Examination of Witnesses (Questions 80
- 95)
MONDAY 12 FEBRUARY 2001
SIR MICHAEL
SCHOLAR, KCB AND
MR JOHN
ROBERTS, CBE
80. Figure 10 says "August 1998. Post Office
informed the Department of its aim to purchase", not contract,
"a parcel distribution company".
(Mr Roberts) That is quite right. The intention was
that as we developed the strategy what we were saying was that
we wanted to make our first move in Europe in the parcels area.
81. Why in August 1998 did you simply not tell
them, even if you were looking at two companies at the time? Why
did you not simply tell them who the companies were?
(Mr Roberts) We may well have told them a range of
companies but at that stage we would not have known we were actually
going to go into an acquisition process with one. We would not
have known that until a later date.
82. Because you were interested in two.
(Mr Roberts) Yes.
83. And you told them both names.
(Mr Roberts) We told them a range of names. In fact
two of them in particular were issues which we discussed in detail
with the Department and then we moved from those two and there
were many discussions with the other one over some period of time
which was a company which operated in the German market and beyond
that. In the end we decided that the best way forward was to go
down the route of looking at this one company operating in Germany
but linked into this wider network of General Parcels.
84. Sir Michael, may I ask you when you first
approached Mr Bullock?
(Sir Michael Scholar) We approached him some time
after 2 October. I do not know the exact date we approached him
but some time after 2 October when we knew that German Parcel
was the target the Post Office were considering.
85. You did not approach him when you were told
that there was a purchase to be made, without being told exactly
which company.
(Sir Michael Scholar) No, we did not.
86. Did you make any other arrangements, given
that you knew you did not have anyone much to do the scrutiny
within the Department? Did you make any other arrangements or
attempt to make arrangements as to how the scrutiny was to go
ahead, given that by that time you must have known you were going
to have only a matter of a few months to do the whole scrutiny?
(Sir Michael Scholar) The Post Office had already
made two acquisitions which had been below the £75 million
threshold.
87. In August you were warned that there was
likely to be an acquisition which was going to be above that size.
(Sir Michael Scholar) I do not recall the details
exactly but I do recall that when we were first told about German
Parcel we were told that it was likely to be an acquisition of
no more than £20 million because it was an acquisition of
the hub.
88. Are you saying that it was not until October
that you knew it was likely to be above the £75 million threshold?
(Sir Michael Scholar) I am afraid I cannot be absolutely
positive about when it was without inquiring into that. My briefing
does not go into so much detail.
89. On the whole question of whether this was
a rushed job and how quickly you got on with making arrangements
which you should have known you needed to make, I am concerned
that it took such a long time. You did not finally appoint Mr
Bullock until 24 November, we are told, which is one month and
a half after you were told that the final target company was to
be German Parcel and a mere three quarters of a month before you
were due to have finalised your scrutiny and given final approval
to the whole deal, because you were then told the whole deal would
have to be finalised by the middle of December. It seems to me
to be taking a big risk with your scrutiny that you took a good
month and a half to appoint somebody and then gave him only three
quarters of a month to do the job.
(Sir Michael Scholar) It takes some time to identify
someone, to approach them.
90. You told us you had approached him some
time ago, I thought. You said something about approaching him
much earlier.
(Sir Michael Scholar) No, I do not think we had approached
him until this period of time in October/November 1998. That is
when we approached him. We were working to a policy prescription
that we should get off the back of the Post Office. That indeed
had been the policy the Department had been following for some
years.
91. Surely you do not get off the back of the
Post Office by deliberately trying to delay the moment you can
start the scrutiny which is supposed to be going on.
(Sir Michael Scholar) There was a question in the
minds of my colleagues about how careful and how thorough our
scrutiny should be. They reached the view, and it was a correct
view, that they did not want to duplicate the £10 million
which the Post Office were paying on their set of professional
advisers. Gradually over time we came to the view that we wanted
to equip ourselves with a set of advisers for dealing with these
acquisitions which were not available to us at this time. With
hindsight, it would have been good if we had moved more quickly;
I wish that we had moved more quickly.
92. You answered the Chairman earlier by saying
that the interest rate has now been set which has to be paid for
the loan from the National Loans Fund. When was it set and when
was the amount actually charged?
(Sir Michael Scholar) It was set relatively recently,
within the last month.
93. Within the last month?
(Sir Michael Scholar) Yes. It was applied retrospectively
to all the borrowings of the Post Office.
94. It was always going to be applied retrospectively.
Why did it take until this month?
(Sir Michael Scholar) It was a long period in which
the Treasury conducted a consultation about the terms under which
commercial National Loans Fund borrowing would be undertaken.
This was a new policy for the Treasury and they wanted to consult
all the people who draw on the National Loans Fund in this way.
I should say that it took longer than it should have done.
Mr Rendel: It always makes me slightly suspicious
when these things suddenly get done just before people come before
the Committee of Public Accounts.
Chairman
95. I suppose it does justify our existence,
at least in one respect. I started out slightly worried by this
report. I am frankly just as worried at the end. There is a risk
with this that we have something between a half-way house at best
and at worst a pretence of oversight. You have rested in your
evidence on a couple of occasions on the Minister's comments about
commercial freedom for the Post Office. Two or three points flow
from that. Number one is that I am sure the Minister did not intend
in any sense that the Accounting Officer requirements were relaxed
by that. He would have had to have an Act of Parliament to do
that and a really rather serious constitutionally important Act
of Parliament to do that. That is point number one: it does not
relax the Accounting Officer requirements. Point number two is
that there are many commercial concerns, British ones and foreign
ones, where there is a high degree of commercial, operational
and strategic freedom amongst subsidiary companies but with a
very high level of financial control. Therefore it is perfectly
possible to have—indeed I suspect you do it to some extent
with your subsidiaries, from what you have been saying—a
very high level of commercial freedom, but rigorous financial
oversight. Really that is the balance which is appropriate here.
I just want to rest with you, before we finish, my response to
your comments on the basis of the Minister's very sensible comments
about giving more commercial freedom to the Post Office, that
it should not lead to a situation where the Post Office does not
have good strong rigorous financial scrutiny, including financial
scrutiny of acquisitions like this.
(Sir Michael Scholar) May I say I entirely accept
those comments. We are carrying out a rigorous scrutiny of the
Post Office's financial performance, together with the Treasury.
We have a meeting every quarter, a shareholders' meeting, which
is modelled on the kind of shareholders' meetings which large
companies have with City institutions. It has an information input
to it, drawn up along those lines suggested by our advisers to
us. The Treasury, together with the DTI and Mr Roberts, on a quarterly
basis go through those results. On top of that, every six months
we go through all their acquisitions and track the performance
of each acquisition against the expectation that we had when we
permitted this acquisition to take place, if it was above £75
million, or that the Post Office expected, if it was below £75
million. We do take this seriously and we shall take it seriously.
Chairman: Thank you for that. It just remains
for me to thank you both for coming.
| 
