Examination of Witnesses (Questions 200 - 213)
MONDAY 2 MARCH 1998
MR ROBIN
MOUNTFIELD, CB and MR
MICHAEL HERRON
200. And you are telling me that you did
not look back over the previous quarterly reports for maybe a
year or two to see if there was an established trend?
(Mr Herron) What I said was that I cannot recall
from the top of my head and I have not brought with me the papers
relating to the earlier part of the year. It was worse than we
had anticipated.
201. We are getting somewhere near it.
(Mr Herron) We made adjustments or we saw adjustments
being made through these latter periods in the year which were
all negative, all downwards.
202. Could I ask you, Mr Mountfield, when
was the OPS first aware that the HMSO was going to be privatised?
(Mr Mountfield) The decision was in contemplation
certainly as early as 1994, but the decision was taken by the
then Chancellor of the Duchy, Mr Hunt, in, to my recollection,
January of 1995.
203. So here we have an organisation sending
in quarterly reports that has obviously been losing money and
yet we do not have an accurate handle on what was happening in
those quarterly reports.
(Mr Mountfield) The decision to privatise taken
in January 1995 did not have a timescale attached to it. Indeed,
on the contrary, it was planned to be a flotation in the longer
timescale, 1997 or beyond, and that was taken on the basis of
the results for 1994 which were still in profit.
204. It seems to me that it is rather difficult
because you cannot have it both ways. You cannot have a declining
situation that you did not know about without somebody somewhere
along the line not feeding you the accurate information.
(Mr Mountfield) The accurate information, I think,
emerged comprehensively in early 1996 when it was clear that 1995
had been a bad year and had been a bad year in a number of senses,
but the management told us and believed that most of the reasons
for that bad performance in 1995 were one-off events which need
not recur. Now, that was clearly an optimistic judgment.
205. In any privatisation there is a lead
organisation which takes the responsibility for that privatisation.
I am right in assuming it is the OPS?
(Mr Mountfield) Yes, but once the decision to
sell was formally taken with a timescale attached to it, that
was effectively from the late summer of the 1995.
206. Mr Williams asked about Coopers &
Lybrand and the fact that they had a minor difference in what
was actually achieved against their lowest and poorest figure.
Would you have still gone ahead with the sale if Coopers had given
you an accurate worst case scenario?
(Mr Mountfield) If I can put it this way: if the
estimates of sale had been at a much lower level I have no doubt
that Ministers --
207. How about accurate?
(Mr Mountfield) I do not think the term "accurate"
really reflects the complexity of making estimates of likely proceeds
from privatisation. I am sure you must have learnt that from the
activities you have been involved with. It is very difficult to
predict proceeds of sale or takeover.
208. Coopers produced their scenarios one,
two and three in May 1996.
(Mr Mountfield) Yes.
209. They would be in possession of the
first quarterly reports from that company which no doubt the OPS
were monitoring very closely because of the sale and would have
known that the situation was sliding away from underneath them?
(Mr Mountfield) No, it was not. In the first quarter
of 1996 the performance as reported to us was actually improving
and ahead of budget. It was not until April that they began to
fall into monthly losses.
210. The annual accounts, of course, as
I said, came out on 26 April and Coopers produced their report
in May 1996 so they possibly would not have had the April figures.
(Mr Mountfield) Yes.
211. Fine, thank you. There is one last
question I would like to put to you. Ms Eagle asked about the
issue of sales details in which there were management projections
over which the OPS had doubt. You replied that the OPS were content
to let such a document containing those figures be circulated.
Do you want to reconsider that answer?
(Mr Mountfield) I am afraid I do not recall the
answer in quite those terms. If I understood it right, it related
to the estimates that were made in the Information Memorandum
in early 1995. Am I misunderstanding you?
212. She was asking you about the circulation
of those sales details from the management over which there were
reservations.
(Mr Mountfield) There were no reservations that
-- no, I think I can properly say there were no anxieties at that
time about putting forward into the public domain, into the hands
of the recipients of the Information Memorandum the forecasts
which management had themselves prepared, after applying a degree
of downward scepticism which resulted from our pressure a couple
of months before. Those were the same figures that appeared in
the Long Form Report, again properly described by Binder Hamlyn
as the management's forecast and they then analysed the management's
own sensitivity analysis. What Binder Hamlyn then added were a
number of cautionary comments about the quality of financial controls
in the organisation. Those emerged during the preparation of the
Long Form Report but were certainly not fully cooked by the time
the Information Memorandum went out.
Mr Page: Thank you, Mr Chairman.
Chairman
213. Mr Mountfield, thank you for your evidence
so far. I want to put one last question to you. It will be quite
long I am afraid, but rather important to subsequent privatisations.
I want to crystallise this principle of the limited accountability
that has come up today. When I asked you about the issue of the
management of the company with respect to privatisation you started
out by talking about the 1994 Binder Hamlyn report on restructuring.
As I understand the report and from memory (because I was a Minister
in the department in the first half of 1994) the HMSO was not
considered suitable for privatisation at this stage. Indeed that
shows in the Report where it says not by 1997 for flotation. Then
at some point in 1995, we have had various dates given from January
onwards, the decision was taken to privatise. 24Paragraph 1.28
shows, to my eyes at least, some accounting weaknesses in several
areas in the middle of 1995 and then it was 1996 when those weaknesses
were showing rather more strongly. On another front other questions
have demonstrated competitive weaknesses exposed during the whole
of this period in truth. On another front there was yet another
chief executive retiring and not being replaced at least in permanent
terms. You, of course, have accountability for the management
of the sale and not the management of the company. This is what
I want to question you on. The sale itself hinges on how well
the company is run. Distinction becomes difficult here. Clearly,
commonsense tells us that proper timing on the sale itself depends
on how much money the sale would raise at a particular time, whether
it would raise more or less at a later or earlier time. This is
crystallised very very finely in the commercial world because
you have a point in any sale where there is a go/no go decision
and that decision would certainly depend on what we would call
"clean" accounts and it would depend on an absence of
problems within the company, competitive, managerial, systems
and so on. Can you tell us again in order to crystallise this
exact problem whether you considered giving the Minister advice
throughout the period 1995/96 based on the previous discourse
I have just given you with respect to the timing of the sale?
(Mr Mountfield) Of course the timing of the sale
was specifically discussed in the middle of 1995 when the decision
was taken by new Ministers in the OPS to move from a 1997 or later
flotation to 1996, that is to say an immediate trade sale, and
the view that Ministers took was that the proceeds would, of course,
be less but the investment required by Government would also be
less and the risk incurred of things going wrong would also be
less. In effect the burden of investing in staff reductions and
cost savings and the burden of risk was transferred to the private
sector in return for lower risks than would have otherwise taken
place. That in my view as accounting officer was a legitimate
balance to be drawn and in my view was sufficiently closely drawn
for me not to seek an instruction one way or the other. That was
a judgement. It was a judgement Ministers took and I had to take
on my own account as accounting officer.
Chairman: Thank you very much. You
have had a gruelling afternoon. Thank you for your time.
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