Examination of Witnesses (Questions 60-79)
JONATHAN EVANS, MOELWYN JONES, DAVID MILLER AND DAVID MILLS
WEDNESDAY 1 MAY 2002
60. You have seen it?
(Mr Mills) Yes, of course. I think of more importance though is the issue that you raise, why is this list confidential; and, I think, to be frank with the Committee, this is a matter of overzealousness within the Post Office. The original idea was that there is an issue of security with regard to sub-postmasters and sub-postmistresses; frankly, because those lists are available in the public domain, I think that is a matter of overzealousness, and it need not be confidential.
61. Could you explain why the list we have been given is so jumbled? If I could just explain. On page 1, for instance, you start off with Albany Road, Cardiff, then you have got Aberystwyth, then you have got Bangor, then you have got Morriston; it looks like a jumbled list, as if somebody, somewhere, had thrown them up in the air, caught them and given us the list?
(Mr Mills) Yes. I am sorry. I do not want to be negative, but I cannot explain that to you, Mrs Williams, I am very sorry. I do not know the answer to your question.
(Mr Evans) I think the best thing for us to do, Mrs Williams, is to give you another list that is not jumbled up, has the right page numbers in; it is clearly
62. Not to me personally, I am sure the rest of my
(Mr Evans) Indeed, we will do that.
Chairman: We accept that, Mr Evans. Would you like to carry on, Mrs Williams?
63. I would, actually, and ask you another question on this issue. Recently, I asked you to identify all urban and rural post offices in my constituency; will you provide that information?
(Mr Miller) I think it is possible to provide that information, yes.
64. Why does it take so long for a Member of Parliament to get an answer; why does it have to be the Welsh Affairs Select Committee, of which I am a member, and I am given the opportunity to ask such a question, why should it be so, why cannot you provide me, and maybe the rest of my colleagues, with this information, if we ask for it?
(Mr Miller) I am not clear of the circumstances of your asking for it, I am sorry, but certainly we can respond to you and other members of this Committee and let you have that information.
65. I think, Chairman, it is important for us, as members of this Committee, to understand what you really mean by urban and what you mean by rural; is it based on population, consumers?
(Mr Miller) It is based on a Government definition, which has been given to us by the Department of Trade and Industry, and that definition is that an urban office is one that serves a population of over 10,000; a rural office is one that serves a population of under 10,000.
Mrs Williams: Can you explain to mewill you permit me to be parochial, Mr Chairman?
Chairman: I think you are going to be anyway, Mrs Williams.
66. I am going to be anyway. I am thinking of Llandudno, in my constituency, for instance, where, if you have the post office located at the edge of a town, does that fall into the category of being rural, because the rest, to the east, could be termed as rural?
(Mr Miller) I understand that; but if it comes in the boundary of the town then I think it will come into the urban definition.
67. If it is on the edge or the fringe of a town, it will come under urban?
(Mr Miller) Indeed.
68. We began the afternoon session by asking the Communication Workers Union about the current dispute; you obviously heard their comments. Would you like to comment on what you heard?
(Mr Evans) Yes. It was very encouraging to hear from them that they were of the view that, first of all, industrial action is unlikely to take place and that we are on the verge of agreeing it, because I think that is the outcome that everybody really wants. If I could just paint a bit of a picture behind this though, it may be helpful just to understand what has been going on. I heard you refer earlier to the fact that the business is, at the moment, in a pretty bad financial position, and, therefore, when it comes to looking at things like a pay rise, clearly we have to consider the impact of that, given that over 70 per cent of our costs, of Consignia overall, are pay-related, they are staff costs. But, clearly, we want to be able to offer our staff a pay rise, and what the whole dispute has been around this time, it has been about how we afford that, effectively, how we fund it. And so what we have been doing with CWU, since, I think, the negotiations started, back in the autumn, we have been trying to find a way of generating money which we can actually then put back into pay; and we reached a deal with them back in March, shook hands on it, both sides thought it was a fair deal, which actually gave savings from restructuring deliveries back into the pay position, which generated a package which we thought that CWU would be able to accept. Sadly, since then, the CWU executive has been unable to bring themselves to agree it and, despite the involvement of considerable hours at ACAS, where, in fact, the talks are still going on as we speak here, as yet we have not been able to finalise it. But it is very good to hear that the union thinks that we are close to agreement, because that is certainly what we all want, to move on from the position that we have got into.
69. Could I follow that up by asking you to comment on their observation that the Post Office has a very low morale, certainly in Wales, and it has been suggested to me that part of the problem was, although it did not come out so much in the questioning, that you still have kind of a 19th century style of industrial relations, which, because of historical reasons, is kind of semi-militarised. Do you accept that; and to what extent are you addressing that?
(Mr Evans) As a general comment, yes, I would accept it, and, in fact, I recognise the work that Lord Sawyer has done recently, with working in Royal Mail, looking at the state of industrial relations, spending some time, quite a bit of time, with two colleagues, looking at the full state of industrial relations throughout the business; and what they found matched certainly what you heard described earlier on. I have got to say though that there are some parts of the country which are completely the opposite of that. We have some really good offices, where there are tremendous relationships between management and the workforce, and the union representatives, and so on; but, generally, there is a problem, that we are tackling head on, about how we can improve our relations with our staff and with the union representatives. And Lord Sawyer is still active with us in trying to set up a lot of partnership working in Royal Mail, to try to bring about better dialogue, better levels of understanding, better relationships between staff and management, throughout the business. So I acknowledge there is a problem, but, equally, we are tackling it, as a key issue. And Allan Leighton, who has recently joined us as our new Chairman, has certainly identified this as a key issue that he is focusing on heavily, because he believes, quite rightly, that if you do not get the goodwill, the morale, of the staff behind us we are not going to succeed.
70. Finally, can I ask you this question then. All the way through the questioning in the earlier session, we really did get a sense of Wales's national identity, I am not making any sort of nationalistic point here. Is this not, in any sense, recognised by Consignia? And I welcome Mr Jones's role in the Assembly, but I wonder what role that is, given that decision-making is actually taken up here rather than down there, because it is not a devolved matter anyway?
(Mr Evans) Perhaps Moelwyn will want to comment on that in a minute. But, where we are, clearly, we are a national, UK-wide organisation, we run a national service, but, having said that, clearly, we want to understand the particular local issues that different parts of the country do present, and, while there may not be a regional tier of management, which is what one of the CWU representatives, I think, was complaining about, we have lots of managers at local level who are understanding those local issues, and surface them to us. Wales, as you may know, is actually covered by a Wales Advisory Board for Consignia, where they meet regularly and gain views of what are the issues that are actually affecting Wales; we have senior people lead it, we have a couple of Executive Board members of the main Consignia Executive Board, who come to those advisory meetings. So I do not think there is any question that Wales, if you like, is being ignored, or forgotten, though I can well understand how you are seeing some of the moves that we have been making recently, I heard the passage about weekend sorting being moved to some English places; please do not see that in any way as being anti-Wales, or pro-England, that is not the issue. What we are about here is a business that needs to turn itself round, radically and quickly, and, therefore, the biggest attack that we are wanting to make is on costs, and where we see reasonable opportunities to do that and keep our service levels up we have got to take them.
71. I accept what you said before, that there are certain depots and areas of the country where you have got good industrial relations, high productivity, but are not those the areas, especially in Wales, and we have heard from Julie Morgan there, such as Cardiff, that have good records, are not those the areas that you are punishing by taking work out of those to Bristol?
(Mr Evans) Perhaps Moelwyn again may want to comment on Cardiff. Cardiff has had a bit of a mixed record, in terms of industrial relations, in the past, but, for us,
Chris Ruane: Swansea, I think, has good productivity levels.
72. Productivity in Cardiff is very good.
(Mr Evans) That is one of the issues that I am sure we take into account when we actually do the sums, as to whether it is worthwhile to do it or not. Because, clearly, we are not going to be moving sorting and mail around to make our position worse, what we are about here is actually trying to give the right level of service that we are aiming to do at a lower cost. Moelwyn, is there anything you want to come in on?
(Mr Jones) Yes. Can I just respond to Dr Francis, and say that my role is actually a recognition of devolution by Consignia, because I am charged with providing information and explanations of Consignia policy to politicians such as yourselves, Members of the National Assembly for Wales, leaders of local authorities, business leaders, and so on, opinion-formers. And also it is a two-way process, because I am also eyes and ears, if you like, for the main Board in London, because I am also listening to what people are saying, I am listening to comments and complaints and views of politicians and others and feeding them back up the line; so it is a two-fold process. On the subject of the movement of mail, this should not be seen as something which is peculiar to Wales, this is an exercise that is happening UK wide, and we are a UK-wide organisation. And what is happening here is that, by doing this, we are able to close some of what would be major processing centres in the week, because at the weekend there is less mail to handle, and we reckon that, for instance, if you take a South Wales situation, the whole of the mail in South Wales and the South West can be processed by Bristol, thereby making savings without any detriment to the quality of service. Now you could not use Cardiff, because Cardiff simply would not be able to manage all the mail from the South West and South Wales.
73. Coming back to the management issues, which I raised with the union before, and this information has come from grass-roots workers, postal workers, in my constituency, and they say there is a high turnover of management, they do not stay there very long, they do not get to know their local area, the wages for managers and the pay structure are poor, it is an old-fashioned, hierarchical system, compensational, there is very little training for the managers. Surely, you did not need Lord Sawyer to tell you this? With due respect, you are managers yourselves, on good wages, with long experience of working in industry, that you should be able to recognise these problems beforehand and do something about them. Can I ask why you had to wait for Lord Sawyer to point this out, and what specific measures are you taking; are you meeting regularly now, is it your policy to have regular management and workers meetings, have you developed a training package for your managers, a proper pay structure, or suggestions boxes in there? It is the workers at the front end, the grass-roots workers, quite often, who will be able to tell you the best ways of saving money; the Japanese do it, with the Kaizen method of management; why is it that it is taking you so long to get your act together?
(Mr Evans) It would be a false summary to say that the position was diabolical before Lord Sawyer came in, and now it is all going to be different.
74. A strike, therefore, is much better?
(Mr Evans) Of course we were aware that we had issues to solve, but it is often the case that when you get to a position that we are in, like we were in when we were having very high levels of unofficial industrial action, that we needed an external impetus to come in and give us an independent view on, if you like, both our houses, which, very helpfully, he did, that is, the Consignia side and the union side of the house. And we are now building on from that, and, yes, there is an awful lot of activity going in to proper training, as there was before, but perhaps we are now shaping it a different way, and looking at leadership in a different way, and looking at how those management/staff relations can be handled in a different way. So it is not as if we were not interested at all in those things before. I think time has moved on, we have got to recognise that we were not getting things right, and now all the impetus is about changing things to improve.
75. How much is bad management responsible for the decline in profits?
(Mr Evans) I will talk about that, and let me give you some headline numbers to explain what has happened, because it is a decent question to ask, why was it the Post Office, not that long ago, three or four years ago, generated £400 million or £500 million a year, and now here we are in loss; just four or five big numbers to explain what has happened, if I can. First of all, one you have already touched on, we have not had a price increase; in fact, the last one, if I happen to have a piece of paper with me, was exactly two years ago. We applied for a price increase last year to the regulator and were unsuccessful in that; now that is probably worth, and, again, as somebody was saying, we now have pretty much the cheapest prices in Europe, and the first class level of 27 pence, you go back 10 years and it was only two pence less than that, second class currently 19 pence, and you go back 10 years and, surprise, surprise, it was 19 pence, that has not moved at all since then. So the real level of prices in the business has actually dropped, so that has reduced the levels of revenue that, in the past model, we could have expected to get; regulation, of course, hit us last year with the introduction of the Postal Services Act. That is one big thing in the mail's area. Another big point to remember is that, while, yes, in those years, in the 1990s, we were generating pretty high levels of profit, it is different though from looking at profit and what we are actually allowed to invest, because, in those days, we had a regime of an external financing limit, where we had to invest, effectively, in gilts, that was a source of Government funding at the time, we had to invest back into the Government in gilts, rather than invest in the business. Therefore, we have had a lot of catch-up investment to do. One of the biggest areas has been getting our financial systems straight, because we have been in a pretty poor way, in terms of really understanding what our costs are, and we are currently in the last knockings of investing about £100 million in a major financial system which will improve the way in which we can actually view the finances of the business; that, as well as investing in the infrastructure of the business, new delivery offices, and so on. So there has been a huge bit of catch-up investment, because we got behind. Also, we have been hit by about £100 million worth of additional costs in paying overseas administrations, overseas postal administrations, for handling our mail abroad; there was a renegotiation of that done two or three years ago, and that has impacted on us in that way. If we look at Post Office Ltd, the actual network of post offices. Back in those days of the nineties, when we were making a good profit, Post Office Counters Ltd typically was turning in about £20 million, or £30 million, £40 million, profit a year, regularly, if you look back at the figures you will find that was the position; we are now into loss, probably over a £100 million loss, for that business. What has happened; it is almost exclusively down to Horizon. The Horizon system has come in, works tremendously well, but the operating cost of it, the payments we are having to make to the supplier, are about that level of additional cost, for which we are not getting the income that we expected to get, because of the whole way in which the Horizon system went. So that is, again, a big figure that is hitting us.
76. Could we have a bit more on Horizon; that was not clear, sorry?
(Mr Evans) Right; let me explain. The original intention was to introduce a new computer system in all of our post offices which enabled benefit payments to be paid via a plastic card, which was actually touched on in the earlier session; and that programmeDave, you will have to correct me, if I get some of this wrongin the late nineties, 1997, the new Government, when it came in, had another look at the Horizon programme and decided that it liked the computerisation of post offices but it did not like the benefit payment card, it wanted to make benefit payments directly into bank accounts. The net result is, we have the infrastructure, the technology, the Horizon terminals, but we do not have the income that we were expecting to match against it. Now we will be hoping to catch up on that, and perhaps we will want to come on to talk about the Universal Bank a bit later on, but what it actually has done, it has left us a hole, of well over £100 million, and we are picking up the costs that therefore we were not expecting. So I hope that puts into some context what has actually happened to us; it is not as if the management of the business has been just totally supine and lost track of what is going on in the business, there have been some big issues here that have hit us, at the same time. But, let me say, the determination to get out of this position that we are in is really strong, and, you probably saw, we announced a renewal plan to save £1.2 billion over the next couple of years, or so, which we need to do; it will be painful to do it, we will have to take out a fair number of staff, but we have got to do that, if we are going to get the business back into the position that it ought to be in.
77. It was a further theme I wanted to develop. I think it is a bit overoptimistic to think that we are going to be enthusiastic about jobs and work actually going from Wales, although I accept there is no sort of nationalistic element in it, but obviously it is very dispiriting for us to see this work going eastward, and particularly when a lot of other things are going westward, you know, from Westminster, with devolution, and the gradual movement. And I just wondered whether you had taken on board any of the sort of feeling that there would be in Wales about all this working moving out. What the unions have said struck me strongly, about them saying that they feel they have no say, and I do not really feel that probably this Advisory Committee for Wales really functions in a way that the unions would have a say?
(Mr Evans) Can I just perhaps put it in a bit of context, which might lift your spirits just a little. The number of jobs we are actually talking about here is probably in their hundreds, a low number of hundreds, in terms of those that will be impacted by the sorts of changes that we are making; when we actually come to look at further changes we need to make, it may impact on Wales more than that. But, the big thing is, let us not lose sight of the fact that Consignia employs probably about 10,000 people in Wales, and therefore we are still a very sizeable employer, and the number of people that we are talking about, in terms of what is affected by weekend sorting moving to those English mail centres, is pretty small. Now I know you would rather it were not happening that way, but all I am saying is let us not lose sight of the bigger picture, where there are probably, as I say, 10,000, or so, people who are actually employed by us still in Wales, and a lot of them, managers, who are listening to what needs to be done.
78. I will just say, it does not inspire us with a lot of confidence; even if it is relatively small numbers to you, in our constituencies, it is a large number?
(Mr Evans) I do understand where you are coming from.
79. And I think it was put to us by the Communication Workers Union that Swansea alone could handle all the second class mail from London, and they have a very good record of efficiency; has that sort of thing crossed your mind?
(Mr Evans) I do not recognise those statements.
(Mr Jones) No.
Chairman: Perhaps it is a bit of a shame that you do not recognise those, Mr Evans, because, if you considered those other alternatives when you were making these decisions to move jobs out of Wales, you may well not have been having to apologise even for the few jobs that are going in Wales.
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