Memorandum by Christopher Roper, Landmark
Information Group (OS 01)
1. Landmark Information Group's business
is built around the use of Ordnance Survey's large-scale digital
mapping. This business, founded less than seven years ago, employs
over a hundred people in three offices, and is turning over around
£20 million a year. Some 25 per cent of this money goes to
Ordnance Survey, making a significant contribution to Ordnance
Survey's business. Any changes in Ordnance Survey's business practices
are of vital concern to Landmark.
2. Under its present Director General, Vanessa
Lawrence, and her immediate predecessor, Ordnance Survey has been
undergoing a radical transformation of its business. Ordnance
Survey's customers, partners, employees and political masters
have broadly welcomed these changes. However, they have raised
questions and will continue to raise questions that deserve public
debate and the open consideration of all concerned. We hope that
many of the issues involving Ordnance Survey will have been considered
in its Quinquennial Review, whose publication is currently awaited
by the industry Ordnance Survey serves.
3. No detailed consideration of its pricing
policies, along the lines proposed by the Urban Affairs Sub-committee
of the House of Commons Select Committee on Transport, Local Government
and the Regions, can make progress without setting those policies
in the context of, first, the particular challenges faced by Ordnance
Survey as a Trading Fund, and second, the general framework that
the government is establishing to make Public Sector Information
more accessible under the regulatory control of HMSO.
4. For the past 20 years, Ordnance Survey
has been under increasing pressure from successive governments
to pay its own way, as a commercial enterprise, through the sale
of paper maps and the licensing of digital data to customers in
both the private and public sectors. It operates under rules established
by the Treasury, supervised by the National Audit Office.
5. There are two ways in which it could
reduce its charges for maps and data:
6. Ordnance Survey could reduce the range
and degrade the quality of mapping that it produces. It has been
argued that Ordnance Survey's mapping is over-specified. Other
countries get along with smaller National Mapping Agencies, producing
maps of lower quality. It would, however, seem a retrograde step
to reduce the quality of a service that is admired around the
world. Furthermore, any reduction in the range and quality of
OS products would, if the intended savings were to be realised,
have to be accompanied by a substantial reduction in the number
of people employed. However, any drastic and sudden reduction
in headcount would be very expensive, given the age profile and
average length of service of Ordnance Survey staff.
7. The government could increase the annual
"National Interest" payment made to Ordnance Survey
so as to subsidise the services by Ordnance Survey to particular
interest groups. At present this payment is not designed to subsidise
the cost of Ordnance Survey maps, but to guarantee certain activities
(eg rural revision) that might have low priority if strictly commercial
criteria were applied.
8. There is plenty of evidence that official
thinking is sometimes confused where Ordnance Survey is concerned.
For example, in the Quinquennial Review of HM Land Registry, published
last year, Andrew Edwards, the author of the Review, wrote:
9. "In financial terms, the Land Registry
may have been paying somewhat over the odds for the OS's services.
The annual bill to the LR in the current year, 2000-01, is around
£6.5 million a year, comprising in round terms: Purchase
of maps £3 million; Royalty payments £2.5 million; and
Surveyor services £1 million. A new agreement for next financial
year, 2001-02, however, reduces the budgeted LR spend to some
£5 million . . . From a broader perspective, I hope that
the Land Registry and the Ordnance Survey will not devote too
much resource in future to conducting quasi-commercial negotiations
about precise levels and conditions of charge. The public will
ultimately fund the two bodies (apart from DETR 's public interest
payment to Ordnance Survey), as being the ultimate customers of
OS products, land searches, information and registration services.
The important points are that the financial terms are reasonable
and should give both bodies the right incentives. If there should
be difficulties in future, a sensible approach might be to commission
an outside micro-economist or Intellectual Property expert to
adjudicate a reasonable level or formula for the payments."
10. Looking at this objectively, from the
outside, it is hard to understand the basis for the judgment that
HMLR has been paying "over the odds". The operation
of the Land Registry is totally dependent on the provision of
accurate large-scale plans of registered properties. If HMLR had
to produce its own mapping, it would spend perhaps four or five
times as much as it currently spends with Ordnance Survey.
11. Neither a micro-economist nor an intellectual
property expert would be able to resolve the issue, as the ultimate
arbiter of what Ordnance Survey has to charge is the Treasury.
The government decided recently that data arising from the 2001
Census (unlike the data produced for the 1991 Census) should be
freely available to all comers, even though it cost £250
million to collect. It could make a similar decision with respect
to OS data, but that would be a political decision requiring a
major change in the way in which Ordnance Survey was funded.
12. Unlike HMLR, which has a guaranteed
income from land registry fees on every property transaction in
England and Wales, or the Hydrographic and Meteorological Offices,
which receive substantial defence and civil aviation funding,
Ordnance Survey does not have any guaranteed income (other than
NIMSA) to cover the costs of data collection, maintenance etc.
OS must cover heavy costs from a far less stable income base.
13. Another example of confused official
thinking was provided last year when Sir John Bourn, the head
of the National Audit Office, qualified his opinion on the 1999-2000
accounts of the Ordnance Survey. In his report to Parliament on
the Agency's first set of accounts as a Trading Fund, Sir John
said that he had taken this step because the Ordnance Survey's
decision not to set a balance sheet value on its database had
resulted in a significant understatement of the Agency's tangible
fixed assets. It may also have distorted the view given by measures
of reported financial performance (eg the return on capital employed)
used by The Treasury to set financial objectives for Trading Funds.
The dispute between The National Audit Office (NAO) and Ordnance
Survey (OS) over the latter's practice of not placing a value
on its mapping database in its Balance Sheet has profound implications
for everyone interested in encouraging the emergence of an information-based
economy in this country. Sadly, it was presented as a technical
issue, whereas it is really a political issue that will have real
impacts on Ordnance Survey and its customers.
14. If the NAO's criticism had been accepted,
Ordnance Survey would have had to increase its prices all round
in order to deliver a cash surplus commensurate (in Treasury terms)
with its asset base. Since the NAO answers directly to Parliament
and not to the Government, it is up to Parliament to decide what
to do about this challenge to the way in which OS manages its
affairs. For the past 20 years, it has been determined that Ordnance
Survey should be run as an efficient business, not cross-subsidising
one activity with profits derived from another. It is asked to
service a wide variety of different customers with very different
requirements. It cannot charge one group of customers £x
and another group £2x, just because the former group are
more deserving and less able to pay than the latter.
15. It would, of course, be possible to
fund all of Ordnance Survey's data collection and data processing
operations out of taxes, and to provide paper maps and digital
data for the marginal cost of producing and delivering the maps
and data to the end user. This is the model adopted in the United
States. The problem then is for policy makers to decide just how
much mapping is required for good government. The National Mapping
Agency's budget would be likely to rise and fall according to
the whim of the government of the day, and in the long run this
may be considered contrary to the national interest.
16. Historically, collection of Geographical
data of this kind was funded out of military budgets, the Hydrographic
Office by the Navy; the Ordnance Survey by the Army; and the Meteorological
Office by the Air Force. Although Ordnance Survey still enjoys
some military funding, this represents a far lower percentage
of their income than in the cases of the Hydrographic and Met
Offices. This military funding provided their budgets with a degree
of protection from the cost-cutting zeal of civilian officials.
However, this has also meant that civilians have very little idea
of either the technical complexity of the tasks these agencies
carry out or of the economic value of the fruits of their labours.
17. Most citizens going about their everyday
business see only the small part of these agencies' activities
that directly affect their own lives, as ramblers, weekend sailors,
or simply consumers of the weather forecast on radio or television.
The biggest users of Ordnance Survey data, for whom its currency,
completeness and consistency are essential, are architects, engineers
and surveyors in the public and private sectors, working on major
infrastructure projects, or to deliver essential services to our
villages, towns and cities. OS mapping is also essential to the
emergency services and to departments and agencies involved in
managing the countryside, DEFRA and the Environment Agency, for
18. Pricing doesn't seem to me to be the
principal issue. If Ordnance Survey simply halved the price of
its maps and data, we would not see a doubling of demand. In most
activities involving maps, the cost of the mapping is generally
a relatively small part of the total expenditure, whether we are
talking about hill walking, producing a guide book, developing
a brownfield site, building a new airport, organising a planning
enquiry or selling a house.
19. The real issues are: whether Ordnance
Survey's mapping is well used across government (I think you would
discover that it wasn't); whether Ordnance Survey's current activities
fully meet national requirements; whether Trading Fund status
is right for Ordnance Survey; whether "cost recovery"
is the best way of funding the National Mapping Agency; whether
the current division of labour and responsibility between OS and
HM Land Registry or between OS and the Office of National Statistics
works as well as it should; how HMSO should regulate the activities
of OS and the other Trading Funds in the wider national interest;
and how Ordnance Survey should work with other European National
Mapping Agencies to deliver the Europe-wide datasets that European
integration surely requires. These are big questions and worthy
of the attention of Parliamentary select committees.
20. I would be very happy to appear as a
witness before the Sub-Committee to answer any questions you might
have on these wider issues. Potentially, two of your areas of
interest raise very wide questions: "the cost of updating
and maintaining databases, the effect of new technology on costs".
I presume you are referring to Ordnance Survey's costs, not the
costs facing users of OS data. It isn't completely clear. The
issue of replacing old technology with new is always complicated.
It would have been a mistake to simply use the new technology
to produce the outputs of the old system, yet the old products
(paper maps) still have many uses. New technology impacts on Ordnance
Survey in a wide variety of ways (See Paras 21-23):
21. Surveying methods have been revolutionized
by the introduction of the Global Positioning System over the
past 20 years. Although this has greatly reduced the cost of surveying,
it has also required massive investment in new technology and
retraining staff. Ordnance Survey's staff have halved in number
over this period and virtually all the present staff have technical
skills that were not required in the old days.
22. Digital mapping has opened many new
markets for OS mapping, without removing any of the old ones.
The production of paper maps is now a relatively small part of
the OS business. The United Kingdom was one of the first countries
in the world to develop national coverage of large-scale digital
mapping. We (Ordnance Survey, its partners and customers) are
now about to embark on a major round of investment in the next
generation of digital mapping, OS MasterMap, which will create
many new applications that will benefit a wide range of public
and private sector activities.
23. The market for Ordnance Survey mapping
has grown rapidly and we expect the cost of raw survey data to
continue to fall over the next 5-10 years, but the cost of producing
a paper Landranger or Explorer Map and putting it into a bookshop
is unlikely to fall as far or as fast. Furthermore, we expect
to see more investment in processing the raw data to generate
a wide range of new services. Pressure will grow on Ordnance Survey
to update its databases more frequently, and to make the updates
available in real time to customers.
24. Anyone in the industry will tell you
that I have been an critical observer of Ordnance Survey's evolution
over the past decade. They still have a great deal to do to make
up for time lost in the mid-1990s, when there was a clear failure
to address some pressing problems. However, we have a new management
in place, and I believe it would be helpful for Parliament to
understand the challenges facing OS in order to give it the critical
and informed support that it needs if it is to successfully make
the transitions that will be required over the next few years.
The process of change is likely to continue for a decade at least.