Subpostmasters have expressed “bitter disappointment” over the government’s decision to move the benefit cheques contract away from the Post Office.

From next year the service will be provided by Citibank through the PayPoint network. The government decided to move the contract, worth over £20m, because the current system of processing cheque payments was deemed too costly and open to abuse.

National Federation of Subpostmasters general secretary George Thomson questioned PayPoint’s ability to deliver the service and urged the government to provide the Post Office with more work. “Many benefit customers will be unwilling or unable to travel to a Paypoint outlet such as an off-licence or garage forecourt to claim their weekly pension or benefit allowance.

“Furthermore, we are unconvinced that Paypoint will be able to deliver this important and complex service,” said Thomson. “The company hasn’t consulted with its agents on their ability or willingness to provide the service. Instead Paypoint continues to force a race to the bottom, making below-cost bids for contracts by driving down rates paid to their agents ever further.

“If we are to maintain a network of 12,000 Post Office outlets, subpostmasters need significant volumes of work in order to survive, including regular repeat transactions such as benefits payments,” he added. “Ministers have to deliver new government work to post offices, not more broken promises. I warn the government that neither subpostmasters nor Post Office customers will tolerate any further moves to withdraw vital services from our counters, including the POCA.”

A Post Office spokesman said that it was disappointed not to have been awarded the contract but pleased that the Department for Work & Pensions had outlined plans for future schemes.

PayPoint chief executive Dominic Taylor was pleased with the decision. “The proposed new system for cash payment of benefits through our network will make it far easier for the recipients to access their own money at locations and times that are more convenient for their circumstances and lifestyles and builds on their trust in the PayPoint brand and service, which millions of cash economy consumers use every week for their essential payments,” he said.