Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  Q60  John McFall: I have been associated with a number of remuneration committees and sometimes the targets are so easy that there is never any doubt that the person gets their full bonus. I would like to know what that previous remuneration committee did to give the 30% bonus to the previous chief executive to see what the criteria are, and the criteria that will be established by the new remuneration committee. Could you share that with the Committee in confidence?

  Mr Barrass: If I can just make clear in case I misunderstood: there were no payments made on the last scheme.

  Q61  John McFall: I understand that, but previously there were payments made.

  Mr Barrass: Certainly the year in question with the annual report was based around financial targets which would have exceeded the plan for the year. The thing that would give you comfort would be whether that plan was a robust and challenging plan. If it was an easy plan, clearly the targets might well be easy. What we would intend going forward is, my discomfort and my discomfort next week with the remuneration committee is that because we are only in week 12 or 13 of the better working programme, I am still not clear in my mind as to whether this is for instance going to be 60 heads or 99 heads. That makes a huge difference in terms of bottom line and I do not want to give an easy target for the guys, but I also do not want to give a target that two weeks later the guys get switched off and say that's never going to happen. It then becomes a meaningless target.

  Q62  John McFall: Whatever you can share with us in private would be very helpful.[2]

  Mr Barrass: I will be happy when we do put the bonus scheme in place to forward it in confidence to the Committee.

  Q63  Mr Mudie: Can I just ask you a last question in terms of pensions? You mentioned specifically pensions, increases in pensions, one of the difficulties you have had. It is above £1 million. What has happened in pensions that you have been hit with this amount?

  Mr Barrass: Here you have got me on very thin ice because, not being a civil servant, I am not totally familiar with all the different pension schemes that we run, but these are actually nothing peculiar to the Mint at all.

  Q64  Mr Mudie: That is why I asked you, because I am not sure I have seen any new civil service . . . It is nothing to do with the retirement of the chief executive or anything?

  Mr Barrass: Nothing whatsoever.

  Q65  Mr Mudie: I have not seen anything across the public sector field that there has been an enormous increase in pension costs, yet on 700 or 800 you have a £1 million increase.

  Mr Barrass: Certainly—and, as I say, you have caught me on the hoof. I am not ducking the question; I simply do not know the answer. Some time in the last two years there has been a change which we have taken as a penalty which, as far as I am aware, is nothing peculiar to the Mint at all.

  Q66  Mr Mudie: Do you think you could let us have a note?[3]

  Mr Barrass: I would be happy to do that.

  Mr Mudie: Thank you.

  Q67  Peter Viggers: The return on assets in the collector coin division is much better than the return on assets in the circulating coin division. Why is this?

  Mr Barrass: The two markets are very different. On the circulating side we have a much heavier capital investment and therefore much less flexibility in terms of adapting to market volumes, and what we have in the marketplace at the moment is a very aggressive situation on the circulating coins side, where we have—I am not sure what the right expression would be—an unruly market. We have some competitors who are doing things and we do not actually understand how they can do them. We are having to compete with them to get volume in to actually absorb some of our fixed costs and overheads and therefore the return that we get on the circulating side is a lot less than we would like it to be. On the collector side, I think our share of the worldwide market is probably something like 1%. Everyone is a small fish on the collector side. We are dealing with products where we are established as probably one of the most prestigious if not the most prestigious mint in the world. Our product is seen as a very high-quality product and we can command a premium on that product, therefore we can get a much better rate of return on our capital on the collector side.

  Q68  Peter Viggers: Have you published the breakdown between the UK market and overseas markets in circulating coins?

  Mr Barrass: We publish limited information. As I say, we have what we consider to be crazy competitors out there at the moment and we are very reluctant to let too much information get into the public arena so these guys know how exactly it is that we are performing.

  Q69  Peter Viggers: Is the Treasury a benign customer?

  Mr Barrass: I would say the Treasury is quite a long way from being a benign customer. One of the things that both the Committee and the general public can take a lot of hope from is that we have a very robust negotiating stance between ourselves and the debt reserves management part of the Treasury, which is effectively our customer, and at the moment in fact we are still trying to fine-tune the service level agreement for this financial year. That gives you an indication of how healthy the process is, that we have actually two government departments that are determined to dig their heels in and fight their corners.

  Q70  Peter Viggers: The price you get is decreasing, is it not?

  Mr Barrass: In real terms it has been decreasing because it has been driven by a formula and the formula is inflation less a percentage. I am quite comfortable with that, in that it rightly gives the Mint every incentive to drive for productivity actions and give the taxpayer the best deal that it can.

  Q71  Peter Viggers: As you go into the poker game of setting the price, what is your ultimate sanction? Is there a risk that you might lose the contract with the government?

  Mr Barrass: Certainly in the short term we will not lose it because we are a government department and the coin of the realm is manufactured within the Crown. We are part of the Crown, if I can put it that way. If we did not come to an agreement sooner or later we would go higher and higher up the Treasury, and I guess in the end the Minister would have to arbitrate on where fairness lay.

  Q72  Peter Viggers: When does the current contract expire?

  Mr Barrass: Because we have not been able to agree on a contract or a service level agreement for this year, what we have done is roll last year's SLA forward, and that has been rolled forward until 31 March 2007. We will get to an agreement one way or another.

  Q73  Peter Viggers: Are your foreign competitors driven by commercial reasons or do some countries feel a sense of pride in having their own Mint and they are prepared to subsidise it?

  Mr Barrass: I think with most countries, even those that are not our competitors, some which are our customers who take our blanks and they do their own striking within the country, I think there is a huge sense of pride within all of those countries that they actually have control over their own coinage. I think there is also something we have, and it is part of what being the Royal Mint is about, that some of our customers who take our coins overseas also have huge pride that they are minted by the Royal Mint in the UK, and I have had that directly from customers during my time there.

  Q74  Peter Viggers: Do you suspect dumping by some competitors and, if so, might there be a case for a reference to the WTO?

  Mr Barrass: It is very difficult to asses because clearly they work in their own closed environment, but certainly when we go into a tender situation and we get some indication as to what the successful tender price was, and we will sit back and think "Wow, that's a price that we couldn't make money at." We have a significant amount of fixed capital invested in the industry and, because most of the circulating coin business is tender-driven, when a particular tender comes into play you will get a company which maybe has huge shortfall in its volumes and is desperate to get those volumes just to absorb some of its overheads and then maybe goes in at what we would see as a very non-commercial price simply to get some level of volume to keep the plant running.

  Q75  Peter Viggers: So is one part of your circulating coin business subsidising the other?

  Mr Barrass: No, we are in good shape in the Royal Mint in that, albeit that the Treasury is a very exacting customer, I think we are heading towards a very fair agreement with them and we can defend a position that says they are not subsidising the overseas coins. The overseas coinage is not subsidising them as such, but clearly, any overseas contract helps absorb overhead and fixed costs.

  Q76  Peter Viggers: Have you gained any new customers or lost customers recently? Is there much turnover?

  Mr Barrass: On the circulating side, we have made one or two significant gains in terms of our customers, which has helped us have the first six months' performance that Mr Mudie was questioning me on earlier but I would not want to mislead the Committee that these are brand new customers. The nature of the tender business is that we have customers that will come to us, we will manufacture several hundred million coins for them in a fairly defined window, then we do not hear from them for a period of time and then they come back to the market for another tranche of coinage, and you do not necessarily get the second tranche. We have been successful in winning some fairly significant tenders in the last six months.

  Q77  Peter Viggers: Can you tell us how your profit breaks down as between UK circulating coin and overseas circulating coin?

  Mr Barrass: I would not want to share that publicly, other than on UK and overseas circulating coin, they are both profitable at a contribution level.

  Q78  Peter Viggers: Given the importance of your overseas sales to your viability, why do none of the targets set by Ministers relate to overseas sales?

  Mr Barrass: I think because they are self-regulating. Because the nature of the tendering business, if you ever let a customer down in terms of quality or delivery times or any other aspect of the contract, you simply will not get the contract next time round. So on the overseas customer base, it is pretty self-regulating.

  Q79  Peter Viggers: In your chief executive report you refer to a brand strategy review, the results of which you expect to provide "especially useful direction for the future strategy of collector coin." Can you share some of the thinking with us?

  Mr Barrass: It would be fair to say not that we had lost our way but we had gone into areas on our collector side of the business which maybe are not appropriate to the Mint and, as part of the brand strategy review, we really have a very clear strategy in place now that says what we want the Mint to look like in the future. So we are looking for the things—and I would hope this is not going to come as a surprise to Committee members—for those qualities of heritage, integrity, quality, prestige, craftsmanship, the sort of things that you would automatically associate with the Mint, and that is really where our product portfolio should lie. You can see from our recent product offerings that some of them have been perhaps outside of that and we are now going to be focusing absolutely on those aspects I have just mentioned. That will lend huge strength to the Mint going forward.

  Chairman: We have come to the end our time. It was three years ago we last looked at the Royal Mint, which is the normal cycle for our scrutiny of these Treasury departments. What has been clear from today's session is that over the last three years, perhaps before you were in charge, it has been a pretty abysmal performance, with commitments made three years ago not being met, targets being missed and with the changes that we were promised to working practices simply not having been fulfilled. To your credit, you have admitted to all that and not shrunk away from it. However, we do now expect to be kept informed of progress on your plan by yourselves and by the Financial Secretary and I do need to put you on notice that it will be well before three years, probably within one year, that we ask you or your successor to come before us again to report back on how the Royal Mint is getting on. Thank you very much.

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