David Prosser: It's not the Post Office's ownership that matters most but its funding

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The Independent Online

Outlook Having spent the previous 24 hours publicly eating his words on tuition fees, Vince Cable must have been relieved to get on to a fluffier topic yesterday. The Business Secretary's announcement that the future of the Post Office might lie in a mutual ownership model was the sort of heart-warming stuff he used to specialise in during his humble days as an opposition spokesman on Treasury matters.

It all felt delightfully post-capitalist – so much more Liberal Democrat, you might say. Who could fail to be moved by the idea of communities across the country coming together with their sub-postmasters to decide how the nation's post offices might be run?

Just one hitch. What about the money? The organisations Mr Cable name-checked yesterday, the John Lewis Partnership and the Co-operative Group, are poster boys for mutuality because as well as having ownership models that people admire, both consistently turn in exceptionally strong commercial performances.

If only one could say the same of Post Office Limited. It made a £64m loss last year on sharply declining revenues. The organisation relied on a £150m subsidy from taxpayers which is due to rise to £180m next year.

The explanation for these numbers is relatively straightforward. This is a business that is not run purely with the bottom line in mind. If it were, many hundreds more post offices would already have been closed. Post OfficeLimited is also overexposed to Government policy – the decision to switch to electronic benefits payment, for example, starved post offices of many of their customers. Royal Mail privatisation might repeat that trick, since Post Office Limited relies on the operator for around a third of its business and there is no guarantee it will keep these revenues once it has to deal with a private sector organisation.

Changing the ownership structure of Post Office Limited will not address any of these issues, even if it leaves all those concerned with a warm glow. It does, however, allow the Government to neatly sidestep the more fundamental question – how much taxpayers' cash should be handed over to the organisation in the years ahead in order to subsidise small businesses that are socially valuable but not commercially viable?

This is not to say there is anything wrong with these subsidies. If, as a matter of public policy, we decide unprofitable post offices are worth maintaining in the name of social cohesion, so be it. But let's not pretend mutualising the Post Office is somehow going to solve its funding issues.