Government to close 3,000 post offices

The Government is preparing to close up to 3,000 urban post offices in the biggest programme of cutbacks the network has seen.

Ministers are putting the finishing touches to a compensation scheme for sub-postmasters that could see a third of the Post Office's 9,000 branches in town centres and suburbs disappear.

The Department of Trade and Industry, and Consignia, formerly known as the Post Office, said it was not possible to put an exact figure on the number of post offices at risk. But industry sources said 2,000 to 3,000 urban branches had been identified for closure.

One source said: "The DTI is sitting on the announcement because it hasn't decided how to handle the news and it is still working out the final cost of the programme."

Such a big closure programme is certain to cause an outcry because of the heavy reliance of pensioners on their local post office. But ministers intend to present the plan as an opportunity to create "bigger, better, brighter" outlets by concentrating increased investment on fewer branches.

Under the programme, sub-postmasters could receive £20,000 in compensation, leaving the Government with a bill of £60m. But ministers are acutely aware that the political cost could be much higher with the Tories certain to renew claims of public-service failure.

Consignia has 18,000 post office branches in total, and received £270m of government funding to support rural offices in particular. But this has not prevented about 480 branches closing in the last year.

Last year the network suffered a £53m loss and from spring next year it faces an even greater threat to its finances when the Government starts paying benefits directly into bank accounts rather than through post offices. This could deprive the network of a third of its annual £1.2bn income.

Opening an opposition day debate on the Post Office yesterday, John Whittingdale, the Conservative Trade and Industry spokesman, warned that the "sub-post office network is shrinking every year". He said: "There is a sword of Damocles hanging over the sub-post office network and it is this Government which is responsible for that." He said the state of the network was "another public service failure by Labour".

A Consignia spokesman said it could not put a figure on the number of closures until the compensation scheme had been negotiated with the National Federation of Sub-Postmasters. "We will know then how big the rationalisation programme will be and what will remain of the urban network," the spokesman said.

A DTI spokesman said: "The cost of the scheme is yet to be determined and discussions are continuing between the Government and Post Office Limited."

Ministers hope that the new Universal Bank, which will be available through all post office branches, will encourage benefit claimants to continue to use the network. But a study by the Department of Welfare and Pensions found that only three million of the 16 million benefit claimants were likely to use the Universal Bank. The country's 9,000 rural post offices are protected under separate measures that place a duty on Consignia to prevent "avoidable closures" by providing financial assistance or combining the franchise with a local shop or garage.

But a report last year from the Cabinet Office accepted the need to reduce the urban network. It recommended that surviving post offices offer a wider range of services. Some 300 post offices in Leicestershire have been running a pilot since last year, offering internet access on touch-screen kiosks.

The threat to the urban network is the latest challenge facing Consignia. Tomorrow the industry regulator Postcomm will publish plans to license rival mail companies on long-term contracts.

The plans could open a third of the Royal Mail's monopoly to other carriers although it is understood ministers have been pressing the regulator to limit the degree of competition for fear of further destabilising Consignia, which made a loss of £270m in the first half of the current financial year.