Examination of Witnesses (Questions 440
- 459)
MONDAY 25 MARCH 2002
MR JOHN
ROBERTS CBE, MARISA
CASSONI AND
MR STUART
SWEETMAN
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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