Select Committee on Treasury Eighth Report


The Change Programme

13. The Mint's economic performance has been affected by a programme of change which has been at its peak over the past two and a half years. This programme has included a £25 million capital expenditure programme to renew and refurbish equipment and upgrade the Mint's capacity for new business requirements, particularly the production of blanks, and new working practices and patterns, one effect of which had been an increase in the Mint's staffing level.[45] The programme was developed over a number of years and "had to be carried out as a package over a relatively short period of time".[46] Both Mr Holmes and the Minister accepted that they had underestimated the impact of the change programme on the Mint's financial performance.[47] The Royal Mint's programme of change could have been better managed in order to minimise its impact on the organisation's financial performance.

14. The change programme was funded by the Mint's retained profits. Until 1996-97, the Treasury usually took all of the Mint's profits as a "dividend" but, between 1996 and 1998, the Treasury's divided payment amounted to only 36.3 per cent of the Mint's profits during that period. The Mint did not accept that the change programme could have been carried out over a longer period with less disruption if the Treasury had accepted a lower dividend payment in previous years.[48] Nevertheless, it is not normal commercial practice for a firm to remit all of its profits to its shareholders each year while incurring capital expenditure only to repair and replace existing assets. The Minister acknowledged this, telling us that "it is not perhaps the most modernised way of dealing with the issue ... and I think there is scope for us to look at a change to that which provides greater incentivisation".[49] Dr Mills, of the Treasury, argued that the Mint should not be allowed to retain profits that it did not intend to invest to ensure that "it cannot use retained profits from other contracts to then cross-subsidise other business".[50] We recommend that the Treasury re-assess its policy of taking 100 per cent of the Royal Mint's annual profit as a dividend payment, so that the Mint can better manage its own investment strategy in future.


15. Mr Holmes was confident that the Mint's financial performance was now improving. He told us that "in the last three months of last year, production was nearly 50 per cent higher than at the beginning of the year" and that productivity had also improved.[51] As we shall discuss below, however, the Mint is not on course to meet the financial performance target set for 2000-01, even though that target was much lower than the previous year's.[52] The Mint's financial performance will be an important focus of the organisation's quinquennial review in 2003-04, when the issue of the Mint's status as a public sector body will again be scrutinised by the Government, something we comment on later in this Report.[53]


16. The Mint prepares for the Treasury an annual, confidential corporate plan, which includes forecasts of the Mint's financial performance. The Mint submits reports on its performance to the Treasury every three months and also provides information monthly on an informal basis. The Mint has only one published financial target, relating to its operating profit as a percentage of average net assets. It also has four customer service targets, which relate to the timely delivery of UK circulating coins, UK collector coins and medals, and the quality of UK collector products.[54]


17. The Mint's corporate plan is a confidential forecast of the Mint's various business activities over the next three years, with a particular emphasis placed on the year ahead. The plan initiates a dialogue between the Mint and the Treasury about the Mint's future performance, strategy and targets.[55] The Minister thought that this year, with the involvement of the Shareholder Panel and outside consultants, "more work has gone into making sure that we have a longer term view built in behind this year's corporate plan".[56] Many executive agencies publish an annual forward-looking business plan, but the Mint does not. The Minister though that there might be scope for the Mint to publish information about its future strategy as long as commercial confidentiality could be protected.[57] We recommend that the Mint publish a regular forward-looking business plan, based on its unpublished corporate plans.


18. Until 1999-2000, the Mint's financial performance target was set for a three-year period to allow for year-to-year market fluctuations, and was generally exceeded.[58] Since 1999, targets have been set for each year, pending a review of target-setting by the Treasury's Royal Mint Shareholder Panel. The target for 1999-2000, 14.6 per cent, was slightly higher than that set for the period from 1993 to 1999 (14.0 per cent). The target was missed: the final out-turn was just 0.5 per cent. The target for 2000-01, 7.0 per cent, was not announced until 29 November 2000, over seven months into the financial year.[59] The Minister said she had expected the target to be met when it was set, but Mr Holmes said he did "not believe that we shall achieve the seven per cent target this year but how far short of it we shall be I cannot say".[60]

19. We were concerned that the Mint had been set an unattainable financial target for 1999-2000, given the on-going change programme, and about the delay in setting the 2000-01 target. Mr Holmes said that the 1999-2000 target was "based on a combination of our own expectations plus the feeling that it is not a good idea to reduce target levels unless you have clear evidence of a fall in performance".[61] He emphasised that there had been no argument between the Treasury and the Mint about the 1999-2000 target and he did not think the Minister took a totally unrealistic decision.[62] The Minister said that the higher 1999-2000 target was "informed at the time by the Mint's own corporate plan. It was not the case that it was set by the Treasury".[63] The Minister said that the financial performance target for 2000-01 was set late in the year "to make sure we were aware of what issues were arising" out of the change programme.[64] Mr Holmes said the absence of a target until November 2000 "really would not affect us operationally in the sense that our objective is to do as well as we can with our business".[65] The Royal Mint's financial performance target does not appear to play an important role in assisting the management of the organisation, or its oversight by the Treasury, and nor does it provide outsiders with useful information about the Mint's performance. We invite the Treasury's Shareholder Panel, in its review of the Mint's targets, to come forward with a more meaningful range of published financial targets.


20. Mr Holmes said that the Mint's four customer service targets "raise the profile of customer service in a helpful way" and can raise "awareness of where we are falling down and what we should do about it".[66] The four targets do not cover all of the Mint's areas of business, however. There is no target relating to overseas sales, even though they account for over half of the Mint's turnover, because "every customer want a different delivery time and arrangement ... [it] would be difficult to find one that was sufficiently precise to be worth monitoring in a quantitative sense".[67] Mr Holmes acknowledged, however, that overseas sales "possibly ... would benefit from a target".[68] We recommend that the Royal Mint begin work on developing customer service targets relating to those areas of business not covered by current targets.


21. The Mint's status has been the subject of regular reviews in recent years, the last one being completed in July 1999. The Minister told us that privatisation was an option considered for the Mint in the 1998-99 review, but was rejected because the organisation was not, at that time, operating on a sufficiently commercial footing; the effects of the change programme were uncertain; and the customer relationship between the Mint and the Treasury required special consideration.[69] The outcome of the review was a package of measures designed to give the Mint more commercial freedoms, which was billed as a "new direction", "a bold step" and "fundamental changes ... [which] will put real business expertise at the heart of the management of the Royal Mint, and will help maximise its value as a business and its contribution to the UK economy".[70] The Minister told us that "at the moment our considered view is that the Mint has a continuing role in the public sector but on a more commercial footing than in the past".[71]

22. Witnesses differed in their views of the desirability of the Mint adopting a more commercial outlook. The Automatic Vending Association wrote that "we would not wish to see any changes at the Royal Mint which could lead to the addition of extra commercial pressures and cost cutting which could adversely affect the current excellent manufacturing standards".[72] Mr Kitchen, a businessman who advises overseas Governments on special coin issues, said, however, that "prices quoted by the Royal Mint for contract minting are now far too high and I am able to source coins of an acceptable quality for the market place at prices that are markedly lower than those quoted by the Royal Mint. In addition there is also a very major difference in the costs for the master tools [and] the lead times are also much shorter".[73] The Royal Mint's trade unions argued that "we strongly believe that it is vital to the future success of the organisation that it remains in the public sector" and cited concerns with the security of coins and blanks and the Mint's relationship with the Bank of England if the department was privatised.[74]


23. The main reforms introduced in 1999 were:

Non-Executive Directors

24. The Mint's non-executive directors previously advised both the Mint and the Treasury. Now, they are solely responsible for "contributing to the enhancement of the Royal Mint's business over time": the Shareholder Panel has taken over the responsibility for advising the Treasury as the Mint's owner.[76] Mr Holmes explained in detail the role played by the non-executive directors, as well as the differences with the situation in the private sector.[77] Although photographs of the non-executive directors are published in the Mint's latest annual report, there is little information about their work.[78] We recommend that the Royal Mint's annual report include a statement about the activities of the non-executive directors.

New Products

25. As a result of the 1999 reforms, the Mint has embarked upon a five-year plan of expanding into the market for "non-coin gifts and collectables"—including "jewellery, silver salvers, trinket boxes, watches and timepieces"—that are "as closely as possible related to what the Mint does or the heritage of the Mint".[79] Mr Holmes said that "the development will be gradual, but it will increase substantially the scale of our collector coins business and ultimately improve profitability".[80] The Minister said that the expansion of the Mint's product range was supported by the Treasury's Shareholder Panel.[81] Some products will be produced by the Mint; others will be bought in and marketed by the Mint, using its mailing list of coin collectors.[82] The Mint has not yet taken advantage of the freedom granted in 1999 to form joint ventures with private sector partners, but Mr Holmes speculated that the relationships being developed with producers of non-coin products "may develop into something a little bigger" in future.[83]

26. We are deeply sceptical about the Mint's plans to produce, or buy-in and market, gifts and collectibles only tangentially related to the Mint's core business. We are not convinced that a state-owned enterprise should be competing against the private sector in this way. The main justification for the Mint's new venture appears to be a need to earn higher profits in order to offset losses made on the UK circulating coins contract and to compensate for declining traditional overseas markets. We do not think that a state-owned Mint should be expanding its product range beyond coins and medals in order to deal with these problems.


27. The Mint's next quinquennial review will take place in 2003-04 and the Minister told us that it would involve a fundamental study of "all the options that could conceivably face the organisation".[84] By 2003, the Government will be able to judge the impact of the 1999 reforms and the change programme. Crucial issues will include the extent to which the change programme has boosted productivity and profitability; the identification of further institutional barriers to increased profitability; and the success or otherwise of the Mint's venture into the market for non-coin gifts and collectibles. With improved financial reporting and the clearer delineation of shareholder and customer interests, the Treasury will be better able to decide whether the Mint needs to be given further commercial freedoms, and how this can be achieved.

28. The 1999 reforms threw into sharp relief the Treasury's dual role as the shareholder and a customer of the Mint. The Minister explained that there were now two Treasury teams interacting with the Mint in these different capacities, which were "completely separate".[85] Miss Johnson argued that "the arrangement is working well".[86] We are not convinced that the Treasury's attempt to divide its own shareholder and customer interests can be made to work. However officials are organised, the Minister continues to represent the Government's interests as the Mint's owner, its sole customer for UK circulating coins, and as the determinant of its strategy. The Minister told us that the Mint's shareholder interests did not give her "a hard time" during the negotiations of the last contract for UK circulating coins, despite that contract's impact on the Mint's profitability.[87] This does not suggest to us that the Treasury is adequately able to take shareholder interests into account during key negotiations of this kind.

29. We agree with the Minister's aspiration for the Mint to become "a very commercial organisation".[88] The Mint is an important employer in south Wales, a major British exporter, and a manufacturer with a worldwide reputation for quality. It is essential that the Mint's business flourishes in future. Of the three factors identified by the Minister as decisive against privatisation in 1999, two—the change programme and the Mint's lack of commercial focus—will not be relevant when the next quinquennial review is due in 2003. We welcome the Minister's assurance that the 2003-04 review of the Mint's status would "fundamentally go through all the options that could conceivably face the organisation". We note that, in reply to questioning, she confirmed that this would "routinely include the option of privatisation".[89]

30. Although selling off the Mint as a whole is one option to be studied in the 2003-04 review, others merit consideration. The Mint's functions—including manufacturing, marketing and sales—could be divided up to assess which are best done by a state-owned enterprise and which could be sold or contracted out to the private sector.[90] The Mint's businesses—including collector coins, UK circulating coins and overseas circulating coins—could be similarly divided. There is no question that the State should retain control over the design and specification of its coinage and other issues of this sort. Decisions about the status of the Royal Mint's manufacturing and marketing capabilities, and its overseas work, should be made on the basis of which arrangements maximise value to the UK economy. We do not believe that the Royal Mint should be immune from fundamental innovation, especially given its recent poor financial performance.

45   Qq8, 27 Back

46   Q43 Back

47   Qq48, 125, 128 Back

48   Q42 Back

49   Q131 Back

50   Q146 Back

51   Q8 and see Q125 Back

52   Paragraph 18 Back

53   Paragraphs 27-30 Back

54   Ev, pp4-5 paragraphs 27-29 and p7 tables 4-5 Back

55   Qq60, 62 Back

56   Q137 Back

57   Q138 Back

58   Ev, p7 table 4 Back

59   Ev, pp4-5 paragraph 27 and HC Deb, 29 Nov 00, cc706-7w Back

60   Qq 13, 119-21 Back

61   Q48 Back

62   Qq61-4 Back

63   Q140 Back

64   Q118 Back

65   Q50 Back

66   Qq54, 56 Back

67   Qq58-9 Back

68   Q59 Back

69   Q115 Back

70   HC Deb, 12 Jul 99, cc85-6w Back

71   Q117 Back

72   App 1 Back

73   App 5 Back

74   App 6, especially paragraphs 5 and 7-13 Back

75   Ev, pp5-6 paragraphs 31-2 Back

76   Q77 Back

77   Qq83-4 Back

78   Royal Mint, Annual Report, 1999-2000, p17 Back

79   Qq66-7, 74 Back

80   Q66 Back

81   Q141 Back

82   Qq72-3 Back

83   Q77 Back

84   Q116 Back

85   Qq 136, 143 Back

86   Q143 Back

87   Q135 and see paragraph 11 Back

88   Q115 Back

89   Qq116-7 Back

90   See App 4, annex Back

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