Rural post offices sweat on funding as Government drops consultation

Fear over £150m-a-year subsidy as plan to hold public discussions ahead of deadline for decision is shelved

The Government has backtracked on a pledge to hold a public consultation over the future funding of 8,500 rural post offices before a spring deadline on what to do about them.

The Government has spent £150m a year since 2003 supporting rural branches, many of which are in remote locations and have little business. The payments, however, are due to stop in April 2008, at the end of a two-year "notice period" that must be served by the Government.

After requests from interested parties, such as Postwatch, the consumer watchdog, and the charity Age Concern, stakeholders were told by the Government that a "full and public" consultation would be held ahead of the two-year notice period.

But a senior source at the Royal Mail said the Government has since changed its mind and no longer plans to hold a consultation before the April deadline. "The original plan was [to hold it] but now they are not so sure about what they are consulting on," he said.

A spokesman for the Department of Trade and Industry insisted a consultation would still go ahead but was unable to say when.

The future of post office branches is a big issue for Royal Mail. Under its chairman, Allan Leighton, and chief executive, Adam Crozier, the state-controlled group has returned to the black, but the 14,500-strong post office network is still loss making. While most outlets are franchises, those still managed by Royal Mail lose around £70m each year.

The network has suffered because of changes to the way state benefits are paid. Money now goes directly to bank accounts, cutting out the need for a post office.

Most attention has been focused on rural branches, which often have only a handful of customers, but the urban network has also been affected.

Royal Mail has already closed around 3,500 branches and unions are concerned that more jobs could be cut. In particular, the Communication Workers Union is worried about a proposal to put the Mill Hill Post Office in north London out to franchise. "It could be closed or moved to a new site," said a spokeswoman. "We see it as a degrading of facilities."

A six-week consultation process about the move comes to an end this week, and Royal Mail will make its decision then.

But a spokeswoman for the company insisted that Mill Hill would not close. She added that whenever a post office was turned over to a franchisee, workers who did not want to transfer were offered alternative jobs within Royal Mail or a "generous" voluntary redundancy package.

"Some 96 per cent of post office branches are already successfully managed in partnership with individual subpostmasters or retail companies," she said. "One of the ways in which we can reduce costs, while bringing benefits to customers in longer opening hours and better surroundings, is through franchising, which has been a successful model for many years."

Most observers expect the payments to rural post offices to be reduced. In particular, there are concerns they could be classified as state aid and fall foul of European Union laws.

"There's a sense [that ministers] will do something," said the Royal Mail source. "They think £150m is a lot and would like to see if they could reduce it."

A spokesman for Postwatch said the watchdog accepted the payments could be cut. But he stressed the importance of maintaining a full service and the need for a detailed consultation. "The Government needs to decide what it's going to do in the coming months. We want a consultation as soon as practicable."

Royal Mail has also been looking at cutting costs across the rural network and has launched several pilot schemes, on which it will report back to the Government shortly. These include mobile post offices or the location of outlets in other buildings, such as pubs.