RURAL post offices have been given a lifeline as hundreds of millions of pounds in subsidies have been pledged by the Government this week.

The £126 million losses announced by the Post Office last week and the closure over the years of 400 sub post offices painted a bleak picture for rural post offices. Protection for the rural network is one of the main aims spelt out by the new measures.

The new plans mean that from September post offices will receive subsidies to help maintain their postal business and new opportunities in banking and e-commerce will increase profitability.

These plans aim to address the loss of income which will be incurred when plans for the automatic payment of benefits into bank accounts are completed.

How much a rural post office will receive remains unclear until next month.

The Government announcement included plans to set up new banking facilities, called the "Universal Bank" available at every post office. The new accounts are aimed at the 3.5 million people who currently do not have bank accounts, and is part of a drive to combat the social exclusion suffered by people who live in the country and do not have ready access to banking facilities.

The accounts will include a cash card and benefits can be paid straight into the account. There will still be an option however to receive social services benefit in cash over the counter.

Some larger sites will also have internet access points, allowing people instant access to the internet but in smaller offices, there will also be opportunity to take advantage of "e-commerce". The rural post office will become a delivery and collection point for goods bought on the internet.

"The measures underline our commitment to providing opportunity for everyone - increasing opportunities to access computers and to benefit from banking services," said Trade and Industry Secretary, Stephen Byers. "This will ensure that everyone, in rural communities and in our cities and towns, has convenient access to a post office providing quality services."

There are other measures included in the bill that contribute to the post office becoming a "one stop shop" for government information and services.

Local sub postmaster, Colin Laverick, of Giggleswick Post Office was cautiously optimistic about the moves: "What the government is proposing is only the skeleton of the job, an awful lot of fleshing out needs to be done before anyone can say how these measures will affect us. A lot of pensioners are apprehensive about the move to automatic credit transfer and will need gentle coaxing into getting bank accounts.

"It is an important aspect of being a postmaster, one that the government is overlooking, that our customers come to people like me to ask our advice, because they trust us and we tell them what is in their best interest. This part of the business does not equate into monetary terms."

He also pointed out that his site would not have the room for internet facilities, and this would be a common occurrence in the Dales where alternative premises would not be easy to find.

He anticipated people in the village would appreciate the opportunity to use the internet yet remained sceptical however about the practicality of these measures: "There needs to be an awful lot more said before I'm jumping for joy."

His feelings reflected those of Colin Baker, General Secretary of the National Federation of Subpostmasters.

"It is only the first step towards creating the post offices of the future and we continue to have concerns about the income to sub postmasters and therefore the survival of sub post offices beyond 2003."

The National Federation of Subpostmasters is concerned that these measures may simply not be enough to keep some businesses alive.

Though the report states it will help to prevent 'avoidable' closures, offices that have to be closed due to retirement or unprofitability will not be saved by the scheme.

Mr Byers defined an 'unavoidable' closure as when "no one is prepared to take over from a departing sub post-master or where an associated retail business in the post office is no longer commercially viable."

The subsidies are also only intended to last until 2006 when the Postal Services Commission will review the reforms.

There are 18,000 post offices in the country, 95 per cent of which are privately owned by sub-postmasters. The Horizon project, which aims to make every post office in the country fully automated by summer 2001, and which allows social security and pensions to be paid directly into customer's accounts, means for the sub postmaster an approximate loss of 30 per cent of his income.