Examination of Witnesses (Questions 40-59)|
14 JANUARY 2009
Q40 Chairman: I think we are beginning
to go over the same ground and we have got other things to discuss.
Lord Mandelson: --- which is a
real loss to the Royal Mail and the people who depend on it.
Chairman: We will be looking at this
issue again with Richard Hooper.
Mr Hoyle: If I could finally have the
last word on it. I would say that quite rightly we had the same
disagreements on the Post Office Card Account, he came round to
my way of thinking and let us hope he can come round to my way
of thinking on this.
Q41 Chairman: Can I just ask one
technical question. When do we expect to see legislation giving
effect to any changes necessary?
Lord Mandelson: Not before too
Mr Hoyle: About the same measure of a
Chairman: I think that is a helpful answer,
I will reflect on that.
Q42 Mr Binley: We have been talking
about structure, we have been talking about alliances, we have
been talking about modernisation, yet the very heart of the business
is about the quality of top management.. Is not the conclusion
to your analysis, Minister, that the top management has failed
over recent years? What are you going to do about quality top
management in Royal Mail, can you tell us that? Will an alliance
bring in the level of quality of management that the service clearly
is crying out for?
Lord Mandelson: Well, no single
organisational set of managers can take the blame for the challenges
which the Royal Mail is facing. The company does have a plan for
modernisation which it is taking forward, but it faces new constraints
and progress is too slow. Royal Mail has got to change faster
in order to keep up with the competitive pressures it is facing.
I would say this: the chief competitive pressures come as a result
of competition from digital media, not TNT, Deutsche Post or whatever.
The loss of operating profit to the Royal Mail last year from
developments in technology, the spread of digital media, was five
times the amount of loss that ensued from postal competition.
Whilst I am acknowledging the point that Lindsay has made we do
have to see it in perspective. The greatest challenge to the Royal
Mail does not come from a liberalised postal market, it comes
from the growth of digital media, texts, e-mails and the rest.
Mr Binley: So we need not think about
a change in the senior management in the coming couple of years?
Chairman: The chairman is going anyhow.
Q43 Mr Binley: Yes. I want to know
what your plans are for the management of Royal Mail which has
been totally not in keeping with a modernised postal business.
Lord Mandelson: I think you are
being a little harsh.
Q44 Mr Binley: Well I would be, I
am a customer!
Lord Mandelson: You are a very
Mr Hoyle: I am a shareholder, Brian.
Q45 Chairman: It is a matter of fact
that you have to appoint a new chairman, do you not?
Lord Mandelson: We are just about
to appoint the new chairman.
Mr Binley: We look forward to that. What
about the rest of them?
Q46 Chairman: I think we will leave
that for another day.
Lord Mandelson: That is a matter
for the chairman of the board, not the Government shareholder.
Q47 Chairman: I think that appointment
is a very important appointment.
Lord Mandelson: It certainly is.
Chairman: And a very generously paid
appointment, by the way, as well.
Q48 Miss Kirkbride: I just wondered
why the Minister thought the Labour Party was so neuralgic on
the issue of the Post Office and Royal Mail.
Lord Mandelson: Why is it?
Q49 Miss Kirkbride: Yes.
Lord Mandelson: I think it is
principally because they see that public business is best served
by a Royal Mail that is in the public sector and able to sustain
the very tough Universal Service Obligation that is imposed on
the Royal Mail. I think it is a pragmatic view taken by the Labour
Party and it is one I happen to share. I do not think the Royal
Mail and its customers would benefit from privatisation, which
is why I am against it. I think also there may be a concern, as
was expressed to me by some Labour MPs recently, that you take
one step in introducing a minority stakeholder and it is not then
such a big leap to seeing the ownership of the Royal Mail going
into the private sector so that the public sector ownership and
control is lost. I refute that. I do not believe that we are looking
at incremental steps, let alone a slippery slope to privatisation,
I completely reject that, unless, of course, by some misfortune
for the country this Government were to be replaced by an alternative
after the next election with different views on what it might
do to the Royal Mail. What a misfortune that would be!
Q50 Mr Binley: Some say.
Lord Mandelson: Some say. Let
us not look forward to that unlikely event.
Q51 Miss Kirkbride: Through gritted
teeth, for those who did not notice it! Do you regret that there
was this promise made in the last Labour Party manifesto which
you are going to break the spirit of with your proposals?
Lord Mandelson: No, no, absolutely
not. There is absolutely no question of breaking the letter or
the spirit of the manifesto which committed the Government to
retaining Royal Mail in the public sector, but making sure that
it is restored to health and has a strong successful future. We
are able to achieve both those things in implementing the Hooper
Review's recommendations, keeping it in the public sector but
turning it round, making sure that it has a strong successful
future by bringing in the investment, the new ethos and management
expertise and experience that I believe the Royal Mail badly needs.
Both of those things are in the letter and spirit of the manifesto.
Q52 Mr Wright: Surely we were aware
we needed that expertise 10 years ago. We knew there were going
to be difficulties. Certainly the pension deficit was brought
to our attention probably four, five or six years ago when we
realised there was a particular problem and we did everything
we possibly could to help and assist Royal Mail. In terms of what
Brian Binley said on the management, I think we have been badly
let down and badly served. Here we are again talking about trying
to reinvigorate the Royal Mail when in actual fact I believe the
management over years and years have badly served the company
itself. I think that is where the root cause of the problem is.
To go down this particular route, to look at the possibility of
bringing in private investors, in my opinion, if that was to go
ahead, in two, three or four years' time we will be revisiting
this and examining whether or not we are going to have the Universal
Service Obligation in terms of the mail service. I have been looking
at that particular viewpoint. We have looked at the question of
the one price in terms of the postage. I think the most important
thing, and we talk about taxpayers as a separate entity from the
consumers but every single taxpayer at some point has used the
Royal Mail, is I believe they would have been prepared 10 years
ago to pay a little bit more on the postage service to protect
the universal system. I believe management have badly let this
Government and the taxpayers down in running this particular business
and I think there will be more of the same in the future unless
we are very careful.
Lord Mandelson: As I have said,
I half share your view but I think you are being a little unfair
to the present management who have constructed and introduced
a modernisation plan. As I have said, it has not been implemented
fully, it has not been implemented quickly enough and it needs
more capacity, more capability introduced into the Royal Mail
to do that successfully. That is what I think our proposals will
achieve. As I say, we have not achieved those goals successfully
in the last 10 years, that is why we need to look at different
ways of doing so now. When you talk about the taxpayer, I just
ask you to bear in mind what the taxpayer is being asked to take
on in implementing these Hooper recommendations. We are talking
about a liability, a deficit in the Royal Mail's pension fund
which has grown from three and a half billion to five billion
and some predict will reach somewhere in the region of eight billion
this year. You are asking the taxpayer to take on a great deal
now in underwriting that pension fund deficit. If, in addition,
you are asking the taxpayer alone to foot the bill for the investment
in the modernisation and at the same time losing Royal Mail's
access to that much needed, in my view, management expertise and
experience of turning round the postal operator that a minority
stakeholder would bring, I think that is asking too much and I
do not think the public would stomach our cherry-picking the Hooper
Review recommendations and saying, "We will take on the pension
deficit, we will fix the regulator, but broadly speaking leave
the Royal Mail operation as it is". I do not think that is
an acceptable deal or an acceptable bargain for the taxpayer.
Chairman: I think you sense Mr Hoyle
is going to disagree with this, but I really do want to move on.
Q53 Mr Hoyle: I think we are in danger
of misleading the public. The public will think we are absolutely
foolish when what we are saying is we are going to give the £9
billion deficit to the taxpayer and, on the other hand, going
to leave the £600 million we have got there to spend on investment
within the company at the same time we are probably going to give
around 30% to a foreign company. The taxpayer will think we are
Lord Mandelson: That is what we
are getting back from that partner, cash and expertise and a good
track record in turning round a postal service.
Mr Hoyle: And leaving nine billion with
Q54 Chairman: We will explore these
issues again on Tuesday of next week when we have Richard Hooper
and the Communication Workers' Union in front of us. Let us move
on now to the main economic questions facing the Government in
the country. You have made a major announcement this morning and
kindly sent me just before this meeting began a fuller statement
about what it involves. I have not had time to digest it fully
yet. What do you want to say about the nature of that general
statement before we begin specific questioning on support for
Lord Mandelson: I think what I
would like to say, Chairman, is at the heart of the economy's
ills is the credit crunch, is the banking crisis, which is not
restricted to this country, it is global as we know. The Government
intervened last autumn to save the British banks from collapse.
Many smaller, foreign-owned banks have now departed the marketplace
here leaving a slightly reduced capital pool on which the banks
can draw in order to service the needs of the corporate sector,
homeowners and others. The banks are not yet back on their feet,
they are not yet back to the lending behaviour and performance
that we need to service the needs of the economy. The Government
continues to keep under review the measures it has already taken
in relation to the banks. We are in intensive discussions with
the banks now with a view to making further refinements to those
measures, those interventions that the Government has already
made. In the meantime, the Government also has a responsibility
to the corporate sector, smaller businesses in particular which
are viable going concerns which have strong prospects but which
are finding it a real struggle to find the credit that will enable
them to withstand the pressures of the downturn and to get through
it and out the other side. That is why since the Pre-Budget Report,
when the Chancellor announced our intention to introduce these
measures, we have been in intensive consultations with the banks.
A lot of very careful planning has gone into what we announced
today: the Enterprise Finance Guarantee, which targets help for
small businesses; the Working Capital Scheme that will liberate
working capital within the banks and enable them to sustain existing
credit lines as well as introducing new lending; and the Capital
Fund to the tune of £75 million that will enable companies
benefiting from it to convert their debt to equity provided by
that fund. I make two points. These schemes are tailored very
specifically to the needs of small and larger firms alike, to
those which have low and relatively medium risk, and, secondly,
there is a very strict conditionality attached to these schemes.
For the banks to benefit from the resources and the guarantees
we are making available they have to negotiate with us how they
will use those opportunities to benefit firms in the country which
provide the backbone of our economy. That is what is different
about these schemes and that is why I am confident they will deliver
the results designed for them.
Q55 Mr Binley: I am delighted that
the Government has recognised the importance of the SME sector
and particularly the small business sector because money has not
been getting through to them and I think we are all aware of that.
What you are saying is you are going to work with banks to find
more effective ways of getting money through. Can I ask if you
would give us some idea of how many of the packages of support
announced in the Pre-Budget Report are in truth now available?
We have heard a lot of fine words about schemes to help small
and medium-sized business but much of that has not started to
take effect yet. Could you tell me what is available at this very
Lord Mandelson: The one billion
of guarantees supporting £1.3 billion of lending to smaller
businesses under the Enterprise Finance Guarantee is operational
and live as from today. The Working Capital Scheme is also live
today, although we need to introduce an amendment to the Banking
Bill in order to give effect to it. Our implementation of the
Working Capital Scheme with the banks will start today and I believe
the first tranche of the £10 billion that the Government
is making available under this scheme, which will support £20
billion worth of lending, existing and new, will come on stream
in a month or a six to eight weeks' time. We need to negotiate
that. The banks will bring to us a portfolio of loans which our
guarantee will remove, as it were, 50% of the risk from which
will then free them up to make other capital available. That negotiation
with the banks will start taking place as from today. We have
to make really sure now that we are going to hit the mark, we
are going to hit the target with this scheme. There has to be
genuine additionality in value, performance and result from these
schemes in what we see from the banks and I am absolutely determined
to take the time to undertake the painstaking negotiation to make
sure we do get those results.
Q56 Mr Binley: Can I pursue that
about hitting the target because one of the problems is the difference
between loan and overdraft has not really been understood by the
Government in this marketplace to date. Are you saying you are
going to help small businesses which run their business on an
overdraft facility rather than loan?
Lord Mandelson: They will also
have the chance as part of this guarantee scheme to convert overdraft
Q57 Mr Binley: You do know that the
Federation of Small Businesses reckon when small businesses looked
at loan, about 40% of those people were thinking of packing up
their business instead of getting themselves committed to putting
their house on the line? You know that, do you not?
Lord Mandelson: I do, and I am
very strongly aware from some of the data I have seen from a couple
of the banks that the number of overdraft limits being reduced
by the banks is certainly significantly higher than a year ago.
Q58 Mr Binley: Exactly.
Lord Mandelson: It is precisely
to address that need, both the shortage of capital available for
lending in the market as a whole, which the Working Capital Scheme
addresses, but also the greater difficulty that companies have
in sustaining or acquiring new credit lines because the banks
treatment of risk is changing given the new conditions operating
in the economy. Even where capital is available, lending is available,
it is harder to get hold of by companies in particular, but not
only small firms. I would just enter this note of caution. I think
we will find as the year goes on and as larger companies seek
to renew their own lending and credit lines that they will face
difficulties which the banks are going to have to address and
I suspect the Government is going to have to address with the
Q59 Mr Binley: I am encouraged. I
could not describe myself as a small businessman but I am certainly
encouraged by what you are telling me. Can I go on to ask how
you are going to monitor and assess the effectiveness of the schemes
you have just announced?
Lord Mandelson: Closely.