The business - Patrick Hosking reports plans for a PO credit card

When bailiffs are already chasing £5bn in debts, it seems odd for the Royal Mail, an arm of the stat

Just as everyone finally agrees that personal borrowing has ballooned dangerously out of control, a major arm of the state announces plans to launch a credit card. And personal loans of up to £25,000. And mortgages, too. Yes, the Royal Mail Group is about to offer the nation a sackload of extra credit - available soon via your nearest post office.

The timing is lousy. Personal debt has never been higher. Alarming numbers of people are falling behind on credit card payments. Bailiffs are chasing £5bn, an increase of 70 per cent over two years, according to a report by Leeds University Business School for the Credit Services Association. Personal bankruptcies are soaring. Total personal debt is more than £800bn. If there is one certainty in this life, it is that we do not need another credit card on top of the 1,500 already available to us. There are more credit card accounts - 59 million - than people in these islands. As for mortgages, we probably have the most competitive industry in the world.

Moreover, the Royal Mail (what used to be called the Post Office Corporation and then briefly Consignia) has been here before. Through Girobank, it used to offer a wide range of personal financial services, until it sold out to Alliance & Leicester ten years ago to concentrate better on its core business of delivering mail.

This is a curious U-turn, though conspiracy theorists who believe that David Blunkett will use the scheme as a way of piloting an all-purpose ID-cum-credit card need to go and lie down in a darkened room. Rather, it smacks of an organisation desperate to winkle out fresh sources of revenue as its core business comes under ever deeper threat. The group lost £611m last year. It is due to surrender its monopoly on delivering letters in 2007. And it faces a dwindling customer base because pensioners no longer need to go to a post office to collect their money. Soon other claimants will also have benefits paid directly into their bank accounts.

Amazingly, 29 million people still visit a post office each week. The chairman of Royal Mail, Allan Leighton, has already wielded the chopper on costs. Sixteen thousand jobs have been cut and another 30,000 will go over the next 18 months. Raising the revenue line is likely to be a harder task. Still, Leighton knows a thing or two about extending a franchise from his years of running Asda.

For all the doubts, one can't help wishing the venture - a 50/50 tie-up with Bank of Ireland - bonne chance. Anyone taking on the main clearing banks should be encouraged. The terms on PO-branded products won't be ultra-generous, but they should comfortably beat the Big Four. A pilot project launched this month in the Midlands will offer personal loans with an interest rate of 10.9 per cent. The PO may just save the odd person who might otherwise fall into the clutches of less savoury lenders.

The private sector's view is that the venture will struggle. The Royal Mail's civil service culture will stifle things. Postmasters and mistresses will give it the raspberry. Enthusiasm at the top will dry up when the Royal Mail has to do ugly but necessary stuff such as taking welshers to court and repossessing homes.

But after talking to the architect of the venture, I'm not so pessimistic. David Mills, chief executive of Post Office Ltd, a subsidiary of the Royal Mail, raves about the opportunity, the wonderful Post Office IT system and the huge competitive advantage of having 17,000 branches - more than every bank and building society added together.

The PO has already cleaned up with one financial product. It started selling foreign currency to holidaymakers two years ago and will probably overtake the industry leader Travelex next year, making pre-tax profits of £35m. Not bad from a standing start.

Mills put together First Direct, the hugely successful and highly innovative branchless bank set up by Midland Bank, now HSBC. He will have his work cut out, without doubt. But the venture could just make the difference between the survival of your local post office - which now has a cull rate of 1,500 a year - and its demise.

I've long maintained that Lord Sainsbury's "blind trust" is a sham. The science minister knows very well that he owns £1bn of the Sainsbury supermarket group and receives tens of millions in dividends each year. Now, as speculation swirls over the future of the chief executive Sir Peter Davis, comes news that the Sainsbury family - among whom Lord Sainsbury is by far the biggest shareholder - is backing Davis. According to the Sunday Times, the solicitor heading the trust, Judith Portrait, has "assured [Davis] that the family remains committed to the long-term strategy that he has led". One must assume she meant all members of the family except the minister, who will have had no say whatsoever in the matter.

Patrick Hosking is deputy City editor of the London Evening Standard

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