Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 460 - 479)

MONDAY 25 MARCH 2002

MR JOHN ROBERTS CBE, MARISA CASSONI AND MR STUART SWEETMAN

  460. That is disgusting, is it not?
  (Mr Roberts) Yes, it is, and during the years when we were making all of those profits we were caught by public sector pay policy when, in fact, we would have had the money to put postmen's pay up but we were not allowed to. Now we are in a situation where, of course, the money is not there but we are still trying to get postmen's pay higher and we have agreed with the union—

  461. But has the Chairman not suggested a freeze?
  (Mr Roberts) No.

  462. My understanding is that the Chairman has suggested there should be a freeze on wages.
  (Mr Roberts) He said that if he was in a private sector business with the results that we have talked about then there would be a pay freeze, but he has not suggested we have a pay freeze and, in fact, pay negotiations are coming to a head just as we speak.

  463. My final question is do you accept that if you have a disgruntled workforce you are going to have problems?
  (Mr Roberts) If you have a disgruntled workforce you are going to have problems, I do accept that. We do have a disgruntled workforce in places and we are working very hard with the union, particularly in the light of Lord Sawyer's report, to actually turn that around.

  Mr Rendel: Can I say first of all, Mr Roberts, as the only Liberal Democrat Member of this Committee that I have every sympathy with you in trying to change the name of an organisation, it is not an easy thing to do.

  Mr Davidson: You want to be called Consignia!

Mr Rendel

  464. Let me move on from that and ask, when competition is introduced will prices go up?
  (Mr Roberts) If you are saying competition equals raising prices, I do not think so because it may well be that when we see what the competition is we will have to hold prices down. Please do not let me mislead you. At the moment in thinking about our response to Postcomm's proposals we are also thinking about what we should do about the price. As a complete follow-on from competition does not necessarily equal a price rise, it may actually have to be the reverse once we see what competition is like.

  465. So your argument with Postcomm that they should not introduce competition so quickly because that would force you to raise prices is not correct? I thought that was one of the reasons you had given against Postcomm's wish to introduce competition.
  (Mr Sweetman) It is the pace at which competition hits.

  466. So if they introduce competition quickly you will have to raise prices but if they introduce competition only in the timescale that you propose then you will not have to raise prices?
  (Mr Sweetman) If the competition impact is quicker than we as an organisation can adapt to re-base our costs, to change the nature of our fixed and variable costs, if that is quicker than we can respond to then that will put our ability to finance the USO at risk. The only policy lever then available to Postcomm to ensure that we can continue to finance the USO is the price mechanism and that is within their report. If that is the only policy lever left and the impact of competition is faster than we can change then prices would have to go up for us to maintain our financing of the USO.

  467. You seem to be saying different things at different times to some extent. You said to Mr Jenkins earlier that you agreed having the Universal Service Obligation meant that you would always be competing in effect with one hand tied behind your back, and yet you also seem to think that it is a good thing that competition should be introduced and you said just now that if competition is introduced it may well be that prices go down, which from the point of view of the users of services I am sure will be welcomed.
  (Mr Roberts) May have to go down, yes.

  468. So you want competition or do you not want competition?
  (Mr Roberts) It is to do with the way in which competition is introduced. At the moment we are finding—

  469. But however it is introduced you will always be working with one arm tied behind your back.
  (Mr Roberts) I think we will.

  470. Is that a good thing?
  (Mr Roberts) No, it is not a good thing, but I think the issue is if you introduce competition into this kind of industry where you have got a uniform price, which is the discussion I was having with Mr Jenkins, if you cannot re-base your prices if your competitors are coming in at a lower price than you then you have got one armed tied behind your back.

  471. So are you saying that it is a good thing because in practice what this will mean in the long term, because it will mean you always have one arm tied behind your back, is we no longer have a uniform tariff?
  (Mr Roberts) It might well do. The point I am making is if you introduce competition in a different way, if you introduce it in a staged way in the way in which the European debate has gone on then at least you get the chance to see what impact that is having and you may not get into that position as quickly as we might do with the Postcomm proposals and, therefore, you can actually introduce competition, you can maintain a uniform price or, over time, you can decide that competition has grown to such an extent that the customer has then got real choice and the uniform price may not then be as important as it seems to be now.

  472. Would it not always be important for those who are living in outlying areas because are they not the ones who suffer from not having a uniform tariff?
  (Mr Roberts) Yes, I agree with that.

  473. What you are saying, it seems to me, is that the introduction of competition is going to endanger those who live in rural areas?
  (Mr Roberts) It could well do if you look at the one example that everybody quotes, which is Sweden, because prices have gone up so much. The point I am trying to make is that none of us know what will happen in the market when we do introduce competition whatever method we use to put it in and that is the real issue, that none of us know what will happen.

  474. I sympathise with your lack of complete knowledge about what will happen and, if I may say so, I think it is extremely significant that you now seem to be coming to a point where you are saying that the introduction of competition will mean that you will always have one hand tied behind your back and although that may mean lower prices to some people it is likely to endanger those who live in outlying areas who now benefit from a uniform tariff but may not in future.
  (Mr Roberts) That is right. If the uniform tariff goes then that is quite right.

  475. May I go back now to the sudden collapse in profits which a number of Members have asked you about. You were asked about what the special costs were and you said there was some international agreement which you had made.
  (Mr Roberts) Yes.

  476. Which increased your costs.
  (Mr Roberts) Yes.

  477. Who made that agreement?
  (Mr Roberts) That was an agreement which all the postal services in Europe were asked to try and negotiate by the European Commission because they were concerned about the way in which prices were charged for mail which crossed boundaries. In other words, if we send mail to Germany we have to pay the Germans for delivering the mail in Germany. The European Commission had looked at all of this and they had decided that the basis on which it was previously done was not the correct basis. The basis was then changed in a very long and complicated negotiation but the net effect of that on us was that it increased cost and it increased cost by about £137 million in the year that we were talking about.

  478. Presumably there were other countries where costs went down as a result?
  (Mr Roberts) Yes, because we are a net exporter of mail. This country after the States actually exports more mail than it brings in.

  479. Did we have to agree with this? Did we have a no veto on it? Did we have a veto?
  (Mr Roberts) No, we did not have a veto on it. We could have pulled out of the whole agreement which would have meant that in the end we would have had to do a bilateral negotiation with every other country that we have mail arrangements with. Our view was if we did that it would be probably more expensive than going through this agreement which was expensive enough.


 
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