Examination of Witnesses (Questions 180
TUESDAY 11 DECEMBER 2001
180. You used MORI there using Consignia's model
but what other systems do you have in place for monitoring performance?
(Mr Carr) We have just acquired the responsibility
for monitoring service performance and we have appointed Deloitte
Touche as the auditors and that appointment has been approved
by Consignia. Unfortunately very much delayed, we begin the new
sample measurement which includes handwritten, window envelopes
and packages, which have been excluded up until now, on 1 February
and it will measure in February and March, they happen to be the
two significant months. This measurement should have started last
181. You mentioned earlier there are figures
coming out tomorrow but are there any areas where Consignia has
(Mr Carr) There is no doubt that the delivery service
improved in the last quarter but one should point out that it
is the easiest quarter, it is the lowest volume quarter.
182. Had it improved on the previous comparable
(Mr Carr) Yes, that is correct. It was 86.5 for the
first quarter, the cumulative average is now 88.6, but a long
way below the 92.1 which is this year's target. It is also difficult
to improve service in the last two quarters because of the decidedly
high volumes that you get around the festive system.
183. We had quite a long discussion about post
office closures and the introduction of ACT payments. On reflection
and listening to our discussion with Consignia, where do your
concerns particularly lie about post office closures and the introduction
(Mr Carr) Can I start with ACT. There was a degree
of concern being expressed around the Committee about the timing
of this and I should tell you that this is something with which
we are very concerned. Government does not have a good record
in making change: the Passport Agency, Child Support Agency. Our
concern is you can do without a passport but you cannot do without
your benefit, your pension in particular. The union that is required
between DWP, Consignia, the public and the post offices is technically
complicated and practically complicated, particularly when you
consider the consumer group that we put together as a single expression
is complicated by the huge range of different people. There are
23 million people in this country who receive benefit. Sixteen
million of them go to a post office to get that benefit and six
million of the 16 do not have bank accounts. By April 2003 they
have got to have bank accounts and they are going to have a choice,
but today we do not know the full range of choice. We do know
that some of the basic bank accounts that are being offered have
some rather nasty small print clauses in that the Government quite
rightly wants disadvantaged people to be able to get the discounts
that utilities offer by paying by direct debit, yet we find out
in the small print of two or three of the accounts being offered
that there will be charges of £32 if there are insufficient
funds in the bank account to meet the direct debit. In one case
it is £25 a day. You are talking here about people who do
not have much knowledge of these things, they have probably never
had a bank account or a piece of plastic, they do not understand
PIN numbers, and yet these people have got to make this kind of
change in order to get their lifeblood. Linked to that is our
fear that so many of them already get this from the post office.
It is a place they go because they are used to going but they
also trust the man or woman behind the counter. It is that trust
that is difficult to quantify, it is so valuable. This is a fundamental
change that these people have got to make. I am very concerned,
as is our own organisation. In this respect we represent a lot
of the other organisations which include people like the Women's
Institute, Townswomen's Guild, Help the Aged and Age Concern.
All of us are working togetherwe are leading this groupso
that we can represent to the different agencies our concerns.
They are fundamentally terrified as far as we are concerned. The
timetable is behind in our view and we are very unhappy at the
lack of information that is available to the public. Furthermore,
if the rate of closures continue at our estimated rateit
should come down to about 15,000 units in the next four or five
yearsall that is doing is reducing the accessibility or
the opportunities for access of these people for their pensions.
We are not against closures per se but what we want to
see, and there are signs this is happening, this is another good
thing that is happening in Consignia, is that the Code of Practice
is being rewritten. To pick up Mr Berry's point, we are told that
we are going to be up front in the planning of the urban closures
and whereas in the state of play that exists now we do not get
involved until the decision has been made to close, and obviously
trying to appeal something once that decision has been made is
virtually impossible, as you pointed out, but now we will be up
front in the process and we will have not exactly a right of veto
but certainly closures that are challenged will have to be decided
at the most senior level as between Consignia and ourselves.
184. One follow up to that. Would you share
the view that uncertainty particularly for sub post offices has
been very damaging and is continuing to be a constraint leading
people to leave the business and so on? Therefore, would it be
true to say that you are not looking for delay in the introduction
of changes in April 2003 so much as clarity at a very early stage
now about what is intended to happen and a clear understanding,
initially amongst post office sub postmasters and the like, about
what they are providing and then amongst the public themselves?
Would you set any kind of timetable between now and April 2003
that we should be looking to?
(Mr Carr) In the case of the sub postmasters, yesterday
would be the place I would start. These people have had a very
bad deal and the first thing that should happen is this contract
under which they work should be torn up and they should start
again. It is a one way street. If you can conceive of anybody
holding a franchise, whether it is McDonalds or anybody else,
whereby 35 per cent of your revenue can be taken away from you
overnight without any compensation after you have put your own
cash up front as a sort of franchise fee, you could never regard
that as fair, even to the point that when we were at POUNC we
tried to test this in law to see if it could be done. Well, it
can be done but without any benefit to the people. That contract
needs to be rewritten so that there are safeguards for the sub
postmaster. In addition to that, the terms and commission rates
which are paid to the sub postmaster need to be increased to generate
the kind of revenue whereby he has got a viable business against
which banks are prepared to lend money. This will have the effect
of increasing the rate of applications to become sub postmasters
and it will decrease the rate of resignation. In my opinion the
problem lies in the fact that the central costs and regional costs
of the Post Office Counter side are far too high as a proportion
of the total operation. By slimming down the central costs, much
of the margin which is achieved through the commissions on the
products that are sold by them, the greater part should go to
the sub postmaster. Now, going to the rural network, where I understand
that the regulator has already advised the DTI on their views
on what should happenI have not seen this report myself
but I have heard this is in existencein my view these people
need compensation now to get them through the next few years until
such time as there is a proper regime in place where their hard
work can be properly rewarded by the sort of commission that they
earn, that they should earn anyway. The other thing is to make
the point that once again this is a range of product that has
hardly changed at all for 20 or 30 years. Now and again they introduce
good things, like the bureau de change, excellent performer,
travel insurance, excellent performer, but the stakeholder pension
by Standard Life, a fantastic product with a footfall of 28 million
people a week, they have only managed to sell a few hundred, in
fact the Counters' management cannot tell me how many they have
sold, apparently that is confidential to Standard Life. It is
not a selling organisation, it is not a marketing merchanting
organisation. That applies to the whole of Consignia. The people
who run it are not money makers, they are administrators, that
culture has to change. I hope I have answered your question.
185. Since you kindly referred to my exchange
earlier with the Chief Executive of Consignia, can I be clear
about how you understand the current Code of Practice in relation
to consultation in respect of closures. My example was not a closure,
it was a transfer of the activities of a Crown post office to
another provider. Your understanding of the current Code of Practice
in relation to how consumers have any say on that, if you would
say a bit more about what you are seeking in terms of the new
Code of Practice in terms of consultation with consumers. I am
not opposed in principle to change at all, I am only opposed in
principle to consultation that I think is meaningless. You represent
the consumers, you are the consumer watchdog. Where are we and
where should we be?
(Mr McGregor) Our understanding of the Code is very
much in line with your understanding of the Code as it works at
the moment and that is that Consignia is allowed to make up its
own mind more or less in private as to which offices are going
to close, which are going to move, which are going to remain open.
The consumer voice is only then consulted right at the end of
the process in circumstances where either we have to engage in
trench warfare in order to try to reverse a closure, or frankly
the consumer voice is just ignored. We have been having some very
constructive discussions with Consignia, particularly against
the background of what appears to be an increase in the rationalisation
or level of closure over the next two or three years. The new
processes are going to involve the consumer voice at the planning
and at the strategic stage. If, for example, you take a particular
locality, North Leicester say, there might be at the moment ten
existing offices within that area. The first stage in the process
will be for Consignia to be trying to take a commercial view as
to how many offices within North Leicester they think have a proper
future, and they might come up with the answer that it is five
or six rather than the ten. The next stage in the process will
then be to come and consult with us. We are developing a number
of consumer and socially driven criteria. We will then assess
essentially the commercial case that has been arrived at and have
the consumer overlay on that in terms of the accessibility of
offices, how near they are to transport, to parking, whether there
are ramps for disabled, all of those kinds of criteria. We might
at that stage, therefore, wish to be suggesting certain changes
to the proposals for closures or moving of offices. The third
stage would then be to go out to public consultation, again not
on the basis of an individual closure once the decision has been
taken but on the basis of saying "here is an overall plan
for the reinvention of the network in North Leicester, what do
consumers think about that?" and when they go out to consultation
they will not only be consumers' views as to the commercial strengths
and weaknesses of their proposals but they will also be our views
sitting side by side with them as to the benefits or otherwise
for consumers in the changes that are proposed. That, in a nutshell,
would be the new system.
186. And it will be the new system? I got the
impression from Mr Roberts that will be over his dead body, or
am I being melodramatic about this?
(Mr Carr) This, as Gregor has described, is an agreement
which is in the process of being reached in company with the DTI
and Post Office Counters' management. It may well be that he was
not completely correct to
187. How soon?
(Mr Carr) Once again, yesterday I think is how we
would like it because it is added to this urgency of the problem
with ACT. We have to get this in place extremely quickly and the
quicker the better. The network reinvention programme, which is
about urban closures and the payment of compensation to the urban
network, is something that does have a timetable to it, which
I am not aware of at the moment.
(Mr McGregor) We understand that DTI ministers are
due to make an announcement about this fairly shortly. We very
much hope to see the new consultation arrangements begin to roll
out very early in the New Year.
188. Can I just move you on to some of your
own targets. Postwatch set their own targets, such as 90 per cent
of all complaints reached, acknowledge a complaint within two
working days and where appropriate take up a complaint with the
relevant operator within five working days. Are Postwatch meeting
their own service targets?
(Mr Carr) No, we are not. This is a cause of concern
for a number of reasons. Firstly, we are new and we set up complaint
handling teams in each of the nine regions for a particular purpose.
We believed that local knowledge was relevant to the resolution
of problems but this, unfortunately, coincided with a restructuring
of the complaints services within Consignia which has reduced
the number of offices which are not dedicated to particular geographical
regions. In other words, it could be that the call was coming
in in such a way that somebody with a complaint in Newcastle could
have it being answered and replied to by somebody in Plymouth.
Having set out ourselves to do it on our regional basis we then
found ourselves needing to respond with an organisation that was
going through the process of change itself and restructuring itself.
That is one of the reasons. Secondly, I just do not think we are
good enough at it yet. We have a central complaints department
in London as well as the representation in the regions and we
are very far from happy with the quality of service that we are
giving. In the new year we are looking at the prospect of centring
all our complaints through a single service call centre for screening.
I have to admit that we are very unhappy with the quality of service
we are giving at the moment.
189. You are aiming to reach your 90 per cent
target you have set yourselves?
(Mr Carr) Yes, as soon as possible.
190. Surely most people will be asking do you
not think you should have set the target even higher in the first
place and we could look forward to actually achieving something
(Mr Carr) I agree with you. I would like to see 100
per cent for obvious reasons.
191. When do you expect to meet it?
(Mr Carr) I could answer that in January. No, I beg
your pardon, tomorrow, because we have our council meeting tomorrow
and this is very high on the agenda. My guess is I would be happy
if by the middle of next year we had got ourselves up to or above
90 per cent.
192. Do you think you will be able to send us
a note on how you expect to reach the 90 and when you expect to
increase to 95 or 96 or, indeed, the 100 per cent target?
(Mr Carr) I will do that, Mr Hoyle.
193. What effect do you expect competition in
mail delivery to have on Consignia? How do you see this developing?
(Mr Carr) I hope it will have the same effect that
we have seen with the introduction of competition in the utilities
where prices go down and service levels go up. In fact, I believe
prices went down by 40 per cent in gas and electricity in the
first ten years. The problem is that this is not actually a privatised
business and, as you quite rightly were exploring, there still
seems to be a lot of connection with the shareholder and with
Government. I must say that I feel very sorry for John Roberts
in having to deal with that, he has a complicated job and it is
just made more complicated by the interference that he gets, however
that is not something I can help. The general rule where you look
at the liberalised markets in Europe is that the incumbent tends
to retain the lion's share of the business, upwards of 80 per
cent and in many cases over 90 per cent, but what happens is he
becomes a lot more efficient and a lot more profitable. Service
levels do improve and prices generally remain stable because of
the competitive aspect. My guess is because we are not looking
at any real prospect of serious competition to Consignia, certainly
not in the foreseeable future, then it is an opportunity for them
to get their act together but when it does come it is likely to
enhance their performance and their profitability and the consumer
will be better off.
194. The implication for the Universal Service
(Mr Carr) That has to be preserved. This is something
that is quite clear in the Act and it is quite clear in the licence.
Once again, competition does not mean to say that this has to
be a threat. It has always been the view of Postwatch that the
universal service is an opportunity and it is not a cost, it is
a net benefit, because everybody knows that you go to every house
every day and there are enormous opportunities to sell on other
products and to use that benefit for your own profit.
195. So this would not be a question of the
state, as it were, purchasing the Universal Service Obligation
and paying for it, you are saying this would come, in your view,
automatically? Competition would not threaten it in the sense
that you would have competition and obviously cherry picking and
the Universal Service Obligation might go by default unless there
is a very clear contract?
(Mr Carr) The licence is very clear, it has to be
maintained by the licence holder, in this case Consignia. The
regulator is required in licensing other people and in introducing
competition to ensure that it is maintained.
(Mr McGregor) We rather see the argument the other
way around because what you have got at the moment is a Post Office
which is struggling, quite seriously struggling in some parts
of the country, to meet its Universal Service Obligation. The
reason why it is struggling is because it is an inefficient operator,
it is really not delivering services in the way that it should.
If there is not the discipline of private capital introduced into
the plc model because it is publicly owned, which was the starting
point of the discussions this afternoon, then there has to be
some other discipline introduced in order to encourage the management
to deliver efficient services. We very strongly believe that the
other discipline in these circumstances should be the discipline
of competition. As Mr Carr was commenting, sometimes competition
can take quite a long time to develop in these markets, particularly
with what I think the Chairman described as a somewhat "glacial"
approach from the regulator towards encouraging competition. We
very much hope that attitude within the regulator will change
and they will actually start encouraging real competition to enter
into the marketplace really quite quickly. It is not only the
actuality of competition but also the threat of competition that
will require Consignia to get its act together in a way that it
has failed to do over the last couple of years and really start
delivering the universal service within a competitive framework
at much better service standards than they are at the moment.
196. You really do not believe that competition
will in any way put at risk its public service obligation?
(Mr McGregor) We see it the other way round. We see
competition being, in a sense, the saviour of universal service
because it will make Consignia an efficient operator.
Sir Robert Smith
197. And if it fails to make Consignia an efficient
operator no amount of law or licence will maintain the universal
(Mr McGregor) No, but if the services go on deteriorating
over the next couple of years as they have over the past couple
of years you probably will not have a universal service in significant
parts of the country and that, I think, is really quite a real
risk. Also, it is important to look at some of the economic analysis
that has gone on behind the whole question of the universal service.
As Peter said, there is a carefully nurtured myth, and it is carefully
nurtured by the monopoly supplier, that actually the universal
service is a cost rather than a benefit. Postcomm itself has recently
completed a study in which it was trying to analyse whether there
were costs associated with delivering the universal serviceand
I think this is one of the first genuinely independent studies
that has been doneand that concluded they thought there
was a cost but it was something around £80 million and this
is on a turnover through the mail system of £6 billion. Yes,
there might be a cost but it is really a tiny cost compared to
the total turnover.
198. If the regulator licenses competition in
all the good areas and then it turns out he has misjudged it,
how does he get out of that situation and comply with the Act
to ensure the supply of the universal service?
(Mr McGregor) There is provision within the European
Directive for the creation of a safety net. Just to address these
circumstances, if you have got competition entering into the marketplace
and if there is the cherry picking the monopolist is concerned
about then there is an ability to surcharge those competitive
operators who have come into the marketplace in order to cross-subsidise
the delivery of the universal service. There is a perfectly adequate
safety net should it be needed.
199. Just on that, before one could get to that
point would you advocate that other operators in competition with
the Post Office should be invited to tender for delivery within
the Universal Service Obligation and at a uniform price?
(Mr McGregor) Not initially, because if you look at
other marketplaces which have had similar obligations to supply
the universal service, the electricity market, the gas market,
the telecommunications market, there was a lot of up front fuss
by the incumbent monopolists about how important it was to maintain
these obligations to supply, but in practice as the marketplaces
have opened up to competition people have realised that a competitive
marketplace will deliver perfectly good nationwide services and
in a number of cases will do so at a uniform tariff without the
need to have that basic legal obligation.
Sir Robert Smith: Not if you are a rural area
and want an up-to-date telephone system, you do not get it.
Mr Lansley: The parallel is not that close,
we are dealing with fixed networks as opposed to supply of services.