U-turn over New Labour’s plans to privatise Post Office services

This is probably part of Mandelson’s game plan. I imagine he hopes that by giving in to this, the back-bench and union rebellion over part-privatising Royal Mail won’t come.

We know that introducing private capital into Royal Mail won’t help it become independent of government subsidy. Just look at the privatised railways – they get more money from the public purse than when they were publicly-owned!

So, good news, but beware the Blairites, they are staunch defenders of big business!

Ministers axed a £1bn ($1.48bn) procurement on Thursday, allowing the Post Office without competition to renew its five-year contract to run a card account for 4.5m people and averting a serious Labour revolt by staving off the closure of a further 3,000 post offices.

James Purnell, the work and pensions secretary, told MPs that the bidders would be compensated for costs incurred as a result of the cancelled tender. He refused to disclose the costs of this compensation or the terms of the cancelled tender. The main rival to the Post Office for the contract was Citibank. Paypoint, the supplier for the Citibank bid, said in a one-line statement that it was “disappointed with the decision”.

The new contract to run the Post Office Card Account, which pays out pensions and benefits, will run from April 2010 to March 2015 “with the possibility of an extension beyond that”, Mr Purnell said. He told MPs the account was “central to the viability of the network”.

The decision will be seen as reflecting the influence of Peter Mandelson, recently appointed business secretary. Lord Mandelson is keen to reassure backbench MPs that the post office network need not be threatened by any shake-up of Royal Mail, following publication of the Hooper report which is likely to call for private capital to be brought in to sustain the postal service.

Labour risked an enormous backlash from its own backbenchers as well as opposition parties if the contract was not awarded to the Post Office. Ministers were warned by the National Federation of Sub-Postmasters that up to 3,000 more post offices could close as a result. But the terms of the competitive tender precluded them from rejecting the Citibank/Paypoint bid on political grounds.

Mr Purnell said the government had taken fresh legal advice before deciding to cancel the procurement. The government said in 2006 that its legal advice was that the contract had to be put out to tender. Government advisers suggested they were confident the decision would stand up to a legal challenge and would be cleared by Brussels under European state aid rules.

The recession has affected the basis for the decision, Mr Purnell told MPs. “Now is not the time for the government to do anything to put the network at risk, particularly as post offices are often the only providers of financial services in remote areas,” he stated.

Compass welcomes the news as “a signal to show they recognise the game has changed. The obsession with pro-market rhetoric may be over.” (I very much doubt this, and so should Compass…)

The Post Office is a trusted public service; it is an essential institution that meets the needs of pensioners, poorer individuals and rural communities, all of whom would have lost out through privatisation.

At a time of looming recession with the collapse of the banking system, people more than ever are looking to institutions they trust for the support they need. Which is why, while this move is applauded, we must go further a create a universal People’s Bank, based on the Post Office and the Post Office card account with its 5 million card holders and network of 14,000 branches.

A People’s Bank would provide the service the banking system failed to deliver.

Neal Lawson, Chair of Compass, says: “The government have seen sense. This decision will help quell the social recession just as the economic recession begins to bite. People need institutions they can trust, that are on their side and which build society. The Post Office is such an institution. Now Royal Mail needs more investment and modernisation based on the principles of universalism and a public service ethos. The next step is the creation of a People’s Bank on the lines of the Kiwi Bank to provide financial services accessible to the whole community and trusted by everyone.”

Jon Cruddas, MP for Barking and Dagenham, says: “This is a very welcome first step and I know my constituents will be delighted. But we need to go further in future – there are over two million people unable to get a bank account and they are going to increasingly feel the pinch from the credit crunch, extortionate credit card rates and rising bills. We need the Post Office to become the People’s Bank and the card account to become a real alternative to a bank account. That will not only help secure the Post Office as a vital public service but also open up basic financial services to those who most need them. We need to show some real joined-up thinking.”

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