The Big Question: Why are post offices in trouble, and should we subsidise them?

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The Independent Online

What is the matter with post offices?

They are deeply in trouble. Despite receiving £150m of public subsidy a year in recent years, their number has plummeted, from 21,000 in 1985 to 14,000 in 2005. And the situation is getting worse. Such is the concern that the National Federation of Sub-postmasters handed in a petition with four million signatures to Downing Street yesterday, the "biggest ever" petition handed to a prime minister. Although 11 million people visit them each week, 150 rural post offices are closing annually.

Why are post offices closing?

Once, post offices were the only way to collect benefits from the state or to buy stamps; in the internet age that is no longer the case. Newsagents and supermarkets sell stamps, television licences and car duty are available online and, crucially, benefits are paid electronically into bank accounts.

In 2002, the Government started making payments direct into bank accounts and the new Post Office card account, instead of paying benefits and pensions over the counter at post offices. In January, the Government increased the problems for post offices by announcing that from 2010 it would no longer fund the Post Office card, which is held by 3 million people and worth £3,000 a year to individual post offices. In addition, the Government has not confirmed it will continue paying the £150m a year subsidy to keep rural branches open.

All this means that many post offices, and in particular rural post offices, will struggle to survive in the next few years. Despite the subsidy post offices lost the national Post Office Limited (one third of the Royal Mail Group, along with Royal Mail and Parcelforce) £111m last year. According to the postal watchdog Postcomm, only 1,500 of the UK's 6,000 rural post offices make money for the Post Office.

Is there a revolt by postmasters?

About 500 big post offices are run by the Post Office. But the remaining are run by the country's 13,000 or so sub-postmasters and mistresses who are fighting the Government every step of the way and who have enlisted the support of MPs, charities and consumer groups. The National Federation of Sub-postmasters says the Government should reverse the decision to axe the Post Office card and safeguard the network.

"Already we are seeing postmasters using their savings to keep post offices open," Colin Baker, the organisation's general secretary, warned after he handed in the petition.

According to research by Ipsos Mori for the organisation, new services have failed to make up for the loss of revenue from benefits payments. The Post Office believes these could be the salvation for branches but three of them - banking, other financial services and home telephony - make only £58 a month for the average postmaster, rural and city. Pay is falling. In January, the average take-home income of a sub-postmaster was £31,116, before running costs and staff wages. Eight per cent of postmasters - almost certainly in rural post offices - received less than £6,000 a year before costs 40 per cent of postmasters are failing to cover their costs, according to the research.

What does the Government say?

The taxpayer cannot go on supporting "uneconomic" post offices indefinitely.

Downing Street says the Government has invested £2bn in the post office network, including £750m for rural branches. Alistair Darling, the Secretary of State for Trade and Industry, said: "We recognise that some offices, maybe, will never be commercially viable but play an important social role. Equally, however, we have to make sure that the network is sustainable."

He said it was "inconceivable" that the Government would not pay any subsidy to maintain branches, but said the amount would depend on the future of the network.

What does the Post Office say?

Very little. It says the state of the network is "a matter for the Government."

What does everyone else say?

Consumer groups are upset. Citizens Advice says post offices provide vital services and strengthen communities, acting as a lifeline for pensioners and disabled people. Age Concern makes a similar point. Of 400 old people polled for its report, Stamped Out, 87 per cent used the local post office once a week; 14 per cent used it daily.

Almost 400 MPs have signed a House of Commons Early Day Motion calling for the Post Office card to be kept. Postcomm says the Government should balance the wider social role of the post office network with the "imperative" of establishing a sustainable business. The Government must take action "quickly." It warned: "Postcomm has seen a distinct change for the worse over the past year in the mood and expectations of those involved in the Post Office network, reflecting a recognition that without clear direction from the Government the problems will escalate."

What is the future?

Grim for sub-postmasters. Some 39 per cent polled for the National Federation of Sub-postmasters could see "no future whatsoever" for their business. The Ipsos Mori report, Sub-postmaster Income, suggested sub-postmasters were operating on tight margins, with decreasing income and increasing costs.

Sub-postmasters had become "heavily reliant" on income from the Post Office card and bill payments, both of which were under threat and the new services were bringing in low levels of income "or in many cases nothing at all."

Postcomm says the Post Office is right to try to find new ways of keeping rural services going, through mobile post offices and by installing post offices in other concerns such as libraries and pubs. The village of St Issey, near Padstow, Cornwall, for instance, has welcomed back its post office part-time in the Working Men's Institute Hall, run by a postmistress from a nearby post office.

Last year, the Department for the Environment, Food and Rural Affairs predicted that by 2015 the number of free-standing "single service" post offices would have declined significantly. It said there might be an increase in the number of "multi-service" post offices in shops, schools and pubs. The days of the traditional village post office are numbered.

Should the Government continue to bail out post offices?

Yes...

* Post offices are vital for strong communities, especially for old and disabled people

* Demand for their services will grow because of the urban drift to the countryside

* Post offices counteract the digital divide by giving people without computers access to products such as TV licences

No...

* Rural post offices are hopelessly uneconomic - only 1,500 out of 6,000 make money

* Supermarkets can provide many of the same services, such as selling stamps

* Electronic payment and websites render unnecessary a trip to the post office counter

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