Examination of Witnesses (Questions 120-139)
JONATHAN EVANS, MOELWYN JONES, DAVID MILLER AND DAVID MILLS
WEDNESDAY 1 MAY 2002
120. Have you not been told in the past by PostWatch that maybe you have not adhered to it?
(Mr Miller) We have had one complaint, as far as I am aware, about a specific set of circumstances; but, beyond that, I am not aware of any other.
121. What about the other points, that notification letters fail to take account of important issues such as disabled access and which services other branches are providing?
(Mr Miller) If there are specifics, as I say, I would like to know those. Disabled access obviously is a very important issue, from our point of view.
122. The CWU and the National Federation of SubPostmasters see the proposals for introducing competition in postal services as a threat to the universal service and to the post office network itself. Do you agree with that?
(Mr Evans) To an extent, we have touched on this point. Yes, if competition comes in too quickly and in the way that PostComm are proposing currently to bring it in, we believe it will be much more difficult to maintain the universal service at the affordable tariff in this country; so we agree completely with that. I think we have got to be careful though to say, and it will also knock on to the impact on post office closures, because I think the impact there is less direct. Clearly, to the extent that mail volumes through Royal Mail decreased, that would not be to the help of the network of post offices; but, if you think of it, the post offices in rural areas are less likely to be impacted by competitor mail companies than in town areas. So, overall, I would say, the biggest threat of Postcomm's proposals is actually to our ability to maintain the system of mail deliveries in this country, rather than as an impact onto the post office network itself. But to the extent that it results in a Consignia that is still unprofitable then, clearly, that is to the disadvantage of the whole group.
123. How engaged are you in all of this, in a political sense? Mr Jones did not answer my question earlier on about devolution, and the fact that you appear to have a brief that relates to the Assembly, and yet many of these decisions are taken at the UK level, and so an engagement with the Assembly is essentially sort of an information exchange, rather than actually impacting on major political decisions. And, at the end of the day, this is a political decision?
(Mr Evans) The technical position is that Postcomm have announced their proposals, they asked a whole body of people, in fact, anybody could have made comments on them, I think they have had about 1,500 comments made on them, including the Welsh Assembly, including ourselves, including the unions, including the Federation, and now including the Public Accounts Committee, and that they have now soon got to make up their minds. But the constitutional position is that they are an independent regulator, and, therefore, ultimately, it is their decision. And I know that is a source of concern in some quarters, and clearly this was echoed in what the Public Accounts Committee announced today, that such an important decision which could impact on the universal service in this country is being made potentially in the way that it is. But let us hope that commonsense will prevail and Postcomm, in whom we have a good bit of faith, will come up with some sensible proposals in the end.
(Mr Jones) Could I just add there that the National Assembly did actually have a debate on the postal services in Wales, and my Chairman and I worked very hard, prior to that, to explain in detail our concerns about Postcomm's proposals to as many Members as we could. And I think their understanding was reflected in the vote that took place after that debate, and their request to Postcomm that they extend the period of consultation.
124. As part of your work, do you have any relationship at all with the Secretary of State for Wales, given that the Secretary of State for Wales is the representative of Wales in Whitehall and Parliament?
(Mr Jones) Yes, we do, but you have to realise that there is a department in London, headed by Mr Fisher, no, he is not here today, who actually liaises with Westminster directly, although my Chairman in Wales and I, with Mr Fisher's co-operation, can approach Welsh Members of Parliament, including the Secretary of State for Wales.
125. You said earlier that your volume has been affected by technological advances, of e-mails and text messaging, and also by the fall-off of advertising activity. I attended a reception, that your organisation hosted, it was the night before one of your announcements of big job losses, which were not actually alluded to that evening, but, talking to one of your managers, he said that, I cannot remember the details now, but a very, very small number of customers actually account for a very large amount of your turnover. Have they got huge clout with you in negotiating good terms, and how would competition affect that sort of issue?
(Mr Evans) I think, the facts are, our largest 20 customers account for, I think it is, about 20-plus per cent of our total revenue; so, clearly, there is a big Pareto principle. And, yes, it was interesting when I was listening to the CWU witnesses, who were saying we should put prices up, and, of course, they have done some research, I believe, which shows that amongst the public at large there seems to be an appetite for putting prices up, interestingly. If though you ask those top 20 customers of ours; there is one customer who posts over £100 million worth of mail with us a year; what they think about putting up prices, clearly, you get a completely different answer. So we are very much aware of the impact that price has on the large posters of mail, and equally we are aware that, if competition comes in, those large posters will be typically the ones who will be looking for the best deal they can possibly get, and if it is the bulk mail area that is the one that is liberalised first, which is Postcomm's current proposal, that is where we would see, potentially, the largest drift of loss of revenue.
126. Naturally, between a regulator and a business that is being regulated, there will always be a degree of creative tension; but I detect something a little more than creative tension, from what you have said and in your submissions and other evidence that we have seen. Is this a breakdown in communication, or is it a lack of understanding in the regulatory environment, both from the Government Department concerned, namely, the Department of Trade and Industry, and the regulator specifically?
(Mr Evans) I think I would characterise it as this; there is Postcomm, new; we are new to a plc regime, this new regime we are in; PostWatch, our consumer body, is new; we are all, in a way, finding out our roles in a fairly complicated stage that we are all actors on, and we are trying to work out what our precise parts are, and occasionally getting our lines mixed up and colliding with each other on the stage, if you see what I mean, if that is a decent analogy. But, I think, as we get into more what our real roles are and how we can play them best then I really do hope it will be one of constructive tension, clearly there will be tension because I think that is the way the model is set up; but, just at the moment, yes, we are finding our way, but clearly the intention is to get relationships on as good a footing as we can get them.
127. One brief comment. Obviously, alongside the regulation is the question of, if you like, the tax and the dividend that the Government draws back. I may have missed this at the beginning, so if it has been answered already please excuse me. Could you just advise the Committee how much the Government takes back this year?
(Mr Evans) The position has been that until the year just ended, that is the first year we have actually been as a plc, the Government has not been able to take a dividend from us, because previously we were under a regime of external financing limits, where the effect of the mechanism was that we invested certain amounts determined by the Government, in consultation with us, into gilts; so as a sort of proxy for a dividend, we were not actually handing the money over but we were putting it on our balance sheet in gilts, and we could not use it, so it has just been sitting there. The Government recently agreed that for the last two years of that regime those earmarked "dividends", if I can call them that, should be released for our use, and that is about, I think, £240-odd million worth, which they have recently agreed, to do that. For the year that has just ended, which we are going to end up in a loss, our argument is that there should not be a dividend payable, quite clearly, and also that while the business was in loss, clearly, dividend would be inappropriate; there is a dialogue going on with the Government about that still.
128. That has not been resolved, at this stage?
(Mr Evans) To my knowledge, it has not. If I am wrong on that then I will let you know; but that is my current understanding.
129. Following up on Mr Prisk's first question there, Mr Evans, several times you have mentioned the Public Accounts Committee report that was published today, and quite rightly pointed out that, in general, the Committee shared your concerns about the model for introducing competition. But they were not entirely uncritical of Consignia, and I paraphrase slightly, but they said, Consignia and Postcomm are at present locked into an adversarial and unconstructive relationship, from which neither party can gain much. Do you recognise that description of your relationship?
(Mr Evans) Yes; well, as I was saying to Mr Prisk, I think there have been occasions where we have ended up arguing about the wrong things, ending up arguing about the validity of numbers, and so on, in a fairly, what an external observer would see no doubt as an unproductive way. What we need is better information, and that is an issue for us within the business; and, back to the point I was making earlier about our big investment in financial systems, we need access to better information that we can look at jointly and draw sensible conclusions from. Now part of the reason that perhaps our relationship has been characterised as adversarial is because we have been, partly what I was saying about getting roles clear amongst ourselves, but also a lot of arguments about numbers and whether they are right or not, and so on, which has caused a lot of friction.
130. So you would take a share of the blame for the strained relationships so far?
(Mr Evans) If you want to concentrate on blame then, clearly, we are one of those two parties.
131. Let us look at what the Public Accounts Committee said. After giving that description of your relationship, they went on to say: "We look to both of them, as public sector bodies, to move away from this strained relationship and seek to work more co-operatively from now on."
(Mr Evans) Yes; and I would say Amen to that.
132. That is your determination?
(Mr Evans) Indeed.
133. On to the Universal Bank. I think it is estimated that three million people will open a card account at the post office, as a result of the introduction of services under the Universal Bank, and I wondered if you could say what impact you think that will have, particularly on the rural post offices as well?
(Mr Mills) I think we need to understand exactly what is proposed, what may or may not happen, and how we anticipate that our customers will continue to use our services. As you know, it is the Department's intention to offer benefit claimants alternative ways of obtaining their benefits; they will be able to, in the future, either have their benefits paid into a commercial bank account, or what is known as a basic bank account run by a bank or a building society, or direct into their Post Office card account. Now the take-up of those particular three elements is a matter of speculation, at this moment in time; the Government wants the benefit claimants, wherever possible, to operate within the commercial community, and, obviously, the Post Office would want as many people to stay with them as they can. The fact of the matter though is that, whatever any one of those benefit claimants does, they will still be able to come to our counters and obtain their money, whether they are taking it out of a commercial bank's commercial account, or whether they are taking it out of a basic bank account, or whether they are taking it out of the Post Office card account. So that is one of the joys that we can say, and that is good for us, and it is good for our postmasters as well.
134. So this is an opportunity?
(Mr Mills) Yes. I think we can all see change as a disaster and something that we cannot face up to, or we can all say, well, change presents us with an opportunity, management has to step up to the mark, we have to offer customers and clients different things in a different manner. So I would see it as an opportunity, yes.
135. One of the aims of the Universal Bank, set out in the Performance and Innovation Unit's Report, is to help those who are financially excluded, or "unbanked". Some people are excluded because they lack appropriate proof of identity, or do not have a good enough credit history to open an account at a commercial bank, and it is estimated that there are 100,000 people in the UK who have been refused a commercial bank account. Will the Universal Bank be able to provide a service for these people?
(Mr Mills) Yes, definitely, Mr Ruane. In fact, I think there is no doubt at all that the aim of the PIU is going to be satisfied by the Universal Bank facilities offered by the Post Office. In particular, it is the Post Office card account which will be a good thing for those people who have been disenfranchised when it comes to banking, because not only will they be able to have an account with the Post Office, but, effectively, they will be able to come in, present their card on their side of the counter and get cash at the counter. And, also, because of the way the systems are structured, they will not have the worry of being overdrawn, because it will not permit them to go overdrawn. So it does present an opportunity for us, in a social policy sense, to solve that issue of the great unbanked.
136. Others exclude themselves because they find banks intimidating, they find it easier to budget in cash, or they are afraid of accidentally going overdrawn. And it is estimated that nearly half a million adults in Wales have no account of their own, and more than a quarter of a million people live in a household where nobody has a current account. What are you doing to make the Universal Bank service attractive to people who do not want to open an account at a high street bank? Can I ask also, what degree of co-operation is there with the Credit Unions in Wales? The Credit Unions quite often deal with people who have been refused credit, or are shy of the banking system; what degree of co-operation has there been with the Credit Unions, perhaps you could operate as their collectors in rural communities and forge a good symbiotic relationship?
(Mr Mills) As it happens, ironically, we have not been approached by any Credit Unions on this subject at this moment in time.
137. Can I just stop you there. When we were addressed by Mr Sweetman, 18 months back, as I recall, we asked him this and he felt this would be a fruitful avenue to explore. Am I to take it, from that, that there has been no explanation over the past 18 months?
(Mr Mills) No, I do not think there has been, Mr Ruane; but I am not sure why we would have needed to, in the sense that, if we are in the process of providing a universal access to any benefit claimant that wants to, at our counters, and if we know also, as we do know, and as I am sure everyone knows, both intuitively but also from market research, that our customer base is actually extremely satisfied with the way in which post offices deal with them at this moment in time, presently, 75 per cent of all of the people that go into post offices are either very satisfied or fully satisfied with the services that they get, 60 per cent of those people would recommend us to their friends to use, and most of them want us to sell them more. So we are already in a very favourable position, and we are going to offer a service which is extremely useful, when we come to next April.
138. Will the Universal Bank, as a service, be profitable?
(Mr Mills) I cannot tell you that, at this moment, Mr Prisk; you see, it does depend entirely upon the number of people that use it, and the unit cost that we can extract from those people. What I can say to you though is that, if you look at what the Post Office has done historically, it has been the arm of Government that did two things; first of all, it delivered information to the populous of the UK, on the one hand, and, on the other hand, it was the outlet for many, many Government services. The thing that it did not do itself was, it did not have its own product line that was, of its own volition, profitable. Now, patently, one of the things that we have to do is, we have to develop profitable products in the hands of our customers whereby we can make the post office network itself not a loss-making entity and a great cash drain on Consignia, but at least break even and, hopefully, profitable.
139. And you are quite right, the use of the word "profitable" there was probably wrong, on my part. Can I just pursue that very, very briefly, Chairman. It is really, therefore, clear services are going to need funding, certainly at start-up, and so on; who is paying?
(Mr Mills) First of all, let us just return initially to the rural network and then come back to the Universal Bank, if we may. However you look at it,