Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 200-219)

MR GRAHAM CORBETT AND MR MARTIN STANLEY

TUESDAY 16 APRIL 2002

  200. As the European Commission had previously rejected the Andersen study as its own basis for introducing competition, why have you gone ahead with Andersens?
  (Mr Corbett) I do not think it is right to say that the European Commission has rejected those arguments.

  201. I will rephrase the question. The European Commission had previously rejected studies by Andersens as its own basis for introducing competition into European postal services under the proposed European Directive. They did not think they warranted being used as good practice. Why do you find that it is good practice to use them?
  (Mr Corbett) You have caught me by surprise. I was not aware that the Andersen studies had been rejected. Is that saying that Andersens have not been selected?

  202. They have looked at the studies by Andersens into the postal service and they rejected them. That is my understanding.
  (Mr Corbett) They rejected them or they did not use them?

  203. Whichever way you look at it, it is a play on words.
  (Mr Stanley) If you are going to harmonise across Europe, you have to find fairly straightforward ways of doing it. The European Commission has always preferred to do it by weight and price. It is probably the only practical way of doing it across countries because countries vary so much.

  204. It is a pity you did not follow that line. Will Postcomm establish a universal service compensation fund so that private competitors can make a contribution to the provision of universal service?
  (Mr Corbett) We have explained in our proposals document that that is an option that we would continue to bear in mind. The government, at the time of the creation of the Postal Services Act, elected not to introduce into the legislation the provision for a compensation fund, notwithstanding that it is provided for by the EU. We hope that no such fund will be necessary because if our view of the universal service as a net benefit rather than a net disbenefit is correct there will never be any need for it. If however we are wrong—and we may be wrong—then there would be plenty of time to see what was happening and at that stage we would, if appropriate, as we said in our report, make application to the government but it would require the consent of certainly government, perhaps Parliament—I am not absolutely sure about that—to be allowed to create such a fund. We would hope that it would not be necessary.

  205. If it was, you would?
  (Mr Corbett) If it was, we would, but we do recognise that any such interventionist approach like that tends to distort the market. Therefore, we would be anxious to avoid doing it if possible.

  206. The way you introduced the proposed competition to UK postal services—does that mean that VAT will have to be levied on postal services because of the way you have gone about it?
  (Mr Corbett) The VAT issue is an extraordinarily complex one. As I understand it, we are governed by the EU law on this matter which exempts universal service providers from VAT and which requires that VAT will be levied on others. Certainly we are not a taxing authority.

  207. I did not say that.
  (Mr Corbett) We would regret a distortion brought into the market as a result of some operators being exempt and some operators not being exempt. What we can do about that is probably going to be pretty limited other than making representations to the Treasury.

  208. Because of the way that you are introducing your proposals, will that lead to VAT being included? Because everybody else is doing it in a different way and you are going the lone ranger way, the danger may be, not deliberately, but you could create the introduction of VAT in the mail service.
  (Mr Corbett) I do not believe that to be the case.

  209. Have you taken advice on that?
  (Mr Corbett) No one has suggested it to us.

  210. I have suggested it to you. Have you taken advice?
  (Mr Corbett) Now you have suggested it, we will take advice.

  211. What is the risk to the uniform tariff from the proposals that you are putting before us?
  (Mr Corbett) The uniform tariff is built into our statutory obligation.

  212. We have no worries about losing the uniform tariff?
  (Mr Corbett) Absolutely not.

Chairman

  213. On the question of VAT, I imagine that if it is wrong you will write to us. If we go down the road that you suggest, Consignia will not be required to charge VAT?
  (Mr Corbett) That is correct.

  214. Competitors may?
  (Mr Corbett) Yes.
  (Mr Stanley) Competitors will.

  215. There would be a 17.5 per cent cost advantage for Consignia from the outset?
  (Mr Corbett) To the extent that those are mail services which are being bought by businesses which cannot recover VAT—and of course most businesses can— it does have a significant effect on financial service industries and on charities who are very big mailers and it has a very significant effect on you and me.

  216. Yes. That would be if we were to choose to go to a private firm rather than Consignia. If we were not to go down that route but to go down the price and weight route, would the other players apart from Consignia be subject to VAT?
  (Mr Corbett) Yes. The conditions will be exactly the same, subject to further inquiries we are going to conduct.

  217. If the other providers were to promise to have a universal service obligation in their licence terms, would they be able to be free from VAT?
  (Mr Stanley) Even then the Chancellor would have to change the law. The law at the moment exempts only the Post Office, now Consignia, so I do not think so.

Sir Robert Smith

  218. Under EU laws they would be able to be exempt.
  (Mr Stanley) The EU directs that governments must exempt—there is no choice about it—public postal services from VAT. At the time we interpreted that in British law the only public postal service was Consignia. The only question for the future seems to be—unless the Chancellor is going to lobby in Europe for VAT on post, which seems unlikely—whether to extend the exemption to other companies. At the moment it is one reason why Consignia has a significant advantage over other companies.

Chairman

  219. Maybe we should have had this hearing on Thursday! Who knows?
  (Mr Stanley) Who knows?


 
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