Mail privatisation will force thousands of post offices to shut

Consumer group warns that the network is at risk, as unions stage protest against sell-off

Privatisation of the Royal Mail could result in 4,400 post offices - more than one third of the national network - closing, according to an independent watchdog.

Consumer Focus told The Independent on Sunday the potential ending of hundreds of millions of pounds of annual subsidy by a fully commercialised Royal Mail threatened to devastate the fast-disappearing network.

A privatised postal service might also sign contracts for services with parcel collection and stamp sales to supermarkets and petrol stations rather than post offices, it added.

The warning from the publicly-funded consumer group comes despite promises by the Conservative and Liberal Democrat administration to halt post office closures, which are a highly contentious political issue, particularly among rural voters.

State-owned post businesses are in trouble as demand for letters and over-the-counter benefits payments falls and some 160 post offices closed and 900 were put up for sale last year.

The Coalition hopes to revitalise the postal system by injecting business acumen and investment into Royal Mail through a private sale or stock market flotation and by bolstering Post Office Limited (POL) through the generation of extra government subsidy and new income from running bank current accounts.

However the Business Secretary Vince Cable has ruled out the idea of creating a post office bank and stayed silent on the fate of a contract that requires Royal Mail to pay POL £343m a year for providing mail services, the Inter-Business Agreement.

According to Consumer Focus, officials in the Department of Business, Innovation and Skills have indicated Royal Mail will be required to keep the contract for only five years, after which it could sever the link - which in the last full financial year provided more than one third of POL's £838m income.

Andy Burrows, postal services expert at Consumer Focus, said: "There are few safeguards to keep that contract for the long term. It's entirely conceivable - though it seems an odd thing to suggest - but several years down the line you could have a post office network where you cannot undertake mail transactions. It would be for Royal Mail to determine which operator - whether it was Post Offices Ltd or Tesco or whomever - to offer mail services and there would be no requirement for stamps or parcels.

He continued: "You could see a scenario where Royal Mail looked to cherry pick so Tesco, say, could meet its requirement in urban areas and the Post Office would pick up the slack in rural areas where there isn't anybody else. And that has very serious implications in terms of the viability and integrity of the network because urban post offices typically make money."

Within years the number of post offices could fall by 37 per cent from its current level of 11,900 to the legal minimum of 7,500, he warned.

The Coalition - which has promised to regenerate the post office network - dismissed the claims as 'scaremongering', quoting a comment by Royal Mail's chief executive Moya Greene that it was "unthinkable" it would not always have a strong relationship with the Post Office.

As part of its strategy, the Government is moving small post offices into shops to create a network of 2,000 Locals and has persuaded all the main banks except Santander and HSBC to allow POL to offer current account services.

In October Mr Cable announced a four-year support package worth £1.34bn, which he described as "a significant increase in support." While the £330m-a-year initial subsidy is more than double the annual support of £150m during the past two years, the overall package is £10m a year less than the £1.7bn five-year deal announced by Labour in 2006.

The National Federation of SubPostmasters, which supports the Government's plans to create a mutual organisation owned by postmasters, welcomed the investment against a background of 'severe spending cuts', but called for a 10 year lock-in period for the Royal Mail subsidy.

"Without guarantees on the continuation of Royal Mail work and the growth of government work, the Government's funding programme and ambitions for the Post Office will struggle to succeed," warned its general secretary George Thompson.

The Communication Workers Union and the Commons Scottish Affairs Select Committee have also expressed concern about the fate of the Inter Business Agreement.

Postal Affairs Minister Ed Davey, a former postal services management consultant, responded: "I simply don't agree with scaremongers who claim that our plans to get private capital into Royal Mail will damage the Post Office.

"There will continue to be a very strong relationship between them. In fact our plans for the Post Office will make it an even more convenient and stronger retail partner for Royal Mail."

Post numbers have almost halved from the 22,000 in 1980, and more than 6,000 closed under Labour's 13 year rule. POL has admitted that around 8,000 of the existing 11,900 offices are currently not 'commercially viable'.

While staying 'neutral' over privatisation, Consumer Focus said it was concerned that services would deteriorate further, particularly for the elderly and mentally ill and expressed concern a £20m-a-year Government contract for paying the 'green giro' to 331,000 vulnerable benefits claimants would soon be cancelled by the Department for Work and Pensions.

"We were very pleased about the [Government's] language about post offices being the front office of government in the provision of basic services," said Adam Scorer, its director of external affairs.

"But one of our anxieties is that Post Office, who are not the most entreprenuerial bunch of people, will manage decline ... whereas what they need to do is grow. Primarily that's going be the provision of financial services which are not available in some communities and the Government wants to make mainstream banking accounts available to post offices, but it is resisting the development of a post office bank account."

The organisation fears the Post Office may not replace postmasters and mistresses who quit if they miss out on conversion to Locals and wants the Postal Services Bill going through Parliament to contain a safeguard that there should be a similar number and spread of post offices to what there is now.

Labour MP Gregg McClymont said that 8,000 post offices were effectively subsidised by the Government through Royal Mail. "The idea that a privatised Royal Mail would continue that is laughable," he said.

A private Royal Mail would bear down and put unsustainable pressure on post offices.