Rt Hon Lord Lilley

    This is my third speech in defence of the post office network.

    It won?t be the last.

    This issue won?t go away.

    I won?t go away.

    Public concern expressed by one of the largest ever petitions won?t go away.

    The fears of the sub-post masters and mistresses who are lobbying us today won?t go away.

    The growing rebellion among Labour MPs afraid for their seats won?t go away.

    ? Unless and until the government drop their plans to force pensioners, disabled people, young mothers and others to have their benefits paid via the banks.

    Since last we debated this issue, those concerns and fears have grown enormously.

    The government has not been lucky.

    No sooner had it announced that benefits would automatically be paid into banks than the banks announced massive closures of their rural branches.

    But the government?s main problem is self-inflicted.

    It is increasingly apparent that the initial decision was the very opposite of joined-up-government.

    The Treasury, the DTI and the DSS had not reconciled their conflicting interests. They had not thought it through how it would affect ordinary people.

    And they hadn?t recognised how the knock-on effects would cancel out any potential benefits.

    I have had the advantage of being successively a minister at the Treasury, the DTI and the DSS which perhaps makes it easier to see all sides of this problem.

    But I approach it first and foremost as a constituency MP ? aware of the invaluable role sub-post offices play.

    They are important in towns and suburbs as well as rural areas.

    They are central to the vitality of local communities.

    And 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 the network of post offices;

    And I committed my Party to maintaining a comprehensive network.

    Then at the DSS, I realized how essential the network of sub-post offices is if we are to distribute social security payments to millions of pensioners, young mothers, disabled people and others who could not be expected to travel far to obtain their cash.

    Of course prior to that I was a Treasury minister.

    So I yield to no-one in my enthusiasm for saving taxpayers? money.

    But I only ever wanted to make genuine savings.

    And I was long enough at the Treasury ? 7 years in all ? to observe that the Treasury had a tendency to make savings within one departmental budget even though that resulted in off-setting cost increases in another department?s budget.

    Indeed, this perverse practice was enshrined in a doctrine enunciated by a distinguished Treasury Mandarin, ?Take any cut wherever you can get it? .

    I am afraid that what the DSS is now doing ? at the behest of the Treasury ? is an example of this.

    The Treasury has always seen the ?400 million spent on distributing benefits via the post offices as a tempting target.

    But when I was Secretary of State for Social Security, I was advised that if we tried to save this ?400million by requiring people to have the benefits paid into their bank accounts, it would lead to the collapse of the post office network.

    And the only way to prevent that would be for the DTI to subsidise the sub-post offices.

    And that would eat up the bulk of the potential savings.

    So it would ? bankrupt sub-post offices

    – undermine communities

    ? and inconvenience the most vulnerable members of society for little

    or not net saving.

    I have twice asked ministers if they received similar advice and twice received no reply.

    But in fact the policy on which the government has embarked is even more perverse than that suggests.

    First, the government claims that delivering benefits via the banks costs far less than delivering them via post offices.

    They say that BACs charge just 1p per transaction whereas payment by Order Books costs 49p.

    Now it is true that the banks only charge the Benefits Agency 1p per transaction.

    But that is only the cost of transferring the money from the BA into each bank account.

    It does not include the cost of operating a bank account nor the cost of withdrawing money from an account.

    By happy chance the governments has just published the Review of UK Banking Services by Don Cruikshank.

    Anyone who reaches Annex D4 on page 283 will discover that the average unit cost of withdrawing cash by cheque is over ?1 per transaction.

    And the cost of withdrawing cash from a hole in the wall ? an ATM ? is 30p per transaction.

    Those costs are not borne by the Benefits Agency

    But nor are they borne by the bank.

    They are borne by the bank?s customers through charges of one kind or another.

    So what the government is doing by forcing people to receive benefits via the banks is to transfer the cost of getting the money to claimants? pockets from the taxpayers to the bank?s customers, including claimants themselves.

    That is why ministers are not giving any guarantee that pensioners and others who are forced to receive payments into a bank account will not pay charges or face costs every time they withdraw cash from an ATM.

    Ministers use words like we ?intend that pensioners will not incur bank charges? and ?we do not want banks to take money out of the pensions of people who are a bit overdrawn ?.

    But the road to hell is paved with good ?intentions?.

    And ?wanting? is a long way from ?guaranteeing?.

    The second hidden consequence of this policy is the additional loss to post offices from loss of trade.

    At present pensioners who pick up their money in the post office spend some of it in the shop.

    If they get the money via their bank account or a hole in the wall ? they probably won?t spend it in the sub-post office.

    So even if the DTI returned to post offices all the savings they make as a result of not paying them to pay out benefits, post offices would still be worse off through loss of trade.

    And many would still close.

    The government?s proposed remedy for this is to say that pensioners and others will be given the right to draw their money at the post office.

    So benefits will be channeled via a bank account into the Post Office if the pensioners request it.

    Clearly fewer will do so than at present.

    Moreover, if they do so their bank will have to pay the Post Office for the service to the bank?s customers.

    It may have escaped ministers? notice, but banks are not charities.

    They will want to recoup that cost from their customers somehow.

    And if they 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 just for benefit claimants but for the whole local community.

    I hope they do

    I wish them well

    I hope they can make profits where Barclays, Lloyds, HSBC and others have retired hurt.

    But it is just hope.

    The Horizon scheme as yet has no software to handle banking.

    (Indeed all it can do is handle internal management of post offices.)

    Post Office Counters intends to go out to tender later this year to invite companies to write the software to make this possible.

    In short having amputated from the Horizon project the ability to transmit money from the Benefits Agency to the Post Offices, they now propose to graft on to it the ability to transmit money too and from every bank in the country.

    Which brings me to the Horizon project.

    When I was at the DSS, I concluded that compulsory ACT was a non-runner.

    It would either destroy the post office network

    Or it would make hardly any overall saving if the network had to be subsidised.

    But I recognised that the process of distributing benefits by order books and giros was costly, inefficient and vulnerable to fraud.

    Moreover, as I recall, up to half the ?400 million annual costs did not end up in the hands of sub-postmasters.

    It represented the cost of printing order books, warehousing them, distributing them and so on.

    By automating the process and introducing a payment card, we could achieve substantial savings, eliminate fraud and yet leave sub-post office revenues largely intact.

    And as a by product the computer system could enable post offices to expand into other areas of business.

    I still believe that is the only realistic route.

    Sadly, when that scheme allegedly ran into problems (as nearly all big computer projects across the world do) ? the Treasury took the opportunity to scupper it and impose its pet idea of compulsory ACT.

    All I will say about that now is:

    1. For nearly two years ministers repeatedly assured the House that the Horizon scheme would be ready by end 2001.

    2. Ministers have subsequently tried to claim it was 3 years late when they took it over ? but the Minister for Competitiveness was forced to retract that allegation and admitted that this delay had only built up after they had been running the project for two years.

    3. They refuse to tell us what went wrong but admit it was not technical problems. It was essentially a managerial quagmire.

    4. Finally, the project was modelled on a similar scheme which is up and running in Ireland.

    Where the Irish succeeded, New Labour failed.

    Let that be their epitaph

    The Government Case

    The government use four main arguments to justify their present policy.

    (i) Sub-post offices have been closing anyway

    Over the last parliament on average fewer than 200 a year closed

    Under this government, the rate has trebled

    And over the last 12 months it has been 5 times as fast

    That is simply the effect of announcing compulsory ACT

    If it is implemented, closures will run into thousands.

    To pretend otherwise is dishonest

    (ii) An increasing proportion of claimants opt for ACT voluntarily which is bound to undermine the post office network in the long-term.

    That is scarcely a justification for compelling people to move to ACT and thereby destroy the network in the short term.

    Given time, Post Offices should be able to develop other revenue sources

    In the short term that is virtually impossible

    (iii) Extra revenues generated by Horizon will make good the loss of DSS contract revenues.

    That would require non-DSS income to grow by % compound until 2005

    Yet Horizon at present only handles internal management and accounting functions

    It will be some time before it can handle new revenue streams.

    Originally these other revenue streams were intended to be by-products of the benefit card system.

    Now they are the only feature.

    So these revenues will have to pay back the ?800million cost of the system before they contribute a penny of net income to the post office system to replace lost DSS revenues.

    Can the Minister seriously suggest that is realistic?

    (iv) ?We? are installing 3000 ATMs

    That still leaves 15,000 without ATMs

    The ATMs will be in the most commercial locations

    Costs are highest where usage is lowest

    So few will be in rural areas

    In any case they reduce footfall