Examination of Witnesses (Questions 60-79)
MR ALAN
COOK CBE, MS
PAULA VENNELLS
AND MR
HOWARD WEBBER
10 JUNE 2008
Q60 Mr Binley: My concern is about
the culture of the whole operation and the commensurate lack of
care at local level that is really causing these problems. I refer
again to the crude application of support figures in the negotiations.
I refer to people who feel they are being cheated and the consultation
really is not very meaningful; you are doing an occasional retention
of a post office that was due to be closed but it all looks so
pat and done by design and it does not seem to project any care
at local level. That is my concern, that you are like a big brother—or
not a big brother because that is too concerning—or a big
organisation that comes in and says, "This is what we are
doing; this is what the situation is and, yes, we will do a consultation
process because we have to", but it really is not very meaningful.
Mr Cook: I do not accept that
at all. When we go into an area at the outset we have an outline
plan, an expectation of what we are likely to do. Since the programme
has begun, even before we had gone to public consultation, we
had changed 201 of the proposed branches. Then, when we have gone
into local consultation, which is public, a further 47—
Q61 Chairman: We are going to come
on to the details of the network change next.
Mr Cook: I do need to defend myself
a bit.
Q62 Chairman: You do and I will give
you a chance to do that in the next section of questions. You
are hearing a concern about the continuing lack of openness with
the wider public, which is Brian Binley's point.
Mr Cook: We have a significant
number of people in the business working on this. They are very
friendly with these sub-postmasters. The suggestion that there
is something going on—
Q63 Chairman: It is not just sub-postmasters.
I am worried about sub-postmasters but I am worried about the
communities served by sub-post offices. Often those interests
coincide and often they do not. We have to be concerned for both.
Before we move on to network change, I want to push on a couple
of other points. On the point that Mr Binley was making about
overheads: as the network shrinks, if you cannot "variablise"
your fixed costs, your fixed costs stay and new offices become
commercially unviable. Can you give me an assurance? We have expressed
concern about this in our last report. A lot of the savings you
want to make to meet this under-payment from Royal Mail for services
you are providing you have not yet identified. There is a real
risk that if you cannot reduce your overheads, more post offices
will become more unprofitable.
Mr Cook: I am very confident we
will meet our cost-reduction targets and if we meet those cost-reduction
targets, then the numbers add up. By 2011 with 11,500 post offices
plus 500 outreaches, to be at this stage of a five-year programme
in a position of having either secured or identified £220
million out of the £270 million cost-saving is a pretty good
place to be. I could not possibly sit here and say I have found
it all but I feel pretty good about where I am in terms of achievement.
Q64 Chairman: Obviously where commercial
confidentiality is required to protect you from competitors, we
understand that, but the presumption we think at local level and
at national level should be available to both of us, after all,
we own you; we are the shareholders. The Government acts on our
behalf but we are the people who own you. You are our business,
not just any other business; you are one of the few last genuinely
effectively nationalised industries there is, so openness should
be the presumption. What do you make of that table we produce,
which was part of the submission to the European Union, where
all the figures that we think we need as a committee to understand
have been removed. Do you think that is reasonable?
Mr Cook: Which table is this?
Q65 Chairman: It was a breakdown
of Post Office Ltd's revenue and costs of operating its non-commercial
branches, income and expenditure, services of general public interest.
The figures are all there but we cannot access them.
Mr Cook: These figures are made
available to the shareholder executive obviously.
Q66 Chairman: We should be having
a go at the Government not you about the lack of transparency?
Mr Cook: I do not want to point
a finger but at the end of the day we are 100% owned by Government
and we report all our numbers to Government.
Q67 Chairman: Thank you. We will
have a go at the Government. When we add to this the doubt about
the validity of Royal Mail Group's own financial figures, which
Postcomm have expressed, it comes up with a pretty murky picture,
which means that we parliamentarians cannot properly do our job.
It may not be your fault. I may be having a go at the wrong target,
and I understand that. Mr Webber, do you understand the concerns
we are expressing?
Mr Webber: Absolutely. The exchange
a few moments ago between Brian Binley and Alan Cook did illustrate
the issue that a lot of changes have been made to the Network
Change Programme—and I know we will come on to that in a
minute but it is important—either before or during public
consultation and a lot of improvements have been promised by Post
Office Ltd, and they do not advertise them; they do not make a
good news story out of them, which is what they are. Obviously
the Post Office Closure Programme is bound to be unpopular; by
definition it is going to be unpopular. Its unpopularity would
be a lot less if Post Office Ltd made more, as they should properly
do, about what the improvements are; this is not just about closures
but it is about outreaches and improvements to the branches and
so on. This does not come naturally. It does seem to be tacked
on at the end, if at all.
Chairman: We are going over old ground
again but I have to say I sympathise with those points. Mr Hoyle
wants to go on to some figures.
Q68 Mr Hoyle: Moving to the figures
on post office closures, when you do the cost-counting exercise,
is it the same for each post office or do you have variations
in the way that you cost them?
Mr Cook: Do you mean the central
cost?
Q69 Mr Hoyle: Yes. You have all these
post offices down for closure. Do you use the same formula on
each post office or do you have variations in the way that you
put the profit and loss in?
Mr Cook: There are some fixed
costs. If I can give you an example, if a cash in transit truck
has to come, it comes just because the branch exists and if it
comes once a week, then that is a regular cost. Another branch
down the road, though, could have a cash in transit truck come
once a week but be doing three times the volume of transactions
and so some of the cost that we allocate would be driven by the
number of transactions that go through the post office.
Q70 Mr Hoyle: If you have more transactions,
there is more cost?
Mr Cook: Yes, that is right, because
they are using the IT, for example. If you are branching the cost
of the technology, the typical way to branch that would be by
transactions. Some of the other costs will be chunks of costs,
just because the branch exists.
Q71 Chairman: If you are doing more
business, you lose more money for you. Is that what you are saying?
Mr Cook: No, no, if you do more
business, then the unit cost drops. Doing more business is the
lifeblood of saving this business, without a doubt.
Q72 Mr Hoyle: Roughly what would
you say in number of transactions is viable or unviable? I know
it varies but just give us an average.
Ms Vennells: Could you ask the
question again, please?
Q73 Mr Hoyle: What number of transactions
would you have to have through a post office, number of visits
or whatever way you want to count it? On average what would you
say makes it viable or unviable?
Ms Vennells: We would have to
come back to you with some specifics on that.
Q74 Mr Hoyle: Roughly?
Ms Vennells: I could not give
you a figure.
Q75 Mr Hoyle: Is the figure 20,000,
1,000, 500? There must be some way of doing it.
Ms Vennells: It depends on the
size of the office and the amount of customer sessions they are
doing and, as Alan says, the amount for instance of cash deliveries
they take. They are quite varied, as you know.
Q76 Mr Hoyle: The more cash deliveries
you have, the more it costs you?
Ms Vennells: It does not cost
more for more cash deliveries. There is a central cost for cash
deliveries, which is allocated across a number of post offices
according to the amount of usage they have of that. It is a spread
of cost.
Q77 Mr Hoyle: If you have a vehicle
that drops off once every two weeks, you would only charge him
once every two weeks. If the vehicle stops twice a week, you would
charge him for twice a week? The busier you are, the more the
vehicle goes, the more you are charged?
Mr Cook: Typically, you do not
visit the branch more often; you just leave more cash. So there
is a cost to the cash in the till. There is a point where, if
the branch became sufficiently busy, you would say, "I do
not want to leave that much cash on a Monday because it would
be too expensive to have it in the till all week" and then
you might go to a second delivery. It is done in steps with something
like cash.
Q78 Mr Hoyle: If you cannot give
us that figure now, could you give us what you believe the average
number of customers is to be viable or unviable?
Mr Cook: I would have to come
back to you on that.
Q79 Chairman: There is so much doubt
in our minds about the way you attribute overheads and the validity
of your figures. How you attribute IT costs fascinates me. How
can the cost of IT be shared by transactions? Are you saying that
if IT costs drop the system uses less? I remember when I was on
a committee of the House of Commons and the officials showed me
figures for the overheads of the costs of running the Members'
dining room. I was appalled by the figure and said, "This
is a scandalously large sum". They went away and came back
and said, "Oh, we made a mistake", and they reduced
it by three-quarters. Attributing overheads is an art form and
not a science.
Mr Cook: There are two issues
here: one, the amount of overheads, which I have already conceded
is too much, and so I have tried to share out a pot that is too
big; and then you have to come up with a fair way of attributing
those overheads. The only absolute fact in all this is that all
of the money that is spent has be allocated to one of the branches
and then you need to look for each type of expenditure as to the
most appropriate way of branching that cost.
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