Draft Post Office Network Subsidy Scheme (Amendment) Order 2024

Kevin Hollinrake Excerpts

Wednesday 17th April 2024 General Committees

[The Minister of State, Department for Business and Trade (Kevin Hollinrake)]

I beg to move,

That the Committee has considered the draft Post Office Network Subsidy Scheme (Amendment) Order 2024.

It is a pleasure to speak with you in the Chair, Ms Vaz. The draft order was laid before this House on 11 December. Under section 103 of the Postal Services Act 2000 the Secretary of State for Business and Trade has the power make payments to support the provision of the post office network. The power is subject to conditions, one of which includes the cap on the total amount of funding that can be given to the Post Office in any given financial year. The current cap, set in 2011, is £500 million and we propose to increase that to £750 million. Raising the cap on funding that can be provided to the Post Office does not reflect a funding commitment. It is simply an enabling power to allow the Government to provide appropriate funding to the Post Office when needed.

The rationale for the increased cap is simple: we must avoid a situation where the Government cannot legally provide the funding that the Post Office needs for its essential activities. As all Members will be aware, there are important areas where the Government currently provide funding to the Post Office to enable it to maintain its delivery of key services across the UK.

First, there is funding for providing redress for the victims of the Horizon scandal, one of the biggest miscarriages of justice in living history. The victims must get the justice and redress they deserve. There are a number of redress schemes to which the Government are contributing funding, as well as funding associated with delivering redress schemes. It is essential that the process is not held up at any stage.

Secondly, the Government provide significant and vital funding to support the post office network. Post offices are, of course, the beating heart of our communities. Through the network of over 11,500 branches, post offices deliver essential services across the United Kingdom. There are currently over 6,000 rural branches—54% of the total network. Over 3,000 of those are described as the last shop in the village, providing vital retail, mail, parcel and banking services in one place, helping to sustain thousands of rural communities.

Such services are hugely valuable to individuals and small and medium-sized businesses in urban and rural areas across the United Kingdom. It came as no surprise to see that in the most recent Local Shop Report from the Association of Convenience Stores, post offices are identified as a type of service considered by the public to have the “most positive impact” on a local area. The Government have provided significant financial support to sustain a nationwide network—more than £2.5 billion in funding to support the network in the past decade alone. The Government remain steadfast in their support of the network and have committed to maintain the annual £50 million subsidy to safeguard services in the uncommercial parts of the network until 2025. Without that funding, many post office branches would be unsustainable.

[Shailesh Vara (North West Cambridgeshire) (Con)]

The Minister is making a powerful case for increasing the cap to make sure that Post Office Ltd continues with the very valuable service it provides for the community. He mentioned the Horizon scandal at the start of his speech. Is it the case that the cap we are debating today is for additional services for the Post Office to maintain the standards it has at the moment, or will some of that money go to victims caught up in the Horizon scandal? Is it a bit of both or will there be separate funding exclusively for the Horizon scandal? If all the money in compensation were taken up by the increased cap amount, there will not be enough money left over to maintain the standards of Post Office Ltd.

[Kevin Hollinrake]

It is, in my right hon. Friend’s words, a bit of both. It is about maintaining services, including rural services. On improving the technology, of course we need to replace the current system. It is also about compensation, and the means of delivery—the administration—of the compensation. It is important to note that not all the compensation provided—we have set a maximum budget of £1 billion for compensation—is provided through these means. There are separate means, through the group litigation order process and the new compensation process for the newly overturned convictions, which we anticipate overturning by July. They can be funded through separate means, so it is not all through this particular process, but some of it certainly is.

The Government will provide targeted investment funding to the Post Office, as the retail sector faces challenging conditions. It is still feeling the effects of changing consumer behaviour arising from covid-19, and the impact of cost of living pressures on consumer confidence arising from a range of factors, including inflation and high energy and supply chain costs, in a fiercely competitive market. As such, the Post Office is experiencing pressures as the business attempts to operate in this challenging commercial environment while meeting the cost to right the wrongs of the past.

Further pressures have also arisen through work to replace the outdated Horizon IT system. While this is a Post Office-led programme, it is essential for the future of the company and the network, and the Government have already committed to providing £103 million to support the development of the replacement system and to ensure the Horizon system is maintained before the replacement is rolled out. We provided funding to meet the company’s immediate needs for the programme and we are working closely with the Post Office to understand what funding may be required beyond this. These three areas are critical to the Post Office’s future and the current cap risks Government not being able to provide the Post Office with the funding it needs for essential activities. Having taken into account the Post Office’s current forecasts and the inflationary context since the previous cap was set in 2011, the Government considers a new cap of £750 million to be reasonable, sensible and proportionate.

--- Later in debate ---

[Kevin Hollinrake]

I thank Members for their important contributions, all of which I shall cover, if I think I can.

The hon. Member for Bethnal Green and Bow asked how the money is being allocated. As I said, this is a cautionary raising of the cap, rather than money specifically going out today. She also asked how the 2025 funding package is being spent. There is the £50 million annual subsidy for uncommercial parts of the network and £190 million to meet the costs of participating in the Post Office Horizon IT inquiry and delivering redress to postmasters. Some £103 million helps the development of a replacement for the Horizon IT system, but she might be reassured to hear that there are zero pounds for bonuses.

On our engagement with the Post Office, I meet monthly with the chief exec and other members of the board. I met today with the National Federation of SubPostmasters in one of its meetings to constructively challenge the Post Office management, which I attend on a monthly basis. I also meet the board itself—I did so recently—including the non-executive postmasters on it. I meet postmaster victims, as I did today. I was delighted to host Lee Castleton and others in Parliament today, where they met the Prime Minister and the Leader of the Opposition. It is important that those meetings are held, such as the one I did last week at Fenny Compton for a BBC programme.

The engagement is about not only righting the wrongs of the past, but the future. The post office network has a bright future, with revenue opportunities that are very much around access to cash and how the banking framework can bring more revenue into post offices. It is crucial not only to increase revenue, but to reduce costs at the centre. It is important that the Post Office itself reduces central costs so that more of the money that flows into the organisation as a whole goes to the postmasters themselves to create more profitable businesses.

The shadow Minister referred to governance. We decided to part company with Henry Staunton and the Secretary of State was absolutely right to do what she did. We hope to see improved governance with a new chair, whom we hope to appoint shortly.

We have been clear, certainly for the past 14 or 15 months in which I have been in this post, that Fujitsu has not only a moral responsibility—it accepts that, as it said before the Select Committee—to own up to how it contributed to what happened, but a financial responsibility. It will contribute significantly to the compensation bill, and we have already had conversations about when that will happen. The right approach is for the inquiry to hear all the evidence, after which we can decide how blame is apportioned and who is culpable.

The inquiry’s evidence sessions are due to be concluded by the end of this year, with the report published early next year. By that point, we will know the full extent of the compensation bill, and that is the right time for final conversations with Fujitsu about how much it should contribute. I appreciate the cross-party support for those conversations. We will have ample opportunities in debates such as this, as well as those on the Floor of the House as we debate the convictions legislation, to press the case publicly with Fujitsu that we expect a significant contribution to be made. I thank the hon. Member for Bethnal Green and Bow for her support and kind words.

The SNP spokesman, the hon. Member for Gordon, talked about the reduction in services at post offices. He was right: there is no doubt that there has been a significant reduction in the amount of money generated at the post office level compared with 10 or 15 years ago. Letter volumes are a part of that, as are Government services, driving licences and passports, but what has happened is largely due to consumer behaviour, not our interventions. We do not think it is right for us to dictate to our citizens how they should access Government services.

I am sure the hon. Member for Gordon and other members of the Committee do not go to a post office when they renew their passport or driving licence; they probably renew online. It is far more convenient for people to do that, so we should not dictate to our citizens how they access vital public services. It is very important, of course, that we find other sources of revenue for the Post Office, which I will talk about again in a second.

The hon. Member asked whether the cap would impede delivery if there was a flood of new applications for redress. No, absolutely not. This is just one of the mechanisms by which we deliver compensation. The other mechanisms are through the Horizon convictions redress scheme, which is separate, and the GLO scheme. We do not feel that the cap, as a separate means of delivering compensation, will in any way prevent the right money going to the right people.

I thank my right hon. Friend the Member for Suffolk Coastal for her engagement on the matters important to her. She is right to point out that the subsidy for the uncommercial parts of the network is £50 million. We are trying to make sure that the uncommercial parts become more commercial, to deliver more services—particularly around parcels. The Post Office is moving to parcel hubs. I think 8,000 post offices up and down the country offer their customers at least three different options for sending parcels—Royal Mail, Evri or DPD —and that number is increasing. A range of different parcel carriers can provide services, and those are all revenue opportunities for post offices.

Banking is a lucrative source of revenue for the Post Office and is getting more lucrative. As my right hon. Friend said, bank closures have saved banks around £2.5 billion a year, and that number is increasing, so it is only right that a significant proportion of that saving should go into the Post Office network and improve remuneration through the banking framework. The hon. Member for Brighton, Kemptown said that the banks should be more generous in their negotiations with the Post Office. Those conversations are progressing reasonably well, but we are keen to make sure there is a better deal for the Post Office and that significant amounts of revenue flow into post offices through that source.

Additionally, Government legislation on access to cash means that banks are forced to leave behind in the communities they abandon banking facilities that include post offices and banking hubs. There will be between 500 and 1,000 banking hubs rolled out over the next few years. There are 40 already, but another 60-odd are in the pipeline, so there will be significant numbers of banking hubs around the country, which represent opportunities for postmasters, who tend to get the first bite of the cherry to operate those hubs.

[Lloyd Russell-Moyle]

The banking hubs are particularly good where banks are leaving, but communities already bereft of their bank have not had the opportunity for the post office to come in, so there is still work to be done. Does the Minister agree?

[Kevin Hollinrake]

Yes, I do. There can be timing differences, and we urge the banks to put those facilities in place before they leave those communities. Banks are separate commercial entities, and we have legislated to say that they must provide services such as access to cash in those communities. We have made those steps, and they are resulting in significant numbers of banking hubs being rolled out across the country, which are opportunities for our communities and our postmasters.

My right hon. Friend the Member for Suffolk Coastal mentioned the Kelsale outreach branch, which we have met about. We are keen to support her campaign to ensure those communities are still well served. She is right to point out that there should be transparency around where that money goes. A £50 million annual subsidy is going into the Post Office every year, some of which, potentially, will be provided through the raising of this cap. It is also about the Horizon IT inquiry and redress, and the IT system. The key message we have for Post Office Ltd is that it should be reducing costs at the centre to ensure that more of that subsidy, and more of the income resulting from the services provided by post offices, is going to the postmasters to make those post offices more financially viable, so that we see fewer closures.

The hon. Member for Brighton, Kemptown asked about what criteria we apply when talking about which post offices to put where. There are clear criteria. There are around 11,700 post offices across the country, and 99% of the population should be within three miles of a post office. The hon. Member mentioned a 10-minute drive; three miles in 10 minutes is probably on the same page, depending on where we are talking about—sometimes in north Yorkshire it takes longer than that. Those access criteria were set in 2007-08, during a previous Administration.

The hon. Member for Brighton, Kemptown wants to increase the subsidy. I hear what he says, but I do not know where he is going to find the money—perhaps he could talk to the shadow Chancellor about that. As far as the Government are concerned, we are providing a significant amount of money to the Post Office to ensure that it is sustainable. However, we want it to be independently viable, and that is about driving revenue while reducing costs at the centre. That is our clear strategy. The hon. Member also asked whether all the money for all the schemes is coming through the raising of the cap. No, it is not. There are other schemes and methods of getting money into payments of redress: the GLO scheme and the Horizon convictions redress schemes.

In conclusion, the Government are committed to ensuring the long-term sustainability of the Post Office, and are working closely with it to ensure that the company receives the funding it needs. The Post Office needs to continue righting the wrongs of the past from the Horizon scandal, to go on providing essential services across the UK, and to invest in the future through programmes such as the replacement for the Horizon IT system.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Post Office Network Subsidy Scheme (Amendment) Order 2024.