Select Committee on Trade and Industry Minutes of Evidence

Examination of witnesses (Questions 280-299)



  280. I would like to explore a bit in that case, if we could do that, about what the relationship is between yourselves at DTI, and the regulator. We have already touched on this and I would like just to pursue it a little bit more because you have a dual role here. On one hand, you are the single shareholder as far as Consignia is concerned and, on the other hand, you are the Government with an overriding duty to protect the public interest. Now, in establishing your discussions with the regulator, have you talked through with the regulator how far you should be involved in performing the second of those roles rather than the first of those roles?

  (Mr Alexander) Well, I would start by saying that the clarity of role, I think, was originally revealed in the White Paper in advance of the Postal Services Act in which we were keen to ensure an approach, which I think again was anticipated by your Committee in a previous recommendation in terms of lowering the weight to 50 grammes and you said it would be more appropriate for that actually to be taken by the regulator. We have been clear consistently that it is the responsibility of the regulator in this area of work. It was set in the White Paper, legislated for in the 2000 Act and consistent with what were the appeals not just on one side of the House, but indeed a recognition across the House of the importance of the independence of regulators, we did ensure that in reality as well as in spirit there was independence for this regulator. I am fully aware that there is a degree of concern, not least amongst the CWU members, as to possible actions by the regulator. If one looks at parliamentary briefing that was provided for the Postal Services Act 2000, what the CWU asked for is as independent a regulator as possible and that shows there was a near-universal view that a genuinely independent regulator was an entirely appropriate policy framework into which to place not just the Post Office, but what was an emerging market. The Government, therefore, has been clear with Postcomm in terms of the discussions that we have had, that they have to take account of all of the factors that are necessary for them in reaching their deliberations, and been clear with Consignia that it is important that they engage in those discussions. There may be circumstances in which, consistent with commercial freedom, Consignia hold views in terms of this proposal which cannot be taken. I remember Allan Leighton saying (whether or not it was to this Committee) that it was a matter for government, and I suppose that is partly why I am here today, rather than him in terms of what was the Government's view and I think you are right to recognise the fact that we wear a number of hats in this regard. We are certainly the shareholder of Consignia, we have set the public policy framework, but we have also recognised the independence of the regulator and, in that sense, we have been clear to the regulator that where discussions need to be taken forward for the maintenance of the universal service obligation, they need to make sure that they have the evidence available to them principally from Consignia, but obviously from other parties as well.

  281. I guess what I am getting at is what do you think the Government's role is beyond what the terms of reference of the regulator are? The regulator is independent and has got very clear terms of reference within which the maintenance of the universal service obligation is key, and you described it as a primary one, but the Government surely has got a greater role than that, otherwise the Government and the regulator would have exactly the same job. If I put an example to you, as far as the regulator is concerned, there has been a lot of concern expressed about the consequences in particular scenarios for rural post offices, there have also been worries about what the consequences of a certain course of action could be for smaller urban post offices. Now, a number of those consequences, desirable or undesirable, would not actually ultimately be the concern of the regulator because you could have maintained the universal service obligation, the regulator's terms of reference could be fully met, but, nevertheless, you could still see a number of the rural post offices close and a number of urban post offices close with major impacts to the local communities and the local economies and so on and quite legitimately the regulator could say, "Ultimately, that is not my concern". What is the Government's role in that and how far would the Government's concern for that in defending the public interest impact on or has it impacted on your discussions with the regulator?
  (Mr Alexander) Firstly, I would say you are absolutely right to suggest there are policy commitments that the Government has given in terms of the network and there was of course the PIU Report which set down a number of objectives in terms of the sustainability of the network. We have placed, for example, an obligation on Consignia to avoid preventable closures in the rural network, and that remains in place, but at the same time there are a number of steps being taken actually to ensure the long-term health and viability of a national network of sub-post offices. So we have certainly been clear where we recognise the responsibilities and £270 million worth of resource was committed in terms of advancing the PIU objectives and there are discussions that take place with the regulator which reflect that. For example, the regulator has recently furnished us with information in terms of rural network support, so there are a number of dialogues which take place with the regulator dealing with issues which stand aside from solely the issue of the proposals which were launched at the end of January, but we are clear as to what the principal responsibilities of the regulator are, which are to maintain the universal service obligation and thereafter to see what scope there is for improving standards of service to customers by the introduction of competition.

Mrs Lawrence

  282. Can I ask you to put your shareholder hat back on again for a minute because there does seem, I think, at the moment at least to be a certain amount of contradiction. You mentioned meetings you have had with the regulator, with Consignia and with Postwatch recently, but we were rather surprised that Consignia said they had not consulted you before making its response to Postcomm's proposals. Now, we recognise the position of the DTI in relation to the independence of the regulator, but were you not concerned about the lack of consultation by Consignia before their submission was made, bearing in mind your shareholder role?
  (Mr Alexander) I think I would draw on the point which was made previously by the Chairman, that there is a position whereby historically certain companies in their relationship with the regulator obviously sought to reflect their commercial advantage in terms of those discussions. In that sense, we were keen to ensure that the commercial freedom which was discussed on the floor of the House and indeed is related in the White Paper, and in the terms of the Bill was a reality, which was we were keen to give Consignia the opportunity to make sure that what, by collective agreement at the Board, they put forward as what they thought were in their best interests, we would not see as being a direct read-across to that reflecting the view of the Government more generally. But obviously where we are actually engaged with the company is in terms of the broad targets that are set for the company. There has historically been the position with the setting of the strategic plan. We are at the point at the moment in that dialogue whereby, for example, there are a couple of non-executive directors who are about to be appointed to the company and that process is about to be taken forward and we would judge the performance of the management at Board level against the achievement of those targets that are set out, and, in that sense, we anticipate, for example, at the moment the arrival from Consignia in the not too distant future of their next strategic plan and that will give us the next basis on which the performance of the management will be judged by us with our shareholder hat on.

  283. Can you not see the fact that to many, to us on this Committee, it appears that you just did not want to be involved publicly in the argument? The dispute has been carried out very publicly in the media between Postcomm and Consignia and the impression you have given is one of standing back and not wanting to get involved in the in the argument.
  (Mr Alexander) Clearly that is a view and there has been a number of people who have criticised or attacked the Government, and there always will be. We were very clearly of the view that we had put in place a mechanism which did not have as an incidental add-on the maintenance of universal service obligation. As I say, the primary duty of the regulator was to uphold the universal service and the second duty of the regulator was to look at these issues of competition. We have put in place our public policy and regulatory framework to achieve that goal and it would not have been appropriate, therefore, given the roles that we do play which are not only as shareholder of Consignia, but also having established that regulatory framework and indeed having managed the appointments of Postcomm's commissioners themselves, for us to be entering the public domain and second-guessing a range of decisions before those decisions had actually been taken by the regulator. It would be fair to say, as I have sought to to the Committee today, we have urged the regulator and indeed the company to engage in a dialogue because we do recognise the importance of the decisions that the regulator has to reach and we are keen to ensure that if there was a role of perhaps knocking heads together, we could fulfil that role.

  284. Can I come back again on a point made by my colleague here because when we interviewed Graham Corbett, the one thing I think again that, although you have responded to my colleague's question, we were left up in the air about was that you have just reiterated that the regulator is responsible for the maintenance of the universal service and competition, but Consignia's range of services is huge and the Government is dependent on that range for delivery of their policies, particularly in rural areas. Now, we asked the regulator himself about this potential impact on Consignia's entire business and he just said flatly, "Well, our concern is only the universal service and competition", in other words, "Wipe the rest away because, as far as I am concerned, as regulator, it has nothing to do with me". Now, I think for all of us that left a huge question mark in our minds.
  (Mr Alexander) I hope I can offer some comfort to the Committee because I certainly did emphasise to the regulator that both in practice as well as in theory the maintenance of the universal service obligation is the principal responsibility and, in that sense, you do need to have a position whereby the licence holder charged with responsibility for delivering the universal service obligation has to be in a position to do so. In that sense, it would be perfectly appropriate for Postcomm, in their deliberations, to have consideration for the financial health of Consignia in the short term as well as in the medium and long term in terms of discharging their principal and secondary obligations.

  285. We have been talking so far about the relationship with Postcomm in respect of their recommendations for liberalisation but, of course, there is another set of proposals of which the Government has some ownership, namely the ones that were negotiated at the Council of Ministers. It has been suggested that perhaps it would be desirable to go along with the original suggestion, life would be a lot simpler, and not bother about Postcomm's suggestions. What is the legal position here? Maybe we could start from there?
  (Mr Alexander) I was the person in the chair at the Telecoms Council in October. Agreement was reached at the Council of Ministers whereby there would be the step change to liberalisation in 2003, in 2006 and potentially in 2009 a fully liberalised market, and that was a position that we supported, indeed I supported at the Council in October. The means by which in a United Kingdom context that will be implemented will be a matter which will be determined once the position is formally adopted, which will be in the months to come as it is still winding its way through the process. In that sense it is entirely appropriate that Postcomm should be aware of what our international obligations are on the basis of the decision that was reached in October. All of that information has been in the public domain at every step in the process since then until the anticipated proposals in January.

  286. What do you mean by international obligations? My understanding is that these are suggestions, they could be set aside, and they could be set aside in favour of the regulator's recommendations.
  (Mr Alexander) First of all, I think it is important to be clear about what was decided in October. There is one view, which has been ventilated in the press and elsewhere, suggesting that there is an agreement across Europe as to the way forward on liberalising postal markets and that every other country will adopt exactly that approach and that somehow the United Kingdom has taken a unique and distinctive position in saying a different position will be taken in the United Kingdom. First of all, it is important to emphasise that there is not a uniform view as to the way forward within Europe. For example, Sweden and Finland are liberalised, and then there is a degree to which Germany and the Netherlands are below the price/weight ratios specified in terms of the decision that was reached at the Telecoms Council in October. It is therefore perfectly appropriate for the UK to reach a view as to what best advances the public interest in the United Kingdom and in that case, as I say, we have set down the responsibilities for the regulator which are the basis for the proposals which were announced at the end January while at the same time meeting our obligations in terms of the 2003, 2006 and 2009 timetables.

  287. Mr Corbett might not accept this but there is a political problem here in the sense that people are saying we do not like what Postcomm is offering but some of them—take the unions for example whose members are going to have to implement this—now seem to have come round to the view that not only are they in favour of an independent regulator—and I would not wish to put words in their mouths but I will do so anyway—they are in favour of the European Council recommendations and here, with one bound, you can be out of gaol in the sense that you could have the unions on board accepting the principle of a liberalised timetable as long as the Corbett ones are not implemented.
  (Mr Alexander) I have to inform the Committee that the CWU views are at least consistent in the sense that they are consistent with my negotiating position at the Telecoms Council. I made contact with Consignia and indeed with the CWU in advance of that meeting and explained to them what would be the position and terms of the step change of liberalisation. It would be fair to say that the CWU had concerns in terms of the maintenance of the universal service as reflected in our negotiating position in terms of the ultimate Directive that emerged so in that sense it would be somewhat unfair to suggest that this was merely a tactical manoeuvre on the part of CWU in light of the proposals that were announced in January. On the substantive point of will this step mean get out of jail, again that fails to capture where the responsibility lies given the public policy framework and the regulatory framework established by the 2000 Act. We were clear that it rested with Postcomm to be able to ensure that the duties that were set down by that Act had actually been discharged.

  288. But the real politick of the situation is that the average punter is someone who does not have a Peter Hennessey view of the British machinery of government and tends to have a rather more simplistic view of it. I am not suggesting that the unions are in that position. Can I ask one last point on this. Would it be possible, if we were to take the other tack—what my colleague Mr Hoyle, who sadly is not with us, rather inelegantly (uncharacteristically for him) in referring to the combination of Corbett plus the European Council called the "double whammy". Would the alternative then be for the Government to seek a derogation on the European dimension and allow the home-grown version of the Corbett proposals to go ahead? Is that a possibility?
  (Mr Alexander) The favoured approach would be to ensure, consistent with avoiding a derogation by the United Kingdom of proposals that have been widely accepted across Europe, that due consideration be given by the regulator to what will be the changes that come as a result of the Directive being adopted.

  289. I do not really understand you. Are you saying to me that you could not go to Europe and say, "We have got a better idea than the one we agreed. We are not asking you to take it up but we would like you to allow us to give it up because we have got a better one"?
  (Mr Alexander) In terms of the politics of this I would not fully follow that logic in the sense that more criticism is directed by the unions and others —

  290. I am sorry, I am not talking about the political acceptability, I am talking about plan B completely. This is you going off on a different tack. The people you have to deal with are not the CWU, Postwatch or the Mothers' Union or anything else like that. We are talking about just the group going to the Council of Ministers and saying, "Look chaps, mes fre"res, we now have a different view and we think that it would be acceptable to push forward with the Corbett proposals but we do not think it would be acceptable to push forward with the Corbett plus." Would such an approach be possible under European law?
  (Mr Alexander) My understanding is that the European proposals cannot be set aside once the Directive is adopted. More substantially, the nature of the decision that was taken at that Council did not preclude the possibility of Postcomm or anyone else from coming forward with proposals. It basically set a minimum standard of liberalisation that needed to take place between 2000 and 2006 and ultimately full liberalisation in 2009.

  291. In reality these are totally different approaches which are being considered. One is related to weight and the other is related to price.
  (Mr Alexander) It also reflects the reality that there is great divergence across Europe at the moment. For example, if you look to Spain in terms of the Presidency of the European Union, they have a situation at the moment whereby there is no reservation on price, weight or any other basis in terms of the city although there is in terms of mail between cities and in that sense it is important to recognise that part of the thinking that informed the Council decision in October of last year was there was diversity across Europe, and that while this would set a minimum standard there is significant scope for countries to adopt a different approach. I hesitate to widen the conversation but I would imagine there are many circumstances in which a different and more pro-competitive environment has been established in the United Kingdom than that which would have been adopted purely on the basis of European legislation to the advantage of the United Kingdom. That is a consideration that I am sure will weigh on the mind of Postcomm in the weeks to come.

Mr Lansley

  292. My apologies for being late, I have been on the Enterprise Bill. Just on this point you mentioned that before the October Council discussions with Consignia and CWU that although Postcomm published their proposals in January they commenced consultations at an earlier point in July. When you went to the October Council in order to agree the Directive, did you go on the basis that Postcomm were happy that whatever was agreed in October could be consistent with various models that they were considering in the introduction of competition in this country?
  (Mr Alexander) Speaking from memory, my recollection was that given the statutory basis of the powers for Postcomm it would not prejudice the ability of Postcomm to make determinations given what was anticipated was likely to emerge from the European Council. Given historically we have got a situation where there is a price, weight and reserved area approach taken across the European level, it was anticipated it would be within that area that consensus would likely emerge at the European Council. Given that a different approach has been taken at the United Kingdom level in terms of the granting of individual licences, then I do not recollect there being a grave concern as to the degree to which it would prejudice Postcomm's ability to make decisions later on during the year.

  293. A difference but not necessarily inconsistent with what Postcomm were saying? It was something you already knew in October and you agree it is not necessarily inconsistent with what Postcomm would say?

  (Mr Alexander) That would be true partly because of the initial consultation that was issued by Postcomm in July and also a desire on our part to ensure that there was a degree of liberalisation across Europe consistent with the third report of this Committee in 1998 and some of the thinking that had been taken forward since then that if there was going to be a degree of liberalisation across Europe then potentially that could lead to more economic opportunities in the future.

  294. When Consignia were with us on 16 April we asked them questions about the reported relationship with the Dutch post office and effectively John Roberts said, "We did have discussions but they did not take us very far." At this point it would be useful for you to tell us as the shareholder when these discussions first took place. Was the DTI immediately informed?
  (Mr Alexander) If I can take you back to the beginning, in June 2001 Consignia approached the Department of Trade and Industry and intimated that they were keen to hold discussions with TPG, the Dutch post office. This in part reflected the fact that there had been joint working between Consignia and the Dutch post office previously in partnership with Singapore Mail in terms of an international joint venture. On the basis of the discussion that had taken place between them they were keen to explore those possibilities. As Minister I authorised those discussions to be taken forward formally in July of last year. I am just checking my notes here. It was on 25 July that we gave authority to Consignia as shareholder to take forward the discussions that they had requested. Those discussions carried on. It emerged in March of this year that common ground could not be found between the potential parties and on that basis it was agreed by Allan Leighton, then acting as interim chairman, that the discussions cease.

  295. What was the nature of discussions that you authorised? Were they discussions for exchange of equity or for an equity stake in Consignia on the part of TPG or a takeover?
  (Mr Alexander) Exploratory talks with TPG about a merger of their postal services which would have involved both Royal Mail and Parcelforce.

  296. In the United Kingdom and in the Netherlands or the United Kingdom only?
  (Mr Alexander) It was anticipated there was scope for the merger of both. It would have involved Consignia on the one hand and TPG on the other establishing a joint venture involving both postal services. So by definition it would be both. I am hesitant in my degree of candidness because of the confidentiality agreement signed (entirely appropriately) between Consignia and TPG, which is a quoted company on the Dutch Stock Exchange, and I am seeking to recognise those responsibilities. I am sure you appreciate that and you would not want me to put Consignia in breach of the undertakings given to take those discussions forward.

  297. I will ask one more question in relation to DTI Ministers' participation in this because although Ministers authorised discussions in July which concluded in March, were they discussions with which Ministers or officials on your behalf were continuously involved as shareholder?
  (Mr Alexander) There were discussions, first of all, between ourselves and Consignia when they made that request when we were keen to establish the basis for it. Perhaps it would be helpful if I explain. We were clearly of a view that Consignia needed to try and find common ground with the Dutch in terms of what was in their interests as an organisation, and that common ground was not established. As Ministers we felt it entirely appropriate that there be a test. We were under an obligation to exercise a different test which was that, even if grounds had been found between Consignia and the Dutch company, it served the public interest. That would involve considerations of whether it achieved those standards of service, and considerations of the financial sustainability and the strength of the organisation, the effect on employees—a range of different factors. We were never ultimately called upon to make that determination because there was no common ground established between the two companies involved. In terms of direct contact by Ministers, the negotiations were taken forward by Consignia management. They approached us in the first instance and said they wanted to take them forward. There was a single discussion between the Secretary of State and the management of TPG at which she made clear that the Government acceded and affirmed the right of the Consignia management to continue those discussions but it was very clear from the outset that this was an initiative that we felt was consistent with commercial freedom that had been granted to the organisation that they take forward. When the negotiations reached a point at which the Dutch sought clarification that we were willing to allow the management to take forward these discussions, that conversation took place.

  298. Who do you believe took the view that these discussions could not fly off the ground? Was that Consignia management or TPG or Ministers?
  (Mr Alexander) I think, as in all of these discussions, if you were to speak to TPG or Consignia management you would probably get a different story of what were very complex negotiations. Ultimately, we agreed with the view of Allan Leighton, the interim Chairman of Consignia, that these discussions should not be advanced and on that basis we were never called upon to exercise what would have been our separate, but nonetheless very important, determination that even if commercial grounds could have been established between the parties it served the public interest for the merger to be taken forward.

Mr Hammond

  299. Two very quick questions on this. First of all, can you confirm that the decision to authorise Consignia to enter these discussions was taken by Ministers in the plural and therefore would have been known at the time to all DTI Ministers?
  (Mr Alexander) No, there were only a very limited number of Ministers who were aware of these discussions, consistent again with the requirement for confidentiality. I am sure the Committee would appreciate that given the sensitivity of discussions with a publicly-quoted company there was a very limited number of Ministers who knew about it. If it would be of assistance to the Committee I could furnish you with the detail of which Ministers were sighted.[2]

2   Note by witness: I agreed to let you know which DTI Ministers, other than myself and Patricia Hewitt, were aware of the discussions with TPG while the talks that commenced in August last year were in progress. They are: Alan Johnson, Minister of State and Ms Melanie Johnson, Parliamentary Under-Secretary of State. Back

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