Examination of Witnesses (Questions 160-179)
DEPARTMENT OF
TRADE AND
INDUSTRY
18 JULY 2006
Q160 Miss Kirkbride: No, but the
Minister's answers so far seem to be!
Jim Fitzpatrick: It is our assessment
that the duty that Royal Mail and Post Office are under is being
fulfilled and we do not see any need to go down the route of privatisation.
The commitment we gave to the electorate in 2005 still holds.
The company on the Royal Mail side is performing much better than
it was in those days. The performance of Post Office Letters and
Post Office Counters is a different matter and obviously we want
to look at that very closely.
Chairman: I would love to pursue this
with the Minister at greater length, having been a special adviser
in the DTI when the Conservatives tried to privatise the Post
Office, but I will not. I think Lindsay has got a detailed point.
Mr Hoyle: I hope the manifesto pledge
was not the same one as top-up fees because I would worry.
Miss Kirkbride: I thought it rather was
actually.
Q161 Mr Hoyle: Allowing for that,
Minister, obviously the question is what is the percentage that
is being considered to be offered to the Post Office employees?
That is Royal Mail, who then give it to the employees.
Jim Fitzpatrick: My understanding
is that the proposal from Royal Mail is for a 20% share and that
is what is being examined at the moment.
Q162 Mr Hoyle: If I remember rightly,
would I be right in saying as a state-owned company you have to
own at least 95%, therefore if you gave 20% away it would no longer
be a state-owned company or a nationalised industry, so would
that not class itself as privatisation in fairness?
Jim Fitzpatrick: As I mentioned
before, it is not our view that this would constitute privatisation
because the shares would not be—
Chairman: We know your view but it is
a matter of legal definition.
Q163 Mr Hoyle: How much do you have
to own for it to be a nationalised industry?
Jim Fitzpatrick: You will have
to forgive me but I do not have that information myself. I would
be happy to research that for you.
Q164 Mr Hoyle: Obviously if it was
at a certain level it may be that it would then be classed as
privatisation.
Jim Fitzpatrick: I would need
to check that out for you, Mr Hoyle.
Mr Hoyle: If you could let us have a
note on that.
Q165 Chairman: Let us move on to
an even less contentious area, the Post Office Card Account. When
the predecessor Committee took evidence in the last Parliament
we were led to believe that the Post Office Card Account would
replace the business that would be lost through the change in
benefit payments arrangements and there was no suggestion it was
temporary. What changed?
Jim Fitzpatrick: I do not think
anything changed. The contracts that were signed and agreed were
of seven year duration and those contracts are due to expire in
2010, therefore they have to be renewed, revisited or altered.
Q166 Chairman: But they are not being
renewed or revisited, they are being scrapped.
Jim Fitzpatrick: Certainly it
is clear that the amount of money that is being spent at the moment
does not constitute value for money for the taxpayer in our view
because, as was mentioned previously, Post Office Limited is losing
up to £4 million a week and POCA is a big part of its business.
Clearly there has been an examination going on since the arrival
of POCA and if we can arrive at an alternative which meets the
purposes of the requirement to make sure that anybody can get
their benefits and cash at a post office then obviously we need
to do that.
Q167 Chairman: So your only test
now for the Post Office Network is value for money, you are not
interested in social obligations or social responsibilities. In
the past the government used those post offices to reach out to
populations, to provide services, greatly valued services, not
just in remote rural communities but also in deprived urban communities.
You are saying now it is just about money.
Jim Fitzpatrick: No, forgive me.
You are quite right to correct me, Chairman, we have a community
obligation as well as a commercial obligation and that is what
is being examined at the moment. The network of some 14,500 post
offices far exceeds the largest network of any of the banks, which
I think is 2,500, and the largest retail network of any of the
major stores, which I think is around 2,000. I think I am correct
in saying that there are 800 sub-post offices which have less
than 20 customer visits per week and 1,200 which have less than
50 customer visits per week and we know in situations like that—
Q168 Chairman: They could be very
important visits.
Jim Fitzpatrick: They are making
important business and what we need to work out is whether or
not that business can be provided by a near sub-post office neighbour
or by an alternative method because there is a community requirement,
an obligation, on Post Office, on Government, to make sure the
service is there.
Q169 Chairman: My colleagues want
to explore some of these issues in more detail, I must not pre-empt
all their questions. Just one final question from me before I
move on to Mike Weir. Parliament did not realise the contract
would not be renewed, we thought it was going to be renewed. It
is perfectly reasonable to have a contract, look at the terms
again and get it going again. We did not realise it was not going
to be renewed. I consider myself misled, very badly misled. What
about the commercial partners in Post Office Card Account, did
they realise it would not be renewed and how do they feel about
it?
Jim Fitzpatrick: I am not sure
what every individual Member of Parliament felt. Certainly, the
contracts that were signed were signed until 2010; we gave an
assurance in the 1999 White Paper that individual citizens would
be able, regardless, to be able to collect their benefits at a
post office or a sub post office, and we are holding to that.
Q170 Chairman: What about the commercial
partners, did the commercial partners know that the contracts
would not be renewed?
Jim Fitzpatrick: Yes, they signed
the agreements, they signed the deals.
Q171 Chairman: They knew that the
contract would not be renewed; the banks understood it was just
seven years and then it was a complete new sheet of paper.
Jim Fitzpatrick: The banks and
DWP with POL signed up to a seven-year deal.
Q172 Chairman: That is not the question
I am asking, Minister, I am asking did those commercial partners
have a reasonable expectation that the contract terms would be
renegotiated in 2010 or for 2010, but would be renewed, or did
they expect this to be a one-off, short term experiment which
then dies?
Jim Fitzpatrick: I will have to
check on the detail of that, sir—
Q173 Chairman: It is a very important
question. It is not a detail, Minister, this is the heart of the
political argument.
Jim Fitzpatrick: I would have
to check because I was not privy to the negotiations at the time
between the banks and Post Office Limited. I will need to find
out what the details of those agreements were. Certainly the agreements
that were signed were all for a seven year duration, so I would
have thought it would have been logical, for anybody signing up
for a deal like that, to ask the question is this a one-off or
is this going to be renewable, or is this going to be renegotiated
over the course of the next seven years.
Q174 Chairman: Frankly, you have
come before this Committee today and have not been able to answer
the single most important question, which is was that contract
likely to continue in another form, yes or no, and you cannot
answer that question.
Jim Fitzpatrick: What I said is
that for the citizen, for whom we are required to provide cashable
benefits, there will be an opportunity to be able to do that after
2010.
Chairman: I will bring in Mike Weir because
he wants to ask about that, it is not fair for me to put the question.
Q175 Mr Weir: We touched on earlier,
Minister, that the Post Office losses have now gone up to £4
million a week; and we were talking about the sub-post office
network, I think you said. We also heard from Mr Crozier that
60% of sub-post offices' business came from the Government three
years ago, it is dropping to 10%. The Post Office is losing business
from the issuing of passports, TV licences and DVLA; I have to
ask you, is the Government simply giving up on the Post Office
Network?
Jim Fitzpatrick: I do not think
the Government is giving up on the Post Office Network. I referred
earlier on to the commitment that the Government has demonstrated
since 1999 where we have committed some £2 billion to the
Post Office: £500 million helped fund the Horizon IT infrastructure
which has had a direct effect on POL's ability to secure and expand
new business such as online banking facilities, We and the E-top-up
market which has generated revenue to POL of £340 million,
we have committed £150 million per year, as you know, to
support the rural network, we have spent £210 million to
support the urban re-invention network and some £30 million
of investment to modernise branches, as well as £25 million
into pilots to examine how we can best deliver services in a different
way to rural areas which might not be able to support and sustain
their own sub-post office.
Q176 Mr Weir: That is all very well,
Minister, and you have made this point several times, but you
also said in a separate answer that POCA was not value for money.
You talked about the £2 billion that the Government has put
into the Post Office but part of the reason the Post Office is
losing more money is because of the withdrawal of Government services.
I have to ask where is the joined-up thinking in this between
the DTI and the DWP? The DWP are undermining the Post Office by
removing benefits, removing POCA; the DTI have to put money in
to keep the network going. It is taxpayers' money going round
in a circle, it makes absolutely no sense. Where is the joined-up
thinking, where is the vision for the future of the Post Office
Network in all this?
Jim Fitzpatrick: We are examining
the future of the network at this very point. We know that we
have got time-limited support for the rural network because we
have committed ourselves to £150 million to 2008; we are
of the opinion that that cannot continue. We have given Post Office
Limited the support that we have to allow it to be able to grow
into new activities such as banking and insurance. There is an
element of movement from Government, just as there is an element
of movement from individuals, people just are not using the post
offices and the sub-post offices.
Q177 Mr Weir: Because the services
are going from them.
Jim Fitzpatrick: People just are
not using the sub-post office and the post office as they used
to previously. There is a whole variety of different ways for
people to be able to access services, and that is not to criticise,
this is a modern age, we have got to equip the post office with
the ability to go out into the market to provide services. Sadly,
I do not think it is sustainable to be able to continue with 14,500
sub-post offices across the country.
Q178 Mr Weir: Mr Crozier or one of
the Royal Mail Witnesses said that the optimum level was about
4,000 to keep a network going; what does the Government think
the optimum level of post offices is, how many do you see closing
in 2008 when the Government stops the subsidy for rural post offices?
Jim Fitzpatrick: This goes back
to the question that the Chairman asked initially and at this
point in time I have not got a figure to be able to put to the
Committee today. We have spent £25 million in the past—I
believe 12 months, maybe slightly longer, forgive me if I am wrong—to
look at pilot schemes to determine the best way to provide services
that sub-post offices are providing. We are examining the numbers
that we have at the moment, we clearly have the evidence from
Post Office Limited and from Mr Crozier who says that a commercial
network would be 4,000 strong, my response to Mr Luff earlier—he
nodded—was that there is a community responsibility on Government,
not just a commercial responsibility, and we have to look at this
as Government across departments, identifying the need of each
department and the role that it will play in being able to potentially
assist the network and being able to survive, whether that is
financially or with resources or with tasks or with contracts.
We are in a very commercial world and some of the services that
sub-post offices and post offices have been providing previously
have gone, simply because they have not won the contract.
Chairman: That is interesting, but Brian
Binley has a question which Mike has already half asked.
Q179 Mr Binley: I am getting mixed
messages and the people out there are getting mixed messages and
particularly in rural areas that is a very important concern,
it really is. I know how difficult your job is, Minister, because
I know that plans are evolving at this very moment. I recognise
that, but you did say that you were not giving up on the Post
Office Network, so that part of the message gave me confidence.
You then go on to say that you recognise the Royal Mail saying
that we are going to have to cut 10,000 offices down to 4,000,
as I understand it, through the network—sub offices and
so forth. Can I ask what your preliminary view would be of how
many you will have by the year 2010?
Jim Fitzpatrick: Can I say just
to correct, in case I misheard you, we have not agreed that 4,000—
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