Select Committee on Trade and Industry Minutes of Evidence


Examination of witnesses (Questions 44 - 60)

MONDAY 14 JUNE 1999

MR TERRY DEEGAN, MR JOHN LOVELADY, MR DEREK HODGSON, and MR TONY KEARNS

Chairman

  44. Good afternoon, gentlemen. Perhaps we could start. In your evidence you have pointed out that you represent some 11,000 CWU members and several hundred CMA managers. How serious is the threat to your members? Are not your members mainly employed in the bigger offices which one would imagine would be able to have lines of their own and might not be quite as dependent as the sub post offices are for the Benefits Agency payments and utility payments and the like? Would that be a reasonable assumption to make, that perhaps your concerns are not as great as the sub postmasters?
  (Mr Hodgson) No, it would not because if there is to be an effect on the services provided to the public and an effect on jobs in the industry, and the potential administrative work as well as the public counter network is serviced by our members and our managers, our concern is as great as, if not more than, the sub postmasters because the real reductions that have been made in recent times in the counter network and the conversion of the counter network has principally affected our members in that it is not too long ago that there were 2,000 public counters and it is now down to about 600 public counters. The Government has committed itself to a flag ship of public counters and therefore they have said that the level that there should be is around 15 per cent of volume so that any effect on the counter network is going to impinge on the jobs of our members and the public as a whole. I think you have got to look at the counter network and what it stands for in the round and not try and say "Well, there is one particular group", we are talking about an integrated network of counters.

  45. In your evidence to us you refer to your absence from discussions. You have been in front of us on a number of occasions giving evidence, and normally we have discussed, sometimes in passing, what is happening about Horizon, what is happening about the Pathway and we have then moved quickly on because nothing much seems to have been happening.
  (Mr Hodgson) Yes.

  46. Also we get the impression that in the last few weeks there has been a desperate rush, there has been a lot of jumping up and down, waving of arms, but you do not seem to have been a party to that, is that correct?
  (Mr Hodgson) The development of the Horizon project, the Post Office, the Benefits Agency, the Government, DTI, have been involved in the discussions and negotiations that have developed the project initially. We were not involved in those discussions. We have observed with some interest what has been happening in more recent times and you will probably have noted, as we have, that a deal of information has been appearing in the press and whilst we have our contacts obviously with Government and our day to day dealings with the Post Office we have not been directly involved in the discussions. As has been indicated earlier today, for the first time we now have become involved in those discussions as a result of an invitation by the Minister for the Post Office, Ian McCartney, setting up a working group as a result of an agreement which was made and which the Post Office themselves signed on the 24th of last month. A new contract has now to be formulated, I understand, by the end of July and at this very late stage we have been invited to participate. We would have very much welcomed the opportunity to participate earlier because we think that we had a dimension to add to those discussions but, unfortunately, we were unable to do that other than to make our representations to the Post Office who themselves made their representations to the Government, ICL, Benefits Agency, DTI and others.

  47. Can you tell us what the dimension would have been that you would have brought to bear? Can you share with us what the Government has been denied?
  (Mr Hodgson) First of all, the way the project was developed. It was developed under a previous government and we do not believe the technologies and what was being looked at was thought through as well as it should have been and the expectancy to deliver in the way that we had a dimension we believed to add to that. The project then got into some difficulties in producing what was required. What was looked at was the Irish system, the Irish payment card system and the development of the Post Office system, Benefit Agency system over here was looked at. We believed that we had a contribution to make at that point in time. Now subsequently, when the project got into difficulty, we were aware that it appeared that the Benefits Agency were not implementing the technology to meet that which was being implemented in the Post Office and we believed that we had a contribution to make at that point in time to say "Look, how the hell can you proceed with this project if the Benefits Agency that is supposed to be committed to it are not getting their technologies to match up?" Subsequently there were discussions between various departments in Government and with the Post Office and we believe that if the Government believes in working in the partnership sense that it is talking about with industry and with trade unions then we had a contribution to make at that point in time. Certainly we had some pretty strong views to express had we had the option to do it in an open way.

Mr Berry

  48. Can I declare an interest as advisor to the CMA and ask two very simple questions. The reference in your joint submission to the swipe card includes, in paragraph eight, the comment—this is relating to the benefits of the magnetic swipe card—"We understand that this was verified by the trials carried out by Post Office Counters Limited". Could you tell the Committee what your members' experiences have been of the swipe card?
  (Mr Hodgson) The experience that we have had during the trials was that the benefit card was popular with the public and it was popular with the staff working the trials. There were clear benefits coming out. I think it was 200 offices were operating the trial of the roll out system and £2 million was being saved in benefit fraud. Indeed, when the Secretary of State made his statement in the House of Commons on 7 December he confirmed that the Government was committed to the payment card technology, it was an integral part of the future and the development of the Post Office and this is why we were somewhat surprised to hear in the statement that was made by the Department of Trade and Industry on the day the agreement was made that they are to cease the benefit card. We hope the Government is true to its word and we have no reason to doubt that. It says that it is now an outdated concept (this is the payment card) and others are already moving away from the magnetic strip in favour of the next generation technology, the smart card. Clearly, in our discussions with the Minister on the working party that has now been established we would want to extol the virtues of the smart card, which I think is accepted by everyone and the areas that we can get into with new business because the Government has said that they have a vision of the Post Office expanding within the community its social obligation and its wider use. The smart card opens up all sorts of new opportunities for the future and this is why we want the smart card to be produced. In the original financial arrangements with ICL for the development of the technology we have not been able to put our finger on who was due to pay what and this is why we would want to know how we can find the financial resource to develop the smart card, whether it is Government going to pay for the development or whether the Government is prepared to commit itself through its agency services and through a number of other services that can be transacted and developed over post office counters to create circumstances where the Post Office will be thought to speculate in order to accumulate because smart card technology is expensive. It is something that will benefit the public, the Government and the Post Office in the future and this is why we have got to go that way.

  49. Does not the smart card technology mean that a number of counter clerks are not going to be required? There is a sense in which one can envisage a system developing whereby you simply do not need counter clerks any more.
  (Mr Hodgson) That is not necessarily the case. The smart card technology can move you into all sorts of areas. For example, ICL themselves are talking about the updating of government departments, address changes, requests for benefit information, the lodging of tax returns, the buying of licences, vehicle, TV etc, the claiming of grants and concessions going in to education and health. One of the areas that we would like to examine—and I understand discussions are taking place between Frank Dobson and the DTI—is how we can develop the technologies in terms of the Health Service. That is something that can be opened up and the Health Service can be greatly assisted if it can move into that area. There are things like the lottery, things like wholesale cash distribution, access for official information and transaction that can open it up. One of the things that you need to remember is that 90 per cent of the population live within a mile of a post office, only 60 per cent of the population live within a mile of a bank and only 30 per cent within the area of a supermarket. The network of post offices throughout the country is accessible to everyone and the expansion of their use for the social obligations of the Government and the vision that the Secretary of State talked about on 7 December clearly can open up all sorts of new avenues to the mutual benefit of everyone.

Helen Southworth

  50. What kind of statements are you seeking from Government or departmental divisions specifically from the DTI and DSS?
  (Mr Hodgson) Government has said that it favours the development of a world class postal service of which the counter network is an integral part. Incidently, if you look at what is being said by the DTI and then look at what is being said by the DSS, there are some slight variations in emphasis which I am sure the Committee will have noticed. We would like the same degree of commitment from the agency services as we appear to be getting from other areas. Clearly the commitment to develop with the Post Office its counter network should combine all those things for the future that are spoken about and not just that, should commit the necessary financial resources to that. That does not necessarily mean that Government must pay for all the financial resources, but it must provide the wherewithal in terms of the accumulation of business to the Post Office in order that the Post Office will be able to pay for some of its commitment as well. The financial aspects of the development of the automated system in counters has changed considerably from the time it was first being talked about and heralded by a Minister waving the payment card.

  51. Do you have any concerns about how the new ICL/POCL computerised contracts are going to be paid for? Is it going to be out of the Post Office's retained profits?
  (Mr Kearns) Our concern is who is going to pay for it. Obviously, as representatives of the workforce we have a great fear that if the lion's share of the money has to be found by the Post Office there is a consequential effect on other projects that the business might want to fund and subsequently terms and conditions and the numbers of people that the business is able to employ because it has to find new money to develop this new project.
  (Mr Deegan) If I could just amplify that because I think that is a very important point which, if we miss it, we are perhaps underestimating the loss of Benefits Agency work and the Government attitude towards the funding of the project because not only have we got the capital funding of the project, whereas before that was going to be a Public Finance Initiative, the Post Office are now expected to find that money and you have got the development and installation costs and maintenance costs that are going to apply as the system is installed. That alone is going to have a profound effect on Post Office finances and will have a knock-on effect to the network structure, be it the Crown Office or a sub post office. In addition to that we have got that wider point about the loss of Benefits Agency work and I am sure when the Post Office give their evidence this afternoon you will get a much more accurate picture, but we must not believe that it is just some minor dent in the finances. It really blows a great hole in future Post Office finances and in a sense poses the very fundamental question, i.e. do we want a post office network in the future or do we not because if we do, there has got to be some alternative work found if Benefits Agency work is not coming in their direction.
  (Mr Hodgson) What is significant about the Benefits Agency work is this moratorium up to 2003, but the vast majority of the British public do not want to move to automatic credit transfer. What is a fact at the moment is that 20 million choose to have their benefits given out across post office counters when 16 million already have bank accounts and, to be honest with you, all our evidence shows that the banks do not really want these small bank accounts. What they want to do is they want to set up a relationship with the Post Office, if we can move to it, so that the small bank accounts can come through there. They want this accessibility to everybody which is not there at the moment, particularly in rural communities. They do not have banking services, they do not have electricity showrooms, gas rooms, but they have counter services within reasonably easy reach. Banks at the moment, it is costing them £40 billion a year to retain their branch networks and the evidence is that they would be only too pleased to move. We need the technology that will match the banks for this work to move in. We need commitment from Government, not only for the work that is going to the Benefits Agency at the moment beyond the year 2003, but you see if you look at benefits work what is a fact is that no benefit has more than 33 per cent of its current benefits going into automatic credit transfer, it is not popular. There are four Benefits Agencies—incapacity, single parent loans, social fund, income support—who do not use automatic credit transfer at all. So what we need and what are we looking for from Government, we need a commitment for this work to come across Post Office Counters then we can open up all sorts of avenues for the future, such as I was talking about with the health service. I tell you what I also believe. I also believe that the great British public would be delighted to see Post Office Counters—because of the trust factor that is there—administering the Lottery as well. There are all sorts of avenues that open up for the Post Office and it is not necessary them saying Government would have to fund all the automation further down the line. If there was the commitment to use the Post Office, and a full commitment by Government to use postal counter services, then the financial question that needs to be answered could be answered and different equations could come up as a result of the volume of business which is coming across counters.

  52. Have you been looking at ways that your members and Post Office Management can enhance services to persuade the DSS, the Benefits Agency, to put more business your way, to make it more attractive for customers to come in to use your services? What are you looking at?
  (Mr Kearns) We have just made an agreement with POCL as a union. We are about to undertake a major review of service and efficiency across all Crown Office counters which will go through the summer months this year with a view to making those efficiencies by this time next year. Both sides are committed to doing that.
  (Mr Hodgson) I do not think there is a great deal of difference between ourselves and the Post Office in our approach to where we should be going with regard to counter service or, indeed, the Post Office as a whole. We have said to you before that considerable progress has been made over the last couple of years in promoting good industrial relations and promoting good relationships. It is something that we take very much to heart and we have spent a great deal of time improving on it. I do not think in the evidence that we give you, and the evidence that the Post Office and the employer give you, there will be a great deal of difference between us because we are approaching the problem, looking at the problem and we are identifying it in a particular way.

Chairman

  53. You said you would like the Post Office to run the Lottery. Given it has taken so long to get this in line, what confidence does the public have that if there was to be a transfer from Camelot to a successor, in which the Post Office would be involved, that you would be any more successful? At the moment there is a system that is already in place, and it was put in in 12 months and it seems fairly complicated, yet that one went in in 12 months, the ICL Fujitsu one seems to have taken an eternity.
  (Mr Hodgson) Actually I was writing to the Secretary of State for Trade and Industry over two years ago saying that we ought to be examining the Lottery coming across Post Office Counters. I believe that the confidence that the public has and the trust in the Post Office Counters is one that stands us very well. The problem that you have is that there is an assumption that there should not be, that it is the Post Office Counters' business that is responsible for the delay. Now I do not believe that is necessarily the case. I explained to you earlier that the Post Office wanted to take to task ICL about their provision, and incidentally it was not this Government it was a previous Government that made the agreement. When the Post Office Counters wanted to register their unhappiness with ICL, ICL were able to identify and understand the reason for the delay was because the Benefits Agency had not updated its technology. Now there has been no difficulty in the trials that have occurred to date. As I have said they are popular with the public, they are popular with the counter staff. They are popular with the Post Office itself. I have no lack of belief in the ability of the Post Office to take over and administer the National Lottery. I am pretty certain they could be doing a better job than is being done at the moment.

Mr Hoyle

  54. It is interesting what you say about the Lottery because obviously people might say "We have seen how other organisations set up and run the Lottery quite efficiently, why are we not transferring more service to them?" I think we have to watch that. I think it is the other way, we have to be careful. Can I move you on. Hopefully counters are going away from banging the old stamp down on to the TV licence or whatever. As we move to the electronic commerce and the future functions that I want to see coming to Post Office Counters, what do you see as the real training requirements for the staff?
  (Mr Kearns) Part of the trial of the system has been to assess what training needs are now needed for the front line users. We have already been in negotiation with the POCL to develop those training needs. The training programmes are already in place, subject to the roll out of Horizon being given the go ahead. So we are well on the way to delivering that objective.

  55. Obviously that will be crucial to the future and then there is a general agreement of what is needed.
  (Mr Hodgson) This was never held to be a problem. When the original agreement was made, Government were turning round and saying: "We do not have any doubts about the ability to train and enhance the skills of people who work on the counters to be able to deal with this technology" because the agreement was made and had it not been for the recent changes to the benefit payment card technology which was intended to roll on then the smart card technology would already be there. I do not think there is a problem or there was perceived to be a problem in training. We have very capable people on post office counters throughout the country and they have demonstrated that with the confidence that the public have in them. There is no lack of confidence of the public in the counter services that they receive. There are 30 million people who visit post office counters every week and they are highly satisfied, generally, with the service that they get.

  56. That is not the problem, what we foresee and what our belief is in the post office counters is not in question. What I am questioning is the management willing to back up with training for when you develop, that is what I am asking you?
  (Mr Hodgson) There is no lack of willingness or resolve on the part of the Post Office or the workforce that we represent, or the managers group which my colleagues represent, to take on board what is necessary to equip people to do any form of work that is required within the Post Office and that includes, as Tony said, efficiency measures in terms of flexibility of counters because one of the things that we do recognise is that if you are moving to new areas then there has to be a more flexible approach to opening. We are on record as saying previously to this Committee that we are quite prepared to negotiate and discuss these things.
  (Mr Deegan) If I could just add to that by saying there is no problem with us being able to do the job that needs to be done through automation. There is no difficulty with training and industrial relations. The real issue, and we cannot dodge it, is the Government committed to a network of offices the length and breadth of the country because if they are then we are ready to deliver on that with new technology whatever precise form it takes. We must not forget the fact that unless that work is coming across our counters the economics of it simply do not work. That is the question which has to be answered. If Benefits Agency are committed then what Government business is going to come our way so that we can fulfil the social needs which I am sure need to be fulfilled.

Mr Laxton

  57. We now seem to be left with the barcoding proposals and I have heard what you have said, particularly about your desire to see it moving on to smart card technology. Have you got any comments on the barcoding proposal? Obviously it would deliver some savings in terms of some element of controlling some of the fraud that takes place.
  (Mr Hodgson) What was said by the Department of Trade and Industry was that they would continue with the barcoding system as a temporary measure and that is what it is, a temporary expedient, not a long-term thing. The time that it takes and the methodology means that you have got to update it everyday and you have got to put this in the system, whereas with smart card technology what you would do is just put it into the system and then remove it when whatever the problem was with the smart card was removed. In terms of economics of the exercise, in terms of efficiency the barcoding provides a temporary situation, but it is not for the long term and that is acknowledged by anybody who has looked at counter automation.

Chairman

  58. How confident are you that the system will go forward and that in five years' time you will have a reasonable share of the work done by your members? I say a reasonable amount because there may be an expansion. How confident are you that this is going to be resolved and realised?
  (Mr Hodgson) If the Government fulfil the commitments that were given by the Secretary of State on 7 December and if that reflects itself subsequently in the Government's attitude, if it reflects that which was said by the Department of Trade and Industry in its commitment to the future, if other government departments commit themselves equally to that and I include the Benefits Agency within that, then I think there is an extremely bright future, but unless the Government fulfils those commitments, unless it means what it says, there will be a contraction of work on the counters, there will be a contraction in the network and once that downward spiral starts we are going to be in difficulty. The other thing to remember is that the Secretary of State clearly said that the counter network is an integral part of the overall network of the Post Office in relation to Parcel Force and also in relation to letters and everything else and they looked upon it as a completely integrated business.

  59. Which Secretary of State are we talking about because I think we are on the third or the fourth since the General Election?
  (Mr Hodgson) I always ask who is there when I go into the DTI because it changes quite frequently. Peter Mandelson made the statement to the House on 7 December and I assume that although personalities change, government policy is constant.

  60. That is a rather large assumption, is it not?
  (Mr Hodgson) The Chancellor of the Exchequer tells me that there is no disagreement amongst the ministers and the ministries, they are all committed to this bright future for the Post Office. If they fulfil that commitment then I agree with the Chancellor that the Post Office Counters' business is going to thrive and flourish. If they do not then no doubt we will have some things to say to you at some future date.

  Chairman: Thank you very much. We will be having the ministers in and I can assure you that we will be asking them the questions that you have just prompted. Whether or not we get answers remains to be seen. Thank you very much for your answers this afternoon.


 
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