Post Office (Hansard, 15 July 1999)

§ Mr. Deputy Speaker (Sir Alan haselhurst)
Madam Speaker has selected the amendment in the name of the Prime Minister.

§ Mrs. Angela Browning (Tiverton and Honiton)
I beg to move, That this House is concerned that the Government's proposed arrangements for the Post Office put at risk its long-term viability by failing to free it from state control while also failing to maintain accountability; is concerned that these arrangements will create an uncompetitive distortion in the existing private sector mail delivery market; supports the Universal Service Obligation; and condemns the failure by the Government to implement the Horizon programme, with the resulting 30 per cent drop in income to the network of private sector sub-post offices which threatens the survival of rural sub-post offices and represents yet another government policy detrimental to the interests of those who live and work in the countryside. Last week's statement that the Government intend to turn the Post Office into a public limited company ended a long period of speculation. We supported the liberalisation of the Royal Mail and freeing it up so that all packages over 50p could be subject to competition—something for which the Royal Mail itself asked. Indeed, the Minister received far more support for his proposals from my hon. Friends on the Conservative Front Bench than he did from the glum faces that surrounded him last Thursday.
We have some reservation about the Government's timidity in holding on to 100 per cent. of the shares, but no doubt we shall see some disposals in due course once Labour Members have come to terms with the fact that anything is now a candidate for privatisation—the Post Office, British Nuclear Fuels Ltd. or air traffic control. It is simply a matter of adjusting to their party's new policy.
Today's debate has been called because during last week's statement many questions were asked and, as usual, too few answers were given about the future of the network of some 19,000 post offices, the majority of which are small, independent businesses. I represent a large rural constituency and fully understand the fragility of rural post offices. Some have a thriving general store attached to them which is open seven days a week, while others are part time and may just have room to sell a little stationery and a few greetings cards. Until now the core of their income was the remuneration they received from administering some 20 benefits on behalf of the Government. On average that accounts for 30 per cent. of their revenue. As a result of the Government's abandonment of the Horizon project to introduce magnetic strip card payments of benefits, the post offices are now reliant on the proposals in the White Paper to make up that 30 per cent. drop and identify other opportunities through automation to secure their future.
On 24 May the Government abandoned the pathway project in favour of encouraging benefit claimants to open bank accounts and receive payment by automated credit transfer.

Mr. David Bendel (Newbury)
This subject has been of great interest to me for some time. In fact, I made my maiden speech on the subject of post offices. Does the hon. Lady accept that the abandonment of this 632 programme, like the abandonment of so many other computer programmes that have gone wrong recently, is down to the Conservatives, because they introduced the programme in the first place and set up the contract in the wrong format?

§ Mrs. Browning
For one glorious moment I thought that I was going to agree with something said from the Liberal Democrat Front Bench, but how disappointed I was. Although I would certainly agree with the hon. Gentleman about the Government's competence when it comes to anything to do with automation, I certainly do not agree with him about the genesis of the problem. I shall come to that in some detail shortly.
The Government scrapped the policy of automated payment by card on 24 May this year. Every hon. Member was circulated with a "Dear colleague" letter from the Secretary of State, and we are grateful to him for his courtesy in bringing us all up to date with the fact that the Government had decided to abandon the project. We are now told that by 2003 all post offices will be fully automated and people drawing benefits will be required to have a bank account, but this will also involve the Post Office.
If, for example, someone banks with a high street bank, they will have their benefit paid straight to that bank, but so that they can still enjoy receiving that benefit in cash through their local post office, there will need to be an arrangement between the Post Office and the clearing banks. In that way the money can be transferred and people can access it in cash from their local post office. Naturally, there will be attendant costs in the administration of the transaction.
The Government's record on automation is not good, as anyone in need of a passport will know. It is ironic that the Government have turned to the Post Office to sort out this problem at the peak of the holiday season. The hon. Member for Newbury (Mr. Rendel) started to talk about the genesis of this and, as is characteristic of the Liberal Democrats, blamed the Conservatives. We are quite used to that. I am tempted to say that it is like water off a duck's back, but perhaps "quack, quack" will suffice.
On 5 May this year, ICL, which was piloting the project in some 200 post offices, said that it had no knowledge of any doubts in the Government's mind as regards ditching the programme. That is reported in the press. Yet only three weeks later every Member of Parliament received a personal message from the Secretary of State to say that the project had been abandoned. We have never had a proper explanation of why that should be.
Yesterday, the Select Committee on Trade and Industry took evidence on the subject of the Post Office. It became clearer why the Department of Social Security, having examined the costs of transactions through the Post Office, has decided in such short order to abandon the Horizon card. In giving evidence to the Select Committee, the Secretary of State for Social Security identified the transaction costs to the DSS of the processes that the Post Office has carried out. A giro cheque costs the DSS 79p; a transaction involving an order book costs 48p; had the Horizon project gone ahead, the payment card transaction would have cost 67p; but by insisting that people have their payments made by automated credit transfer through their bank account, the cost to the DSS is 8p.
633 The Secretary of State is nodding in approval at that comparison of costs. He is a former Treasury Minister, so no doubt he is impressed by that menu. I put it to him that the reason why the Government abandoned the card system through the Horizon project was not what they inherited from the previous Conservative. Right up to the last minute, nothing in parliamentary answers, as confirmed by ICL, suggested that there was a problem so serious that the project had to be abandoned. It was a Treasury-driven decision, to which yet again the Secretary of State succumbed willingly.

§ The Secretary of State for Trade and Industry (Mr. Stephen Byers)
For the benefit of the House, will the hon. Lady confirm that the Horizon project was three years behind schedule when we cancelled it, and that the key milestone of a live trial last autumn was failed by ICL?

§ Mrs. Browning
No, I will not, because in every parliamentary answer given by the Secretary of State and his colleagues during the two years of the Government's stewardship of that project, no indication was given that there was a problem. Indeed, they launched the pilot schemes, and ICL confirmed that there were no known problems. I have checked Ministers' written and oral answers in Hansard, and they gave no indication of any problems. This is a Treasury-driven decision, and it has put in jeopardy half the United Kingdom's sub-post offices.

§ Mr. Bob Laxton (Derby, North)
Only yesterday, at the Select Committee on Trade and Industry, of which I am a member, I tried to elicit some information about the Horizon project. I am unclear about an issue on which evidence was not forthcoming. [HON. MEMBERS: "Ask the question."] I shall get round to the question in due course.

§ Mr. Deputy Speaker
Order. The hon. Gentleman must get round to his question precisely and quickly.

§ Mr. Laxton
Thank you, Mr. Deputy Speaker. Can the hon. Lady tell me why the automation contract under the Horizon project was signed with ICL in May 1996, yet soon after, in February 1997, the contract was renegotiated by the previous Government?

§ Mrs. Browning
Like most hon. Members, I have served on Select Committees. People are brought before Select Committees to answer questions. If the hon. Gentleman had an opportunity to question expert witnesses yesterday and did not get an answer to his question, perhaps he should consider transferring to another Select Committee.

§ Mr. Tony Baldry (Banbury)
Is my hon. Friend aware that, as recently as November last year—this belies the Secretary of State's point—the then Secretary of State, the right hon. Member for Hartlepool (Mr. Mandelson), confirmed to the Select Committee in oral evidence that he envisaged that all post offices would be automated for the Horizon scheme smart card by 2000? As recently as 634 just before Christmas last year, the Government were determined to introduce the smart card. That was clearly Government policy.

§ Mr. Laxton
Will the hon. Lady give way?

§ Mrs. Browning
If the hon. Gentleman will excuse me, I have answered his question and I should like to respond to my hon. Friend. The record shows that right up until May this year no one in the DTI Front-Bench team, either in written or oral answers to hon. Members on both sides of the House, gave any indication that there was likely to be a problem with this system, let alone that the problems were so severe that it would be abandoned within three weeks of ICL making a public statement.

§ Mr. Mark Todd (South Derbyshire)
rose—

§ Mr. Tony Clarke (Northampton, South)
rose—

§ Mr. Ian Bruce (South Dorset)
rose—

§ Mrs. Browning
I shall give way to my hon. Friend the Member for South Dorset (Mr. Bruce).

§ Mr. Bruce
Did my hon. Friend see the two press releases that were produced when the scheme was abandoned: one from ICL, which had been approved by the DTI, and one from the DTI? Those two press releases were at odds with each other. The scheme was clearly not keeping to the timetable, because the NIRS2 computer, which was to provide the information, was not available. It was nothing to do with the roll-out of the Post Office. When the Conservative Government introduced this scheme, they went for the more expensive option of paying through post offices for the social reason of keeping those post offices open.

§ Mr. Deputy Speaker
Order. This intervention is getting far too long.

§ Mrs. Browning
My hon. Friend is right. I have a copy of the Secretary of State's letter dated 27 May this year, in which he informed us of his decision. There is no attempt to explain the decision. He says: As you may know the project was entered into in 1996 by the previous administration. The only explanation he gives is to say: It has suffered severe delays and setbacks. That is contrary to what had been said in answer to questions only a matter of days before.

§ Mr. Tony Clarke
I refer the hon. Lady to the comments of the Secretary of State, who said that the project has been delayed for three years. We have been in government for two years. Which part of that mathematical equation does she not understand? Will she answer the question put by my hon. Friend the Member for Derby, North (Mr. Laxton)? Why was the contract renegotiated in February 1997?

§ Mrs. Browning
It is very simple. The Government have had full responsibility for this programme for more than two years. The hon. Gentleman asked me to answer a question. If there were problems with this system in the 635 past two years, one would have expected Ministers to have flagged that up in parliamentary answers. Even in the letter in which it is announced that the system is to be abandoned entirely, there is no explanation and no allegation that it was because of incompetence and serious problems with the computer. I repeat that this is a Treasury-driven decision with huge consequences for rural post offices.
I give way to the hon. Member for South Derbyshire (Mr. Todd), who has been very patient.

§ Mr. Todd
The hon. Lady set out clearly the cost differentials of the various methods. Does her analysis mean that the Opposition disregard those cost differences and regard them as unimportant?
When ICL Pathway announced its view of the closure of the scheme, the managing director said: We are now moving from one contract and two customers to one contract and one customer. Personally, I am delighted with that. That was a fundamental problem with this project right from the start when it was conceived by your Government.

§ Mr. Deputy Speaker
Order. It was not conceived by anything to do with me. Mrs. Browning.

§ Mrs. Browning
When 1 read out the tariff, the hon. Gentleman will have heard me say that the payment card, which the Conservatives designed and put in place, would have cost 67p. We supported that, because we supported a vibrant rural post office system on which small communities depend. It was a cost that we were prepared to support, because it had far-reaching consequences for the heart of fragile communities in rural areas.

§ Mr. David Chidgey (Eastleigh)
Will the hon. Lady give way?

§ Mrs. Browning
I am answering a question. Whatever the consequences of the Secretary of State's decision to deny post offices that opportunity, if serious problems developed in the two years since they have had stewardship of the scheme, they kept them a well hidden secret. That is not characteristic of the Government, who are constantly baying about what the previous Government did. They keep repeating the mantra: we have inherited this, we have inherited that. Yet they kept discreetly quiet about the Horizon project. That is a suspicious indication that there is another agenda.

§ Mr. Chidgey
I believe that 3,500 sub-post offices were closed during the 18 years for which the hon. Lady's party was in power. The pathway project came to light in the final three years. I do not recall that the Conservative Government showed any concern about the closures that took place in the preceding 14 years or so. Can the hon. Lady tell me what they did then?

§ Mrs. Browning
The hon. Gentleman will know, as 1 do—I represent a large rural constituency—that one reason why post offices close is that all too often they are not viable in terms of the full range of services and products that they sell, sometimes purely on site. Post offices in my constituency are little more than converted sitting rooms in cottages. People who retire at, say, 636 50 often take on such businesses, run them for 10 or 15 years and, when they retire from that, find that the businesses cannot be sold as going concerns.
Conservative Members are only too conscious of the fragility of the economy of those post offices—which, I should add, are not just post offices but village shops. That is why we were prepared to put public funds into the card system. That helped to deal with the DSS fraud problem, and also helped to support fragile rural communities.

§ Mr. Martin O'Neill (Ochil)
Will the hon. Lady give way?

§ Mrs. Browning
As the hon. Gentleman is the Chairman of the Select Committee, I will give way to him, but then I want to make some progress.

§ Mr. O'Neill
Perhaps the hon. Lady will share some information with us. What proportion of the 67p would have gone to the post offices, as opposed to the 7p? The hon. Lady might mislead the House, albeit by accident, if she suggested that all 67p would have gone to the post offices. I think that the administration costs were rather more substantial in the original scheme.

§ Mrs. Browning
I certainly would not wish to mislead the House. The hon. Gentleman is right, in that the tariff that I read out—with which he will be familiar—did, in my view, influence the DSS's decision to abandon the project. He will know, however, that the formula used for payments to post offices involves the number of transactions that they handle. If people went into their local post offices with cards, that would have meant remuneration for the post offices. Payment through bank accounts means no such remuneration—or so we think; I hope that the Secretary of State will give me a pleasant surprise by telling me otherwise. Moreover, there is the "lost opportunity" cost, in the case of post offices that sell other goods.

§ Mr. Edward Leigh (Gainsborough)
Will my hon. Friend give way?

§ Mrs. Browning
Yes, but this is definitely the last time.

§ Mr. Leigh
Will my hon. Friend confirm that it was for all the reasons that she has mentioned that the last Government decided not to privatise Post Office Counters, wishing to preserve the rural network? Will she also confirm that it was the wish of that Government. and that it is the firm and settled intention of the party that will form a future Conservative Government, to proceed with the privatisation of Royal Mail, while at the same time preserving that Post Office Counters rural network?

§ Mrs. Browning
We have already made known our support for the Government's decision to privatise Royal Mail, although, as I said earlier, we are a little disappointed that the Minister is to retain 100 per cent. of the shares. We shall have to see what we inherit at the next election, but 1 predict that, if it has not already happened by then, the sale and disposal of those shares will be imminent by the time of the next election. It is clear from the White Paper that the Government would 637 like fully to privatise Royal Mail—I make a distinction between Royal Mail and the Post Office Counters network—and we support them on that; but they have been held back by pressure from the unions.
Nearly 8,000 sub-post offices are in rural areas, and have limited opportunities to expand their business. They have a 35.4 per cent. dependency on the Benefits Agency work that they handle. Let me quote what the Secretary of State said about the rural network, on page 63 of the White Paper: The Government has repeatedly made clear its wish to see a thriving nationwide network of post offices. There may be a difficult transition as demand for traditional services declines whilst new services and new ways of working may still be at an early stage of development. The Secretary of State also said: Similarly, the unique reach of the counters' network, coupled with the Horizon platform, should mean that POCL"— Post Office Counters Ltd.— is well placed to offer a major channel to deliver the Government's ambitions to interface with citizens in a modern, convenient, efficient and coherent manner through the increasing use of IT. It would be helpful if we could investigate in more detail today exactly how those words will be turned into income for small post offices in rural areas.
I remind the Secretary of State that it was on the eve of the countryside march that he was called in by the spin doctors, and was shown on our television screens giving an assurance about the future of rural schools. He made that statement, on a Saturday night, to try to placate people in rural areas who were going to march through London the next day. He promised that no rural village school would close, because the Secretary of State for Education and Employment would intervene personally. That statement was made against the background of a Bill that the right hon. Gentleman was taking through the House at the time and which clearly provided for those powers to be removed from the Secretary of State.
I know that the right hon. Gentleman was set up that night. He was probably the only Minister on call. Let me, however, say this to him—in the warmest way I can, but quite seriously. People in rural areas do not want empty promises and platitudes from the Government. The Government have a long way to go to persuade people in rural areas that they understand either how such communities function, or the importance of what is at the heart of the rural way of life. I can assure the right hon. Gentleman that the post office is at the heart of the life of rural village communities, and that those communities will not forgive the Government if they make empty promises about its future.
Post offices, their customers and Conservative Members now look for substantive replies from the Secretary of State, so that the post offices can plan for the future. They face a huge change by 2003, which is not very far away. I should be grateful if the Secretary of State would answer some of our questions.
First, who will bear the cost of the transfer of ACT payments from a bank account to a local post office, allowing cash withdrawals? Secondly, will post offices be free to contract with all private sector companies handling mail costing more than 50p per item? Thirdly, what did those words in the White Paper mean? Presumably, 638 the Government intend post offices to continue to offer services that are Government-generated, and to receive remuneration.
What is meant by that? Presumably, post offices will have to tender competitively if they are to deliver information on behalf of the Government. If POCL won such tenders from the Government for the extra work, what revenue would they produce? Have any calculations been made? Given that 30 per cent. of their revenue will disappear in 2003, it is important for these small businesses to know how to plan to make up that 30 per cent. Moreover, they will want to expand rather than remaining where they are today.
Fourthly, what guidance will be given to POCL concerning the cross-subsidy between urban and rural areas? At present, 200 post offices are closing each year. Yesterday Mr. Martyn Baker, director of consumer goods, business and postal services, was asked by the Select Committee about the number of future closures. His reply was interesting. He said that Germany had approximately half as many post offices as the United Kingdom, with approximately the same volume of business. Of course, they do not have to deliver any benefits—and that will be the position of the UK post offices by 2003.
What are we to conclude from such an answer? I seek specific reassurances from the Secretary of State, but I can only conclude that, if we are to produce a model similar to Germany's by 2003, we can expect approximately 50 per cent. of our existing post office network to disappear even before then.

§ Mrs. Maria Fyfe (Glasgow, Maryhill)
One obvious point strikes me. Germany is not similar to the United Kingdom because large parts of the UK are rural, especially the highlands and islands, where populations are small and well spread out. That does not apply to Germany, so it is not just a case of x number of post offices for y number of people.

§ Mrs. Browning
I cannot explain why that was the answer that was given by someone with expertise on the subject to the Select Committee yesterday, but the point that the hon. Lady seeks to make is important. In the White Paper, the Government have promised that they will set standards on the geographic spread, so that people, wherever they live, can have access to a post office. It will be interesting to hear from the Secretary of State how, if there is a significant drop in revenue, with the attendant post office closures, those standards will be met. How will people be guaranteed access to a post office within a minimum distance if the network is to contract?
Will the Secretary of State guarantee that the present system of paying benefits will be retained until 2003 and that there will be no underhand schemes between now and then to persuade people to take their benefits by automated credit transfer? Clearly, post offices are worried about what will happen to them in 2003, but if, over the next three years, their position is undermined further by a Department of Social Security campaign to persuade more and more people who would not previously have thought of doing so to go for ACT, their concern will be exacerbated.
639 Last week, we gave support to the Secretary of State. It was qualified support. We have come back only a week later to raise the issue of the Post Office network because we are extremely concerned about the future of our post offices.
We are not the only ones. I quote from a statement by the National Federation of Sub-Postmasters. It said in June, before the details of the White Paper were known to the House: Many post offices already operate on the edge of viability. In these circumstances, with a loss of work on such a large scale, the local post office will not survive"— it was, of course, referring to the decision to abandon the Horizon project. It goes on to say that local post office closures will result in a loss to those beneficiaries who want to use post office services, including the elderly, infirm and those without transport, people who are comfortable with transacting their business in the post office environment. I understand that, in his evidence to the Select Committee yesterday, the Secretary of State prayed in aid his experience of small post offices. He said that he would like to use his post office as a bank and perhaps buy a newspaper and a tin of beans at the same time. Whatever solution he comes up with—I hope that he will—to save our post offices, a tin of beans and a newspaper will not make enough difference to make up for a drop in revenue of 30 per cent.

§ Mr. Chidgey
Or knickers.

§ Mrs. Browning
Indeed. The Secretary of State knows that he has our support in releasing Royal Mail to participate in the global communications market. Of course, we are disappointed that he has decided to hold on to the shares, but as I have said, we anticipate that that will change.
It is not always recognised that, within what people euphemistically call the Post Office, there are really two distinct entities. One is Royal Mail; the other is the post office network under Post Office Counters. While the Royal Mail is given new opportunities to expand, in the White Paper, one cannot say the same of the post office network, which is primarily a co-operative of independent businesses, dependent on Post Office Counters to negotiate contracts, particularly with the Government.
If the post office network were a company, the White Paper's proposals on it would be described as a downsizing exercise. Both the Opposition and the post offices look to the Secretary of State to identify clearly why they should look forward to 2003 with optimism and hope—not the concern that they clearly feel about the fact that the White Paper threatens at least 50 per cent. of the existing Post Office network. I hope that we can rely on the Secretary of State to give some straight answers to what have been some straight questions.

§ The Secretary of State for Trade and Industry (Mr. Stephen Byers)
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: welcomes the important White Paper on the Post Office published by the Government; notes the contrast with the years of Tory dithering, blinkered by ideology, that left the Post Office to decline; 640 welcomes the slashing of the EFL which contrasts with the Tory use of it as a variable tax on Post Office users; welcomes for the first time the clear commitment of the Government to a network throughout the United Kingdom of post offices which will be automated; welcomes the fact that for the first time the Universal Service Obligation will be guaranteed in legislation; and notes that the Opposition believes in immediate privatisation of the Post Office, showing they are still an ideologically-driven party, not one intent on improving services to the British public. I want to use the opportunity of the debate to address the concerns that have been expressed by the hon. Member for Tiverton and Honiton (Mrs. Browning) about the future of the post office network. The Government believe that the measures that result from the White Paper will safeguard the position of the network by putting in place a mechanism that was not there before—and was one of the reasons why 3,500 rural post offices closed during the lifetime of the last Conservative Government. I should also like to explain why we have rejected the benefits payment card.
I am pleased that the right hon. Member for Hitchin and Harpenden (Mr. Lilley), who was responsible for signing the contract on the benefits payment card, is in the Chamber. I hope that he will catch your eye, Mr. Deputy Speaker, because he needs to answer many questions about the difficulties that were created by the contract that he entered into as Secretary of State for Social Security.
The White Paper that we presented to the House last week contains a vision of the Post Office in the 21st century, but it does not address the concerns or needs just of the Post Office itself—it examines the specific needs of the post office network because we value that network. It is the single biggest retail network in the whole of Europe.
Because of that, great strengths attach to the network. We want to build on and enhance those, although not in the old way—the payment of benefits—because, to be honest, that is not where the future of the network lies. It lies in people such as me who are not in receipt of benefits going in, getting cash and spending money on other goods in the post office. I will not be tempted to mention what.

§ Mr. David Heath (Somerton and Frome)
Will the right hon. Gentleman explain what the position is in relation to Crown post offices, particularly those in smaller market towns? A few years ago, we had a disastrous conversion programme. It was stopped about 18 months ago; since then, conversions have not happened. If I read the White Paper correctly, those conversions will restart. Will he assure me that, if that is the case, the consultation will be much more effective than that two or three years ago, when it seems that when the consultation started, everyone said, "No, that is not what we want in the local community", but the Post Office went ahead anyway.

§ Mr. Byers
The White Paper makes it clear that we expect 15 per cent. of all transactions through the network to be conducted in Crown post offices. I am more than happy to give an assurance that we shall have an effective consultation on that issue, to ensure that local communities and local interests are represented. I also take the point that in the past, under the previous Government, that did not happen.
The previous Government put a hold on further development of the Crown network, whereas we want to give new life to Crown post offices. We believe that, 641 by having 15 per cent. of the network's volume going through Crown post offices, we shall be able to do precisely that. When we come to agree the five-year strategic plan with the Post Office—I shall say a little more about that in a moment—that is one of the issues that will have to be addressed before we agree to the plan's detail.
Given that the White Paper touched on some matters that are, politically and commercially, extremely sensitive and controversial, I was pleased that there was a broad welcome for the proposals that it contained. Yesterday, as part of the Post Office's annual report, the Post Office chairman said: As we have been saying for more than five years—and the Government repeated in the Commons last week—the status quo is not an option for the Post Office … it is a White Paper that frees us. We can do business with it. The Post Office chairman, therefore, has said that he welcomes the broad thrust of White Paper. He does so because it brings good news for customers, the Post Office, people who work for the Post Office, and the network.

§ Mr. Patrick McLoughlin (West Derbyshire)
Last week, when the Secretary of State made his statement, I asked him about the payments received by sub-post offices. A few minutes ago, he said that 3,500 sub-post offices have closed in the past 20 years—under the previous Government—which works out at approximately 175 closures annually. Is he aware that in my constituency in the past 18 months, nine rural post offices have closed? Does he agree that one reason why they have closed is that the payment they receive from the Post Office is under ever greater pressure? Will he give an assurance that, as a result of his announcements today, the Post Office will continue to offer reasonable pay rates to those who provide an excellent service to communities in very sparsely populated rural areas—where there is no commercial alternative, and not many activities into which they might diversify?

§ Mr. Byers
Those are exactly the post offices that we want to continue. I believe that, as a consequence of the commercial freedoms that we have now given the Post Office, it will have the opportunity of investing in the network.
One reason why the network has had difficulties is that the Post Office has been starved of resources. The hon. Gentleman will know that during the period in which he was serving in the previous Government, the Treasury was taking 95 per cent. of the Post Office's profits. The White Paper that we published last week makes it clear that we shall bring that down from the current rate of 80 per cent. to 50 per cent. this year and 40 per cent. in subsequent years. Next year, that will free up £175 million extra for the Post Office; this year, it will free up about £100 million. I hope that the Post Office will use that extra money to secure the future of the Post Office network—and that is what we shall be looking for in the five-year strategic plan.

§ Mr. Alasdair Morgan (Galloway and Upper Nithsdale)
The White Paper goes a bit further than that, saying that the Government are committed to supporting 642 post offices that are of "special value" to the community. Will the Secretary of State tell us which post offices are of special value, and how he will assess special value? Moreover, will the support be specific Government support, or—as he has just outlined—simply allowing the Post Office to keep more of its own money?

§ Mr. Byers
The White Paper puts in place, for the first time, a mechanism that will allow local people and local communities to express their view on the value of the post office in their own area. In a moment, I shall say a little more about the process and mechanism that we have created on the basis of the White Paper's provisions. There have been so many closures in recent years first, because the Post Office has not had commercial freedom; and, secondly, because we have not had a mechanism for local people to express their objection to a local post office closure. We provide such a mechanism in the White Paper.
I hope that if we can find a slot in the Queen's Speech later this year, we shall be able to introduce legislation securing the right of individual consumers and communities to express their view on the value of their local post office, as such a right would act as a very real deterrent against potential closures.

§ Mr. Ian Bruce
I think that the right hon. Gentleman will know that many people who have been dealing with the Government's proposals to deliver electronic government have suggested that post offices would be a good place for people to access information technology. Will he tell the House more about how he intends to get such an IT network installed in post offices, in light of the fact that implementation of the Horizon contract—which was signed by my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley)—was financed by private industry, which would be paid on the basis of transaction costs? There was virtually no provision for cancellation costs in Horizon because of the way in which the contract had been drafted. From where will the right hon. Gentleman find the money for that IT network? Will the Government sign real contracts with the post office network to deliver new electronic services?

§ Mr. Byers
Even as we debate the issue, agreements are being signed between the Post Office and Departments. I am pleased that, in just the past week or so, a three-year agreement has been signed for the Post Office to issue vehicle licences. Such developments are already occurring, and I think that the Post Office network has a great future role to play in implementing the modernising government agenda, using the benefits and opportunities available in new technology. I do not think that we have done enough to take advantage of those opportunities, but the Post Office network is in a great position to be the interface between the Government and communities—such as the rural communities that were mentioned earlier, and inner-city communities on housing estates that need the same type of provision. The White Paper will provide the means by which we will be able to do that, and the agreement that we have secured with ICL and Post Office Counters will guarantee that automation of the network will occur by 2001. When we achieve that, a raft of new opportunities will be open to the network.

§ Ms Helen Southworth (Warrington, South)
Does my right hon. Friend agree that the opportunities that are 643 opening in electronic commerce to small businesses provide a tremendous opportunity for the Post Office network, much of which runs alternative businesses to support the network? The modernisation of the Post Office will encourage sub-post offices, such as the one in Lymm in my constituency which e-mailed me yesterday to express enthusiasm for some of the things that we have been talking about, including action on automation and enhancing skills to take advantage of e-commerce.

§ Mr. Byers
My hon. Friend makes an important point about the new vision for the Post Office and the network. There will be a need to embrace new technology to meet the challenges that lie ahead. The important thing to remember about the Post Office and the network is that things cannot stand still. People are choosing to have their benefits paid through automated credit transfer rather than by the traditional giro or other means through post offices. People are making a choice, and it is wrong for the Government to stand in the way of that choice. The challenge for the Government is to find alternative means by which we can protect the network. We believe that the White Paper, with the new commercial freedoms and the new mechanism, will do precisely that.
The White Paper is a good deal for consumers, the network and those who work for the Post Office. It has been clear for a number of years that the Post Office has to meet the global challenge it faces from other postal services, which are moving rapidly. We can see developments on the continent and other postal services worldwide where the post office has had the freedom to invest and acquire other like interests and, as a result, has gone from strength to strength. We have reflected that in the White Paper, and we want the Post Office to become a global player. We will introduce a new structure and corporate personality for the Post Office, but based on our manifesto pledge to give new commercial freedom to the Post Office while it remains part of the public sector. That is what the White Paper does.
The White Paper has been well received. I mentioned the views of the Post Office. The Post Office Users National Council said that it thought that there would be "considerable benefits for users" of Post Office services. The Mail Users Association has described the package as a positive move towards an improved postal service for all. I received a very friendly letter from the general secretary of the Communications Workers Union, who said that, despite his reservations about the reduction in the monopoly threshold, he thought that the White Paper was an "extremely good document". There we have it—someone who knows the industry and its future direction has extended a warm welcome to the White Paper.
The Opposition motion talks about concern about the long-term viability of the Post Office. In fact, the Post Office is in now in a far stronger position because of the new commercial freedoms that we are giving to it. We are giving it the opportunity to borrow, without further approval, £75 million a year. If it wants to borrow more, it will have to get approval for that, but we will fast-track any application. The application will be judged on how robust it is commercially, the strategic plan—which has been agreed with the Government—and the risk that might be attached for the taxpayer. If the Post Office can satisfy those three tests, approval will be given and it can borrow substantially more than £75 million, if appropriate in the circumstances.
644 In addition, the Treasury take from the profits of the Post Office is to be reduced substantially—from about 80 per cent. last year to 50 per cent. this year, and 40 per cent. next year. That will give the Post Office £600 million extra between now and 2003.

§ Mr. Edward Davey (Kingston and Surbiton)
Why did the Government light on the figure of £75 million of borrowing without approval and what amount would the Secretary of State and the Treasury be prepared to permit after consultation with the Post Office?

§ Mr. Byers
It would be inappropriate to give a fixed figure, but it is a matter of public record that when I was Chief Secretary I agreed to borrowing of £300 million or thereabouts for the acquisition of German Parcel. That is an example of a sum that we would be prepared to consider. We are talking about hundreds of millions of pounds, provided that it is in the interests of the Post Office, as it was in that case.
A large acquisition will almost certainly require more than £75 million, and we felt it appropriate for that to require Government approval; borrowings below that figure are likely to be for investment in the infrastructure within the United Kingdom, which will be able to go ahead without Treasury approval.

§ Mr. McLoughlin
Even under the freedoms that the Secretary of State says he is giving the Post Office, the taxpayer will ultimately pick up any liability arising from failure, which I expect is why there has to be Treasury approval. What does he regard as fast-tracking Treasury approval, bearing it in mind that I have been waiting some considerable time for an answer from him about the future of post offices? What time scale does he envisage?

§ Mr. Byers
I apologise for the delay in replying to the hon. Gentleman. I will ensure that he gets an answer as speedily as possible. I am trying to remember how quickly we managed to agree the German Parcel deal. We are talking about days rather than months. We can move quickly if there is a commercial need for a fast decision.
The commercial freedoms that we have granted will help the Post Office. We will guarantee for the first time, in the five-year strategic plan, the strategic direction of the Post Office; but we will not get involved in its day-to-day running. For the first time, we will protect the universal service obligation in law, so that for the same fee a letter can be posted and delivered anywhere in the country. We think it an important principle that it should cost the same to send a letter from Westminster to the Isle of Skye as from Westminster to the Isle of Dogs.
I know that there is a lot of interest in why we thought we should not proceed with the benefits payment card in the Horizon project. The previous Government initiated the project and contracts were signed in 1996. The concept of the card was first officially announced by the right hon. Member for Hitchin and Harpenden at the Conservative party conference in 1994. He set out clearly the benefits that he thought would come from the card.
It quickly became clear that the contract would not work, and in February 1997 the previous Government began to renegotiate it with ICL. We are unaware of the details surrounding that renegotiation or of the advice that was received by the right hon. Gentleman before he 645 entered into the contract with ICL for the benefits payment card. Perhaps he will tell us what advice he received before he gave the go-ahead. It is clear that the contract has not been in the public or the national interest. It has cost the taxpayer hundreds of millions of pounds. The right hon. Gentleman has many questions to answer. The public rightly demand answers about his conduct and actions.
We tried to make the contract work, but it became clear early on that there were great difficulties, primarily because there were two parts to the agreement—the automation of the network and the benefits payment card—and it was a complex matter to put them together. The automation of the network itself was difficult. There are 19,000 post offices in the network and it is the biggest single retail network in Europe. Automation was necessary, but the inclusion of the benefits payment card on top of that created the difficulties with which we had to deal.
I first became aware of the problems in July last year when I was appointed Chief Secretary to the Treasury. One of my first actions was to call a meeting of the relevant officials to discuss the way forward. As a result, certain actions were taken during the autumn to try to get the parties to agree a way forward. We were unable to do that within the costs that had been agreed with ICL and, as a result, negotiations continued early this year to try to resolve the matter. In the end, an agreement was reached with ICL and Post Office Counters for a new Horizon—a new contract based on automation by 2001. Discussions are taking place now to ensure that we can put in place the platform for automation in the Post Office network and seize the opportunities that will arise from the smartcard technology.
The hon. Member for Tiverton and Honiton had a joke at my expense about my evidence to the Select Committee yesterday when I said that I would welcome the opportunity to go into a post office to get some cash and spend some of it on a newspaper or a can of baked beans. That is an important issue. At the moment, I cannot get cash from a post office and I go elsewhere to get my newspaper and to do my casual shopping. Most post offices would welcome more people coming in and spending money who do not go in to collect benefits. We should seize that opportunity for the Post Office network.
The contract that we now have will provide such opportunities and it will be in place in 2001. Automated credit transfer will be phased in from 2002 to 2005. The hon. Member for Tiverton and Honiton raised specifically the issue of whether the Benefits Agency would attempt to manage people into the banking system before 2003. I am pleased to be able to tell the House that the agency and the Department of Social Security will not adopt that course of action, as my right hon. Friend the Secretary of State for Social Security told the Select Committee yesterday.
The Post Office network has no grounds for complacency. People are choosing ACT. Some 54 per cent. of new recipients of child benefit choose ACT, as do 48 per cent. of new pensioners. The benefit payment card, if it had been introduced, would not have been the panacea that it has been held up to be, because people are drifting away from that approach. We need something 646 new, and we believe that automation, followed by the smartcard technology, will provide new opportunities for the Post Office network.

§ Mr. O'Neill
Who will pay for the new computers that will be located in the post offices, especially those in financial straits?

§ Mr. Byers
My hon. Friend raises an important point. The Post Office calculates that the cost of the whole system will be some £800 million to £900 million. The Treasury has agreed that £480 million will come from access to gilts held by the Treasury, which will effectively be a grant towards the costs. The additional amount will be made up by charges that will be made by the Post Office on people who choose to use the service, especially Government agencies. For example, the contract that has been signed with Driver and Vehicle Licensing Agency will provide opportunities for the Post Office.
The Post Office is developing new ideas and initiatives to meet the new challenges. I am keen that we should involve all the parties to ensure success, and that is why I have established a working party made up of the Post Office, representatives of the network and of the workers in the Post Office to carry through that initiative.
I have no doubt that the new financial arrangements and the new technology will be of benefit to the Post Office network. However, I feel that that will not be enough on its own and that we have to put in place a new mechanism to support the network.
We shall look for a clear indication, in the five-year strategic plan that the Post Office will have to bring forward, of how it intends to meet the new access criteria that the Government will lay down. The White Paper makes it clear that, for the first time ever, access criteria will apply to the network, so that people will know that a particular percentage of the population must live within a certain number of miles of a Post Office facility. Those criteria have never existed before, but they will be introduced by this Government. Another of the duties placed on the regulator will be to ensure that the criteria laid down by the Government will be met.

§ Mrs. Browning
Will the Secretary of State clarify the point about funding the capital cost of the automated system? He said that there would be some Government funding and that the rest would be made up through contracts from Government agencies. Will that take the form of a down payment in a lump sum? For example, if the Driver and Vehicle Licensing Agency contract is to be secured and continued through the Post Office network, would the DVLA be required to pay a premium or a lump sum in advance?

§ Mr. Byers
Agencies pay for the service that they receive. The business was put out to tender, and the agencies have recognised that the Post Office network offers the best deal for them.
However, I do not want to mislead the House by implying that only Government agencies will be involved. Financial services will also use the network. We know that the Post Office is in discussions with the Co-operative bank, Alliance and Leicester and Lloyds TSB about how financial services could be offered through the network. It is worth bearing in mind the fact that the network is in 647 a very attractive position commercially. For example, 60 per cent. of rural parishes have a Post Office outlet, but only 10 per cent. of them have a bank. The network is in a strong position to secure an important part of that market and to charge the banks commercial rates for the services that it can offer.

§ Mrs. Browning
The Secretary of State has described what would be a revenue payment. Where would the £1 billion of capital investment come from to put the system in place before contracts can be offered for tender?

§ Mr. Byers
When the hon. Lady sees the figures, she will understand that the £800–£900 million that the Post Office has in mind is spread over the whole contract period, which extends to 2008–09. By then, there will be a clear revenue stream, which will help to meet those costs.
I was talking about the mechanisms in place to protect the network. For the first time, the stronger Post Office Users National Council will be able to express its views about the closure or proposed closure of a particular rural post office.

§ Mrs. Gwyneth Dunwoody (Crewe and Nantwich)
I apologise to my right hon. Friend for intervening, but he has placed some emphasis on rural post offices. Those of us who led fairly energetic campaigns to protect Crown offices and rural post offices know that, although it is important to be able to express a view, it is even more important to ensure that post offices are retained. Will my right hon. Friend give the House some assurance on the retention of rural post offices, rather than simply on the right to express a view? Some communities express their views with vigour and intelligence, but are still ignored.

§ Mr. Byers
I know that my hon. Friend has been a vigorous campaigner on a number of issues, including the need to retain post offices in her constituency. However, for the first time, the Government will provide a mechanism to protect post offices. Access criteria will be laid down, also for the first time. The regulator will have a responsibility to regulate and ensure that those criteria are met, and the five-year strategic plan, once more for the first time, will contain requirements about preservation of the network.
Clearly, I cannot guarantee that every post office will be safeguarded and preserved by the procedures that I have described. As the hon. Member for Tiverton and Honiton said, a post office may become non-viable for other reasons. For instance, it may not be able to sell goods and services over and above the post office provision supplied on site. However, we are putting in place the commercial freedom that will support the network, a mechanism to protect offices, and access criteria. Moreover, the new technology to be introduced will make post offices far more attractive than at present. That combination will put the network in a stronger position than it has occupied to date.

§ Mr. David Heath
Will the access criteria apply to places from which the sub-post office has disappeared? Will there be a mechanism for people to identify holes in rural areas in which there should be a post office? That would be useful to the many rural areas in my constituency that lost their sub-post offices over the years and where it has proved difficult to get them back.

§ Mr. Byers
We will produce access criteria later in the year. We will have in mind a national figure within which 648 to provide the Post Office network. Some parts of the country may be able to say that a post office is needed in their community, and the criteria will provide that opportunity. There will be plenty of debate about that matter if we win a slot in the Queen's Speech and put a Post Office Bill before the House for debate at doubtless great and interesting length.
I welcome the opportunity to concentrate on the post office network in the opening exchanges of this debate. The Government have a strong case on the network. We have put procedures in place to safeguard the network and have introduced technology to provide new opportunities in future. The new commercial freedom that we are giving the Post Office will allow it to invest in the network where it thinks it strategically important to do so. The network serves a valuable function, not just commercial but social. We recognise that, and the White Paper takes steps to ensure that we can be proud of the network. The amendment in the name of my right hon. Friend the Prime Minister reflects our pride, and I commend it to the House.