The Government came under bitter attack today after deciding to move a lucrative contract for processing benefit cheques from the Post Office which campaigners warned would lead to fresh branch closures.
Unions, postmasters and consumer groups lined up to criticise ministers, who were accused of "betrayal" for taking valuable business away from the Post Office.
Citibank will provide a new service from 2012, using Paypoint outlets, in a contract worth around £20 million a year, affecting more than 250,000 people.
Payments by cheque will be phased out after ministers said there had been a "dramatic" fall in their use over the past few years, with less than 2% of welfare payments now made by cheque.
It costs the taxpayer around £30 million to process cheque payments and they were easily open to fraud, said the Government.
Employment Minister Chris Grayling said: "This new contract represents value for money for the taxpayer. The facts are payment by cheque is now too costly and too open to abuse and we want our payment system to be as cost-effective as possible.
"We will make sure that everyone who receives their payments by cheque has all the help they need for the changeover and we can assist in choosing another method of payment that better suits their needs."
Communication Workers Union general secretary Billy Hayes said: "Taking government business away from the Post Office on top of privatising Royal Mail will cause the biggest closure programme we've ever seen.
"The Government can't be trusted with our public services, our post offices or the care of the most vulnerable. This cabinet of millionaires has no idea what it's like running a small business where the loss of one or two revenue streams can make the difference between profit and loss."
The National Federation of SubPostmasters (NFSP) said the decision had raised fears among subpostmasters on the future of other benefits payment services such as the Post Office Card Account (POCA), used by almost four million customers every week.
General secretary George Thomson said: "This is a bitterly disappointing decision from the Government. Benefits cheque customers rely on their local post office to provide this important service, with subpostmasters and trained Post Office staff providing assistance to hundreds of thousands of vulnerable customers each week.
"If we are to maintain a network of 12,000 Post Office outlets, subpostmasters need significant volumes of work in order to survive, including regular repeat transactions such as benefits payments. Ministers have to deliver new government work to post offices, not more broken promises."
Lindsay Mackie, campaigner at the New Economics Foundation, said: "Taking the contract for benefit payments away from the Post Office is an act of social vandalism that will devastate communities across the UK."
Andy Burrows, of Consumer Focus, said: "This will be a major blow for the post office network. Government has committed to making the Post Office the 'front office' for public services. The decision to axe this £20 million contract seems out of step with that ambition."
A Post Office spokesman said: "Whilst Post Office is disappointed not to have been awarded the contract, we are pleased that the Department for Work & Pensions has outlined new plans for working closely with us in the future, including three pilot schemes, universal credit reforms and strengthening links with credit unions."
Shadow business secretary John Denham said: "For all the Conservative-led Government's warm words, their actions are undermining the long-term future of the Post Office network.
"From their decision not to establish a Post Office bank, to this disappointing news, the Tory-led Government is failing to provide post offices with the business they need to continue to serve local communities.
"The Tory-led Government must now guarantee future work for post offices through a 10-year IBA (inter-business agreement) and give a cast iron commitment to other Government contracts or shelve their plans indefinitely."