Written evidence from Citizens Advice (PON0031)

Executive summary

●          Citizens Advice welcomes the opportunity to submit evidence to this timely Inquiry, which comes at a critical time for the post office network.

●          Post offices are still an essential part of local communities. There are 17 million visits a week to post offices and almost all individuals (97%) and small businesses (93%) use them at least once a year.

●          The Network Transformation Programme (NTP) and Crown changes have placed the post office network on a more stable footing and maintained its size. However, the network still faces a number of critical challenges.

●          Declining letter volumes and the loss of government contracts have placed post offices under significant financial strain. They also face the same pressures as all businesses seeking to maintain a high street presence, including staff wages and business rates.

●          There are opportunities to put the post office network on a more sustainable financial footing. For example, there is the potential for post offices to play a greater role in providing banking services as the major banks retreat from the high street. However, questions remain about the quality and reliability of the banking services they already provide, and how existing and future banking services should be funded.

●          Post offices also play a vital social role, which is growing in importance as many essential services leave the high street and move online. There is room for them to do more. For example, they could provide homeless people with secure, easy access to their post by introducing a simple PO Box style service. But if the social role of the post office is expanded, or even maintained, thought will need to be given to how these services should be funded in the longer term- through ongoing Government subsidy or other means?

●        Finally, our evidence shows that post offices which underwent change as a result of the Network Transformation Programme are performing in line with, or better than, traditional models. However, a lack of consistency in the accessibility of post offices for disabled people is concerning. We are working closely with Post Office Limited to address these concerns.

Introduction

1. Citizens Advice provides free, confidential and independent advice to help people overcome their problems. In 2018-19, we helped 2.7 million people face to face, over the phone, by email and web chat. There were also 36 million visits to our online advice pages. We provide support in over 2,900 locations in England and Wales, with the help of 23,000 dedicated volunteers.

2. We are also the statutory consumer advocate for the postal sector in England and Wales. Our role is to ensure postal services and post offices meet the needs of consumers in a way that is fair and accessible for all. We have particular responsibilities to represent the interests of consumers in vulnerable situations, and to consider the interests of small businesses.

3. We welcome the opportunity to submit evidence to this select committee inquiry. It comes at an important time for the future of the post office network, which recently completed its biggest ever restructure programme. During the Network Transformation Programme (NTP), which took place between 2012 and 2018, over 7,500 traditional sub-post offices, 2 in 3 branches, moved to new operating models - Post Office Locals and Post Office Mains. Broadly the programme achieved its objectives of placing the network on a more stable footing and maintaining a size of at least 11,500 post offices.

4. Crown post offices, the biggest town and city centre post branches directly operated by Post Office Ltd (POL), have also undergone significant changes with many franchised to retailers such as WH Smith. In the last 10 years there has been just under a 50% reduction in the Crown network. 

5. Consumers value post offices and they continue to play an important role in providing essential services and supporting local communities. However, post offices are operating in a challenging environment. Much of their traditional core business has been eroded as letter volumes have declined and the administration of essential and government services have increasingly moved online.

6. Sub-postmasters also face challenges when it comes to the level of remuneration they receive for the services they provide, business rates and growing staffing costs. This is a particular concern in the context of the Government’s ambition for POL to operate without subsidy in the future. 

7. There are opportunities for post offices to overcome these challenges. For example, parcel volumes are increasing and there is the potential for post offices to play a greater role in providing basic banking services in the context of bank branch closures. There are also opportunities for them to expand the social role they play in local communities, for example by providing homeless people with a secure, reliable way to access their post.

8. However questions remain about how post offices can play a social, as well as a commercial, role that is sustainable for the future in a challenging economic environment whilst maintaining consumer access to high quality services.

9. In our response we draw on our unique insight and evidence base on the consumer need for, and experience of, post offices today and how these needs may change in the future. We have limited our response to those questions where we can add most insight and value and are happy to provide the Committee with additional information on any aspect of our response.

1. Is the Post Office currently delivering services to the necessary standard across the UK?

10. Post offices deliver vital services to communities across the UK. There are 17 million visits a week to post offices and almost all individuals (97%) and small businesses (93%) use them at least once a year.[1] Around 6 in 10 individuals and small businesses visit a post office at least once a month. Disabled people are more likely to access services at post offices - almost 3 in 10 (29%) disabled people say they use a post office at least once a week or more, compared with just over 2 in 10 (22%) non-disabled people.[2]

11. In 2018, the Post Office reached the end of a major £2bn network transformation programme (NTP). This was designed to ensure the network maintained its size while remaining financially viable. Over 7,500 post offices were converted during this programme to new operating models with many integrated into retail outlets such as newsagents, convenience stores and petrol stations.[3]

12. Citizens Advice played a formal role in the consultation process throughout the NTP. As a result of the public consultation and formal review process, improvements were agreed or reassurances provided in approximately 3 in 4 post office changes, ensuring that accessibility standards across the network were maintained.[4] Improvements ranged from a new post office operator agreeing to install a permanent ramp at the entrance before the change took place, to ensuring the aisles are wide enough to allow wheelchair users easy access inside a branch.

13. Our research shows consumer satisfaction remained high throughout the NTP. Almost 9 in 10 (86%) consumers that use post offices operating under the new Local model report that they are accessible, and a similar proportion (84%) were satisfied with the service they received.[5] 

14. By putting the post office network on a more sustainable financial footing, the NTP programme, alongside additional government funding for ‘last shop in the village’ community post offices, has helped to maintain the size and reach of the post office network. This is particularly important as our research shows proximity is consistently the most important reason consumers choose to use post offices.[6]

15. However, we still have some concerns about accessibility standards and the provision of services at post offices. Our research found that despite some examples of good practice, the accessibility of Post Offices branches is inconsistent. For example, in 4 in 10 (44%) mystery shoppers with compatible hearing aids were not able to use a hearing loop during their visit to the post office.[7]

16. We also found that POL’s website did not provide information for consumers on the accessibility of post office branches.[8] As a result of our research POL has committed to putting in place a scheme to monitor the accessibility of its branches and updating the accessibility information on its website. We are continuing to meet with POL to ensure these important improvements are put in place.

17. Post offices also need to adapt to keep up with changes in the way people want to access services. One example is Self-service Kiosks (SSKs), which allow consumers to complete a range of transactions at an unstaffed kiosk rather than at a traditional counter. Our research found that SSKs are only located in 220 of approximately 11,600 post offices across the network.[9] Although some consumers, particularly older and digitally excluded consumers, have reservations about using SSKs, overall satisfaction is high.

18. Over 8 in 10 mystery shoppers (83%) who used an SSK said they were satisfied or very satisfied with their experience of using the machine.[10] This research also found that shoppers waited half as long to use an SSK compared to a traditional counter. However our research did show that some consumers can face problems using the machines and identifying them in store. The main difficulties include finding where to post items after using the SSK and navigating the large number of options and menus on the machine.[11]

19. Citizens Advice would like to see a significant increase, by at least double, of the number of post offices with SSKs available. We also want all SSKs retained at any Crown branch which is franchised. As part of the 74 Crown post offices that POL announced for franchising to WH Smith last year, branches with SSKs retained these machines.[12] POL should also improve consumer awareness in stores by improving signage and ensuring that staff are available to assist consumers.

20. The reliability of SSKs should also be improved and POL should develop a new generation of machines that could make kiosks easier to use for more complex transactions, potentially giving consumers 24 hour access to postal services.

2.              What concerns do you have, if any, about the long-term resilience of the Post Office network across the UK?

21. Despite the continued popularity of post offices, the network faces a number of challenges. These include declining letter volumes, the loss of government contracts and the rising pressures faced by all businesses with a high street presence.

22. As a result, although the NTP placed the network on a more sustainable financial footing, we are concerned about its sustainability in the longer term, and the potential impact of any decline in the network on the range and quality of services consumers are able to access.

Declining letter volumes

23. Between 2005 and 2018 letter volumes declined by 55%.[13] This presents a real challenge for the post office network, which relies on mail for 34% of its revenue.[14]

24. However the fall in letter volumes has to a significant extent been offset by the growth in parcels volumes brought about by the boom in online shopping. Since 2010 the UK parcels market has grown by over 50% with over 2 billion parcels sent each year.[15]

25. The post office network is the mostly commonly used access point for consumers to send parcels and return online shopping orders. 9 in 10 (89%) use a post office the most often to send a parcel and 2 in 3 (65%) use it the most often to return online shopping orders.[16] Post offices are also the second most used option, behind Royal Mail delivery offices, for collecting online shopping orders.[17]

26. The reach of the post office network, underpinned by the access criteria,[18] ensures it is in a good position to benefit from increasing parcel volumes, particularly in rural areas where it is not commercially viable for other parcel operators to serve consumers.

27. However, the exclusive relationships between retailers and parcel carriers and between POL and Royal Mail means that consumers do not have a real choice of which parcel pick up and drop off point (PUDO) they can use. This can result in long journeys for consumers to collect and return their online shopping orders, particularly in rural and remote areas where people are dependent on the post office network.[19]

28. Whilst the exclusive relationship between POL and Royal Mail provides a regular income for post offices, it may also be preventing them from capitalising on additional revenue from providing other parcel carrier services.

Services moving online and a loss of government contracts

29. Another challenge facing the post office network is from the growing move towards administering local and central government services online, and the loss of key government contracts. In the last 5 years revenue from government services has decreased by 40%.[20]

30. Our research shows a dramatic fall in consumers making payments to government agencies and local councils at post offices in recent years. For example, only 1 in 10 (13%) consumers now pay vehicle tax at a post office, a two-thirds decline over the last 5 years.[21] There has also been a considerable decline in consumers using post offices to pay utility bills due to the increasing use of direct debits.[22] 

31. The fall in consumers withdrawing their state pension or benefit payments at post offices is one of the most significant changes in the use of post office services over the last 20 years.[23] Today, only 1 in 4 (27%) people who collect state pension or benefits in cash do so from a post office - a considerable drop from the 45% of claimants who withdrew state pensions or benefits at a post office in 2012.[24]

32. At the same time, another important source of revenue for post offices is coming to an end. The Post Office Card Account (POCA) is a simple and limited banking facility allowing those without bank accounts to receive state pension and benefit payments. Consumers can also withdraw money and check their balance at a Post Office counter or Post Office cash machine.

33. The number of POCA holders has declined significantly, from just over 5 million in 2005[25] to 1.2 million in 2018.[26] This is due to more working age benefit recipients moving to transactional basic banking accounts with the introduction of Universal Credit, leaving a predominantly older consumer base whose accounts are closed upon death. The current contract for POCA runs out in 2021 and the Department for Work and Pensions has confirmed it will not be renewed.[27]

34. The loss of POCA and other key government contracts such as TV licence renewals, motor vehicle licences and biometric residence permits[28] continues a trend in the reduction of government services and income from this area for post offices.

Network trends and operator concerns

35. The NTP achieved its objectives of maintaining a network of at least 11,500 branches and placing it on a stable footing. However, in the last 10 years there has been nearly a 50% increase in the number of outreach post offices.[29] An outreach post office is where a sub-postmaster from a permanently located post office nearby visits a community at fixed times (usually a few hours a week), providing post office services in a hosted location, such as village hall or from a mobile van.

36. POL originally introduced outreaches to provide services in areas where post offices closed permanently. They are also deployed where a service is lost temporarily. This is a benefit of the model’s flexibility, as without them there would be no post office service. However we are concerned about their impact on consumer access to services in locations where consumers have been used to a permanently located post office open for longer hours, particularly in rural areas. This may result in longer journeys for these consumers to access an alternative full service branch.

37. In 2017 the Government announced a further £370 million funding for the post office network between 2018-21, including £160m to protect the ‘last shop in the village’ community branches.[30] Operators running these branches retain a fixed salary in recognition that it would not be commercially viable for another operator to run the branch on a commission only basis due to the location of the branch.

38. However, the future of community branches is uncertain. It is our understanding that when an operator of this post office type decides to leave the network or it closes permanently due to unforeseen circumstances, any new operator coming in to run the branch in an alternative premises will not retain community status. Instead POL will look to convert the branch to a new model run on a commission only basis. The potential lack of alternative operators willing to take on a branch in this situation may lead to rural consumers needing to travel outside their communities to access post office services.

39. Another factor which could impact consumer access to post office services is the future sustainability of some branches. Our operator research shows concerns with new model Local or Main post offices introduced during the NTP.[31] Those running particular sized post offices find it hard to staff their branch in an economically feasible way to provide consumers with a good quality service. Many operators also raised concerns about the falling level of remuneration for post office services against rising costs from business rates and staff wages in the context of the National Living Wage.

40. In recent years, POL reported decreasing operating costs which the company attributes in large part to a reduction in postmasters remuneration costs resulting from the NTP. For example between 2015/16 and 2016/17 sub-postmaster remuneration fell by £44 million.[32] A recent report from the National Federation of Sub Postmasters shows over 3 in 4 (76%) sub-postmasters earn less than the National Living Wage and over 1 in 5 (22%) plan to close, hand on their business, or downsize over the next year.[33] Consequently, this may result in more post office closures, negatively impacting consumer access to services. 

41. Post offices are expected to play a social, as well as commercial, role in a challenging economic environment whilst maintaining consumer access to high quality services. However, questions remain about who pays for this beyond 2021, particularly in areas where post offices are struggling to stay in business and/or are not commercially viable without some support, such as community branches. We believe there is a case for continued Government support for post offices in rural areas, but there needs to be a wider debate about whether all post offices should receive some subsidy for fulfilling unprofitable social functions.

42. As part of our new role following the NTP we will be monitoring the impact of post office changes on consumers and customer satisfaction of post offices. We hope to report on these aspects later in the year.

4. Does the increasing role Post Offices play in providing basic banking services provide them with an opportunity or a threat?

43. Since 2010, the number of bank branches have reduced by a third, and further closures are anticipated. However, access to physical banking services remains important - 40% of consumers are still regularly using a bank branch.[34]

44. In contrast, post office numbers have remained stable over the last decade. The 11,600 post office branches significantly outnumber the bank branch network.[35] On top of this post offices have a unique reach, penetrating all parts of the country and frequently the post office is the last remaining shop in a village. Almost 93% of the population lives within 1 mile of a post office and 99.7% within 3 miles.[36]

45. Post offices have provided some access to banking services for many years. But since January 2017, an agreement between the Post Office and the banking industry has enabled 99% of UK personal bank customers and 95% of business customers to do their day-to-day banking at post offices.[37] These services include cash withdrawal, cheque and cash deposits and balance checking. However, restrictions remain with only certain services available from some banks, and there is a £2,000 cash withdrawal and deposit limit at post offices without a security screen.

46. Research undertaken by Citizens Advice in 2017 found 20% of all consumers have used a post office for banking services.[38] The use of Post Office banking was higher in rural areas and for some vulnerable groups such as people with reduced mobility, those aged over 65, people with annual incomes under £20,000, and people are who are digitally excluded.

47. Cash withdrawal is the most commonly used service, and the more geographically remote people are, the more likely they are to make frequent cash withdrawals. For example, 22% of urban residents who use the service, withdraw cash from a post office at least weekly. However, this rises to 32% in rural areas and 39% in remote areas.[39]

48. Our research also found post office banking services are used by small businesses. 15% of all small businesses that need to withdraw cash for their business use a post office, rising to 24% in rural areas.[40]

49. Banking at post offices can be a valuable way to protect consumer access in the context of bank branch closures. However, studies consistently show relatively low levels of public awareness of the service. Citizens Advice research found that over 2 in 5 people don’t know that post offices provide banking services.[41] 

50. Citizens Advice also has concerns about the provision and quality of banking services at post offices. In 2017 we conducted mystery shopping across the majority of branch types in the post office network. While nearly all shoppers were able to access cash, we found 23% of staff were unsure how to complete banking transactions. In addition, 22% of shoppers were unable to access services they should have been able to, such as depositing cash.[42] Research with clients at local Citizens Advice offices also shows some consumers have concerns around privacy, security and queuing when undertaking banking transactions at post offices.

51. Post office operators and postmasters have also raised issues around the financial viability of offering the service. Many operators told us that the remuneration they receive for banking transactions does not cover the costs of offering the service. However, POL recently announced a significant increase for operators to process cash deposits which is likely to place these services on a more sustainable footing.[43] 

52. Citizens Advice believes there is a clear opportunity for post offices to play a greater role in providing banking services. But to make a success of banking at post offices, we need to understand if they can provide reliable and sustainable access to services. Consumers need to be aware these services are available, the services must meet their needs, and they must be protected and feel comfortable and secure in using them. There are also important questions to be asked about how post offices should be funded to provide these services. We will be undertaking further work on post offices and banking later this year, and are happy to keep the committee up to date on this.

5. What new services, if any, could the Post Office provide to customers?

53. As many essential and government services move online, the post office has the potential to be a vital hub for those who still need, or prefer, to access these services face to face. Despite large scale high street closures for many retailers and banks, the access criteria set by the government ensures the post office network has an unrivalled reach across the UK.[44]

54. For vulnerable consumers, including the 10% of UK adults that are digitally excluded[45], there is a need for physical locations in the community to access government and essential services. Citizens Advice believes post offices could be utilised further to ensure vulnerable consumers have access to the services they need.

55. Post offices could be a lifeline for those who have been excluded from accessing services in the usual ways. Citizens Advice research identified that homeless people are often prevented from accessing essential support services (banking, benefits, healthcare, housing etc.) because they don’t have an address or access to post[46]. This leaves them stuck in a catch 22 situation where they’re unable to move forward. We recommended that a free PO Box or poste restante type system be set up to give homeless people an address and access to post.

56. The Post Office is ideally placed to provide this kind of service, not only because of the size and spread of the network, but because of its social purpose. POL describes itself as a ‘commercial business with a public purpose’. The post office has long had a social purpose beyond providing postal services, and as a company that is owned by the taxpayer, it is important that it continues to serve that purpose.

57. We are pleased to see that, in the Republic of Ireland, An Post have recently set up a service giving homeless people an address and access to post at their network of post offices.[47]

58. This year Citizens Advice will explore whether post offices could also play a role in providing safe and secure access to post for survivors of domestic abuse who want to keep their location secret or their post free from interference.

6. Do you have confidence that franchises can maintain and improve current service levels in the Crown Post Offices they take over?

59. Over the past decade there has been an overall reduction to the Crown network by just under 50%.[48] The majority of these have been franchised into retail outlets such as WH Smith.

60. Citizens Advice has a formal role in reviewing any cases where Crown branches are moving to a different location (off-site) and are being franchised to an alternative operator. We do not take a view on who should own and operate post offices - as the statutory consumer advocate, our priority is ensuring consumers are still able to access the services they need and are not disadvantaged as a result of any changes. We raise any concerns about these changes with POL directly, seeking improvements where necessary.

61. Our research shows that newly franchised Crown branches are performing in line with, if not better than, traditional Crown post offices. For example the average waiting times are near identical between the 2 models while staff in franchised Crowns were nearly twice as likely to give the correct advice on postage in one of the scenarios we tested.[49] 

62. Our research also showed that a similar number of Crowns and former Crowns had accessibility features available such as an entrance that appeared flat or had a ramp/other access features present.[50] However there is still a patchy provision of some services at former Crowns, such as clearly visible hearing loops and portable PIN pads. POL has committed to putting in place a scheme to monitor the accessibility of its branches and we are continuing to meet with POL to ensure these important improvements are put in place.

63. Through our monitoring role and the broader research we undertake, including our upcoming post office satisfaction survey we will continue to assess whether former Crowns continue to offer a similar level of service and we will suggest improvements where necessary.

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May 2019