Select Committee on Constitution Minutes of Evidence

Further memorandum by the Postal Services Commission (Postcomm) in relation to written evidence submitted by the consumer council for postal services (Postwatch)

  1.  This further evidence is submitted by Postcomm, the regulator of postal services, in response to the written evidence that was submitted by Postwatch, the consumer council for postal services, and in advance of our own appearance before you on 11 June. This note deals separately with:

    —  a number of factual errors in the Postwatch submission;

    —  Postwatch's criticisms of Postcomm's processes;

    —  the steps Postcomm has taken to ensure its accountability; and

    —  Postwatch's suggestion that it should be able to refer Postcomm's decisions to the Competition Commission.


  2.  There were several factual errors in Postwatch's submission:

    —  Sector regulation of the postal market is not simply a matter of UK law—it is a requirement of a European Directive (paras 2 and 3);

    —  Users are at the heart of Postcomm's statutory duties: subject to ensuring the universal service, this is our principal duty (paras 4, 6 and 17);

    —  Mr Corbett's appointment as Chairman did go through the full Nolan process, including advertisement (para 5);

    —  In accordance with the provisions of Schedule 1 of the Postal Services Act, the Chief Executive is appointed by the other Commissioners, not by the Secretary of State (para 5);

    —  Postcomm's audited accounts have been published each year, as are the accounts of all Government departments (para 13).


  3.  Postwatch accuses Postcomm of making poor decisions; inadequate and unsound consultation; reluctance to publish information; and providing an "inside track" in private negotiations with Royal Mail (paras 7, 17 and 18).

  4.  Postwatch's views stand in sharp contrast with those of the National Audity Office which has commended our processes ("Postcomm have been impressive in the transparency of their processes")[8] and the views of stakeholders as reported in a review of Postcomm's operations conducted by an independent consultant ("[Postcomm is] considered to be . . . professional, pragmatic and competent".)[9]

  5.  Concerning our general approach we make it clear in our Forward Work Programme that we will develop our policies "carefully, paying particular attention to the balance of risks and the existence of uncertainties . . . where appropriate, major change is implemented in stages over several years".[10] As it recognises in its submission, Postwatch has different responsibilities and a different culture to Postcomm. Postwatch undoubtedly feels that Postcomm could have moved further and faster to put Royal Mail under regulatory pressure, including imposing tighter price controls, but they fail to acknowledge the challenging political and business climate in which we are working. In brief:

    —  Postcomm is breaking new and difficult ground in applying the techniques of independent economic regulation to the postal industry;

    —  We are introducing competition into a 350 year old monopoly where the effects, however carefully analysed, are bound to be somewhat unpredictable, while being obligated, as our primary duty, to preserve the universal service.

    —  We are regulating a business (in Royal Mail) which:

      —  is state-owned;

      —  is in clear need of renewal, in terms of investment and working practices;

      —  is part of a holding group which, as a whole, has incurred heavy losses;

      —  has daily personal contact with a high proportion of the population;

      —  employs 200,000 people;

      —  is the subject of significant media and political interest; and

      —  has a uniform-price universal service obligation.

  6.  Postwatch also criticises Postcomm for some "unreasonably rushed" consultation. This criticism principally relates to the closing stages of the recent price control negotiations which needed in our view, to be concluded by the end of March 2003. Postcomm understands Postwatch's concern but notes that this was the end of a three stage consultation process stretching over 17 months. Postcomm believes that formal submissions by Postwatch, plus considerable contact over the whole of that period, meant that we took our final decisions based on a very good understanding of Postwatch's views. [11]Indeed, it is possible that Postwatch underestimates its own influence. Postcomm has been greatly encouraged to know that Postwatch supports competition, limited price re-balancing (to ensure that prices better reflect costs) and price rises in return for improved service quality.


  7.  Postwatch asserted that "Postcomm is not accountable to postal users". We disagree and believe that we have recognised the need to do everything possible to account for our decisions, both formally and informally. Our written evidence submitted on 31 March 2003 describes the accountability arrangements. In summary, we account for ourselves in the following ways:

    —  in our formal decision documents, which are detailed and carefully argued, and deal with all key points raised in consultations;

    —  in our forward work programmes (S.61 Postal Services Act);

    —  in our annual reports (S.45 Postal Services Act);

    —  in our appearances before the Public Accounts and the Trade and Industry Committees;

    —  through discussions and correspondence with Parliamentarians not only in Westminster but also in Scotland, Wales and Northern Ireland;

    —  in innumerable meetings and exchanges with users of postal services and their representative organisations, consumer organisations, private operators, Royal Mail managers, and trade union representatives;

    —  through our website;

    —  through press notices, appearances on TV and radio, and interviews with journalists; and

    —  in public meetings throughout the UK.


  8.  Postwatch's submission reflects the frustration felt by most consumer councils at not being directly involved in regulators' decision making, including settling licence conditions with regulated companies. But Parliament has consistently made it clear that this responsibility lies with regulators who have more comprehensive and onerous statutory duties and are subject to appeal by the regulated company to the Competition Commission.

  9.  Postcomm does not consider that Postwatch's proposal would be likely to contribute to the effective and fair reconciliation of the varied interests that are at large. The task of setting a price control for a regulated company, which has an information advantage and an incentive to take discussions to the wire, is already fraught with difficulties and involves complex judgments. It would be very difficult indeed to have to conduct this process with a consumer council, which has distinctly different statutory duties, but which also had the power to refer the matter to the Competition Commission. This would risk reducing the regulator's role to that of simply arbitrating between the regulated company and the consumer council.

  10.  Moreover, there are already checks on the ability of regulators and companies to do any deal which is not in the public interest. In addition to the remedy of judicial review available to all stakeholders, the Secretary of State has the power (in our case under S.14(5) of the Postal Services Act) to reject licence modification proposals reached by agreement between a regulator and a regulated company, and to force a reference to the Competition Commission. A further check, by a body with different statutory duties to the regulator, could result in operators seeing the environment in which they work as so uncertain that they are disinclined to invest. That would be against the consumer interest.


  11.  It is regrettable that Postwatch appears to be unable to acknowledge the successes of the postal regulatory regime. Again in brief:

    —  Royal Mail's service quality has improved;

    —  Royal Mail has accepted a price control under which prices will, by 2006, be on average five per cent lower in real terms than in 2001; and

    —  the bulk mail market has been opened to competition since 1 January this year, despite all of which,

    —  Royal Mail's letters business was profitable last year and is more profitable this year. (The well publicised losses were incurred on Parcelforce, the Post Office network and other areas of its wider business.)

The Postal Services Commission


4 June 2003

<mo9>  9 W S Atkins "Efficiency review of the Postal Services Commission" January 2002.

8   National Audit Office's report "Opening the Post: Postcomm and postal services-the risks and opportunities" January 2002. Back

9  W S Atkins "Efficiency review of the Postal Services Commission" January 2002  Back

10   Postcomm's Forward Work Programme is available on Postcomm's website ( Back

11   For a full rebuttal of Postwatch's criticisms of the process followed by Postcomm in setting the Royal Mail price control see Appendix 3 of "Review of Royal Mail Group plc's Price and Service Quality Regulation, Second Price Control, Quality Service Targets and Compensation-Licence Modification and Decision Document", Postcomm, March 2003 available on Postcomm's website ( Back

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