Why the Post Office isn’t working

Any institution that’s been around for 364 years has seen its share of ups and downs. But the Post Office has rarely taken a kicking like it has in recent years. Despite its position at the heart of many communities and as a pillar of the high street, it’s losing money, and the Horizon IT scandal has tarnished its reputation – creating uncertainty around its future and potentially limiting interest from new postmasters and franchisees.

So, what does the future of the Post Office look like? Does it still matter? Is it a viable business for the 11,000-plus retailers, most of them convenience store owners, who run one? And how can it be improved and turned around?

Despite being Britain’s biggest retail network, with just over 11,500 branches, last year the Post Office reported a statutory loss of £76m. It also has liabilities of £799m and, with the Horizon IT inquiry’s final hearings having taken place this week, it expects to have paid out £1.15bn in compensation to postmasters by March 2026.

“The most important impact of the Horizon scandal for the Post Office as a business has been damage to the trust between the company and its postmasters,” says Tom Witherow, a reporter at The Times who has been recognised in national awards for his work uncovering the scandal. “It has also fundamentally changed the Post Office’s relationship with its owner, the government. There are big questions for the coming years about whether the Post Office should remain in government hands.”

It’s been dubbed the ‘Horizon scandal’, but as Jerry Brown, a postmaster and treasurer of campaign group Voice of the Postmaster, points out, “the computer system never prosecuted anybody. It was people who did that, who wouldn’t admit the system’s faults and went ahead with malicious prosecutions of postmasters.”

Yet despite rising public anger towards the Post Office management, inflamed by the ITV drama Mr Bates vs The Post Office at the start of the year, consumer sentiment towards the shops themselves is overwhelmingly positive. “Our members tell us their local customer base regards them as their Post Office and they differentiate that from the corporate entity,” says James Lowman, CEO of the Association of Convenience Stores.

C-stores are more critical than most to the Post Office, given they house approximately 10,000 branches. According to the ACS, about 20% of the UK’s 50,387 convenience stores include a Post Office.

“We were lied to and threatened by the Post Office and their advisers. My income has halved in real terms”

Jerry Brown

“Has the scandal put people off using services? Not at all, because the Post Office remains an essential service,” says Mike Sohal, whose Nisa Local in Warrington includes a Post Office. “However, the customers’ views on the Post Office and what they did to the postmasters are very strong. People are extremely supportive of us.”

Last year, London Economics calculated the Post Office’s economic impact in 2021/22 at £4.7bn. “Now that’s the definition of essential,” says Brown. “In my town, we’re very fortunate that our high street is thriving. There are no empty units, and as soon as a unit comes up it’s gone. If we weren’t here that wouldn’t be happening. So many people are coming to us to do their banking and things like that. We’re the lifeblood.”

Additionally, the connection between postmasters and their communities remains in lockstep. In the ACS 2024 Community Barometer report, the Post Office came first for ‘most positive impact’ and second for ‘most essential’ out of 16 local services in a UK survey.

“The country’s Post Offices remain vital for millions of people, especially the elderly or disabled who struggle to use online services,” says Witherow. “In many villages the Post Office is the last service left and the only place people can meet to speak to neighbours – it’s hard to measure that sort of societal benefit.”

“People tell us all the time how happy they are to have these services,” adds Dee Sadani, owner of two One Stop stores in the Midlands with Post Office services. “We’re vital to the community, especially at the moment with banking and everything else disappearing from the high street. The problem is, I don’t think the remuneration is right. That’s something that needs to be addressed.”

‘You get paid peanuts’

Therein lies the rub. Even with customer transactions around the nine million a week mark, postmasters are struggling to make the sums add up.

“Does my Post Office concession operate at a profit? No, it doesn’t,” says Sohal. “The only reason we’ve got a Post Office is to offer that crucial service to pull the customers in. If anything, it’s costing us about £200-£300 a month in staff costs.”

The hidden benefit of increased footfall that having a Post Office brings is a contentious one. Sadani says it “definitely” brings more people into his shop but says it’s “hard to calculate” whether it pays for itself or not.

Brown is less circumspect. “I hate the word ‘footfall’,” he says. “I don’t want footfall, I want customers. And there’s a big difference. I hate that term and the Post Office uses it all the time to justify why our retail businesses have to subsidise our Post Office counters. In my experience, for the vast majority who are coming in for something like home shopping returns, they’ve got one thing in mind: get rid of that parcel and go.”

It sounds counterintuitive, but the recent boom in online shopping is often more trouble than it’s worth, says Sadani. Lack of space is a big issue. The sheer volume can mean Post Offices “look a mess – and that slows you down finding parcels. You can spend up to 10 minutes looking for one.”

And what do postmasters get for all that space and time? The flat rate paid for each home shopping return is 34p per completed transaction.

“People tell us all the time how happy they are to have these services. We’re vital to the community”

Dee Sadani

It’s an even bleaker story for services like helping customers pay their bills, especially those with pre-paid electricity or gas meters.

“It can take five minutes to do a top-up on that. There can be connection problems, the key doesn’t work for some reason, sometimes you’ve got to clean the key for the customer, whatever the reason – and we get paid 8p!” says Brown. “Here’s another example: on a first-class stamp, we get paid 7%. But on a second-class stamp we get paid 3%. Why? Why would we get a different percentage for doing exactly the same job? It’s crazy. And it’s very difficult to explain the extent to which we’re so poorly paid. If people like me weren’t subsidising it, there would be no Post Office.”

It’s a similar picture for Sohal, who points out that sometimes he has to count out hundreds, occasionally thousands, of pounds in cash by hand when customers come in to pay bills. Others have electronic cards to pay rent or utilities, but he estimates that “nine out of 10” of them don’t scan properly, meaning postmasters must manually enter a 19-digit code to facilitate each payment. With the flat rate paid to postmasters at 8p, and such transactions often taking five minutes, the rate of pay for that service comes out at 96p an hour.

“You have so much responsibility, but to carry it out you get paid peanuts,” he says. “You need to do your job right every single time. Imagine the pressure – there’s a queue building, customers are huffing and puffing, but you either go slow and check that two grand in cash properly, or you go fast to keep the customers happy and maybe make a mistake. We’re basically treated as cheap labour by the Post Office and because we’re paid on commission they’re not interested.”

Payment structure changes

Much of the financial strife postmasters face has its roots in the Network Transformation Programme (NTP) – which the National Federation of Subpostmasters describes as “another Post Office scandal”. The scheme,  rolled out between 2012 and 2018, was a joint initiative between the government and Post Office. As well as modernising branches, it changed postmasters’ payment structure, meaning they became paid per transaction rather than receiving a fixed salary plus commission for providing Post Office services. Postmasters say they were pressured into accepting the new terms, which have been described as a disaster for their remuneration.

At the same time, they were being told by government that the NTP would mean Post Offices became  the “front office” for new services, including payment of speeding fines, theatre and cinema tickets, train tickets, ID document verification and more. However, not only were these services not delivered, many critical services such as bus passes, council tax and the Post Office card account – enabling pensions and benefits to be paid in cash at the counter – were removed by government and many more pushed online.

“Network Transformation and the philosophy behind it is the cause of our current problems,” says Brown. “At the time, we were lied to, threatened and blackmailed by the Post Office and their advisers. My income has halved in real terms.”

Sentiment is also mixed from the Post Office’s high street retail partners, which collectively operate about 2,000 branches and include WH Smith, Morrisons, Co-op, the Spar group and more.

While a Co-op spokesperson says the retailer “very much values” being able to offer Post Office services to customers, a source from another Post Office partner reveals “there have been occasions where it’s felt the Post Office was making some decisions without considering the impact on its partners, and that’s caused frustration”.

“The Post Office is an important franchise,” adds another of its biggest franchisees. “Operationally it’s fine and still as smart as it’s ever been, but at senior level it’s falling apart, everyone’s leaving, it feels like it’s in freefall.”

Read more:

• The time is right for a new Post Office transformation plan

• Post Office confirms plan to double postmaster pay puts jobs at risk

• Post Office rewards postmasters £871k in work incentive scheme for first time

When Nick Read took over as Post Office CEO in 2019, he pledged to “right the wrongs of the past” and told The Grocer: “I need to make it as simple and as easy as possible for retailers to establish Post Offices. I’ve got to build a set of propositions that are immensely attractive to postmasters to run.”

As he prepares to step down from the role in March, the consensus is he did not achieve those aims. “Not at all,” says Sohal. “Nothing has been made simpler. There’s been zero achievement. They need to knock down Horizon and think a lot smarter.”

It’s not just the top brass. Sadani describes area managers as “pretty much useless”, and says that even if postmasters do vocalise the issues they face, the area managers “don’t give a toss. It’s a black hole.”

There is finally new hope, though. When Nigel Railton was appointed interim chair of the Post Office in May, he ordered a strategic review of the organisation. The results were released this week and included much-needed measures such as increased remuneration for postmasters, including an extra £120m by March 2026, and investment in automated technology to help them carry out key transactions quicker and more simply.

The Transformation Plan, as the Post Office is calling it, has been generally well received by postmasters, but with caveats. “On the whole, it was positive. But we need the extra money now,” says Brown. “It’s fine saying ‘we’re going to increase it by £120m in the next financial year’, but that doesn’t even start for four months and we’re desperate right now, we’re on our knees. Plus, I know it’s a quarter of a billion a year, but I don’t think that’s enough. Even half a billion would just put us back to where we were in real terms, taking inflation into account. And bearing in mind the economic benefit we bring to the high street is estimated at about £5bn a year, half a billion is cheap.”

There’s also understandable scepticism. After all, promises are cheap. For example, back in December 2019, Alan Bates, the former postmaster and figurehead of the battle for justice in the Horizon scandal, said of discussions with then new CEO Nick Read: “It would seem there is a genuine desire to move on from these legacy issues and learn lessons from the past.”

Brown is hopeful it will be different this time. He has been close to the strategic review and says “the difference here is that both the interim chair [Railton] and the acting CEO [Neil Brocklehurst] are actively engaging with us. And having met them a number of times, I feel they actually mean it. I never felt that with the last lot; it always felt like lip service.”

If postmasters are not genuinely heard this time around, Sohal believes the very survival of the Post Office is at stake. “Going forward, the Post Office clearly needs retailers – and they need to make sure the business they offer is viable for them,” he says. “If the link between the customer and the Post Office – us retailers – isn’t looked after, the Post Office is in danger.”

In the end, the future will come down to money. For starters, the pay increase is “subject to government funding”, so are postmasters confident the cash will be put in place?

“That’s the billion-dollar question, isn’t it?” says Calum Greenhow, a former postmaster and chief executive of the National Federation of Subpostmasters. “There have been three transformation programmes over the past 20 odd years – in 2003, 2007 and 2012. Billions and billions of taxpayers’ money has been poured into the Post Office to supposedly deliver a network fit for purpose, but we’re now in 2024 and yet again we don’t have that.

“On that basis, the government really has to put their money where their mouth is. But they also have to actually work with the Post Office and postmasters to make sure that money is spent wisely. Finally, for the first time in decades, the fact that postmasters are the backbone of the business is being recognised.”

It’s a new start. The proof is still on the horizon.