Examination of Witnesses (Questions 160
- 176)
WEDNESDAY 13 FEBRUARY 2002
MR MARTIN
STANLEY AND
MR GRAHAM
CORBETT CBE
160. You do not know at the moment whether the
money has been paid or not in the last two years?
(Mr Bush) I know it has certainly not
been paid this year.
161. 2001/2002?
(Mr Bush) It has not been paid for the
current financial year, they are asking for it to be waived.
162. When is the year end?
(Mr Bush) March.
163. It has not been paid in 2001-2002. Was it
paid in 2000-2001?
(Mr Glicksman) It was not a plc.
164. Irrespective of its status
(Mr Bush) There would not have been a
dividend in that period because it was not a plc.
165. Whether you call it dividend with a "D"
or a "d" there was money paid by the Post Office to
the government for most of the last year when it was making big
profits. Whatever you call it, was money paid from the Post Office/Consignia
to the government during the financial year 2001/2001?
(Mr Bush) Money was not paid in that
sense to the government throughout any of this period because
what happened was there was an external financing limit, the Post
Office built up a stock of gilts and that now sits on the Post
Office balance sheet. That was true in 1999/2000 when £151
million gilts were acquired.
166. Can you just explain to me, I heard, it
is in the debate, I do not know if it is correct, that 1.7 billion
was sucked out of the Post Office by the Conservative Government
in the period 1979 to 1997? Irrespective of whether that is precisely
the right number, how did that money get from the Post Office
to the Government, is it basically the government sold gilts and
the Post Office bought them?
(Mr Bush) Indeed. Those now sit on the
Post Office's balance sheet.
167. Mr Stanley, you said that the problems are
fundamentally cultural with Consignia. The most dramatic, energising,
transforming cultural change in companies is brought about when
the people who work in the business, in this case the 200,000
who work in the Post Office, own the business, would you agree?
(Mr Stanley) I think it is getting beyond
my expertise.
168. If you look round at the history of transformation
in companies in the commercial world shareholder power brought
down to the level of the employees has a more transforming effect
than anything else. Have you had any discussions about introducing
that type of transforming change into Consignia?
(Mr Stanley) That is way beyond our responsibility.
Chairman
169. By the way, I think if the Treasury is the
only shareholder we do not really want to have answers that are
prefaced by the words, "I believe".
(Mr Bush) It is the DTI.
Chairman: The DTI or the government, let us
not play with words. We need a direct answer to a very simple
question you were being asked.
Mr Bacon
170. Could we have a clear note explaining the
payments since the late 70s?
(Mr Bush) Okay.[2]
Chairman
171. There are a few questions colleagues wanted
me to ask before we wrap up, you constantly said during this hearing
that you cannot make judgments about the other half of the business,
Post Office Counters, but you are making very serious judgments
about the viability of a business, are you not, the decisions
you take could seriously effect this business, but you do not
know anything about half of it, is that not rather an unsatisfactory
position you are in?
(Mr Stanley) Our job is to look at the
Royal Mail through the eyes of the customer. We are asked an exam
question, if you like, because the Act says we should introduce
competition unless it would damage universal services. We answered
that exam question in a long document and we have avoided, we
believe, the two risks identified by the NAO as best we can, we
have done that job. We also have to control the prices of the
mail service only and the service quality of the mail service
only, and we are setting about doing that. We try to make sure
that that bit of the business is a good business, profitable,
providing an excellent service to customers, innovative, and all
of those good things. If we succeed that has to be good for the
business as a whole.
172. I am not sure you have answered the question,
you have done your best, you better leave it there. Can we just
return to the point of this final mile delivery, which I think
is quite important, you said, do not worry because they will come
to an agreement with Consignia to deliver this final mile and
you are not going to pass through any agreement that will put
Consignia's viability at risk. What happens if I am a competitor,
I go to a big bank and because I do not have huge infrastructure
costs I can deliver far, far cheaper and it will be a very attractive
deal I can offer to the bank. A relatively few of these customers
of mine will be living in deep rural areas, I recognise that,
but the vast majority, even in a so-called "rural constituency"
like mine, one of the most rural constituencies in the England,
most people live in what are large suburban villages. Would it
not be possible for this company to use this database to identify
the people who live in the deep rural areas, which will be entirely
proportionate to the total, and say, "put a stamp on those
letters", so they hugely undercut Consignia, they are offering
to deliver all of these letters for the bank for seven pence a
time and for those people who live in my deep rural address, in
the middle of rural Lincolnshire, they put a stamp on. What is
your answer to that?
(Mr Corbett) I think the answer to that
is, yes, of course, that could happen. However, the number of
addresses we are talking about is a very, very small number. The
universal service obligation that is imposed on Consignia is a
real responsibility and, yes, they would have to do that. We also
believe that the universal service is, in fact, a very significant
asset and benefit for them. The question that we really need to
address is do we actually think that that final mile responsibility,
even taken down in a very small number of exceptional cases, is
going to represent an intolerable burden or is it the price you
pay for being able to say, we are a universal service provider
and our job is a reasonable price and it does not bring Consignia
to its knees.
173. I think the answer is, yes, companies will
do this, they will be able to compete with Consignia in this way.
Your answer is that it does not matter too much because Consignia
can take this, they can go on delivering in these deep rural areas
despite the fact their competitors do not have to. That is an
interesting point of view, but I put it to you that it is a novel
point of view, which, as far as the policy makers are concerned,
they have been grappling with for the last 20 years. Mr Stanley,
we know each other, do we not, because we worked together in the
Department of Trade and Industry when I was a Minister grappling
with these issues and you were the Principal Private Secretary
and you know perfectly well that we had many arguments with the
secretaries of states on precisely this point, and I do not remember
being told at that stage, do not worry because Consignia can take
this, it is actually very nice for Consignia that they have to
deliver to remote farm houses all over the place?
(Mr Stanley) What is different is that
we have just carried out the most enormous amount of work in a
way that DTI officials could not then or could not now. It has
been an expensive and time-consuming exercise. We have really
gone and talked to the customers in depth, we have talked to the
company and we have looked at its costs and all of those things.
We have looked at in so many different ways and they all add up
to what is a counter-intuitive result. In time we think it will
become the accepted result. Of course competition will cost Consignia
something but the benefits of competition will outweigh the cost.
Above all the large mailers will require that universal service.
One of the seminal things in the last two years is when I talked
to somebody who lived on a small island—
174. I accept that these competitors will have
to deliver a universal service, but I am just giving you a scenario
which is how they will do it, they will just drive vast wedges
into the business of Consignia.
(Mr Stanley) There will be a cost but
the benefits of competition, however you look at it, seem certain
to outweigh the costs. Above all Consignia will still get that
mail, that mail will still get through, which is the main concern
of the people living in those farms and on those islands.
175. Of course the mail will get through because
that is a political imperative facing government, no government,
either Conservative or Labour will ever be able to renege on that
promise, I accept that. What we are concerned with is not the
fact that the universal service will consider it, we assume that
will happen, we are concerned about Consignia and the huge pressures
you are placing on it.
(Mr Stanley) In very simple terms it
will cost. Assuming there is no benefit to universal services,
assuming every cost you can imagine is added up we worked it out,
it is 80 million, it is a lot of money. Consignia have just announced
cost savings of 1.2 billion. What they need to achieve those costs
savings —
Mr Steinberg: They have just sacked 30,000 people!
Chairman
176. There was another question, how can you
be sure that Consignia does not subsidise non-monopoly services
for profits generated for non-public services, given that its
costing information system is so poor?
(Mr Stanley) We are doing a huge amount
with W S Atkins to get the costs sorted out. Unless and until
we get the data we will not allow any price rises. When we do
have the data, which will take a few more weeks yet, we will then
start devising a price formula which will ensure they do not make
excessive profits, that is not currently a problem.
(Mr Corbett) I would just add to that, whatever the
deficiencies may be of their costing systems we are satisfied
that the overall magnitude of the results that are coming up within
their regulatory accounts, which divided their operations between
those that are subject to licence and regulation and those that
are not, those are the accounts that produced the remarkable conclusion,
which we absolutely believe to be broadly correct, that the non-licensed
area, in other words the competitive area produced profits of
£292 million on the operating profit line and the operations
within the licensed area, in other words, all of the universal
services in the area covered by monopoly made a loss of £317
million. When we say the monopoly is not working that, frankly,
is one of the ways in which it is singularly not working, it just
is not doing what everyone always believed a monopoly was all
about, which was to generate funds to enable the service to be
provided.
Chairman: Thank you very much, Mr Stanley and
Mr Corbett. It has been a great pleasure meeting you again, Mr
Stanley, it is certainly very nice having an Accounting Officer
who is responsible for policy not hiding behind a Minister, you
are in a uniquely powerful position. We thank you for appearing
in front of us on this Ash Wednesday hearing. Let us hope our
universal services do not turn to ashes; we rely on you.
2 Ev, Appendix 1, p 18-19. Back
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