Select Committee on Constitution Minutes of Evidence


Examination of Witnesses (680-696)

WEDNESDAY 11 JUNE 2003

MR GRAHAM CORBETT CBE, MR MARTIN STANLEY AND MS JANET LEWIS-JONES, POSTCOMM

Lord Lang of Monkton

  680. Mr Corbett, looking at the article in the Independent on Sunday on the things that Mr Leighton was going to say when he came here today, and has said but has not come here to say, and comparing them with your presentation of Postcomm as a benign, reasonable, entirely understanding organisation, I cannot understand why there seems to be such a vibration of animosity between you and Royal Mail. It is not as though you preside over a large empire of unruly children, like some other regulators. Why do you think we see this disparity?

  (Mr Stanley) If you are inside Royal Mail at the moment, it is a very difficult organisation, under enormous stress and strain. The whole of the Royal Mail Group, as we all know, is losing buckets of money. The mails business however is not. The mails business, our bit, is profitable, but the rest of it is having the most terrible time. So that colours your approach to life. A regulator that does not give you a price rise on the mails business is making your life more difficult. Competition too is something that they are very scared of. They genuinely do not know how fast it will come in, but of course, they are much more pessimistic than we are. They told us last year that they would by now have lost about five million letters a day to their competitors. That has not happened, but they genuinely thought it, and they were genuinely scared. They genuinely thought we had gone far too far. It is those factors that colour the noise that you get from Royal Mail but, as we heard earlier, when you get down to the detail, relations are really not too bad.
  (Mr Corbett) If you analyse most of the more robust criticisms that are made about us, they have come from Allan Leighton. Allan Leighton is someone with a very particular and very difficult job to do, and to do that job he needs to be able to rally the support of most of 200,000 people and to enable them to feel that there is a real champion fighting their corner for them. I think what is happening is that there is a recognition that Allan Leighton has the job of really demonstrating that he is fighting that battle. There are other people whose job it is to get on with the process of making regulation happen. I have a huge regard for Allan Leighton, and I recognise the scale of the task that he has taken on board. I do not want to make his job any more difficult than it has to be, and if it makes his job easier to have a good, old side-swipe at us, then frankly, our shoulders are broad enough to do that.

  681. Do you not think it would make his job easier, and possibly yours too, and certainly be less costly for him, if there were to be some kind of disputes resolution panel rather than the nuclear option of judicial review, limited as it is to the process?
  (Mr Corbett) I am not at all sure that that is a proper conclusion, actually. The real issues between us are being resolved frequently, constantly, by the working level exchanges. I think the worry about a disputes resolution, rapid-response service is that it could become really quite addictive, and if you are not very careful, you could find yourself running off with small disputes to get someone else to step in. At the moment, for all its imperfections, the fairly Draconian nature of the resolution process means that there is a huge amount of pressure on both sides to get it sorted out between them. I think that is good.

  682. That implies that it is a discussion between equals, but it is not, because ultimately, you can impose your solution.
  (Mr Corbett) Whether we are equals or not I leave others to judge. I do not think we are at a particular advantage or disadvantage compared with their position. After all, they do have a pretty powerful shareholder.

Baroness Gould of Potternewton

  683. Can I come back to another relationship, and that is your relationship with Postwatch? I was particularly interested in the points Mr Stanley raised about going round the country and talking to the different customers. Of course, obviously, there has to be a balance struck between all the different demands that are made, but at the same time, it does seem that there is a perception, whether real or not, of evidence of dissatisfaction with the postal service. We have recently had a report which did come from Postwatch, actually making that point. In your further submission about the evidence that had been submitted by Postwatch, you say it is regrettable that Postwatch appears to be unable to acknowledge the successes. If they are finding that people do not perceive any successes, surely they are doing their job, which you would expect them to do. Thinking about the word "regrettable," is that not a little over the top? Maybe there needs to be more of a dialogue between you to identify clearly where in fact successes are being achieved.

  (Mr Corbett) Despite the fact that I actually wrote "regrettable" myself, I am going to ask Martin to answer that.
  (Mr Stanley) Postwatch and Postcomm share a common understanding of the problems being encountered by members of the public and businesses. The visits and meetings I talked about are always joint Postcomm/Postwatch, so at that level we have a very good, shared understanding and view, and to a great extent a shared view of the way forward. Rather as with we and Allan Leighton, we have seen a number of instances in recent months of, to use your phrase, "over- the-top" criticism of us, of some of our control decisions, some of which we saw in their note to you, and I think they are regrettable, but deep down, I think, as with Royal Mail, we have a basically professional relationship at the working level which is effective.
  (Mr Corbett) I should just mention on that that we also comparatively recently began building a whole series of links between their council members and our commissioners. It was very clear to all of us that there were some problems at the top levels of the executive, and that we needed to find a way of isolating those problems to some extent, and ensure that we could continue to have a good dialogue. So there is an important new initiative which is going ahead there.

  684. My second point relates to the first page of your first submission, in which you say that you have a role to advise the Secretary of State for Trade & Industry about the network of public post offices. Can you just elaborate on how you draw up any criteria on which that advice would be based? Obviously, closures and of post offices and so on are causing a great deal of distress.
  (Mr Corbett) This was a responsibility which actually formed no part of the Postal Services Bill at all. It was after we had come into existence that we were asked by the DTI whether we would be prepared to accept a non-regulatory function of advising the Secretary of State on the future of the network of post offices, rural and urban. We felt that that was something that we could do without any jeopardy to our independence for our regulatory function. We do actually have a separate group within the office that handles this work. We have submitted two annual reports and the third one will be going in next month, which report to the Secretary of State and to the public at large on the very considerable amount of fairly basic consumer research, user research that we do to ensure that the decisions that are made—which are going to be government decisions, not ours—are based on as full an understanding as one can reasonably achieve as to what it is that people are concerned about in the service they get from their post offices; what it is they would like to see, particularly obviously with regard to the interests of the disadvantaged. One of the crucial issues that we have been pressing on the Secretary of State through our reports has been the importance of focusing on the service that is offered rather than the bricks and mortar with ivy growing over the porch, through which they are offered. That is a theme which we will be continuing to develop to try to focus more on how you make certain that there are mechanisms to enable what people want of their post office services, whether they be purely postal or otherwise—obviously cash and banking transactions are very prominent in thinking at the present time—to be delivered. So the answer to your question as to on what basis we are developing our thinking, it is entirely on the basis of the research we are carrying out as to what it is that people want and expect and are concerned about.

  685. Does not accessibility have something to do with the service that the post office is offering? If a post office is not accessible, then there is no service.
  (Mr Corbett) Absolutely, and you will find that figuring very prominently. If this is a subject which interests you, I really would commend our series of reports. I think they are excellently written, they are much more readable than most of the stuff we produce on regulation, and they really tell you a lot about what it is that people really need, and of course, access is a crucially important part of that.
  (Mr Stanley) Could I add that we do not get involved in individual closure issues, whether an individual post office should be closed. Postwatch look at those quite closely. They are doing a lot of work at the moment very effectively on individual post offices.
  (Ms Lewis-Jones) I think it is worth mentioning that this is an area where we and Postwatch have worked together.

Chairman

  686. I can see in your further submission about Postwatch that you might have disagreements relating to interpretation of the Act and so on. One of the things which rather surprised me—and I appreciate this might be more of a question for Postwatch than for you—was the actual factual errors.

  (Mr Corbett) Yes, we were surprised at those too. They could have picked up the telephone, but they did not.

  687. Some of them are quite basic. Although perhaps slightly worrying, this is not the first case where we have come across this, where we have had the consumer body saying "They do not publish accounts" and the regulator saying, "Oh yes we do."
  (Mr Corbett) We shared your disappointment at seeing those, and the first few drafts of the response that we were going to send to you were much more colourful than the one you were finally sent.

Lord MacGregor of Pulham Market

  688. Could I follow up Baroness Gould's question? Mr Stanley made a great point about the fact that the Royal Mail is profitable, and you have that in your second submission to us in response to Postwatch, but in looking at the post offices, one is looking at an area that clearly is making a big loss. You are making recommendations or comments to the Secretary of State about the post office, some of which, I suspect—I do not know how much you look at the cost-effectiveness of every proposal—would involve continuing the losses. Are you able to take that into account when you look at the decisions you want to make about Royal Mail and the possibility that Allan Leighton, sitting in his position, is having to subsidise one from the other?

  (Mr Corbett) We do not believe that it is any part of the regulated activity of postal services to provide subsidies for post offices, and we take no account of any requirement for any such subsidy to be financed through postal services. So our regulatory decisions are based on postal services as a stand-alone operation. The wider issue as to the extent to which the post office network may be thought likely to be in deficit on a continuing basis and what you actually do about it is obviously a subject that figures very largely in our thinking, and I should say that, in addition to the published reports that we put in on the perceptions and needs of users of postal services and post offices, we also submit a confidential report to the Secretary of State on financing options, but what she does with that is entirely her decision. You have seen the outcome of that from the £450 million that is now being provided.
  (Ms Lewis-Jones) It is a purely free-standing advisory piece of work on the network.

  689. So it does not influence the decisions on the regulatory front and at the end of the day, it will be a matter for the government to decide if it wanted to subsidise following anything you put forward on the other front.
  (Mr Stanley) I am not sure we have researched it properly, but I suspect we could not, under the law, set a mail price to allow a cross-subsidy. The economy and efficiency duties for a start would suggest that we should not do that. Even without the Postal Services Act, there is a deeper reason: if you put the price of post up in order to allow a cross-subsidy, which I am sure Royal Mail would love us to do, it puts people off using the mail, cuts mail volumes, and harms the businesses that use the mail services. So there are wider reasons why it would be a dangerous road to go down, even if we were allowed to do it.

  690. I can see that some postal users may have a different view. You made a point about the two-monthly meetings you have with other regulators. Presumably, you see yourselves as in a very different position in that (a) your principal customer is owned by the government, and (b) there is one major monopoly supplier, whereas most other regulators are dealing with a large number of providers. Does this mean in these discussions you find yourselves in a rather separate category from the other regulators?
  (Mr Corbett) To some extent, clearly. On the other hand, most of them in their history have been through a period of having one overwhelmingly strong regulated company and trying to find ways of bringing others in. State ownership is a different issue, and that does have some implications, I think mostly in terms of how you set regulated cost of capital, because it is very difficult to make a determination as to what the regulatory assets of the business are without having had the benchmark of a public offering to set some standard for it. For those who are interested in that issue, we had to go through some rather careful gymnastics in our price control recommendations as to how we dealt with it for this first price control, and it is a problem that we are going to have to deal with again when we come to the 2006 price control.

  691. To some extent, do you feel that, unlike the other regulators, you are there as a stand-alone organisation on behalf of the government? I understand the point about other providers coming in, but they are still very small. Therefore, in that sense, you are operating in a way that the government had to do before, but you are no longer part of the Department; you are there in a slightly independent capacity, but still doing a job that by and large, the government did. You are, in a sense, protecting the Secretary of State.
  (Mr Corbett) That is true to an extent, but I would like also to feel that one of the reasons for wanting to set us up in the first place was that the government simply had no appetite for having to take the rather disagreeable decisions that were necessary to move the Royal Mail forward to where it has been moved to now, in so far as we can do things which government was not readily able to do. I think that is pretty good news.

  692. You put the point rather better than I put it, actually, because that is what I was driving at. In a sense, you are able to take those decisions without, as we have heard, most forms of independent appeal, without political pressures that a minister in a department might find.
  (Mr Corbett) Yes. It is not without political pressures, but they certainly are not the same political pressures that a minister in parliament would have.

  693. Are you intending to carry out post-implementation appraisals of your decisions? As you come to do the next one, clearly that will be helpful in deciding whether you got it right this time or not, or whether Mr Leighton's criticisms were fair.
  (Mr Corbett) That is a crucial issue for us, and one of the things that we have spelt out at considerable length in the latest version of our business plan, which went on our site at the end of March, is the extent to which we are going to be allocating resources to monitoring what is happening within the market and making certain that we really understand the dynamics of that, not only for the general health of the industry, but also, of course, we have to make certain that we are not unwittingly putting the universal service in jeopardy, and if for any reason we were, we had better know about it pretty quickly.

  694. Does that mean that before the next review you will be looking regularly at the view you are taking about the cost savings that should be made within the service and seeing what the impact of those are, or whether in fact they are taking place?
  (Mr Corbett) The service requirements are being monitored in any event every three months, and we put information with commentary on service standards on our website every three months, and the latest have actually been very disappointing in terms of the trend that seemed to be being experienced. The wider issues that you touch on we will be looking at certainly every year, and we will shortly be developing our outline plans for the 2006 price review, which will need to get under way quickly, and all of that will have to come back into the melting pot.

Chairman

  695. This is a fundamental question from the perspective of this inquiry looking at accountability. You mention in paragraph 10 of your submission the need to be clear as to the respective roles of Secretary of State and Postcomm. You say ". . . including Postcomm's independence and direct accountability to parliament." Can you comment on how you see your accountability to parliament in terms of how adequate is parliament's role in questioning you and giving you an opportunity to justify the decisions that you reach?

  (Mr Corbett) Our main channel of formal accountability is clearly through the Trade & Industry Select Committee, and I think we find the opportunities to explain what we are up to, both formally and also in informal meetings—we have regular informal meetings with members of that Committee—extremely useful. As to whether they constitute a level of accountability which continues to be appropriate to what is obviously a changing world with changing expectations is a very proper matter for this Committee to be looking into. From our point of view, we feel comfortable with the accounts that we give to the various interested parties, not only through the Trade & Industry Select Committee and the Public Accounts Committee but also through our annual reports, through other reports and through our decision documents. We think it adds up to a pretty formidable stack of reporting back and information. I would just repeat the earlier comment that there comes a point at which the degree of oversight and the number of bodies, if you add on the National Audit Office, the Better Regulation Task Force and so on, become self-defeating. I think it would be impertinent for us to judge whether we are at that point now or not. We have obviously complied with whatever obligations it is decided to put on us, but we feel we spend quite a lot of time explaining ourselves at the moment.

  696. Thank you very much. I am conscious of time, but we are very grateful to you for giving up your time to be with us afternoon, and also for the papers that you put in beforehand.

  (Mr Corbett) If you have any follow-up questions you would like to come back to us with, we would be delighted to help in any way we can.





 
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