Examination of Witnesses (Question Numbers
George Thomson and Mervyn Jones
8 December 2010
Our next witnesses are two gentlemen I know very well from the
National Federation of SubPostmasters. Perhaps you could start
by introducing yourselves and then make a brief opening statement.
I am George Thomson, General Secretary. Thanks for the invite
to be here today.
Mervyn Jones: Thank
you very much. My name is Mervyn Jones. I am a subpostmaster in
Hawick. I have been a subpostmaster for 30 years. I am also a
Commercial Director of the National Federation of SubPostmasters
Maybe you would like to make a brief statement with particular
reference to the Postal Services Bill.
To make a brief statement, the last 20 years have been very difficult
for the Post Office network, almost from selling off Girobank
in 1990 to the decision to scrap benefit books seven or eight
years ago. Everyone in this room knows that there have been closures.
The network has halved since 1968. There were 24,500 branches;
it is now down to 12,000 or 11,500. So the last 20 years have
been difficult. Shopping habits have changed and society is changing.
To some extent the Post Office has been in danger of being left
behind. We think the Postal Services Bill is an opportunity potentially
to get the show back on the road. Every single politician from
all the political parties to whom I have spoken does not want
any fewer than 12,000 offices in the UK. In Scotland there are
1,446. I think there is a general consensus among all Scottish
politicians that that is the kind of level at which they want
the Scottish network to remain. Some 68% of the Scottish offices
are rural, which is 13% more than the UK, where only 55% are rural.
Therefore, in terms of small businesses and the general public,
we all have to work together to try to make sure the Scottish
Post Office network has a long-term viable future and things can't
continue as they have been. I'll say in this room that it's well
known that over the last two years the National Federation of
SubPostmasters, in particular myself and Mervyn, have been working
with both the last Labour Government and the coalition Government
to see if there was a set of circumstances in which an independent
Post Office Ltd demerged from the Royal Mail would have a future.
We have worked behind the scenes. We do believe that the Government's
commitment of £1.34 billion over the next four and a half
years and to make us a front office of Government means there
is a desire to make sure the Post Office network has a viable
future. Our job in this room is to make sure that promises and
policy are delivered to make sure that happens.
You said there was a commitment from the Government that post
offices would become the front office of Government. What about
Scotland, Wales and Northern Ireland? Do you have similar assurances
from the devolved Administrations there?
Mervyn and I had a meeting with the First Minister just three
or four weeks ago. Maybe Mervyn wants to come in on that point.
Mervyn Jones: There
is certainly a degree of sympathy within Scotland for providing
devolved Administration services. We have a concern that there
won't be a joined-up approach throughout the United Kingdom and
that, in relation to certain devolved areas where the Scottish
Government have responsibility for making those decisions, we
could end up with disjointed decisions in England and Wales in
comparison with Scotland and Northern Ireland. We are really trying
to keep a handle on which decisions are the responsibility of
the people here and which decisions are the responsibility of
the Scottish Government.
For example, at the moment there is a little bit of envy in relation
to subpostmasters in Scotland because of the small business rates
relief. If the rateable value is less than £10,000 they pay
nothing; so some subpostmasters are saving £4,000 or £5,000
a year. Something similar has happened in Northern Ireland and,
obviously, Wales. To some extent a lot of our colleagues in England
are pretty envious that we are able to do that. We think there
is a case in the rest of the UK and England for providing help
to small shops through rates relief to make sure they remain on
the high street.
You mentioned the £1.34 billion from the Government for the
next three or four years. Are you confident that that would be
enough to set you up for the long term, or would you be coming
back in three or four years' time wanting that to be continued?
We think there is a recognition, Alan, by Government that it will
make the network far more secure. The £1.34 billion represents
£180 million in 2011-12; £450 million in 2012-13;
£410 million in the year after; and £330 million in
the final year, 2015. That will allow us to restructure the network
both by modernising the branches that are there and investing
in the infrastructure and physical appearance; it will allow the
Crown offices to break even; and there will be implementation
of what is called Post Office Local, or Post Office Essentials,
which basically puts a post office provision in a convenience
store and, say, a local garage or newsagent to make sure that,
rather than having two small businesses in a small village that
struggle to survive, the retailer and post office are strong enough.
It puts us in a stronger position. Will it be enough? Will there
be a need for the Social Network Payment to continue to a lesser
extent? I think there will be. The person who runs the Post Office
Local receives only commission; he or she does not receive a fixed
element. As long as that goes into a business that is viable and
they can share the costsfor example, if it was a Londis
convenience store, as Mervyn has in Hawickthen that becomes
viable, but you will still have a situation where it is the last
shop in the village and the subpostmaster gets £15,000 or
£16,000 from Post Office Ltd but only £1,000 is commission.
Because that post office is the last shop in the village and has
a bit of retail, there would be no sense in cutting that subpostmaster's
income to only £1,000 for the commission. He would still
have to get £15,000 or £16,000, so the continuing Social
Network Payment, I believe, would have to go to offices like that
to make sure the last shop in the village remained at the kind
of income level it has at the moment in order to survive.
We hear stories that the inter-business agreement that the Post
Office currently has with Royal Mail will continue for another
five years. Are you confident that after those five years are
up the Post Office will provide a good enough service that whoever
owns Royal Mail at that time will have no alternative but to renew
that inter-business agreement?
Mervyn Jones: I
think what we have to do is to make our network as attractive
as possible to Royal Mail to make them want to use it, rather
than have it enshrined in legislation to make them use us. We
would like to see that inter-business agreement as it is nowor
as it is about to be revampedexist for as long as possible
to give us time to redesign the network. I'd just add to a point
George made earlier. We have a challenge to ensure that our post
offices are open longer hours and provide the services that modern-day
customers require. That probably means opening until 10 o'clock
at night. If I could elaborate a little, my convenience store
is open until 10 o'clock at night and opens at 7 in the morning,
and it's open seven days a week. But my post office is only open
from 9 o'clock till 5.30 because of the costs of delivering the
staff wages, and the income that the post office provides and
generates outside those core hours does not meet the costs. If
I can get to a situation where I can amalgamate that service provision
so that I can multi-function my staff and allow them to open the
post office and provide services outside the current standard
hours, that would enhance customer service and make our network,
if we can achieve that on a large scale, much more attractive
for Royal Mail to want to use. Customers' shopping habits have
changed; they want to post packets and parcels at 7 or 8 o'clock
at night; they want to come in and pay their gas bill on a Sunday,
and we have to meet that challenge.
In addition to what Mervyn said, we want Royal Mail to make it
a no-brainer that they use us in the future because of the hours
and the new network. However, in the meantime we want a deal for
as long as possible so we are fit for purpose in future. We would
still say that Royal Mail should still give us a 10-year deal.
What concerns the Federation at the moment is that we know for
a fact, and I said this at the all-party group, that the Chief
Executive of Royal Mail Group, Moya Greene, is prepared to give
us a 10-year IBA. We know for a fact that the Managing Director
of Post Office Ltd, Paula Vennels, wants a 10-year agreement.
We keep being told by the politicians that it's nothing to do
with them. The question I would like to ask is: what is the reason
we are not getting a 10-year deal? We have spent a bit of money
on this. We know it's not illegal to be given a 10-year deal;
we know it doesn't break European procurement legislation because
it is an in-house award. So we want to know what is stopping the
company signing a 10-year deal.
I presume you have asked the companies concerned. What have they
Mervyn Jones: Both
have said they are happy to sign a 10-year deal.
Why don't they?
Mervyn Jones: That
is the question we would like to ask, and perhaps you might like
to ask the Minister.
We will ask him next week.
What is happening at the moment is that both sets of solicitors,
for Royal Mail Group and the Government, blame each other. It
is like wading through treacle. We want a 10-year deal; we know
there is one on the table to be done, so let's do it.
Chair: Thank you. Who
wants to come in? Cathy?
Q53 Cathy Jamieson:
I was going to pursue some of those issues but I think we are
now fairly clear where we need to pursue those matters further.
Can I just ask a wee bit about the whole issue of mutualisation
and community ownership because I know that is something about
which you have concerns? I have concerns about the very loose
language that is being used around this. I pressed the Minister
on it at the all-party group because he seemed to be using the
so-called John Lewis modelwhich is not a mutual but employee
ownershipinterchangeably with mutualisation, which is an
entirely different democratically controlled structure. Without
going into all the technicalities of that, I just wonder whether
you can say a wee bit about your concerns in relation to the potential
for community and mutual ownership.
Mervyn Jones: Perhaps
I may take us back a few steps from where we are now. One of the
things that the Federation recognised several years ago was that
there was a conflict between what was good for Post Office Ltd
and what was good for subpostmasters. We recognised that subpostmasters
were being squeezed to achieve a profit target for Post Office
Ltd and in essence that put the viability of individual subpostmasters
at risk, because in order to generate more profits the commission
levels for subpostmasters were cut. Against that background, over
three years ago now, the Federation embarked on a project where
it took advice on how it could more closely align what was good
for subpostmasters and what was good for Post Office Ltd. To be
fair, we have driven the agenda along a mutualisation model and
are now in a situation where the wording of the Bill allows for
that potential mutualisation. We need to ensure that the company
we end up with, now that we have been given the funding to restructure,
is worth owning and, if it's going to be worth owning, that the
model that exists to facilitate that ownership is something subpostmasters
will want to buy into.
The John Lewis model is only one of a number of models.
I understand that Ed Mayo has been tasked by Government to present
four or five different options. I am able to tell you that the
Federation is working on its own option which it will present
to Ed Mayo so that we end up with a model which may be based on
the John Lewis Partnership modelit may not bebut
will allow subpostmasters to share in the profits and success
of this company once it is restructured. We believe that is a
fundamental principle which will drive the network along a path
that is going to give the customers the service they deserve.
I think what brought things to a head on mutualisation was the
last year and a half in which we had a situation where a large
minority of subpostmasters were suffering from reduced income,
which in some cases was quite substantial, and yet at the same
time there were the highest bonus payments ever paid out to Post
Office Ltd management. We said that, rather than their interests
becoming more aligned, they were being more and more misaligned
and we felt it couldn't go on. You can understand that, Cathy,
when a company is doing well and everyone benefits and gains bonuses.
It is a bit like the Chief Executive, Moya Greene, saying to postmen,
"I'm going to cut your wages by 10% and I'm going to take
a £4 million bonus." Obviously, Moya wouldn't do
that, but in effect that is what has happened within Post Office
Ltd. At a time when the income of subpostmasters was reducing
dramatically, we had massive bonuses paid out. As far as we were
concerned that was a game-changer; it could no longer continue.
That is why we have spent a bit of time and effort to put mutualisation
in front of the Government. In fairness, the Government picked
up our ideas not only on fundingthe £1.34 billion,
though obviously we would have liked a bit more, as we always
Q54 Dr Whiteford:
I share Cathy's concern about mutualisation. I think we are all
a bit vague at the present time about what is actually being proposed
here. I want to ask a question that follows on from hers. What
are the implications of potential mutualisation for more remote
and rural areas? Do you have any thoughts on that? Is that something
you have thought about?
On that point there is a school of thought on which I will expand.
What's been said to me over a year and a half was, "Do you
want post offices to be part of a Royal Mail Group privatisation
where, if a company became really hard-nosed, thousands could
be closed, or do you want them closer to Government where, obviously,
the Government would have responsibility for their future?"
So we are coming out of the group. On that point, people have
already said to me, "Would it be better being totally owned
by the Government and more secure, or would it be better to go
along the mutualisation path?" I think that, by going along
the mutualisation path but with the Government still being involved,
we can make sure that local communities still have their post
offices. As you are aware, 97% of all outlets throughout the UK
are owned by self-employed subpostmasters. That will continue.
What we are talking about is mutualisation of the central company,
because really, all Post Office Ltd is is a central body that
owns contracts and is responsible for discipline and ensuring
that cash and stock come to you. The people who really are the
business are subpostmasters. So, in our opinion, as long as the
Government is in for the long term, mutualisation will present
no difficulties or threats to small and rural post offices.
Q55 Dr Whiteford:
Thank you; that's really helpful. My other concern which I share
with you is about long-term, indeed medium-term, sustainability.
You talk about a 10-year deal, but it is a bit longer than that.
What is to prevent a very gradual erosion of services in rural
areas under some of these proposals? I have a lot of questions
around that, so it is a concern that is very real. The other thing
I wanted to ask you about is the post bank, because in the evidence
you submitted you expressed some disappointment about that.
We have to be honest here. We were really supportive of the post
bank. It was the Federation that started pushing it about three
and a half years ago. To be blunt, there were a series of two
meetings within a fortnight, one with Labour and one with the
Conservatives. Mervyn was also there. Peter Mandelson said point
blank, "George, it's going to cost £2 billion to
fund a state-owned post bank", which was what we wanted,
"and we can't afford it." We then had a meeting with
Jonathan Djanogly and Ken Clarke and it was a slightly harder
line, even. The response was, "We now own the Royal Bank
of Scotland; we now own a large share in Lloyds. If Peter Mandelson
said it was going to cost £2 billion, we're against
it for theoretical and policy reasons." It became apparent
to us probably in February or March of this year that there was
no way it was going to happen given that the two big parties had
said no. Obviously, things changed slightly with the coalition
Government coming in, but we decided to put our efforts elsewhere
and try to make sure that banks like the Royal Bank have to sign
up to allow their customers access to the Post Office, which is
about to happen. In an ideal world I would have loved a post bank.
I know for a fact there were moves afoot to see if Post Office
Ltd was going to become a separate company. This was about three
years ago under the old managing director, Alan Cook. Was there
a possibility that National Savings Bank, NS&I, and Post Office
Ltd could be merged? It certainly could have been a goal, but
I know that the Treasury were not in favour of relinquishing their
control of NS&I. NS&I was part of the General Post Office
until 1969. It was a post office bank for 108 years from 1861
to 1969, but again nothing came of that. Regrettably, it looks
like there has not been the political will to create a post bank.
Mervyn Jones: I
think we also need to be cognisant of the potential income that
agents acting on behalf of other banks generate for the company
and subpostmasters. It is not a great amount of money. I understand
that subpostmasters are paid about 18p for doing a banking transaction.
If you have staff, it is very difficult to meet the national minimum
wage when the payment rates are so low. To come back to your point,
we need to ensure that the work we get from Government is profitable
and lasting work and sets the network off on a footing that allows
subpostmasters to generate enough income to operate profitably.
We have a role to play within Post Office Ltd to ensure that its
costs are kept to a minimum and as little of the contract price
that is determined between Government and Post Office Ltd sticks
to the pipe. We need to make sure that as much money as possible
from those contracts flows through to the end of the network and
Q56 Fiona O'Donnell:
First, thank you very much for being here. I hope it wasn't too
onerous a journey. Perhaps I can start by trying to get a picture
of the health of the network in Scotland just now. George, you
gave us an update; there are five more branches than we thought.
Therefore, we have 1,446 branches in Scotland now. How many of
those are profitable?
Mervyn Jones: Two
thirds are not. For Post Office Ltd? We need to be very clear
here because this is really important. When people ask whether
a post office is profitable, do they mean profitable for the subpostmaster
to operate or for Post Office Ltd to maintain in that community?
There are two different answers to that question. To elaborate
for a moment, two thirds of those branches are not profitable
for Post Office Ltd to operate. They become profitable for the
subpostmaster when he amalgamates internally with a retail offer.
At some point, if Post Office Ltd look at the network and are
put in a position where they say that these branches in rural
Scotland are losing us money, then they withdraw that service
or change the model to an Outreach or some other form of model.
It impacts so negatively on the retail activity and overall business
proposition of the individual subpostmaster that it puts in jeopardy
the long-term sustainability of that business. Not only do you
lose the businessthe post officebut you lose the
shop, and that is particularly worrying where it is the last shop
in the village. It means people then have to travel to buy fresh
fruit and vegetables, milk, papers and that type of thing. We
need to find a mechanism where there is a recognition within the
decision-making process that, by changing the current operating
model because Post Office Ltd deem that outlet not to be profitable,
it could negatively impact on the profitability of the individual
subpostmaster who is currently running a profitable business.
Q57 Fiona O'Donnell:
Do you know how many post offices in Scotland are currently for
Mervyn Jones: I
cannot answer that specifically, but the general trend is 10%
It is what I said to the all-party group, Fiona. There is no doubt
that a post office franchise is not as attractive as it used to
be. There is no doubt that it takes longer to sell a post office.
We all know of cases where people just hand in the keys and walk
away. That is becoming a greater issue. That is why we think the
status quo is not an option. On the closure programme Mervyn touched
on, I think that is why all the political parties have made up
their mind that we cannot have another closure programme of post
offices within Scotland or the UK, because when you close a post
office it rips the heart out of local retail. But, more importantly,
if we are trying to encourage small and medium enterprises to
establish themselves in rural areas, we must have a situation
where businesses can reach a post office relatively easily, so
not just for social customersthe general publicbut
small and medium enterprises. We must all work together to make
sure the network in Scotland remains roughly where it is. People
have asked me why 12,000 are so important for the UK. It is pretty
simple. As a modern, developed democracy, if we can't have one
post office per 5,000 of population in the UK, we must be doing
something wrong. There is no way on God's earth we should accept
a post office network that does not remain at around 12,000. Everything
you do as a Parliament and a democracy should be to make sure
that that continues because post offices are so important.
I'll give an example of how important they can be
in the bad weather in Scotland. I know post offices that are shops
as well. Because people can't reach some of the big supermarkets
any longer, a lot more local shopping has been done until they
run out. I know of shops that sold 40 loaves of bread a day, but
which now sell up to 500 because all the people who leave the
town to go to the Asdas and Tescos all of a sudden shop locally.
Post offices and small shops are so important for a variety of
reasons. If the closure of post offices and shops continues unabated,
as it has over the last 10 years, in 10 years' time you may not
be able to run to the local shop to get bread and milk when there
is a snowstorm, because the local shop may not exist. I think
that at a lot of levels we have got to get it right as a society,
and that's the challenge in the future.
Q58 Fiona O'Donnell:
What in this Bill guarantees the access criteria?
In an ideal world, Fiona, we would have liked greater access and
to say it should be around 12,000. We raised that issue with Peter
Mandelson and Pat McFadden. They were not keen on that. We have
raised it again with both Vince Cable and Ed Davey. Obviously,
they are not keen on it either. How can we create a set of circumstances
that makes it likely that the network will stay at around 12,000?
Funding is part of it; mutualisation, which Mervyn talked about,
is part of it; a long IBA is part of it, but more importantly,
the key for us is new Government work.
Q59 Fiona O'Donnell:
Can you say a bit more about that? What kind of work would you
like to see coming to post offices to make them viable and healthy?
The front office of Government is not just a phrase. You made
a very good point about the contradictions and conflict. I do
believe that in rural areas people who are unemployed should be
able to sign on at a local post office rather than have to jump
on a bus or use their own car to drive. To take your constituency,
for example, someone from Tranent could sign on in Tranent rather
than travel five or six miles to Musselburgh. I think that is
a potential. There is an enormous opportunity for older people,
who perhaps may not yet be internet-savvy, to use the post office
for assisted applications, for example when they start their pensions.
They could come into the post office; we could help them fill
in the form; we could take photographs, if they are necessary;
we can check documentation. There is also a concept called Validate
where someone gets a letter from a local authority and has to
take documentation to a local post office to produce evidence
that his or her circumstances have not changed for the purposes
of housing benefit. It was trialled under the previous Government
and was a big success. However, there wasn't a revenue stream
there. There are lots of different things we can do. We want to
work with the coalition Government not only to give us a viable
post office network but to make sure that Government Departments
can restructure and save a bit of money by using that network;
but again, it is up to the Government to deliver that.
It would be a disaster if all the half-promises and
promises came to nothing. That is why in relation to the Postal
Services Bill I said that Post Office Ltd was a financial basket-case
at the moment, and it is. I thought long and hard before I used
that phrase. MPs must be aware of the enormous journey that will
have to be undertaken both to make Post Office Ltd profitable
and then turn it into a mutualised company. It won't be done by
just a few small changes; the Government need to step up to the
I'll just finish on this point. In the past, quite
rightly, various Governments of all different political persuasions
have been able to say to us, "Look, George and Mervyn, society,
shopping habits and banking habits have changed." To a large
extent those Governments have been correct. We have fought a rearguard
action to keep work that we have or get some kind of restructuring
to keep the network afloat through compensation. We have done
all that, but this is the first time a British Government have
taken a policy decision to remove the retail arm of a mails company
from that company. It is a bold move that is not without risk.
The Government have to deliver. If the Government take us out
of the groupand they are going to do it, and we have supported
them and given them the benefit of the doubtbut they don't
deliver on new income streams, then it will be a shambolic disaster.
The Government can then no longer hide from the problem because
they will have created it. It is not societal changes. The Government
must step up to the plate and deliver new work to the Post Office
at a reasonable income level, as Mervyn said. They have nowhere
to hide. They must work with the Federation, Royal Mail Group
and Post Office Ltd to make it a success.
Chair: Fiona, do you want
to come in?
Q60 Fiona Bruce:
Gentlemen, thank you for coming and for your very clear comments.
To turn back to the point about services in rural areas that Eilidh
raised, how do you feel that the Outreach post office is working?
I ask that from three directions: Post Office Ltd, subpostmasters
Mervyn Jones: Thank
you for your question. It is something that has caused me much
thought. People use post offices because they are convenient.
If a post office is open only two hours a week it ceases to be
convenient. If people have to stand outside in three feet of snow
waiting to get into the back of a van, you question the convenience
of that offer. But then there is a balance, which is that the
network needs to be subsidised and the service provision in rural
areas is very difficult. In truth, the company can't afford to
pay subpostmasters when an office is maybe having 50 customer
visits a week. How do we as a company grasp that nettle?
For the very first time Post Office Ltd have included
the Federation in a lot of discussions around the new network
models and how they will work. It's not an easy balance to achieve,
but we believe that where the service can be hosted in an existing
convenience store and the two businesses feed off each other,
that is one model, provided the contract is right and we can negotiate
on the final detail of that. From the subpostmasters' point of
view, some of the Outreach services are more profitable than others.
It depends, first, on usage and the type of Outreach model being
delivered. Where there is enough to generate a van to go round
maybe 10 or 11 different communities, a subpostmaster can do reasonably
well. In a hosted site where they go out and provide a temporary
service in an existing outlet, it depends on the contract that
exists between the host property owner and subpostmaster who is
going out, and also its usage. If I am honest, the flat answer
Q61 Fiona Bruce:
That brings me to my next question. What could be done to promote
this service to give it greater usage?
If you have a situation where a post office closes and there is
still another shop in the village or town and it is getting a
partial service at the moment, I think the solution there would
be Post Office Local, where you have a Post Office Local provision
in the shop that remains. It is a cheaper option for the Post
Office. The Outreach services have a role to play. If it is a
post van, yes, it's better than nothingabsolutely yesbut
it's not great. If there is somewhere else, particularly another
retail outlet, that could become a Post Office Local or Post Office
Essentials, I think that makes more sense because it gives the
retailer footfall and the customer longer hours. But certainly
we've got to look at the whole model. In Scotland there are about
140 post offices where we provide the service through an Outreach
model. In some locations it works; in others it does not work
too well at all. Again, we have to work together to try to give
the community the best type of post office for the population
that use it in that locality.
Q62 Fiona Bruce:
That's interesting. When you say "we have to work together",
what kind of partnership working is there to look at this, and
what would you like to see?
Mervyn Jones: These
are all aspirations around the mutualisation of the company. We
would see the National Federation of SubPostmasters having representation
on the board of Post Office Ltd. George and I have discussed many
times that the people best suited to protect the network are not
those who manage it but those who run it and have invested £2
billion of their money to ensure that our network exists. In Scotland
we have very specific issues, given the rurality of Scotland and
population densities and distribution, but we believe that the
only way to solve these problems is for us to have a fully inclusive
and meaningful involvement with the management of the company.
That involves the mutualisation model which allows us to have
that full and open interaction. To give an example, the business
has consistently refused to allow us to see the inter-business
agreement that exists between Post Office Ltd and Royal Mail Group.
We have consistently said, actually, we would like to see that
agreement. They have moved some way to giving us a briefing as
to what is in the agreement, but we have still never managed to
see it. It is getting better but it is not in the place we would
like it to be yet.
I have just one or two follow-up questions. First, are you pressed
for time to get away?
Mervyn Jones: No,
we have time for you, Alan.
Thank you very much. That is the way to curry favour with the
Chair. One issue that regularly turns up in my postbag is where
a private mail operator tries to deliver a parcel to someone in
a rural area and that person is out. Often a card is put through
the door to say they have to go to a depot that may be 50 or 100
miles away. My understanding of the present inter-business agreement
is that that parcel cannot be left at the local shop because only
Royal Mail or Parcelforce parcels can be left at the shop if the
shop also has a post office in it. Is that also your understanding?
At the moment, outside companies, or competitor companies like
TNT or DHL, can use a local post office if they want to do so
but they would need a commercial deal through Royal Mail Wholesale.
Royal Mail would negotiate with them and then they would negotiate
with Post Office Ltd. That facility has been there for five or
six years. My understanding is that, apart from a company called
DX, there has been no demand for that service. Subpostmasters
would be over the moon if, for example, TNT or DHL were able to
conclude a deal or pay for one. The problem is that they would
like to use us but don't want to pay the rate. We would love a
situation where they can use our officesso, someone comes
back from work, has missed the postman and can come to the local
post office and pick up a parcel from DHL or TNT.
In fact we go further. Moya, the Chief Executive
of Royal Mail Group, is going to be a tremendous asset to Royal
Mail and will sort out the company and take it forward; I know
that for a fact. What we have said is that they have postmen taking
letters and packets back to delivery offices that could be miles
and miles away from where the person stays. Although their hours
are increasing, they are not very good. Why not as a matter of
policy and a matter of course let postmen, even in towns where
they have a delivery office, take them back to local post offices
where the public can pick up Royal Mail Group items? That would
be far more beneficial. We already have Local Collect but the
volumes are very small. If delivery offices start to do that,
it would be a win-win. It would be a win for the general public
because it would mean longer hoursuntil half-past 5. As
Mervyn said, if we end up doing longer hours with the new Post
Office Local, it could be until 10 o'clock at night. So the public
are happy with longer hours and it is nearer to their homes. I
think it is also a big win for Royal Mail. We have put that to
Moya, to give the customers a better service.
But you would also like to see a deal with private mail companies
for the same service?
Royal Mail was part of the inter-business agreement. Mervyn is
right. We have never seen it but we are getting close to it. I
have asked whether I can be in the negotiations between Royal
Mail Group and Post Office Ltd before they split the company,
because it is certain that we will not have the wool pulled over
our eyes. We have made the point that with the IBA £100 million
is already a fixed element. That includes a provision for the
physical bricks and mortar. The problem is that when companies
want to do deals and they get any price from Royal Mail within
that price to use the Post Office network, there is a reflection
of the fact that Royal Mail pays a fixed element of £100
million to keep the Post Office network afloat in terms of the
IBA. I think that is one of the reasons why companies like TNT
and DHL don't want to pay. They want the service on the cheap,
and I think that is why they have not done a deal.
Mervyn Jones: There
is also a regulatory issue here in relation to what subpostmasters
and other retailers have to provide. For instance, we have to
provide a secure area generally where the mail and valuable special
deliveries can be locked away. Our staff have to sign the Official
Secrets Act and go through appropriate training. There are now
lots of regulations about the Financial Services Act and money-laundering
legislation with which our staff are required to comply. I am
by nature all in favour of competition, but it must be fair and
equal competition. If our network is regulated to the point where
it costs additional money to provide that regulatory framework
to allow us to operate, others should be required to provide the
same service. It should be a stipulation in the different contracts.
This does not apply simply to the relationship between the Royal
Mail and the Post Office; it applies also to Government. When
they make up the invitation-to-tender documents, the benefit of
having staff who have signed the Official Secrets Act, and the
provision of secure areas and that type of thing, should be stipulated,
so that we end up comparing apples with apples and we get a fair
reflection in the terms and prices of the contracts for which
we bid. That is very important going forward.
Q66 Fiona O'Donnell:
When you talked earlier about your own post office, I was trying
to get a picture of what it would look like if it was open later
in the evening. That would be such a welcome development. I hope
staff are paid well above the minimum wage because of what is
required of them. I am just trying to get a picture of how valuable
that is. Given the security you must have in place, often when
a store stays open later in a remote rural location, staffing
levels drop and you might just have one person.
Q67 Fiona O'Donnell:
If there is money on the premises, surely there must be extra
costs, resources and security issues. To what extent have you
looked into that?
Mervyn Jones: Quite
a bit. If I may take a couple of minutes to describe my own office,
I have a six-position fortress counter. It is probably in the
top 5% of the busiest post offices in the UK. We have a Londis
convenience store. We have an alcohol and tobacco licence; it
is the usual convenience store operation. For me to open my fortress
positions outside normal hours, I would have to pay a dedicated
staff member to provide that service and it is not cost-effective.
Q68 Fiona O'Donnell:
So it's not someone flitting back and forth.
Mervyn Jones: We
cannot have them flitting back and forth. What has evolved is
what is called a combi-till where much smaller amounts of cash
are kept. It's a safe. There is provision for cash. Therefore,
it would not be the whole range of services; it would be accepting
mail, bill payment and maybe some banking transactions. A lot
of post offices now have ATMs anyway, so they can get their money
from outside; they do not need to have that service at the post
office counter. It also means I can multi-function my staff. Therefore,
the savings that I can achieve through multi-functioning staff
and increasing their capacity at the shop counter means they can
accept parcels. When people come in and we are doing that type
of work, hopefully, if the shop is set up properly, they will
buy groceriesbread, milk and that type of thing. That interaction
is really important. That combi-outlet to provide services outside
existing hours would be a sustainable way of doing that.
We have to be careful, however, because this journey will be quite
a long and slow one, by which I mean that the fortress positions
will still be in place in many post offices for years to come.
The offices that do the longer hours predominantly are those that
will become Post Office Essentials and Post Office Local. It will
be a rolling programme. I don't want the general public or politicians
to thinkthis is why we ask for a 10-year dealthat
this will happen overnight. It will be a process and we will get
there. Mervyn has alluded to why he can save money by mixing the
staff. Something really big has to happen.
You touched earlier on the state of the network.
Our big fearI have to get it in todayis that the
bulk of the funding package doesn't kick in until April 2012.
That is when £410 million comes in; the year after it
is £450 million; and then it is £330 million. The restructuring,
modernisation and beginning to sort out the problems starts then.
That is a year and a half away. Our big problem is that we have
literally hundreds and hundreds of subpostmasters in Scotland
who are hanging on by their fingertips and can hardly afford to
provide a service and are using pension money. We have many members
over pensionable age; we have hundreds of members in Britain over
70 who provide the service. It was their private pension plan
but they can't utilise it at the moment because the market has
turned. Therefore, in the next few weeks, Mervyn and I will have
to sit down with Paula Vennels, Sue Huggins and their team and
see how we can possibly help subpostmasters in Scotland and the
rest of the UK get through this very difficult 18 months until
the big changes from the Government restructuring fund happen
and the work starts to come in from the Government. That is something
we are concerned about. In fairness, we should have identified
that half an hour ago. How do we keep the show on the road for
the next 18 months? That is, in fairness, about as big a worry
for us as the Government delivering new work. It is a big, big
So what would you like to see happen?
The key for us is that, in fairnessand it isn't having
a gowe have had so many promises that have not materialised.
About a year and a half ago the Select Committee on Business,
Innovation and Skills, under the chairmanship of Peter Luff, produced
a very good report which referred to a lot of things that could
be done. It was put on a shelf and forgotten. There have been
lots of good intentions over the past 10, 15 or 20 years about
the network but it has never materialised. We do think we are
drinking in the last chance saloon. Now that the Government have
taken the radical step of removing us from the Royal Mail GroupI
was going to say it is unprecedented within the western model
but it is unprecedented within in the worldthey have to
get it right. The key is new Government work. We believe the Government
can put down a significant marker in the next few weeks by awarding
the Green Giro exceptions contract to the Post Office. As all
MPs are aware, it is out to tender. We think it would be extraordinary
if the Government awarded it to another company. Not only would
it fly in the face of saying they will give us more work. What
message would that send out at a time when Ed Davey is banging
heads together in all Government Departments about new work for
the Post Office? What message would it send out to Government
Ministers in all Departments if the DWP is putting a contract
in the opposite direction? If I was a Minister, the response would
be, "I'm not giving a stuff if they're not giving a stuff."
We must have joined-up government. The key is the
Government stepping up to the plate and working with the new Post
Office on it and the Federation to make it profitable and help
us to mutualise it but continue to use the network. Mervyn and
I have said over the years that we believe we have a tremendous
national asset that has been under-utilised for years. We have
a national asset that is the heart and soul of most communities,
even though it is now down to 12,000. Under the last closure programme
we have all seen what happens when you close a post office. You
rip the heart out of the community and retailing. If the funding
package is used properly, if the Government step up to the mark
with new work and the IBA is for the long termat least
10 yearsand we work together on mutualisation so that the
people who put £2 billion of their own money and provide
97% of the outlets, staff and subpostmasters are owning the company
in the future, that is a vision we can get to. It won't be easy
but, by God, I hope that the next 10 years will be better than
the last 10 years.
That sounds a great vision. One worry I have is your small post
office in a very small remote village. Even with all this Government
work, what makes it viable?
Mervyn Jones: When
I am asked this question I think of Orkney. I was up in Orkney
some time ago now. The thing that occurred to me was that in one
of the villages there the post office was run by a lady in the
front room of her home. She was a second-generation subpostmistress
in the family. It was open full time and probably didn't receive
enough customer visits a week to justify it being open full time,
if we are honest. Across the road was a convenience store that
attracted people from outlying areas. The natural amalgamation
of that community is to move the post office into the convenience
store. The question for us is: how do we facilitate that move?
We have a role to play with Post Office Ltd to ensure that that
convenience store operator sees the value of having a post office
and we allow the current subpostmistress who operates from her
own premises to redesign her home so it becomes entirely a home
again and doesn't have an empty post office counter in the front
living room. It can be achieved. If we look at the successful
retailers like Tesco, Marks & Spencer and Sainsbury that operate
now, they have different levels of service provision. You can
go to one of these big out-of-town Tescos that is open 24 hours
a day seven days a week and buy everythingright down to
the local Tesco Express in the local community. There is an issue
that the prices aren't the same in all the different models, for
the reason that Tesco Local or Tesco Express is convenient and
because of that it can acquire a higher margin and so the products
tend to be more expensive. I have an issue about that. But each
of those models is placed to fit the community or area it serves.
We need to do exactly the same thing with the post office network.
As Fiona Bruce said, I remain unconvinced about the
success of the existing Outreach model, but there is work we can
do to make that better. We are prepared and willing and asking
the Post Office to work with us on the new models to achieve that
In addition to that point, and I touched on this earlier, Mervyn
is absolutely correct. When you have an option of two shops becoming
one, we can do it. Take the last shop in the village. There will
still be a need throughout the UK, particularly in Scotland which
is more rural, for a Social Network Payment to make sure that
physical location can remain open for the benefit of both the
general public and small and medium enterprises. However, we have
to be careful going forward with regard to regulation. If, for
example, we move from a six-day to a five-day delivery throughout
the UK and, let's say, for example, we drop the Saturday delivery,
we will have a situation where the number of mail customers on
a Friday dies a death. You could have a situation where the Social
Network Payment in the UK has to go up because the workload within
the Post Office network has declined as a result of the diminution
of the Universal Service Obligation provided by Royal Mail. Therefore,
even as we go forward we have to be careful that decisions made
by Royal Mail and the regulator do not impact on the Post Office
network and do not result in the taxpayer picking up a greater
tab because of a commercial decision made by Royal Mail Group.
The Federation will still keep its specialisation in Post Office
regulation; it will still keep a watching brief on postal affairs,
because Royal Mail is our biggest customer by a mile. I have a
great love affair with the GPO; I joined it in 1979 as an eighteen-and-half-year-old.
We still had British Telecom at that time. We have gone on a long
journey. I have had a great love affair with this company and
I want the love affair with the Royal Mail Group to continue,
even though we are having a slight divorce.
Chair: Thank you very
much, George and Mervyn. We very much appreciate your staying
on longer as well. Let's hope that your vision comes into effect.