THE Smith Street post office could shrink by two-thirds as Guernsey Post fights to break even. And part of the flagship Envoy House headquarters could be given over to industrial use.

The office – which costs nearly £100,000 a year to rent – is seriously underused and Guernsey Post plans to cut it down to 30% of its current size, it emerged at a public meeting last night.

And islanders also heard a call for an urgent review of the postal regulatory regime.

‘I think the States has got to direct the regulator to go away from the UK vision of cross-subsidyﾅ to speak to the regulator about getting away from the English way of regulating,’ Deputy Ivan Rihoy said.

But there was a danger in cross-subsidy, he warned. It tended to cover up inefficiencies.

The regulator would not permit the postal tariff to cross-subsidise a retail network, the ‘overcapacity’ of which equated to about £200,000 of the current losses.

Guernsey Post has to meet strict licence obligations and service target requirements laid down by the regulator.

There are several projected revenue losses across the retail network in 2005.

These include £12,000 on UK pensions paid locally as over-the-counter service is to be removed by the UK Government and £25,000 due to Alliance & Leicester [Girobank] withdrawing from Guernsey as business value is too low for the investment in the banking licence.

And £13,000 will be lost because the National Savings Bank deemed the cost of software too high for the value of business across the Channel Islands.

The meeting heard that money spent on consultants post-commercialisation was to get the postal operator out of the mess it was in following the 2002 Christmas crisis and that there were many reasons for an explosion in costs since.

‘There is no doubt the quality of service has gone up since that debacle,’ said Guernsey Post’s managing director, Mike Hall.

‘There have been quite substantial improvements in quality of service.

‘When I came over, the quality of service was appalling.

‘One of the things commercialisation does is expose the areas that may have been covered up.’

Royal Mail price hikes might cost £8m. in the coming years, islanders were warned.

‘That is massive for any business to absorb,’ said Mr Hall.

Guernsey Post was investigating putting part of Envoy House to industrial use in future.

‘You can’t mechanise the posting on the beat and we had to be compliant on deliveries,’ said Mr Hall, addressing concerns about taking on more staff.

But Deputy Mary Lowe said: ‘The service is not up to scratch for what people expect for next-day delivery.

‘And we have had a real problem with misdeliveries.’

Guernsey Post chairman David Warr said that the business was losing money and unless something was done it was heading for the buffers.

‘We are being slaughtered by Royal Mail and we have not got a magic wand,’ he said.

‘We have to face commercial realityﾅ we need a lighter hand on the tiller.’

The meeting was organised by Postwatch Guernsey to discuss the operator’s losses on its retail network, its moves to turn them around and the controversial closure plan for L’Islet Post Office.

Deputy Rihoy presented a 1,000-plus signature petition against the closure.

L’Islet residents called for more time to use it rather than lose it and accused Guernsey Post of penny-pinching.

But others asked for alternative, possibly cheaper, premises nearby to be considered, such as Oatlands Craft Centre.

‘Can Guernsey actually afford to have a retail network with nine offices in the island?’ asked Mr Hall.

‘The amount of usage of the counters generally is falling greatly.’