Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

WEDNESDAY 13 FEBRUARY 2002

MR MARTIN STANLEY AND MR GRAHAM CORBETT CBE

20.  Would there be any harm in reducing it down to 50 pence?

  (Mr Stanley) We think the first and best way to go is to open up large mailings, as you have seen. The question is should you do other things as well, and I think for the moment we worry that it will just be an another straw on Consignia's back. Eventually, of course, we will indeed, if our proposals go through, reduce it down to zero grams.

21.  You have just contradicted yourself. There is no demand for it to go down and yet it will be the final straw on the camel's back for Consignia. I do not see how it could be both.

  (Mr Stanley) Perhaps you are right, it is something we could do. Certainly throughout Europe the limit will be coming down in 2003 and 2006 to 100 grams and then 50 grams. I have no doubt we will follow that in one way or another.
  (Mr Corbett) I think in the two-step process towards total liberalisation we are proposing in our document, we have felt it was very important to be able to define pretty clearly the extent of the market opening so that Consignia could gear themselves up to cope with it. We recognise that the challenge we are setting Consignia in moving to a totally liberalised market over a four-year period is a serious challenge. They need to be able to gear themselves up to it and the more scatter gun approach to liberalisation, the more difficult it is, frankly, for Consignia to know how they should be responding. We felt that the process of going into clearly defined areas of the market and consolidation gave Consignia the opportunity to do that. So we rather turned our minds against dropping by price and weight, as it would be extremely difficult for anyone to really judge in advance quite what the effect was going to be.

22.  You were not influenced by the trade union, because they put a lot of pressure on not to reduce it to 50 grams?

  (Mr Stanley) I am worried we might be slightly at cross-purposes because the large mailings we are opening up are, of course, taking it all the way down to zero pence and zero grams. We were not influenced by the unions at all.

23.  I understand that. I am talking generally. The Communications Union did not have any influence on your decision not to recommend?

  (Mr Stanley) Not at all.

24.  What is your view about the discrepency of VAT treatment between Consignia and their competitors?

  (Mr Stanley) It is an issue that we have yet to look at in detail. Basically we would like to see parity of VAT treatment, but inevitably it is a matter for the Chancellor.

25.  What about the privileges that the Royal Mail have so far as traffic wardens and traffic regulations are concerned? They can stop on double yellow lines to empty the post boxes or deliver packages whereas TNT cannot? Is that fair?

  (Mr Stanley) In principle we would like to see equality of treatment.

26.  There are many references in the Report to the difficulties faced in obtaining information from Consignia. Why are Postcomm facing these difficulties? Are Consignia being difficult?

  (Mr Stanley) Bluntly, they do not have the information themselves. Not having had to face competition, not having had to operate in the world they are moving into, they simply did not have the systems that would have provided the information.

27.  What kind of information are they saying they do not have?

  (Mr Stanley) It is basically the cost information and in particular attributing costs to income streams. It is a slightly difficult business when you think about it. A lot of us go and buy stamps but it does not mean that we are immediately posting letters, so there is no immediate link between a payment and the taking of a service, so there are all sorts of difficult problems which I am not an expert in but which I am assured are there which do cause them real problems in answering the Regulator's questions. We are not critical of them but we are putting them under quite a lot of pressure to improve their systems.

28.  What proportion of domestic post is delivered to customers by 9.30 am?

  (Mr Stanley) I do not have the figure in front of me but we could certainly find out. Essentially in towns and cities they aim to deliver by 9.30, not country wide. Most are delivered by 9.30.

29.  That is not my experience either in my flat in London or, more importantly, my home in Bognor Regis, the town which might ring a bell because it is referred to on page 40 of this Report. I went on a shift at Bognor Regis sorting office from 5 am through to the end of the shift. I do not know if you know the life of a postman but they get there for 5 o'clock and they then have to sort the post into the different slots for the street numbers and streets. When it is all sorted then they can head out on the round. I got there at five o'clock. We did not leave the sorting office until nearly 8 o'clock because of the volume of post the postmen had to deliver. There is the same number of postmen at that sorting office as there were ten years ago yet the volume of post has increased hugely. Because we did not leave until 8 o'clock we could not get it delivered by half past nine. It was nearly 11 o'clock before we had it delivered. This is a regular thing in Bognor Regis. How widespread do you think this is across the country in terms of early morning delivery?

  (Mr Stanley) I think what is interesting about Consignia's performance is that it is very patchy. The number of people you could meet and that write to us and say, "Our service is wonderful. We have wonderful postmen and postwomen. Never a letter been lost. What on earth are you doing to our great national service?" Equally, lots of people complain to Postwatch and also to us about the sort of thing you say. What is obvious is that there are pockets of difficulty. It is not always obvious why the problems should be in particular pockets but there was a very serious problem around London where Consignia are having difficulty recruiting the right number or the right quality of people.

30.  How does cutting 30,000 staff help this recruitment business?

  (Mr Stanley) I do not think there is any question of them cutting staff in Bognor and places like that. We could talk at great length about the efficiency savings they could make, but I do not think anybody is seriously suggesting that they are in the final delivery system. As you know and I know, those poor men and women are carrying ever larger numbers and ever heavier sacks year by year. Was it in the summer you were in Bognor?

31.  Yes it was.

  (Mr Stanley) We understand that the Bognor problem is very seasonal. It is easier, for obvious reasons, for them to recruit and retain people during the winter and they do have serious problems during the summer.

32.  Would you come with me on a round in Bognor Regis?

  (Mr Stanley) I would love to.

33.  Starting at 5 am together. I will arrange that.

  (Mr Stanley) I have done it before and I will do it again.
  (Mr Corbett) We have all done it.

34.  I will take you up on that because the postmen and women there do work extremely hard. The volume of post has gone up. Sky Television manuals come out on a Tuesday and all the junk mail the Chairman referred to and yet the number of postmen and women in that office has not increased, so you are going to have those problems. Thank you for that. Changing the subject completely, what will Postcomm's attitude be to continued losses by Consignia? Will they be allowed to put their prices up or will you just allow those losses to continue year on year? It seems to be an unfair competition vis-a"-vis the private sector. No private sector company can survive with losses year on year. What is your attitude to those ongoing losses?

  (Mr Stanley) Let me give a top level answer and Graham will no doubt add to it. One of our roles is to make sure that the monopoly does not make excessive profits.

35.  No chance of that at the moment!

  (Mr Stanley) There is not much chance of that except that we are supposed to assume an efficient operator. We could discuss whether if Consignia made a number of changes to its operations, it would start making profits as a monopoly. Subject to that, we do not have an influence over the losses in Parcelforce or the counter network. If the shareholder, ie the taxpayer, is willing to carry on funding those and if the OFT is willing to say they do not break competition rules, we do not have a role.
  (Mr Corbett) The point you raise is absolutely fundamental and central to a lot of the work we have been doing. One of the conclusions that drives our recommendations is that the greatest risk to universal service, and indeed to Consignia itself, is if everyone sits still and does nothing. Given that we are satisfied that the way in which you propel Consignia into bringing those efficiencies about is by bringing in competition, that is the way that we think we actually make the greatest contribution to the preservation of the universal service. The Chairman asked the question earlier about the extent to which the public ownership of Consignia actually limits the extent to which it is likely to respond to pressures being put upon it. If the only tools in our tool kit were the Regulator's tools of price controls and enforcement actions and fines, I think that would be a very, very grave concern. We recognise, and the NAO recognised in their Report that those sorts of mechanisms are likely to be less effective with a public sector body. The thing that we do not believe would be less effective is the risk of seeing your market being taken away by competitors. That is the moment at which you really start to affect people's livelihoods and that is the moment at which you will get action.

36.  But how can competition flourish if you have got a major competitor in the market generating hundreds of millions of pounds of losses every year?

  (Mr Corbett) To the extent those losses are the consequence of inefficiency then the—

37.  If there is a lack of a management information system, how do you know it is not just predatory pricing? How do you know it is not just having the wrong price and just under-cutting the competitors?

  (Mr Corbett) Clearly that is one of the exercises that we need to do. You will see references in our Report to not only Consignia's assessments of the economies and savings it ought to make, but the support that we have received for those assessments from the studies that we commissioned from Frontier Economics and WS Atkins. All of those studies point in the direction of the potential for savings of the magnitude that Consignia themselves have indicated, 1.2 billion, and two and a half per cent per annum thereafter.

38.  Do you think that Consignia should be in the private sector?

  (Mr Corbett) I do not believe that that is a matter that is appropriate for us to consider. Parliament decided at the time that it passed legislation that it wished Consignia to remain in the public sector and public ownership, and unless, and until Parliament decided otherwise —

Chairman

39.  If you do not want to answer that question, do not answer it.

  (Mr Corbett) I think I have answered it, Chairman.

  Mr Gibb: That is it.

  Chairman: Thank you, Mr Gibb. Geraint Davies?


 
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