Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 159)



140.  If even some of them were, how do you ensure that each person carrying the post has to carry less?

  (Mr Stanley) I cannot think of a way and that is why I think it is highly unlikely.
  (Mr Corbett) This comes back to the examination of different methods of handling the delivery process which we were talking about earlier. To the extent that a 9.30 delivery, for example, is important to users, maybe that is a cost that one has to bear. To the extent that there are a number of users for whom a 9.30 delivery is clearly unimportant, you could use your resources much more effectively to deliver a lot of that mail later on in the day and spread the load.

141.  Who are the people to whom it is unimportant?

  (Mr Corbett) Me, for example. I am never there at 9.30. There are a very large number of people who are simply not there when their mail arrives.

142.  Do you know how many?

  (Mr Corbett) I do not know.

143.  You do not know what percentage of people it does not matter to?

  (Mr Corbett) This is part of the work which Postwatch is doing to find out what users need. We come back to these pilot projects that are being run by Consignia to find out whether there are better ways of their being able to use their resources to deliver customer service. That is absolutely to be commended.

144.  Can I ask about the economic modelling because, as I understand it, there are a couple of different approaches. If I were to say that Consignia has found its economists and come up with its approach and you have found your economists and come up with your approach and the European Commission also, would I be grossly misrepresenting the position?

  (Mr Stanley) It would be an over simplification.
  (Mr Corbett) It really would. The two models that you are referring to, the net avoided cost which is a static model, and the entry price model which is a more dynamic one, are measuring very different things. What we have sought to do in the model that Andersens have developed for us is to give ourselves the opportunity of measuring sensitivities in a way which neither the entry price model nor the net avoided cost does. The net avoided cost information is extraordinarily important and it informs a lot of the decisions one needs to make, but that is not to say that one does not need the benefits of the dynamic model which looks at the `what ifs'. What we have and what we presented with our report, with the Andersen model, is a far more sensitive way of being able to measure these what if effects. We have had that model extensively checked out by Consignia who have agreed that they can replicate all their findings by using that model.

145.  Consignia, in their response to your discussion document, said, "Decisions relating to the future state of the postal market cannot be made on the basis of the current market situation but require a forward looking assessment. An analysis using net avoided cost cannot inform our understanding of the cost of continuing to meet the universal service obligation under liberalisation." You are saying you more or less agree with that?

  (Mr Corbett) Absolutely, but that does not mean that the net avoided cost information is not very important.

146.  In the NAO report on page nine, it says, "There is a risk that the Department of Trade and Industry, as the principal shareholder, may not apply sufficient pressure on Consignia to improve its performance and respond constructively to competition. The Department of Trade and Industry are seeking to behave in a similar way to private sector shareholders ...", which may evoke the response from many people God help us, because it is not evident that government departments know how to act as shareholders. When it says that there are few precedents, when I first read that, I thought there are loads of precedents. This is in line five of paragraph 25. We had the whole history of the last 30 years of government departments trying to do this and that is why we have the situation we have in relation to government's attitude to industry. That is why this present government takes a similar attitude to the Conservative Government of the eighties and nineties. Does not this rather worry you?

  (Mr Corbett) It is a matter that we have to take note of. We would agree almost entirely with the NAO's analysis of the situation but it is not one that we are entitled to do anything about. It is out of our hands. Since we have been appointed as regulators, what we have to do is to regulate in the situation as we find it.

147.  In the situation in which you find it, the NAO says that Consignia may not respond positively to regulation and competition.

  (Mr Corbett) Absolutely.

148.  You are between a rock and a hard place.

  (Mr Corbett) We would largely go along with that in so far as one is talking about regulatory tools. We do not believe that that stricture would apply to the impact of competition and that is why we have put so much emphasis on opening up this market to competition, because we, like you, have reservations as to how far the regulatory tools are really going to bring about the improvements that are needed.

149.  The other aspect of being a shareholder is the ability to demand a dividend which Consignia has regularly paid to the government. The NAO report goes on, at page ten, to say, "As principal owner, the Department are potentially in a stronger position to do this than private shareholders whose holdings are small and diversified." What can you as Postcomm do about that?

  (Mr Stanley) I think it is way off our territory. Our job is to preserve the universal service and, subject to that, look after the customer and introduce competition. How the government reacts to shareholders and what dividends it takes is way outside our remit.

150.  At least British Telecom, which was created with a regulator, also had a proper private capital market ownership structure. The ability for Consignia to strive and invest is directly affected by the attitude of the shareholders, is it not? Is that right?

  (Mr Stanley) Yes. All we can do is set the best framework we can to encourage investment, to encourage good management and to encourage excellent service for the customer. If, for whatever reason, the shareholder does not support the company in doing that we can do no more.

151.  Forgive me, I do not know the answer to this question about the current position but I know that in previous years governments of both political persuasions have taken out hundreds of millions of pounds in dividends. Consignia is making a small loss—indeed a large loss last year—what is the current position? Is there going to be a break in the dividend payment or not?

  (Mr Stanley) Perhaps Treasury can answer that.
  (Mr Glicksman) The government has set a target for Consignia for the payment of dividends and Consignia has asked the government to waive the dividend payment for the last two years, and the government is considering that.

152.  In the last two years have dividends been paid?

  (Mr Bush) They are asking for us to waive those payments.

153.  Have you waived them?

  (Mr Bush) No decision has been made about that.

154.  You said "two years ago", does a dividend not get paid each year?

  (Mr Bush) This is paid to the DTI rather than Treasury.

155.  Paid to the government?

  (Mr Bush) I believe we are looking at waiving the two years' payments.

156.  When you say, "the two years' payments" we are now in February 2002, when you say, "the two years' payment" are you talking for 2000 and 2001? Do you mean during the whole of 2001 and to date there has been no decision about a dividend to be paid by Consignia to the government for the year 2000?

  (Mr Bush) I believe that is the case.


157.  What do you mean you believe that is the case, either it or it is not?

  (Mr Bush) We can provide you with a note on this, it is a matter the DTI have been looking at.[1]

Mr Bacon

158.  Is it not normal for a company to pay a dividend annually?

  (Mr Bush) We have been in a transitional arrangement in moving to this new plc status, which has only recently come in. We are trying to find our feet in terms of how to manage the corporate relationship with Consignia.

159.  Dividend payment is a fairly fundamental aspect of finding one's feet.

  (Mr Bush) Which is why we want to try and get it right.

1   Ev, Appendix 1, p 18-19. Back

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