Up to 200 post offices could close in the West Midlands as part of a major cull of the network.
Sub-postmasters will be offered payments of about #60,000 to shut up shop.
More than one in six branches are to be axed, Trade and Industry Secretary Alistair Darling revealed yesterday. The closures will begin next summer.
The Government will continue to provide up to #1.7 billion until 2011 to support the Post Office and ensure a national network.
Mr Darling said there had to be a reduction in the size of the network to reflect the dip in business and losses of #4 million a week, up from #2 million a week a year ago.
"People are simply not using post offices as they once did," he said.
The Government will set up 500 outlets for small, remote communities, including mobile post offices and services offered in village halls and community centres, in an attempt to reduce the impact on the countryside. The West Midlands has already lost 314 post office branches over the past five years – almost a quarter of the network. There are now 1,124 operating in the region.
The Department of Trade and Industry said 800 of the smallest rural post offices served just 16 people a week at a cost to the taxpayer of #17 per visit. More than eight million pensioners now had their pensions paid into a bank account, while an increasing number of people renewed their tax disc online.
Post offices are set to suffer a significant drop in revenue when the post office card account, which is used to pay benefits, is scrapped in 2010. It means almost every pensioner will receive pensions directly into their bank account.
Mr Darling said: "Post offices face a long term challenge. Internet, email and text-messaging have meant that people, young and old alike, increasingly use the phone or internet banking, cashpoint machines or direct debits to pay their bills.
"People are increasingly choosing to access services in different ways, resulting in some four million fewer people using their post office each week than two years ago.
"Our strategy aims to protect the national network, equipping it to meet the challenge of today."
But Shadow Post Offices Minister Charles Hendry said: "This will bring fear and anxiety to people, often the most vulnerable, in every part of the country.
"It will destroy many good businesses, simply because the Government does not have a long-term vision for the future of the post office network."
For the Liberal Democrats, Ed Davey said that Mr Darling had angered millions of people across the country.
"You are sounding the death knell of thousands of local shops, thousands of local businesses and thousands of communities."
Andy Furey, national officer of the Communication Workers Union, said the Government had led to the downturn in custom by removing government services from post offices.
But Postcomm, the official post office watchdog, said some cuts were inevitable.
Chairman Nigel Stapleton said: "It is vitally important for the Government to ensure that its actions result in a network that is genuinely sustainable and that there is enough business and revenue to secure it."
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