12/04/2000 Westminster Hall Debate
Mr. Peter Lilley (Hitchin and Harpenden): I am grateful for the opportunity to raise this important issue on this particular day. This is my third speech in defence of the sub-post office network in just a few months, and it will not be the last. The issue will not go away, and nor will I. More important, public concern expressed in one of the largest-ever petitions to be presented to No. 10–it was signed by 3 million people–will not go away. The fears of sub-postmasters and sub-postmistresses who are lobbying Parliament today will not go away and the growing rebellion among Labour Members who are afraid for their marginal seats will not go away unless the Government drop their plans to force pensioners, disabled people, young mothers and other vulnerable groups to have their benefits paid into a bank account.
Since we last debated this issue, such concerns and fears have grown enormously. The Government have been unlucky, because no sooner had they announced that benefits would be paid automatically into banks–putting rural post offices at risk–than the banks announced massive closures in their rural branch networks. However, the Government?s main problem has been self-inflicted. It is increasingly apparent that the initial decision was the opposite of an example of joined-up government. The Treasury, the Department of Trade and Industry and the Department of Social Security had not reconciled their conflicting interests or thought through how ordinary people would be affected, and they had not recognised how the knock-on effects would cancel out any benefits.
I have had the advantage–some would say the disadvantage–of being a Minister at the Treasury, the DTI and the DSS, which may make it easier for me to examine the issue from all sides. However, I have always approached the matter first and foremost as a constituency Member, aware of the invaluable role that sub-post offices play in our constituencies. They are important in towns and suburbs, as well as in rural areas, and they are central to the vitality of rural areas and local communities. They provide essential services to the most vulnerable members of society.
At the DTI, I was responsible for the Post Office. I recognised the national importance of post offices, so I committed my party to maintaining a comprehensive national network. At the DSS, I realised even more clearly how essential the network of sub-post offices is–to distribute social security payments to millions of pensioners, young mothers, disabled people and others who cannot be expected to travel far to obtain cash. If the network did not exist, we would have to invent it.
I was a Treasury Minister before that, so I yield to no one in my enthusiasm for saving taxpayers? money–but I wanted only to make genuine savings. I was at the Treasury for long enough as a Parliamentary Private Secretary and then a Minister–seven years man and boy. I observed that the Treasury had a tendency to make savings in one Department?s budget even though that resulted only in offsetting cost increases in another Department. That rather perverse practice is enshrined in a doctrine enunciated by the Treasury mandarin, Nick Monk, who said:
Take any cut wherever you can get it.
That rather myopic doctrine has brought about the current actions by the DSS.
The Treasury has always considered the ?400 million annual cost of distributing benefits via post offices to be a tempting target. When I was Secretary of State for Social Security, I was advised that trying to save that money by requiring the payment of benefits into bank accounts would lead to the collapse of the sub-post office network. The only way to prevent that would be for the DTI to subsidise the network, and that would eat up the bulk of the savings. Therefore, the action would bankrupt many sub-post offices, undermine communities, inconvenience the most vulnerable people in our society, and yet produce little or no overall saving. Twice I have asked Ministers whether they have received similar advice from their officials, and twice I have received no reply. We shall see whether the Minister replies today.
The Government?s policy is even more perverse than that analysis suggests. They claim that delivering benefits costs far less via banks than via post offices. They say that automated credit transfer costs the DSS only 1p per transaction, whereas payments by order books cost an average of 49p. It is true that the banks charge the Benefits Agency only 1p per transaction. However, that is the cost only of transferring money from the agency to each bank account; it does not include the cost of operating a bank account or the cost of withdrawing money from accounts.
By happy chance, the Government have just published “Competition in UK Banking” by Don Cruickshank. Hon. Members who have reached annexe D4–I am sure that they all have–will have discovered that the average cost of withdrawing cash from a bank by cheque is more than ?1 per transaction. The average cost of withdrawing cash from a hole in the wall–an automatic teller machine–is about 30p per transaction. Of course, those costs will not be borne by the Benefits Agency, but nor will they be borne by banks. They get their money from customers, so the costs will ultimately be borne by them, through one charge or another.
Those customers will include the claimants who are forced to have bank accounts. By forcing people to receive benefits via banks, the Government are transferring from taxpayers to bank customers–including claimants themselves–the costs of getting money into claimants? pockets. That is why Ministers are not giving any guarantee that pensioners and others who are forced to receive payments through a bank account will not pay charges or face costs every time that they withdraw cash from a hole in the wall.
Mr. Oliver Letwin (West Dorset): Does my right hon. Friend agree that Ministers have sometimes mentioned at least the possibility of their subsidising the banks?
Mr. Lilley : Yes, that is a wonderfully perverse prospect. The Government have announced an inquiry, saying that banks are a force of evil incarnate, but simultaneously raise the prospect of their subsidising them, at taxpayers? expense, to undertake a task that will, in some ways, be more expensive than the original order book system.
Ministers have not given an assurance that the charges and costs will not fall ultimately on claimants. They have used words such as “we intend” that pensioners will not incur bank charges–but the road to hell is paved with good intentions. They have said “we do not want” banks to take money out of the pensions of people who are a bit overdrawn–but wanting is a long way from guaranteeing.
The second, hidden consequence of the Government?s policy is the loss of trade, which they call “footfall”, for post offices–additional to the loss of contract revenues from the Benefits Agency. At present, pensioners and others who pick up their money in post offices spend some of it in the shop. If they receive the money via their bank accounts or a hole in the wall, they probably will not spend it in the sub-post office. Even if the DTI returned to post offices all the savings made by the DSS as a result of not paying out benefits via post offices, the post office network would still suffer a net loss through loss of trade. Many sub-post offices would still have to close.
The Government?s proposed remedy is that pensioners and others be given the right to draw their money at sub-post offices, so benefits will be channelled via a bank account to the post office. Clearly, fewer pensioners will do that than currently have their money paid through the post office. Moreover, if they do so, their bank will have to pay the post office for the service to the banks? customers. It may have escaped Ministers? notice, but banks are not philanthropic organisations. They will want to recoup their costs from customers. If banks are unable or forbidden to do so, they will be reluctant to accept benefit claimants as customers.
Ministers hold out a vision of post offices undertaking banking services, not only for benefit claimants, but for the whole local community, particularly in rural areas where banks have withdrawn. I hope that sub-post offices will undertake that role, and I wish them well. I hope that they can make a profit where Barclays, Lloyds, HSBC and others have retired hurt–but that is just a hope. As yet, the Horizon project has no software to handle banking.
Mr. David Drew (Stroud): I do not disagree with the right hon. Gentleman, but he is being slightly historical. Surely the answer is the smartcard. My understanding is that smartcard technology is up and running–although not fully–and available. How should that be funded?
Mr. Lilley : I am certainly happy to get on to that subject because I attempted to introduce such a solution but the Government aborted it. It is important to recognise that the truncated Horizon project handles only the internal accounting and management services of post offices. As yet, it does not function sufficiently to take on additional business. Post Office Counters Ltd. intends to seek tenders later this year from companies that are willing to write the software to make such additional business possible. In short, having amputated from the original Horizon project the ability to transmit money from the Benefits Agency direct to post offices, the Govt now propose an ambitious new scheme to graft on to the Horizon project the ability to transmit money between post offices and every bank in the country.
When I was at the DSS, I concluded that compulsory ACT–forcing people to have their benefits paid into bank accounts–was a non-runner. It would either destroy the post office network or make hardly any overall saving if the network had to be subsidised by other means. However, I recognised that the process of distributing benefits by order books was one of the most costly, inefficient and fraud-prone ways of delivering money.
Then I discovered that half the ?400 million annual cost of Post Office Counters? contract with the Benefits Agency–I believe that that was the amount, but I am open to correction–did not end up in the hands of sub-postmasters, but was absorbed by the cost of printing, warehousing and storing order books and other central costs of Post Office Counters Ltd.
We concluded that, by automating the process of transmitting money from the Benefits Agency to sub-post offices and introducing a benefits payment, we could achieve substantial savings, eliminate fraud and still leave sub-post office revenues largely intact–and that, as a by-product, the computer programme would enable post offices to expand into other areas of business. I still believe that that is the only realistic route. I urge the Govt to introduce it under a different name. They can pretend that they are not doing it; I shall not expose them. I urge them to bring the process back.
Sadly, when the scheme allegedly ran into problems, as all large computer projects across the world do at some stage, the Treasury scuppered the scheme and imposed its pet idea–a compulsory ACT that forced payment to be made by the banking system. All I will say about that now is that, for almost two years, Ministers repeatedly assured the House that the Horizon project would be complete by the end of 2001. They have subsequently claimed that that it was three years behind schedule when they took over.
The Minister for Competitiveness, who will reply to today?s debate and who has considerably more integrity than many of his colleagues, was obliged to retract that allegation and admit that the delay had built up only by the time that they cancelled it, two years later. The Govt refused to tell us why the contract did not work and whether there was anything wrong with it, other than to say that there were no technical problems and that it was some managerial quagmire.
I remind the House that the project was based on the up-and-running Irish system for delivering benefits. The new Labour Government have failed where the Irish succeeded. I shall let that be their epitaph. I imagine that in Ireland they will be getting their own back for generations of jokes about the alleged incompetence of the Irish by telling Alistair Darling jokes about the Government?s inability to run a system that runs perfectly well in Ireland.
The Government defend the problems that they have got themselves into by using four main arguments. First, they say that sub-post offices have been closing anyway. Over the previous Parliament, they closed at an average of fewer than 100 a year. Under this Government, they have closed at double that rate. Indeed, over the past year, the rate of closures has been five times higher–more than 500 have closed in the past 12 months. That is simply the effect of announcing the prospect of moving to ACT. If the proposal is implemented, closures will run into thousands. To pretend otherwise is simply dishonest.
Secondly, the Government argue that an increasing proportion of claimants opt voluntarily for payment via their bank account, which in the long run is bound to undermine the post office network. That is scarcely justification for compelling people to move to payments via ACT, thereby destroying the network in the short run. Given time, post offices would be able to develop other revenue sources, but the Government will deprive them of that time and put the whole network at risk.
Thirdly, the Government argue that extra revenue sources will arise from the truncated Horizon project, which will make good the loss of the DSS contract. That would require DSS revenues to grow at about 17 per cent. a year compound between now and the end of the contract. At present, the project has no functionality for additional business. It may get it in due course–I hope that it does–but it will be quite a long time before it can handle new revenue streams. Those other revenue streams were originally intended to be a by-product of the development of the benefits card system; now they are the only feature. Therefore, the revenues that this ?800 million project will generate will have to repay that ?800 million before there is a single extra penny to compensate for the loss of the contract between the Benefits Agency and Post Office Counters Ltd. Can the Minister seriously suggest that that is realistic?
Mr. John MacGregor (South Norfolk): Surely it is not even 2003 and beyond that should concern us. Owing to concern about what will happen to sub-post offices, sub-postmasters are pulling out now–and finding it impossible to find someone else to take on the business.
Mr. Lilley : My right hon. Friend is absolutely right. That is why the rate of closures has accelerated. Ministers say that it is just because some elderly sub-postmasters and mistresses cannot cope with the new computers. That might explain why a few elderly people retire, but it does not explain why post offices close and are not filled by young, computer-literate sub-postmasters and mistresses. Sub-postmasters and mistresses are leaving the business because they fear that it is not a viable enterprise.
Mr. Oliver Heald (North-East Hertfordshire): Does my right hon. Friend agree that closures affect not simply the post office but the whole pattern of shopping in small villages? Fifty people turned up to my surgery in Watton-at-Stone this week concerned about this issue. They say that, if benefits are not paid at the post office, other little shops will die too, because people will no longer go into the post office, collect their money, buy a few things there and then move round the town. They will all go to Hertford or Stevenage.
Mr. Lilley : My hon. Friend is absolutely right. I have a neighbouring constituency to his, and exactly the same is being said by my constituents–both those who receive benefits and those who run related businesses. They see the sub-post office as performing a vital role in keeping the community going.
The Government?s fourth argument is to say, “We are installing 3,000 ATMs”–hole-in-the-wall machines. Of course, they are not installing them; that will be carried out on a commercial basis and in the most commercial locations between Post Office Counters Ltd. and the banks. It will still leave 15,000 sub-post offices without a hole-in-the-wall machine. Costs are highest where usage is lowest, so very few machines will be in rural areas. Even if they are installed there, they will reduce the footfall through the shops, as people withdraw money out of hours.
Mr. Tim Loughton (East Worthing and Shoreham): There is also a practical implication relating to cashpoint machines, in that many sub-post offices are too small to house them. For security reasons, a large area is needed at the back of the machine: 9 sq m is required to house them. Physically, therefore, many sub-post offices will be unable to accommodate them.
Mr. Lilley : That is a very good point. I was unaware of that fact, and I am grateful to my hon. Friend for pointing it out. The more one examines the Government?s arguments, the more flaws one finds.
Following the Government?s announcement that they are to make the payment of benefits into bank accounts compulsory, the important issue is not the administrative consequences for the Department of Social Security, the Benefits Agency and Post Office Counters Ltd., but the impact that the proposal will have on pensioners, young mothers, disabled people and other vulnerable groups in our constituencies. However, far from being the first people to be considered, they are the last and, 10 months later, the Government have still not explained how they intend to cope with the problems that those people will face.
Will the Minister set those people?s minds at rest by answering the following questions? Will the shift to compulsory payments through the banks mean that pensioners will receive their pensions four weeks in arrears instead of weekly and on time? That would represent a huge one-off saving for the Treasury, but it would be an enormous blow to pensioners, who would have a four-week gap in their finances. Their heirs could pick up the outstanding pension four weeks after they had died, but I hope that the Minister will not use that argument to justify such a move.
How will the Government cope with people who do not have bank accounts, or who do not want bank accounts? Will they compel banks to accept such people as customers? How will the question of those who are legally forbidden to have a bank account be handled? How will the Government cope with the 1 million emergency payments made every year, mostly to people who have no bank account and who would probably be unable to obtain one in normal circumstances? Those people will need that money urgently, and they obtain it at present by cashing a giro in the local post office.
What will happen to young mothers who have always had the option of receiving their money from a post office and spending it on their children? That is why the money was given in the form of child benefit–as a result of a campaign originally waged, I believe, by the right hon. Member for Birkenhead (Mr. Field). In future, that money will be paid into the family bank account, unless, presumably, they open a second account and pay all the charges that may be incurred as a result.
Is there any guarantee that no bank charges will be levied on those who take out bank accounts for such purposes? What will be the interaction between an overdraft and any money paid into the account? Will there be withdrawal charges levied on people withdrawing money from ATMs?
If the Minister has no answers to those questions after 10 months of thinking, it is because there are no satisfactory answers. Only one answer will be acceptable to the 3 million signatories to the petition handed in at Downing street today, to the 18,000 sub-postmasters and mistresses lobbying Parliament today, and to the increasingly worried Members of Parliament, including Labour Members. That answer is that the Government will think again, and reconsider the proposed system of automating the delivery of benefits direct from the BA into post office accounts so that we can preserve a viable network of sub-post offices in order to serve the most vulnerable people in the community.