Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 180 - 199)



  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 August.

  181. You mentioned earlier there are figures coming out tomorrow but are there any areas where Consignia has improved recently?
  (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 quarter?
  (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.

Mr Lansley

  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 of ACT?
  (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 together—we are leading this group—so 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 rate—it should come down to about 15,000 units in the next four or five years—all 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 happen—I have not seen this report myself but I have heard this is in existence—in 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.

Mr Berry

  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.

Mr Hoyle

  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 much greater?
  (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.

Mr Berry

  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 Obligation?
  (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 service.
  (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 service—and I think this is one of the first genuinely independent studies that has been done—and 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.

Mr Lansley

  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.

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