Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. In your opinion are there any targets missing that should be there?
  (Mr Holmes) I do not think so. Each year, when we produce our corporate plan for Treasury approval—that will come forward in the next few weeks before the new financial year begins on 1 April—we generate our various internal forecasts and then have a discussion with the Treasury about whether any of the targets should be changed. That is something that is reviewed every year. It is possible that in the new financial year we shall have something different. I do not think that there is anything fundamental missing.


  61. You said that there was no disagreement between yourselves and the Treasury on the 7 per cent target. Does that apply to the 14 per cent target for the previous year?
  (Mr Holmes) I am trying to think back. I would not say that there was any major disagreement between us. We would have felt it was a tough target to reach in the middle of our investment programme. There was no formal protest or anything like that.

  62. Does the Treasury lay down a target and you, on the whole, lamely accept it or do you start by suggesting targets?
  (Mr Holmes) We produce our corporate plans. The process of corporate planning is carried out annually, but on a rolling three-year basis. Our corporate plan looks three years ahead, but the main detail is done in year one. If the Treasury want to set us a three-year target they have three years to look at in our corporate plan. We start off with a corporate plan that says, "Here are the forecasts", and then we talk to the Treasury from there.

  63. If we were to apportion blame about missing targets, would it be fairer to blame you or to blame the Treasury?
  (Mr Holmes) It is fair to blame me or the Mint. I am not trying to blame the Treasury for anything. We take responsibility for our performance against target. Once the target is set that is it and we have to deliver. In most years we have delivered on such targets.

  64. That is not quite what I asked. I was asking you about the setting of the target. If that is grossly wrong, is that your fault or the fault of the Treasury?
  (Mr Holmes) As I said earlier, I do not seek to suggest that any of the targets were unrealistic at the time that they were set. I do not think that the Minister took a totally unrealistic decision.

Judy Mallaber

  65. Previously you referred to the fundamental changes to the Mint, as the Economic Secretary described them in July 1999, as designed to "maximise its value as a business and its contribution to the UK economy". In light of the previous line of questioning by Mr Fallon and Mr Kidney, how far do you believe you have come? What have you done to try to achieve those matters and what progress have you made?
  (Mr Holmes) As far as the Treasury statement of July 1999 is concerned, the relationship between ourselves and the Treasury has changed quite significantly into a more arm's length shareholder relationship and our corporate governance has been upgraded. The Treasury has the Shareholder Panel to advise it and we have additional non-executive directors on our board which has been helpful. Among other changes that we have not talked about so far that the Treasury gave to us in that statement was the additional commercial freedom to extend our business beyond coins and medals. We have now decided to extend our product range into non-coin gifts and collectibles, products that are of a high quality and which are consistent with the Royal Mint brand. That is a significant shift in our business, to a broader product range, potentially to a broader customer base and it gives the Mint an extension to its already profitable collector coins business. That is an interesting shift in the emphasis of the Mint that we have begun to implement. There is much more to do. We have approached this matter cautiously and we have laid down our plans to roll out a much bigger range of products.

  66. The purpose is to maximise your value as a business and your contribution to the economy. Do those kinds of changes go as far as you would wish to go? Do you think that they are likely to meet that target? How long will it be before you feel the full effects of the new commercial freedoms?
  (Mr Holmes) So far as maximising the value of our business is concerned, and the effect of the new commercial freedoms on that, the development of this non-coin gifts and collectibles activity is seen as a five-year plan in which this is year one. The development will be gradual but it will increase substantially the scale of our collector coins business and ultimately improve profitability. In the short term, we are having to invest in promotional expenditure, so the effect in year one will be neutral—neither profit nor loss. As we go forward, we expect a substantial increase in the value of our business from that. As far as the value to the economy is concerned, the Mint's whole business is a contributor to the UK economy, not only in terms of what we do ourselves, including our export business, but also in terms of what we buy from local suppliers. With the extra business from non-coin gifts and collectibles we shall source quite a lot of product from other suppliers as well as producing ourselves.

  67. What kind of products are they? What volumes do you have and who buys them?
  (Mr Holmes) There is quite a mix. We are still feeling our way in this matter by trialing products to see what works. We have already started to produce some jewellery with a Mint connection. We try to make our products as closely as possible related to what the Mint does or to the heritage of the Mint or to things that the Mint commemorates through coins or medals. We have introduced some jewellery, silver salvers, trinket boxes, watches and time pieces of various sorts.

  68. That does not actually fall within the statutory backing for what you can do. As I understand it, this went through on a vote, but it is not within your statutory remit as the Royal Mint. Is that correct? Should there be statutory backing? How far can you go down this list of things in relation to extending your commercial business?
  (Mr Holmes) The range of products that we can produce within the Trading Fund Order 1975 is described as the manufacture of coins and medals and operations conducive to those. This additional vote that we acquired at the end of last year, which gave us the ability to extend our product range, was very widely drawn. The words were, "to enable the development of the Royal Mint's commercial operations aside from the manufacture or supply of coins and medals".

  69. Do you think that it is right for a state-owned Mint to get into that area of production? How far can you go before it becomes a commercial trinket business which would not be appropriate for the Mint?
  (Mr Holmes) The vote is a temporary situation. The ultimate objective is for the Treasury to amend the Trading Fund Order to define what extra products or what extra activities we can carry out in addition to the coins and medals and related work. According to the statutory position, you cannot extend the remit of the trading fund unless the activity has been carried on already. We have to put these additional activities on a vote for a certain length of time. I believe that the minimum is about six months before the Trading Fund Order can be amended. I believe that when the Trading Fund Order is amended there will be a slightly narrower definition of what we can do instead of this wide definition in the vote. That will be based on the experience of how we shall operate. I want to emphasise that our objective is not to sell everything to everybody, but it is to supply products and services that have a link to the Royal Mint and which are consistent with the high quality of the Royal Mint brand.

  70. In relation to some of your traditional products—I refer to things like the OBEs and the MBEs—what proportion of them do you produce? Is there any reason why you cannot win 100 per cent of the tender for that work?
  (Mr Holmes) There are a number of other private sector medal producers in the UK who are rather smaller than we are. Normally those medals go to tender, not necessarily every year but every three years. We tend to have the bulk of the military business at the moment, but we have a lower proportion of the civil awards. That is simply as a result of the last round of tenders. Each time there is a tender process we go for them and whether we win tenders or not depends on the price that we quote and on certain other factors. We would like to have all the medal business that we can, but we do not expect to have a monopoly.

Mr Fallon

  71. On the non-coin gifts, the position seems to be that you have a well-established monopoly in coins and blanks which you have enjoyed for years. You employ a thousand people; you have sales of £95 million, but you are making virtually no profit at all and you are asking Parliament for permission to make trinkets in competition with private businesses. Is that justified?
  (Mr Holmes) As I have suggested, our collector coins business is profitable anyway and there is no suggestion that we are cross-subsidising from other parts of our business—circulation coins and blanks—in order to compete unfairly. In this marketplace it is simply a question of what product you can generate which will be of interest to the consumer and good value. I do not believe that there is any possibility of our competing unfairly with the private sector in this kind of area.

  72. Does the state set up the Royal Mint to make trinkets?
  (Mr Holmes) We are not saying that we are going to turn over all our business to that. We are saying that it is a natural extension of our business. We have a large mailing list of people who could be interested in things other than coins and medal products. We have a good reputation in the marketplace and we want to offer a broader range of products where we feel that the Royal Mint brand can make a difference.


  73. As I understand it, in some cases you are not even making the trinkets, but you are buying them in and retailing them?
  (Mr Holmes) That is right. In some cases we make them ourselves, or make part of them ourselves and in other cases we buy them in. Normally we will do that in a co-operative venture with a private-sector supplier who will benefit from that extra business. We are co-operating with people like Wedgwood, Edinburgh Crystal and Caithness Glass. The benefit to them is that they get access to our mailing lists for the things that they make.

  74. There may not be a logical relationship between the product that you retail on behalf of someone else and your own business?
  (Mr Holmes) There will be a relationship, either in the type of product that we produce or the fact that it may have a coin or medal embedded in it or it relates to a commemorative theme that we shall be promoting because we have a coin to commemorate that particular event.

  Judy Mallaber: What is the limit in relation to that. Do you think that you can produce or supply anything that has a Royal Mint logo or an object with a coin in it?


  75. Perhaps you could sell chocolate mints?
  (Mr Holmes) I think the limit will be a natural one. If something is consistent with a high quality brand like the Royal Mint or we have the expertise to do something ourselves in terms of marketing, I believe that will set very tight limits which suggests that we shall not turn our whole business over to this.

Judy Mallaber

  76. I have a high quality chocolate maker in my constituency. You could enter into an arrangement with them to produce Royal Mint chocolates. Is there any reason not to do that? I might suggest it to them.
  (Mr Holmes) We are not trying to produce products that are the same as anyone in the private sector is doing. We are trying to do something a little different that has a Royal Mint link.

  77. What options for forming partnerships with the private sector have you explored? What kind of relationships are you looking towards? Have you joined any such partnerships?
  (Mr Holmes) We have not made any new major partnerships with the private sector since the Treasury announcement of July 1999. We already had a number of partnerships, including a consortium relationship with De La Rue and Birmingham Mint. As I have already mentioned, on some of the new non-coin products, we are entering into commercial deals with private sector suppliers who are producing products for us or co-operating with us on joint products. Those kinds of relationships may develop into something a little bigger in terms of a joint venture in time. We are not constrained any more in terms of how those relationships may develop over time.

  78. Do you see any potential dangers in developing those kind of relationships? I note in a memorandum from the unions that they are obviously still anxious about the potential of the wholesale privatisation of the Mint, although up to now it has been discussed and rejected. They also specifically refer to difficulties in relation to security, given the kind of work that you carry out. Are there any similar dangers in going, not totally down the privatisation path, but in going into greater commercialisation?
  (Mr Holmes) I do not believe that there are any particularly major security considerations in joint ventures of the kind that we are talking about. As far as privatisation is concerned, the next review of the Royal Mint—government agencies have regular reviews of their status—is scheduled for 2003/4. There is no immediate plan, that we are aware of, to look at that in the immediate future. We believe that we are comfortable co-operating with the private sector and we believe that we can develop that without prejudicing any future discussions about ownership at the next review.

  79. Looking at the structures, in your memorandum you refer to the responsibility of your new non-executive directors as "contributing to the enhancement of the Royal Mint's business over time", which is a rather vague phrase. Can you be more specific about what you had in mind and how you think they will contribute?
  (Mr Holmes) That was the Treasury's statement, and the reason for that was to distinguish the position of the Royal Mint non-executive directors from the members of the Shareholder Panel. What was said there was that the Royal Mint executive directors are part of the Mint board and their objective is to help us maximise the business, whereas the members of the Treasury Shareholder Panel are to advise the Treasury on being a good shareholder. Prior to that, the Royal Mint non-executive directors had a dual remit, as they were also in the position where they could advise the Treasury. The feeling was that they were playing two roles when it would be better to concentrate on one.

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