Examination of Witnesses (Questions 60
- 76)
WEDNESDAY 21 OCTOBER 2009
MS JANE
PLATT AND
MR STEVE
OWEN
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.
| 
