Government rules out state-backed Post Office bank

The Government has decided against setting up a state-backed Post Office Bank because it would be too time-consuming and expensive, ministers announced today.

The news came as the Government promised an "exciting new era" for the Post Office when it pressed ahead with controversial plans to privatise parts of the Royal Mail, pledging to invest in the network, refurbish branches, extend opening hours and cut queues.

Ministers said they were keen for banking to be extended at the Post Office, but they announced they had decided against the bank proposal, saying now was "not the right time" to create a new state-backed Post Office Bank.

"Setting up and capitalising a new bank would be time-consuming and extremely expensive. At a time when the public finances are under huge strain ... funding is better spent modernising and maintaining the network," said the Business Department.

Unions, small businesses and pensioner groups have been campaigning for years for a Post Office Bank to be set up as a way of supporting the branch network.

"This is a desperately disappointing decision," said a spokesman for the Communication Workers Union.

Postal affairs minister Ed Davey announced an agreement between Post Office Ltd and Royal Bank of Scotland (RBS) which will give RBS and NatWest customers access to their current and business accounts through the Post Office.

This will mean that almost 80% of current accounts will be accessible at post offices, said Mr Davey.

He added: "Our long-term goal is to convert the Post Office into a mutual structure, for example like the Co-operative Group, giving employees, sub postmasters and communities a much greater say in how the company is run. Our programme means the network is on the cusp of an exciting new era.

"We're determined to turn the Post Office network around and end the years of decline. The Post Office is a tremendous national asset. It will not be for sale and there will be no programme of closures.

"To underline our commitment we have announced £1.34 billion of funding over the next four years. The money will put the Post Office on a stable financial footing. It will help modernise the network and make it even more appealing to customers."

Paula Vennells, managing director of Post Office Ltd, said: "We warmly welcome the Government's significant level of support and commitment, which will allow us to invest in the network and in our service to customers, and help us develop new business."

Billy Hayes, general secretary of the Communication Workers Union, warned that plans to privatise the Royal Mail arm of the postal group would "kill off" post offices.

He argued that selling off the Royal Mail, coupled with rumours that the payment of benefits is to be handed to a private firm, would deny post offices the "oxygen" they need to survive.

He told BBC Radio Five that his local post office in south London had just closed, and questioned the Government's pledge not to repeat Labour's closure programme.

"If you take away the oxygen of the Royal Mail from Post Office Counters, if you take away the welfare contract, you are going to kill the post office network."

The Government said its £1.34 billion funding package over the next four years to maintain and modernise the Post Office network would include "significant investment" in 4,000 of the country's largest post offices to refresh the branches and deliver improved standards of service.

The model of providing postal services in partnership with retailers will be extended to 2,000 smaller branches across the UK.

The Post Office will also improve its online services and introduce a range of IT improvements to make transactions quicker and simpler, while there will be a continuing subsidy for rural and other branches that provide a vital social service but which could "never" be profitable.

The Government published a policy statement outlining a number of new opportunities for the Post Office, saying it wanted the organisation to become a genuine "front office" for Government at both the national and local level.

A number of pilot schemes have been agreed and other opportunities are under development, including Post Offices verifying supporting documents for customers of the pension service or providing government forms.

The Post Office is also exploring whether it can play a role in supporting Jobcentre Plus in the National Insurance number application process.

"The Government is keen for the Post Office to expand further into financial services. This will include offering new products through its relationship with the Bank of Ireland and looking into ways that the Post Office and credit unions can work more closely together.

"The Government also has an ambition that all UK current accounts will be accessible through the network and welcomes the new agreement between RBS and Post Office Ltd to provide access to current and business accounts through post offices," said the Business Department.

The announcement was made as MPs started questioning witnesses, including the Royal Mail, the union and user groups, in the committee stage of the Postal Services Bill.

Under the Bill, the Royal Mail will be sold to private investors, with at least 10% of the shares going to its employees, the largest employee share scheme of any privatisation for 25 years.

The Royal Mail's multi billion pound pension deficit will be taken over by the Government.

The network of 11,500 Post Office branches is not for sale and there will be no further closure programmes, said the Government.

The Post Office could be converted into a mutual structure as part of "innovative" new plans to hand the ownership and running of the Post Office to employees, sub postmasters and local communities.

A spokesman for the National Pensioners Convention, which is part of a coalition pressing for a Post Office Bank, said: "This is an extremely short sighted decision which will put the future of the Post Office network in jeopardy.

"It will deprive millions of old people a secure banking system they would have confidence in."

John Walker, chairman of the Federation of Small Businesses, said: "The Government's proposals to extend financial and Government services and products to the Post Office is a promising step, but this must be done with small businesses in mind.

"We know that small firms rely on the post office network and the Federation of Small Businesses welcomes the Government's commitment to put the future of the post office network high on the agenda.

"Small businesses have had enough of the difficulties they encounter when applying for loans and overdrafts, so any support to change is welcome news - but we are disappointed this is not through a Post Bank, a publicly owned bank run through the post office network around the country.

"This would provide a real solution for those small firms having problems accessing finance and would help keep the network alive. If the post office network is to give small businesses the service they need, the Government must commit to creating a Post Bank."

The CWU accused the Government of "misleading" the public through "propaganda" on Post Office funding, pointing out that the current funding announcement was £360 million less than Labour's funding package, that further closures were not being ruled out, and that ministers were reneging on a Liberal Democrat manifesto commitment to establish a Post Bank.

General secretary Billy Hayes said: "What we're seeing today is a lesson in presentation and spin. Today's plans and funding will not solve the problems faced by the Post Office, in fact this Government is adding to the uncertainty the network faces and giving the taxpayer a bad deal in the process.

"Funding is welcome, but it's £360 million less than what the last Labour government gave the network. Saying no programme of closures is very different from saying no closures, and the rhetoric of Post Offices being the shop front for Government services is already being exposed as benefit payments look set to move to the private company PayPoint.

"Today's statement is light on any detail other than the decision to spike Post Bank. This would have brought lucrative business to the Post Office and access to finance in all communities for small businesses and the financially excluded. Being triumphant about securing access to accounts in banks owned by the taxpayer is ludicrous and a huge climb-down for the Liberal Democrats.

"Ultimately this Government is preparing more damage than security for post offices. Privatising the Royal Mail and splitting it from the Post Office will threaten more than a third of the Post Office's revenue, dwarfing the Government funding package."

Andy Burrows, of Consumer Focus, said: "We welcome the Government's commitment to improve the Post Office network and the news that Royal Bank of Scotland will allow their customers access to current and business accounts through the Post Office. It is high time that all our high street banks, including HSBC and Santander, committed to providing services through the Post Office.

"These proposals give some security to the existing post office network but still amount to a major restructuring."

George Thomson, general secretary of the National Federation of SubPostmasters, said: "The NFSP welcomes the announcement of trials for new Government services at post offices, which have the potential to allow the public to deal face-to-face with the state in a trusted local environment, as well as delivering vital new revenue streams for our post offices.

"However, we need to see these schemes develop beyond trial status - ministers must therefore ensure that funding is earmarked to allow the nationwide roll-out of these services across the country on a permanent basis. We must also see enough services introduced to ensure there is an increase in the number of people visiting post offices.

"We have had many broken promises in recent years about new Government work. The post office network is facing a crisis with many subpostmasters hanging by their fingertips and so the Government must now deliver on new services."