Oral statement to Parliament

Post Office Mutualisation

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Norman Lamb provides an update on government progress in implementing its postal services policy.

It is a great honour to be invited to address your annual conference today. I also welcome the opportunity this has provided for me to meet many of you on an individual face to face basis - last night at the President’s dinner, this morning over breakfast and I hope during the course of the day until I leave after lunch.

I am still a relative newcomer to my role as Postal Services Minister - having been in post just over three months. Though I feel I am now well up the post office network learning curve, I hope you will bear with me if one or two gaps do emerge during the course of the day.

However, in my previous Opposition role, I argued strongly for the policy that the Government is now implementing for Royal Mail and Post Office Ltd, in particular their separation to allow each to focus on their complementary, but distinct issues.

I am very aware that Ed Davey did some terrific work as my predecessor. I am very keen to continue that work and I want to make it clear from the outset that I fully share his commitment to working with the Federation, Post Office Ltd and other key interested parties and to investing in the post office network to safeguard its future.

Before I get into the substance of what I want to say I would like to pay tribute to the important contribution which the Federation has made and continues to make both through its willingness to work with Government to secure a better future for the network and its visionary work to build a mutual post office: To George Thompson - a very effective and tough advocate for sub postmasters and micro businesses; I also enjoyed sitting next to Kym Ledgar and would like to thank her for her year as President and would like to wish Bhavna Desai all the best in her year ahead.

Overview of the last year

The year since Ed Davey spoke at your Conference last May has been another significant and eventful one for the post office network.

The Postal Services Act received Royal Assent last summer. The Act enables two key steps relating to the network:

  • the separation of Royal Mail and Post Office Ltd which took effect on 1 April 2012; and
  • the scope for mutualisation of Post Office Ltd.

Another crucial development in the last year was the signing in January of a new long term agreement between Post Office Ltd and Royal Mail. This agreement cements the commercial relationship between the two businesses for the next 10 years.

So the framework is now firmly in place to implement the network strategy set out by Government in 2010, backed by the £1.34 billion network funding package.

I am Member of Parliament for North Norfolk and therefore fully understand the vital importance of the post office in a rural area. I am also very much aware, from discussions with subpostmasters in my constituency, that many of you still have concerns and uncertainties about the future of the network, your own branch or both. I take those concerns seriously. Just like Ed Davey I have a determination to make this work. I believe in the vital importance of the network - which brings me on to the Government’s policy for the network:

Government Network Policy

The Government’s network policy is based on the important social and economic role post offices, and sub post offices in particular, play in the communities they serve.

Nationally, 20 million people a week visit post offices across the length and breadth of the comprehensive national network, to access vital services. Many of these people - particularly in rural and urban deprived areas - greatly rely on the convenient access to services that their local post office provides.

In many communities the Post Office is also the only shop: without the income the Post Office provides that shop would close.

Without Government funding, a purely commercial Post Office network would be far smaller than it is today and its services more limited.

Despite the very tough public spending review in 2010, we secured a £1.34 billion funding package to modernise and safeguard the network’s future. Now we have a strategy seeking to put the business on a sustainable footing, where it can develop new business and grow its revenues.

In contrast to previous network funding deals under the last Government, this one is not focused on closing branches and shrinking the network. We have ended the culture of managed decline.

We have made it absolutely clear that there will be no closure programme under this Government. The funding deal requires Post Office Ltd to maintain a national network at around its current size.

The separation of Post Office Ltd from Royal Mail - as provided for in the new Postal Services Act - took effect on 1 April 2012. Post Office Ltd is no longer a subsidiary of Royal Mail but a sister company with equal status under Royal Mail Holdings.

In preparation for this separation, a much strengthened Post Office Board was appointed under Alice Perkins as the new Chair. There is now a wide range of commercial and financial expertise reflected among the Post Office’s Non Executive Directors to complement the extensive skills and experience of Paula Vennells and her executive team. So the new Board will be able to provide extremely valuable support and challenge to the management of Post Office Ltd.

Separation gives both of the businesses the opportunity and freedom to pursue their individual, and different, business needs and priorities in the future.

Having said this, the importance of Post Office Ltd and Royal Mail continuing to work closely together is clear. In January, Royal Mail and Post Office Ltd signed a new long term commercial agreement which ensures that the full range of Royal Mail products will continue to be available over Post Office counters throughout the country. This landmark agreement reflects both the clear continuing commitment of each business to the other and also a clear campaigning success for the Federation and your General Secretary’s high profile advocacy.

Network Strategy

There is a broad consensus among Government, the Federation and Post Office Ltd, that modernisation and strategic investment is essential to address the underlying economics of the network, and to meet changing customer expectations and market developments.

Alongside this there are two further core elements to the network strategy:

  • the building of new sources of revenue from developing financial services and products that people want to use, and winning new work from large customers - particularly Government.
  • a reduction in operating costs, notably elimination of Crown office losses by 2015, to improve competiveness in bidding for new and repeat contracts. I know many of you feel very strongly about this.

Our key objective is the creation of a sustainable financial future for POL and subpostmasters. One new encouraging sign, which I hope augurs well for the task ahead, is that in the year to end March 2012, the net decline in the network was just 2 branches - the lowest reduction in over 25 years. I understand that the option of introducing the Post Office Local model has been a significant factor in this welcome outcome in enabling services to be successfully re-established in communities where there had been a temporary closure.

Speaking in stark terms, there is now a pressing need for change as the current network model is no longer fit for purpose. But the Government is clear that this must be change where it makes sense - not change for change’s sake.

A Reinvigorated Network

To compete effectively in a highly competitive and fast changing retail environment, the network must adapt to customer and market demands - longer opening hours, quicker service, and accessible locations.

In order to achieve financial sustainability, the high legacy costs of operating the network and the lack of flexibility in the sub post office operating model are being addressed through two key strands:

  • Main post offices, which will benefit from overdue investment, in larger town and city branches; and
  • The Post Office Local concept which offers a more flexible operating model with both customer and retailer benefits.

Network Transformation

The vehicle for these changes will be the Network Transformation programme, with rollout planned to start during the summer. Participation in the programme is wholly voluntary for subpostmasters and Post Office Ltd will follow a customised approach on a branch by branch basis. This will provide for face to face discussion of the options available under the programme. Government fully supports this approach. Suggestions of a ‘one size fits all’ approach being adopted for conversion to the new operating models are totally wide of the mark.

The Federation has played a key role in shaping the structure and terms of the transformation programme - in particular in ensuring its wholly voluntary nature and in the negotiations with Post Office Ltd on the compensation and transitional remuneration terms for those who choose to participate.

I do understand that for many subpostmasters there is still a genuine uncertainty about the best choice for their branch. And this may not have been helped by the ‘spoiling tactics’ reflected in the campaigning and lobbying around a parliamentary Early Day Motion which called for a moratorium on conversions to Post Office Local model until after a full national consultation.

This Early Day Motion and the associated lobbying included misinformation and misrepresentation:

For example it was claimed that the Post Office Local model has not been trialled in on-site conversions; and that a much reduced range of services is offered at a Post Office Local.

In fact:

  • there has been extensive piloting of Post Office Local over three years and there are now over 170 in total and more than 70 on site conversions
  • Locals offer 85% of the total network product and service range, accounting for over 95% of total customer transaction volumes
  • The pilots are continuing - currently there are over 200 operating - and lessons continue to be learned and changes made

Independent research on the ‘Local’ pilots is showing positive customer and operator responses to date and the continuing pilot phase provides scope for development and improvement of the model. Similarly, much of the media reporting around the Post Office Local model and network transformation, associated for example with Consumer Focus reports have been ill-informed and misleading.

Against this background, I am glad that the Federation and Post Office Ltd are continuing to work closely together to progress the network transformation programme. And I very much welcome the role which the Federation will play in programme implementation and your Commercial and Network Director, Mervyn Jones’s membership of Post Office Ltd’s newly established Network Transformation Programme Board.

The way ahead

The transformation of the network is crucial to the Government’s network strategy and the Post Office business plan which underpins it. But it will clearly be challenging. It involves very substantial changes and it incorporates an unprecedented, but necessary, scale of change covering 6,000 branches over two and half years.

It is therefore absolutely essential that we get the new operating models and all the details right. So Government fully supports Post Office Ltd’s strategy of extensive and extended pilots to identify what works well and what needs improvement or modification before programme rollout begins.

We also recognise that there will be branches for which the new operating models will not be appropriate - including some of those serving very small communities or with only a very limited retail offer. So we are looking carefully with POL and NFSP to see what additional support can be offered to such branches in the way of business development and business consultancy to maximise the opportunities available to them. I believe Paula Vennells in her speech will shortly be stressing how keen she is to ensure that all sub post offices are in a position to tap into future sustainable growth.

And I would also emphasise that network subsidy will continue to be available to support branches which can never be profitable but which serve a valuable social purpose.

Network as Front Office for Government

Sitting alongside Network Transformation is Post Office Limited’s clear ambition to become a Front Office for Government - a convenient place for citizens to access a number of different Government services, and I, like Ed Davey, fully support the Post Office in this ambition.

With a newly expanded, dedicated team in place, Post Office Limited is continuing to work hard to develop competitive, innovative services targeted at both local and central Government that will help them to win new business.

As you know, Government at both the central and local level is looking to make savings whilst maintaining quality services - by putting the user at the centre of its services. A key part of Government’s strategy is to move towards the digital delivery of more services. This is no small task and individual Departments, and the Government Digital Service, have continued to develop their plans over the previous year. Post Office Ltd is rightly engaging with this process.

I believe that Post Office Ltd’s approach - namely to work with rather than against the inevitable changes in how people access services - is the right one. There is clear potential to build on the existing strengths of sub postmasters to develop new Government services - a great example of this is the need for better, more consistent ID verification that will allow access to online services. Post Office Ltd is working closely with Government’s ‘Identity Assurance’ project to develop the role the network could play in this market.

We also need to help people to access digital services who are currently not confident in doing so - again Post Office Ltd is working with the Cabinet Office, individual departments and others to help scope the role they could play. There will also sometimes be the need to ‘step-out’ of a digital process - for example to check evidence or to capture data as part of an application. Post Office Ltd already plays this role in some processes - for example 10-year-renewals of driving licences - and there is scope to increase this role further.

But it will also remain important to explore the opportunities for more traditional services, such as those undertaken on behalf of local authorities, for example council tax payment. Post Office Ltd is building on good work jointly undertaken with the NFSP in Sheffield. There are now further pilot studies with 25 local authorities in England and Wales, with Scottish authorities to be added soon, that are examining the scope for working together on more effective and rewarding service delivery.

Progress made on Front office for Government

Building up new revenues, particularly through developing and winning new services, will take time. But Post Office Ltd has made significant progress, and it needs to continue to build on this momentum.

At last year’s conference Post Office Ltd had already secured some new contracts. Since then I am pleased that they have gone yet further. For example they recently launched a new service to provide electronic Criminal Records Bureau checks for Care Quality Commission employees. This includes both online and in-branch elements, illustrating the ‘step-out’ role for the post office that I mentioned earlier. Post Office also secured a significant contract to capture electronic data for UK Borders Agency biometric permits.

I do appreciate that it has not all been plain sailing - for example the decision made by NS&I to withdraw a number of their products from sale - but am pleased to see the start of a generally positive trend in this direction. Of course, it is vital that we continue to see the Post Office winning more business and there are a number of clear opportunities on the horizon.

Post Office Ltd will also continue to engage with national Government as it develops its own service delivery plans - for example pilots with Department for Work and Pensions and Her Majesty’s Revenue and Customs will feed into wider thinking around how Government can best deliver Universal Credit.

And there has been much progress at local government level too. There is a new team and fresh thinking at Post Office Ltd who are working hard to prove that the Post Office can help to maintain and improve council services at a time when council budgets are being squeezed. Not only is this good for councils, and the people who use those services; it is good for subpostmasters too, who are benefitting from new work and new customers.

Over the last six months, subpostmasters in Westminster have been providing six new services on behalf of the council. And the Post Office was recently successful in winning a competitive tender to provide front office services such as ID validation, bill payment and cash payout services in Hammersmith and Fulham. This particular contract is important as it is a so-called framework contract, meaning that all 32 London Boroughs - covering nearly 700 post offices - can now use the Post Office to provide services without needing to run further procurement processes.

And I am hopeful that the 25 local authority pilots that I mentioned earlier - which are due to conclude later this year - will demonstrate that engagement with local authorities yields real opportunities and value for both the Post Office network and for individual subpostmasters.

I am keen to hold events around the country next year bringing the Federation and the Post Office together with more Councils to try to apply the lessons and best practice from the current local authority pilots. My ambition is to unlock the ‘triple win’ of savings for local authorities, better access to services for consumers and new services and revenues for subpostmasters.

Beyond Government services, I know that Post Office Ltd is also focused on developing its financial services offering. I share my predecessor, Ed Davey’s view that this is important. The Post Office is a trusted brand, with unparalleled reach into communities. Developing economically viable products that meet customers’ needs will be an important part of the Post Office’s overall strategy. I also believe it is important that customers of all major banks are able to access their accounts over Post Office counters. Last September, access for RBS account holders went live across the network. Demand for that service has been very encouraging. We will continue to make our views clear to the remaining banks - HSBC and some parts of the Santander group - that their customers would greatly benefit from this service.

There has rightly also been a focus on whether it is possible for the Post Office to build upon its existing links with a number of credit unions. This makes sense on many levels. To a degree, whether and how the Post Office is able to achieve this will depend upon how the credit union sector itself develops over the coming years. The Department for Work and Pensions recently published a report investigating the possible expansion of the sector. While there is a long way to go, this is an important next step towards understanding how the sector could develop to enable stronger links and more credit union transactions through post offices in the longer term.

Building a mutual Post Office

Between us, a huge amount of work is going into making the long term future of the business a sustainable one. Both the prospects of the network transformation programme and the shift to a business strategy focussed on growth and services, give me confidence that the Post Office will have a more positive financial outlook by the end of this Parliament. Which brings me onto my final point: mutualisation.

Employee ownership is something I am passionate about. Indeed I am grateful to you for allowing the Government to temporarily poach Graeme Nuttall - who I know has in the past advised the NFSP on Post Office mutualisation - to undertake a Government review of employee ownership within the private sector. Graeme will report this summer with recommendations for the promotion of employee owned business that I believe can foster a more sustainable economy that serves the many, not the few.

The new Postal Services Act requires the Post Office to remain in public ownership or eventually be transferred to a mutually owned structure whose ultimate purpose must be to act for the public benefit. At the end of last year, we consulted the public on proposals to convert Post Office Ltd to a mutual model of ownership. The consultation built on Co-operatives UK’s independent report, proposing a mixed membership mutual of ‘producers’ and ‘consumers’ - so sub-postmasters and staff, but also involving customers or those who represent them, such as Consumer Focus or Age UK.

A response to that consultation will be published shortly, setting out the next steps in developing the model mutual. We recognise that a lot must happen before ownership is transferred. A return to financial stability and commercial sustainability, which will rely upon the success of the network transformation programme and on the Post Office winning more profitable business. And the approval of Parliament, involving a further report by Government and then a vote in both Houses, is required.

But many of the benefits of mutualism can - and I believe should - be adopted by Post Office Ltd in advance of any formal change to the Company ownership structure, if they can support the delivery of the network transformation. And the input of those with an interest in the Post Office, who would form the ultimate membership of a mutual, will be an essential ingredient of that cultural shift.

I can announce today that Post Office Ltd will be setting up a Stakeholder Forum to begin the next steps on the path to mutualisation. It will consist of the key interest groups - bodies representing subpostmasters, staff and consumers - identified in the consultation. Its particular focus will be to work with the company to define the purpose of the Post Office, around which a future mutual could be built. It will be the first example of the Post Office’s stakeholders working collectively to develop the future of the business. And if it is successful it will augur well for the potential of mutual ownership in the long term. The NFSP will have a crucial role to play in representing sub-postmasters within this group.

Conclusion

I have always held the view that the post office network is quite remarkable - a precious national asset which we have long under-exploited - in the best sense of the word. The network reaches into the most rural locations and the most deprived communities. Our collective challenge is to grasp the potential for the network and to make it a reality

So, I am very pleased to have had this opportunity to speak to you all today to provide an update on the progress that has been made in implementing Government policy towards the network over the last year and to set out our ambitions and objectives going forward. I look forward to working with you on all in bringing these to fruition.