Examination of Witnesses (Questions 60-79)
POSTCOMM, OFCOM
AND OFGEM
Q60 Mr Mitchell: Unless you happen
to be a customer! That is true.
Mr Buchanan: We want to investigate
why it is that the price differential has gone from £80 or
£85 to over £100. Equally, many vulnerable customers
are on standard credit terms, and again we want to investigate—which
we are doing—why it is that that price differential has
gone from £40 to £80. I hear what you say.
Q61 Mr Mitchell: Let us take those
customers who are on prepayment meters. You have been peculiarly
gutless in dealing with them. At paragraph 3.26 it says that admittedly
it costs the industry more to provide prepayment meters but some
suppliers charge prepayment customers the same as those on standard
and others have to pay up to £150. Why have you not simply
provided that they cannot levy those charges? Why have you not
made a standard charge on prepayment meters which is cheaper than
they are now charging?
Mr Buchanan: These are things
that we are looking at within the probe.
Q62 Mr Mitchell: But why have you
not done it? This is a crying scandal.
Mr Buchanan: What we do is give
a very high profile to the companies that offer prices that are
very much higher. Equally, companies such as British Gas, EDF
and Scottish and Southern which do not do that market that fact
to their customer base.
Mr Mitchell: But if you are to have a
useful regulator you must have power to compel the companies to
do things. There have been so many complaints for such a long
period, and I get them. I do not see why you cannot simply stop
it.
The Committee suspended from 4.18 pm to 4.22
pm for a division in the House
Chairman: Mr Mitchell?
Q63 Mr Mitchell: I do not see how
Ofgem protects consumers. Why is Energywatch receiving 2,000 complaints
a month, which is incredible?
Mr Buchanan: It is receiving those
complaints. You will not like my response, but if you compare
the complaints 10 years ago since 2002 they are very much lower
than they have.
Q64 Mr Mitchell: It is still a lot.
Mr Buchanan: I do not deny that.
Each complaint is important, but complaints were at 50,000 and
then fell to 39,000 and they are now running at 2,000 a month.
That does not mean that they are not important. I take the complaints
very seriously. The issue is whether the complaint can be dealt
with. What we have to make sure going forward is that when the
complaint goes into Consumers Direct, the new body that is being
set up, it knows how to deal with it and it goes to the company.
The company has now been given from 1 July. We have taken control
of this part of the process, so we will audit them and if they
still do not get satisfaction they go to a statutory body, the
ombudsman.
Q65 Mr Mitchell: There will be a
lot of complaints that you do not get. My wife seems to spend
a large part of her time battling British Gas which keeps sending
in bills for readings which are not made and are overcharged.
When she replies she can never get through to anybody. I see the
Treasury nodding.
Ms Diggle: As a consumer I have
had a similar experience.
Q66 Mr Mitchell: I believe I read
recently that British Gas has had an argument with the consultants
who installed its billing system which is chaotic.
Mr Buchanan: Yes, and it is seeking
redress of £186 million.
Q67 Mr Mitchell: It is almost progressive.
Why do you let them get into these messes?
Mr Buchanan: Would they have got
into a similar mess whether the company was privately owned or
state owned is an interesting issue. I believe that that has to
do with quality of management.
Q68 Mr Mitchell: It would not have
been treating people in this same way had it been state owned.
Mr Buchanan: Maybe. All I am saying
is that that issue is more to do with how it has been managed.
To come back to your point, a lot of people moan and complain
but do not make a formal complaint. One of our concerns at the
beginning of the year when the companies were putting through
what looked like remarkably similar pricing strategies was that
the noise coming from this Committee, the media and customers
direct to Ofgem made us feel very much that it was the right time
to carry out the probe that we are doing.
Q69 Mr Mitchell: We are not noise;
we make reasoned representations.
Mr Buchanan: I did not mean that
rudely; I meant it politely.
Q70 Mr Mitchell: I turn to Postcomm.
I believe that I had correspondence with you, which may not be
memorable. When I went to the Royal Mail for the Christmas delivery
I was told that the prices imposed on them for admitting competitors
for the last leg of the delivery were not ones on which they could
make a profit or continue to work. It appears that you have a
real achievement to your credit in the sense that you have nearly
pushed the institution into bankruptcy because what used to be
a profitable system is now billions away from profit. The postal
service is deteriorating and that is thanks to you allowing competitors
to skim off the cream.
Ms Chambers: Perhaps I may put
some facts. When we were created and for the first couple of years
Royal Mail made substantial losses. Since then it has been making
profits.[1]
Q71 Mr Mitchell: You helped them to make
bigger losses. Look at the loss this year.
Ms Chambers: No; they are making
profits. The profits now are smaller than they were in the past
couple of years; they are going down and in the wrong direction,
but that is for all sorts of reasons. I do not believe that it
is due mainly to regulation. What they were talking about was
"access competition".
Q72 Mr Mitchell: Which is unfairly
weighted against them?
Ms Chambers: We do not regulate
access prices. They negotiated the access prices with their competitors.
Q73 Mr Mitchell: Under pressure from
you?
Ms Chambers: They have to negotiate
those prices.
Q74 Mr Mitchell: And you were sitting
there pressing them to do that?
Ms Chambers: We have never determined
what that price should be; that was something they negotiated.
When we did investigate whether the price looked more or less
right, although we had not determined it, it appeared to be broadly
right, but if it is not it is a matter for them.
Q75 Mr Mitchell: When I wrote to
Postcomm to complain about this—I do not know whether the
reply was from you—I was told I had to admit that the postal
service was better than ever. It is not. My post in Grimsby now
comes at a time when my staff are about to put on their overcoats
to go home, whereas it used to come at eight o'clock in the morning.
At one time I could post the mail from Grimsby on Saturday afternoon.
I cannot do that now. The post office nearby has closed down—it
is not within your purview but is still part of the system—and
I have to go to a post office in the centre of Grimsby which is
packed with long queues. The postal service has not improved thanks
to your administration.
Ms Chambers: As you say, post
office closures are not within our purview. As for mail services,
by some measures they have improved and on others they have not.
If what matters to you is early delivery then it has definitely
not improved but got worse. If what matters to you is to be sure
that the mail gets there the next day if it is first class or
within three days if it is second class then the service has got
a lot better. What customers tell us matters most of all is that
the mail gets there and is not lost or nicked.
Q76 Mr Mitchell: But it is too late
for the staff to deal with it.
Ms Chambers: That was awful a
few years ago. We had to investigate Royal Mail which lost huge
numbers of letters and we fined them for breach of licence. We
imposed a penalty of £9.62 million. I do not know whether
or not that means we are a gutless regulator but they did not
think that; they took it all the way to the Court of Appeal who
thought that it was a reasonable penalty to impose in those circumstances.
If you are a customer what really matters is that your post arrives
and Royal Mail's performance in that regard is probably 50% better
than it was in those appalling times when they were not applying
their own integrity procedures properly. There are some aspects
of service that have improved and some which have definitely not
improved. If it is important to you that your mail should arrive
by nine o'clock in the morning you will have a problem. Most customers
tell us that that does not matter to them as much as certain other
things but for some it does; it just depends on your own needs.
Q77 Mr Mitchell: It certainly matters
to me. I do not sense that the postal service has improved certainly
as far as I am concerned in any way. Do you regulate the profits
made by the cream-skimmers?
Ms Chambers: We do not regulate
anybody's profits. The only thing we control is the price of dominant
operators and as and when Royal Mail become non-dominant that
is when we withdraw controls.
Q78 Mr Mitchell: Are you satisfied
that the price given to Royal Mail is adequate to maintain the
universal service which you say is the major consideration?
Ms Chambers: Our major consideration
is to preserve a valued high quality universal service, and one
of the things to which we must have regard is the ability of Royal
Mail to finance it. That is what preoccupies us and makes our
job a lot more difficult than it would otherwise be.
Q79 Mr Mitchell: Your definition
of a universal service is narrowing, is it not, because it does
not include Sunday collections?
Ms Chambers: It never did.
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