Examination of Witnesses (Questions 80-99)
JONATHAN EVANS, MOELWYN JONES, DAVID MILLER AND DAVID MILLS
WEDNESDAY 1 MAY 2002
80. Do you accept and recognise that, since the changes, customers in North Wales are having a reduced service? I will say the same thing again that I said to the Communication Workers Union, that, as far as I am concerned, as an individual within North Wales, I have had to complain quite often about the service since the changes, and Mr Jones, I think, mentioned that the figures are down at the weekends. Whether the figures are down or up, the consumer needs the service, and the consumer deserves good service, not a reduced service, which is what you are providing us with at the moment?
(Mr Evans) I agree, your point would be our customers deserve the best service they can get; the extent to which these changes have actually reduced that service, clearly, you are experiencing that first hand. Whether we have any overall figures; Moelwyn?
(Mr Jones) What we found was, of course, that when the Chester centre opened it did have some teething problems, and it had a particularly bad Christmas, I think it was 1999.
81. How long did the teething problems last?
(Mr Jones) If I could proceed, I would say to you that they had an excellent Christmas in 2000, and that was borne out by the fact that we did not get a single letter from a Member of Parliament to complain, as far as I am aware, after Christmas 2000.
82. They probably have not been delivered?
(Mr Jones) Can I say, firstly, that last Thursday I asked for some theatre tickets to be sent to me in Cardiff from the North Wales Theatre, that you, Mrs Williams, are very familiar with, and they arrived duly on my doorstep at 7.30 on Saturday morning. So you cannot beat that really, if that is general, and, of course, we can always argue over that one.
83. Indeed, we could. Can I ask a similar question, following on the question that Mr Wiggin asked, I think. I understand that, you mentioned it yourself, Consignia is losing vast sums of money, to the tune of £1.5 million a day, and you have just mentioned, I think, the fact that two years ago an application was made to have an increase in the cost. To what extent do you believe, Mr Evans, that a penny increase in first and second class letter rate would help you, as a company, to recover, not to close post offices and retain a universal service?
(Mr Evans) You probably read that we have actually applied for a penny increase, or flagged up to the regulator that we intend to be doing that pretty soon, so we think, yes, the time has come actually to look at prices and to increase them by that amount. I will ask the colleagues on my left in a minute to talk about the point around the effect on post offices, but can I just, first, pick up this point about Postcomm and competition, that I think you alluded to.
84. No, I would like you to answer that question first, before I am diverted by your answer?
(Mr Evans) The straight answer to your question is, yes, of course, putting up prices will reduce our losses, it increases revenue, therefore it will decrease our losses.
85. If you have made an application, what is the application, you have made your calculations, I am sure?
(Mr Evans) Just to be clear, we have not yet formally put the application, because it is tied in with the thing that I was just about to go on to, which is our response to Postcomm on their competition proposals, and we see the two things as in some way linked.
86. So I trust that you have worked out figures, what the penny increase in first and second class letter rate would produce?
(Mr Evans) Yes, indeed; it will be somewhere between £150 million and £200 million a year. Part of it depends on the effect; whenever prices are put up, in any industry, it has an impact on the amount of business you do, and therefore the ultimate effect is, in part, dependent on that.
87. Can I develop this, because it is true to say, is it not, that the numbers of packages and letters handled by your staff have increased, not decreased? We have been given figures, earlier, by Mr Jones, I think, of what it was in 2000; the actual figures have increased, have they not, so even with the current rates you are receiving that sort of income?
(Mr Evans) Mail volume is still increasing, but the big point to make here is, it is increasing by nowhere near as much as it was, nor how much we reasonably expected, given past trends.
88. What is that figure?
(Mr Evans) Can I not guess them, because I do not actually have them with me; but, if you would like a note on how our volumes have changed over the last few years, we can certainly provide you with that. But let me tell you one key figure that I know is right. The main growth area in Royal Mail is in direct mail, you know, that is what some people, but certainly we, do not call "junk mail", this is direct mail advertising for financial institutions, and so on; the rate of growth of that has declined by a half. Now what is going on, there has been a downturn in the advertising industry, which clearly we are sensitive to, and that has actually knocked a lot of revenue out of our forecasts for the year that has just ended. So while, yes, it is true that mail is still growing, we are beginning to see it tailing off; we are also beginning to see the effects of e-mails, text messaging, replacing traditional mail volumes, as well. So, in a way, the mail growth curve is beginning to plateau, which, again, clearly, is a worrying feature for us and makes us cautious about tackling prices.
89. I would support, personally, an increase of 1 penny on first and second class stamps; but can you understand the Government's, or Postcomm's, reluctance, because, if they did that, would that not let you off the hook about reforming your management; is that not the easy option? If you get this additional money then the pressure is off you to reform and get your act together. That is one point. And you mentioned before 10,000 workers in Wales; how many workers are we likely to lose in Wales, as a result of your reorganisation?
(Mr Evans) Okay; a couple of questions there. First of all, we are after £1.2 billion, in terms of what we need to turn this company round, by way of savings. If you translate that into how can we generate £1.2 billion by price increases, probably six or seven pence we would have to put on letter mail. So there is no way in which price alone would simply get us out of the problems that we are in. Where the price issue needs to be seen alongside what Postcomm are proposing, on widening competition, well, first of all, on what they are proposing on competition, we do not think is the right way to do it, as I think we have made pretty clear. It was good to see that the Public Accounts Committee today, as somebody referred to, effectively said the same thing, that they thought Postcomm needs to be much more cautious in the approach it is taking. And just so that you understand that, what Postcomm were proposing, effectively, was to free up the whole market in four years' time, by some staged positions, whereby, actually, their original proposal was that, in April just gone, 30 per cent of our revenue would have been opened up to competition, and by another two years another slug would have gone, and, say, by 2006, the whole market would have been open. The proposals from Europe are, in our view, much more sensible, they present a much more staged approach to market liberalisation, but, clearly, "When you make one step, let's review and see what effect that's actually had on the market, before we make another one;" that, effectively, is the European approach, which we think is sensible. Because what we are playing with here is a really valuable asset that we have got in this country, which is the universal service, at a uniform and affordable, let us not forget that bit, tariff. And if we allow competition to come in too rapidly then the impact on us who currently are the only universal service provideris, of course, the dynamics that we have already been hearing about, that competitors will want to take those easy-to-deliver bits, where the margin is higher, leaving us with the more expensive elements to deliver, making the cost of providing the universal service much greater. But what you cannot then do, if you have opened up competition in that way, is wind back, because the private operators will be in there, and we cannot say, "Oh, yes, we got it wrong, let's row back on it." It is much better to take a staged approach, reviewing as we go along. Now we do not think that it is right to look at competition coming in without actually giving us the lever of price to operate on as well, and, at the moment, Postcomm were not wanting to take that line forward. So we have said, bring competition in, a" la Europe, but also let us have a price rise.
Chris Ruane: And job losses?
90. Yes, how many job losses?
(Mr Evans) We have announced thus far that we are restructuring in a major way Parcel Force, and, so far as we know, and Moelwyn again will correct me, if you have got better information on this, the impact on Wales of the Parcel Force changes will mean that the depots in Pontypridd and Wrexham, I believe, will close, this has all been announced, and I think that will cost about 200 jobs.
(Mr Jones) That is about 167.
(Mr Evans) About 160. We have also announced a radical shake-up of our transport network, where we are wanting to re-order the mail that goes on road and rail and air, and so on, so we get a more efficient arrangement. Now we are currently out to consultation on that with our unions, we have got some ideas as to how we actually want it to work, it would be premature at this moment to say, "and this is the impact on Wales," but it will have an impact. The other changes, there are more in the pipeline. One of the big change initiatives we need to make, and this is tied back to your very first question to us, which was about the pay issue and the changes to the delivery service, that will impact on jobs, when we get into redesigning the delivery service, but, again, it would be wrong of me to speculate at this stage what those numbers would be. All I can say is that across the country, the UK as a whole, where we are saying it could be around 30,000 job losses in total, but how that will actually impact on different parts of the country it will be wrong to say, until we have actually got more detail and understand precisely the impact.
91. But if you have taken out those management centres, if they have already gone out of Wales, and all they are left with is the deliveries, then it is more difficult, I presume, because those postmen are already overworked and their bags are increasing in size; is it going to be more difficult to sack workers in Wales, or make them redundant?
(Mr Evans) I do not know the straight answer to that, actually. I think, one feature will be, because there is more of a rural area, clearly, in Wales than the UK as a whole, the effect of the changes to the delivery service are going to be probably less marked than in the rest of the country, because those impacts will be felt mainly in the cities and towns, where there are currently two deliveries a day; clearly, in rural areas, that will not apply. But, as we get more information and as the plans develop more firmly then, clearly, we will be interested in how the impact will be in every part of the country, as well as Wales.
92. With regard to post office closures, you have given us figures in your submission to show that the net number of post office closures in Wales between March and December 2001 was 16, compared with 71 in the year between April 2000 and March 2001. Does the fact that the rate of net closures is falling indicate that the size of the network is becoming more stable?
(Mr Miller) That may be so. I think there are a number of reasons why the rate of closure has fallen. The first reason is that we have actually now employed a number of people to specialise in making sure that where offices look like closing we do a lot of work actually to replace those offices. We have four specialist people who operate within Wales, and I think the figures that we have seen this year, which are actually, I can give you the up-to-date figure, it was 71 last year, for the full year, and 26 now, closures in Wales, the financial year to the end of March. So it has gone down.
93. What exactly do the specialists do, can you explain a bit on their role?
(Mr Miller) They do a variety of things, but what they are actually doing is they are talking to local communities, they are making sure that the vacancies are widely advertised, they sometimes do mail shots around to the surrounding area, to ask for people who are interested in being sub-postmasters, they actually go around, knocking on doors, in order to find people who are prepared to be sub-postmasters. So they are highly dedicated to the task of making sure that we minimise the reduction in the rural network; and they now have been in for the best part of a year, and I think that is a worthwhile investment. The national picture is similar. The benefit in Wales has been somewhat better, but the national picture is similar, that we have reduced the number of post offices that have closed.
94. Can I ask, when did these changes start; how many people would you say you had in mind to recruit?
(Mr Miller) We have got 28 nationally, four who operate in Wales.
95. Four in Wales; how are they fixed, geographically?
(Mr Miller) They operate out of Bangor, Swansea, Newport and Shrewsbury.
96. So that the person in Bangor would cover, what?
(Mr Miller) North Wales.
97. And when did that start, that method?
(Mr Miller) Probably, about nine months ago.
98. I am particularly concerned about the way a closure in Llandudno was handled. If this system had started nine months ago, this person should have been very active in making sure that your method was implemented, I take it; would you agree?
(Mr Miller) Which particular closure was this?
99. Mostyn Street, in Llandudno.
(Mr Miller) Mostyn Street. The people I have been talking about, the four people, are dedicated to the rural network, because we have undertaken to Government that we will do everything we possibly can to preserve that. So the adviser in North Wales would not have been involved in Mostyn Street, because that is an urban post office.