Post Offices: Payment of Welfare Benefit (Hansard, 12 April 2000)

§ Baroness Byford
asked Her Majesty's Government:
What progress has been made in paying welfare benefits through post offices.

§ The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham)
My Lords, starting in 2003 we will be moving to a more secure and efficient method of paying benefits through automated credit transfer—ACT.
There will be no change to existing methods of benefit payment before 2003. And we have made clear that people will still be able to collect their cash from post offices if they wish to do so both before and after the move to ACT in 2003.

§ Baroness Byford
My Lords, I thank the Minister for that response. The many thousands of people gathered in Central Hall will be glad to hear that they will continue to receive benefits in the same way after 2003.
However, are the Government concerned that, with payments being made through the new system, post offices will become unviable? At present post offices receive 40 per cent of their income through handling welfare payments. It is a great concern.

§ Baroness Hollis of Heigham
My Lords, I, too, share the noble Baroness's anxiety that we do everything we can to ensure the survival of a national network of post offices. I cannot believe that anyone in this House dissents from that view. However, if the Government do nothing, we shall continue to see post offices closing. About 20 per cent of the network has closed over the past 25 years. The reason is that people are voting with their feet. Every year 500,000 people stop using the Post Office's paper order book Giro system and 500,000 new people receiving benefits choose to use ACT. So if the Government do nothing, the post office network will shrink even further.
Instead, the Government are in discussions with POCL and post offices. We shall fairly soon receive a Performance and Innovation Unit report on ways to strengthen in particular the rural post office network so that it sees bank closures not as a threat but as an opportunity to take on some of those services. That is why the Government have been assisting POCL, through the Horizon programme, to spend nearly £½ billion to produce an on-line service facility to those post offices—some of them are not even on electricity 184 at present—so that they can have electronic transmission and can provide banking services and help.

§ Lord Lipsey
My Lords, I wholly endorse everything that has been said about the virtues of rural post offices. However, does the Minister agree that they are more likely to thrive under what will he an innovative report from the PIU than from the declining and distorted subsidy they receive at present by being used to pay benefits?

§ Baroness Hollis of Heigham
My Lords, it is an opportunity not a threat. People are .voting with their feet. Post offices will decline if they do not offer the mode of payment that most people wish. At present, for example, the average cost of a transaction payment to a postmaster for a DSS transaction is 13p. If, instead, a post office handles a bank ACT transaction, the average cost to a postmaster is 17p. There are huge opportunities. Over half of all our villages have a post office; only 5 per cent have a bank. If we can facilitate the entry of post offices into the Horizon Link electronic transmission age, there is a massive opportunity to offer financial services to those at present excluded from them in our rural society.

§ Lord Geddes
My Lords, will the changeover in 2003 require positive or negative action on the part of beneficiaries who want to continue to receive their money from sub-post offices?

§ Baroness Hollis of Heigham
My Lords, we shall discuss the issue with those people. But even if one has a bank account but wishes to continue to receive one's cash paid through the post office after 2003, one can do so.

§ Earl Russell
My Lords, is the Minister aware that income derived from payment of benefit is at present essential not only to the viability of the post office but also to the income of the sub-postmaster'' Can she offer any concrete proposals which will make the job of sub-postmaster viable after a sharp diminution in the income derived from benefit?

§ Baroness Hollis of Heigham
My Lords, the noble Earl's question presupposes that there will be a sharp diminution in income and that in turn depends on the willingness of sub-postmasters to take on some of the banking facilities through the Horizon project which will make each transaction more remunerative to them. The Government are doing their bit to ensure that post offices are electronically linked up in order to undertake that role when banks are withdrawing their provision of such services. We are therefore meeting that part of the requirement.
Secondly, POCL is rearranging its payment to post offices and sub-postmasters so that those with the lowest turnover have a higher minimum payment before they receive a charge per transaction. Obviously, we support that.

§ Lord Higgins
My Lords, are we to understand that the Government have not yet decided how the option to continue to receive cash through the post office will work? Will she state clearly by what method people will continue to be able to do so?

§ Baroness Hollis of Heigham
My Lords, we expect there to be at least three possible options. The first is through the Horizon project which links up all post offices on line for the electronic transmission of money. That is secure, safe, cheap and convenient. An ACT transaction costs us 1p while a Giro transaction costs us —1.36. That Horizon platform means that post offices can offer banking facilities. They are already doing so for Alliance & Leicester, Lloyds TSB and Barclays, and other banks are considering that course. As regards such facilities, they receive a transaction payment, which is more than they receive for DSS payments.
Secondly, depending on the PIU report, post offices may be able to offer a universal banking service through the same systems. Thirdly, banks are to install about 3,000 cash machines.

§ Earl Peel
My Lords, does the Minister agree with the comment made by her honourable friend in another place that between 400 and 500 rural post offices are likely to close within the next year? If so, would she not agree that that would have a devastating effect on rural communities?

§ Baroness Hollis of Heigham
My Lords, I should be most upset if it did. An average of 250 post offices have closed in each of the past two years because the network is shrinking. That is because people are choosing to use ACT. Fifty-four per cent of people who become pensioners choose to have their pension paid by ACT through their bank account. The Post Office is losing 500,000 customers a year. Therefore, if the Government do not encourage post offices to provide banking facilities through the new electronic systems, post offices will wither. That will not be because of anything the Government have done, but because customers have taken their business elsewhere.

§ Lord Ezra
My Lords, is it not a fact that the Government originally intended that welfare payments would continue to be made through post offices and that a sudden change in that policy has created uncertainty and grave doubts among sub-postmasters and their customers about the future?

§ Baroness Hollis of Heigham
My Lords, I am not sure whether there has been a misunderstanding of the Government's policy. The Government have always made it clear that cash can be received by customers from post offices both before and after 2003, even if they also have a bank account. If customers choose to have money paid through their post offices they can do so.