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A bizarre U-turn

Posted by Richard Friday, November 14, 2008

The elephant in the room is alive and kicking today in the print media reports of the government's unexpected U-turn on post offices.

As we reported in detail on 13 May 2008, a wave of closures has been threatened by the EU requirement to put out to tender under the Procurement Directives a contract to handle pension and benefit payments.

This was the "Post Office Card Account 2 (Poca2)" contract – which deals with pension and benefits payments and is due to expire in 2010. The 24 million or so transactions involved are valued at £1 billion between 2003 and 2010 and provide a key element of post offices' income.

The problem was – until the U-turn - that the contract for 2010 onwards had been put up for tender. It had attracted two rival bidders. If the Post Office had lost the contract, many small branches would go out of business, as the transactions provide about 12 percent of sub-postmasters' earnings, as well as attracting customers who spend on other services and products.

Now, as The Times reports, James Purnell, the Work and Pensions Secretary, has told the House of Commons that the Post Office would retain the business under a new contract running for five years from 2010, with the possibility of an extension.

What is utterly bizarre is that, unlike some of the broadcast media, The Times political editor, Philip Webster, does not mention the EU at all, much less the Procurement Directives.

The Daily Telegraph, via Christopher Hope, "Whitehall Editor" is just as bad, although he does mention that the loss of the contract could also have jeopardised a £150million a year European Union contract. This, he writes, could have led to thousands more branch closures as a "social" subsidy was at risk, because the benefits contract was one of the criteria for the grant.

A quick scan indicates that most of the other print media outlets have missed the EU dimension, yet this is the really interesting development. Hitherto, the government has insisted that, to comply with EU law, it must go through the tendering process – as indeed it has done with other services, following which contracts have gone elsewhere triggering much of the current wave of closures.

Now, on the face of it, it seems either the government was wrong, in that it did not need to put these contracts out to tender, or that it is now acting in defiance of EU law.

What seems to have happened, though, is that lawyers have discovered an ingenious loophole in the EU law, by which post office services can be exempted from the tender process.

In his announcement, Purnell referred to the "award a new contract for the continuation of the Post Office card account directly to Post Office Ltd, within the terms of the relevant EC regulations." He was then asked by his Tory counterpart Alan Duncan whether the decision required EU clearance. The secretary of state answered, "We do not believe that it does, and we believe that it complies with EU law. The decision has been properly and legally taken."

Jenny Willott, the Lib-Dem MP for Cardiff Central, came back, noting that the secretary of state had decided to award a contract for the continuation of the POCA within the terms of the relevant EC regulations. She asked: "If he can do that now, why could he not have done it before or why did he choose not to do so?" Purnell, without a blush, answered:

The Post Office provides a service that is not only a banking service, but a social service, and that becomes even more important when people are worried about financial circumstances. In the light of that, we commissioned legal advice, which has said that this is the right way for us to proceed.
There is, of course, the possibility that the EU commission might disagree with the government's miraculous new legal advice, but Purnell could be taking a calculated risk. He will know, if the commission does argue the toss, he can stall them for a while and, if it decides to act, it takes about two years to crank into gear and start the formal infringement proceedings.

By that time, it will either be David Cameron's problem or, with Labour back in office, it will have a whole new term in front of it and can cross the necessary bridges when it comes to them.

Whatever the truth of this bizarre tale, the assembled hacks seem collectively to have decided that they will not soil their pretty little brains by writing about a petty little detail like EU law. More probably, they suffer from that strange disease which renders the EU entirely invisible to them. Can there be any other explanation?

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