Could co-ops be the solution for a first class post office?

In 1660, Charles II established the Post Office as the official means of communication between the Crown and the state. The last three decades have arguably seen more changes than the previous three centuries. With the advent of the internet and e-mail, the Post Office has had to move with the times as PCs, laptops and smart phones replaced stamps and paper.

There are currently around 11,800 post office branches in the UK. Only 373 of them are major ‘Crown’ branches located in big cities and centres of population. Over 50% of office branches are in rural locations serving more isolated communities.

However, that number is around half what it was 50 years age since 2000 alone, over 6,600 post offices have closed down. The number of people using branches has also fallen by nearly a third in the past decade, down from 28 million customers a week in 2000 to just 20 million now.

With so many closures, the co-operative movement has increasingly stepped in to save local branches and services when traditional sub-post offices, run by individuals, fell by the wayside. There are now hundreds of co-operatively run post offices serving the public in retail and other outlets.

But now they are facing a huge challenge as post offices across Britain undergo their biggest makeover yet under the Post Office Network Transformation scheme.

So far the government has invested £2bn into the controversial project, which divides branches into two distinct modes of operation.

The ‘mains’ model is for larger branches which retain a designated post office area in stores, with an additional post office till at the retail counter and a full range of post office services.

The local model scales things down, combining a basic range of postal services and frequently used transactions with normal retail operations, but rules out the more complex operations like sending parcels overseas.

When the plans were announced two years ago, the government argued that adopting either of these models meant post office services would be available for much longer than before – reflecting modern retail opening times.

But the major downside to the changes is a 50% drop in core funding from central government which means that wherever they are located, post offices must make more money to survive – and, like any other retail operation, they are more vulnerable to market forces.

Colette Clark is post office operations and services manager for Scotmid, which has over 40 post offices in retail outlets. She agrees the current situation is a significant challenge.

“We have post offices right across the board in places like Edinburgh and Glasgow and also down to Dumfries and the Borders and the Lake District,” she says.

“Ultimately it’s all about service to the community and it also drives more footfall into our stores.

“We have a mix of branches; some are very heavily benefits-oriented and some focus more on things like financial services, passports, currency and core products. It depends on the demographic. Some are also in rural areas which have lost their local banks.”

Having co-operatively run post offices means they can be there for the community, she adds. “We can offer services like personal banking.  Some branches heavily use Post Office card accounts for people who don’t have access to another bank account and it’s their only way of accessing welfare benefits.

“But it’s true it has become more and more difficult for us to be profitable because of the changes in the way the government allocates the core fixed payment that we get, which has dropped significantly, and it is all more transaction-based.”

Main branches are open outside traditional post office hours and offer an increased service to customers. Scotmid is now in the process of converting all of their branches to one of the two models.

“We made the decision to convert larger branches into mains and the smaller branches into local models where post office services are available at the retail kiosk,” says Ms Clark. “The long-term view is that we have to make the local model work for smaller branches which are not viable in the current format.

“All our post offices offer something we would want to retain – but we can’t be doing it if we are losing money.”

The new post office within Scotmid’s Morden store
The new post office within Scotmid’s Morden store

The Communication Workers Union attacked the changes when they were announced saying they were a threat to public services. CWU general secretary Billy Hayes said there were “serious flaws” with the downgraded local model which would deny some services to customers, such as posting parcels and only making basic services available at tills in convenience stores and petrol stations.

There has also been disappointment in some quarters that government pledges to make post offices their ‘front office’ for essential services have not been fulfilled and tax discs – a major source of post office revenue – have also been withdrawn at counters and now have to be accessed online.

But in broad terms the changes  have been welcomed by those on the front line of providing a service to the public.

A spokesperson for the National Federation of Sub-Postmasters said: “The NFSP worked closely with the Post Office on the roll-out of the Network Transformation programme, negotiating on payment rates and contracts, and ensuring that all sub-postmasters received the best possible outcome from any change in arrangements.

“This was the third time in the last 12 years the NFSP won restructuring funds for the post office network – no other retailer on the high street has received comparable financial support from the government. This money has allowed for the modernisation of the network, its restructuring and compensation for sub-postmasters, providing them with choices for their future while maintaining the network at its present size.

“Network transformation was necessary to provide a sustainable future for post offices and to ensure post offices remain at the centre of communities.”

Whatever the pros and cons of the issue, the changes are progressing at great speed.

By September 2014, over 3,000 post office branches had been transformed into one of the two new models – with more than 82,000 extra opening hours for customers. But all post offices face a future in which they must be more financially sustainable.

The new programme will be rolled out until 2018 and the question is whether co-operatives will be able to sustain business and continue to expand their post office offerings.

Another major provider of postal services is Lincolnshire Co-operative, which runs 40 post offices from its food, pharmacy and travel outlets.

The society’s chief executive, Ursula Lidbetter, recently acknowledged the changes are posing real challenges.

“If you go back a number of years, we did manage to break even running post offices, but that’s certainly not the case today,” she said in an interview with the News last April.

“The economic argument now has to be based on the footfall it brings to the store.

“As the income per post office transaction falls, we are becoming more concerned about the economic viability of the post office network. We understand that people in communities value what post offices give to them, so we will work very hard to find a way forward for the post office service.

“It depends on whether the government wants to support it, to put new services through it and how the money available is allocated. It’s not entirely in our hands.”

Journalist and campaigner Lindsay Mackie, of the New Economics Foundation and co-operative think tank New Weather Institute, led the recent campaign for a Post Bank to provide everything from local banking services to debt management advice and accounting.

She still believes post offices could be transformed into a community-based public service which is more about people than profit.

“Our campaign for a Post Bank may have failed, but the new scheme, undertaken with minimal consultation, turns thousands of sub-post offices into ‘Locals’– based in supermarkets, petrol stations etc, with no dedicated post office counter, and reduced services,” says Ms Mackie, adding that “banking and financial services at such counters are out of the question”.

“Everyone knows that letter post has been declining over 50 years, but the Post Office has always responded to change and embraced new technology. They had an operation through both world wars and in the 1960s there was the Girobank, which was closed down by Margaret Thatcher in the 1980s.”

Ms Mackie would still advocate setting up a Post Bank and building up the post office network as a community network for advice, but believes there is no hope of this under the current coalition. “It’s perfectly clear that this government is only interested in slash and burn and dealing with the deficit by cutting state services. It’s disastrous,” she says.

“The point about our Post Bank campaign was it did get the issue on to the radar of MPs, the general public and press. It was also important for management to know they could not cut back without there being a national response to what they were planning.

“The Post Office has not been privatised but what they are doing now is rationalizing and cutting back not increasing services. As a result, the Post Office is going to contract and become less visible and important to people.”

Ms Mackie believes the co-op movement could play a major part in the future of the Post Office, but only if there is a change in both government and ideology. “A more co-operative or mutual structure to how it is run would be a brilliant idea for the co-operative movement because at the moment, while they have a relationship with the Post Office, it could go so much further, with all sorts of different systems underpinning the idea of the Post Office as a public service, not a failing set of independent outlets.”

Whatever happens in the future, one thing is certain is that co-operatives in the process of coping with the complex changes will do their best to ensure that post office outlets large and small survive as a public service to the community. Sometimes this may involve coming up with creative solutions.

For example, Leicester Carriage Builders, part of the Central England Co-operative, recently completed a contract for the Post Office converting 40 Mercedes Sprinter Vans into mobile ‘walk-in’ post offices serving 250 remote locations a week across the UK.

Graham Coley, post office and compliance manager for Central England, said: “We have always been committed to post offices. It comes down to the fact we are a community initiative and that we are trying to offer a range of services, not just food and drink.

“We have been offering postal services for 11 years and currently have 26 post offices, all in our food stores. Sometimes we are approached by the local community who want us to help fill a potential gap to services; we recently opened a branch in the village of Barlestone in Leicestershire as the postmistress was retiring.”

Like Ms Lidbetter in Lincolnshire, Mr Coley is aware of the fact that, as well as offering a vital community facility, post offices bring the benefit of direct footfall.

“I don’t say that we are making a huge profit, but there are all kinds of other obligations of being a community retailer,” he says.

“The challenge is trying to ensure that we keep the post offices viable, to make it easier for people to keep abreast of change and access services. We are growing the business in key areas and we assess the need as and when.

“We also help lot of people who are particularly vulnerable – not just older people, but anyone struggling with online services, such as people with learning needs. It is really important there is somewhere to go to get advice and guidance. We want to always be there for people.”