The loss, the first in nine years, comes as the Post Office faces increased challenges through a reduction in its letter monopoly, greater competition and a decline in its traditional counters business.
The big write-off follows the Government's decision to abandon the ICL- led Horizon project and instead make the Post Office spend pounds 800m on equipment to automate social security payments through its nationwide counters network.
A Post Office spokesman said the move had forced it to include a one- off charge of pounds 571m in its accounts. Ministers have agreed that the Post Office can draw on reserves to fund the programme. The Post Office and the Government have agreed to proceed with the new computer network even though payment of benefits will start to go direct into claimants' bank accounts from 2003. Alan Johnson, the Competitiveness Minister said the Government was making a pounds 480m contribution towards the cost of automation.
Without the exceptional charge, the Post Office would have made a pre- tax profit of pounds 185m for the year. This is still well down on the previous year because of increasing competition.
Operating profits at Royal Mail were down 19 per cent to pounds 139m for the six months while Post Office Counters profits fell by 21 per cent to pounds 15m. But Parcelforce improved, reducing its losses from pounds 16m to pounds 15m.