The Government as shareholder
61. The DTI confirmed that the Government had deliberately
established an arm's length relationship with Post Office Ltd.
The Secretary of State approved the Post Office Ltd Strategic
Plan. Thereafter, the company's Board was free to structure the
business as it saw fit and operate it free from Government intervention.[98]
We wanted to know how the Government's hands-off approach to the
business might affect the social role that the Post Office plays
for so many people, a role which the Government has always recognised:
"… the Government fully recognises the
social and economic role of post offices, regarding it as most
important that people have good access to postal and Government
services, and is committed to doing all it can to ensure a viable
Post Office network for the future."[99]
62. It appeared that Post Office Ltd saw no difficulty
in balancing the need to achieve profitability with the role of
the post office network as a social amenity. This role is particularly
important for the directly managed branches given that they deliver
such a large proportion of government services. Allan Leighton
told us that his brief was to run a commercial organisation which
delivered a public service.[100]
The Minister saw the delivery of the social function as the responsibility
of the company,[101]
but he saw no reason why it could not be achieved.[102]
63. Other witnesses took a different view and saw
the maintenance of the social role of the Post Office as the Government's
responsibility. Amicus-CMA and CWU called for financial support
for the network, similar to that provided to the rural sub post
office network,[103]
in recognition of the importance of its role in the delivery of
services to the public.[104]
Billy Hayes summed up their feeling:
"The Government really has some responsibility
here to prop up the Crown Post Offices. Not least of all, they
have to give a chance for the new services and new products to
take off and be developed, so there needs to be certainly some
two to three years support, very similar, as our submission
says, to the sub post offices. I think the Crowns need to be given
a fair crack of the whip."[105]
64. The Minister was not convinced of the need for
such support. He reminded us that the Government has already provided
£2 billion to the Royal Mail Group over the past few years.[106]
He did not believe that Post Office Ltd's review would result
in a closure programme for directly managed branches, or conversion
to "inappropriate" franchises. He hoped that the company
would be able to find any funding necessary from its own resources.[107]
65. We note
that the support provided by Government to Royal Mail Group in
the recent past, significant though it has been, was in effect
a repayment of some of the profits generated by the organisation
in previous years which were returned to the Exchequer. Like
the Minister, we hope that Post Office Ltd will be able to finance
any necessary change to the directly managed network from its
own resources. However, the Government should be prepared to provide
support at least in the short term, if it proves to be necessary.
The Government as customer
66. As we found in our inquiry into direct payments
of benefits and pensions,[108]
Post Office Ltd currently holds contracts for a wide range of
Government services including benefits collection, car tax, passport
renewals, TV and fishing licences. Individual government departments
negotiate the detail of contracts with Post Office Ltd. We were
surprised to learn that the company was losing money on at least
some of those contracts. Post Office Ltd told us that it needs
to earn a sufficient gross margin on each of its contracts to
cover its fixed costs and that this margin on some government
contracts was too low. It intended to increase prices when the
contracts were next renewed.[109]
The Minister agreed that there should be better dialogue between
government departments and Post Office Ltd over the cost of government
contracts and that departments should pay an economic price for
the services delivered by the company on their behalf; he undertook
to try to bring this about.[110]
67. The Government cannot continue
to profess its commitment to a viable post office network for
the future while at the same time paying the Post Office less
than the going rate for the job that the company does on its behalf.
We welcome the Minister's commitment to the principle that Post
Office Ltd should be paid an economic price for the services it
provides for the Government and expect that government departments
will review their contractual relationships with the company to
reflect this commitment.
98 App 5 (DTI) Back
99
HC Deb 9 December 2004 col 594W Back
100
Q 76 Back
101
Q 226 Back
102
Q 228 Back
103
The Government is committed to providing Royal Mail Group with
£150 million per year until 2008 to enable the delivery of
government services to the rural sub post office. Back
104
App 6 (CWU), App 12 (Amicus-CMA) Back
105
Q 55 Back
106
Q 228 Back
107
Qq 244-245 Back
108
Trade and Industry Committee, Eleventh Report of Session 2002-03,
People, Pensions and Post Offices: The impact of 'Direct Payment'
on post offices and their customers, HC 718 Back
109
App 4 (Post Office Ltd) Back
110
Qq 246-247 Back
