Examination of Witnesses (Questions 300
- 320)
TUESDAY 15 NOVEMBER 2005
MAIL COMPETITION
FORUM
Q300 Judy Mallaber: Would that be
true for potential new customers coming in? If Royal Mail make
mistakes, that tends to get all over the press and they get the
publicity for postal deliveries not working properly, but you
started off almost sounding as though you were not welcoming the
idea of robust and comparable information.
Mr Buswell: I think the difference
is that in the marketplace that we operate in currently, people
who are customers that do not get the service they have asked
for go somewhere else and that is the biggest performance measurement
for us, how many customers we keep in terms of doing what we say
we are going to do, so for us to provide monitoring of our performance
for our customers is day-to-day business for us.
Q301 Judy Mallaber: So what level
of detailed information are you prepared to provide and would
that be on the public record or just there for you to tout out
to your existing customers?
Mr Buswell: I think, as David
said, the difference is that we all have different services we
are offering, so to find one measure that says, "This company
is better than that company", and on what day it is going
to be and over what period it is going to be, it is very difficult
to do that.
Mr Wells: It is always a combination
of both price and quality, and some of the direct marketing companies,
whilst they are interested in making sure it goes through to the
right letterbox at the right time, they are also looking at what
we call "response data", so what is the cost per response,
what is the cost per performance, and ultimately the customers
will decide.
Q302 Judy Mallaber: Do you think
that information should be compiled independently or are you the
right people to do it yourselves? How do I know whether to trust
the information you are giving me? Would it be better for an independent
organisation to validate that information?
Mr Buswell: Personally, I think
it is a matter for the market. I think this is a classic market
dimension. People have a choice and people buy products and services
in all sorts of industries and they talk to customers that are
already using that service, they have measurements, they have
service-level agreements and so forth, and I think that is what
the market is all about, and that is the difference between a
Royal Mail monopoly service and a service that we are now providing.
Mr Wells: I think there are 15
service-level agreements at the moment and I am sure Royal Mail
will be looking to simplify those to make it easier to monitor.
Q303 Judy Mallaber: I am a bit unclear
here. Are you suggesting that Royal Mail should be monitored in
terms of its performance publicly, but then, as far as you are
all concerned, it is up to you to self-monitor with no independent
validation?
Mr Sibbick: For a lot of customers,
Royal Mail is the only place that they can go and that is partly
why it is a regulated industry. All of our customers do actually
have choices, one of which of course is Royal Mail. I think the
point that I was trying to make at least is that what we want
is information that relates to the particular services that we
provide that will actually be useful to customers. I have heard
a lot of large customers say that Royal Mail's headline figures
of quality of service, their 94.2% or whatever the latest figure
is, is not actually what interests them. What interests them is
what happens to their mail which can be very different because
within that overall Royal Mail figure, there are some pretty enormous
variations, so I think it depends what customers are really looking
for. One of our members, for example, delivers, I think, almost
all of the passports that are delivered by post in the United
Kingdom and a large proportion of credit cards as well. Clearly
those customers are interested, above all, in security. Other
customers may be interested in predictability, some will be interested
in speed, some will be solely interested in price; there is a
whole range. Of course all customers would like all of those things,
but their priorities will differ and I think just a standard measurement
does not address that.
Q304 Judy Mallaber: I am still unclear
here. Are you suggesting that your data should not be published?
It is no good to me, as a customer, to learn from experience when
I have not got my passport or I have not got that critical business
document, it has not turned up; surely I need to know in advance
from published data what your track record is on reliability and
other elements of performance measurement?
Mr Sibbick: I am not arguing against
that. I think what we are saying is that it should not be simply
a standard measurement across the board because we are not providing
a standard service.
Q305 Judy Mallaber: So what information
would you be providing?
Mr Sibbick: We are discussing
this still with Postcomm and Postwatch, but it is likely to be
based around the services that we say we provide and how well
we actually perform against what we have said we will do.
Q306 Judy Mallaber: Do you know whether
detailed information is provided to customers in other EU countries
and what the regime would be?
Mr Sibbick: I do not know that,
I am afraid.
Q307 Mark Hunter: I would like to
return to a matter that was touched on earlier on to do with VAT.
It has been suggested to us that Royal Mail is "well placed
to meet the challenge of competition as it has many advantages
that are the envy of its competitors". Following the liberalisation,
what advantages over Royal Mail's competitors, such as VAT exemption
and the postcode address file, do you believe Royal Mail should
be allowed to retain?
Mr Sibbick: That is probably a
matter for Postcomm rather than us, but a starting point is that
the privileges that Royal Mail has to some extent have been justified
in the past by the fact that they carry the "burden"
of the USO. Since I think it is fairly firmly established now
by Postcomm and Postwatch, I think, are on record as saying that
the USO is probably worth about £½ billion a year to
Royal Mail, it seems odd to justify continuing privileges, and
I am not talking about minor ones, like driving through Royal
Parks, for example, but to justify major privileges on the argument
that they have a USO which itself is of benefit to them.
Q308 Mark Hunter: So you do not think
they should be allowed to retain any of them?
Mr Sibbick: What I am saying is
that I think some of the minor ones, like the ability to drive
through Royal Parks, it goes back for ever into history and I
do not think we would begrudge them that at all.
Q309 Mark Hunter: But the ones I
have mentioned you do not think they should be allowed to retain,
you do not think there is a case for that?
Mr Sibbick: I certainly do not
see any kind of economic argument for them retaining a VAT position
which we do not also have.
Mr Wells: The privileges that
exist already really surround their infrastructure, their 350-year
head start and their stratospheric brand recognition. They are
all the privileges that they have. I think we are saying that
VAT is a real barrier and we would like that addressed.
Q310 Mark Hunter: So what would be
the impact on your members of the removal of the Royal Mail's
VAT exemption?
Mr Sibbick: I think it would mean
that about 50% of the market where at the moment we are at a 17½%
disadvantage, and I take Mr Hoyle's point that Royal Mail do have
to absorb the input VAT, but in their advertising, they talk about
it being free of VAT, but on 50% of the mail, that actually is
quite a hurdle for us.
Mr Buswell: I think the point
I would make is: why should charities, for instance, not be able
to buy services that are different from Royal Mail? If the NSPCC
wants to buy a business-class service that my company offers,
which is a two-day delivery, they cannot buy it from me because
I cannot get a price that is anywhere near the Royal Mail price
because they cannot claim back the VAT, so by having that benefit,
that charity is not able to buy services from other mail operators
and that just cannot be right.
Mr Wells: I think the proposal
from the EU is to put 5% across the board and Royal Mail would
not be any worse off and you would not have to put VAT on the
stamp.
Q311 Chairman: You would not have
to put VAT on the stamp?
Mr Buswell: You would not have
to increase the price.
Q312 Chairman: So what you mean is
that you would not have to increase the stamp price for their
VAT?
Mr Buswell: Correct.
Q313 Chairman: But you think they
would be able to absorb the costs?
Mr Buswell: Yes.
Q314 Chairman: What I think you are
saying is that the net cash effect on the Royal Mail will be modest,
so, therefore, they will be able to not pass on to their retail
customers—
Mr Buswell: Input tax that they
would be able to reclaim would be offset completely if only 5%
VAT was applied to it.
Q315 Mr Hoyle: Let's just get this
right. What you are saying is that my constituents, you wish them
to have a 17½% increase in the stamp—
Mr Buswell: That is absolutely
wrong.
Q316 Mr Hoyle: Well, it must be that.
Mr Buswell: No.
Q317 Mr Hoyle: You cannot pay VAT
less than 17½%. It is 17½% on the stamp whether you
like it or not, that is what they are suggesting, and this is
a 17½% tax you are asking my constituents to pay, and it
is not acceptable.
Mr Buswell: With respect, that
is not what we are suggesting. What has been put forward by Postcomm
as a work-around that all parties benefit from is a 5%, for them
to be registered—
Mr Hoyle: I am sorry, but you are wrong,
Postcomm was wrong and I do not think we should be told facts
that are not true.
Chairman: Mr Hoyle, we have asked for
a note from Postcomm as to how this will work.
Mr Hoyle: It has been checked and it
is 17½%.
Q318 Chairman: I do not think we
will have the debate with you, we will have the debate with the
evidence we have in front of us. I want to draw this session to
a close, but many of us have got passionate, us and you, about
one subject today which is VAT. You seem to be remarkably cautious.
I know that giving evidence to a select committee is an intimidating
experience, but, even discounting for that, I am left with the
uncomfortable feeling that you have got so much out of this already,
you are scared of rocking the boat. You have asked for nothing
more and you feel so comfortable and almost complacent of the
situation, I am very apprehensive. What have I missed?
Mr Sibbick: I do not think, and
it depends how you measure it, having two or 3% of the market
with Royal Mail having the rest suggests that we have already
got everything out of it that we could possibly hope for. I think
what we are is realistic that competing with such a strong, entrenched
incumbent which is improving its own efficiency substantially
over the last three years or so, that is not going to be an easy
ride for any of us. We are here for the long haul, not just for
the short-term quick buck and it will take time, but my company
has been here for 30 years and I hope we will still be here in
30 years' time.
Q319 Chairman: Are any of you publicly
quoted on the Stock Exchange?
Mr Wells: Yes.
Mr Sibbick: Yes.
Mr Buswell: Yes.
Q320 Chairman: What are you telling
the analysts about your profit forecasts for next year?
Mr Wells: In terms of TNT, we
are quoted on four markets. As you know, what we are predicting
is price sensitive, so I cannot share that, but, to answer the
question, are we becoming complacent, absolutely not. What I want
to do is to create a sustainable and, most importantly, profitable
business in the UK, but it is not going to be a walk in the park
when you are up against a dominant player with such a market share
as Royal Mail. That means that we have to be smart and that we
have to compete on price and quality and be customer-focused.
What we are looking for, I think, with the MCF with Postcomm is
to maintain a fair and level playing field in an environment where
we can compete against potential anti-competitive practices, predatory
pricing, whatever it might be. What we are looking for is effective
regulation; that is all we ask.
Chairman: And it is our job to work out
whether it is effective or not. Thank you very much indeed, gentlemen;
we are very grateful.
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