Mutualising the Post Office

Posted on October 2, 2011 · Posted in Co-operative News

The serious business of mutualising public services is now underway. A number of initiatives have recently been launched which are intended to turn traditional government operations and arm’s length bodies into mutuals.

‘MyCivilServicePension’ is the most contentious of these and one of the largest. Another scheme in preparation is for the audit arm of the Audit Commission to become an employee-owned business modelled on the John Lewis Partnership. And the Energy Saving Trust – government created, but financed by the energy industry on a statutory basis – is to convert to a social enterprise with charitable status. And, as discussed in the last issue, there have been 20 primary care services that moved out of direct control of the NHS, also as employee-led social enterprises.

But without doubt the most radical proposal of all is the possible conversion of the Post Office into a mutual. Co-operatives UK has completed its study – commissioned by the Government – into the concept, its viability and how it might be structured. As the report stresses, it is the business ‘spine’ that would be subjected to a form of mutualisation, not the arms and legs of the business, the individual post offices, many of which are owned by self-employed sub-post-masters and mistresses.

The principle of mutualising the Post Office has already been laid down in the Postal Services Act, which passed into legislation in June. This established that the Post Office can be converted into a mutual, providing that it continues to exist for public benefit, promoting Post Office services; that membership includes employees, and/or their representatives; and that the mutual is prevented from making disposals that would be inconsistent within its role of being for public benefit. The existing pension scheme deficit would continue to be the responsibility of the Government and would not be transferred to the mutual.

But while it is specified that employees and/or their representatives would be included as members, this does not preclude other groups also being members. This is one of the key issues addressed by the Co-ops UK report. Based on surveys, it became clear, says Co-ops UK, that other stakeholder groups should also be included in the governance structures: these include the sub-postmasters/mistresses, customers, communities and government.

Co-ops UK took the view that in the instance of the Post Office, it would be inappropriate for it to be entirely owned and controlled by its employees (or ‘the producers’). “It is possible to conclude that ownership exclusively by the workforce (including sub-postmasters) would not be appropriate for Post Office Ltd for the simple reason that ownership by producers or staff does not provide a credible basis for the long-term protection of public benefit,” says the report.

Equally, though, the report rejects the idea of a structure in which employees are not represented – and not only because the Act specifies they must be. “Post Office Ltd is heavily dependent on its employees and independent operators to deliver its services and there would be significant drawbacks in the business if they were to be excluded from membership,” says Co-ops UK.

As a result, the report recommends a multi-stakeholder co-op structure (though this is not the phrase Co-ops UK uses in this instance) that brings together staff, sub-postmasters/mistresses, large multiple owners of branches, customers and community. “This ownership could be held through direct membership, representative membership or some sort of trust arrangement,” explains the report.

But governance is different from ownership. In fact, argues the report, “At the heart of governance is a separation of ownership and control…… Those who own the organisation do not have control over its day to day operation.” Instead, there must be a system of delegation, backed up by strong accountability.

In the case of a mutualised Post Office, this should mean a three-tier structure of membership, representation and board of directors, suggests Co-ops UK. The intermediary, representative, body should hold a balance across the different membership groups, the report says, so that no individual group will hold the power on its own. Representation should, as far as possible, be agreed on a democratic, elected, basis.

The report also proposes close links with the credit union movement, including by selling credit union financial products. This suggestion has been strongly welcomed by the Association of British Credit Unions Ltd (ABCUL).

Co-operatives UK’s Secretary General, Ed Mayo argues that the report maps a way to achieve an outcome that is realistic and recognises the challenges presented. “We welcome the imagination that the government has shown, but also the understanding of ministers that this needs careful design and open consultation to succeed,” he says.

The report will obviously be considered very seriously by the Department for Business, Innovation and Skills, as it commissioned the study. Ed Davey, the minister for postal affairs, says: “A radical shake-up to combine elements of John Lewis and Co-operative Group’s ownership arrangements would give those who know the Post Office best – subpostmasters, franchise partners, staff and the communities they serve – a real say in how the Post Office is run.

Mutualisation will only work if the key parties involved want to make it happen and believe it to be the best way forward – it is not something which can be imposed from above by the government. So we will carefully consider this report before launching a public consultation later this year so that everyone can have their say.

“Ministers are concerned that the Post Office is being held back by the current structure of Post Office Ltd, the government owned company that develops and provides products and services which are delivered through the UK’s 11,500 Post Office branches.

“There is often tension between the interests of the Post Office Ltd and privately owned local branches which make up 97% of the network. For example, subpostmasters are pitted against Post Office Ltd when they negotiate annual pay rates. And they fear Post Office Ltd expanding online because they worry it will drive customers away from their stores and that they won’t share in the profits. Ministers believe that transferring ownership of Post Office Ltd – not the privately owned individual branches – to a mutual could better align these interests and help secure a positive future for the network.”

It looks as if a mutualised Post Office has become a likely outcome. The next stage now is to await the outcome of the consultation.