Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 80 - 95)



  80. Figure 10 says "August 1998. Post Office informed the Department of its aim to purchase", not contract, "a parcel distribution company".
  (Mr Roberts) That is quite right. The intention was that as we developed the strategy what we were saying was that we wanted to make our first move in Europe in the parcels area.

  81. Why in August 1998 did you simply not tell them, even if you were looking at two companies at the time? Why did you not simply tell them who the companies were?
  (Mr Roberts) We may well have told them a range of companies but at that stage we would not have known we were actually going to go into an acquisition process with one. We would not have known that until a later date.

  82. Because you were interested in two.
  (Mr Roberts) Yes.

  83. And you told them both names.
  (Mr Roberts) We told them a range of names. In fact two of them in particular were issues which we discussed in detail with the Department and then we moved from those two and there were many discussions with the other one over some period of time which was a company which operated in the German market and beyond that. In the end we decided that the best way forward was to go down the route of looking at this one company operating in Germany but linked into this wider network of General Parcels.

  84. Sir Michael, may I ask you when you first approached Mr Bullock?
  (Sir Michael Scholar) We approached him some time after 2 October. I do not know the exact date we approached him but some time after 2 October when we knew that German Parcel was the target the Post Office were considering.

  85. You did not approach him when you were told that there was a purchase to be made, without being told exactly which company.
  (Sir Michael Scholar) No, we did not.

  86. Did you make any other arrangements, given that you knew you did not have anyone much to do the scrutiny within the Department? Did you make any other arrangements or attempt to make arrangements as to how the scrutiny was to go ahead, given that by that time you must have known you were going to have only a matter of a few months to do the whole scrutiny?
  (Sir Michael Scholar) The Post Office had already made two acquisitions which had been below the £75 million threshold.

  87. In August you were warned that there was likely to be an acquisition which was going to be above that size.
  (Sir Michael Scholar) I do not recall the details exactly but I do recall that when we were first told about German Parcel we were told that it was likely to be an acquisition of no more than £20 million because it was an acquisition of the hub.

  88. Are you saying that it was not until October that you knew it was likely to be above the £75 million threshold?
  (Sir Michael Scholar) I am afraid I cannot be absolutely positive about when it was without inquiring into that. My briefing does not go into so much detail.

  89. On the whole question of whether this was a rushed job and how quickly you got on with making arrangements which you should have known you needed to make, I am concerned that it took such a long time. You did not finally appoint Mr Bullock until 24 November, we are told, which is one month and a half after you were told that the final target company was to be German Parcel and a mere three quarters of a month before you were due to have finalised your scrutiny and given final approval to the whole deal, because you were then told the whole deal would have to be finalised by the middle of December. It seems to me to be taking a big risk with your scrutiny that you took a good month and a half to appoint somebody and then gave him only three quarters of a month to do the job.
  (Sir Michael Scholar) It takes some time to identify someone, to approach them.

  90. You told us you had approached him some time ago, I thought. You said something about approaching him much earlier.
  (Sir Michael Scholar) No, I do not think we had approached him until this period of time in October/November 1998. That is when we approached him. We were working to a policy prescription that we should get off the back of the Post Office. That indeed had been the policy the Department had been following for some years.

  91. Surely you do not get off the back of the Post Office by deliberately trying to delay the moment you can start the scrutiny which is supposed to be going on.
  (Sir Michael Scholar) There was a question in the minds of my colleagues about how careful and how thorough our scrutiny should be. They reached the view, and it was a correct view, that they did not want to duplicate the £10 million which the Post Office were paying on their set of professional advisers. Gradually over time we came to the view that we wanted to equip ourselves with a set of advisers for dealing with these acquisitions which were not available to us at this time. With hindsight, it would have been good if we had moved more quickly; I wish that we had moved more quickly.

  92. You answered the Chairman earlier by saying that the interest rate has now been set which has to be paid for the loan from the National Loans Fund. When was it set and when was the amount actually charged?
  (Sir Michael Scholar) It was set relatively recently, within the last month.

  93. Within the last month?
  (Sir Michael Scholar) Yes. It was applied retrospectively to all the borrowings of the Post Office.

  94. It was always going to be applied retrospectively. Why did it take until this month?
  (Sir Michael Scholar) It was a long period in which the Treasury conducted a consultation about the terms under which commercial National Loans Fund borrowing would be undertaken. This was a new policy for the Treasury and they wanted to consult all the people who draw on the National Loans Fund in this way. I should say that it took longer than it should have done.

  Mr Rendel: It always makes me slightly suspicious when these things suddenly get done just before people come before the Committee of Public Accounts.


  95. I suppose it does justify our existence, at least in one respect. I started out slightly worried by this report. I am frankly just as worried at the end. There is a risk with this that we have something between a half-way house at best and at worst a pretence of oversight. You have rested in your evidence on a couple of occasions on the Minister's comments about commercial freedom for the Post Office. Two or three points flow from that. Number one is that I am sure the Minister did not intend in any sense that the Accounting Officer requirements were relaxed by that. He would have had to have an Act of Parliament to do that and a really rather serious constitutionally important Act of Parliament to do that. That is point number one: it does not relax the Accounting Officer requirements. Point number two is that there are many commercial concerns, British ones and foreign ones, where there is a high degree of commercial, operational and strategic freedom amongst subsidiary companies but with a very high level of financial control. Therefore it is perfectly possible to have—indeed I suspect you do it to some extent with your subsidiaries, from what you have been saying—a very high level of commercial freedom, but rigorous financial oversight. Really that is the balance which is appropriate here. I just want to rest with you, before we finish, my response to your comments on the basis of the Minister's very sensible comments about giving more commercial freedom to the Post Office, that it should not lead to a situation where the Post Office does not have good strong rigorous financial scrutiny, including financial scrutiny of acquisitions like this.
  (Sir Michael Scholar) May I say I entirely accept those comments. We are carrying out a rigorous scrutiny of the Post Office's financial performance, together with the Treasury. We have a meeting every quarter, a shareholders' meeting, which is modelled on the kind of shareholders' meetings which large companies have with City institutions. It has an information input to it, drawn up along those lines suggested by our advisers to us. The Treasury, together with the DTI and Mr Roberts, on a quarterly basis go through those results. On top of that, every six months we go through all their acquisitions and track the performance of each acquisition against the expectation that we had when we permitted this acquisition to take place, if it was above £75 million, or that the Post Office expected, if it was below £75 million. We do take this seriously and we shall take it seriously.

  Chairman: Thank you for that. It just remains for me to thank you both for coming.

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