HL Deb 16 September 2004 vol 664 cc134-7WS
Lord Sainsbury of Turville

My right honourable friend the Secretary of State for Trade and Industry (Ms Hewitt) has made the following Statement.

The Performance and Innovation Unit report on modernising the post office network, published in June 2000, recommended that the Government should support the rural network in the first instance to 2006. It also recommended that the Postal Services Commission, Postcomm, should advise the Government on options for the rural network after 2006. I have received that advice and have considered it very carefully.

The Government are fully committed to supporting the Post Office's strategy for creating a viable and vibrant post office network that meets changing customer needs, providing reasonable access to services in rural communities.

My honourable friend the then Minister of State for Energy, E-Commerce and Postal Services announced in the House on 2 December 2002 the Government's decision to make £450 million available to support the rural post office network through from 2003 to 2006. That three-year package was intended as a transitional measure, designed to help rural post offices through the changes in the network's business between 2003 and 2006.

At this point in the transition rural post offices continue to face real challenges and a large part of the rural network continues to be unsustainable commercially. For many post offices the number of customers they serve is simply too small to make the business attractive or sustainable. With the prospect of customer numbers continuing to fall as people access services in different ways it is clear that there are challenges ahead and that new ways to deliver services more efficiently and effectively are needed.

How and where people access services is changing. It is not clear that the present network best meets those changing needs, or whether because of that the current shape and scale of the rural network is a viable long-term prospect. A solution for the longer-term will need to take these changes fully into account.

Against this background Postcomm has advised the Government to review the reasons for and nature of our support of the rural network in the longer term. They advise that the nature of that support may need to change substantially.

Postcomm's advice recognises that such changes must be well informed and that further work will be necessary. Pilot activity by the Post Office, funded by the Government, to test new ways of ensuring access to post office services in rural areas is under way. The lessons that will emerge from these trials over the next 12 to 18 months will be crucial in informing longer-term decisions about the future shape of the rural post office network. At this stage it is simply too early to draw conclusions. The Government have therefore concluded that now is not the right time to take decisions about the long-term future of the rural network.

It is, however, vital that we continue to support the network through this continuing difficult period. The Government are committed to ensuring reasonable access for rural communities to postal and other services. It is also clear from Postcomm's advice to us that without government funding much of the current rural network would face closure.

I am therefore pleased to announce that the Government have decided, subject to securing any further necessary state aid clearance from the European Commission, to extend the transitional financial facility for rural post offices for two further years from 2006 until 2008.

The Government will make available up to a maximum of £150 million a year until 2008 to enable Post Office Ltd to continue to meet the cost of maintaining the non-commercial part of the rural post office network and to pilot new ways of delivering services. Pilot activity is a key element of the current funding package—we have already allocated £25 million to fund pilots. Our intention is that this will continue to be a key element of the package going forward.

The funding will ensure that Post Office Ltd will have money to test new ways of delivering services and will not be forced to close unprofitable rural post offices because of a lack of funding.

Current funding is from the gilts (government money previously received as "dividends" from the company and made available back to the company for certain specific uses) and it is our intention that the further funding to April 2008 will also come from these gilts. The detailed mechanism, sums of money and timing of payments will be subject to further detailed discussion with the company, as well as being subject to state aid clearance.

The PIU report recommended that the Post Office should be required to prevent avoidable closures of rural post offices, in the first instance to 2006. Postcomm has advised us that it is concerned that this policy can lead to post offices being saved or reopened where it is clear that customer numbers have dwindled to levels far below what is sustainable. Furthermore it has recommended that this policy should not be extended beyond April 2006.

The Government's direction to Post Office Limited to maintain the network and do all it can to prevent avoidable closures remains in place. There is no question of it being able to initiate the closure of offices. However, in response to Postcomm's immediate concern I propose to amend the definition of what is unavoidable so that when Post Office Ltd is responding to a closure (for example when a sub-postmaster decides to retire) it takes into account circumstances where there is no prospect of a viable future for a post office because of a collapse in demand for services in a particular location. The intention will be to ensure that Post Office Ltd is focused on maintaining access to services in rural areas fully taking into account local circumstances. These changes, yet to be worked up in detail, will be published.

I believe that we will be better placed to take a decision on the longer-term future of the rural network, including whether the current policy on avoidable closures should continue beyond April 2006, when we have feedback from the pilot activity now being undertaken by the Post Office.

I propose therefore to ask Post Office Ltd for a full report on pilot activity and its implications for future access to post office services by the end of 2005. I will then review the policy on avoidable closures beyond April 2006 at that point.