Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)



120.  I do not need you to manage Consignia; I need you to understand as a regulator that it is pointless regulating a company that cannot improve because of the appalling level of management. No matter how many sticks you use and how hard you beat it, it cannot improve because it lacks that basic understanding of how to improve itself as management.

  (Mr Stanley) If so, the company is going to continue having serious problems.

121.  One of my colleagues asked you a question about the duplication of boxes and delivery staff. Do you honestly believe that we are going to duplicate our collecting boxes that took us 100 years to build up across this country? Who is going to take this on? Who is going to take on the delivery staff on the rounds in towns or villages in this country?

  (Mr Stanley) Most mail is not put through boxes; it is delivered in bags to big customers or collected in bags by Consignia.

122.  But it is delivered.

  (Mr Stanley) Yes.

123.  To houses?

  (Mr Stanley) Absolutely. Most mail is delivered to houses.

124.  If it is delivered to houses and I have a duplication of deliverymen, he comes to my house not, as he used to, at eight o'clock or 7.30 in the morning but now nearer ten o'clock and 10.30, and the very enthusiastic, excellent postman we used to have left for a better paid job so we do not have the same staff any more, but if he comes to the house he carries normally several envelopes with stamps on. They have payment on the stamps so he pushes them through the door and it might have been a couple of pounds in delivery. Following is the other man and he is going to deliver a couple of pound as well. I suggest that when one man was carrying that with four pounds in stamps, it was a bit more efficient than two men carrying that with two pounds in each in stamps. You have to improve your efficiency a hell of a lot to cut out that sort of duplication.

  (Mr Corbett) That is precisely why we have said that we see very little likelihood in the short term—perhaps even in the longer term—of duplication of the last mile of delivery. That is the business which Consignia does extraordinarily well. We want to be able to provide them with the opportunity of expanding that business by taking more of it fed in from other places.

125.  We are not going to have a duplication of boxes or delivery so how does a customer, as a person rather than an MP, go about seeing the benefits of this miraculous change in competition?

  (Mr Stanley) We are not the managers so I am repeating what I am told but we are told that the main problems with the Royal Mail are not in delivery, but in the overnight sorting which is not very efficient and in the logistics, the use of vans and that sort of thing. A lot of vans are running around half empty. The network is very rigid so if one little bit goes wrong the service quality falls very quickly. We do not know but maybe they ought to do what the Germans have done which is cut the number of overnight sortings down to two through mechanisation. You would then get a more reliable service and more efficiency. You cannot ask the postmen and women to carry heavier or more bags. They have enough work to do as it is.

126.  I would not want to carry all that rubbish they keep putting through the door. Their workload has increased tremendously in the last few years.

  (Mr Stanley) Could I give you one example of how delivery might in a sense be made more efficient? At the moment, the men and women start sorting the mail at five in the morning and finish at 10.30. I cannot understand why there is not a daily, same day delivery service in London. All those vans do not do anything. There are men and women who do not do anything. Maybe we could employ more men and women at a good price because at the moment those of us who need to send stuff same day have to spend £10 or £20 on a courier. Why does not the Royal Mail, for instance, offer a same day service in London for a pound?

127.  Why does it not become more competitive? Why do they not beat up the competition by tendering as some places do? When you push up your demand in a local area, you do not pay 27 pence. You pay 10 pence. You get a contractor in to push them through every door in the area so the post can come in and compete at that level. Then they have got you on their backs because they are acting in an inappropriate manner, uncompetitive, stopping entrance into the market place.

  (Mr Stanley) I do not think a same day London service would operate at 10p. It would probably be expensive but we would all pay. Most of us would happily pay more than 27p or more than 50p for that service. Consignia do not think about doing that. We hope that freedom and encouragement to compete will lead to that sort of thing.

128.  The 10p is maybe where you deliver your rate demand because they go from house to house and it is quite cheap. If you wanted same day delivery it could have that sort of arrangement.

  (Mr Stanley) There is tons of scope for fair competition.

129.  One of the answers I had to smile at was regarding fixed and variable costs and the difference between them. You and I know that fixed costs are variable in the long term but we know the convention, do we not? Wages are fixed costs because they have trade union agreements. You cannot get rid of staff and in the short term they are fixed. We are talking about normal convention where you take a period of time like a year and you cannot get rid of a building, a sorting machine or a van very easily so we recognise that fixed costs are fixed. If you want to argue on semantics with the Post Office and say, "I am sure you can reduce your fixed costs" I can do that. It is a pencil exercise but the places are either reduced or you shut them down and get rid of them.

  (Mr Corbett) I do not want to engage in semantics. The point we are talking about here is an extremely important one. The overriding belief within Consignia over a number of years was that fixed costs were fixed costs and you could not do anything about it. What any other organisation facing competition and a fluctuating market share has to do is to be prepared to re-examine its fixed costs over time. I absolutely accept that these are not things that you can generally speaking do within a period of months—maybe not even in a year or so, but the preparedness to face up to the burden of your fixed cost base and do something about it is absolutely a crucial part of a competitive organisation. That is one of the incentives that we need to build into Consignia.

  Mr Jenkins: The way we look at it is very much in accountants' terms but if you look at it in economists' terms and decide on a management basis, you would not let an asset such as a sorting machine run for two or three hours a day and shut it down. You would run it continuously and you would utilise your asset and maximise its usage. It is a management problem that we have here and an efficiency problem but the system, as far as competition is concerned, is very difficult.

Mr Bacon

130.  Mr Stanley, you said that in a few years' time you hoped, once it had cut its costs, Consignia would once again be a great company. How do you understand Consignia is going to go about cutting its costs?

  (Mr Stanley) As I understand it, the main areas they want to look at are, first of all, outside the mail business. Parcel Force has problems and the Post Office network has costs in there which they are looking at. Within mails, on their own figures, the major sorting centres are probably only running at around 65 to 70 per cent efficiency. If you go in there, you can see what they call their EP, which is a proportion of how efficient they could be if they were run effectively. There is efficiency to be had there. A lot of efficiency too is to be had, I understand—it is not our responsibility—in terms of logistics, getting the mail around more effectively, re-examining the way they run the mails. It has not changed for decades, if not hundreds of years.

131.  They are sacking 30,000 people, it was announced just before Christmas. That is presumably related to cutting costs?

  (Mr Stanley) It was before we brought out any of these proposals. It is more a reaction to the fact that they have known they have had efficiency problems for some time but they have been brought up hard against them by—

132.  Is the sacking of 30,000 people related to cutting costs?

  (Mr Stanley) Absolutely.

133.  Mr Gibb mentioned earlier about how volumes had increased hugely. My own local Post Office in Mulbarton gets 40 sacks a day. 10 or 15 years ago, they got six or seven sacks a day. Can you explain to me how 30,000 fewer people are going to cope with this increased burden?

  (Mr Stanley) I do not know how they calculated the 30,000.

134.  I am not interested in how they calculated the 30,000. I am not interested in you trying to guess how they calculated it. I am asking a simple question: how do you improve the service? How do you ensure that each postman or post woman does not have more to carry when you have 30,000 fewer postmen and women?

  (Mr Stanley) You make sure you do not cut any numbers of people carrying bags. You look at the huge operations—

135.  Of the 30,000 people, do you know how many are people carrying post?

  (Mr Stanley) I do not.

136.  It may be all 30,000? You do not know that?

  (Mr Stanley) Every conversation we have had with Consignia would suggest they are not, but—

137.  The announcement was made a couple of weeks before Christmas that Consignia was sacking 30,000 people with consummate timing. You are the regulator for the industry. Do you mean you did not get on the phone instantly and ask for an analysis of who these 30,000 people were and the sectors they were in?

  (Mr Stanley) No, we did not, because we are very chary of getting involved in management decisions.

138.  You do not know for sure? It could be the case that these 30,000 people are all people who are carrying letters and you would not know it.

  (Mr Stanley) I would be extraordinarily surprised, but—

139.  I am not asking whether you are surprised or not. It is possible.

  (Mr Stanley) It is possible.

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