THE Government was criticised last night over a decision to take a contract from the Post Office that allows claimants to cash benefits cheques.

Citibank will provide a service from 2012, using Paypoint outlets in places such as shops and garages, having been awarded a contract worth about £20m a year.

The move will affect more than 250,000 people and was described as “bitterly disappointing”

by the National Federation of Subpostmasters (NFSP), which feared a further loss of trade to already hard-hit post offices.

However, ministers said there had been a dramatic fall in the use of cheques to pay benefits, with only two per cent of welfare payments delivered in this fashion. They also said it cost the taxpayer £30m to process cheque, which were open to fraud.

Employment Minister Chris Grayling said: “This new contract represents value for money for the taxpayer.

The facts are payment by cheque is now too costly and too open to abuse, and we want our payment system to be as cost-effective as possible.

“We will make sure that everyone who receives their payments by cheque has all the help they need for the changeover and we can assist in choosing another method of payment that better suits their needs.”

Communication Workers Union general secretary Billy Hayes said: “The Government can’t be trusted with our public services.

“This cabinet of millionaires has no idea what it’s like running a small business where the loss of one or two revenue streams can make the difference between profit and loss.”

The NFSP said the decision had raised fears among subpostmasters on the future of other benefits payment services, such as the Post Office Card Account, used by nearly four million customers every week.

General secretary George Thomson said: “This is a bitterly disappointing decision from the Government.

“Benefits cheque customers rely on their local post office to provide this important service, with subpostmasters and trained post office staff providing assistance to hundreds of thousands of vulnerable customers each week.

“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.

“Ministers have to deliver new Government work to post offices, not more broken promises.”