Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 160 - 176)



160.  You do not know at the moment whether the money has been paid or not in the last two years?

  (Mr Bush) I know it has certainly not been paid this year.

161.  2001/2002?

  (Mr Bush) It has not been paid for the current financial year, they are asking for it to be waived.

162.  When is the year end?

  (Mr Bush) March.

163.  It has not been paid in 2001-2002. Was it paid in 2000-2001?

  (Mr Glicksman) It was not a plc.

164.  Irrespective of its status

  (Mr Bush) There would not have been a dividend in that period because it was not a plc.

165.  Whether you call it dividend with a "D" or a "d" there was money paid by the Post Office to the government for most of the last year when it was making big profits. Whatever you call it, was money paid from the Post Office/Consignia to the government during the financial year 2001/2001?

  (Mr Bush) Money was not paid in that sense to the government throughout any of this period because what happened was there was an external financing limit, the Post Office built up a stock of gilts and that now sits on the Post Office balance sheet. That was true in 1999/2000 when £151 million gilts were acquired.

166.  Can you just explain to me, I heard, it is in the debate, I do not know if it is correct, that 1.7 billion was sucked out of the Post Office by the Conservative Government in the period 1979 to 1997? Irrespective of whether that is precisely the right number, how did that money get from the Post Office to the Government, is it basically the government sold gilts and the Post Office bought them?

  (Mr Bush) Indeed. Those now sit on the Post Office's balance sheet.

167.  Mr Stanley, you said that the problems are fundamentally cultural with Consignia. The most dramatic, energising, transforming cultural change in companies is brought about when the people who work in the business, in this case the 200,000 who work in the Post Office, own the business, would you agree?

  (Mr Stanley) I think it is getting beyond my expertise.

168.  If you look round at the history of transformation in companies in the commercial world shareholder power brought down to the level of the employees has a more transforming effect than anything else. Have you had any discussions about introducing that type of transforming change into Consignia?

  (Mr Stanley) That is way beyond our responsibility.


169.  By the way, I think if the Treasury is the only shareholder we do not really want to have answers that are prefaced by the words, "I believe".

  (Mr Bush) It is the DTI.

  Chairman: The DTI or the government, let us not play with words. We need a direct answer to a very simple question you were being asked.

Mr Bacon

170.  Could we have a clear note explaining the payments since the late 70s?

  (Mr Bush) Okay.[2]


171.  There are a few questions colleagues wanted me to ask before we wrap up, you constantly said during this hearing that you cannot make judgments about the other half of the business, Post Office Counters, but you are making very serious judgments about the viability of a business, are you not, the decisions you take could seriously effect this business, but you do not know anything about half of it, is that not rather an unsatisfactory position you are in?

  (Mr Stanley) Our job is to look at the Royal Mail through the eyes of the customer. We are asked an exam question, if you like, because the Act says we should introduce competition unless it would damage universal services. We answered that exam question in a long document and we have avoided, we believe, the two risks identified by the NAO as best we can, we have done that job. We also have to control the prices of the mail service only and the service quality of the mail service only, and we are setting about doing that. We try to make sure that that bit of the business is a good business, profitable, providing an excellent service to customers, innovative, and all of those good things. If we succeed that has to be good for the business as a whole.

172.  I am not sure you have answered the question, you have done your best, you better leave it there. Can we just return to the point of this final mile delivery, which I think is quite important, you said, do not worry because they will come to an agreement with Consignia to deliver this final mile and you are not going to pass through any agreement that will put Consignia's viability at risk. What happens if I am a competitor, I go to a big bank and because I do not have huge infrastructure costs I can deliver far, far cheaper and it will be a very attractive deal I can offer to the bank. A relatively few of these customers of mine will be living in deep rural areas, I recognise that, but the vast majority, even in a so-called "rural constituency" like mine, one of the most rural constituencies in the England, most people live in what are large suburban villages. Would it not be possible for this company to use this database to identify the people who live in the deep rural areas, which will be entirely proportionate to the total, and say, "put a stamp on those letters", so they hugely undercut Consignia, they are offering to deliver all of these letters for the bank for seven pence a time and for those people who live in my deep rural address, in the middle of rural Lincolnshire, they put a stamp on. What is your answer to that?

  (Mr Corbett) I think the answer to that is, yes, of course, that could happen. However, the number of addresses we are talking about is a very, very small number. The universal service obligation that is imposed on Consignia is a real responsibility and, yes, they would have to do that. We also believe that the universal service is, in fact, a very significant asset and benefit for them. The question that we really need to address is do we actually think that that final mile responsibility, even taken down in a very small number of exceptional cases, is going to represent an intolerable burden or is it the price you pay for being able to say, we are a universal service provider and our job is a reasonable price and it does not bring Consignia to its knees.

173.  I think the answer is, yes, companies will do this, they will be able to compete with Consignia in this way. Your answer is that it does not matter too much because Consignia can take this, they can go on delivering in these deep rural areas despite the fact their competitors do not have to. That is an interesting point of view, but I put it to you that it is a novel point of view, which, as far as the policy makers are concerned, they have been grappling with for the last 20 years. Mr Stanley, we know each other, do we not, because we worked together in the Department of Trade and Industry when I was a Minister grappling with these issues and you were the Principal Private Secretary and you know perfectly well that we had many arguments with the secretaries of states on precisely this point, and I do not remember being told at that stage, do not worry because Consignia can take this, it is actually very nice for Consignia that they have to deliver to remote farm houses all over the place?

  (Mr Stanley) What is different is that we have just carried out the most enormous amount of work in a way that DTI officials could not then or could not now. It has been an expensive and time-consuming exercise. We have really gone and talked to the customers in depth, we have talked to the company and we have looked at its costs and all of those things. We have looked at in so many different ways and they all add up to what is a counter-intuitive result. In time we think it will become the accepted result. Of course competition will cost Consignia something but the benefits of competition will outweigh the cost. Above all the large mailers will require that universal service. One of the seminal things in the last two years is when I talked to somebody who lived on a small island—

174.  I accept that these competitors will have to deliver a universal service, but I am just giving you a scenario which is how they will do it, they will just drive vast wedges into the business of Consignia.

  (Mr Stanley) There will be a cost but the benefits of competition, however you look at it, seem certain to outweigh the costs. Above all Consignia will still get that mail, that mail will still get through, which is the main concern of the people living in those farms and on those islands.

175.  Of course the mail will get through because that is a political imperative facing government, no government, either Conservative or Labour will ever be able to renege on that promise, I accept that. What we are concerned with is not the fact that the universal service will consider it, we assume that will happen, we are concerned about Consignia and the huge pressures you are placing on it.

  (Mr Stanley) In very simple terms it will cost. Assuming there is no benefit to universal services, assuming every cost you can imagine is added up we worked it out, it is 80 million, it is a lot of money. Consignia have just announced cost savings of 1.2 billion. What they need to achieve those costs savings —

  Mr Steinberg: They have just sacked 30,000 people!


176.  There was another question, how can you be sure that Consignia does not subsidise non-monopoly services for profits generated for non-public services, given that its costing information system is so poor?

  (Mr Stanley) We are doing a huge amount with W S Atkins to get the costs sorted out. Unless and until we get the data we will not allow any price rises. When we do have the data, which will take a few more weeks yet, we will then start devising a price formula which will ensure they do not make excessive profits, that is not currently a problem.
  (Mr Corbett) I would just add to that, whatever the deficiencies may be of their costing systems we are satisfied that the overall magnitude of the results that are coming up within their regulatory accounts, which divided their operations between those that are subject to licence and regulation and those that are not, those are the accounts that produced the remarkable conclusion, which we absolutely believe to be broadly correct, that the non-licensed area, in other words the competitive area produced profits of £292 million on the operating profit line and the operations within the licensed area, in other words, all of the universal services in the area covered by monopoly made a loss of £317 million. When we say the monopoly is not working that, frankly, is one of the ways in which it is singularly not working, it just is not doing what everyone always believed a monopoly was all about, which was to generate funds to enable the service to be provided.

  Chairman: Thank you very much, Mr Stanley and Mr Corbett. It has been a great pleasure meeting you again, Mr Stanley, it is certainly very nice having an Accounting Officer who is responsible for policy not hiding behind a Minister, you are in a uniquely powerful position. We thank you for appearing in front of us on this Ash Wednesday hearing. Let us hope our universal services do not turn to ashes; we rely on you.

2   Ev, Appendix 1, p 18-19. Back

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