Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 60 - 79)

WEDNESDAY 13 FEBRUARY 2002

MR MARTIN STANLEY AND MR GRAHAM CORBETT CBE

60.  With respect, it is not, because, if you have a number of supermarkets, globally they provide enough food for everyone and they make their choices. If I have to have two or three different postal services running up and down my street, there is an extra cost. It is also different to gas and electricity. Would you accept that there are extra costs from that duplication of service?

  (Mr Corbett) Of course.

61.  Who pays those?

  (Mr Corbett) There are extra efficiencies and benefits to consumers in terms of choice and innovation.

62.  If we can try and make Consignia work rather than having all this duplicated cost in the meantime, we might end up with a better service. Do you not think the public want to preserve the service, improve efficiency but not throw the baby out with the bath water?

  (Mr Stanley) That is exactly what we want and that is what we think will happen.

63.  If you said to a manager, "My first priority is to get 92.5 per cent first class delivery by tomorrow and 89 per cent is not good enough", do you not think his logical response would be, "All right. I will only do one delivery, not two"? Therefore, do you not feel that your insistence on certain objectives is generating predictable results that the public do not want?

  (Mr Stanley) Our pressure is doing exactly that. It is getting more and more mail delivered into the sorting office in Bognor and elsewhere, early in the morning, able to go out on the first delivery. If it can all go out on the first delivery and you do not need to meet targets to do a second delivery, we would all be happy.
  (Mr Corbett) Postwatch has a very important role. It is their job to keep sufficiently close to consumer opinion to ensure that their recommendations for service standards are responding to what consumers want.

64.  This picture on the front of the NAO Report is of a man going along on a strange tractor-like conveyance. Presumably you accept that is a cost of universal delivery that no incoming competitor would want to face?

  (Mr Corbett) We did put out in June of last year a consultation document on the costs of the universal service. That contained a number of quite surprising conclusions all derived from Consignia's own costing information. One of them was that deliveries to the areas which are categories as rural and deep rural—deep rural really is deep rural—each of those areas, on its own, more than covers its direct costs. Yes, there are going to be the occasional deliveries like the one illustrated on this which—

65.  Would you accept that any competitor entrant would make sure their marginal costs were going to attack the most profitable areas first and Consignia's large, fixed costs would be undermined very quickly?

  (Mr Stanley) They cannot get rid of that sort of delivery. The top 500 customers post 40 million items between them every night. If an operator wants to take some of that business, he has to go to one of those companies. Say, the Inland Revenue or a bank. There is no way they would say, "We will deliver all the attractive returns but you must isolate the ones who live in farms and get somebody else to do them, so ask your customers if they live on a farm."

66.  Would you accept that the saving to Consignia, for instance, of a Post Office closure is less than the social cost, in many cases, of that closure? Similarly, the cost, for instance, of slashing one of the services in the day. That saving is less than the economic loss to the business community and therefore you should have some understanding and factoring in, in your decision making of those factors, rather than saying, "Here is something that the public do not want"?

  (Mr Stanley) We do recognise that and we are very strong supporters of the rural network. We have already produced quite major reports for the Secretary of State on the farming network and we are very strong supporters of both the urban and the rural network. They provide a fantastic service.

67.  Do you accept any responsibility for the closure of these Post Offices that we are seeing through the tightening of your grip around Consignia?

  (Mr Stanley) On the contrary. Our role is to give advice. One of our separate roles, not covered in this report, is to give advice to the Secretary of State on how she should keep those Post Offices open. We are very keen on that. Nothing in our proposals that we produced recently will affect Post Offices in any way.

Mr Steinberg

68.  Would you turn to page two, paragraph eight? If you read that paragraph, there does not appear to be the problem that Postcomm say there is. I accept there are pockets of problems but they can be put right, I suspect. We have what appears to be around a 90 per cent next day delivery, mainly before 9.30. We have a relatively cheap postage service compared to the rest of the world. We have high levels of satisfaction—something like 75 per cent—which I fully endorse. Why in 3(b) in your response do you infer the opposite to the response we have here?

  (Mr Stanley) When you look at paragraph eight, the most startling figure there is towards the end where it says, ". . . over 60 per cent of large users were either satisfied or very satisfied . . .". There is a rather worrying 40 per cent of large users who are simply not satisfied with Consignia.

69.  Come on. If you can get 60 per cent of the public to say they are satisfied in this day and age, it is a miracle. Ask people who travel on the trains if they are satisfied.

  (Mr Stanley) The worrying thing is that this is not the public. This is large users who between them post 40 million items a night.

70.  They are still the public.

  (Mr Stanley) These are companies, banks, building societies, gas companies, big advertisers and so on. These are the people who post most of the mail and who support the universal service. When you talk to these people, they say, "What we want Consignia to do is (a) provide a more reliable service" because they are not happy with the reliability, "and (b) to provide the sort of service that helps us run our businesses more effectively."

71.  Where is it failing?

  (Mr Stanley) If you are trying to do a big advertising campaign to sell cars or beer or anything, you want the documents to drop through your letter box on the same day, for instance, that the advertising hoardings go up or the television campaign begins. If the stuff arrives early, people start ringing your lines or sending the forms back when you are not ready for them. If they arrive late, you miss the boat. Consignia will not do that on the day you ask. Even if you give them stuff now for 1 March, they will not deliver on 1 March. They will try to but some will arrive early and some late.

72.  You are going to change the whole of the system because of this?

  (Mr Corbett) It is important to remember that Postwatch, which is the body set up to keep in touch with customer opinion, takes a very concerned view about the quality of service.

73.  Customer opinion is very good at 75 per cent.

  (Mr Corbett) They have seen a doubling of the number of customer complaints over the last year and there is widespread concern which was reflected most recently in the Watchdog programme a week ago.

  Chairman: I am sorry to interrupt. Your answer is very interesting, but each Member has only a quarter of an hour.

74.  If you say all of this, how can you guarantee that your suggestions are going to make it any better?

  (Mr Stanley) For the reasons we gave earlier. We believe competition will be the spur to the company. If nobody else can provide a better service, they will not lose any business but if others can come along and do better they will lose business. Do not forget that the Postal Services Act says our duty is to introduce competition.

75.  Turn to page four, paragraph 14, the second box: ". . . the introduction of competition could result in a breakdown in the delivery of a universal service at a reasonable uniform price." Your recommendations could do that.

  (Mr Stanley) The first box says—

76.  I am talking about the second box.

  (Mr Stanley) What we recognise is that we have to form a judgment. We have to balance risks. We have to take the best thought through route that we have. There is a real danger of too little competition—that is the first box—and a danger of too much competition, which is the second box. That is what we try to do.

77.  Is it not clear from your recommendations that competitors are going to be able to cherry pick all the most profitable customers and services and that is the service that clearly pays for the Royal Mail at the moment or Consignia at the moment? You are going to take away their life blood.

  (Mr Stanley) No, because the profits are in bulk. The bulk mailers by definition want their mail delivering everywhere. There may be a small number of large customers who have a localised delivery requirement. Lambeth Council, for instance. As soon as you get to anybody that has a national reach, they are the really big ones, Centrica, the AA, British Gas and so on. They cannot cherry pick. They want their mail delivered everywhere.

78.  Of course they can cherry pick because they just take the best contracts.

  (Mr Stanley) How are they cherry picking? If they take the whole of British Gas's mail, they have to deliver to every gas customer in the land. That is taking the best and the worst together.

79.  In 5(b), you respond to that particular accusation that the competition could result in a breakdown in the delivery of a universal service at a reasonable uniform price. I read that. It was absolute waffle, was it not? You did not give any reasons. "Competition would provide incentives to Consignia. Royal Mail is a leading brand name with an exceptional customer base." That does not tell me anything. Explain to me in more detail why it will not breakdown the universal service at a uniform rate.

  (Mr Stanley) I am sorry you thought it was waffle.


 
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