Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (660-679)



  660. Do you think, just picking up on the points you have touched on—consultation, listening to the other people involved in the process, that in terms of transparency you go as far as you could do? Do you give any credence to the recommendation that this is not peculiar to this sector, because other bodies have made the same recommendation to us, that regulators should publish minutes of meetings and other material that they do not at present put into the public domain?
  (Mr Corbett) I am not going to say that we go as far in the area of transparency as is possible; we could always do more. I would be profoundly sceptical, frankly, of the benefits of publishing meetings of our discussions. Janet has already described to you the way in which we pull together our thinking and I think it is a very iterative process which goes backwards and forwards, and I think to spell that out would mean that we would be spending a quite unreal amount of our time in trying to record in a way that was readily capable of being put out in the public domain exactly where we got to and how each individual played his or her part. Secondly, we do put out very extensive decision documents and I would be very happy to produce some of our decision documents for the Committee to see the way that they go. What those do effectively is provide a very full analysis of all the observations that have been made to us and how we have responded to them, why we have responded to them in the way we have, and those, if you like, are the publishable form of the discussions that we have within the Commission.

Lord Holme of Cheltenham

  661. Mr Corbett, could I ask you or Mr Stanley to help us with one thing. You described yourself just now as an economic regulator and, of course, this is what most utility regulators are described as, but if I look at your definition of duties in your very helpful note to us, the provision of a universal postal service or furthering the interests of disadvantaged users are, I suppose, in many criteria social matters which you are supposed to regulate, so you have multiple duties and roles, and of course, it would be quite likely, if there were friction between the regulator and the regulatees, it would lie precisely in the area of what weight and priority you give to the various duties that are laid on you. For instance, you might decide that the way to promote efficiency and economy of postal operators was through maximum competition, or you might decide that the need to ensure licence holders were able to finance activities required by their licence was to give them as much freedom as possible on pricing and so on. The thing that is most difficult for non-regulators like ourselves to understand is how you reconcile these multiple obligations and reach the right decision, trying to balance out criteria in a way which is transparent and understandable, not just that you have done it properly, but the weighting that you are giving to these various obligations. I suppose the tough question is, do you think there is a hierarchy of obligation here, or do they all co-exist, and you have to try and put them together as best you can?

  (Mr Corbett) There is undoubtedly a hierarchy of obligation. The Postal Services Act makes it quite clear that our primary responsibility is to ensure the preservation of the universal service, and only to the extent that we are satisfied on that score, are we then enjoined to do all these other things, like introducing efficiency where appropriate by way of competition, and so on. This is at heart the reason for our existence altogether. If indeed there were no non-economic criteria, one could almost say, subject to the provisions of the Competition Act, "Why do you need a regulator? Just let the Competition Act take over." We see as one of the most important functions of our decision documents to seek to respond precisely to the question that you have put, to set out the way we see our hierarchy of obligations, and to explain how, in the light of those obligations, we have arrived at the conclusion that we have. Very particularly in terms of market opening, much of the market opening consultation document was devoted to explaining how we came to the conclusion that competition would actually enhance the security of the universal service rather than detract from it. That was a crucially important finding. It was an issue that we felt it was necessary to have out for consultation for some considerable period of time, and interestingly, we received over 2,000 representations on that paper, which I think must be almost a record for a regulator's consultation document. So yes, we take those requirements very seriously, and they do form a major part of our decision process.

  662. I am interested that you use that example, because if your primary obligation is to ensure the provision of a universal postal service, and one of the subsidiary obligations is to promote competition, is it the fact that in your market opening document, even if you had not had the obligation to promote competition, you would still have come to the conclusion that competition was one of the best ways of securing a universal postal service? In other words, did it spring from your secondary obligation or did it spring from your analysis of how to meet the primary obligation?
  (Mr Corbett) I think it is an interesting comment. I believe it sprang from both, but you could reasonably argue that, had there been no obligation imposed on us by statute, we might still have come to that conclusion. It so happened that we had a happy coincidence of the conclusions on that point, but we had no idea when we embarked on that exercise that we would be likely to come up with a conclusion which actually gave us quite an easy route forward in finding that competition would actually enhance the universal service rather than be any sort of a prejudice and jeopardy against it.

  663. Given the obvious unhappiness of your major regulatee on the issue of the timing of competition, I think it would be fair to say, rather than the substance of competition, at what rate it should be introduced, in explaining how you have arrived at the decision to liberalise, if I can put it that way, to open the market up to competition as fast as possible, do you feel you have done an adequate job in terms of transparency or communication in explaining to your constituency, your "non-marriage partner", why you arrived at that conclusion, not just on the substance but on the timing?
  (Mr Corbett) Yes. Do remember always that we are the regulators for the postal industry, not for the Royal Mail, and that has to be our point of focus. Having concluded that opening up the market to competition would be good news, we were quite keen on being able to move ahead fairly swiftly, and in the first of our consultation documents we recommended that the market should be opened up by statute, the final step being in March 2007. As a result of very widespread discussions—and I have talked about the 2,000-odd representations we had—of many meetings with MPs, with union representatives, and with others, and with other operators coming into the market, we concluded that it would be no significant detriment to what we wanted to achieve to extend that by a year. That was a result which everyone accepted with a greater or lesser degree of good will, and we believe that that was a reasonable outcome of a very widely conducted consultative process.

Lord Fellowes

  664. As you can imagine, we have had a variety of descriptions of the duties of a regulator. One of them was "to deliver government policy." In paragraph 4 you describe Postcomm as a non-ministerial government department. Would you say that part of your duties is to deliver government policy or not?

  (Mr Corbett) I am going to ask Martin Stanley to comment on that, but my helicopter view of that is that our job is to deliver government policy to the extent that that has been enshrined in an Act of Parliament and to the extent that it is delivered to us in terms of social and environmental guidance. Beyond that, no.
  (Mr Stanley) I agree entirely. I was told in the very early days of this job by our expert legal team that we are a creature of statute. The Postal Services Act is our bible. We do what it says in here: no more, no less. In the sense of government policy being in here, we certainly promote government policy, but only to the extent that it is in here.

  665. Have you ever felt pressure from government to deliver a policy which you did not deliver?
  (Mr Corbett) In one respect there was indeed such an occasion, at the moment when there was a proposal to permit a merger to take place between Royal Mail and TNT, and we were frankly unhappy that the special provisions that would have been necessary to introduce into the market opening regime to permit that to happen were not explained to us with sufficient clarity for us to be clear that this was actually going to be in the interests of users of the postal services. So we said that we could well understand that there might be benefits to the government, as shareholders of Royal Mail, to bring this about, and if that was what the government actually wanted to do, then obviously government should be allowed to get on and do what they want to, but they would have to take us out of the loop before they would be able to do that; they could not expect us just to sit there and say, "If that's what you want, you have it." We had to be formally disenfranchised, so to speak. However, it was not a bad-tempered discussion; it was a very serious constitutional issue as between where our responsibilities ought to stop and where government's ought to start.

  666. Was your response readily accepted by government?
  (Mr Corbett) In the end it did not go ahead.
  (Ms Lewis-Jones) I think we drew a line with a firmness which will not be forgotten, which did not involve actual hostility.

Lord Jauncey of Tullichettle

  667. Mr Corbett, could I ask you to have in front of you paragraph 14 of your document, dealing with appeals. If you decide to refuse the issue of a licence on an application, or if you issue a licence with conditions which are not acceptable to the applicant, has he any means of redress? Can he appeal to anybody, or is your decision on that final?

  (Mr Corbett) He can certainly appeal under the judicial review process. There is no appeal to the Competition Commission because no licence exists by definition, and you can only finish up in front of the Competition Commission when you are wishing to amend a licence in a way which the licensee is not prepared to accept. So it would have to be a judicial review.
  (Ms Lewis-Jones) The issue of a licence would have been preceded by a very long period of discussion with the applicant, so that they would have had plenty of chance to tell us what they were unhappy with and to argue it through with us. But once a decision is taken, that is the only route.

  668. You do not envisage a situation where it would be desirable that an applicant whom you thought perhaps ultimately was undesirable should have a right of challenging your decision?
  (Mr Stanley) Personally, I think judicial review is absolutely the right thing to do.

  669. Yes, but we know the limitations of judicial review. Suppose your decision were reasonable.
  (Mr Corbett) Nevertheless, it is a very significant sanction. There is no regulator that would care to be taken to judicial review and lose on the grounds that they had failed properly to take account of the arguments put forward by an applicant for a licence.

  670. Your position is then that you do not consider that there is any need for a decision on the merits of any decision by you refusing an applicant's licence? [12]

  (Mr Corbett) I am certainly not aware of any at the moment, but I think it is worthwhile making the general point that every time you build in another set of protections, another layer of appeals, another degree of bureaucratic process, you slow up the regulatory process, and you create greater regulatory uncertainty rather than less. Whilst I am not saying I cannot imagine a set of circumstances in which we might want to take that route, I would have thought that it was right to be very cautious about the consequences of going that way, unless someone can actually demonstrate, chapter and verse, that here is a case where an injustice was seen to be done which would not have been done had there been a proper appeal process.

  671. It has been suggested, perhaps rather contrary to the evidence we have just heard, that you have an over-close relationship with Royal Mail, to the detriment of other interested or potential applicants. Have you anything to say on that?
  (Mr Corbett) Absolutely nothing. I think it is total nonsense, frankly.

  672. Finally, does "universal service" mean that everybody living in these islands has a daily postal service? Does it mean that that is restricted to letters only, or does it mean they are entitled to a letter and a parcel post?
  (Mr Corbett) I would like, if I may, to take a minute or two to respond to that, because this is crucially important, and your previous witness was being quite critical of the decision that we made to move ahead with market opening and price control, before defining "universal service". The statute that set us up has a very broad-brush description of the universal service. It is delivery every working day, collection every working day, to the door for delivery, including a registered mail service, and at a uniform price up to 20kg (letters and parcels). That is about it. For the rest, you are on your own. Royal Mail, because there was no reason for them not to, had always in the past tended to regard everything they did as being part of the universal service—130 or whatever it is different services, many of which ordinary members of the public would never see from one end of the year to the other. We felt that to move ahead, the right thing to do was to accept Royal Mail's definition, so the whole of price control and the market opening has been put together on the basis that Royal Mail's definition, a very important definition, of "universal service" would continue to apply, unless and until there was clear understanding that it should be limited in some way, which may well require new legislation to enable it to happen. It is only this year that we have embarked on the very beginning of a consultation exercise about what it is that people actually want of the universal service. Is it there for its economic benefits? Is it there for its social benefits? If it is social benefits, how should they be defined? Is this something that should apply to just the second class post as the underpinning service? Should it go to first class? We put out a consultation paper, which has a range of questions and absolutely no answers at all; we are not trying to push in one direction or another. That is a process that is going on now. We will get the answers back from that over the summer. We will put out a second consultation which will try to get a bit more focus on these issues thereafter. I do not believe that this was an exercise that it would have made any sense at all for us to have attempted before we had actually dealt with the immediate problems of trying to tackle the levels of efficiency and service that are being applied to postal services as they are now. I think we have the timing and the sequencing right, and we now want to have a wide range of debate, in which I hope we will get a lot of participation, particularly from consumers, from those representing disadvantaged groups, from bulk users and from others, out of which we will then be able to start fashioning a far more coherent picture of why the universal service is there, and then we can make certain that we can deliver it and secure it.

Lord Elton

  673. You made it clear in answer to Lord Fellowes that you are not subject to undue government pressure. What other pressures are you open to? Are you constrained only by your statutory duty and judicial review, or does public opinion enter into it? Are you an entirely clinically separate part of the country?

  (Mr Corbett) I would, of course, love to say that the overwhelming pressure is reason. We do take our responsibility to the public interest very seriously indeed. We take our commitment to the achievement of the vision that we have set out in our paper very seriously. We think it is very important that we have a pretty clear compass to guide the decisions we are making so that we are not just gazing at the ceiling and saying, "What would we like to do next?" Everything we do is focussed towards the achievement of the mission, which in turn is focussed towards what we see as the public benefit. I think it is important to recognise that, as regulator, we have no animus to any particular organisation or any particular group of interested parties. What we want to do is to ensure that we can indeed deliver the benefits set out in the mission, and there is no reason why we should allow ourselves to be distracted by anything other than that. So yes, we get masses of pressures on us. We get letters from MPs, we get letters from unions, we get letters from postal workers. We have a marvellous bulletin board at the back of our website which is designed to enable everyone who feels explosive rage at what we are doing to be able to evacuate their rage on our website.

  674. What effect does this have on you?
  (Mr Corbett) The effect it has on us is to remind us constantly that we do have a constituency of users, of employees, of operators, all of whom are looking to us to satisfy their expectations. That is a pretty demanding set of pressures.
  (Mr Stanley) Can I give an example? I am very conscious, going out a lot, as I do, of two separate types of pressure from the public. Whenever you go into the country areas, to the north-west of Scotland, to Orkney and Shetland, there is a huge worry about whether the universal service will be maintained, whether it will be maintained at a reasonable price, whether people will still be able to post letters, whether delivery will stop being every day. You cannot attend a meeting up there or deal with correspondence from MPs up there without getting a deep feeling for the importance of the universal service to those communities. Equally, you can go into south-west London or meet some businesses, and you cannot come away from those sorts of meetings or discussions without really feeling the passion of people that are badly hurt by the very poor service they sometimes get from Royal Mail, or businesses who spend a lot of money on the Royal Mail and are seriously inconvenienced when things go wrong. That encourages us to improve the postal service. We cannot do what one constituency wants entirely, beat up the Royal Mail entirely. We cannot necessarily do what another constituency wants us to do, but by meeting the public, we do take great care over decisions, and then, when we have taken our decisions, we also put a lot of effort into going out and explaining them.
  (Mr Corbett) There is hardly a meeting of the Commission when one or more commissioners do not wish to share with us some arm-twisting experience at a cocktail party the night before. We are very much out in the open. We do listen. We have to listen.

  675. What are the considerations which you have in mind in deciding the rate at which competition should be introduced?
  (Mr Corbett) As I was saying earlier, this was really what came out of the whole process of consultation. I am bound to say that our own view at the end of the day was that there would have been no significant risk in moving ahead as fast as we had originally suggested, but equally, we perceived that there was going to be a much greater degree of public acceptability of what we were doing if we were to extend it by the addition of a year, and it was clear that the speed at which would-be competitors were going to be able to gear themselves up was not really going to be influenced greatly. So that was a case where we were able to move in a direction which would respond to public concerns without any significant detriment, we felt, to the achievability of what we wanted to put in place.

  676. Presumably, one of the considerations you have in mind then is the effect on the existing major supplier of this service and on its very large number of employees. I wondered whether the rate of introduction of competition was related to the ability of that supplier to adapt to changing circumstances.
  (Mr Corbett) Yes, indeed. We made it very clear that one of the reasons for the change when we extended the introduction period was because between our first and our second consultation documents, or the consultation document and the final decision, new management had come into Royal Mail. The whole of the renewal programme had been put together with a three-year time horizon, and we were anxious to provide the encouragement to Royal Mail to be allowed to go ahead to the completion of that renewal programme without imposing on them an excessive degree of market opening. So yes, that was indeed one of the factors.

  677. Do you have a collegiate relationship with other regulators? If so, what do you gain from it, and if not, why not?
  (Mr Corbett) Yes, we have a collegiate relationship. We meet, as I am sure you are aware, at about two-monthly intervals at my level. We also have a series of meetings at director level of people who examine how we are developing our thinking on return of capital, and other regulatory issues like that. I believe they are extremely useful. I think they are probably rather more useful at the director working levels, where people are actually talking about techniques and methodology, than at the top level. I am not sure that any of us at the top level would think it was worthwhile getting together for more than one meeting every two months, but we think it is very important that we recognise each other in the street and we know what we are doing.

  678. From those encounters, have you come to any conclusions about regulation generally, about how it could all be done better, which you think would be of use for this Committee to consider?
  (Mr Corbett) In so far as we were all very much involved in the deliberations of the Better Regulation Task Force and subscribe to what came out of that whole exercise, and certainly subscribe to the five principles of good regulation, I think all of those things have helped to let regulated industries understand what the principles should be, and that must be a good thing. I do not want to over-emphasize the benefits we get out of the exchanges. One of the things that one learns very quickly is just how varied each of the regulated industries are, and the lessons that you can read across from one to another at the end of the day are quite limited. But it is undoubtedly useful that we exchange views. I do not think it would help to go very much further than we are at the moment.

  679. You are technically regulated by rather different statutes as well.
  (Mr Corbett) Yes.

12   The new Postal Services Regulations 2002 mean that Postcomm is now required to give reasons for refusing an applicant's licence. Postcomm has, so far, never refused a licence. Back

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