Examination of Witnesses (Questions 1-19)
MR ALAN
COOK AND
MR TREVOR
BAYLEY
19 OCTOBER 2005
Q1 Chairman: Mr Cook, may I welcome you
back to the Sub-Committee? Can you introduce yourself formally,
and your assistant, please?
Mr Cook: Alan Cook, Chief Executive
of National Savings and Investments, and I am joined by Trevor
Bayley, who is Finance Director of National Savings and Investments
and also Deputy Chief Executive.
Q2 Chairman: In your Annual Report and
Accounts, which forms the basis for our session today, you refer
to last year as being "another successful year". Where
in the report and accounts are your sales figures?
Mr Bayley: Page 34.
Q3 Chairman: You mean the chart on
page 34?
Mr Bayley: Yes.
Q4 Chairman: Is it not rather odd,
in 76 pages of accounts, not to have your sales figures totalled?
Mr Cook: I think it is clear what
the achievement is. Our focus has always been—well, here
they are, actually. "Gross sales of all National Savings
and Investments products", £11.06 billion—in the
little blue box to the right-hand side of the page.
Mr Bayley: The little table beneath
the chart.
Q5 Chairman: Which page are you at?
Mr Bayley: Page 34.
Q6 Chairman: If we look at the chart
though, if you add up these columns it looks as if last year you
did £9.4 billion sales whereas the previous year was £11.1
billion. That is a fall of 15%. What puzzles me is why you describe
this as "another successful year", if your sales have
fallen 15%. Can you help us on that?
Mr Cook: I am just looking at
it now.
Q7 Chairman: Normally, trading organisations
publish their figures and put the previous year's figures alongside
them. You have not totalled the table, have you?
Mr Cook: No, we have not totalled
the table. You are correct.
Q8 Chairman: Is that because you
did worse than last year?
Mr Cook: The net growth, as you
know, in the organisation was some £2 billion in terms of
total funds invested in the organisation.
Q9 Chairman: So why were sales lower?
Mr Cook: These are pure sales
to brand-new customers; there is a lot of business which rolls
over at the end of a term. For example, if you take out a five-year
bond, at the end of the five years you have an option to take
the money away or roll it over. So your net financing, the total
amount invested, is an end product of both your sales and your
retention of the existing business.
Q10 Chairman: I just want an answer
to why there were actually fewer sales than there were in previous
years. Is it because of the economic decline?
Mr Cook: No. In the previous year
we increased the maximum on Premium Bonds from £20,000 to
£30,000, and that produced a huge boost in sales in May of
that particular year. I think we took £1.4 billion in that
month alone. So there was a huge, pent-up demand, if you like,
which was a one-off effectively—where customers who had
held £20,000 worth of Premium Bonds had the opportunity to
go to £30,000, and that did produce a significant increase
in Premium Bond sales that year.
Q11 Chairman: You see, you have had
to tell us all that. It might have been useful if we had a table
of the previous year's sales, so that we could compare like to
like.
Mr Cook: Point taken.
Q12 Chairman: There have been recent
reports in the media that you have had a policy of cutting your
interest rates, to cancel out the tax breaks that are available
on the tax-free products, so that the tax foregone is actually
priced into the interest rate offered.
Mr Cook: We have not been cutting
interest rates. That has always been the pricing policy ever since
I have been with the organisation, in fact prior to the last quinquennial
review. We have 12 products for sale; seven of them produce a
taxable return; five are tax-free. One of those tax-free is an
ISA, which is the same as anybody else would sell in the market.
The other four are unique to National Savings and Investments
and are tax-free, and the cost of the tax foregone to the Exchequer
has always been priced into the return that the customer gets.
Q13 Chairman: So the minutes published
under the Freedom of Information Act, the minutes of June the
previous year, the unnamed board member saying, "We priced
in the element of tax foregone on the tax-free products"—is
that not accurate?
Mr Cook: That is what I am saying.
We do price in the element of tax foregone, but—
Q14 Chairman: You do price in the
tax foregone?
Mr Cook: We do.
Q15 Chairman: When did you start
doing that?
Mr Bayley: Certainly pre-1999.
Mr Cook: 2000 was the last quinquennial
review, and it was in place then. It has certainly been in place
ever since I have been with the organisation.
Q16 Lorely Burt: I would like to
continue about the decline in sales, and also the products that
you have. On page 34 it shows that Post Office and direct postal
sales, which accounted for approximately 80% of sales, declined
by about 25%. I wondered what analysis you have done of the reasons
for the 15% decline in the sales of products.
Mr Cook: In general or in the
Post Office do you mean?
Q17 Lorely Burt: I am particularly
interested in the post offices. I wonder whether it has got something
to do with the reduction in the numbers of Post Office outlets.
Mr Cook: I guess the objective
of National Savings and Investments has been to broaden and diversify
distribution. At the time I joined the organisation some 90% of
sales were through the Post Office. My position has always been
that I would like that level of absolute sales from the Post Office
to continue as far as is possible, but also for us to seek alternative
routes to market; primarily, over the last 18 months, through
the telephone and through the internet. Everything we can do to
keep Post Office sales at their current level would be more than
welcome, but the Post Office also have their own aspirations in
financial services and, in some instances, they have products
that are similar or comparable to our own. For example, our guaranteed
equity bond we no longer sell through the Post Office, because
they have their own—branded as Post Office. It is a very
constructive relationship, however, and one where we are working
together to make sure that the best result for both organisations
is achieved.
Q18 Lorely Burt: To what degree would
you think that the decline in the physical number of post offices
has contributed to the decline in sales?
Mr Cook: I am not an expert in
which post offices have closed, but the vast majority of sales
activity for National Savings and Investments is focused in the
larger Post Offices. I could not give you the precise percentages,
but most of the action is focused in the big, directly managed
branches—which have not been closing, as I understand, to
the same degree. So I would not equate a relationship between
the number of the Post Offices per se. Clearly there must
be some relationship, but I think that it would be pretty modest.
Q19 Lorely Burt: Perhaps I could
ask you about your figures for 2005-06. What impact would you
say your internal sales have on your overall sales figures, given
the dramatic rise in sales by the website since the re-launch
in January this year?
Mr Cook: What impact? I am sorry?
Chairman: Internet sales.
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