Examination of Witnesses (Questions 140-159)
DEPARTMENT OF
TRADE AND
INDUSTRY
18 JULY 2006
Q140 Chairman: For the whole of the
period that there was a pension holiday, the Government did not
take its dividend? If it is true, it is not what I understood
the position to be.
Mr Lovegrove: Can I get a note
back to you on that, but certainly the £2.8 billion—
Q141 Chairman: For years and years
under successive governments, one of the problems with the Post
Office has been that governments have taken too much money out
of it, they are treated as a cash cow and they were not allowed
to invest and upgrade.
Mr Lovegrove: Could I provide
you with a note on exactly what the Government has taken out,
but it is certainly the case that the Royal Mail reserve was built
as a result of the money that the Government did not take out
of the Royal Mail and that is money which is effectively now going
to support the financial framework which will give the pension
fund trustees confidence that the pension fund situation will
be regularised.
Mr Bone: I understand that you have got
the fallback guarantee and that bit is quite good, but what you
are actually saying is, "No, we are not going to use that
money, we are going to put the price of stamps up to cover the
pension deficit" and that is what I think is outrageous and
cannot possibly be justified.
Chairman: I think that is a rhetorical
question. You have tried to answer that but obviously not to Peter's
satisfaction. I think a third attempt is probably futile, Peter.
Q142 Miss Kirkbride: I have two quick
questions. First of all on the business of whether or not the
government took a dividend from the Post Office. Is not the whole
point of the Post Office that because it is in public ownership
and it is not free to borrow money as normal private companies
would that the government has always cut a deal on whether or
not it takes a dividend because if it did take all its dividend
all the time then there would be no money for the Post Office
to invest? Therefore, you sitting there saying "That is really
about the pension fund" is trying to mix apples with pears,
it is not really good enough.
Mr Lovegrove: It is typical for
a shareholder clearly to look at the cash flows which come out
of a business that it owns, and we all know the taxpayer owns
Royal Mail, and to decide what the best way of deploying those
cash flows might be.
Q143 Miss Kirkbride: For investment.
Mr Lovegrove: In some instances
it may be investment, in some instances those monies might be
repatriated to the shareholder.
Q144 Miss Kirkbride: It seems to
me what you have just said is those monies that the state allowed
the Post Office to retain for investment purposes you are now
double-counting, so that is actually about the pension deficit.
It cannot be both. It was either to do new machinery and make
the business more competitive or it was to fund the pensions,
it cannot be both. You cannot have it both ways.
Mr Lovegrove: The financial framework
that we are negotiating at the moment is basically to allow the
company to use its own cash flows to make the investment in machinery
alongside renegotiated debt facilities and also to release some
of the restrictions on the Royal Mail reserves in order to regularise
the pension position.
Jim Fitzpatrick: If I can make
the point, Chairman, the price increases are agreed with the regulator
and not the government. The Postal Services Act, going back to
the question about stamp prices, says the Universal Service Obligation,
which includes stamp prices, must be at a uniform and affordable
rate and that remains unchanged. The cost of first class stamps
still remains amongst the lowest in Europe. In respect of the
point that you made in terms of money that government has or has
not committed, certainly since 1999 this Government has put around
about £2 billion into the Post Office to demonstrate our
commitment to Royal Mail and to the Post Office, which I am sure
we can break down for you later on when we get to other questions.
Q145 Miss Kirkbride: Given that you
have been clear to this Committee that the way we are going to
get over the pension deficit is to increase the price of stamps,
do you think it is a good time to do it when the Government is
rightfully opening up the Post Office to competition but at the
same time nobbling it by forcing it to charge much higher prices
when competition is going to take a lot of its business away?
Jim Fitzpatrick: As I say, it
is the regulator who agrees price increases, not government. Liberalising
the market is a fact of life. We believe that the Post Office
Royal Mail is equipped to compete within the liberalised market.
We think Royal Mail is demonstrating that and Post Office Limited
is perhaps not best placed to compete in an open commercial market.
I am sure you have had evidence this morning in respect of the
nature of the numbers of outlets that Post Office Limited has
and its ability to compete and, indeed, Mr Weir has already made
mention of the £2 million to £4 million a week that
Post Office Limited is—
Miss Kirkbride: I am talking about Letters
here.
Chairman: We need to move on quite quickly
given the time.
Q146 Mr Hoyle: I think we need to
go back to where we were talking and the fact that for 12 years
the government took money out. You are suggesting they did not.
In fact, most companies are allowed to keep balances and what
you were suggesting was all the money was left in balances, but
I do not believe that is the case. I believe during those 12 years
the government accessed the milk cow, they milked it fairly well
dry but allowed it to keep some investment, some headroom, within
there, and that I do not disagree with, but I would like a note
to know how much was taken out over the 12 years. The fact that
somehow the Minister is suggesting it is very generous of the
government to put £2 billion in, I think the Minister ought
to recognise it is not his generosity, it is his liability. He
is the shareholder, it is his company, and it is his responsibility
to ensure that this business continues. You cannot get away with
talking as though it is some generous donation to a charity. This
is something that during the great summer days you have done very
well from, you have reaped the hay from the harvest, so therefore
when there is a downturn the government has to put something back
in. I think we ought to recognise that it is not the generosity
of the government, it is right that government should ensure,
as a shareholder and as a business it owns, that it has got to
put the money in that is needed. The fact is we would like to
know during the 12 years how much was taken out and how much of
the pension fund it ensured in the holiday period. I think we
have been misled slightly. I do not think it was deliberate, it
is not quite knowing the history.
Jim Fitzpatrick: My apologies
if I gave any impression that we were being overgenerous. What
I was trying to say in response to a comment from the Chairman
was that we have had a period of investment by the Government.
How generous or otherwise that is is a matter of judgement but
certainly there has been an investment by the Government since
1999. That was the point I was trying to make.
Q147 Chairman: Before we move on
to the ownership questions can I ask one thing about the pension
deficit. Do you know the works of Stanley Holloway at all, The
Lion and Albert? You remind me of the judge at the end, who
gave his opinion that no-one was really to blame. Surely one of
the factors you listed there was the direct responsibility of
government and the changes to the accountancy rules have a direct
impact and that is a government decision.
Jim Fitzpatrick: I am sorry, your
question?
Q148 Chairman: On the pension deficit,
one of the factors you said was out of government's control was
a decision that you could have controlled.
Jim Fitzpatrick: Sorry, what I
said was there were a number of factors and that was among them.
I would accept if the rules are changing because of legislation
then that would be partly government's responsibility.
Chairman: That is helpful, thank you
very much. We will move on to ownership, a less contentious issue
possibly.
Q149 Anne Moffat: We gave a manifesto
commitment that we would not be privatising the Royal Mail but
the Royal Mail are now proposing a scheme to make employees have
a share in the business. Do you consider that as privatisation?
Jim Fitzpatrick: We have obviously
received the proposal from the company that that is the way they
want to go. That suggestion, that proposal, is being given close
examination at the moment. It is not my understanding that we
would agree that the best description for that would be privatisation.
Given that were we to agree the shares would be contained within
the framework of the company and be for staff and an incentivisation
scheme we do not agree that that is an appropriate description.
No, we do not think that is part or full privatisation.
Q150 Anne Moffat: What factual evidence
have you got that a scheme like this would actually incentivise
the workforce or the organisation?
Jim Fitzpatrick: There are academic
studies which have indicated that this is the case. There is the
example of Eircom where a similar scheme has been introduced.
There are organisations which promote share schemes as incentives
for workforces. We think there is quite a lot of evidence out
there that can be drawn upon to validate or otherwise the suggestion
that this scheme would be useful for the Royal Mail and would
serve its purpose.
Q151 Anne Moffat: Would you be surprised,
as I was, because I heard both from the Royal Mail and the CWU
this morning, that the Royal Mail decided to consult with their
people, as they called them, directly and did not do that through
consultation and negotiation with the union? Do you consider that
to be best practice?
Jim Fitzpatrick: I would have
thought it is good practice for employers to be in close contact
with their workforce through whatever measures they think are
appropriate and obviously different companies, different corporations,
have got different ways of doing that. I do not think it would
be inappropriate.
Q152 Chairman: So you would encourage
them to bypass the union basically?
Jim Fitzpatrick: I am not saying
it is bypassing the union. I am saying in terms of contacting
staff there are different ways of being able to demonstrate that
one is in touch with the feelings of one's staff and trade unions
are clearly a very important way to do that. There is a recognised
structure within Royal Mail Holdings which clearly the CWU have
a very central and pivotal place in but I do not see the company
speaking directly to staff as necessarily bypassing the union,
it is an additional way to speak to staff.
Q153 Chairman: But they frustrated
the union's own consultation with their members.
Jim Fitzpatrick: I think the union
clearly demonstrated that it had a point of view that it wanted
to demonstrate and therefore it wanted to canvass its members
to be able to show that it had support for its point of view.
Q154 Chairman: That was made difficult
by the Royal Mail. They sought to frustrate that process. They
objected to the use of the word "privatisation" in the
question that was being asked and therefore sought to do their
best to stop it happening.
Jim Fitzpatrick: As I say, I think
the question of privatisation is a matter of opinion, a matter
of judgment. I do not recognise and do not agree that a share
incentive scheme, such as that proposed by Royal Mail for its
staff, is necessarily privatisation, therefore if you have two
different opinions then obviously there is going to be—
Q155 Chairman: I agree there is a
matter of definition but it is not a matter of dispute that the
Royal Mail consulted direct with its employees and sought to frustrate
the union doing the same thing, so you approve of the fact that
the Royal Mail sought to bypass the union.
Jim Fitzpatrick: No. We approve
of good communications between management and staff through every
appropriate measure that is available to them. We are trying to
encourage an inclusive workplace. We have changed the regulations
on information and consultation. We think it is appropriate that
managers are in touch with the feelings of staff in a whole number
of different ways and the normal, conventional trade union structures
are clearly very important but they are not exclusive.
Q156 Mr Binley: I really am concerned
because the whole of this share ownership is being lauded by the
Government and being seen as a major part of modernising the Post
Office generally, Royal Mail and so forth. You are the major shareholders
on behalf of the British people. We have a situation where you
are told on this sizeably important subject that discussions with
the unions have not taken place. You are the major shareholders,
should you not be saying "I am horrified, I need to get in
there and do something about this"?
Jim Fitzpatrick: No, I do not
think it is our role to interfere in how the company is doing
its business. We have seen the reports that I think you are referring
to, Mr Binley, that the Government is in support of this scheme.
We have not pronounced on this scheme as yet. We are still studying
and considering the scheme and in due course we will come forward
with a view. As I said a moment ago, we do not consider it as
privatisation, we do not recognise that as an appropriate definition
of that which is being proposed even were we to go along with
it in due course.
Q157 Mr Binley: Nor do I consider
it privatisation, I am a capitalist, for God's sake. My concern
is this is still to all intents and purposes a nationalised industry.
You might have put some fancy titles around it but the Government
is the major shareholder. Quite frankly, I am horrified at the
cavalier attitude that I feel I am getting from you, I am sad
to say, Minister, with regard to the formal negotiating structures
over a scheme that is so important to your modernisation issue.
Jim Fitzpatrick: I am sorry if
I gave the impression that we were being cavalier over the structures,
that is not what I tried nor wanted to convey. What I said was
that management have an obligation to keep in touch with their
staff. How they do that is very much up to them. The conventional
trade union structures and the recognition agreement that they
have with the CWU would be a very important part of that but would
not necessarily be exclusive.
Q158 Miss Kirkbride: I just wonder
whether you could explain, Minister, given that this Government
has already privatised some of the nuclear industry and Air Traffic
Control, amongst others, why not the Post Office?
Jim Fitzpatrick: We gave a manifesto
commitment in 2005 that we would not do that and we are holding
to that manifesto commitment.
Q159 Miss Kirkbride: But what is
the rationale behind that, or should there not be a rationale
behind it? Should I not expect a rationale behind—why not?
Jim Fitzpatrick: I think it is
a fair question whether or not manifesto commitments and policies
should not be revisited and reviewed because time marches on and
conditions change. Our perception, our view, our considered judgment
at this time, is that the manifesto commitment that we would not
go down the route of privatisation still holds true and it is
not our intention to privatise Royal Mail or the Post Office.
Miss Kirkbride: But you have not told
me why not. It may be a manifesto commitment but tell me, given
this brave new world we live in under New Labour, and given there
is the regulator and competition and everything else, why not
privatisation? Why does the dog not bark?
Mr Hoyle: Are you barking?
| 
