Branch closure fears after Post Office loses lucrative contract

Unions, postmasters and consumer groups lined up to criticise ministers, who were accused of “betrayal” for taking valuable business away from the Post Office.

Citibank will provide a new service from 2012, using Paypoint outlets, in a contract worth around £20m a year, affecting more than 250,000 people. And payments by cheque will be phased out after Ministers said there had been a “dramatic” fall in their use over the past few years, with less than two per cent of welfare payments now made by cheque.

It cost the taxpayer around £30m to process cheque payments and they were easily open to fraud, said the Government.

Employment Minister Chris Grayling said: “This new contract represents value for money for the taxpayer. The facts are payment by cheque is now too costly and too open to abuse and we want our payment system to be as cost-effective as possible.

“We will make sure that everyone who receives their payments by cheque has all the help they need for the changeover and we can assist in choosing another method of payment that better suits their needs.”

Minister for Postal Affairs Edward Davey accepted the move would be seen as a “blow” but insisted the Government’s plans included measures potentially worth more to the Post Office.

But the announcement reignited anger over branch closures and raised fears some customers could lose out from the move to transfer the deal.

The official branch closure programme, launched in 2007, saw more than 2,500 branches shut nationwide.

Communication Workers’ Union general secretary Billy Hayes said: “Taking Government business away from the Post Office on top of privatising Royal Mail will cause the biggest closure programme we’ve ever seen.

“The Government can’t be trusted with our public services, our post offices or the care of the most vulnerable. This cabinet of millionaires has no idea what it’s like running a small business where the loss of one or two revenue streams can make the difference between profit and loss.”

The National Federation of SubPostmasters (NFSP) said the decision had raised fears among subpostmasters on the future of other benefits payment services such as the Post Office Card Account (POCA), used by almost four million customers every week.

General secretary George Thomson said: “This is a bitterly disappointing decision... Benefits cheque customers rely on their local post office to provide this important service, with subpostmasters and trained Post Office staff providing assistance to hundreds of thousands of vulnerable customers each week.

“If we are to maintain a network of 12,000 Post Office outlets, subpostmasters need significant volumes of work in order to survive, including regular repeat transactions such as benefits payments. Ministers have to deliver new government work to post offices, not more broken promises.”

Lindsay Mackie, campaigner at the New Economics Foundation, said: “Taking the contract for benefit payments away from the Post Office is an act of social vandalism that will devastate communities across the UK.

“In economic hard times, Post Offices act as a vital life- support system for Britain’s struggling small businesses and local communities. Far from promoting the Big Society, the Government’s actions reveal that it is intent on ripping it up by its roots.”

Andy Burrows, of Consumer Focus, said: “This will be a major blow for the post office network. Government has committed to making the Post Office the ‘front office’ for public services. The decision to axe this £20m contract seems out of step with that ambition.”

A Post Office spokesman said: “Whilst Post Office is disappointed not to have been awarded the contract, we are pleased that the Department for Work & Pensions has outlined new plans for working closely with us in the future.”