The Post Office has made its first after-tax loss for 24 years.

The organisation reported post-tax losses of �264m, largely because of Government plans to pay benefits directly into bank accounts from 2003.

Benefit payments account for one third of income for post offices.

The poor performance was expected after losses of �386m were announced in November for the first six months of the financial year.

Closure warning

The post-tax results were hit by the huge costs incurred in setting up an automated computer network to handle benefit payments.

The Post Office is writing off �571m to cover the costs of introducing the new system which was abandoned after the government decided to make payments straight into bank and building society accounts.

An estimated �400m is expected to be lost in revenue to the Post Office as a result of the move.

Profit before tax and the computer system costs was also down, by 13% to �474m, mainly because the Post Office froze or reduced postage prices over the last financial year.

Scrapping the system also led to warnings from the Federation of Sub-Post Masters that half of the 19,000 sub-post offices in the country could be under threat if business associated with benefits payments is lost.

The write-off will be funded from the Post Office's reserves, as will the �175m dividend it will have to pay to the government.

Competition bites

The government is planning to introduce greater competition to the Post Office's business by reducing the organisation's monopoly on mail deliveries.

In April, the European Council of Ministers called for liberalisation to be speeded up.

From April next year the Post Office will have limited freedom. It will become a company, able to spend up to �75m before it has to get authorisation from its main shareholder, the government.

Post Office chief executive John Roberts wants the group to become one of the key players in Europe.

However, it is fast losing the commercialisation race.

In other European countries, such as the Netherlands or Germany, the post offices have either already floated as public companies or are about to do so, giving them much greater freedom to compete.