The future of post offices remains uncertain despite continued financial support from government, a new report from the National Audit Office has revealed.

The report looks at the problems facing post offices, particularly how changes to pension and benefit payments and customer shopping habits have left many struggling financially.

Head of the NAO Sir John Bourn, who launched the findings, said Post Office Limited (POL) is now on a sounder financial footing as a result of Department of Trade and Industry involvement.

But he pointed out there has been an over-supply of post offices in urban areas, leading to under-investment and losses for POL.

Under its urban reinvention programme, POL is on course to close around 2,500 urban branches.

However, there is some uncertainty as to whether the programme, for which the DTI has provided up to £210 million, will achieve its aim of producing a viable business for both individual sub-postmasters and Post Office Limited.

A significant number of rural post offices are running at a loss and the government is giving extra funding of up to £150 million a year, until 2007/08, to keep them open.

Difficult decisions

Sir John Bourn said: "Since 1983, the number of post offices has dropped by 7,000 to around 15,000.

"The government faces some difficult decisions if it is to maintain a viable network of post offices.

"Although the rationalisation programme has put the remaining urban post offices on a firmer footing, their future is not guaranteed, and the DTI must stay alert to this.

"It must also co-ordinate government policy decisions on the future of rural post offices based on a sound understanding and assessment of the options."

Postwatch - the consumer watchdog for postal services - welcomed the findings, but said "significant steps forward" need to be taken to explore new delivery systems to meet the needs of rural customers.

The watchdog expressed concern that the introduction of pilots in rural areas to improve services have not progressed quickly enough.

Postwatch also said that financial support may be in place for the medium-term, but the government should have a clear, positive vision for rural post offices' long-term role.

"Decisions to close urban post offices have been dominated by sub-postmasters volunteering to leave with compensation," said Postwatch chairman Peter Carr.

"This will create gaps in the remaining network, which will reduce access for some customers and test its viability in the future.

"The programme to upgrade the remaining post offices to cope with a higher level of demand needs to be accelerated - the government made £30 million available for this and less than £10 million has been spent in two years."