Communities will be devastated if sub-post offices are forced to close because of huge losses, countryside watchdogs have warned.

The Post Office announced yesterday it has gone 250m into the red, as it prepares to hand over the payment of benefits and pensions to banks.

Benefit payments account for an average of 40 per cent of business over the post office counter, but banks are due to handle all benefits payments from 2003.

This will be a double blow to sub-postmasters as they will have less people coming in and spending money on newspapers, sweets and other goods in their shops. In Oxfordshire, there are 232 sub-post offices, 150 of them in rural areas.

Jane Hornsby, county development officer for the Council for the Protection of Rural England, said: "The Government needs to think about the damaging effect post office closures will have on these communities and review their position on the payment of benefits."

Jane Gilbert, of Oxfordshire's Rural Community Council, said: "Many post offices play a crucial role in their communities. If the need for benefits to be paid across the counter is reduced, then they should be given additional roles.

"Post offices could be incorporated into local libraries or local schools, or used as an access point for computers and health information."