Brussels jeopardises £270m Post Office closure plan

The European Commission is threatening to intervene over a £270m aid package put together by the UK Government to support the closure of 3,000 urban post offices.

Officials in Brussels have questioned whether the subsidy should be allowed under the EC's state aid rules, pointing out that the post office closures are largely the result of the Government's policy.

Sub-post masters are being offered an average of £60,000 or two years' income if they agree to close down. The programme is aimed at reducing the size of the urban post office network by a third.

However, the closures are the direct result of the Government's decision to switch payments of state benefits from post offices to bank accounts. This will rob the counters network of £400m of business – about a third of total revenues – making many post offices uneconomic. The prospects for urban and rural post offices have been further undermined by the scaling back of plans for a Universal Bank based on the counters network.

The compensation scheme for sub-postmasters has already been over-subscribed with about 3,200 branches registering an interest in closing down against the government target of 2,500 to 3,000.

The Government has given notice of the compensation scheme to Brussels and ministers remain confident that it will be approved under the state aid regime.

But some officials have pointed out that the aid would not be necessary if the Government were to reverse its policy and allow claimants to continue receiving benefits from their local post office.

The change to payment of benefits direct into bank accounts by automatic credit transfer will begin in April, 2003. The Government has promised there will be a two-year transition phase during which time people will still be able to use payment books but this will be heavily discouraged.