Post office subsidy opposed by inter-Departmental assessors

Members of an inter-Departmental group assessing funding options for the post office network have opposed payment of a State subsidy, it has emerged.

The group is examining a report which said the An Post network is technically insolvent and will quickly become bankrupt without a change in funding. That report, by industrial relations consultant Mr Phil Flynn, said a State subvention was the "only real option" to finance losses at the 1,900 post offices. They will need £83.2 million (€105.6 million) by 2005 in a "no change" scenario, it said.

While the Department of Finance is known to be strongly opposed to such a funding commitment by the State, it is thought the Department of Public Enterprise may be coming to that view too. Members of the group established by the Minister for Public Enterprise, Ms O'Rourke, are understood to have expressed strong reservations about any provision of State funding to support only the existing range of services.

According to Mr Flynn's report, the post offices will lose £12 million this year. Though the group is investigating means of "reinventing" the post offices, there is an acceptance that this will prove very difficult. Mr Flynn's report said ideas for new business "do not appear" to have capacity to eliminate losses.

Consultants from PricewaterhouseCoopers submitted a separate study on post office funding to the Department of Public Enterprise. That study is believed to have examined particular elements of Mr Flynn's report.

In recent weeks, it is understood the inter-Departmental group engaged PricewaterhouseCoopers to develop proposals for the business.

These may include the establishment of a "universal bank" service for social welfare claimants, similar to one planned in Britain. The service to be provided by Consignia, the former Royal Mail, aims to offer a post office card account to claimants without bank accounts.

Crucially, Britain's main banks agreed last month to pay £180 million over five years to subsidise Consignia's development of the service.

Ms O'Rourke said in April that Irish banks should pay millions of pounds each year to subsidise rural post offices.

She linked the suggestion to a "debt of honour" owed by the banks to communities who supported rural services that they now wanted to abandon. But senior banking figures cast doubt over the possibility of banks justifying any such subsidy to their shareholders - or to former bank staff laid off due to branch closures.

Still, members of the inter-Departmental group will this week discuss the arrangement between Consignia and the banks with British officials involved in the deal.

While An Post is reluctant to use its own retained profits to subsidise the post offices, it is thought the inter-Departmental group may also examine that option. The key question there will be whether that would be a sensible option.

The involvement of Department of Social, Community and Family Affairs in the inter-Departmental group is said to be significant.

With a contract worth £35 million in 1999, the Department is among the largest of An Post's corporate clients. But, because fewer people are receiving benefits, these revenues are thought to have fallen since.

While the State company's preferred option is to close 1,500 sub-offices, the Taoiseach, Mr Ahern, has said there would be no "wholesale" closures.