Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cawsey.]

Let me say, Mr. Deputy Speaker, how grateful I am for the opportunity to raise this most important issue on the Adjournment. I am moved to do so because I have been approached by Mr. Gary Coyle, the sub-postmaster of Sutton Valence, which, as the Minister will not know, is a most picturesque village on the borders of my Constituency. It was once in my constituency, and I was very sad to lose it.

Sutton Valence Post Office is well known in the local area because it is the centre of village life. When I first went to live in Sutton Valence 18 years ago, it had several shops. There was a baker, a village store, a newsagent, and of course the sub-post office; today, only the sub-post office remains. If it went out of business, there would be no natural hub of village life in Sutton Valence, and many vital services would not be provided. That is true in one Kentish village on the borders of my constituency, but it is also true of many sub-post offices in many other villages in my constituency and across the entire country.

The little sub-post office in Sutton Valence has survived while others have closed because Gary Coyle has been full of every last initiative. It has a flourishing retail business that sells everything from woolly jumpers to pencils; it has the lottery—I have bought my own tickets there many a time, some of them very successful—it takes in cleaning, because the nearest dry cleaners is a long way away; it takes in villagers' photographs to be processed; and it advertises, because if one wants to find an electrician in the village, one naturally goes to the post office to read the little postcards at the front.

I am sure that I am describing to the Minister a scene that he knows very well. However, that scene is seriously under threat. That is why Gary Coyle set up postmasternetwork.co.uk, which assists sub-postmasters all over the country in considering how they can diversify to prop up what is becoming an extremely difficult business to run. Why is it becoming so difficult? The Government are always to blame, of course, but on this occasion they must take a certain share of the blame, inasmuch as there has been a withdrawal of benefits paid through the post office because most pensions are now paid directly into bank accounts.

I have no objection to that. I am not saying that it is wrong or foolish, but merely that it must be acknowledged that it has had quite an impact on sub-post offices, particularly on little rural ones. Not only has the postmaster lost the commission that he would have got for distributing those benefits, but because people no longer go to the post office to collect their pension, or whatever it may be, they are not in there to buy other services. The throughput of customers has drastically decreased and most sub-postmasters cannot make a living simply from the revenue they receive from the post office.

There are lots of things that sub-postmasters could do, however, and lots of things that they would like to do. They are not being miserable and saying that there is nothing they can do. They say, "There is plenty we can do. Why won't you, oh Government, via the Post Office, let us do it?"

Cash machines are an example. A cash machine is an enormous convenience, but never more so than in a rural area. The option is often a bank five miles or more away in the next town or big village. That is certainly the case for my constituents. The nearest cash machine is probably in Headcorn, which is four or five miles down the road. That is fine for people who have an automobile, or for people who go out to work and will be passing a cash machine anyway, but for the people about whom we should be ever more concerned—those who do not have transport and who live in villages to which public transport is extremely bad—the more conveniences they have on their doorstep, the better for them, and not just for the sub-postmaster.

Sub-post offices may not set up cash machines, however, and they have to obtain a special waiver from the Post Office to see through to completion the contract for any existing arrangements. That is bad for the sub-post office, because it takes from it the revenue it would receive from whoever supplies the cash machine, but it is also appallingly bad for people who live in the village and depend on the cash machine.

Some particularly enterprising sub-post offices would like to act as bureaux de change. After all, part of their raison d'être is handling money. They have security arrangements; they are used to all that type of thing and would love to act as bureaux de change. Come on, we are talking about Kent. We come out of the channel tunnel with our pockets bursting with euros so we want to go to the sub-post office to change them—[Interruption.] The Minister laughs, but why should not we change our euros at the sub-post office? Can somebody tell me? I do not know why, but the Post Office says, "No".

Then there is the choice of mail providers. The Government have instructed Postcomm, which is the mail regulator—although I do not need to tell the Minister that—to prepare the mail market "for competition". Fine. Sub-postmasters welcome that. "Yippee", they say, "we will now be able to offer our customers, to their benefit and ours, a choice of mail providers." People could take their packages to Sutton Valence and send them via the Royal Mail, TNT or someone else. No. That is not allowed either under Post Office rules. Sub-post offices can deal only with the Royal Mail. So much for preparing the market for competition.

The Post Office, due to its near-monopoly position, takes other unfair advantage of small sub-post offices. I have already mentioned one survival strategy for many of those little sub-post offices: the lottery. The Minister will know that shops supplying lottery services have to stay open well beyond core post office hours, yet the Post Office still takes 20 per cent. commission on all lottery tickets issued, despite the fact that sub-postmasters are carrying out that business in their own time. It is not as though sub-postmasters even make that much per ticket, but to pay 20 per cent. commission to the Post Office, which, I think, also owns 20 per cent. of Camelot, is extremely questionable.

Sub-postmasters are keen to advertise financial products, but they are not allowed to do that either, so they are losing yet more revenue. I do not suggest that they should give advice about financial problems—I can see the difficulty with that. I am talking about advertising and acting as an intermediary for financial products. Again, however, everything is loaded against small rural sub-post offices. If a sub-post office operates in a general store, such as Tesco, it can advertise Tesco financial services.

I had a meeting last Friday night in my Constituency with nearly 20 sub-postmasters and mistresses and they expressed many of the concerns that the right hon. Lady is eloquently bringing to the House's attention. She spoke of the many roles that sub-post offices could take on but are not currently permitted to accept. Is she, like me, concerned about the failure of the Post Office and the Driver and Vehicle Licensing Agency to share out as widely and fairly as they could the option for people to get their tax discs renewed locally?

The hon. Gentleman makes an important point, which adds to the list that I gave. I am sure that other hon. Members could chip in with points of their own. Anybody who has a rural Constituency knows that we are considering a big, big issue, which causes genuinely serious concerns to sub-postmasters, who worry about whether they can stay in business.

Because of the restrictive practices, the Association of Convenience Stores, supported by the postmaster network that I mentioned earlier, presented a complaint to the Office of Fair Trading. They requested that some of the restrictions in the Post Office contract should be withdrawn because they were deemed to be unfair. I agree with that. Consequently, a preliminary judgment has been made by the Office of Fair Trading. I understand the limitations that the Minister faces in responding, but I need to refer to the judgment to put it in context.

The OFT, which was tasked with examining the restrictions in the sub-postmaster contract, has ruled in its preliminary judgment that Post Office Ltd should continue to benefit from exclusions under certain prohibitions of the Competition Act 1988. The main ground for that is that Post Office Ltd provides services of general economic interest. The outcome of the definition combined with the judgment is that sub-post offices will be prevented in future from offering facilities to mail service providers other than the Royal Mail and from offering products and services across the network to replace the loss of previous Government business.

The position can only get worse if the Government do not show a genuine will to handle it. The Post Office currently circulates a contract, which it demands that sub-postmasters sign. The Minister will say that one is free to decide whether to sign a contract, but what are people to do if they do not sign it? They cannot operate if they do not sign it, so they lose their homes and their businesses. In many rural areas, postmasters of small post offices have mortgaged their private homes to keep the business going.

It is wrong that the Post Office, with all its power and its monopoly position, can squeeze out small operations, which may be modest but are the world to an awful lot of constituents.

I have far too much respect for Miss Widdecombe to congratulate her, as is customary, on securing this evening's debate. She would not want praise for mere good fortune in the draw. However, perhaps she will allow me to congratulate her on choosing a topic that is at once so broad that every hon. Member will have an interest in it and so narrow, being the subject of an on-going complaint to the Office of Fair Trading that, as Minister, I am precluded from saying almost anything interesting about the specific matter she has raised.

As it is perhaps the only time this evening that I may be able to, let me expand on that by explaining that the restrictions in sub-postmasters' contracts with Post Office Ltd, which limit the extent to which certain services and products can be offered through a sub-postmaster's associated retail business, are the subject of the complaint that the Association of Convenience Stores made to the Office of Fair Trading, as the right hon. Lady outlined, in a letter dated 30 November last year. The Office of Fair Trading reached a provisional decision on 27 September this year to close its file on the matter, but invited the Association of Convenience Stores to make observations on its findings and provide any further relevant information before a final decision is reached. I understand that the Association of Convenience Stores has confirmed its intention to submit such further information, and that a deadline of 25 November has been set for that.

The unfortunate—or perhaps fortunate—effect of this is that, as the matter is effectively sub judice, it would be wholly inappropriate for me to comment in any way on this issue or that case. I can, however, comment on what I take to be the underlying concerns expressed by the right hon. Lady, which I share, in respect of two things. The first is that sub-postmasters should be properly remunerated for the work that they do, and assisted to run a commercial operation. The second is that the Post Office should seek to provide an improved service to people qua customers without imposing unsustainable losses on them qua taxpayers.

The future of the Post Office is an issue of relevance and concern to every Member of the House. We all share concerns for the future provision of services in our constituencies, and recognise that, until 1999, when the Government launched the £500 million investment fund for information technology, there had been underinvestment in the business for decades.

Advances in technology, greater mobility, and changes in shopping and financial habits have resulted in a growing proportion of people simply not using the post office as they did in the past, for many reasons. The right hon. Lady referred to the direct payment of benefits, and I wholly accept that that has had a major impact on the decline in volume. However, this is not just about the changes in benefit payment arrangements, which were completed in April. The decline started well before the move to direct payment, and applies not only to those payments but to a much wider range of services, including Girobank, National Savings transactions, telephone bill payments and postal orders.

For many reasons, custom has declined sharply across the network, and the right hon. Lady was right to point that out. If the Post Office is to thrive, it needs to change significantly. The Government want to see a post office network that can prosper on the basis of today's and future needs, not on the needs of 20 or 30 years ago. However, we also have to face up to present reality. The rural network is currently subsidised by £150 million a year—a total commitment of £750 million to 2008. The directly managed Crown offices lose £70 million a year, and the deprived urban network sustains a £40 million a year loss.

Several important steps to restructure and revitalise the post office have already been taken, but the future of the network rightly remains an issue of national debate, and it is clear that there are still major challenges to be faced.

Will the Minister give way?

Not at the moment, no.

Oh, go on.

Oh, all right.

I am grateful to the Minister for giving way, and even more grateful to the right hon. Lady for her Intervention on my behalf.

The Minister has rightly pointed out that the Government will support the rural network to the tune of £150 million a year until 2008, but postmasters and postmistresses in my Constituency are worried about what will happen after 2008. Many of them are considering whether they should retire now or later, and whether their business will be a viable going concern in the future.

Of course they are, which is why the Government are considering carefully what to do at that point.

The Post Office network has been contracting since the 1960s. Between 1979 and 1997, Conservative Governments presided over 3,500 closures, and in all that time produced no policy on how to ensure that the network could continue to remain relevant into the 21st century. There have been reductions in post office usage, some of which were caused by the absence of investment. Above all, however, changes in lifestyle and habits mean that our constituents do not use the post office as much as they used to. This is fundamentally about ordinary people, our constituents, making choices about how they want to conduct their business.

Private business people run 96 per cent. of the nation's post offices. They have invested not only their own money into their businesses but also a great amount of care and effort to help the post office network to achieve its highly regarded status. But with declining profitability in the network as a whole, the viability of many individual offices has taken a severe knock. Decisive action, in the form of the urban reinvention programme, was taken to restructure a sector of the network in which there was extensive over-provision, with the aim of better matching supply to demand and of creating the viability necessary for a sustainable network for the future.

The Government committed £210 million to facilitate that restructuring, which took 2,500 offices out of the urban network, but ensured that 99.3 per cent. of people in urban areas still live within 1 mile of their nearest post office.

We now need to address the issues facing the social network of sub-post offices in rural and urban deprived areas. It is no longer clear that the needs of those communities or the most disadvantaged are best served by the current traditional, costly and inflexible structure. We need to find innovative and more cost-effective ways to deliver post office services, and we cannot ignore the fact that large numbers of rural offices have a tiny number of customers.

Indeed, earlier this year I had the opportunity to visit one such post office in the Constituency of the right hon. Lady, as she knows, where there were, on average, fewer than 12 customers a day. That is not uncommon. The truth is that there are 800 offices averaging fewer than five customers a day and generating average losses of more than £6.50 per customer visit. That means that for every customer who pops in to buy a first-class stamp, Post Office Ltd. could give them a book of six stamps, a loaf of bread, a pint of milk, a bag of sugar, a packet of bacon and a big box of tea bags and still lose less money. I have the bill here to prove it.

Even in the busiest rural offices, the revenues to Post Office Ltd from transactions are less than the cost to it of providing the service. The Department of Trade and Industry, together with other Departments and the devolved Administrations, is assessing and analysing a range of financial, economic and demographic data on the rural and urban deprived sectors of the network to establish a clear picture of usage, transaction volumes and costs. In addition, Post Office Ltd is running a series of pilot trials of alternative innovative means of delivering services to rural communities.

The focus of those pilot trials is to test a range of alternative methods of delivering those services to smaller communities, in particular to explore different approaches to achieving acceptable standards of service from the traditional post office. With so many rural post offices now having a small customer base, it is essential to recognise that the rural network must have the flexibility to adapt to the changing needs and circumstances of the communities in which they are located.

In politics, we frequently expend our energy on the structure of the delivery mechanism rather than the quality of the service we are delivering. In recent years, we have all perhaps tended to focus too closely on the size of the network. The debate needs to move on. We need to focus much more clearly on provision of and reasonable access to post office services, paying particular attention to innovative methods of delivering them.

Research conducted for Postcomm shows that most customers quickly adapt to changes in service provision. The pilot trials that Post Office Ltd is conducting will give further useful insights into how best to deliver services and the fluidity and adaptability of people's behaviour where a "core and outreach" approach is offered. I will be particularly keen to see how we might be able to improve both quality and service and the number of people we can reach. In this, I shall want to compare provision of a fixed outlet in a small village serving only a few customers each day with an outreach or mobile service that can visit not only that village, but the five or six surrounding villages whose inhabitants travel to the nearest large town for their postal services.

rose—

I want to move on to some matters that the right hon. Lady will find helpful, but I shall give way briefly.

I am grateful to the Minister for giving way, particularly as he is so reluctant to do so. Does he not accept that more people would be likely to use the sub-post offices for postal services if they were also going there for other services such as cash, euros and so on?

There has been a long tradition of local grocery stores, card shops and so forth also having a Post Office counter located within them. That has increased footfall for such stores, and that franchise arrangement has proved very satisfactory for those local traders. The right hon. Lady might agree that it is a strange franchise where one takes the most respected brand in the market, which the Post Office is, and uses it to generate footfall in one's own retail outlet, be it a grocery shop or a card store, but is paid for, rather than pays for, that franchise.

Postcomm, in its advice to Government on the future of the rural network, made 19 recommendations. The major strands of its advice were: that Government needed to clarify their primary reason for maintaining a physical network of offices, that they should end the policy of preventing avoidable closures in the network, and that alternative means of delivery should be introduced to ensure continued access to services, particularly for vulnerable groups. While Postcomm advised that its recommendations should be enacted in relation to the network from April 2006, the Government decided that more time was needed fully to understand the impact of the pilots being trialled by Post Office Ltd. before coming to any final decisions. Accordingly, a two-year extension of the annual support of £150 million, subject to state aid clearance, was announced in Parliament in September 2004. The Government want to be sure that we have considered all angles before taking a decision about the future of the network.

Postcomm recommended that the Government should clarify their primary reason for wanting to maintain a physical network of post offices. I completely agree that it is of fundamental importance that we have a clear vision for the network of tomorrow. Without it, the network is likely to contract in an unstructured way, hitting the most vulnerable groups in our society the hardest. If we do want to maintain a physical network, over and above that which Post Office Ltd would run commercially, we must be able to justify the high costs that that would incur.

Postcomm also recognised that it was becoming increasingly difficult to find suitable people interested in taking on full-time post offices when they came on to the market. That is why it recommended the removal of the policy to prevent all avoidable closures. As a result, we will review that policy in light of the pilot report. In the meantime, however, we have adapted the interpretation of the policy to allow Post Office Ltd more flexibility to retain service provision in a location without the absolute need for that always to be on the same basis as that in relation to the departing sub-postmaster or mistress.

Inevitably, however, there are post offices that cannot be retained no matter how much effort is put into finding a new sub-postmaster or sub-postmistress. Increasingly, that is likely to be more common. Rural post offices must be sustainable. At present, however, the number of customers is simply too small to make such businesses attractive. One customer every hour and a half might give a whole new meaning to the phrase, "an unhurried retail environment", but it is hardly an attractive business proposition. That said, we must not make the mistake of believing that this is a problem only for the smallest rural outlets with high fixed costs and low footfall. In all but 1 per cent. of the 8,000 rural offices across the country, it costs Post Office Ltd more to provide the service than it takes back over the counter. Post Office Ltd loses money on the other 99 per cent. of those rural post offices. That indicates clearly that this is not simply a structural matter of outlets and fixed costs but equally about contracts and variable costs.

That is why I am pleased to tell the House that Post Office Ltd has been working closely with the National Federation of Sub-Postmasters to move sub-postmasters' remuneration to a more transaction-based and commercially-oriented structure, with the fixed payment element much reduced. It is important that a mutually beneficial relationship continues to develop between Post Office Ltd and sub-postmasters and mistresses—a relationship that rewards delivery and thus incentivises a more commercial approach. The new contract has been implemented across the urban network, and in my view it will be important to maintain this impetus and to examine carefully the scope for further broadening the transaction-based contract structure to the rest of the network.

Post Office Ltd is at a key point in its development, particularly in relation to generating new income from the financial services and other products that it has recently launched. It has already had considerable success in showing customers that post offices are no longer simply places to visit to collect pensions or benefits, but now a good place to get foreign currency, ask about car insurance or top up credit on a mobile phone. All those services are being provided through Post Office Ltd. The company is working hard to build on that success, to ensure that post offices remain relevant and are not left behind in a rapidly changing marketplace. Looking ahead, the greatest uncertainty, I believe, is customer behaviour. It will be customers—our constituents—who largely dictate the future of the business.

Question put and agreed to.

Adjourned accordingly at five minutes to Eight o'clock.