concern over state aid for rural post office services

Royal Mail cash probe demanded by MPs

By David Perry

Published:

MPs last night demanded an urgent inquiry into fears that millions of pounds of state aid to maintain vital rural Post Office services could be siphoned off by Royal Mail.

A special report rushed out by a Commons committee called on the National Audit Office to “investigate the financial arrangements for outreach services”.

Chairman Peter Luff said his committee had heard evidence from Post Office managing director Alan Cook that the £358million it gets from Royal Mail does not cover the cost of services it provides.

He said: “It is possible that this is down to inefficiency at Post Office Ltd, but it is also possible that it is because Royal Mail Group is inappropriately using Post Office Ltd, which receives some state support, to cross-subsidise its mail services.”

North and north-east MPs are outraged at the possibility of under-funding for services promised to replace sub-post offices which have been – or are about to be – axed.

Angus SNP MP Mike Weir, a member of the business and enterprise committee which rushed out the report, said: “If money is being siphoned off it would be an utter betrayal of our rural communities and further undermine the government’s shaky justification for the closure programme.”

The shock report was published just five days before the Post Office is due to announce the outcome of consultations on its proposals to close 42 branches in the north-east and have alternative services for 37 others, including partnership arrangements, about which the committee expressed particular concern.

A Post Office statement is expected on Wednesday.

It has already confirmed decisions to close 40 branches in Falkirk, Stirling, Argyll and Bute, and Greater Glasgow, 16 in the Northern and Western Isles and 38 in the Highlands.

North-east Tory MSP Alex Johnstone said that if the committee’s concerns were justified “it would certainly be a breach of faith”.

Inverness, Nairn, Badenoch and Strathspey Liberal Democrat MP Danny Alexander said: “I am shocked at the suggestion that Royal Mail might be misusing money intended to support vital Post Office services in small rural communities.”

He said what is suggested might be happening would be “a gross breach of trust”.

West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith said: “This is a very disturbing report. The NAO must respond urgently”.

The committee drew attention to Mr Cook’s evidence. He said: “As things currently stand, given the profitability of Post Office Ltd, the payment that Royal Mail makes to us is not sufficient for me to make a profit on it.”

He added later: “I do not think the problem is that Royal Mail do not pay enough; I think the problem is that it costs too much to run Post Office Ltd.”

The committee said it is possible the problem is the Post Office inefficiency, but it added: “It is also possible that Royal Mail Group is inappropriately using a state-supported part of its business (Post Office Ltd) to cross-subsidise its mail services.

“Given the close relationship between the two bodies, and the lack of any obvious benchmark, it is impossible for us to judge which is the case.”

It said the government had provided £150million to support the post office network to 2011 to cover 2,500 compensated closures and 500 alternative services.