£1bn benefits contract saves 3,000 post offices

MORE than 3,000 post offices were saved from closure today when the Government announced it was awarding a £1billion benefits contract to the network.

In a bid to defuse the politically explosive issue, Work and Pensions Secretary James Purnell unveiled the five-year plan to secure the future of post offices around the country.

He surprised MPs by cancelling the tendering process for the Post Office Card Account, which would have allowed competition from private firm PayPoint. The new contract will run initially from April 2010 to March 2015, with "the possibility of an extension beyond that", Mr Purnell said. He claimed the "financial turbulence" had persuaded the Government it could not do anything to put the post office network at risk.

Unions had warned up to 3,000 post offices would close if the card account had been pulled and the contract given instead to PayPoint, which operates in small shops and supermarkets.

Mr Purnell said the announcement was "good news for our constituents, good news for Post Office Ltd and good news for sub-postmasters". But shadow business secretary Alan Duncan described the decision as a "humiliating climbdown for the Government, who have done everything they possibly can to find a way of awarding it [the contract] to somebody else".

The Tories repeatedly accused Mr Purnell of bowing to pressure from new Business Secretary Lord Mandelson, who is in charge of the Post Office as opposed to the benefits system.

The account makes £200million profit a year and is seen as vital to the income of hard-pressed post offices, particularly those in rural areas. Some 4.3 million benefits claimants use the card account, with two million of them pensioners.

Mr Purnell said the post office was at the heart of communities and "reaches the places and people that no one else does". He added that in a time of financial uncertainty, it was also a "trusted brand". Clearly wary of a possible legal challenge by PayPoint, Mr Purnell said that "these are exceptional times and we believe this is a proper and proportionate response".

The Post Office's managing director, Alan Cook, welcomed the decision.