Examination of Witnesses (Questions 40-59)
MS VANESSA
LAWRENCE, MR
DAVID WILLEY
AND MR
STEVE ERSKINE
TUESDAY 15 JANUARY
2002
40. Some of them make a very big profit.
(Mr Erskine) That is across the whole series of sheets.
Within that there are individual sheets that do make a profit,
you are quite right.
41. The database that you have got—what
is it worth?
(Ms Lawrence) That has been an interesting debate
which you may be aware of. I can see by you smiling that you may
be aware of it. We are here to create and maintain the database.
I should like to turn to David in a moment to discuss the ongoing
discussions on that.
42. If you are trying to maintain something
surely you ought to know what it is worth?
(Ms Lawrence) I know what the maintenance costs are
per year, but regarding its worth perhaps I can ask David to tell
you.
Mrs Dunwoody
43. Before you do that, it actually has a direct
impact on your present status and your future status, and at the
moment you are capable of doing that and you envisage within your
current value you will continue to do that, but this would be
radically changed if you were required to look at your assets
in a different fashion, would it not? Therefore surely this is
something which is of absolutely fundamental importance. It is
not an accounting trick. It is actually a policy decision of quite
major implications.
(Mr Willey) I would not call it an accounting trick
but, not being an accountant myself.
44. Oh, I think we may use pejorative terms
about accountants but they manage to survive it.
(Mr Willey) We do not underestimate the value of our
database to the business.
Chairman
45. But what is it worth?
(Mr Willey) We do not put a number on it. We make
that quite clear in our accounts.
Mrs Dunwoody
46. You sound like Pooh Bear—"It's
a lot."
(Mr Willey) It is a lot. We recognise that it is a
very substantial value to the business and indeed without it the
business would not have a future. Where we disagree with the National
Audit Office is this. The National Audit Office regard it as a
tangible asset, something with some physical substance. We, using
accounting standards and new deals and best practice from the
private sector, regard the database as continually changing and
evolving; 5,000 changes every day, as Vanessa said earlier. As
such it is more akin to intellectual property rather than a piece
of something that is fixed. As such we regard it as an intangible
asset. For that then to appear on the balance sheet it would have
to have an absolute defendable value that everybody agrees on
and a reasonably defined methodology. There is no methodology
to fix a value or to update it.
47. Equally, to ignore its worth in that sense
is to be mildly unrealistic. I bring you back again to the policy
decision. If you are required to regard this as a tangible asset
and to do the whole of your accounting on that basis, then this
will materially affect where you are going in the future.
(Mr Willey) The reason why it is not on there is because
of the accounting standards and if accounting standards change
then of course we will follow accounting standards. The change
in status from Trading Fund to Government Owned PLC will not of
itself bring about a change in the accounting policy. To come
to your point about the return on capital employed, indeed when
we moved into a Trading Fund it was quite clear it was not going
to appear on our balance sheet. If it had appeared on our balance
sheet and if some reasonably defendable sum had been put alongside
that, then the Treasury may well have set a different figure for
return on capital employed. I cannot second-guess that.
48. Then why is it you are unable to convince
the National Audit Office of this, who are on the whole quite
good on accountancy, I am told?
(Mr Willey) Yes, and those people in the private sector
that we have also sought advice from are renowned for their accounting
standards too and have a different view from that of the National
Audit Office.
49. It costs rather more, I suspect, but ignore
me. You carry on.
(Mr Willey) That was my point. We have an argument
between two sets of accountants and neither one nor the other
can be said to be wrong. It is a case of different interpretation
between different professionals.
Chairman
50. It is different interpretation by different
professionals but it is this question of whether you achieve the
return on the investment that the Treasury was asking you to achieve,
is it not?
(Mr Willey) The return we were asked to achieve was
on the understanding that our database was not on the balance
sheet. I cannot second-guess it but it may well have been a different
matter had a number appeared as being a value for the database.
Ms King
51. You say that you have recently introduced
"even more simple and transparent pricing". What is
meant by "transparent" in this context? Do you think
that this policy is going to reassure major customers who, as
you know, have been concerned about unfair pricing?
(Ms Lawrence) First of all we make sure that all our
prices are published and available for people to look at. We also,
with our new OS MasterMap, which you may have been shown this
morning, have made sure that now it is a very simple way of pricing
how much information you wish to buy from us. It is very much
done on the basis that you choose your area, you choose which
themes you require and, depending on the themes, pricing by TOID,
so as a result if you choose more themes you will have more TOIDS.
It is on length of licence: one year, two year or three year,
and on number of seats[3]
that you wish to use the data. We have been very clear on that
and there is a calculator available on the web for people, once
they have an account with us, to make sure that they can see that.
(Mr Willey) I know that some people understand transparency
and pricing as relationships between costs incurred and the prices
charged to the market. For example, with a chocolate bar we can
price the cost of the ingredients, the cost of manufacture, we
know that we will be producing a thousand chocolate bars and we
can work out what the cost was and we can relate that to the price.
Our costs do not accumulate so transparently and so easily as
that. Indeed nearly half of our total costs, £90-odd million,
are directly about updating our database and keeping it maintained.
From that database a number of different products are spawned,
everything from the paper maps that Steve Erskine was talking
about earlier to some of our digital data. The model that one
uses then to apportion half of all our costs to individual products
and hence looks at profit and loss on individual products is an
accountant's judgement about how one apportions it. That really
is perhaps the dilemma that some people do not see, or maybe a
transparency they thought they might be able to see if we were
just producing chocolate bars.
52. Does another part of the dilemma come from
the contradiction between your role as a public service provider
in some respects and a commercial entity in another? How do you
think that the conversion of OS to a Government Owned PLC will
affect pricing?
(Mr Willey) I really do not see that a change to a
Government Owned PLC will change our pricing. Whether we remain
as a Trading Fund or whether we become a Government Owned PLC
will not of itself have an effect on our pricing.
53. Do you foresee any risk that a transparent
pricing policy will mean that charities and educational institutions
will lose some of the benefits they currently have?
(Mr Willey) No.
(Ms Lawrence) Perhaps I could also mention that there
is currently a consultation paper out from HMSO regarding regulatory
information where it is suggesting that there should be one price
fitting all organisations and all nature of use. We have suggested
in our response to the consultation that that does not fit education,
does not fit charities and those sorts of organisations. We have
done a lot ourselves over the last 15 months to make data available
for those kinds of bodies in an easier manner than ever before
and at prices that mean that they are just taking the data they
require for whatever they are requiring it for. One size fitting
all perhaps is not what we are suggesting is best for us.
Chairman
54. You are very keen to provide maps for schools
at a pretty subsidised rate in order that you encourage people
in the future to use maps. Is that right?
(Ms Lawrence) I think I should refute that things
are subsidised in that way.
55. Exam extracts are pretty cheap, are they
not?
(Mr Erskine) I am sorry, Chairman, I do not have the
specific costs. We can make those available to you.[4]
56. But you are encouraging schools to use maps
to build up your future market.
(Ms Lawrence) Actually, Mr Bennett, I am not sure
it is about building up our future market. It is about ensuring
that all children in this country understand location. I do believe
that geography and location are key tools that children need to
have for their own safety and for their enjoyment of the landscape.
Yes, we are investing very heavily in educational products for
projects. One of them, which I think you saw this morning, was
launched last week called "Our Favourite Places" which
is to help children be able to record what is their favourite
place and for other children and adults then to use that information.
We will also later on this year be introducing a scheme which
we fully expect to help map education in this country quite considerably.
Christine Russell
57. You have just said there that you are committed
to the free flow of information but yet in the responses from
a number of our respondees they were making the point that they
felt that your copyright charges have gone up to unacceptably
high levels. How do you comment on that?
(Ms Lawrence) I am surprised at some of the points
made. We introduced a licence for copying paper maps for internal
business use. Its price is £47.50 per office so, for instance,
people like estate agents now are able to put our maps on the
back of estate agents' details for a price of £47.50 per
annum. The same goes for organisations who require to copy a paper
map for internal business use.
(Mr Erskine) There are a number of different ways
that we make the copyright available. There is the £47.50
licence but we also make the copying of paper maps available for
publications for small groups, for instance. If a small group
is making a leaflet of an area of interest and they want to use
a section of Ordnance Survey map, say, A5, they will pay 45p for
that. If they are redrawing it effectively so that they want to
make their own sketch map from that, they can pay as little as
a penny for each copy that they produce. We reduced copyright
charges quite significantly about 15 months ago.
(Ms Lawrence) September 2000.
(Mr Erskine) Now it is £47.50 we charge.
58. So in regard to the representations of,
for instance, local ramblers' groups who pay you for doing their
sketch maps, you think those representations are unfair and in
fact the costs to small groups who just want to do basic little
sketches have not increased substantially?
(Mr Erskine) I would not sit here and say that has
not been an issue in the past. What we have done is listen to
those comments and concerns that people have had.
Chairman
59. Do you think people have not caught up with
the changing situation?
(Mr Erskine) I think there is an element of that.
On the paper copyright business I think we have addressed the
issues there and we have also addressed some of the issues around
the availability of the data. We have introduced a pay-as-you-use
service into our Superplan agents which has reduced the cost of
small extracts of mapping. That is as a direct result of listening
to customers' comments.
3 "The number of [computer] terminals that are
loaded with software capable to accessing and manipulating OS
MasterMap within a business." [OS MasterMap V1 R1 data pricing.
Customer information leaflet]. Back
4
Ordnance Survey produces Examination extracts under contract
for a variety of examination boards. These are at a variety of
scales and of various sizes and formats. We always print more
than required by the exam board so that additional copies may
be provided at short notice should a board have a higher than
anticipated number of entrants. Once an examination has closed
and after authorisation from the relevant board any surplus copies
are sold primarily through our network of approved educational
stockists for £1.00 per copy. We also produce 23 Project
maps at 1:50.000 scales covering a 20x20Km area. These are currently
available through the same source for £1.20 per copy. These
are currently being phased out through lack of demand. Back
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