Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Examination of Witnesses (Questions 60 - 76)



  Q60  Sir Peter Viggers: Siemens is responsible for direct sales. Are you saying that the direct sales come direct to you and may not come through Siemens?

  Mr Owen: Siemens do all of our processing for us, whether it is direct or indirect. They process everything, so we pay Siemens a different amount if the money comes in through the Internet or the telephone compared with if it comes through the post and we pay them less for the direct sales than we do if it comes in through more traditional means because their processing costs are lower.

  Q61  Sir Peter Viggers: If you increase direct sales and reduce traditional sales, that must have an impact on those responsible for the traditional sales, namely the Post Office. What would the impact be then?

  Mr Owen: It does reduce our payment to the Post Office, yes.

  Q62  Sir Peter Viggers: How do you see the distribution of products developing in the coming years?

  Ms Platt: I think our strategy is quite clear, that we want to have a robust set of Internet, telephone and postal channels and our relationship with the Post Office remains healthy. Last year the percentage of business that we did through the Post Office was about 60%. I would expect it to be about 50% this year, which is something the Post Office are well aware of and we work very closely with them.

  Q63  Ms Keeble: I want to ask about your relationship with the Post Office. You said that you expect the market share that goes through the Post Office to decrease. Is that because you are going to grow the others or is it partly because of the reduction in the Post Office network?

  Ms Platt: It is to do with the balance between the various different channels. So overall, for example this year we are not expecting any growth because we are trying to manage our net financing around zero within the band of -2, +2 billion and the percentage the Post Office will be doing will be about half of the sales which will come in through that channel.

  Q64  Ms Keeble: Are you going to be affected by the reduction in the Post Office network and the other various channels, the sales channels? Which ones are you looking to increase and how?

  Ms Platt: In terms of the Post Office and its number of branches, in fact the vast majority of sales coming to us come through the Crown branches, so we would not expect to be adversely affected in terms of our sales by any plans that we have seen from the Post Office to date.

  Q65  Ms Keeble: Do you not think that you are over-reliant on the Post Office? Looking at the figures, the Post Office counter sales were very sort of static through 2003-04 to 2007-08. Last year it shot up and it practically doubled. I see that your Internet sales have grown but not exponentially. What are you going to do to really expand on your other sales channels?

  Ms Platt: Last year was a very unusual year because of the flight to safety and there was definitely a discernible trend that because people were very concerned about security overall, it was important for them to have the physical transaction and a piece of paper that was stamped in the Post Office when they actually invested their savings. So I think there were very particular reasons why the Post Office counter sales were so disproportionately high potentially last year.

  Q66  Ms Keeble: So you are trying to say that people would rush round to Northern Rock and took the money right there and then they rushed round to the Post Office and paid it in? I think you would have to be quite clear if the flight to safety people were choosing to go to the Post Office .

  Ms Platt: Not all of the flight to safety people were choosing to go to the Post Office because in fact all of our channels increased their sales last year, but there was a disproportionate increase in the Post Office. It was not just people rushing round from Northern Rock and putting their money straight into the Post Office, it was people looking to invest over the counter and wanting some proof of that.

  Q67  Ms Keeble: What are you doing about looking at the products? Could you have an agreement with the Post Office about who provides what type of product, if there are some sorts of areas which they will not go into? Finally, your baby bond product, is that the Child Trust Fund or not?

  Ms Platt: I do not think so.

  Q68  Ms Keeble: Okay, so the first one is just about the agreement with the Post Office about who sells what?

  Ms Platt: We do not have a precise agreement with the Post Office over who sells what, but we have a very good relationship with them and over time we share our plans, they share their plans, and as you will have seen in the last few days we have mutually agreed that our Guaranteed Growth and Income Bonds will no longer be sold in the Post Office but just through our direct channels. That is the result of our strategy to increase the amount we are doing over the Internet and over the telephone. Also they are content with that because they have products which compete in the same space, so it works well for both parties. So we work very closely together in looking at that.

  Q69  Ms Keeble: And the baby bond product, is that a Child Trust Fund or not?

  Ms Platt: We have Children's Bonus Bonds. We do not have a child's trust fund, but we have a Children's Bonus Bond.

  Q70  Ms Keeble: We went into this some time ago when I asked about whether you did a Child Trust Fund and you did not do one. Have you looked at that at all, because given your profile and the assurances people have about those sales, why don't you offer a Child Trust Fund? Why can't you develop one?

  Ms Platt: The situation has not really changed since we last spoke about this matter in that we do have a review of our products line from time to time. We had one about 18 months ago and the Child Trust Fund remains a product that we cannot offer on a viable basis in light of our remit.

  Q71  Ms Keeble: Why not?

  Ms Platt: Because of the expense of creating and running that sort of product. It would not be cost-effective financially for the Government. But we do have an extremely good product in Children's Bonus Bonds and some 5% of our total customers are children who invest either in Children's Bonus Bonds or in Premium Bonds or Capital Bonds.

  Q72  Ms Keeble: Can I just ask again on this, because if you say that you are trusted for children's products then why not the Child Trust Fund and why not look at how it can be provided as one of a range of products to make sure that you really can deliver a comprehensive suite of services for children, if you are trusted for that sector?

  Ms Platt: We believe we do have a comprehensive range of products for children with the Children's Bonus Bonds, Premium Bonds and the other things that we offer. We have looked at the economics of offering a Child Trust Fund, but unfortunately they do not meet the hurdles of being able to offer such a thing cost-effectively in the context of our overall range.

  Q73  Chairman: Just a couple of final questions. Your key efficiency measure, soon to be called "value add", the extent to which it is cheaper to raise money through you than through the rest of the markets was simply suspended last year and has not been reinstated. Why was that? How can you tell how well you are doing if the efficiency targets you have got no longer exist?

  Ms Platt: It has been temporarily suspended, so we are all working on the basis that as soon as the comparators which make up that target and benchmark have some meaning, then we will reintroduce it. When I say when the comparators have meaning again, let me just explain. We temporarily suspended value add at the time when interest rates, the base rate, went down to half a per cent. The base rate has never been that low since the Bank of England was founded and certainly not since Premium Bonds and our other products were introduced. So we looked very carefully at the value add measure and realised that if we did not suspend it, it would drive us to make some very difficult and unfair decisions in terms of pricing for our customers. For example, with base rate at half a per cent, that would assume on our value add measure that the Gilt Office (DMO) would be able to raise financing for 11 or 12 years at less than 0.3%. That is just not true, so therefore we had to suspend the measure because it was distorted and did not give a true measure. However, we have got an efficiency measure—

  Q74  Chairman: No, let us just stick with value add. When you say it can be reintroduced, can it now be reintroduced mid-year or would you get away with no measure for the whole of this year?

  Ms Platt: We have a measure for this year, which is our efficiency ratio, which looks at the cost of administering the fund against the amount.

  Q75  Chairman: Yes, but I am asking you about value add. Could the value add measure be reintroduced in-year?

  Ms Platt: Technically it could, but only when the comparators have some meaning. We have got, though, a value proxy measure, which does measure whether we are able to add value against the gilt market. What that has done, and we have worked with the Treasury on this, is to put in place an indicator which does indeed show that during the time that value add has been suspended so far we are raising money more cost-effectively than the Gilt Office (DMO) and I am more than happy to go into the detail of that calculation and the figures if you would like.

  Q76  Chairman: I am afraid we do not have time to do that. You have got your own youandyourmoney website alongside the Financial Services Authority's own website on moneymadeclear. Why do you need your own?

  Ms Platt: Along with other financial services institutions, we absolutely support the Government's financial capability initiatives. We believe with the NS&I brand we are in a really good position to get people with our 27 million customers, many of whom come to our website on a very regular basis actually looking at this information. And you may be interested that in WH Smith's very shortly we will be putting out some financial services guides. Again, this is very unusual because most people would expect us to have everything focused absolutely on product, but of the eight guides we are putting out six of them are on financial capability and helping to educate the public where we believe NS&I has an important role to play.

  Chairman: I am afraid we are out of time. We are going to have to leave it there. If there are further questions we will follow up in writing. Thank you both for attending today.

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