Examination of Witnesses (Questions 1-19)
POSTWATCH
16 NOVEMBER 2004
Q1 Chairman: Good afternoon. If any member
of the Committee starts asking questions about matters other than
the Post Office, it is just that this is the third separate hearing
we have had today and the fourth one is tomorrow morning, so if
somebody starts asking you questions about Jaguar, it is because
they are reading tomorrow's brief and they should not be! You
are no stranger to the Committee, Mr Carr, but could you maybe
introduce your colleagues?
Mr Carr: Yes, on my left is Kay
Dixon, who is the Chair of the Greater London region and on my
right is Ian Fisher, who is the senior Director in charge of the
network businesses.
Q2 Chairman: If I could maybe start off
with the timing of Post Office Limited's review, over the years
I think it is fair to say that you have hammered the Post Office
and Royal Mail for the losses that they have made, but, on the
other hand, on this occasion you are saying that if there are
to be savings, they should be achieved over a longer period and
you say that a longer period will allow not only the savings perhaps
to be made a little more gently, but also to have the new products
in place so that they are able to make some kind of impact. How
much more time do you think Post Office Limited needs to get the
balance right between new products, a more efficient network and
probably at the end of the day some of the reforms that they are
advocating?
Mr Carr: Well, I think that it
is probably appropriate to answer that question by saying that
we do not know because, in the absence of an overall strategy
for the organisation, and by "organisation", I mean
the Crown offices, it is very difficult to understand how one
can apply timing to this sort of thing. The background that you
have described of our criticisms of Royal Mail generally, it is
now back in profit and our understanding is that the group will
make something in the region of £400 million profit this
year overall, despite losses that will continue in the Crown offices
and the POL business. However, I think the important thing here
is that we have been surprised by the fact that there has been
no overall strategy for the Crown offices simply because we have
gone through two years of the Urban Reinvention programme and
it would have been appropriate to include Crown offices in that
activity because these are all urban post offices and, therefore,
if you revised and restructured the urban network, then this should
have been included and indeed they were cited in nearly all of
the plans. I have a figure here that says of the 1,100 branches
first closed, 425 out of the 550 Crown offices were cited as being
receiving branches that would remain to take up the footfall of
those urban sub-post offices that were going to close, so it is
something of a surprise now that we should be looking at the potential
disposal and even closure of some of these post offices against
that background and we think that that is rather remiss. Anyway,
it is timely that this is happening because the uncertainty that
is created by this within the post office network is shared both
by the customers, but also by the potential sub-postmasters who
might come into the industry and we understand that it is proving
to be quite difficult to get people into the industry because
of this uncertainty. To answer your question directly, we do not
know how long it will take, but it is something that is now urgent
and will only come out of the fact of having an overall strategy
for the whole organisation.
Q3 Chairman: You have just mentioned
there the fact that we have had Urban Reinvention, and we have
had the rural post office reviews, but to what extent have you
been involved in, shall we call them, the DMB network review?
What has been, as the consumer watchdog, your involvement in this?
Mr Carr: In the directly managed
branches?
Q4 Chairman: Yes.
Mr Carr: Well, very little at
all because up until now the only involvement has been governed
by a code of practice which is way out of date and maybe the Committee
should understand that although we had a process that we agree
with POL to deal with the contested urban closures, which included
an appeals process, this has never applied to the directly managed
branches. In other words, the only rights that we have as the
consumer body are to be notified four weeks in advance of a closure
and to be consulted, but we have no right of appeal. There is
no process, such as we had under Urban Reinvention, which was
a three-stage appeals process. Once the consultation has taken
place for four weeks, the decision is then made and it is interesting
to note that never have we ever been able to reverse or influence
a decision on a Crown office. We were able to change the decision
on 145 of the sub-post offices proposed under Urban Reinvention
and we influenced the outcome of some 450, but every time we tried
to change the decision or influence the decision on a Crown office,
we got absolutely nowhere. The process is out of date, it does
not work and something has got to be put in its place.
Q5 Chairman: As I understand it, Post
Office Limited, who will be coming to give evidence in due course,
have told us that no decisions have been made. On that basis,
do you not think that there is still an opportunity for you to
provide some input? Have you sought to have discussions with POL
on this issue?
Mr Carr: Yes, we have done that
and we are in discussion with them on the subject, but I have
to say we are not altogether hopeful simply because of the history
and the current attitude. They are proving to be very difficult
people to deal with in this respect and their argument is, "These
are owned by us and our first obligation is to our employees",
which we fully agree with and we understand, and, "Of course
these are matters of commercial confidentiality", which is
something which we do not accept. These businesses are in public
ownership, they provide essential public services, they are owned
by the Government and there appears to be some conflict of interest
there, but I think we were mildly rebuked in your Report on Urban
Reinvention for not having enough influence or not exercising
enough influence. We take that on the chin because we respect
this Committee and its judgments, but we would like to have a
lot more influence and certainly, as we sit here today, we do
not have the authority or the power to insist that proper procedures
are put in place with the right of appeal and ultimately, we believe,
the right of veto.
Chairman: Well, I think that is quite
a clear impression. We are going to be talking to the unions and
we will get the degree of consultation that they have enjoyed
with management, but we will move on to that slightly later on
this afternoon.
Q6 Linda Perham: In one of your recommendations,
number 10, you say that the Government should identify a body
with the authority to veto a closure, and you suggest possibly
the Minister for Postal Services, Postcomm or a third party appointed
for the purpose. Does that not conflict with the Government wanting
to allow the Post Office to manage the business?
Mr Carr: Yes, I do believe that
there is a conflict of interest here. If I could just make one
point for emphasis, the importance of Crown offices vis-a"-vis
the whole of the network and sub-post offices in particular; there
are 555 Crown offices and they represent about 3% of the total
network number of outlets, but they do 25% of the turnover and
they have approximately 7 million visitors a week, and that is
an average of about 12,700 customers per branch per week. This
is way, way above the footfall on average to the rest of the network.
They are critical, they are key to the customers because they
are large, because they are well located and very prominent in
the high street, so it is absolutely fundamental that these services
are preserved in some form or another. Now, in relation to your
question, the Government owns these and they do provide essential
public services, such as, with every Crown office you can get
passport vetting, you can get DVLA car tax discs and so on, and
everybody knows that they provide the full range of public services,
yet the Government owns them through its shareholder executive,
but it is also the body which appoints the consumer council, appoints
the regulator and, therefore, there is this dichotomy, this conflict
of interest, what are the commercial interests that the shareholder
executive wants to see and yet what are the social responsibilities
because of these essential public services, and how is that going
to equate with the demands for commercial success and profitability?
It is a problem and it is a problem in lots of other areas within
the postal sector, but, to me, it is a conflict of interest and
the Government wants post offices to be used as an agency, for
people to access these essential services, and if it does that,
then it has got to pay a commercial rate.
Q7 Linda Perham: You say they do 25%
of the business, but they are losing £70 million a year,
so presumably that is why the Post Office wants to address the
problem.
Mr Carr: Yes, I accept that and
we are not in any way suggesting that this activity is anything
other than necessary. However, there is too much focus on loss.
Losses occur for lots of different reasons, not least poor management,
but what we do know is that many of these buildings which are
occupied are far too big, POL has inherited them because previously
they were sorting offices and they are occupying space that they
do not need, there are upper floors that are not being used, yet
they are being charged a commercial rent, in the case where the
Post Office owns it, by their own masters. The sensible thing
to do is, if necessary, to leave these buildings, but in exchange
for an adjacent building at lower rents of the precise size that
is necessary to provide the service, so losses can be reduced
by modernising the business, introducing new products, but also
by occupying buildings which are appropriate for the purpose.
Q8 Linda Perham: And Post Office Limited
have told you that they intend to reduce the number of directly
managed branches to a sustainable network of between 320 to 390
offices over the next five years. Do you have a view on that figure?
Is that too many or too few?
Mr Carr: Once again I think until
we get a strategy, and this is one of the reasons we welcome this
investigation because at least you are forcing a strategy out
of a business which should have had one already, it can only come
out of that strategy. Whether the methodology that is applied
is either to close or to franchise or to relocate, that must be
a decision for the management. Their job is to produce break-even
or profits, they must be free to manage the business and if the
Government wishes to impose impediments on them, such as the essential
public services, then they have got to pay for that, but it must
be up to the management to decide how to do it. The most important
thing from a consumer point of view is that there is continuity
of provision of the services in the areas where they exist today.
Q9 Linda Perham: Going back to the numbers
involved, the company has told us that it does not mean 165 to
235 closures and that it anticipates no more than a handful of
closures next year. In fact I think we have had a letter saying
that they only anticipate five or six. That does not seem reconcilable
really, that number of hundreds involved with saying there are
only going to be a handful of closures next year. Do you think
such large-scale closures are actually avoidable?
Mr Carr: Well, I keep going back
to the strategy. I was surprised when I read only five or six
next year. That sort of begs the question of how many in the years
after that, but I think they are very sensible in their wording.
They refer to disposals rather than closures and I think in the
collective noun of disposals, the idea is that they have an option
either to close a branch, relocate it and keep it under their
own management or to franchise it. We have some concerns around
all three of those, but nevertheless, it does give them a range
of options and it gives them flexibility.
Q10 Sir Robert Smith: Could we move on
to some of those concerns because you are not opposed in principle
to franchising, but you are concerned about its sustainability,
particularly in the light of what has happened with some supermarkets
having taken on a franchise and then abandoning it. You are suggesting
in paragraph 3.14 of your submission that the Post Office should
take them back into direct management if a franchise fails. Is
that what you envisage in that situation? How do you envisage
them coping when a franchise fails?
Mr Carr: Well, there are a number
of instances happening right now and in a minute Kay Dixon will
give you some examples, but we did float this one past you in
one of our previous meetings in relation to Urban Reinvention
because, as you know, we were not happy with the selection for
closures as it was all done on a volunteer basis. We believe that
that has left gaps and bigger gaps will occur through force
majeure closures, and we felt it was important that there
was an obligation on the Post Office that if they had closed the
wrong branches or there were gaps in the market, then they should
have an obligation to fill them. However, having told you how
important these Crown offices are, they are absolutely vital to
large numbers of people, 7 million people a week, and this is
not something that can be glossed over, so our view is that if
franchisees ultimately fail or choose to withdraw, then the primary
obligation should be on POL to replace that franchisee within
the timescale of the notice period and, if not, that they should
then run the branch or provide alternative facilities immediately
as a result of their primary obligation.
Q11 Sir Robert Smith: Presumably that
is one of the dangers with franchising because if you franchise
into what is a supermarket and then the owner of the supermarket
decides to use the space for something else, suddenly you have
not got a location for the post office to walk into to keep the
service going?
Mr Carr: Yes, indeed. Kay is an
expert on this, so can I ask her to come in here?
Ms Dixon: I do not claim to be
an expert, but there are just a couple of cases current in London
at the moment which are worth looking at. One is in Romford and
the other one is in Wembley. In the case of Wembley, that is currently
located in a Primark store and Primark have given notice[1]
that they wish to go some months ago now. Post Office Limited,
despite a great deal of searching, have not been able to come
up with alternative premises or indeed an alternative partner,
which is the important part obviously in a franchise. Primark
have agreed to a six-month extension, so that post office will
now stay open until next March. In Romford, the franchised post
office just closed[2]
with very little prior warning and there just is not a franchised
office in the main part of Romford now, so although we have all
along taken the view that a franchised post office is better than
no post office at all, we are beginning to have concerns, first
of all, of the ability of the Post Office to get into long-term
partnerships with people who want to be in business with them,
and the fact that they have been searching for a partner in Wembley
for all these months is concerning, to say the least, and, secondly,
there is a certain amount of evidence that comes to us, mainly
anecdotal evidence, but it comes up time and time again at public
meetings, that members of the public do actually prefer using
directly managed branches to using franchised branches. I think
I would perhaps sum it up as having a greater degree of confidence
in the service that they get from the directly managed branches,
although, as I have said, our policy at Postwatch has quite firmly
been up until now that a franchised office is better than none
at all, although we have now got some concerns about it.
Q12 Sir Robert Smith: And your research
from MORI, will that be published for public reading in December
when you research the views of the public on the different ideas?
Ms Dixon: Indeed. Well, we can
supply it to the Committee probably sooner than December.
Mr Carr: This afternoon!
Q13 Sir Robert Smith: That would be helpful.
Ms Dixon: We have got the headlines.
Mr Carr: We will share it with
POL tomorrow.
Q14 Linda Perham: Just on a point of
information, if a directly managed branch becomes a franchise,
is it always a part of some other business—a grocery store
or something—or are there ones which are transferred as
they are and run by someone other than the Post Office?
Ms Dixon: No, my understanding
is, but clearly the Post Office will give greater clarity on this,
that it just would not be a viable proposition for a franchisee
to take on something without any retail offering. They support
each other; the Post Office brings footfall into the retail offering
and the retail offering probably to a certain extent cross-subsidises
the post office counter, so I do not think it is possible to have
a freestanding franchise, no.
Q15 Sir Robert Smith: You already mentioned
that a lot of business goes through these directly managed branches.
In paragraph 3.6 of your memorandum, you make reference to the
amount of business transacted should not be any less than 15%
of the total of the network as a whole, which I think stems back
to the Government's White Paper in 1999 and an agreement with
the unions.
Mr Carr: That is correct.
Q16 Sir Robert Smith: Is that a sustainable
way of managing a commercial organisation to put that in?
Mr Carr: I will ask Ian Fisher
to come in on this in a minute, but the short answer is that we
think it is irrelevant, the commerciality of the organisation,
its drive to be successful, and I should say there are a lot of
new initiatives which are being successful, particularly in the
case of the directly managed offices, but it seems to me totally
irrelevant now.
Mr Fisher: In a sense it is a
bogus statistic. For example, you could shut every Crown office
in London and you could still achieve 15% of the business going
through the directly managed network, but you would actually leave
the whole of London bereft of any Crown offices. So whilst it
might be quite useful as an indicator of a floor below which the
Post Office should not go, I think there needs to be something
in tandem or on top which says that in certain types of areas
if there are not suitable post offices to provide the services,
then the directly managed branches should continue.
Q17 Sir Robert Smith: Is this where you
talk about certain core locations for directly managed branches?
Mr Fisher: I do not have a ready
answer for you on that at the moment, but I think there needs
to be some work about defining what sort of areas. What we want
to see is a presence on the high street, I think that is crucial
to people, and not everybody can conveniently access a suburban
post office, so there need to remain high street branches. If
the Post Office does not want to run them, I think we have got
a problem until we can confirm whether the private sector is prepared
to take on the risk.
Q18 Chairman: Before we leave the franchising,
there was one thing I just wanted to check. Am I right in assuming
that the arrangement, and we will take it up with Post Office
Limited later, is that if they decide to close a Crown post office
and they approach someone else and say, "Do you want it?",
does money change hands? Is there a written agreement? Is there
an undertaking to keep the business going for so many years? Is
there a penalty if they chuck in the towel early doors? What happens
there?
Mr Carr: There is a franchise
arrangement which is documented. I have to say that I have never
seen one, but I would imagine that it does involve a fee, it does
involve notice periods, it does involve penalties, or it should
anyway, and my understanding is that they are normally for a period
of seven years and they cannot be given up during the period of
those seven years. There is a notice period at the end whereby
they have to notify POL that they do not intend to renew, but
I understand that there is no right of withdrawal during the seven
years.
Q19 Chairman: I think what we are talking
about in part here is where there have been chains, and they are
not always directly managed shops, but where there have been chains
of convenience stores that have perhaps been bought over by a
larger player, Tesco, for example, or the Co-op, when they have
inherited a post office and if there was only a year to go, then
after 12 months they could shut it down. Would that be your understanding
of it?
Mr Carr: These are not franchises,
but sub-post offices.
1 Postwatch believes this was late 2003, we became
aware of the end of the end of the agreement in January 2004. Back
2
This branch closed in March 2004. Back
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