cash centres and a distribution network to enable that to be there. There is a big technology investment. Most of our cost-I would be very happy to supply that to the Committee-is invested on the network. I have worked in commercial businesses before; there is always, in any business, opportunity to take costs out centrally. We do that continuously.

Q65 Ann McKechin: Would that be in line with other continental models about the way post offices are operated, in terms of that split?

George Thomson: What I do know is that our members run 97% of all branches; 3% are run by the Post Office as Crown Offices. Because technology is changing and because the customer base is changing, in the year 201011, subpostmasters’ income, including the franchises, was in the region of £480 million. In the year just finished, that has slipped to £470 million, so it is actually down by £10 million. When we talk about central costs, for example, the Labour Government twice and the Coalition once have said: "The Crown Offices are losing £60 million a year; you have to get them to break even. You have to look at the staffing, look at where they are and all these things". That has never happened. I know Paula and her team will look at that from September.

I know Brian Binley had a go at Allan Leighton. For the cash in transit, the cost of supplying the cash is about £130 million a year. One of the things Allan Leighton was going to do about seven years ago was put that out to competitive tendering and he reckoned it would have saved about £30 million a year. There is that issue as well. I know these are difficult times. The other issue-this is what we are talking about with central costs-is that we are an organisation that does not represent staff. We represent selfemployed small businesspeople, the National Federation of SubPostmasters. One of the biggest other costs of Post Office Ltd, even after the changes with the Government taking over the pension deficit, is the payment into Post Office Ltd’s pension contributions. I know it is difficult, but our members are trying to make a living. That will be as much as what our reduced subsidy is going to be in three or four years’ time.

Q66 Ann McKechin: Thank you for that, Mr Thomson, because that comes to my next point about the issue of mutualisation, which is the Government’s ultimate plan. It is probably on the basis that the public have a view that, as at present, the vast majority of people who are providing postal services through the network, as you said, Mr Thomson, are selfemployed independent retailers. However, if you look at this model, it would appear to me that it is exactly the model that would suit your Tesco Expresses and your Sainsbury’s Locals. Five years from now, how much of that network do you think will be in the hands of the 10 largest retailers in the UK?

George Thomson: I think that is an excellent question and I have a difference of opinion with Post Office Ltd. I think that the new Local model in particular lends itself to familyrun businesses, where you have someone you can trust on site from early in the morning until late at night. About six years ago, something called the combi till was trialled by some of the multiples like SPAR and the Coop. What they found is, late at night, when you did not have the managerial processes in place, the number of error notices, where you got transactions wrong, exploded. More importantly, the amount of money going missing from the post office till exploded as well. So I am not convinced. I have this debate with the Post Office all the time. I actually think that Post Office Locals and the new Mains can take us back to a time when independents, which still dominate the network, dominate more. I do not think that the Local model is as attractive to the mutual as what is being expressed by the Post Office. I have to say that Tesco, through their One Stop, may be interested, but I have said to the Post Office on many occasions that –

Q67 Ann McKechin: Mr Thomson, can I just say that, in about a mile and a half radius from my constituency office, I now have about five Tesco Expresses, compared to none five years ago. They are now dominating many urban areas of this country. I would be interested to hear Ms Vennells’ opinion, but what percentage do you think? You are saying that, five years from now, you do not think they will have a more significant presence. I do not know if Ms Vennells might have a different view.

George Thomson: No, I do not, but if I can just finish on that point, I have also warned the Post Office they are on every village high street in Britain and in every town in Britain and they have to be very careful that they do not get into bed with Tesco, because Tesco is seen as actually damaging local retail and damaging local high streets. I think it is important to the brand of Post Office Ltd that we are very cautious about any future dealings with One Stop, which is part of Tesco.

Q68 Ann McKechin: Ms Vennells, I would be interested to have your opinion.

Paula Vennells: I am not sure that we had a particular debate about this. We already have a couple of thousand post offices that are run by various different multiple retailers. Sainsbury’s has some; Tesco has some; One Stop does; McColl does. Far more are run by the Coop, which plays to the mutual question I think you started on, and far more are run by the SPAR and the convenience store networks, which James represents as well. We have a mixed economy of post offices, and we have, in my view, the right solution that works in communities. Will we have a growth in post offices in some of the multiples? Very possibly, if that is what communities need. We have to find the best place to put the post office. My guess, though, is that they will still, in five years’ time, be run in the vast majority of cases by independent retailers, because that is what actually works in communities. There is no conflict here, as far as I can see.

Q69 Ann McKechin: That is why I am asking whether the mutual model is a suitable model, if we are going to have a larger proportion of the network actually owned by large multinational companies, as opposed to independent selfemployed postmasters, which has been the previous tradition. There does seem to be a huge growth going into the local market stage by Sainsbury’s and Tesco in particular and by a number of other retailers. It is a growing trend. I am just suggesting to you that a mutual model may not be one that would necessarily suit that type of setup. What do you think? What sort of mutual structure do you think would work to cover the mixture of businesses that you are now dealing with?

Paula Vennells: This is an important area to go into, I think, and there are two or three points to be made. Firstly, we have no idea currently as to what mutual model the Government are going to propose. As you know, they went out to consultation and I understand that their response is due back some time in the next couple of months. Until we get to that, it is difficult to even guess what the mutual model might be. There are lots of different models and they are all pretty successful where they have been in existence for some time. The Coop is a good example of a membership model, which is customerrelated. John Lewis is the one that is usually quoted as an employee model. My sense is that the Post Office would have to be something that spans a huge number of stakeholders.

The only point I really want to make today on mutualisation is we cannot get there until I have got this business in a sustainable economic state, because you cannot really mutualise something that does not make any money. I do not think you can take a network that has systemic problems in terms of economics and then mutualise it. However, having told you that I believe that is entirely doable, it does then make mutualisation a possibility. The second point about mutualisation is that, if we believe it is doable because we have created a sustainable Post Office, what it could do is group together the people you have heard from today. We had a very useful meeting last week with the Minister; a number of us sat around the room and talked about how you might make a post office work in a mutual world. What tends to happen then is that people listen to each other. I think it would be very good for the Post Office to formalise some of this stakeholder input, but it cannot be done until I have transformed the network and until I have got some growth through the doors and we have got communities confident that they are keeping post offices.

Q70 Ann McKechin: Could I just ask one other point on this matter? Under the current scheme, there are no controls on the way on which departures from businesses occur. When people retire, give up or sell their businesses, you have no control over where that may occur. They may cluster in one part of the country or in certain communities. To what extent do you think mutualisation can either help or not help maintain the numbers within the network, particularly in rural areas and also in areas of social deprivation, where, I have to say, the demand for services can be just as great as in rural areas and, in fact, people are much more dependent on those services? Could I ask Ms Vennells first of all, and I will come back to you, Mr Thomson?

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

Q71 Ann McKechin: Thank you. Mr Thomson, did you want to contribute?

George Thomson: Mutualisation of the Post Office network was actually the brainchild of my good colleague sitting behind me, Mervyn Jones, about four and a half years ago. I think it came, Ann, from the fact that subpostmasters felt they were at the bottom of the food chain and, although we could make representations, on too many occasions our views were ignored, even though we had £2 billion invested and we had 97%. What we have said to the Government is that we are looking for the equivalent of a BBC Trust model, where the shares would be held in trust; as long as you are a subpostmaster, you have the shares in Post Office Ltd, and when you leave, just like John Lewis, you leave the shares behind. We believe that what it really is about is a heartandmind exercise. There are a lot of tough decisions to be made, not just with subpostmasters but with staff as well. We believe in the hearts and minds working together, turning this company around and if, in the future, it does not work, it will be our fault. We will no longer be in the situation myself and Billy Hayes have been in for years, where we blame the Government, Tory and Labour, for all the problems. Let us take ownership of the company and let us work together to make it the success that Paula, her team and the Federation are looking to achieve.

Q72 Katy Clark: That is all very well, but we represent constituents who want this service. What we need to know is what this future Post Office is going to look like. We have real concerns about the economics. It might work for some people – I am not saying it will not work in certain communities – but the reality is that a lot of postal services have a retail outlet now. I represent an area where there are lots of post offices in small communities where they already have retail trade. I frankly cannot see what is really significantly different with what is on offer, other than that there is going to be less money as an income stream as they go forward. Can you actually give us the figures? What information can you give us, as a Committee, on the economics of the Locals that you think are working? Can you provide us with as much of that as you can, but can you also give us the figures for where it is not going to work? We know that many of the Post Office Locals that have been advertised on your website actually have not been taken up. They have been withdrawn from your website and we now have outreach services or we are going to get outreach services. What we are talking about for a future network is probably going to look very different. I think you need to be honest about that.

George Thomson: Katy, on that particular point, I have a lot of sympathy if the post office is the last shop in the village. It would be different if that shop was really successful and maybe turning over £1 million in its retail. Would it need some kind of fixedpay subsidy from the Post Office? No, it would not. But where MPs have got to be careful is that, if a post office is the last retail shop in the village, you could well be right that, if its turnover is quite small and what is on offer is just a Local without fixed pay, that community could lose its shop and its post office. I think, even after all these plans are finished, the Government will still be putting something like £60 million a year as a payment into the post office network, even beyond 2015. There are about 2,000 post offices that are the last shop in the village. We are putting £60 million in a year. If I was an MP, I would to say to Post Office Ltd that, if the last shop in the village is a post office and it does not have sufficient retail turnover to stand on its own without a fixed element to the post office pay, "We would expect some kind of fixed pay to be on offer as well as variable pay". None of you should forget that, because that is going to be very important in the next two or three years; I agree with you.

Paula Vennells: That is entirely the policy. That is precisely the policy.

Q73 Katy Clark: But do you not understand that we are concerned we are going to end up with all sorts of outreach services?

Paula Vennells: I do, absolutely. Forgive me; I was smiling because George was, I think, implying that maybe that was not the case. What is very clear is that, particularly for rural post offices – and I understand the concern; I go and see them and I know them – there will always be some that cannot survive profitably. It is our policy that we would continue to support those. The only way we can do through that is through Government subsidy, so that subsidy has to continue. There is no intention at all to stop the subsidy. I make an offer through the Chair to the whole of the Committee, either individually or to come along and meet you as a Committee, to take you through whatever figures you need to see, because it is important you understand this. Perhaps the most important point to take away is that that is not changing. The programme itself is entirely voluntary. People only volunteer for this if they think it will work for them. We then only ‘allow’ them to do it if we think they have a business case that stacks up, so we would not be putting into a rural post office a Post Office Local model where we knew it would not work. That would be irresponsible. We are also still obliged by Government to keep all of these post offices open.

That brings me to another helpful point, which is that, in the last 12 months, we only had two post office closures-two net closures. Net closures previously, in the last decade, have run between 100 and 200 a year. That is how we have got down from 18,000 post offices to the 11,800 we have got today. The reason those net closures are so many fewer is that, in a number of places-I mentioned there were 50 in the pilots-we have now been able to go in and put in a model that works. Every time a post office closes, it is not because we close them anymore-that has completely gone-it is sadly because people have died or taken ill or they decide they want to sell their post office on. We are then obliged to go back and replace that post office in that community. Where we can, we put back what is there in the same place, because it is easier for the community. If we cannot do that, we look around for something else. What we now have, with the Post Office Local model, is in some cases a better model that means we have got more people interested in taking post offices. That is why we have got fewer permanent closures now. I need to give you a balanced view. It is not perfect for everywhere. There are lessons we still have to learn and we will work with Consumer Focus on everything they have identified. But economically, from the pilots and the work we have done, I think this gives us hope for the Post Office for the future.

Q74 Julie Elliott: George, you have given us some reasons why you are in favour of this Post Office Locals model, but I would like to ask you a question specifically around your members. These Post Office Locals are designed to be operated by retail assistants, rather than specialist post office staff, and yet your members are specialist post office staff. Can you explain why you are in the position you are in?

George Thomson: Yes, fairly easily. The estimates that we have made-and in fairness the Post Office has made them as well-are that we reckon, of the 2,000 Post Office Locals, something like only 200 will be run by existing subpostmasters. About 1,800 will be offsite conversions; that is new retailers. We are comfortable because these 1,700 or 1,800 who do not want to stay will be given compensation. We have over 1,000 members who are over retirement age. Some of them are well into their 70s and some of them are very ill as well, and they are desperate to leave, because the post office model as it stands is not working. It is difficult to sell your office. That is why we are comfortable: because about 1,800 of the existing subpostmasters will, if you like, take compensation-the Queen’s shilling, as we call it-and leave and the premises or the products will be relocated into a convenience store or a newsagent. That is why we are so relaxed about it.

Q75 Julie Elliott: Much of our written evidence – again, this is to you, George – criticises your organisation in terms of both failing to consult your members and failing to negotiate, with one submission describing the National Federation of SubPostmasters as Post Office Ltd’s "business partners". A National Federation member claims that "A miniscule amount of information … has been provided" by both Post Office Ltd and yourselves, and another states that members have been denied information because of confidentiality agreements. Why have you not properly consulted your members?

George Thomson: These comments are without foundation. The reality is, Julie, we had a conference last year that fully endorsed our position. We had a special conference at Buxton in November – half of it was about network transformation – that fully endorsed our position. We have had a series of joint regional meetings with the Post Office, which fully endorsed our position. Myself and my good colleague, Mervyn Jones, behind me here, went around the country.

More importantly, we have something like 53 branches throughout the UK and in the last two months every single branch agreed to have a joint meeting, a joint presentation to the members, on network transformation. So we have engaged with our members. Out of the whole of last year, not one motion came forward saying we should not support network transformation. At this year’s conference, there is only one motion from one branch saying that we should withdraw our support for network transformation.

Can I also say, in the Government’s figures, there are 8,800 independentrun post offices in the UK? Some 7,300 of these branches are run by our members. We have 6,400 members, but some of them have outreaches, so 7,300 of the 8,800 independent branches are run by our members, which is a big penetration. I have got to admit that, since the CWU spent about £200,000 last September, we have had 103 resignations in the last eight months from the Federation. I can only assume that, in spending the £200,000, the CWU has managed to take 100 of our members. But 7,300 independent branches are run by NFSP members. We consult our members. We have had the conferences and we have had the meetings. It has the overwhelming support of our membership.

Q76 Julie Elliott: The conferences, were they delegate conferences or were they all-member meetings?

George Thomson: They were delegate conferences, very much like Parliament.

Q77 Julie Elliott: In terms of the comments in the question that I asked, why do you think that the overwhelming amount of written evidence is saying the things that it is saying, which is very different from what you are saying? These are your members.

George Thomson: Some of them are our members. It is very easy to have a campaign to get 50 or 100 members to write in to say critical things about network transformation. I am saying that this is actually one union trying to damage another. That is the reason.

Q78 Julie Elliott: I am asking particularly about comments that have come from your members. Is it true that you have denied information because you have confidentiality agreements?

George Thomson: Absolutely not. The reality is that we have been very open with our members. The contracts that are being dealt with at the moment are in a place that, before anyone signs up to change to a new model, they will know the pay rates. The pay rates have been explained to them already when they have their visits. No one will be expected to sign up to either a Local or a Main without seeing the contract and knowing exactly what the pay rates are. When the visits take place with the field change advisers, they are actually being told what the rates are for the Locals and what the rates are for the Mains. Individual subpostmasters have choices. All we have done, Julie, is give postmasters choices about leaving the industry with some money, staying as they are with their fixed pay or moving to a new model. Quite frankly, I would do everything again exactly the same as we have done it in the past. We have got a great deal for our members. What I will say is this: the high street is a difficult place. Many retailers are going under financially-newsagents and convenience stores. Uniquely, this is the third time, in 10 years working with the Post Office, that we have got Government money to restructure the post office network. That is a big achievement in anybody’s language.

Q79 Chair: Could I just ask about stamp prices? I have been asking the Royal Mail whether post offices will be disadvantaged by having their stock revalued at higher prices. I may say I did have this brought to my attention by a subpostmaster. The response we got was not entirely clear. What is the situation?

George Thomson: The situation is this: the stock is revalued. Subpostmasters make 7% on a first-class book of stamps. When the stamps went up on 30 April, there was a revaluation that meant that subpostmasters made 7% of the new price, not 7% of the old price. They got 7% on a bigger piece of the cake. James Lowman tried to explain it, but basically we are different from retailers. What happens with retailers is they purchase the stock; subpostmasters do not purchase the stock. It is Royal Mail’s stock until we sell it. If retailers managed to buy a lot of stamps, instead of making about 3 pence for a firstclass stamp, as our members make and retailers were making until the price went up, some were able to make about 23 pence a stamp, hence Royal Mail was trying to restrict it and make sure they came through the Post Office. The reason the stamp prices are going up is not so that retailers can make 23 pence profit on a firstclass stamp instead of 3 pence. The reason why stamps went up was to protect the universal service. Subpostmasters did not benefit to the same extent as retailers. We got the 7%, but we did not benefit from buying stock at a cheaper price and selling it at a more expensive price.

Q80 Chair: Did Royal Mail restrict the sale of stamps to nonpost offices-to normal retail?

George Thomson: We are the front shop and Moya wants us to be the front shop, with 11,800 branches. Royal Mail was acutely aware that there would be absolutely no profiteering from post office branches, because the revaluation meant that actually we would only get 7% on the new price and not make extra money from buying them cheap and selling them at the more expensive price later on. Royal Mail obviously was aware of that, but they did restrict them to some retailers, because a lot of them were trying to stockpile, not just to sell to the public before the price went up. Some of them tried to buy them to stockpile until 30 April and make 23 pence a stamp, rather than 3 pence a stamp.

Q81 Chair: Did they restrict them to post offices as well?

George Thomson: No, they did not.

Q82 Chair: Paula Vennells, in a lot of the evidence that we took previously people said that there had been limited opportunity for public engagement. Would you like to comment on that?

Paula Vennells: Yes. I am grateful to Consumer Focus, who raised this point. We work with them, as Mike said earlier, within a code of practice. There has been sufficient consultation on the overall network transformation programme. What is probably most important going forward-I think the concern is primarily around the Locals-is that where we move a Post Office Local branch to a different site, there will be proper code of practice consultation with that community in every single case. We will speak to them beforehand; we will take feedback afterwards. Indeed, what we have recently agreed with Consumer Focus as well, just to show you that we are working together and evolving things, is that where there is a change on site-so the post office stays in the same retail outlet-we will also communicate with the community. We will engage them beforehand and we will then take their feedback afterwards, so that we do understand that it is working for them. The Government policy, as you know, was published in December 2010, so it has been around for quite some time.

Chair: Okay, thanks very much. I will repeat what I have said to other panels: if there is anything further that you would like to submit to us, please feel free to do so. Of course, we may do the same to you. Thanks very much.

Prepared 22nd May 2012