Examination of Witnesses (Questions 280-299)
ROYAL MAIL
GROUP
24 FEBRUARY 2009
Q280 Mr Hoyle: Mr Stapleton is not
very good at his sums. He also said that everybody else was wonderful.
You were pretty bad; you were the rotten core and were 40% more
inefficient. I could not believe that figure was correct.
Mr Crozier: If you look across
Europe in every market every incumbent, ie the original operator,
is less efficient and pays more than any of the new entrants.
If you think about it, that is probably true in most markets,
not just in postal services. Competitors come in without the cost
base and all the other obligations. You pay people less and so
on. Clearly, we are more expensive; our pensions are more expensive.
For example, despite all the changes we made to our future pensions
the company contributions per person are still about 20%. Our
competitors probably pay between 5% and 7% as we now pay for new
entrants. That is a huge differential. We do not disagree that
despite losing 50,000 people and improving efficiency dramatically
we are still inefficient.
Q281 Mr Hoyle: Does the 40% ring
true?
Mr Crozier: I am not sure that
it is exactly 40%.
Q282 Mr Hoyle: Do you think it could
be less?
Mr Crozier: I think it is slightly
less.
Q283 Chairman: The order of magnitude
is right?
Mr Crozier: It is substantial,
and we have never shied away from that. So far we have improved
efficiency and reached that first stage without investing.
Q284 Mr Hoyle: You suggested to the
Chairman that you paid £10 million for the pleasure of Postcomm.
How much will you pay for the pleasure of Ofcom?
Mr Crozier: I do not know yet.
Q285 Mr Hoyle: Is there a reduction
because it is merged?
Mr Crozier: I have no idea. I
guess that it will start with the legislation and its brief is
and it will flow down. We genuinely do not know that.
Q286 Mr Hoyle: It could cost you
even more?
Mr Crozier: I do not know.
Q287 Chairman: My concern is that
we shall become so obsessed with the pension deficit and the question
of part-ownership that we may overlook the regulatory issues which
are of fundamental long-term importance.
Mr Crozier: Indeed; they are a
big part of this, but I genuinely do not know the answer to this.
Q288 Mr Hoyle: Can you send us a
note telling us what you believe you will be charged?
Mr Crozier: I really do not know.
Q289 Mr Hoyle: You paid £10
million to Postcomm but you have not had any indication of cost
from Ofcom even though it is about to take over?
Mr Crozier: No. As we stand today
our regulator is Postcomm. No new legislation about our regulator
has appeared, so perhaps that answers your question.
Q290 Mr Hoyle: I did not know whether
you would get a discount and so save a bit of money.
Mr Smith: That would be nice.
Q291 Mr Wright: I believe that the
review identified a number of areas in which it considered there
were inefficiencies. What do you consider to be the most urgent
area to modernise to improve efficiency?
Mr Crozier: I think it goes across
a whole number of areas. We shall be spending about £2 billion
on modernising it. That is all about efficiency. A lot of is about
bringing in automation. People have talked about walk-sorting
machines; they sort letters to the walks of each individual postman,
but once you have done that phase you bring in what we call walk-sequencing
machines which mean that the letters arrive with the postman in
the order he does his individual round. For us that automation
is absolutely critical in taking out work and improving efficiency
levels. There is a danger of comparing apples and pears, in that
other operators like Deutsche Post and TNT went through a process
of modernisation in the early 1990s and it was funded initially
either by government, in the case of Germany, or through privatisation,
in the case of TNT. They have long since undergone that process
and it is one that we need to deal with. We are spending money
on letter-sorting equipment, walk- sequencing equipment, new vehicles
and equipment for our delivery people. Parcels give rise to very
different weights from letters for delivery and so you need a
different set of equipment to make that work. We need different
mail centres. Clearly, we need fewer of them but more modern ones
that are more applicable to the way we want to operate with machines.
There is a whole series of changes to allow us to run a more efficient
pipeline in totality. We are very much an end-to-end business.
As you change one thing you have to change in sequence all the
things that come after that. We would be very happy to send you
at any stage a breakdown of where the investment is going and
on what.
Q292 Mr Wright: It might be useful
if we had a plan of what the progress is likely to be over the
next five years. I move on to your submission to Hooper in which
you say you will reduce costs in Royal Mail Letters by £1.5
billion over the next five years. What discussions have you had
with the union over that? Have you got their agreement to that
plan?
Mr Crozier: Effectively, the national
strike in 2007 was about pay and modernisation. Clearly, at the
end of that dispute we reached an agreement with the union on
modernisation. Those documents are signed by ourselves and the
union leaders. I believe that at the time we sent them to MPs
and Members of the House of Lords. To be fair to Billy Hayes and
others at the union, they recognise the need for change; they
have said it themselves a number of times. I believe that their
own structure does not always make it easy for them to carry that
down through the union itself.
Q293 Mr Wright: What reduction in
the number of jobs is represented by the £1.5 billion?
Mr Crozier: We have never given
a specific number of job losses. On the other hand, we have never
hidden from the fact—we have made it clear to all our people
and the union—that modernisation will involve job losses,
but there are a number or different options as to how some of
those scenarios might be dealt with. As and when we get to them
obviously we shall consult extremely widely with the union on
any of those changes, and we always do.
Q294 Mr Wright: I can understand
the need to negotiate and discuss with the unions, but there must
be a global figure. The media put out all sorts of things in terms
of proposed job losses. When you made your submissions to Hooper
you said quite clearly that you would achieve a sustained cultural
change by rationalising the network of mail centres, which is
job losses, transforming delivery offices, which is job losses,
standardising and simplifying working practices, which always
means job losses, increasing levels of automation, job losses,
and investing in and building the capabilities of colleagues.
When you come to the figure of £1.5 billion clearly you must
have in mind a global figure for the reduction in jobs.
Mr Crozier: We have never hidden
from that fact. All aspects of modernisation and improving efficiency
eventually result in fewer people and that is true not just of
our company but of any. As we get to each stage of the modernisation
we shall re-evaluate what we are doing. We go through that stage
with the union. There are always a number of different ways to
skin any cat. We explain the different ways and then agree the
best way forward. That is the reason we never give an overall
number for jobs because it depends on how we choose to do each
aspect of the modernisation. Under our agreement with the union
not only would we want to discuss it with them but we are obliged
to do so. As each element comes up we always do that. We have
shared the overall strategy with the union many times. We have
had a lot of sessions with them, sometimes extending over two
days. We have taken them abroad to look at machinery and equipment
and the kinds of things we do. We have trials running at various
mail centres. None of this is hidden from people. These are things
that we have to do and they are commonplace in modernised postal
companies that have already been through it. We are not re-inventing
the wheel here.
Q295 Mr Oaten: It strikes me that
the process of consultation with the unions you have described
must take an awful lot of your time and energy. Is it not a barrier
to modernisation? Is not the fact that you have to go through
such a lot of consultation with the unions one of the reasons
why there is such inefficiency in your structure and service?
Bluntly, it holds you up from cracking on with the modernisation.
You could probably have achieved a lot of these things two or
three years ago if it had not been for the unions?
Mr Crozier: I am not sure that
is entirely fair. To be sure, to go through all the consultation
affects the pace at which you can make change, but on the other
hand there are examples where with the union's involvement we
have managed to do some good and impressive things. I think the
union's structure itself sometimes works against what we, and
in many ways the union leadership, think needs to be done. For
example, even if you come to a national agreement the union's
structure is such that every branch is at liberty to decide whether
or not it wants to take part in it. One matter we have suggested—I
wrote to Billy Hayes about it recently—is that if, as Hooper
suggested, what is needed is for the union itself to modernise
its structure we shall be very happy to work with the TUC and
whatever best practice might look like for the structure of the
union, irrespective of its cost, we will help them to implement
it and pay for it. If we get that best practice structure so that
the union leaders feel we are on the same side it will be helpful
not just to us but to them. The company needs to modernise but
I do not think it is unfair to say, as would some within the union,
that they have some modernising to do, too.
Q296 Mr Oaten: That sounds like a
very polite and diplomatic way of saying that the unions have
been part of the inefficiency.
Mr Crozier: I am not sure I agree.
Mr Oaten: You just said the structure
was such that if you made a national agreement you had a different
pattern throughout the country. You said that it needed to modernise,
so clearly it must be part of the problem.
Anne Moffat: They are also part of the
solution.
Q297 Mr Oaten: Indeed. The reality
is that there is inefficiency and the unions are part of it.
Mr Crozier: Let me answer the
question in a different way. Do I believe that Billy Hayes and
others want to change and help the Royal Mail be successful? Yes,
I do. Do I think there are issues with the union's own structure
that sometimes prevents it, never mind me, from doing that? Yes,
I do.
Q298 Mr Wright: You need to take
the workforce along with you; there must be discussions and negotiations
and you must be upfront and transparent about what has happened
within the postal service. I think everybody from the postman
right up to the chief executive accepts that change needs to happen
to sustain the postal service that we have come to expect. One
matter that concerns me is that in the papers we read about postmen
being timed from the moment they deliver their post office to
the delivery of the letters. They have to do it in a certain time.
That does not do anything for industrial relations. It is certainly
a two-way process. It appears to me to be a one-way process. What
I am getting at is: how is the relationship with the union at
the moment? What are you doing to try to rebuild the relationship
which I think has been broken over time? Are you prepared to sit
down with the union exclusively over the next few weeks and months
to talk realistically about what change will be needed and be
upfront about what is to happen with the workforce?
Mr Crozier: As we have seen over
the past couple of days Royal Mail, like it or not, is an organisation
that lives in a goldfish bowl where it is open to political interpretation
from all sorts of different angles. Sometimes people use us as
a bit of a football. Is it true that we ask our postmen to go
at four miles an hour? That is absolute nonsense; it is complete
tripe. Is it true, as we read recently, that there is something
called Project Tiger where we plan to lose 16,000 people next
week? I have here the union all-branch report which tells people
that Project Tiger is not about people. Do we sometimes get used?
Do things appear that are not entirely true? Yes. We are part
of that political football. That said, the most important thing
is that we need to take the union and our people with us, but
do we also have to accept that in the situation that this company
faces at the moment some of the things we need to do are not very
popular? Yes. Is it popular to reduce people's future pension?
Clearly, it is not. Will people like that? No. But that does not
mean as a company even as it is currently funded by the taxpayer
we can shy away from it. We cannot say on the one hand we insist
that they improve efficiency and do much better and on the other
hand not do the things that will allow us to get there. We have
to take people with us but we must accept that we shall have to
do some pretty difficult things; otherwise, the company will not
survive. The twin issues of declining volumes and the huge pension
deficit will not go away on their own; we have to find solutions
to them; otherwise, the fact is that the company, the USO and
the country has a bloody big problem.
Q299 Chairman: We shall move to the
issue of part-privatisation but I do not want to address that
issue in putting this question. Following his appearance Richard
Hooper has written to the Committee. After referring to capital
issues and concluding that a strategic partnership is necessary,
he says that the third issue of equal importance—it does
not matter for the moment about the first two—is commercial
confidence. He says that means modernising labour relations so
that unions can engage in debates about the long-term future of
the postal business and in turn management can press on with agreed
plans free from confrontation and obstruction. I do not endorse
what Mr Hooper says; I just comment that that was written to the
Committee. He seems to place a good deal of the onus for the problem
on the union. Anne Moffat may want to come in and ask a question
to counter Mark Oaten's question, but Richard Hooper made a surprisingly
strong statement to this Committee.
Mr Crozier: If I gave the impression
that it is all a union issue clearly it is not. We have to improve
what we do. I have already written to Billy Hayes. We have talked
about the need to improve the relationship between the company
and the unions. We have met with the leadership of Unite. We have
a two-day session set up between the leaders of the letters business
and the union, so we have lots of work to do on our side, but
in my view it requires a shift. Therefore, it is a personal one.
I am up for change and I am actively going to promote it in the
business every day. That is what we have to shift everybody into.
We have to get on with this. I said to my wife at New Year that
I intended to go jogging every night to try to get fit this year.
I have not been out for a single jog yet, but that does not mean
I was not sincere when I said it; it is just that I have not done
it.
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