Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 440 - 459)



  440. According to the newspaper, the Daily Mirror, and I believe everything I read in the Daily Mirror, it said that the industry watchdog, Postwatch, called for Consignia bosses to be sacked. Do you think that was fair? Did they say that?
  (Mr Roberts) They said it certainly.

  441. Did they say it?
  (Mr Roberts) They said it certainly. I am not sure that sacking the bosses, whoever the bosses might be, let us assume it is me for a moment, is actually a thing that then necessarily turns everything around. I think this is an industry where you get the problems sorted out over a period of time with the kind of work that we have been doing over the last eight or nine months. At the end of it we are a labour intensive industry, as you know very well, and service is dependent as much on the people in the industry, getting them to work effectively and getting them to work well, as it is on the transport in between and everything else that goes into the operation.

  442. How bad are you failing?
  (Mr Roberts) At the moment, on first class mail we are about 0.6 per cent, 0.5 per cent off the target that we have been set for this year. On second class mail we are 0.1 per cent off the target we have been set for this year. We are quite close but the amount of effort that goes into getting those last half a per cent or one per cent is quite considerable.

  443. What about Postcomm's proposal? Is it going to make it worse or do you think it will improve the situation?
  (Mr Roberts) In terms of service, the proposals themselves ought not to affect the service. The way in which we handle the amounts of mail will be the same. What Postcomm's proposals may do is mean that some mail will go to our competitors. We will still have to transport mail from London to Durham or wherever it is so it should not make any impact on the service. We would still aim and want to hit the kind of targets that Postwatch are setting us for the next couple of years.

  444. We can all look at this report and we can all pick pieces out of the report that we like and want to concentrate on but one particular sentence in the Report that certainly worries me is on page four, paragraph 14, the little second square. It says: "The introduction of competition could result in a breakdown in the delivery of a universal service at a reasonable uniform price". Do you think that is a genuine worry?
  (Mr Roberts) Yes, I think it has to be a worry and I think it goes back to a lot of what we have been discussing this afternoon which is that at the end of it, and as Professor Cave's report says, nobody can forecast this in advance. Nobody has opened a postal market up in the way that is being proposed here. Nobody has any real experience of introducing liberalisation in the way that is being proposed. While we can all model, and we have shared with you this afternoon some of the things that we have done, nobody knows. The European approach to regulation, and I think regulation in the other industries in the UK, has been to do this step by step, see what the impact is on the market and on the incumbent and if that is going properly you carry on. I think here our worry is that we are taking a bit of a leap into the unknown and as I said earlier on once you have made that leap it will be very difficult, if not impossible, to walk back from it.

  445. Going on to page six, paragraph 18, again one of your main arguments seems to be, does it not, and the union's argument as well, that if Postcomm's proposals are agreed as they stand at the present time cherry picking will take place and you will become unprofitable but you would say that, would you not?
  (Mr Roberts) Yes, I suppose we would.

  446. Is it true?
  (Mr Roberts) We think it is true that is why we have said it.

  447. I said you would say it, you said yes and I said is it true and you said yes.
  (Mr Roberts) Of course we would say it because we believe it. If I was setting up an operation in a liberalised market, knowing whatever I know after the years I have had in business, what I would not do is attempt to compete head on. What I would look for is those routes where I felt I could get most traffic for least cost. I would look at London-Birmingham or London-Manchester I probably would not look at London-Durham. Therefore what you will do is look for the routes where you believe you will collect the most money. I think one of the things that the Postcomm's proposals do, that we have not talked about, is within three years they are talking about consolidation. What I might then do is say "Right, all of you who want to send mail to Birmingham, do not give it to Consignia, bring it to me and I will just handle mail that goes from here to Birmingham, I might even deliver it in Birmingham, and I will take mail from Birmingham that is coming back to London. Certainly I will not take mail from London to the middle of Dartmoor because I am not going to make any money on that". So that is where if I was going to come into this industry or come into this market that is what I would look to do. I would gradually expand from there, looking at it on a route by route basis where I believe I can undercut the uniform price, take a lot of volume away, continue to consolidate mail, perhaps starting with bulk mail and that is where I think the biggest threat comes.

  448. I have not got much time left. As I said earlier a postage stamp is relatively cheap, it has not risen very much in the last five years. To raise the cost by one pence a stamp would not solve your problems but it would go a long way to solving your problems. When we suggested this to Postcomm they said "Certainly not. What you should be doing is reducing the cost of a stamp". What is your reaction to that?
  (Mr Roberts) I think that is very difficult for us.

  449. They said you were inefficient and therefore you should be reducing the cost of a stamp.
  (Mr Roberts) Yes, and I have heard them say that. I have said also something about what we are trying to do is to improve our efficiency. I think if we are going to develop as an industry, we have already had a period of price freeze effectively now for some time, I do not think that ever happened to any other industry that was being regulated even under privatisation, they allowed a period when you had price increases and efficiency improvement to get yourself into a reasonable state, and that is what we have been trying to do. I do think that price is part of it. I think reducing the price now will only weaken us at a time when we need to be going the other way.

  450. Why have you gone from a £600 million profit two years ago to £200 million loss in two years when in the past you have been reasonably profitable?
  (Mr Roberts) The biggest change of all has been the fact that the mail traffic, the volumes of mail which generate the revenue, particularly over the last 18 months, have dropped by 50 per cent. In the media markets, that is the bulk mail and the advertising mail, a year or so ago we were growing at almost 12 per cent, this year it is 5.5 per cent and that is a major downturn. The impact on us this year overall is that we are probably something like £320 million less than we had budgeted for a year ago because of that downturn in the mails market.

  451. Are you saying that even if you had been the most efficient postal service in the world you would have still made a loss?
  (Mr Roberts) We probably would have done. Certainly we would have taken a very big hit because that is a major downturn in revenue for us.

  452. Did the Horizon Project have anything to do with your losses?
  (Mr Roberts) Yes, it did.

  453. It did?
  (Mr Roberts) Yes, it did.

  454. Postcomm said it did not.
  (Mr Roberts) Yes, I read that and I am afraid that is not correct. I think you and I at this Committee some long time ago discussed the Horizon Project. The Horizon Project first of all hit us to the tune of £500 million in one year when it was introduced and that came out of our reserves but it added then something like £100 million to our cost base for each of the next five years because the overall budget cost was about a billion pounds. So we are just about at the end of a period when in Post Office Counters Limited, Post Office Limited, we have seen that go from a profit of about £30 million five or so years ago to a loss of £70 million to £100 million, mainly because of the Horizon effect.

  Mr Steinberg: This afternoon the reason why I have been reasonable with you is because I do not believe Postcomm, not that I thought they were telling lies but I do not believe that their arguments hold any water, plus the fact that I do not believe any of them knew what the postal industry was about anyway because none of them had been involved in it. What you have just said about Horizon, and they clearly said Horizon had nothing to do with the losses, clearly shows that they do not know what they are talking about and we should look very carefully at what they are saying.

  Chairman: You can take it that Mr Steinberg is on your side.

Mr Steinberg

  455. Just. Let me not be on your side now. We are talking about 30,000 job losses, 15,000 job losses at the present time. I understand the very basic economics. I do not know much about economics generally, but basic economics is if you sack 15,000 men you save 15,000 wages and that saves a lot of money. How will that make the service any better? How will that deliver letters any more efficiently than now if you have got less people to do it?
  (Mr Roberts) None of the people that we are talking about work in the letters business, they all comes from parcels or the transport area.

  456. My colleague says there are 40,000.
  (Mr Roberts) Forty thousand is not a number that we have used but if we go further than that, yes, of course some would come from letters. They would only come from letters if you were then re-planning the way you deliver the mail in the way I was describing.

  457. I want to leave that and just go to one last topic which is very, very important which has not come out this afternoon. A lot of the blame in the press has been put on the fact that the workforce has not done the job properly, there have been wildcat strikes, lots of action, and they have contributed to the failure. Is it true that last year only 0.2 per cent of days worked were actually lost? Is it true that a postman starts on about £12,500 a year in London? Is it true that they have had a freeze on their wages whereas managers have been given an increase of two to three per cent?
  (Mr Roberts) No, that is not true.

  458. Is it true that ERS Market Research found amongst your own managers that 70 per cent of them said that they do not believe the hierarchy of Consignia are capable of getting out of these problems? What do you say to those accusations?
  (Mr Roberts) In terms of starting with pay for postmen, yes.

  459. £12,500 a year?
  (Mr Roberts) £12,500 a year.

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