Examination of Witnesses (Questions 80-100)
MR RICHARD
HOOPER CBE AND
MR JONATHAN
BOOTH
20 JANUARY 2009
Q80 Mr Clapham: One of the crucial
issues. What makes you think, that bringing in a strategic partner
from the private sector is going to make industrial relations
better?
Mr Hooper: Depending on who the
strategic partner is, what we are looking at is a strategic partner
who has done transformation and therefore has taken the workforce
and the unions with them on that journey, allowing a genuine engagement
between the management and the unions as to the future of the
company, something which has not happened to date. Lord Sawyer
in 2001 wrote a report which we talk about in here and talked
about the issues of industrial relations and really nothing has
happened of any great note since then.
Q81 Mr Clapham: So you do not believe
that the kind of conciliation procedures that would bring engagement
could actually be introduced without this private partner. If
it is a private partner who is a competitor, is it not likely
to add to disharmony rather than harmony?
Mr Hooper: When you say "it
is a private partner who is a competitor" you mean presumably
TNT. I would imagine the competition authorities would have to
look at whether TNT operate in the UK market and clearly that
is something I would not make a judgment on; it is clearly a competition
issue.
Q82 Mr Clapham: You provided a private
report for the Secretary of State. In that report do you suggest
what kind of partner should be brought in?
Mr Hooper: This is the report
which went to the Secretary of State. It is not a private report.
Mr Clapham: You said earlier that there
had been a private report, private document.
Q83 Chairman: I think that was the
Royal Mail Group's strategic document.
Mr Hooper: The only thing I was
referring to there was that we did have access to a document called
The Strategic Plan for Royal Mail but that is a Royal Mail
document. This is the document which went to Lord Mandelson and
to Pat McFadden.
Q84 Mr Hoyle: And nothing else; no
private papers, nothing.
Mr Hooper: No private papers.
Q85 Mr Hoyle: No private comments.
Mr Hooper: No, no private comments.
I would not make those comments. I am sorry to be frustrating
about this issue of the level of shareholding but I genuinely
believe that it would be very difficult for the Government to
negotiate in the taxpayers' interest if Hooper had incidentally
said it has got to be 51% or 49%. This would be silly. I also
apologise for frustrating you about the amount of capital. It
is not a figure that I have, that I can give you. It is actually
probably a figure that will significantly change over the next
year, as we get unions and management to work together and as
we get a strategic partner to come in, if that is approved of
course. That is the situation.
Chairman: We have two remaining areas
of questioning. We are already out of time but we must pursue
them.
Q86 Mr Bailey: First of all the future
of the Post Office and its relations with Royal Mail. There seems
to me to be a number of potential contradictions in your recommendations
there. First of all, you make it quite clear that you think the
Post Office is vital for Royal Mail to sustain its universal service
obligation. Then you comment that it should remain in public ownership,
that three quarters of its 12,000 outlets do not make a profit
and can only be sustained by a direct subsidy from the Government.
Effectively the future of the universal service is dependent on
a state subsidised Post Office network. When we examined the Post
Office one of the problems was actually ascertaining what was
a profitable post office or not because of the lack of transparency
in the costing. First of all, do you not think that Ofcom must
build up an adequate costing measurement so that this can be ascertained?
Second, how do you think Royal Mail and the Post Office can work
together to maximise the interests of both in this particular
context?
Mr Hooper: I certainly think that
the Post Office is part of the costing exercise Ofcom will have
to do. There is a very crucial recommendation in here about Post
Office Limited which is that there needs to be a long-term business
agreement between the Royal Mail and Post Office Limited to make
sure that there is certainty. Something like one third of Post
Office Limited's revenue comes from mail services so it is obviously
an absolutely critical part of their revenue stream. In terms
of the universal postal obligation, post offices are critical
for access to the mail service, particularly for social customers,
people like us, at home and small- and medium-sized businesses.
That is the criticality of the post offices: access to Royal Mail
and to the universal postal service.
Q87 Mr Bailey: The second contradiction
is, if the volume through Royal Mail continues to decline and
other private sector operators want to use the Post Office network,
do you think that the Post Office network should in effect make
its services available to private sector operators which are competitors
to Royal Mail?
Mr Hooper: That is not something
we opine on in the report and indeed that I think that is a policy
decision that would need to be made. It is somewhat influenced
by the nature of the long-term business agreement between the
Royal Mail and Post Office Limited because that contract could
be an exclusive contract with exclusivity on both sides. That
is a possibility and that would be a matter for negotiation. The
point we do make in the report—and I want to come back to
it—is parcels and packets. This is a significant future
for mail services and one of the things we say in the report is
that we feel Royal Mail treats senders of mail, shall we say,
in a more customer way than the recipients of mail. We all return
home at seven o'clock in the evening to find the piece of paper—some
people describe it as the dreaded piece of paper—that requires
you then to go out to the delivery office or wherever between
the hours of eight and twelve the following day. What we say in
the report—and your Committee is looking at the future of
Post Office revenue—is that there must be revenue opportunities
for post offices to be places where my and your parcels and packets
could be and I could go to them to pick them up rather than going
to the delivery office. So there are business opportunities there
in the nature of e.Fulfilment and this huge amount of Amazon books
and other books coming off the internet.
Q88 Mr Bailey: The irony of this
is that the Post Office Limited network, in obtaining fresh sources
of revenue to ensure its sustainability, could actually be undermining
Royal Mail and its sustainability.
Mr Hooper: If it took parcels
of competitors, for example.
Q89 Mr Bailey: Yes.
Mr Hooper: Which is why I think
it is a major policy decision and is not a policy decision that
we went into. This was not basically a review of post offices;
it was a review of Royal Mail.
Q90 Chairman: We of course are doing
our own review of post offices.
Mr Hooper: Yes; I appreciate that.
Q91 Chairman: One point of important
clarification. You said Post Office Limited should remain 100%
publicly owned.
Mr Hooper: Yes.
Q92 Chairman: You say that Royal
Mail should be X% publicly owned; whatever X may be. Do you have
a recommendation for the structure which underpins this? Will
Royal Mail Group be an overall holding company and one of its
subsidiaries will have a minority shareholding? Or will it be
separated into two separate businesses?
Mr Hooper: Again I apologise for
being frustrating. I do not think the corporate structure is something
the review should get into. It very much depends on the strategic
partner, the nature of the negotiations. There are the four main
arms of Royal Mail Group as we have it today: Post Office Limited,
Parcel Force, GLC and Royal Mail Letters. Those are the four arms.
How the strategic partner comes into that is quite a delicate
issue. It is a negotiation issue and it is not one on which we
choose to opine.
Q93 Mr Clapham: You recommend that
the Government should strengthen public and parliamentary accountability
for the provision of the universal service. Given that you are
talking about a strategic partner coming in, what role would the
Government have in that kind of situation for ensuring and securing
the universal service obligation?
Mr Hooper: There are two aspects
to that. First of all the Government as shareholder will make
it very, very clear to the strategic partner that the maintenance
of the universal postal service is part of the deal. That would
be clearly made in any arrival of a strategic partner. Second,
if the legislation is passed moving to Ofcom, Ofcom's responsibility,
its primary statutory duty which we set out in here, which is
indeed the primary statutory duty of Postcomm under the Postal
Services Act 2000 is the maintenance of the universal postal service.
The regulator clearly has an absolutely key role. Thirdly we have
suggested as our final recommendation that maybe your Committee,
at the time of the annual report of the regulator being placed
before Parliament, would summon the regulator and indeed you would
probably summon the Royal Mail management as well to talk about
how they have maintained the universal postal service.
Q94 Mr Clapham: So you are saying
that there would be a contract with whoever the minority strategic
partner was going to be.
Mr Hooper: I would say that no
strategic partner would come into the Royal Mail without an understanding
of the regulatory environment; they would not do it. They would
need to have an understanding of the regulatory environment. A
central issue in the regulatory environment is the maintenance
of the universal postal service and we are saying clearly that
we are not recommending that you degrade it, we are not going
from six to five days—as quite a number of people suggested
to us; we do not think that is the issue. The issue which is central
is modernisation and that is the focus of our report.
Q95 Mr Clapham: So the regulator
would be responsible for monitoring the universal service and
reporting that to Parliament.
Mr Hooper: As Postcomm is now;
yes.
Q96 Mr Clapham: Coming back to the
issue of the Select Committee, you suggest that the Select Committee
would work to hear from the service.
Mr Hooper: Yes, and from the regulator.
Q97 Mr Clapham: And then to report
to Government. Given that Government are responsible for running
the country, what kind of responsibility would the Select Committee
have?
Mr Hooper: The thinking behind
that was that the universal postal service is something which
is extremely dear to the hearts of the legislature that put this
Postal Services Act in 2000. In all my meetings, for example my
meeting with Mike Weir, the key point that he made and John Thurso
made it for the Lib Dems was that the provision of a universal
postal service is a social and economic glue in this country.
Mike Weir said to me "Richard, you have to remember that
in my constituency there are small- and medium-sized businesses
in rural areas, not in the city, that depend fundamentally on
the Royal Mail and upon postal services. Right from the start
everybody made it clear that the universal postal service is a
social and economic glue of this country and we are going to keep
it. This report is aimed at improving the health of the Royal
Mail, modernising the Royal Mail so that it can continue to provide
that service for the foreseeable future.
Q98 Mr Clapham: I understand that
but I want to take forward where we would go from the Select Committee
making certain recommendations because the Select Committee does
not have the resource to ensure that the universal service is
maintained.
Mr Hooper: No, no, predominantly
that is a regulatory responsibility. Statutory duty number one:
maintenance of the universal postal service. Statutory duty number
two is of course competition where appropriate. Those are the
two statutory duties. Clearly it is the regulator who is responsible
for ensuring that but I think the Government as shareholder will
clearly have a role in that and I think you as a scrutiny committee
can make jolly sure that you hold their feet to the fire.
Q99 Mr Clapham: There could be an
issue there; there could be a problem there. We do need to ensure
that the Select Committee recommendations to Government regarding
the universal service are actually going to be implemented and
that is where the problem arises.
Mr Hooper: Yes; I understand.
Q100 Lembit Öpik: It is obvious
then that for a private business the USO eats profits. By introducing
private business into providing the USO one is therefore building
in an internal dynamic which will create pressure to reduce the
USO obligation in those parts which are loss-making.
Mr Hooper: I do not actually accept
that. The universal service obligation is also a huge commercial
benefit to the Royal Mail. The ability to deliver six days a week
to 28.4 million houses and businesses is not just a social obligation—though
there is clearly a social obligation there. There is also a fundamental
commercial asset; it has huge reach. If you are sending out advertising
mail, and a large section of this mail market is advertising mail,
then the ability to reach that number of homes is extremely important.
I would not see it just as a liability that is a nuisance to a
private shareholder or to anybody else. It is not.
Chairman: That is a note on which to
end. We are already half an hour behind schedule but it is important
that we took those questions and we are grateful to you for your
time and trouble. We may well speak to you again. Who knows? Thank
you very much indeed.
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