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Hard times for the local post office

publication date: Aug 22, 2007
 | 
author/source: Jeff Powell
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post officeTraditionally Post Offices have been popular with first time buyers who are attracted by the regular monthly salary and the absence of risk of another Post Office opening nearby.

However the demand has, over the years, been affected by market factors and closure programmes. In the late 1980s the collapse of the housing market prevented first time buyers from selling to fund a Post Office purchase. At the same time Post Office Ltd decided to reduce the first year salaries of newly appointed Postmasters by 25%, citing as justification the expected lower level of business in the hands of new owners. This reduction in salary coupled with increased interest rates made funding very difficult.

The demand for Post Offices therefore disappeared and the consequent level of sales was very low for a number of years. A combination of an improved house market, lower interest rates and more realistic asking prices saw a gradual improvement in demand and sales. Eventually Post Office Ltd also restored the level of first year salaries accepting that it was a bar to the sale of offices.

However in the early 2000s Post Office Ltd announced its Urban Reinvention programme which would see the closure of a number of urban offices where there was seen to be an overlap of catchment areas.

Offices were closed where an alternative office was available nearby. In the event of closure the Postmaster was compensated with a payment equivalent of 28 months salary. Rural offices, those serving a population of less than 10,000, were being subsidised by the Government and were to be protected. A period of uncertainty followed when demand for all Post Offices disappeared. With the first closures a pattern began to emerge and Post Office Ltd quickly informed those offices which were earmarked for closures. Some stability returned to the market however it was to be for a short period.

Customer reduction

In 2003 the Government decided to streamline the benefits payment system by paying claimants directly into their bank accounts.

In the past, claimants, - pensioners, the unemployed and those on long term benefit, were provided with a book of vouchers which could be redeemed weekly for cash over the Post Office counter. This system was expensive to administer and open to fraud. The changeover was opposed by many interest groups representing benefits claimants and Postmasters on practical grounds.

The Government proceeded with its plans; however it did allow the Post Office to create a simple card account to allow claimants to use a chip and pin card to obtain their payments. Initially the account was to be available until 2010 and new claimants were not allowed to open card accounts but had to use a high street bank. The effect was to reduce the number of customers visiting Post Offices each week with a consequent reduction in the level of salary which is partly linked to the level of monthly trade.

The uncertainty of the future income for Post Offices had a detrimental effect on sales however in practice salaries have increased over the period. Those offices remaining after Urban Renewal have picked up trade from closed offices and Post Office Ltd has introduced new products which have partly replaced lost business.

In particular the Post Office’s foreign currency, travel insurance, house and car insurance and telephone service have proved popular and in some cases been recommended in the financial press. Post Office Ltd is also to introduce a broadband service and is looking to add further products.

Closure Programe

Following public consultation the Government announced in May 2007 that it was allowing Post Office Ltd to restructure its Post Office network as part of a comprehensive review with the aim of making the business more viable. The reason given by Post Office Ltd was the need to stem financial losses as a result of a reduction in the number of customers visiting Post Offices.

In addition the subsidy for rural Post Offices will end shortly and the Government has indicated that it will not renew the payments. The Government announced its intention to provide £1.7 billion up to 2011 to allow for the restructuring and would allow up to 2,500 compensated closures of offices.

It required Post Office Ltd to maintain a network after the review with minimum access criteria and in particular:

  • Nationally 99% of the population to be within 3 miles of an office and 90% within 1 mile;
  • 99% of the population in deprived urban areas to be within one mile of an office;
  • 95% of the total urban population across the UK to be within 1 mile of their nearest Post Office;
  • 95% of the total rural population across the UK to be within 3 miles of their nearest Post Office; and
  • 95% of the population of each postcode district to be within 6 miles of their nearest Post Office.

Post Office Ltd was also to take account of obstacles such as rivers, mountains and valleys, motorways and sea crossing to islands.

The closure programme is expected to take approximately 18 months starting in the summer of 2007 and will be rolled out across the country. Postmasters are being informed of the date on which their area will be reviewed and there are reports that the review has started in a number of areas including Kent and parts of Mid Glamorgan.

So far no closures have taken place and it is impossible to forecast which offices will be closed and which will remain. The review will cover both rural and urban areas with some rural offices replaced by Outreach services. These will be either services provided in conjunction with other businesses, visiting services using church and village halls or mobile Post Offices visiting on set days each week.

COMPENSATION

The Government has also announced that compensation will be paid to Postmasters whose offices are closed as part of the restructuring.

The compensation paid will be 28 months ‘salary based on the best year from 2004-05, 2005-06 or 2006-07 excluding certain payments including overscale payments, “Share in Success” payments and pay review lump sums. The compensation will be paid in full to postmasters appointed before 1 June 2007. For Postmasters appointed after that date the compensation will be reduced on a sliding scale.

Those appointed in August 2007 will have their compensation reduced by 1 month’s salary, for those appointed in September the reduction will be 2 months salary and the reduction of one month every month will continue until no payment is made. However the closure programme is expected to be completed in 18 months.

The planned closures may be followed by a number of unplanned closures of rural offices which are not viable for Postmasters to run. At present a number of rural offices are for sale or have Postmasters who wish to retire and are holding on hoping for the compensation. If these offices are excluded from the closure programme it is believed that they may close subsequently anyway.

The cap of 2,500 closures from a total network of over 14,000 may serve to limit the number of closures in any one area.

Market Trends

Agents we have spoken to advise us that the demand for businesses with Post Offices has been low since the closures were first proposed. However a number of offices have sold within the last year; helped, they believe, by the possibility of compensation for closure and the potential use of the premises for other trades.

The proposed sliding scale for compensation payments is likely to reduce the attraction progressively until the closure programme in the local area has been finalised. Once the programme has been substantially completed there is hope that the market for offices will revive. The attraction to first time buyers remains and those Post Offices remaining should gain business from those that have closed.