Examination of Witnesses (Questions 1-19)
ENERGYWATCH AND
POSTWATCH
19 JANUARY 2005
Q1 Chairman: Good afternoon, welcome
to the Committee of Public Accounts where today we are looking
at the Report on Energywatch and Postwatch, helping and protecting
consumers. We are joined from Energywatch by Professor Edward
Gallagher who is the chairman and Mr Asher who is the chief executive
and we are joined from Postwatch by Mr Gregor McGregor, chief
executive of Postwatch. You are all very welcome. As regards Energywatch,
I will address my questions to you as you are chief executive
Mr Asher, which is our normal procedure, but if Professor Gallagher
wants to take the question then it is up to you who takes the
question. May I please ask both our witnesses to look please at
Figures 18 and 19 which you can find on page 25 of the Comptroller
and Auditor General's Report? You will see there, if you look
at your running costs, that Postwatch's running costs were £10.3
million in 2003-04, that is up 26% on the previous year. Energywatch's
were £13.8 million, that is up 13% on the previous year.
Gentlemen, are your costs out of control?
Mr McGregor: Since
you mentioned Postwatch first, perhaps if I might answer first.
Yes as you have correctly identified, our costs did go up by 26%.
There were two main reasons for this. First of all, we have experienced
a doubling in the number of complaints that we had to handle;
they went up from very nearly 16,000 to 27,500. Secondly and this
was the major area of increase, the Government and Post Office
Limited launched the Urban Reinvention Programme, in which we
had a major role in assessing proposed closures of urban post
offices. Those two items of additional work explain all of the
increase in our costs.
Mr Asher: In the case of Energywatch,
there was also quite a huge increase in the complaint load in
that first year. That was also the year in which we had a lot
of work following the October storms. Energywatch, as a result
of that, received an extra several million pounds to employ more
frontline staff. I might point out though, that for next year
we will be reducing our operating budget by a full million pounds,
now that hump has passed and the number of complaints is falling.
Q2 Chairman: If we look at the same page
and look at paragraph 3.2, we can see that the money your organisations
spend comes from licence fees. These licence fees are paid by
the electricity, gas and postal companies rather than from general
taxation. What I must put to you is that you have exploited this
arrangement to allow you to spend more than is strictly necessary.
In other words, you are not as efficient, there is no consumer
voice holding you back.
Mr McGregor: Our funding, and
indeed that of Energywatch, comes from the DTI. The DTI view bids
that we have to make every year as though it were their own expenditure.
We have to be just as rigorous in making a case to DTI in defence
of our budget bid as any spending division within DTI. The fact
that the Treasury subsequently recovers the costs through licence
fees, certainly does not affect our attitude to setting our budgets,
nor does it affect the degree of rigour which DTI applies to our
bids.
Mr Asher: In addition to that,
we are subject to a full NAO audit and of course the NAO evaluation
we are discussing now and also during the year Energywatch and
Postwatch were both subject to a Treasury/DTI effectiveness review
too. In both cases those reports point out that we do represent
good value for money.
Professor Gallagher: Just a minor
reinforcement there. I have dealt with both deficit funding and
funding of this sort and in my experience, the rigour to which
we are being subjected at the moment is quite strong.
Q3 Chairman: All right. Let us just see
what you are doing now for the consumer shall we? You will see,
if you look at paragraphs 13 and 14 of the summary, which you
can find on page 5, that it says there right at the top "Energywatch
and Postwatch have not developed a coherent approach to monitoring
and demonstrating their impact on behalf of consumers". What
I must put to you is: how do you justify this level of expenditure,
rising, you say, because of the level of complaints you are getting,
but still rising, how do you justify this level of expenditure,
when apparently you do not have any clear idea of what benefits
you are actually achieving for the consumers?
Mr Asher: In relation to Energywatch,
the initial work that we do is of course responding to consumer
complaints and our statutory duty is to respond to every complaint
that we get. We measure fairly carefully, especially after the
commencement of the NAO work. They were able to point us to different
areas in which we can evaluate our services: an extended range
of KPIs and our satisfaction ratings with consumers are high,
the number of results that we are getting is high and we have
instituted something else, which was called for both by NAO and
the DTI/Treasury Report, an evaluation of compensation. We have
been able to calculate that in the last year, we have achieved
just under £10 million for consumers in refunds and compensation.
Mr McGregor: We agree with the
comments and the criticism of us in the way in which we have been
measuring our performance. The performance indicators that we
are working to at the moment were established with DTI when we
were set up, now some four years ago. It is quite clear that those
indicators are not now the correct indicators for the objectives
and the work that we are doing.
Q4 Chairman: Thank you for saying that;
that is an honest answer. If you look at paragraph 3 of the Executive
Summary, you can see "Energywatch received 87,600 complaints
in 2003-04 and Postwatch receiving 27,500". That raises the
question, as you do not have a clear idea, or do not do any proper
research on what the public actually want from your organisations,
as to whether you are skewing all your activities too much to
those who complain and you therefore may be forgetting the interests
of people, maybe the disadvantaged people who do not have the
time or energy to complain. Of course it also raises the question,
that if you are getting so many complaints, are you doing your
job properly?
Mr McGregor: You have raised two
or three points there. First of all, I think it is right that
we have been responding very much either to the complaints that
we have received, or to the regulatory agendas, or to the reform
agendas which have been put forward by Royal Mail. We are now,
but do bear in mind this Report is looking at us as a three-year-old,
changing the focus of our activities and we have found the recommendations
of the report very helpful in doing that. You mentioned vulnerable
consumers and looking at groups like that. We have put a huge
amount of effort into looking at the various groups of customers
that we have a statutory duty to pay special attention to and
we have worked very closely with a wide range of groups, for example,
with elderly customers over access to post offices. For those
on low income we worked on the move to direct payment of benefits,
we have also been very concerned about post office closures in
urban deprived areas and if we look, say, at rural consumers,
we have again looked very carefully at the pattern of deliveries,
postal deliveries in rural areas and such issues as the costs
of delivering to remote rural areas and particularly in the Scottish
Highlands. So a lot of the work we have been doing has been a
response. I would accept that it has been piecemeal and we therefore
welcome recommendations that say we should now be taking a much
more coherent and overall approach.
Mr Asher: We, in response to a
similar question posed in the Treasury/DTI study, negotiated with
them four clusters of areas in which we could better measure our
effectiveness and we have been very active in those in the last
year. One, a whole set around improving industry performance and
there we can point to a substantial reduction in the number of
complaints about selling. We can point to work on disconnections
where we have changed the whole profile of consumers being disconnected,
delivering much more useful benefits to consumers. There has been
a research programme where we have actually polled a large sample
of consumers to get them to place a value on the services Energywatch
provides. In our current work plan consultation document, we have
put these new priorities out to stakeholders to comment upon.
Then internally, we have done a lot of reorganisation to take
a lot of costs out and to ensure that our quality, productivity
and efficiency are much higher. As with Postwatch, I think we
acknowledge that it is the NAO Report and the Treasury report
that have pointed us to some of these areas.
Q5 Chairman: Lastly to Mr McGregor, summing
it up. Everybody knows that the postal service has declined. We
used to get early morning deliveries; we do not get them any more.
We know that huge numbers of letters are lost in the post, we
know that you are living in a very crowded market; we have Citizens'
Advice Bureaux, local trading standards, energy efficiency advice
centres, the Department of Trade and Industry proposes to merge
consumer bodies. Is there any point to your organisation? Has
it actually achieved anything?
Mr McGregor: Yes, I think there
is a point and yes, I think we have achieved a lot. First of all,
the very fact now that we are receiving the level of complaints
that we do, shows that there is a need for customer redress and
customer protection in the postal market on a level which I think
people three or four years ago simply had not appreciated. Secondly,
the government in setting up sectoral consumer councils was clearly
of the view that the economic regulators, who had traditionally
been charged with customer protection, were not able to deliver
the degree of customer protection that was necessary in monopoly
markets or in market places where there are major problems for
consumers. As the Report points out, we are not doing enough at
the moment and that is why we welcome the chance to refocus our
activities so that yes, we can bring even more benefits to customers.
Q6 Mr Allan: I want to come at it from
the customer perspective where I certainly believe there is still
a considerable degree of confusion out there. I am interested
in exploring your relationship with the regulators. You usually
have at least three parties involved and often more, a company,
a regulator and yourselves, the watch body. Can I start with you
Mr McGregor on the Postwatch side to try to understand the scope
of your service? Am I right in thinking that you will cover complaints
about any registered postal operator and we are not just talking
about Royal Mail?
Mr McGregor: Yes, that is right.
As competition is starting to develop we are extending our range
of activities to the new competitors who are entering the marketplace.
Q7 Mr Allan: But the current situation,
would I be right in thinking, is that the vast majority of your
complaints and issues are to do with Royal Mail?
Mr McGregor: That is right, yes.
Q8 Mr Allan: Is there anything outside
Royal Mail? If I use, for example, an existing DHL or private
kind of courier service, are you at all interested in complaints
about those?
Mr McGregor: Yes, we are and we
are starting to have new co-operative arrangements with the competitors
like DHL. At the moment, the level of complaints that we are experiencing
from the competitive side of the market is very small indeed.
Q9 Mr Allan: Do you expect that to grow?
Mr McGregor: Yes, I expect that
to grow.
Q10 Mr Allan: In terms of the type of
people that complain to you, one of the key differences between
yourselves and the energy side is that most of the business that
goes through Royal Mail is business to business, rather than residential
to business. Is that correct too?
Q11 Mr McGregor: Yes that is right: 87%
of mail that goes through the system is business mail as opposed
to social mail.
Q12 Mr Allan: Can and do businesses come
to you with complaints, as opposed to individual consumers?
Mr McGregor: Yes, they can and
do very frequently and we have a major group called the Trade
Association Forum which represents about 300,000 of the major
posters in the country and we have a very regular dialogue with
them across a whole range of issues.
Q13 Mr Allan: Is your funding, the funding
that you receive to deal with these complaints, public funding?
Mr McGregor: It is funding from
the DTI, so it is public funding, which is then reimbursed by
Royal Mail through its licence. Interestingly, once the competitors
start reaching a particular critical threshold, then they too
will be contributing towards the regulatory costs of the system.
Q14 Mr Allan: On the basis of the size
of their business rather than the number of complaints.
Mr McGregor: Yes.
Q15 Mr Allan: Just turning to Energywatch,
again thinking about where you sit in the market, you are obviously
dealing with mis-selling complaints. You have a hugely more complex
market than Postwatch, I think it is fair to say at the moment.
Mr Asher: In 1999 the market was
liberalised and we have had full retail competition. A whole range
of consumer complaints come from that, consumer information and
representing consumer interests. That is a good part of our work,
but we also have a statutory responsibility for classes of disadvantaged
consumers, for those living with disabilities and the aged and
people living in remote areas. So we have programmes for all of
those.
Q16 Mr Allan: According to the Report,
we are told that you work very effectively with Ofgem, your regulator,
to try to resolve things, or something like mis-selling. Here
is where I am coming from a consumer perspective. I am sitting
there, I have got into this terrible mess, I am very stressed
out, I just want someone to stop these companies, I want these
companies just to sort things out and I am still very confused
at the moment. Do I go to you, do I go to the companies, do I
go to Ofgem? It seems to me that Ofgem are the people who can
really do something.
Mr Asher: It is a partnership.
Initially, we actually encourage consumers to go back to the supplier
first to try to resolve the issue themselves. If they are not
successful there, then Energywatch is the complaints handling
and complaints investigation body, but we lack any enforcement
powers, we lack powers to order compensation or sometimes we cannot
get the companies to change their behaviour. That is where the
partnership with Ofgem comes in. We have been able to put evidence
before Ofgem which has led to almost five enforcement actions
over the last two years, with fines of some millions of pounds
and also the development of various industry codes. That would
not have happened without us and Ofgem leaning on the companies
to do that and the best example is in this selling one. Three
years ago, we were getting 50,000 complaints a year about selling.
That is down to 5,000 now, a radical reduction. We hope that we
can do that in some of the other outstanding areas of consumer
detriment.
Q17 Mr Allan: So your objective is to
do yourselves out of a job. You would like to see your budgets
fall as the level of complaints fall.
Mr Asher: Yes, that is exactly
right. We are quite active in trying to empower consumers to look
after their own interests. We think that is the way for the market
to work best.
Q18 Mr Allan: But if the consumer goes
to Ofgem, say with a mis-selling complaint, Ofgem will send them
to you. You are dealing with the particular and Ofgem is dealing
with the general in a sense.
Mr Asher: Generally speaking that
is right.
Q19 Mr Allan: On the Postwatch side,
again we have some example of complaints here. It is something
like somebody putting in a registered item that got lost and they
did not get back the full recompense for it. They would again
be advised to go to Royal Mail first, they fail to get satisfaction
from them, they should not go anywhere near Postcomm, they should
come to you. It is an exactly parallel structure?
Mr McGregor: It is an exactly
parallel structure and indeed Postcomm have described us as their
eyes and ears in the postal marketplace because obviously we do
have a regional structure, we do have a lot of outreach and therefore
we are able to report quite regularly to Postcomm where things
are going well in the market place, but, more importantly, where
things are not going well and where we believe they should be
taking corrective action.
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