Examination of Witnesses (Question 600-619)
MR ALAN
COOK AND
MR GRAHAM
HALLIDAY
9 MAY 2006
Q600 Chairman: Have a word with the
Government relations people, okay.
Mr Cook: I think we put our view
forward quite forcibly at the time. I think I also have a responsibility
to make sure we come up with a constructive solution at the end
of the day. Bickering is not going to get me anywhere in the longer
run, I have to find a solution for these people who are not going
to handle easily accessing their benefits in 2010 onwards. I really
do buy the big picture point. There are a couple of comments you
made which I need to comment on. The reference to 4,000 post offices
is nothing other than the number of post offices we would require
to make meet the mails universal service obligation and provide
a basic service from the mail point of view. For the record, I
have no aspiration to end up with 4,000 post offices or anywhere
near. I have been hired to build those alternative businesses
we have talked about, to try and provide the Post Office as a
viable network. There is no difference in my mind between Post
Office Limited and the future of individual post offices, they
are one and the same thing. What is the power of this particular
business is our access and reach. That requires a large number
of post offices to provide that sort of access and reach. Admittedly
4,000 is loads more than the average bank but we are not trying
to get this network down to 4,000, I am trying to create a series
of businesses that will be sufficiently profitable to support
as large a size of network as we can possibly manage. It is undoubtedly
the case that the decision to close the card account, if we can
get nothing in its place and not retain the footfall of those
customers, will be a negative impact on the profitability of Post
Office Limited, a large negative impact, which means I have to
run even faster elsewhere to try and make up. It is not just a
question of making up the lost profits, I think it is also a question
of recognising that we have to provide adequate provision for
those types of customers. It is fascinating that three-quarters
of the Post Office Card Account customers do actually have a bank
account so they arguably may not be financially excluded people
but they do like to come into the post office to draw their cash.
Q601 Chairman: That is what one Government
minister said to me, three-quarters, 75%, have a bank account.
What is the problem here? This is a complacency in Government
and that is why we need a big picture answer.
Mr Cook: My concern is if we were
able to provide cash withdrawals for cheques from any bank and
those people had their money sent to their bank account they could
still come to the post office and cash it. The reality is they
cannot; only 40% of people with current accounts could cash—
Q602 Chairman: We are talking three
major banks: HSBC, HBOS and Royal Bank of Scotland?
Mr Cook: Correct.
Q603 Mr Mudie: Can I just press you.
Nowhere in the bigger exercise where you are angry with the Government
about 50% going out as shares to the employees, et cetera, are
you suggesting you need one or two billion pounds to keep going
as an overall organisation. The overall board are not going to
sell the post offices out to get that sort of money for the overall
exercise's future rather than the Post Office?
Mr Cook: No. Not only is it joined-up
at the Royal Mail end but I am certainly in conversations with
the DTI and they accept the need to look at a whole Government
picture.
Chairman: John wants to follow up on
that.
Q604 John Thurso: Can I first of
all ask something about the cost of the Post Office Card. The
minister at the time stated, I think it was in Westminster Hall
or in answer to a written question, that the cost to his department
of making a payment into a Post Office Card Account was approximately
a pound and compared that with one penny into a bank. I know it
is a few years since I was in business but I do not understand
the logic of that.
Mr Cook: I can tell you how it
works. Yes, around a pound to put it into the Post Office Card
Account. That pound includes the cost of the customer getting
it out again. It would cost—I do not know if it is exactly
a penny—a very small amount of money to deposit into a current
account but that current account money has then got to be withdrawn
and when it is withdrawn it is probably going to cost 40 pence,
say.
Q605 John Thurso: That is an apples
and pears comparison.
Mr Halliday: Absolutely.
Mr Cook: Correct, yes. It is technically
correct from their perspective because that is all it has cost
them but somewhere the cost of handing that money over has to
be accounted for. If it goes into a current account it would be
the bank that accounted for it.
Q606 John Thurso: So I get this straight,
the one pound figure includes the cost of getting it out to the
customer?
Mr Cook: Correct.
Q607 John Thurso: The one penny figure
does not?
Mr Cook: One penny just includes
getting it into a current account and then the customer has got
to get it out either by an ATM or going into a bank.
Q608 John Thurso: An apples and apples
would be nearer 50 pence probably?
Mr Cook: Yes, probably.
Mr Halliday: The one pound also
includes all the operational costs of looking after 4.3 million
customers. It is the back end costs of running the banks basically.
Q609 John Thurso: We are not looking
at the straight cost of operation; we are looking at it with a
portion of the administration, which clearly is not the case.
Mr Cook: Because I am a fair man
I should point out that from a DWP perspective that is the saving
to them. What they are doing is transferring the cost—
Q610 John Thurso: — to the
banks.
Mr Cook: —to the banks,
which ultimately means to the customers because that is how it
works.
John Thurso: Absolutely. I have got the
hang of that.
Chairman: You can brief me!
Q611 Mr Mudie: Of the pound the DWP
pay, how much is actual sub-postmasters' and how much is head
office Post Office?
Mr Cook: I guess I feel a bit
uncomfortable about moving into how sub-postmasters are remunerated,
they are all independent businessmen and they have contracts with
us, so I would rather not get into that sort of thing.
Q612 Mr Mudie: It was a good try!
Mr Cook: Yes, and you did it with
such a friendly expression I nearly told you!
Q613 John Thurso: Can I come back
to what we have been talking about with regard to the Post Office's
role in the provision of services in the future, which was originally
thought to be a universal bank but you have explained how that
was replaced with two legs, one of which is now about to be chopped
off. I do not understand why banks necessarily want this business
because it is costly and they are in the business of making billions
and getting a good return for their shareholders, so there is
no huge incentive, other than Government pressure, or pressure
from people like us, to get them involved. On the other hand,
it seems to me for the Post Office it is a bread-and-butter business
which is being taken away. A decade ago it was effectively the
Government postmaster, cashier if you like, and in the National
Federation of Sub-Postmasters' submission they make the statement
in their opinion that far from favouring a Post Office-based system
the Government sees no role for the Post Office delivery of pensions
and benefits, which is a major shift. We have talked about the
brand, the brand values of trust, and that strength. Is it not
sheer lunacy not to be looking at a solution which works for the
Post Office because there is a commercial benefit to them, works
for the Government because it is a trusted third partner, works
most importantly of all for our constituents, the consumers, who
are the most deprived, and just leave the banks out of this altogether
who only want to make money?
Mr Cook: I am not a man of few
words. I could just say "Yes" but I would like to give
a slightly longer answer, if I may.
Q614 John Thurso: "Yes"
would do.
Mr Cook: It is not for me to comment
on the banks' motivations but from my experience in the financial
services world I would imagine this would not be attractive business
for them, because a lot of this business will be the benefit arriving
and being cashed quite quickly and the average balance on the
account being very low. I am not saying they are fighting it off
but it cannot, by definition, be a particularly attractive business
for them. As you say, if we can find a successful financial model,
that type of business is the lifeblood of the Post Office and
is what we have done for many years. So we are very keen to find
as strong a Post Office-based solution as we possibly can. The
conversations I am having with the DWP now suggest that we will
go a long way towards catering for one of my two concerns. One,
will customers still come into post offices to get their benefits?
That is important to me because it is the footfall, it makes the
post office itself more viable with the possibility of a cross-sale,
it actually makes the sub-postmaster's whole business more viable
on his retail side because customers are going in there. So objective
one is to preserve the footfall. Objective two is to preserve
the income. It seems to me that whilst we may go some considerable
way to protect the footfall, the income per transaction is likely
to be materially less. As we talked about earlier, that is a negative
for me in trying to build a viable business and a viable network,
so this is a set-back in terms of the financial position of the
organisation. So certainly the more we can keep this Post Office-centred,
the better.
Q615 John Thurso: I remember two
or three years ago having a briefing from I think Royal Mail Group
which at the time was a confidential briefing on future market
plans but was broadly centred around looking at precisely what
we are talking about, which is the move into financial services,
which was very much seen as the way forward for the Post Office.
If that is not there then the footfall is not there, and we are
actually back to the 4,000 needed for the universal service obligation
and the very strong likelihood that in areas like mine of 3,400
square miles and very few people there will not be any post offices.
Mr Pomeroy in his evidence to us was rather taken aback when I
mentioned those figures and said that would be serious for financial
exclusion and I also said very serious for social exclusion. I
hope you are just going to say "Yes" to this, but would
you not agree that actually the future of the Post Office is very
dependent on the decisions which are made on this issue?
Mr Cook: Absolutely. It is just
not on my radar that we are coming down to 4,000. We have to build
that successful business. There is plenty of evidence across the
world from what I can see that Post Offices in many countries
have turned successfully to financial services because there is
a natural correlation in consumers' minds that you can extend
the things which Post Offices have traditionally done across the
world into a wider definition of financial services. I do not
mind using the term "financial services" in this room
but I am not sure it is a term that many people really understand,
but it is money related and it is crucial we do build those services.
Q616 Jim Cousins: Could I take you
back and ask you to make a little clearer what your strategy is
for the post-Post Office Card Account world? There are two clear
alternatives. One is that people can be migrated away from the
Post Office Card Account into mainstream banking. The other alternative
is that the Post Office Card Account done by the Post Office possibly
in partnership with somebody else can morph into something which
has more functions, more capability, more attraction. I am not
clear whether your strategy for the Post Office Card Account is
migration or morphing. Which is it?
Mr Cook: All these things are
more complicated when you get into it. It is sort of both, and
I will explain. There are many different types of customer who
have taken out the Post Office Card Account, so there are undoubtedly
many people who have a Post Office Card Account who we did not
imagine on any side would have one and they are holding quite
high average balances. They would be potentially quite sophisticated
customers, not drawing down the money very frequently. For example,
they could be storing up child benefit and drawing it out twice
a year to buy school uniforms and whatever. There are all sorts
of different behaviours going on there and these people want to
do this, they want to keep this money separate from their other
money, and they want to do that business with the Post Office.
So the solution which could apply there is that we could have
alternative products which would be more appropriate. We have
recently launched an instant access savings account which pays
a particularly high rate of interest from the high street presence
perspective, and if these people are actually storing reasonable
amounts of money in this Card Account they might be better with
that money in that account. So maybe the solution for what I call
the top end of the Card Account holders is to have an interest-bearing
account. It would still have more attributes than the current
Card Account because the card you get with our new instant saver
account is a LINK-based card and you can use it at ATMs and so
on. So there is one solution for the top type of customer. When
you go to the other extreme, the 1.3 million, 1.2 million, customers
who do not have a bank account at all, it is not clear to me how
successful the drive to make those people take out a bank account
will be, but we have to be realistic and assume there will still
be a significant minority and there we need a replacement product
if you like. The conversation we are having with DWP says "You
will need something like that but something which is capable of
more." I think Brian Pomeroy when he was giving evidence
said if there was more capability that could be a much more significant
step towards a bank account. Maybe it is not a bank account but
maybe the card you get with it is functionally richer and does
things which are much more comparable to holding a bank account.
That would be for the DWP to ask for and for us to tender to supply.
I would be keen to do that because I would like to stay in touch
with these customers providing that service.
Q617 Jim Cousins: Could we just explore
each bit of your answer separately. Taking the first bit, you
have talked about migrating what you have called the top end of
the Post Office Card Account customer spectrum on to a Post Office
product.
Mr Cook: Yes.
Q618 Jim Cousins: I do not know what
state support you have or state encouragement you have to do that.
The most likely pattern is that people will migrate to non-Post
Office products which they will access not necessarily through
the Post Office.
Mr Cook: I am not sure I agree
with that because these people made a really conscious decision
a few years back to take out a Post Office Card Account. I think
they want to do business with their local post office. You are
right, they could.
Q619 Jim Cousins: What state encouragement
do you have, what state backing do you have, to migrate people
from the Card Account into your Post Office savings account?
Mr Cook: The state encouragement,
as you call it, is quite simple, if I move them on to a Post Office
savings account the DWP would not be paying me for them any more,
and I would be running an ordinary commercial savings account
with a balance in it making a margin in the usual way. I have
to say the margin is a lot smaller than I am making now.
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