Ministers 'will save 3,000 post offices with £1bn contract'

MORE THAN 3,000 post offices were hoping for a lifeline today as ministers were expected to confirm a £1billion contract to distribute benefits.

Work and Pensions Secretary James Purnell and Business Secretary Lord Mandelson were due to make a statement on the award of the five-year contract that handles payments for 4.3 million claimants.

Mr Purnell had considered a rival plan to hand the contract to private company PayPoint, which operates in small shops and supermarkets.

But unions had warned that 3,000 post offices would close if the Post Office Card Account had been pulled. It makes £200 million profit a year and is seen as vital to the income of hard-pressed post offices, particularly in rural areas.

The Guardian claimed today that ministers were set to approve the contract.

Lord Mandelson's intervention appears to have proved crucial as the Cabinet sees that the economic downturn strengthens the case for keeping post offices open.

Two million people signed a petition calling for the account to stay with the Post Office. Critics also said Paypal does not properly serve rural areas, as it only has 2,000 UK terminals.