Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 100 - 113)

WEDNESDAY 9 DECEMBER 1998

DR NEVILLE BAIN, MR JOHN ROBERTS, MR RICHARD CLOSE AND MR JERRY COPE

  100.  What about the consumer interest, which was another key feature of it, the POUNC proposal referred to?
  (Mr Roberts) No. The strengthening of POUNC was something that came new to us.

  101.  A bolt from the blue?
  (Mr Roberts) Well, from the blue anyway, yes.

Chairman

  102.  One of the things where you will have apparently greater freedom, and I use the word "apparently", is in relation to the settlement of pay deals across the company. Could you perhaps sketch in some of the detail there that you are aware of or is it still one of these areas where we have to await the White Paper?
  (Mr Roberts) The answer to that is yes but I am not sure whether we will get more details. My understanding of what is in the statement is that pay policy will still apply to the whole of the public sector wherever there is pay policy, but we have been invited by the Secretary of State to come forward with ideas that we might have in terms of rewarding our staff more or getting them to share in our success or whatever the right term is. We have not yet had time since Monday to find out how much scope we have got within that but, and certainly you have probably heard me on this before, I do believe that if we remain as successful and profitable as we have been, we have got to find ways of getting some of that success back to our own staff who very much contribute towards it. What we want to do is to look at ways beyond maybe just ordinary productivity schemes—I am now making this up. It is not without the realms of possibility to think of some sorts of bonuses or something which may be related to profits, I do not know, but it is in those sorts of areas that I think we now want to look to see if there are ways in which we could bring suggestions forward.
  (Mr Cope) The key is to find a way that better enables us to share both success and pain, because we have got parts of the corporation which are successful and parts of the corporation which are less successful, with the people who are working in those bits of the operation. At the moment we are restrained from doing that. I would understand the Secretary of State's statement to say that we have got some opportunities to be imaginative in terms of taking ideas forward that would meet those objectives.

  103.  In this area of pay there is always a sensitivity but it is very simple and straightforward to reward the upper echelons of management because there are not very many of them. There is always a case that they can walk away and there have to be arguments for golden handcuffs and things like that. Would it be right to say that it would be a rather dangerous approach to pay if you were to reward the officers of the Army and leave the poor bloody infantry somewhere behind them, given the industrial relations record that you have had in recent years?
  (Mr Roberts) Yes. In fact, what was behind the answers you got from the two of us, Chairman, was to start at the infantry end and not the officer end. There are issues at the officer end, if I can continue your analogy, and in certain cases we have found it quite difficult to recruit people from outside because the market rates for managers (and for example if we think now perhaps of international managers) are going to be quite different from the pay rates within the Post Office. The whole thrust of my answer was very much about the mass of people who work in the Post Office, not the top management or even the top two layers of management. Let us start at the other end and then work from there.

Mr Laxton

  104.  The Chairman has used the phrase "golden handcuffs". I was not necessarily looking at that as an example, but we have had some evidence this morning about the very high levels of staff turnover and surely that has to be some concern of yours about your apparent inability to retain people in your workforce at an infantry level, if we can use that military analogy. That is obviously going to be, I would assume, some pretty heavy financial burden upon the business to have that turnover of staff.
  (Mr Roberts) It is very important. What we find is that if we have high staff turnover the quality of service that we give deteriorates. We are then faced with increased training costs because of turnover and therefore, you are absolutely right, what we would prefer to see is a very much more stable staffing base. One of the things that we are doing at the moment and I hope very much we will be able to conclude by Christmas is that we are in Royal Mail in the very much later stages of a productivity discussion with the CWU. If we can bring that to a head (and both sides want to do that) that will give us the opportunity not only to improve efficiency but also to pay some of that back through increased earnings, and I hope that those kinds of things will make a difference. Then I think we have to go beyond that and look at whether there are other ways in which we can justifiably get some sort of success sharing back to the staff and of course, at the same, we have to look at what we can do for the customer. There is a whole raft of things which this statement may well start to open up in ways that we have not been able to tackle before.

Mr Morgan

  105.  The Minister agreed to lift the moratorium on the conversion of Crown offices and referred to some proposals put forward by yourself for retaining the core. Can you tell us what effect lifting the moratorium is going to have and what this core represents both in terms of numbers of offices and percentage of your business?
  (Mr Roberts) We have currently got about 600 Crown offices within the network of 19,000 with the others being a mixture of old style sub-post offices and franchise offices which have been the converted Crown offices. That handles about 20 per cent of current volume, those 600 offices. What we have suggested is that we ought to work towards a target of reducing that 20 per cent to about 15 per cent, which would probably mean in terms of numbers of offices transferring roughly a further hundred from Crown offices into franchise offices. Can I be absolutely clear: we are not talking about reducing the number of post offices at all. We are talking about converting, transferring, maybe around a hundred from what are currently Crown offices into franchise offices.

  106.  What is it that determines that hundred out of the 600?
  (Mr Roberts) It is a combination of factors. Location: can we get a better location for an office by making a change? Cost reduction: it is cheaper for us to be able to transfer a Crown office into a franchise office. What is the quality that the agent or partner or franchisee would be able to give because in certain cases we will not make that kind of decision because we do not think the quality will be maintained. The Chairman may remember that at the last hearing we had here you asked us to put in the research evidence we had that where we did make these changes customers felt overall that they were getting a better deal at the end of it and we submitted that to the Committee last time. It is a combination of those things, which is why I am saying roughly a hundred, and it will depend a little bit, given the volume connection, on whether we are doing rather larger offices or rather smaller offices. We are trying to set some parameters around what I know the union have seen for many years as a sort of totally open ended approach to conversions. I can remember being asked, does this mean nil Crown offices? Therefore what we have tried to do here is to say, look, this is our planning at the moment and, given all the circumstances in Post Office Counters, this is what we think would probably be sensible over the next few years. I know, because I have just had a copy of the letter, that Mr McCartney, the Minister at DTI, has written to both me and the unions saying that he feels that that is a sensible way forward and that is why they were lifting the moratorium in the statement.

  107.  When you were with us before we asked you about your relationship with POUNC and your employees. I think you said that things had been not very good and you said, "Ask us in 12 months how things have gone". Well?
  (Mr Roberts) You are going to ask me. I do not know, but I suppose you asked the union the same question, so I will give you my view. I think the last 12 months have shown a marked improvement. I think we have been helped by the fact that the elections in the CWU which were around at the time when we last spoke have been completed. Mr Hodgson and Mr Keggie, the Deputy General Secretary, are there and we know they are there for some time. We have tried on both sides to set up a very constructive dialogue starting at the strategic level and then working through a number of areas. During the course of the year we have managed to conclude, I think, some tough and acceptable deals on both sides starting with code of conduct which clarified a lot of the aggravation that we had had in the past through an agreement about the way we handle deliveries, which was another source of concern for the union, and we are now, as I said, in the middle of this productivity discussion. We have also on the way dealt with the new European legislation, the working time directive, and we can both jointly see a way forward on that. I think it is measurable by the fact that the number of days we have lost this year so far compared to the last year and certainly the year before that are absolutely minute. We are less than 0.00-something of a per cent of days lost this year, which I think is at least one indicator of the atmosphere within the organisation in the IR sense.

  108.  How about relationships with POUNC?
  (Mr Roberts) Relationships with POUNC are I think very constructive. We have had during the course of the year discussions I suppose above all around the level of quality that we have been producing on first class mail. It is currently at around 91.5 per cent and I know that the POUNC view is that it should be higher than that, round about 92. We do not disagree with that, but from my point of view it has been trying to move a number of these things at the same time. We have been hitting on a weekly basis at times 93 per cent for first class mail. It is now getting the consistency into that. If we are able to do that I think that that will remove a major bone of concern for POUNC and one that we fully accept.

Mr Berry

  109.  Could you tell us where you think we are with Horizon, the ICL Pathway project? It has not been without its teething problems. Are you still committed to it? Are we going to get a result soon?
  (Mr Roberts) We are still committed to it. The automation of Post Office Counters is absolutely central to our strategy for the future of that part of the Post Office. We are committed to it as long as it continues to provide a sensible commercial return for us, which is what it does at the moment. You quite rightly say that it has had its teething troubles. As you know, it is not just us and ICL Pathway but the DSS and therefore the Treasury who have a role in this, and there is a review going on which is being run by the Treasury. I hope that that review is going to report very soon because then that will take the cloud away from the project—I hope. I cannot guarantee what the result of that will be, but I am very clear that from our point of view in the Post Office, as long as it is giving us the right commercial return, which it is, we would want to see it go ahead.

Mr Cunningham

  110.  Do you have any reservations about the EU directive on the postal service due to be implemented next year, 1999, and also are you confident that in the next round of postal liberalisation the Post Office will be in a position to take advantage of the opening up of the markets?
  (Mr Roberts) I do not think we have any reservations about what is due to be implemented in February. I think we have been through that and we see that as a sensible next step. I am more concerned about what might come after that because certainly the view of the Commission at the moment appears to be that the next stage in 2003 should be the liberalisation of direct mail and inward cross-border mail. Our view has always been and still is that it is not the right way to go to liberalise classes of mail, and certainly with direct mail we just do not think it is policeable. What is inside a piece of so-called direct mail? We have always favoured liberalisation by either reducing the price or weight limit in the way that will happen next year. I have my concerns there. Will we be in a position to take advantage of this? It is absolutely central to what we are trying to do and why we welcome the statement this week, that we have the period between now and 2003 to really get our act together and make the most of the freedoms. If I could just make one other point about regulation, it is very important to us that any regulation brought forward as a result of the statement on Monday is coherent with whatever is coming out of the European Commission. What I would hate to have is one set of regulations being produced by the Government in this country and another set being produced by Brussels and finding that the two things do not join up.

  111.  Can you tell us why the customer stamp to Europe has gone up?
  (Mr Roberts) The international mail has always been settled by a very complicated system called "terminal dues". This is because we are basically in this country a net exporter of mail, so we send out more to be delivered in country X than country X sends in to us. There therefore has to be a settlement about the amount of work they do to deliver the mail they receive from us compared to the amount of work we do to deal with the mail that comes in. The Commission a couple of years ago said that the old system for doing this was not competitive and as a result of that all European postal administrations had to sit down and try and negotiate a new system which was called "cost based terminal dues". It is very complicated. If the Committee is really interested I would be very happy to give you a long and complicated paper on it but basically, as a result of that negotiation, because we are relatively efficient and low priced in this country, over a period of time in order to get the sort of balance across Europe of pricing related to cost some of our prices will have to go up and that is why there has been an increase in price earlier this year.

  112.  So there is not the possibility then that the volume of mail going from this country to Europe is dropping?
  (Mr Roberts) It will fluctuate between countries but at the moment we are seeing still growth in international mail and fortunately many of the global companies are locating in the UK and then want to send their mail abroad. I have to make the point, and it relates back to the key thing again about the statement, that unless we can provide them with the kind of service they expect they will just go and relocate somewhere else. At the moment mail to Europe from the UK is still growing.

Chairman

  113.  Do you think the euro will make any difference if we had euro stamps?
  (Mr Roberts) We will start in some cases to make settlements in euros when the euro comes in, obviously. From our point of view we are very keen, Chairman, as you know, on British stamps and everything that has gone into them. We would like to feel that whatever happens with the euro we will be allowed to continue developing stamps in the way we always have.

  Chairman: On that happy nationalistic note, thank you very much. As I say, we will be producing our report as soon as we can and we would like to think that we will get it out but perhaps not before the 1 January, but certainly very soon and we hope that it will be out to help inform the Government in the final writing of the White Paper. We are very grateful, as always, for the time and the trouble you have taken this morning to come and give evidence, especially given that this is rather a busy week for you. I am sure that these are problems of work that you are quite happy to have to address after so long a wait.





 
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