Examination of Witnesses (Question Numbers
Ian McKay and Paula Vennells
15 December 2010
Q181 Chair: I welcome you both
to this meeting of the Select Committee on Scottish Affairs. As
you are aware, we are looking at the Postal Services Bill and
its impact on Scotland. We are particularly concerned, as a Scottish
Committee, with the impact on the postal service in Scotlandthe
Universal Service Obligationand on the network of post
offices, rather than with things that are UK-wide, which are more
properly the responsibility of other Committees. It is a question
of ownership and so on.
I think it would be helpful if we started off
asking you to introduce yourselves, but also giving us a brief
statement about how you think this might impact on Scotland in
particular and on the interests of this Committee in particular.
Ian McKay: My name's Ian McKay
and I'm the Director of Scottish Affairs for the Royal Mail Group.
Paula Vennells: I'm Paula Vennells,
Managing Director for Post Office.
Q182 Chair: Right, Ian, how in
particular is the Postal Services Bill going to impact in Scotland
and what should we be concerned about?
Ian McKay: It will certainly impact
on Scotland, in the same way as it will impact right across the
UK. I think our general view is that we don't see it as a matter
of concern, but it's certainly a matter for a challenge, in the
way in which we respond to the things in the Bill and the changes
that it will introduce. What we are looking forward to is the
opportunity to address some of the historic difficultiesin
fact, some are not quite so historicthat we are having
to deal with just now, in terms of funding, in particular our
access to capital, the position that people are well aware of
with the pensions deficit, and our need to sustain the viability
and long-term future of both Royal Mail and Post Office Ltd. Do
you have something to add?
Paula Vennells: Yes, I would add
two points to that. One is on regulation. We are hoping that the
Bill will enable us to move into an environment where the regulation
will be more favourable to Royal Mail. You may think that from
a Post Office point of view, that is of little concern to me,
but it is the opposite. Actually, I need a very strong Royal Mail
Group, as it is one of my lead suppliers for Post Office Ltd.
I think, from the Post Office's view, that is probably the main
issueas long as Royal Mail is strong, very effective and
able to compete commercially then, as Post Office, that sustains
the future of the post office network as well. Royal Mail is our
biggest supplier by some considerable amount, accounting for most
visits to post offices, and we have had a very long, very healthy
and very commercial relationship for some period of time in the
past, and we anticipate that will continue in the future. From
the Post Office point of view, the Bill simply helps that by addressing
the points that Ian raised.
Q183 Chair: May I start by asking
Ian about the Universal Service Obligation? As I understand it
at the moment, in the Bill there is the specification that it
should be six days a week for delivery and collection, and the
single price goes everywhere, but this is only guaranteed for
18 months, I think, and then Ofcom can change that presumably.
What is your view on that?
Ian McKay: I'm not privy to what
the Bill or the final Act will be. As far as the USO and its importance
to the group and to Scotland are concerned, the USO operates right
across the UK. The great advantage of the USO is that it evens
out in that way the demographics, geography and other natural
things which are there giving an organisation such as ours difficulties.
On the idea that the USO should be changed within
a short period of time, I think we would probably come at it from
a very different direction. From our point of view, the USO is
absolutely central to what we do presently and what we see ourselves
doing, if the Bill goes through, in a private way within Royal
Mail. The USO is the absolute base rock for everything else that
we do. It is through the USO that our network is able to function
and to provide a service, not just in Scotland, but generally.
At the moment, the bill stipulates that every
three years or so the organisation that is granted the USO comes
up for review. You will be aware that in other very important
industries, that period of time is much longer than three yearsin
water, it is 25 years, or something. It would seem to us highly
sensible that anyone operating a USO has a longer period of time
when they know it will continue. That makes sense to us now; it
would make sense to us in that new environment, too.
In fact, even if one were looking for other
sources of capital, it would make business sense as well, because
if you're going to put money into something you would like to
know that the basic rules of the game are not going to change
the next day, in a year and a half, or even in three years. You
would want it to be a perfectly reasonable length of time. We
would be more than comfortable with that period of time being
Chair: Can I ask Alan Reid to follow
Q184 Mr Reid: Thanks for coming
along this afternoon. At the moment both Royal Mail and Post Office
Ltd are part of the same group, but if the Bill goes through you
will be separate companies. I believe that there will be an inter-business
agreement between the two companies. Can you tell me what will
be in that and for how long you intend it to operate?
Paula Vennells: There is currently
an inter-business agreement between Post Office and Royal Mail
Group, as I'm sure you are aware. It is a particularly commercial
agreement and there is always some robust debate about when it
is put into place. We anticipate something similar going forwards.
Both of usRoyal Mail and Post Office Ltdare concerned
that that can be as long as possible.
I think Moya Greene, the group chief executive
of Royal Mail, said that it was unthinkable that something could
be in place that was too short a period of time. We would like
it to be as long as possible and as robust and commercial as it
is currently, frankly.
Q185 Mr Reid: You say it's as
long as possiblewill it be 10 years, 20 years or 25 years?
Has thought been given to that yet?
Paula Vennells: That decision
hasn't yet been made. We are both trying to make it as long as
we possibly can. The current one runs until 2014, and I would
like it to go much further out than that. But I would say that,
wouldn't I, because I am the managing director of Post Office.
Ian McKay: I think, generally
speaking, this isn't anything new. It has existed within the group
ever since there has been a group. There has to be that kind of
contractual relationship between the two parts. From our point
of view, internally, there is nothing new. It has always been
there, and it is there currently until, as you say, 2014. We recognise,
however, that as the Bill goes through, and any legal status changes
accordingly, we are on record, I think, as saying that we want
it to be as long as it possibly can be. We are also on record
as saying that that would be negotiated prior to the separation
actually happening. I hope both of those give comfort in the sense
that we see the importance of it, as well as the importance of
all of us knowing the rules of the game thereafter, because that
is important to us in the bigger picture.
Q186 Mr Reid: Are you saying that
you are not aware of any legal restraint on the length of time
you can sign that for?
Ian McKay: I don't think
we have got to the stage yet.
Paula Vennells: There are lawyers
looking at it, because all sorts of factors come into play. The
important thing for the Committee to note is that both the businesses
are coming from exactly the same starting pointas long
as possible and as commercially robust as the current one is.
Q187 Mr Reid: The evidence we
have heard is that the amount that Royal Mail gets from other
companies to up or downstream access is not sufficient. Can you
explain how you have managed to get into that situation?
Ian McKay: As you know, we are
starting from a position where Britain was quite early into the
commercialisation of the postal services market, so a lot of things
happened quite quickly, and some other countries have not caught
up with us yet. Part of that history was that the way in which
the market in Britain has tended to open up is that people have
come in at the start of the delivery process. It is quite a mature
market nowthere are 50-odd companies operatingbut
there isn't really anyone who competes with us in terms of end
to end, who is going out collecting
Q188 Mr Reid: I understand that,
but why have you got into this situation?
Ian McKay: The reason I'm giving
you that background is that if someone is coming into the market
and only taking bulk orders from a big mailer and then passing
them to us for the final delivery, which is by and large what
happensin fact, it happens in something like 60% of all
bulk mail; that is where we now arethe regulator establishes
the price of that transaction, because obviously there is a price
that they are giving us.
Q189 Mr Reid: The regulator fixes
the price. When the regulator fixed the price, did Royal Mail
consult? Did you argue for a higher price?
Ian McKay: Indeed. It was done
in the normal way. The difficulty we have is that the price that
was established actually ended up with our losing something like
2½p on every item. When I say to you that that is 60% of
all the bulk mail and 40% of all addressed mail in the whole system,
it means that it costs us something like £160 million a year.
Q190 Mr Reid: We keep on hearing
that Government Departments, for example, are awarding contracts
to private companies for that part of the business. Why were you
not able to compete with those private companies and win that
Ian McKay: We are debarred from
competing by regulation. We are not allowed to do that. You have
to remember that, at the start, we were the monopoly.
Q191 Mr Reid: Is that by legislation
or by decision of the regulator?
Ian McKay: It's a bit of both
really. The regulator is established by the legislation and than
makes the decisions. Our argument is that they set the wrong number.
Their assessment of the market was wrong, and we ended up in this
position. It is also one of the reasons why, even though the present
Bill has the provision for a change in regulatoran important
changethat takes us more generally into communications
under Ofcom, which most people would see as a very sensible move,
any changes coming therefrom are really quite far down the road.
It might be two or three years before we actually see changes
to the situation that I am talking about.
Our difficulty is that we would like to see
change in that regulatory regime right now, because we are continuing
to be damaged right now. It will mean that there will more of
a run-offus subsidising our competitorsuntil we
get to the point further down the road when Ofcom, or whoever,
is in a position to address it. It is a very real and immediate
problem for us.
Q192 Mr Reid: One further area
I want to pursue is that of parcels. We heard evidence when we
were up in Oban that Parcelforce was actually cheaper at delivering
to the Highlands and Islands than many private companies, yet
the companies that are actually producing the product are often
giving the contract to private companies, not to yourselves.
Have you made any efforts to win that business?
Ian McKay: We have, and we continue
to argue, in particular, with internet retail companies, which
as everyone knows is a vastly expanding area. We are constantly
seeking from them that they give customers choice. Our belief
is that when you go on a website and order your Christmas stuff
from whomsoever, were everyone to be given an option as to their
carrier, we would be in a very good position, particularly from
a collection point of view. I can tell you anecdotally, in my
own case, that if something is brought to me by Royal Mail or
Parcelforce and I am not in, I have a 200-yard walk to the local
post office to collect it. If it is brought to me by other carriers,
I have a 70-mile trip, a 140-mile round trip, to go and collect
that same item. From my point of view, given that choice as a
customer, I would like to see that happen.
Q193 Mr Reid: You are talking
a good sales pitch, but why, as a company, have you not been able
to win that business in practice?
Ian McKay: I can assure you that
we have tried very hard so to do. In a sense it is not even winning
the business, it is getting retailers to act in that way. I know
that Consumer Focus gave evidence earlier, and we were very pleased
that in its detailed look at the parcels market in Scotland only
last year, one of its recommendations was along the lines of what
I am sayingthat at the point of purchase customers should
be given the option of carrier. They can then elect who is bringing
the thing to them. We were very happy that a third party had looked
at the whole situation and agreed with us that it would be a good
Mr Reid: Thank you.
Q194 Fiona O'Donnell: May I ask
a follow-on question? I wonder whether part of the reason why
it cannot compete, Ian, is because some mail order companies pay
drivers 50p a parcel, which is well under the minimum wage, and
Royal Mail does not treat its employees in that way.
Ian McKay: I don't think we would
comment on the business practices of others. Clearly, we will
have certain set costs, and even the CWU would agree that we have
very good terms and conditions for our drivers and for everyone
throughout the group. That is important to us and what we certainly
would never do is cut corners on things like health and safety
and the rights of our employees, for the sake of making a couple
Q195 Cathy Jamieson: On the same
issue, do you think that people are aware, by and large, that
when they are ordering from the internet they may not get Royal
Mail or that they will not get it delivered to their door? Is
there something in those terms, so that the organisations or the
companies ought to specify exactly what delivery they will get?
Otherwise, they assume it is you guys, and when it is not, you
also get the blame.
Ian McKay: Notwithstanding anything
to do with the Bill currently before the House, and notwithstanding
your efforts at looking at the postal services in Scotland, I
think that this issuethe right of a customer to have that
information available to them at the point of saleis something
that we would support anyway. I suspect that not only Consumer
Focus, but an awful lot of other consumer groups, would support
that as well. Anyone who is adding their voice to that general
point about consumer rights will find us in full support.
Q196 Jim McGovern: On that same
point, does the buyer have any right to say, "I want this
item to be delivered by Royal Mail"?
Ian McKay: That's my point. What
we would like to see is retailers making that opportunity available
to customers. Basically, when you get to the end of buying it
and put in your credit card details, there is a page that asks
who you want to bring it.
Paula Vennells: And some do. We
are working through our central marketing department in Royal
Mail, where we have major clients that we deliver for, and often
now you will see the Royal Mail logo. We are pushing that as a
company. Your point, Ms Jamieson, is very helpful. There is a
point of principle on this, around consumer choice. Sometimes
that choice is there, and it isn't necessarily branded very obviously.
Q197 David Mowat: Do you have
a view as to why you do not win this work? Is it that the opposition
is a lot cheaper than you? You said that the online retailers
do not choose you and you must have done some analysis as to why
you failed to win the work.
Ian McKay: With all due respect,
I didn't say that the online retailers don't choose us. I'm saying
that, in our view, it would be good were consumers given a choice
Q198 David Mowat: But you say
that the retailers themselvesthe Amazons or whoeverare
presumably choosing somebody else to do their deliveries.
Paula Vennells: No, if I may,
it's the clarity on the website. For instance, Parcelforce won
Screwfix, which is a huge parcel distributor both in terms of
business-to-business and consumer, quite recently. That was a
great one, and it's very obvious that it's Parcelforce doing the
delivery. The point I was trying to make is that we do a number
of them, but it isn't obvious on the websites of the online retailers
that it is Royal Mail doing it. Where we can, we influence them
and say "Please put our logo on there", but at the end
of the day, if there was a consumer recommendation from an independent
body that almost insisted that that was best practice, that would
be even more effective than the work our colleagues in marketing
Q199 Lindsay Roy: If I've made
a choice through a retailer and that's made known, are there differential
rates? In other words, are you able to compete with the Royal
Mail logo against other organisations?
Ian McKay: I think we're very
competitive. One has to remember that the parcels market is probably
one of the most competitive markets that there is out there in
the UK. Certainly, there is an awful lot of competition. Clearly,
retailersonline or otherwisewill also have their
own criteria. It might be price. It won't always be price. I think
you would see, were you looking at any of Parcelforce's literature,
for example, that we don't compete on the basis of being the cheapest.
We actually set an awful lot of store by our quality of service
and by that side of the business. If one were simply applying
cheapness as the only criterion, it may well be that Parcelforce
wouldn't be the one you would look for. But if you were looking
in the round for proper quality of service and a good service,
that's where I think we compete within the market. But, as I say,
you're dealing with a market that is very competitive and where
there will be different criteria applied by the retailer as well
as by the consumer. All that we're saying is, in that balance,
give the consumer more voice. Our view is that if that happens,
an awful lot of consumers will choose Royal Mail and Parcelforce.
Chair: Eilidh has been waiting patiently.
Q200 Dr Whiteford: Good afternoon.
I'd like, if I may, to take us back to the USO, because I'm sure
you'll appreciate that from my point of view in the rural hinterlands,
the USO is critically important, as is access to the network of
post office outlets. They are an essential piece of public infrastructure.
The key question I want to ask is the question that Alan asked
about the three years and whether it is long enough. It's interesting
to hear you say that it's not nearly long enough, because, certainly
from where I'm standing, I have very grave concerns that after
three years we'll be left high and dry if safeguards are not put
A question that I've been asking lots of people
who have been before us is whether, given the reality of the geography
of Scotland, it is ever going to be commercially viable to have
a Universal Service Obligation across the whole UK. A lot of the
discussion here has been predicated on Royal Mail and the post
office network being sustainable commercial propositions as businesses.
I haven't heard an answer yet that's convinced me that we're going
to be close to that and preserve the Universal Service Obligation
at its current standard.
Ian McKay: Perhaps Paula will
say something on the post office network as well, because I think
the two are intrinsically linked. In our view, the USO is the
starting point. In a sense, it doesn't start from the issue of
commercial viability. It starts from being a principle that says
wherever you are, there should be a common charge for your letters
and parcels of a certain size to go to anywhere else within the
nation state that is making that decision. That's the principle.
It is necessary, thereafter, to make sure that the USO is as small
a burden on the state as it can be. What we are arguing is that
we are very proud operators of the USO, we wish to continue to
operate the USO, we have no plans to change the USO, and we don't
have any wish to see the terms of the USO change.
What does need to happen, however, is that we
need to be as efficient as possible in being the deliverer of
that USO, and we need to make sure, therefore, that any burden
that there is on the public purse in order to keep it going is
minimised. That's against a backdrop where we're all aware that
the mails market globally is falling though the floor. We are
having, therefore, not only to think about now and the modernisation
that we're doing now in order to be as efficient as we can, but
to look into the future and see that the need for modernisation
is not going to go away. We're going to have to keep running to
keep up with that. But what will be central is the delivery of
the USO. We see that as the kernel. I think that someone said
"the jewel in the crown," and we certainly regard it
in that way. It is central to our operation, and it's central
to our future operation too.
Chair: We've got only about an hour with
you, of which about half has passed. I think we understand quite
a lot of the generalities, so perhaps we could have briefer answers,
and briefer questions, it that's possible.
Q201 Dr Whiteford: The other area
where I think there has been a lot of vagueness in the discussion
today is models of mutualisation. I just wonder what kinds of
models of mutualisation you think might work.
Paula Vennells: There are two
answers to that. The first is that to mutualise you have to have
something to mutualise, so in terms of the Post Office we've actually
got to see through the transformation programme first, otherwise
it's going to be difficult to find any model of mutualisation
that works. That's important, because it's about recognising what
was published in the Government policy document and the £1.34
billion funding that was awarded, which we are very grateful for.
Secondly, assuming that we can deliver that
transformation programmeI'm very confident that we canwhat
models might work? The Government have put in place a review that
is currently under way, and with which we're working very closely.
It is run by an association called Co-operatives UK and is headed
by Ed Mayo, who used to be the chief executive of Consumer Focusor
its forerunnerand is therefore someone well versed in this
area. The review will produce four or five different options for
mutualisation that might work in a post office environment. It
could be anything from the co-operative model that works in the
Co-op, which is an almost entirely consumer-based one, to the
employee-based model in John Lewis, or a trust, or some of the
things that work in mutual charity organisations. What's important
for us is that we've been involved in the discussions and feel
that, whatever they come up with, we can make it work.
A final point, bearing in mind that you want
short answers, is that from a Post Office point of view it's a
promising concept, because if we can tie in local communities
and local authoritiesmore local involvement in terms of
what post offices need to deliver in communitiesthat can
only be a good thing.
Q202 Chair: Can I return to the
question of the USO? Unless I'm mistaken, the USO requires a substantial
degree of internal cross-subsidy, and Scotland, as a region that
probably has a disproportionate amount of the cost, is effectively
being subsidised by the rest of the network for the provision
of the USO. Is that fair?
Ian McKay: I think that Scotland's
demographics and so on are more of a challenge, yes.
Q203 Chair: Is that a yes? It
would be helpful if you answered the question I asked you, rather
than another question you wish I'd asked you.
Ian McKay: That would be a yes,
Q204 Chair: And in that context
as well, at the moment urban areas are effectively subsidising
Ian McKay: Again, it depends on
what the character of the mail is. Yes, that might be the case
in some places, but it depends. For example, the mail market tends
to be dominated by very large mailing agencies. An awful lot of
the volume comes from banks or financial services, or something
like that. Their customers will be spread; they won't all be in
urban areas. Their mail is going all over.
Q205 Chair: I understand that,
but can I be clear though? For a bulk mailer, will it cost less
to deliver in an urban area than in a rural one, on average?
Ian McKay: If you had a separate
operation to ourselves, yes, but our network is designed
Q206 Chair: No, I understand that.
So, there is an element of cross-subsidy there.
The point that I wanted to clarify is that we
have the USO, as specified in the legislation, and we are worried
about the tension between the desire to have costs cut and the
universality and frequency of the service. We are told that Ofcom
can designate one or more postal operators in accordance with
the standards set out in the universal service order. Presumably,
if that were split on a geographical basis, in some areas TNT
would be the universal service provider, in other areas it would
be Royal Mail and in other areas it would be other people. This
comes back to the question of some areas being more expensive
to deliver in than others. Therefore, in a situation of competitive
tendering, I can see that Scotland would be a less attractive
market if the country were split geographically, than some other
areas. What I am not clear about is what scope there would be
for cross-subsidy in circumstances where there were different
operators working in different parts of the country.
Ian McKay: I hear what you're
saying, and there are many ifs and ands about the way in which
the legislation could be interpreted or, indeed, how the legislation
that is currently going through might end up. I'm afraid that
they remain ifs and ands. The situation as it actually is, and
that we have to deal with, is that there is one USO operator and
we are geared up to collect and to deliver the final milein
Scotland, most of the time that is the final 20 milesright
across the whole of the UK. So, our operation is geared up that
way, and it will continue into the future to be geared up that
way. There are lots of hypothetical "others" that could
happen, but that will be for others.
The one point I would make to you is that, through
European legislation, there are currently other ways, were the
USO not washing its face, in which the regulator can assist that
process, particularly, as in the British situation, where others
are in the market, but are not doing it at the endthe final
delivery and so onbecause the main cost is clearly at our
end of the equation, where we are having to physically collect
and deliver the mail. European legislation is already in place
to equalise that, but, as I say, I would not speculate on what
might come out of this, were it organised in another way. We can
only live in the world that we live in.
Q207 Jim McGovern: I'd like to
thank Paula and Ian for coming along. I have already indicated
to the Chair that I have another meeting at 3 pm, but I will try
to get back later.
Members of the Committee visited the sorting
office in Glasgow on Monday, and met Julie, who was one of our
tour guides, as it wereand very good at it, too. The person
in charge of the Glasgow sorting office said, "We welcome
the Postal Services Bill." The Chair put to him, "What
do you mean by 'we'?" He said, "Well, Royal Mail."
I am in regular contact with a lot of posties in my constituency
of Dundee West, and the only person I have ever heard saying,
"We welcome the Postal Services Bill," was the person
in charge of the Glasgow sorting office. Do you believe that the
employees welcome part-privatisation or total privatisation, or
do you think that they would prefer public ownership?
Ian McKay: As you and some other
members of the Committee know, I have a long personal association
with the public service, and with different forms of delivery
within the public service. What people who deliver those public
services value is that the service is protected, their jobs are
protected, and the public, who are the beneficiaries of those
services, have at the end of the day a good service, which they
pay for through their taxes and so on. My view is that what we
are putting forwardin terms of our case on the need to
address the pension deficit, the need to address our lack of capital
and the need to address the regulatory situationis the
way in which we can ensure that these services to the public,
and Royal Mail and the Post Office as entities, go forward into
the future in a stable and secure way. That, in my view, is very
much in the interest of all of us who are employed within that
service, and very much in the interest of everyone who uses those
services. You know the same as I do that when you get those basic
economics wrong, services suffer and the people who are employed
within those services suffer.
Q208 Jim McGovern: Have you got
a view on what the employees think?
Ian McKay: I actually think that
the vast majority of our employees would agree with the view that
I have just given.
Chair: A number of other people
want to come in. I think that is clear.
Jim McGovern: I don't think it was a
good answer. I don't think he answered the question.
Q209 Fiona Bruce: My question
is directed to Paula, but thank you very much to both of you for
coming. It relates to Outreach post offices and how effective
you think they would be in meeting the needs of rural customers.
Paula Vennells: My answer is fairly
straightforwardvery. As some of you will know, post the
last closure programme, Network Change, we were able to respond
to the national access criteriaparticularly in Scotland,
because there are some challenges due to the terrain and the remotenessthrough
the Outreach services. We do know the view of the customers and
of the sub-postmastersboth the cause and the local people
operating them. The feedback has been very positive. Particularly
in the Outreach, we have been able to address the widest range
of services to the communities they are going to, so people can
take the tax disc with them and do the sort of work that they
can do in a main post office in an urban area.
Q210 Fiona Bruce: That is very
interesting. Can you give us some examples of how this has worked
in rural communities and perhaps how they could be built on to
continue the network and the service?
Paula Vennells: Yes. In almost
all cases of the Outreaches, what has worked particularly well
is having different types of models. So we don't just have the
single Outreach model, but a mobile one that goes to some of the
most remote areas. We also have a home service that operates,
literally, in some cases, in somebody's front room a couple of
mornings a week. We have a host of services that might be in a
local pub, a community hall or a church hall, which is set up
at specific times two or three times a week. We finally have a
partner model, which is usually in smaller shops and villages.
What has worked well is simply the range of post office services
and the fact that they are tied into a core post office, so that
there is always the security behind itthat you have an
experienced sub-postmaster managing the cash, the range of services
available and the regulation and form-filling that has to go with
it. What we deliver in what looks like a very eclectic range of
services is something terribly professional, out to some of the
most remote communities in the UK.
One of the interesting things from that is that
both the hosted and the home services carry a lot of the post
office in an attaché-type case. One of the lessons that
we have taken from thatwe are grateful because Scotland
actually helped us do thisis that it is also something
we are now thinking of applying in some other urban locations.
Where we have pressure on needing to deliver additional services,
we have been able to build that off the back of the Outreach.
Q211 Fiona Bruce: Thank you. That
was also very interesting. So what you are saying is that those
customers who use the Outreach service have confidence in it?
Paula Vennells: Yes they do.
Q212 Fiona Bruce: How can we promote
the Outreach service to a broader range of customers?
Paula Vennells: That is done in
two ways. In most cases where Outreaches work, they're in communities.
The small communities tend to be quite tight anyway, so there
is word of mouth, posters and information about hours of opening.
If it is in a pub, all the pubs have that available, and if it
is in a church hall, there is a poster on the door. Within the
communities, it is well promoted. Also, within the core sub-post
office, that is exactly the same.
The other area that we would look at going forward
is where we get post offices changing hands or closing, we would
work with local councils, parish councils and local authorities
to promote the services. I would simply say to the Committee that
if you have any other suggestions, we would be more than happy
to take those on. This is something that works for us, and we
want to continue it being successful.
Q213 Fiona Bruce: And you therefore
see that as a real way forward?
Paula Vennells: Completely.
Q214 Dr Whiteford: We have had
evidence in the Committee from people in my own constituency,
who are really very unhappy with the Outreach service. It is more
popular in the summer than in the winter, when people are standing
about in the cold and wet, waiting for a van that may be late.
There isn't any shelter provided.
There have also been consistent technical problems
with computers. Sometimes telecommunication signals have been
problematic, and so has back-up when staff go on leave. I think
it would be remiss of me not to raise that with you when you're
here, because you are obviously getting very positive feedback
about the service. Actually, I'm getting very mixed feedback from
the people using it.
Paula Vennells: I am not getting
biased feedback either, so I am aware that there have been technical
problems and that the ones that have been explained to me have
been sorted out. If you want to drop me an e-mail later, I will
be happy to look into specific issues, because it is very important,
as Fiona has pointed out, that those things work in future. In
the past 10 days, it has been quite difficult to make everything
work, but we have not run out of cash across the Post Office Network,
and making cash available is one of the most important things
we do. When you get extreme weather conditions, everyone is challenged,
but on an ongoing basis
Q215 Dr Whiteford: The weather
wasn't that extreme last week for people in the far north.
Paula Vennells: If there are ongoing
problems in your constituency, please let me know.
Q216 Chair: To be clear about
those other Post Office Essentials and so on, am I right in thinking
that they can cap benefit payments so that people can only draw
a certain amount of money on one day? Yes or no?
Paula Vennells: No.
Q217 Chair: Well, the evidence
that we've heard indicates that some of them limit the amount
of money and, similarly, can't always pay traditional paper bills,
or pay by cheque, and customers can't always apply for passports
or driving licences or send larger parcels or heavy international
items. Some of those services would be restricted quite considerably
in those smaller offices.
Paula Vennells: The answer to
that is that a Tesco superstore sells many more things than a
Tesco Express. The point about Post Office Essentials is that
it deals with 95% of customer visit requirements and 85% of all
the products and services that we offer. You are quite right that
there will be some things that cannot be done in Post Office Essentials,
but in the vast majority of instances those products and services
are available. Of the customers using those, 98% are extremely
satisfied, and seven out of 10 operators would recommend them
to someone else.
Q218 Chair: The evidence from
Consumer Focus indicates that part of the problems with Post Office
Local included benefit capping, where branches limit the amount
of money that people who are collecting benefits, such as a pensioners,
can withdraw in a single day. That does not seem to us to be a
particularly good service.
Paula Vennells: I would be concerned
about that and would need to look into it, but that is the first
time I have heard that criticism.
Q219 Chair: Does Consumer Focus
not normally correspond with you?
Paula Vennells: Yes, it does,
but I have not heard that criticism.
Chair: I find it surprising that you
have not heard that from Consumer Focus if I have.
Q220 Fiona O'Donnell: To follow
on from the question asked by the other Fiona, how many outreach
services do we have in Scotland?
Paula Vennells: You have about
150 or so, I think.
Q221 Fiona O'Donnell: How many
Paula Vennells: 1,436.
Fiona O'Donnell: So it's close to 10%.
Paula Vennells: There are more
in Scotland, but it is not that far off the national ratio.
Q222 Fiona O'Donnell: I don't
know whether you'll be able to answer this question, but part
of the reason why the Federation of SubPostmasters supports the
Bill is the £1.34 billion investment. My understanding is
that about half of that will go into subsidising the network over
the three years from 2012 to 2015. What will the other half of
that figure be spent on?
Paula Vennells: The £1.34
billion is intended to achieve a number of different things, so
I am not sure that I would have carved it in half. There are two
or three main planks. The first is that we will restructure the
network. I will go back to my Tesco analogy, where you have a
Tesco Superstore and a Tesco Express. We segmented the Post Office
Network and have identified approximately 4,000 locations across
the country that will be termed "main post offices",
and they will have the full suite of post office services, including
all the mail services, the full suite of Government and financial
services and everything the Post Office does.
Q223 Fiona O'Donnell: I am interested
in how that money will be spent. How much will that cost?
Paula Vennells: We haven't got
down to splitting it up exactly across the different things that
we are doing. Now that the Government have issued the policy statement,
which was literally only about three or four weeks ago, and confirmed
the funding, one of the pieces of work we have to do is to say
how we will split it up, not only across the different things
we have to do, because some will be compensation and some will
be converting post offices.
Q224 Fiona O'Donnell: Compensation
Paula Vennells: For post offices
that become Post Office Essentials or Post Office Locals, there
will be some moves in terms of converting either existing post
offices or new ones, where pay rates change etc. From precedents
set previously, there would have to be some sort of compensation
if you were changing somebody's contract from a current one to
Q225 Fiona O'Donnell: Where the
service is reduced you would compensate.
Paula Vennells: For a period of
time, if that was the appropriate thing to do. What is important
in that money is that it isn't just a compensation to change a
model of Post Office; it is an investment in creating new Post
Office operating models that will work in the future.
One of the biggest challenges I have had while
I have been in Post Office was having to manage the last Network
Change Programme. I had to close 2,500 post offices, which was
probably the most unpleasant thing I have done in my whole career.
I really don't want to have to do that again. This funding enables
me to put in place different models across the network that will
be sustainable, so that we don't have any more post office closures.
A really important part of that money is investing to create the
right shop, if you like, for a post office.
Q226 Fiona O'Donnell: How do you
stop the 900 post offices that are on the market from closing,
so that none will close?
Paula Vennells: No, the 900 post
offices that are on the market at the moment are there simply
in terms of commercial churnroughly every quarter, 200
to 300 change hands.
Q227 Fiona O'Donnell: But this
is an unusual number just now, we have been told by George Thomson.
Paula Vennells: I would disagreeit
is not much more than it normally is. It is very healthy to have
commercial churn, and if sub-postmasters are in a position where
they believe they can sell their business, that's a good thing.
My concern is that I want them all to be able to do that in future.
Q228 Fiona O'Donnell: I don't
think it is fair to represent that you can prevent post offices
from closing. Although the Government do not
Paula Vennells: There are two
different aspects on that. There are sub-postmasters who retire,
or who, unfortunately, fall ill. There are force majeure reasons
for a post office closing. We cannot possibly change that, and
some of that goes into the commercial churn. In some areas, it
is very difficult to find somebody to step in and take that post
Part of the funding and the Government policy
change is about having different models available so that it is
possible to continue post office services. In Scotland, Outreach
services and the Post Office Essentials model have enabled us
to do that.
You are quite rightwe cannot stop post
offices closing in some cases. But I want to stop sub-postmasters
closing because they think that they cannot make any money out
of it, because that is not a healthy Post Office going forwards.
Q229 Fiona O'Donnell: When it
is clear how the money will be spent in Scotland, would it be
possible, Chair, to ask Paula to write to us to make us aware?
Chair: If possible, that would be helpful.
Paula Vennells: I should think
that would be possible, yes.
Q230 David Mowat: I want to go
back briefly to the IBAthe agreement between the two of
youwhich accounts for a third of turnover of Post Office
Ltd. Is that right?
Paula Vennells: That's right37%.
Q231 David Mowat: It seems to
me that if there were a possibility of you losing that contract
in the future, which I know you do not plan for, you could do
all you like about re-modellingbusiness models, and all
the rest of itbut if you lose a third of your turnover
it will be difficult to keep 11,000 post offices open without
a massive influx of cash from somewhere else, won't it?
Paula Vennells: It would be much
more challenging, certainly. That is why we are very supportive
of the Bill. There are a number of answers. The first is that
the Bill is important, because whether we can sort out a strong
Royal Mail going forwards remains a hypothetical question. It
is the biggest provider of mails and will continue to be our biggest
supplier in that area. There are a number of other areas, however,
where Post Office provides customers with products and services.
We have been very successful in financial services, in bureaux
As I am sure you are aware, the policy document
referred to positioning post offices as front office for Government.
Before this meeting I was at a meeting with the Minister, in which
we were talking to local authorities about how we could extend
that concept into local authorities as well as national Government.
So there are other areasGovernment being a prime exampleof
where else the Post Office could get revenue.
Q232 David Mowat: Yes, so are
you saying that you could try to grow the other two thirds to,
potentially, replace that?
Paula Vennells: Not at all in
terms of motivation to replace Royal Mail, because we are the
Q233 David Mowat: No, it's not
motivation. All I am saying is that if you are a business, and
it has become privatised, and one third of your turnover depends
on a contract which it may or may not renew with you
Paula Vennells: You would not
have all your eggs in one basket.
Q234 David Mowat: It would be
quite a difficult position. I was trying to imagine, if you weren't
to win that contract, how you could keep 11,000 post offices open.
That is my question.
Ian McKay: Could I add something
from the Royal Mail point of view? You have identified the proportion
of the Post Office's income as 37%. If, particularly given that
we are in the eBay generation, the Post Office Network were not
available to Royal Mail, privatised or otherwise, in terms of
putting things into the system and being a collection point out
of the system and so onif we didn't have that enormous
network available to us and all the links that have been built
up over that period of timewe would be in quite a lot of
bother, too. That is why our chief executive used the word "unthinkable"
to break that umbilical.
Q235 David Mowat: That is useful.
So you are saying that the possibility of the IBA not being renewed
in some form is very small on both sides?
Ian McKay: It's extremely difficult
to see how either company could go forward without what is a very
Q236 David Mowat: So what you're
saying, just to be clear, is that when we started the evidence
sessions by saying that a contract renegotiation was due to take
place, that we didn't know the period and all the rest of it,
your business judgment is that it's so beneficial for both sides
that it is likely to be a non-issue? Is that right?
Ian McKay: Indeed. To make it
very clear, think of the range that we need to deliver the USO.
It's 28 million addresses everywhere, up hill and down dale. To
do that and to service that, we need a network of a size to be
able to do so. The Post Office Network is bigger than all the
supermarket branches put together; it is bigger than all the banks
and all the building societies put together. Here in our most
natural of partners, we have the most natural of partners for
that, too. That is why, from our point of view, it is literally
an unthinkable separation.
Q237 David Mowat: Just to be clear,
the negotiation that you are going to have when you come to renew
the IBA, in whatever form you do it, sounds as if it's going to
be fairly amicable. One side is saying that it is unthinkable
not to have the IBA, and it represents one third of the other
side's turnover. In that sense it is not a massively commercial
negotiation, is it?
Ian McKay: Paula's been involved
Paula Vennells: It's always both.
It's always very amicable and very commercial, because service
level agreements between both businesses are tied into it. Royal
Mail needs to be sure that the Post Office Network and sub-postmasters
are able to deliver the required service levels, and we need Royal
Mail to be able to deliver the metrics and mail centres.
David Mowat: Thank you.
Q238 Cathy Jamieson: Could I follow
up with one question on that particular point? I then have another
question that I want to ask. One of the things that I have learned
during my years in politics is that, with the best will in the
world, you can have nice people who want to do good things and
who say that it is unthinkable to do something else, and then
someone comes along later and does the unthinkable. Does the Bill
stop anyone doing the unthinkable at a later stage? If the Bill
goes through, would it stop the business arrangements from going
ahead in future?
Ian McKay: With your experience
of ministerial duties in other places and with your experience
here, I am sure you would agree that there are things that one
writes into primary legislation, and there are things that one
doesn't. I think it would be very unusual to find detailed commercial
relationships written into primary legislation, because, like
the anecdote that you've just told
Q239 Chair: That's a no then?
Ian McKay: That would be a no.
Q240 Cathy Jamieson: Could I move
on? The Chair's beady eye is upon me. On smaller post offices,
Fiona mentioned that 900 post offices across the UK are on the
market, do you have a figure for the number in Scotland?
Paula Vennells: I don't, but I
could get back to you with that.
Cathy Jamieson: We seem to be having
Chair: I think it's 57, and 22 have closed
and are classified as long-term temporary closures. It sounds
as if you have to identify what those closures mean, but I am
sure you can get the list of figures.
Paula Vennells: I'd be happy to
write back to you on that.
Q241 Cathy Jamieson: That would
be helpful. The other issue is that I have been speaking to some
of my local sub-postmasters, who, being Ayrshire folk, are not
entirely in agreement with the overall view of the National Federation
of SubPostmasters. Their concerns are that there has been an increasing
squeeze on them, as they see it. I heard your words on not wanting
any sub-postmaster to be looking at closing down because they
thought that they could not make a living, but the sub-postmasters
that I have met would say that that is the reality. They say that
it will be increasingly difficult to attract new people into the
business, at a point where the percentage of their income that
they need to survive is coming from additional retail markets.
In other words, they have to be able to open a shop and sustain
that, rather than being stand-alone. Can you give any comfort
to the people who have been struggling on in difficult circumstances?
What encouragement are you able to offer new people who may want
to enter the market as sub-postmasters in future?
Paula Vennells: Yes, I believe
I can. You have to set it in the context that many retailers are
currently suffering because of the economic conditions. If I talk
specifically on sub-post offices, what is particularly good about
a sub-post office converting to a Post Office Local or an Essentials
is that it enables them to offer post office services for longer.
I will paint a picture. My local Budgens currently has two post
office countersin Scotland perhaps not Budgens, but a similar
examplebehind the fortress glass, so it is a typical sub-post
office. The local shop is open from half 6 in the morning until
10 at night and the post office is open from 9 until 5.30. In
the two shoulder periods, there are no post office services available
to the customers and no possibility for the sub-postmaster to
earn off the back of that. If they convert to a Post Office Essentials,
we dismantle those one or two post office counters, depending
on the number of customers going through, and that space is then
available to make a greater return from a retail business, whether
they put in freezer cabinets or self-bake bread or whatever. They
put the Post Office Essentials offer on their main counter. That
is then open from half 6 till 10 in the evening. The big saving
for the sub-postmaster in that is on staff. Previously, they were
employing two additional members of staff to work on the dedicated
post office counters, who could not work in any other part of
the shop because they are frozen off by the fortress glass. Once
that is gone, they have saved on staffing costs. That is one of
the biggest pieces of positive feedback we have had. The model
is in pilot, so it is not theory, it is practice.
Q242 Cathy Jamieson: With respect,
the people who have spoken to me say that's all very well in a
one-shop village or a one-shop local area. It is not as easy if
there are a number of other competing shops for that additional
retail outlet. Can you envisage any stand-alone sub-post offices
that do not have to operate a shop, and sell bread and things
out of freezer cabinets, in the longer term, in Scotland?
Paula Vennells: There would absolutely
be, where there is the number of customer sessions to justify
them. Where they are in communities where perhaps that is not
the case, we would continue to operate the different models that
we have currently. The Outreach is our example of that entirely.
A number of the Outreach models are not in other shops, they are
stand-alone post office services. We have toall of uschange
the mindset of what a post office is. The most important thing
is that the customer gets the range of post office services delivered
to them in the most appropriate and cost-effective way. That is
not necessarily two or three dedicated counters in a shop that
does nothing else, if there is not sufficient business.
Q243 Cathy Jamieson: My final
question, going back to Fiona's issue on the money, is how much
of that money might be available to assist local sub-postmasters
in upgrading their premises, converting and doing all the things
that are necessary to sustain them?
Paula Vennells: We haven't got
down to specifics on how much, but within the strategy that is
foreseen as something that we will do. We will invest with them
in their shops to convert them into something that is much more
Ian McKay: In Scotland we have
seen other agencies becoming involved in the equation that you
are setting out. The Scottish Government made a £1 million
fund available last year, not just for post office development,
but to develop those who had post offices within their shops.
For some of the people who benefited, the money was for things
not related to the post office as such. It was a model that said,
far from a stand-alone sub-post office, we will actually try to
put lots of different services into that place for the community.
Indeed, the Chair and other members of the Committee saw at Dalmally
a good post office, which runs Outreach services to other places
which shares premises with our pharmacists and one or two other
things within the shop. It is the range of streams of income
that make it a viable proposition.
Q244 Lindsay Roy: I am interested
in further discussion about mutualisation. Yesterday, we heard
that it was potentially diverse and potentially complex. Looking
at different models and different stakeholders, can you give us
an idea of what kind of mutualisation models in rural areas would
embrace Outreach? Would they be highly localised mutuals, regional
mutuals or are some models being developed?
Paula Vennells: To be straight
with you, as you would expect, at the moment I don't know. The
work is currently under way, and we haven't got close enough to
the detail of that at the moment to say what it would be. I would
be very happy to come back and talk through it once we have more
detail. The work has just kicked off. The plan is, I believe,
that roughly by Easter next year, there will be various options
available for us to look at, which will then go to public consultation
in early summer.
Q245 Lindsay Roy: Would you consider,
for example, the one that we have discussed at some lengththe
W H Smith Post Office Network? That is a kind of mutual, too,
isn't it? Or is it?
Paula Vennells: Could it be?
As I said, we have to get models that the Post Office can work
with, whoever operates the mutuals. One of the questions we have
to ask in this process is how that would work. Our big franchise
partners are clearly a question mark in that. Interestingly with
the Co-op, which runs more than 500 for us, there is an easy conversation
to engage in. What I don't think we can countenance from a Post
Office point of view is lots and lots of different models of mutual
because it would be almost impossible to manage that. Again, I
know it is not a very satisfactory answer, but as we get closer
to some of the models, we can look at that.
Q246 Lindsay Roy: Perhaps in due
course you can give us an idea of the range of stakeholders you
might envisage across the network.
Paula Vennells: Yes.
Q247 Mr Reid: You both said that
it would be unthinkable to break the contractual relationship
between Royal Mail and the Post Office. However, the evidence
that we heard from the CWU yesterday was that all that Royal Mail
would need in villages would be a box and a machine that people
would put their parcels in. It would automatically be weighed,
people would put their coins in and the only human intervention
would be postmen to come and empty it. Clearly, you think that
there is more to a post office than that, so can you respond to
the point made by the CWU?
Paula Vennells: I can't envisage
that that would be the case as long as the relationship between
Royal Mail and the Post Office carries on. Both businesses are
here to deliver a service to customers. What we do very, very
well and better than any potential competitor is the face-to-face
service in the post office. The mails business in this country
is so complicated that I cannot envisage people just doing thatperhaps
in urban areas as a supplementary, but certainly not as a replacement
for post offices.
Ian McKay: Can I add to that?
I didn't see that evidence, but possibly those who gave it have
not been sitting in the same post office branches as I have.
Again, in any big challenge like the one we are facing, your glass
is either half full or half empty. From our point of view, this
is not about a future that is about cutting corners and taking
money away from suppliers and so on; from our point of view, what
is offered is the opportunity for us to correct the difficulties
that we historically and currently are dealing with and to put
us a position to start developing and bringing in new products.
I hope that that relationship with the Post
Office in the future will see us freed up from some of the regulatory
constraint, and able to bring in new products that reflect where
communications are because that is part of the issue. Society
out there communicates differently from how it used to. You cannot
go back. You have to go forward. When you are looking for the
app for your Androidwhatever that meansthe post
office is your app. It is a human thing, which will allow us to
develop new products between both of the companies. We are looking
at a positive future.
Chair: I understand that. You are both
sitting there all lovey-dovey between the Post Office and Royal
Mail. Can I just clarify this? The National Federation of SubPostmasters
said to us that you were both willing to sign a 10-year business
agreement at the moment, but the Government weren't letting you.
Is that true?
Paula Vennells: I have no idea
where they got that from. Absolutely no idea.
Q248 Chair: So it's not true.
Paula Vennells: We are currently
looking for something as long and as strong as possible.
Q249 Chair: Can I be clear? You
would both today sign up to a 10-year agreement if you were allowed
to do so.
Ian McKay: In that hypothetical
question you assume that the Bill goes through as it currently
is without Parliament doing anything more to it and that we have
reached the other end. We would be more than happy when we reach
the other end to come back and talk to you again. But at the moment
Q250 Chair: Is that a no or a
Ian McKay: It is neither because
we are not in a position to answer that until the changes that
are before Parliament have progressed. I am conscious that people
are seeking reassurance. The reassurance is that both parties
to a contract, which has been in existence for an awful long time
and is currently in existence
Q251 Chair: No, I understand that.
Ian McKay: We both want that contract
to be for as long as it possibly can be and to be negotiated prior
to any separation.
Q252 Chair: I understand that
you would have a haggle.
Ian McKay: It's not a haggle.
Q253 Chair: Quite naturally there
would be a haggle. Even if you both wanted to sign a pledge, as
it were, there would still be a haggle about the exact terms.
I understand that. But I want to be clear about this. I don't
quite understand, Ian, why you are not responding to this in the
way that I had expected. If you were allowed to do so now, irrespective
of some haggling later on, would you or would you not be willing
to sign up to a 10-year deal? If that was signed, it would clearly
give a guarantee of the further work that David mentioned earlier.
It would give a guarantee of continuity to the Post Office, which
is not there at the moment and is where a lot of the anxieties
seem to be coming from. If you are trying to distance yourself
from that you can understand why we then have anxieties.
Ian McKay: I am not distancing
us and I think Paula has also said this. The position you were
describing is one that we don't recognise. We are not in the position
of all of this having been agreed legally and so on, as to what
the position is between the two companies. What we are trying
to do, in the absence of that legislation having gone forward,
and in the absence of the world having changed, is to give you
the assurance that we wish to see the longest possible contract.
Q254 Chair: Okay. But can I also
pick up the question of growing business from other streams and
so on? You indicated that you wanted to get more Government business,
quite understandably. Yet the Government have put out to tender
the contract to issue green giros. I don't understand how you
can suggest to us that you are working with Government to expand
the range of things that you are doing with Government while at
the same time the Government put out to tender something that
would put £50 million or so a year through yourselves, and
presumably will take the lowest bidder who might very well be
somebody else. Can you address that incompatibility?
Paula Vennells: The Government
Department concerned follows procurement rules the Committee will
be very familiar with, and which apply to central Government and
to local government. We have submitted a very competitive tender
and what I am very aware of, having read all the documentation,
is that when they evaluate those submissions, they are evaluated
on two bases. Part of it will be on the cost competitiveness of
what is put in and part of it will be on the qualitative criteria.
We have put in a cost-competitive bid. We also feel very confident
on the qualitative. It's measured on a 50-50 basis. We believe
we are a long, long way ahead of anybody who would compete with
us for that business. I hope that whoever evaluates the tender
will do it on that basis.
Q255 Chair: But can you understand
then why we have this anxiety, which some Members have also expressed
to us, about there being alternative networks to the Post Office
Network when the Government, even though they have said that they
will be working closely to support the Post Office, are entertaining
other bids for what would be seen as a core part of your work?
Paula Vennells: I can understand
that. The current processes are bound by current procurement legislation
and the rules that apply.
Q256 Chair: So it's the European
Union's fault rather than the Government's. Is that correct?
Paula Vennells: We are working
within the guidelines that were set out in the documentation.
Q257 Chair: That's a yes, then.
It's always good to have my prejudices confirmed. I am quite happy
One of the things that we had with another group
was the question of credit unions saying to us that they would
be very keen to put a lot of work through Post Office Counters.
But to do that, it is necessary for you or them, or both of you
together, to put some £50 million into back-office gee-whizzery.
Is that being considered? Is it a possibility? Where are we with
that, and is it not one of the ways forward?
Paula Vennells: Yes, it is. It's
a very positive possibility, so we are working very closely with
ABCUL, the Association of British Credit Unions. The issue that
has presumably been referred to, although I don't recognise the
£50 million, is that the several hundredI don't know
the exact numbercredit unions around the country have slightly
different back ends. We have the ability to do that now. So within
the Post Office, there is the technology, because we service 80%
of banking customers in the UK. A piece of work is under way scoping
out what needs to be done.
Q258 Chair: That's all I needed
to know. My final point is that it has been suggested to us on
several occasions by a number of people that, basically, you are
being bled white by the people who are getting downstream access
to your services, and that the rate at which you are charging
them is the wrong one. I am not clear about the process that led
to that rate. It has been suggested to us that the regulator would
have allowed you to charge more had you not settled with the bulk
suppliers at a rate that was to your disadvantage. Can you clarify
that position for us?
Ian McKay: There is a very simple
response. There is a rate, and the rate is established by the
regulator. Ever since that rate has been established, we have
been in the position that we are in. I think what has happened
is that, at one and the same time, you have had a massive fall
in the overall volumes of mailthat has happened globally
and in this countryand a really massive shift over to the
use of other carriers.
Q259 Chair: I understand that.
The point that was made to us quite specifically yesterdayit
is something that we will pursue with the regulator as wellwas
not that the regulator set the rate, but that the regulator was
lurking in the wings ready to set the rate, and that you settled
at a worse rate for yourselves than the regulator would have imposed.
I want to clarify whether or not that is correct.
Ian McKay: As to the historical
"who did what and when", I would have to get back to
you with the chronology of events. That rate is established by
regulation, which is why we want to see that changed.
Q260 Chair: Sorry, but you say
"established by regulation" and that has a double meaningin
fact, it has three meanings. It is either established by the regulator,
or there is an immutable formula, or the regulations establish
some sort of negotiation structure within which you settle a price.
I am not clear, from what you are saying, which of those three
it is. Can you clarify that for me?
Ian McKay: I would have to take
advice on that. I would be quite happy to give the Committee a
document that sets that out for you.
Q261 Chair: This is obviously
of major significance, given the issues of bleeding yourselves
Ian McKay: I can understand. As
I say, what we are dealing with is the reality that the price
that is established means that, from our point of view, we lose
£160 million a year.
Chair: As I said, the evidence we received
was that you settled on that yourselves.
Q262 David Mowat: Just to be clear
on that, presumably it could be due to a volume decrease since
the price was established.
Ian McKay: There will be several
factors involved as to just how bad the situation is, so that
is not the only one. There are other restrictions in terms of
us bringing forward new products, the general mail volume, the
pension deficit and so on, all of which have now combined to put
us in a place in which the status quo is not an option for us.
That is why we need change.
Chair: Thank you very much for coming
to see us this afternoon. I am sure it has been enjoyable all
around. We learned a great deal from that. We are seeing a couple
of other people this afternoon, so we will now have a short break.
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