Post offices face ruin over delay

THOUSANDS of post offices face financial ruin as the Government presses ahead with plans for the electronic payment of social security. The problem is aggravated by uncertainty surrounding universal banking, the system that is intended to help post offices make up for lost income once over-the-counter benefits are phased out.

The Government is committed to introducing electronic payments in April 2003, forcing all benefit claimants to receive their money directly into bank accounts.

Universal banking is scheduled to be in place at the same time, offering post office customers a choice of a range of bank accounts or the Post Office's own basic account. The basic account has yet to be set up, however, and there are growing doubts that the system will be up and running by next spring.

At a key Opposition debate on the Post Office today, Shadow Trade and Industry Secretary John Whittingdale was set to point out the 'gaping hole' that could emerge in the finances of the sub-post offices following the introduction of electronic payment of benefits.

'This is a looming catastrophe for the sub-post offices,' he said. 'The Government seems determined to stick to the withdrawal of over-the-counter benefits. At the same time the universal bank is not in place and there appears to be little progress to put it in place. Sub-postmasters and benefit claimants are in limbo.'

Those close to the universal banking negotiations echo Whittingdale's view. 'The Government has not revealed its plan for universal banking. No blueprint is in place and, with the clock ticking, it is becoming harder and harder to reach the start line in time,' said one.

Post offices are estimated to receive more than £400m a year from administering benefit payments. Universal banking would deliver only about £50m in compensation but if it is not in place on time the future looks even bleaker for small offices. A variety of other schemes are also supposed to be under discussion to plug the gap but nothing has been heard of them.

Ministers and the Post Office are optimistic that universal banking will be launched by next April. Banks, however, whose financial contribution is crucial to the scheme, have heard nothing in months.

Eleven leading lenders agreed last May to pay £180m towards the creation of the new system but most have not even been asked for the money yet.