The Future of Post Office Ltd
A debate scheduled for 17th November in Westminster Hall
The Post Office is one of our last remaining national treasures but matters are coming to a head now and the mismanagement of the company since separation from Royal Mail has been catastrophic and extremely expensive for the government. This debate has been sponsored by the CWU but it is also supported and welcomed by a large number of Subpostmasters whose livelihood and therefore the future of their Post Office branch is under threat. No MP wants or needs a Post Office to close in their constituency but many are, and the trend of subpostmasters suddenly handing their keys back to POL is growing. I urge you to join this debate and take note of what the critics are saying. It is time for the management of Post Office Ltd to be replaced and an alternative solution found.
Ostensibly POL are accountable to parliament hence this debate, yet they are in practice not accountable to anyone. A company the size of POL which receives massive amounts of Government subsidy requires external critical scrutiny of their performance but the government fails completely to do this in any shape or form. The National Audit Office has no responsibility for POL. The Public Accounts Committee has never investigated the company but yet POL has received £2 billion in subsidy over the last 4 years and no questions have been asked on how it has been spent.
Most notably when a member of parliament queries the performance of POL, the Minister invariably reports that this is a matter for POL and asks Paula Vennells to reply by way of a letter. POL are in a position to congratulate themselves every step of the way.
A key problem from a parliamentary perspective is the lack of interest from parliamentarians in the regular scrutiny of performance of POL despite the massive investment in its future from them. As an example, when the last set of financial accounts were made available the link to the report was not correct on the Post Office web site and not corrected for several weeks after. Only those MPs who were provided with the correct link by email would have received access to the report. No other MP or member of the public bothered to review their performance and crucially allowed POL to be selective in who they shared their accounts with.
This lack of accountability and regular scrutiny is the key reason why POL are in the state they are today.
The separation of POL from Royal Mail has been a disaster and from an external perspective it looks as if the relationship between the two parties is failing fast. POL and RMG are tied together by a Mails Distribution Agreement – this from the RMG IPO Prospectus:
In April 2012, RMG transferred Post Office Limited (“POL”) to the Selling Shareholder. POL operates the UK’s network of more than 11,500 Post Office branches. The Group and POL have entered into the Mails Distribution Agreement, a long-term distribution agreement, under which POL sells Royal Mail postage stamps and the Group’s retail products (under the “Royal Mail” and “Parcelforce Worldwide” brands) to customers across the UK’s Post Office branch network. POL currently sells Royal Mail postage stamps and the Group’s retail products as agent of RMG and customers contract with RMG through the agency of POL. Under the agreement, POL receives separate remuneration from RMG for each product sold plus an additional fee payable periodically. In FYE 2013, approximately £1.7 billion of the Group’s revenue was generated through the sale of the Group’s postage stamps and products by POL on the Group’s behalf. In FYE 2013, the Group made payments of £371 million to POL, including the annual fee and other remuneration payable under the Mails Distribution Agreement as well as payments in respect of other operational items. Following Admission, POL will remain, subject to the PSA, in the ownership of HM Government.
It costs RMG 22% to allow POL to sell their products yet of this the subpostmaster receives less than 2%. Looking at it another way, RMG pays POL more for reselling their products than POL pay to the entire branch network for ALL the products the branches sell not just RMG products. As RMG are now a public company responsible to their shareholders it calls into question whether or not RMG would be better off selling directly to subpostmasters and other retailers.
From a subpostmaster’s perspective, a subpostmaster who buys a franking machine from RMG and continues to sell mail using that instead of stamps and labels from POL would be likely to earn more money without having to sell any other product. Queues in his shop would be smaller and he would not have to deal with the nightmare that is POL.
The question has to be asked what exactly does POL bring to this Mails Distribution Agreement and is there a long term future for it?
Since separation RMG has become a profitable company under keen commercial management and the scrutiny of its institutional investors. The same cannot be said for POL. Their management shows no evidence of any form of commercial acumen. Under the same scrutiny as RMG, it is abundantly clear that the current management of POL would have been replaced a long time ago.
There is no better indication of the inability of POL to run a successful commercial enterprise than their own disastrous attempts to operate several hundred Crown post office branches.
Network Transformation was all about reducing the amount POL paid to subpostmasters by encouraging them to merge their Post Office franchise with a strong retail offering. The footfall generated by the Post Office would ensure increased retail sales. Surely you would have thought that POL would follow suit and introduce a similar retail offering in the branches that they owned and operated. After all, the Crown branches are generally in extremely prominent positions in the High St. POL has failed to do so. What is absurd is that they want to move these branches into nearby retailers that offer stationery, greeting cards, newspapers and confectionery yet that have not attempted to enter this market themselves despite the massive footfall and brand awareness that they possess.
Again under accountability, POL has really no idea how profitable the Crown network could become under astute commercial management because they are under no pressure from anyone to do so other than the unions. There is certainly a case to be made before it is too late for the entire Crown network to be handed over, yet remaining in state ownership, to the very people that have shown they can run successful Post Office branches despite having to work for POL and they are the subpostmasters.
A key element of Network Transformation was to enable POL to maintain the size of its network according to the statutory requirements laid out in the Postal Services Act. POL described that target as delivering a sustainable network. Yet they have failed to comprehend what ‘sustainable’ actually means. As the vast majority of branches are privately owned and operated by subpostmasters whose ownership changes hands from time to time in the normal course of events (between 600 and 800 a year at the start of NT) then ‘sustainable’ means that there is a continual supply of small business entrepreneurs willing to purchase a Post Office franchise.
Subpostmaster income has now dropped to ridiculously low levels and the number of outlets for sale has therefore increased dramatically including many of the newly converted offices that POL has spent absurd amounts on refurbishing. That of course is coupled with less and less people being interested in taking a branch on. The inevitable is already happening and there is an increased trend of subpostmasters now just handing back their keys and losing their original investment through lack of buyers.
Unaccountability prevails yet again. POL has all the figures to confirm this but they release them to no one. Indeed it is a statutory requirement that POL produce to parliament an annual report on the network size – not an onerous task you would imagine to perform after their year end on the 31st March yet as of today 4/11/16 that report is nowhere to be seen and most importantly no one from government seems concerned about POL’s tardiness.
Cash in Transit
Despite statistics informing us that the use of cash is declining faster than ever cash is, and will remain for a long time to come, a crucial part of our economic infrastructure.
It is interesting to note that parliament recognises this in that Cash Delivery companies are one of the very few private enterprises that are statutorily entitled to road fuel in times of national crisis.
POL plays an important and increasingly vital part in the distribution of cash around the country. With High St banks now closing branches right left and centre the Post Office is the last outlet for cash in an increasing number of locations.
In addition the cost of the ATM Link network is now under discussion and the cost of cash handling including distribution is of major concern. Deposits and change giving are key requirements for SMEs around the country, without local access to such services many would find it difficult to survive.
POL however is under no obligation to provide such a service and they find the cost of doing so just as high as the banks do. In order to cut costs the whole Cash in Transit division of POL is under the threat of outsourcing. If that were to happen a key and strategic element of our national economic infrastructure would be out of the control of the government and open to all the risks of business failure.
POL management need to be advised accordingly and a strategy devised by the government to ensure this key element of POL’s business remains under their control.
In the last set of accounts published by POL, management finally acknowledged that they are subject to a massive claim from the Justice for Subpostmaster Group.
Contingent liabilities: As a large, nationwide retailer operating in dynamic and competitive markets, we may be subject to regulatory investigations and may face damage to our reputation and legal claims. From time to time, we may be named as a defendant in legal claims or be required to respond to regulatory actions in connection with our activities. This may include claims for substantial or indeterminate amounts of damages from customers, employees, consultants and contractors, or may result in penalties, fines, or other results adverse to us. Like any large company, we may also be subject to the risk of potential employee or agent misconduct, including non-compliance with policies and improper use or disclosure of our assets or confidential information. A High Court claim has been issued on behalf of a number of postmasters against Post Office in relation to various legal, technical and operational matters. Full particulars of the claim (including as to quantum) have not yet been received by Post Office. The Directors do not consider the outcome of any current claim or action will have a material adverse impact on the consolidated position of the Group
POL has until July next year to publish their annual report which will have to include a contingent liability for the JFSA action. The government and indeed all MPs need to be informed much sooner than that how much is at stake. It could well be several hundred million pounds.
In addition to the claim from the JFSA, that is understood to be quantified early next year, several of the unfortunate subpostmasters who were convicted and imprisoned are in the process of having their cases reviewed by the Criminal Cases Review Commission. In the opinion of many senior legal counsels there is every reason to believe that these cases will be returned to the appeal court and ultimately the convictions overturned. When that happens the machinations of the POL prosecution service will be exposed in court with all the repercussions that will follow. Association and support of the current POL management team could become extremely embarrassing for politicians.
It doesn’t end there either. The police have opened an investigation into alleged misconduct in public office against one of POL’s employees with regard to the prosecution of one the convicted SPMRs. That investigation is on hold until the CCRC report their findings. When it is re-opened the investigation may well extend to senior management who approved or at least ignored the conduct of the individual in question. Jail sentences are mandatory in these cases.
All in all a rather unhealthy state of affairs for a government owned national treasure and one that the media has already been attracted to. There can be no doubt that the ultimate outcome of all this, no matter how long the current investigations take, will be a full scale independent judicial inquiry. As David Cameron said at PMQs in a response to a question on the JFSA saga.
“I would hope that it would not be necessary to have a full independent judicial inquiry to get to the bottom of this issue, but get to the bottom of it we must” PMQ 1/7/15
He may have hoped it would not be necessary but it is now.
Any MP who stands by POL at this time must be prepared to defend their stance against the outcome of such an inevitable inquiry and the resultant media backlash.
POL and Uber
Last but not least , the recent decision in the Uber Employment tribunal case stating that the drivers should be classed as workers has extremely serious implications for the Post Office and the government. The Uber case is being appealed but if the decision is allowed to stand it is almost certain that an action by subpostmaster to be classed as workers will prevail. Taking into consideration the number of subpostmasters there are currently and have been in the past the outcome of that could lead to compensation payments running into hundreds of millions of pounds not only from POL but HMRC as well.