Examination of Witnesses (Questions 60
TUESDAY 13 FEBRUARY 2001
60. In your opinion are there any targets missing
that should be there?
(Mr Holmes) I do not think so. Each year, when we
produce our corporate plan for Treasury approvalthat will
come forward in the next few weeks before the new financial year
begins on 1 Aprilwe generate our various internal forecasts
and then have a discussion with the Treasury about whether any
of the targets should be changed. That is something that is reviewed
every year. It is possible that in the new financial year we shall
have something different. I do not think that there is anything
61. You said that there was no disagreement
between yourselves and the Treasury on the 7 per cent target.
Does that apply to the 14 per cent target for the previous year?
(Mr Holmes) I am trying to think back. I would not
say that there was any major disagreement between us. We would
have felt it was a tough target to reach in the middle of our
investment programme. There was no formal protest or anything
62. Does the Treasury lay down a target and
you, on the whole, lamely accept it or do you start by suggesting
(Mr Holmes) We produce our corporate plans. The process
of corporate planning is carried out annually, but on a rolling
three-year basis. Our corporate plan looks three years ahead,
but the main detail is done in year one. If the Treasury want
to set us a three-year target they have three years to look at
in our corporate plan. We start off with a corporate plan that
says, "Here are the forecasts", and then we talk to
the Treasury from there.
63. If we were to apportion blame about missing
targets, would it be fairer to blame you or to blame the Treasury?
(Mr Holmes) It is fair to blame me or the Mint. I
am not trying to blame the Treasury for anything. We take responsibility
for our performance against target. Once the target is set that
is it and we have to deliver. In most years we have delivered
on such targets.
64. That is not quite what I asked. I was asking
you about the setting of the target. If that is grossly wrong,
is that your fault or the fault of the Treasury?
(Mr Holmes) As I said earlier, I do not seek to suggest
that any of the targets were unrealistic at the time that they
were set. I do not think that the Minister took a totally unrealistic
65. Previously you referred to the fundamental
changes to the Mint, as the Economic Secretary described them
in July 1999, as designed to "maximise its value as a business
and its contribution to the UK economy". In light of the
previous line of questioning by Mr Fallon and Mr Kidney, how far
do you believe you have come? What have you done to try to achieve
those matters and what progress have you made?
(Mr Holmes) As far as the Treasury statement of July
1999 is concerned, the relationship between ourselves and the
Treasury has changed quite significantly into a more arm's length
shareholder relationship and our corporate governance has been
upgraded. The Treasury has the Shareholder Panel to advise it
and we have additional non-executive directors on our board which
has been helpful. Among other changes that we have not talked
about so far that the Treasury gave to us in that statement was
the additional commercial freedom to extend our business beyond
coins and medals. We have now decided to extend our product range
into non-coin gifts and collectibles, products that are of a high
quality and which are consistent with the Royal Mint brand. That
is a significant shift in our business, to a broader product range,
potentially to a broader customer base and it gives the Mint an
extension to its already profitable collector coins business.
That is an interesting shift in the emphasis of the Mint that
we have begun to implement. There is much more to do. We have
approached this matter cautiously and we have laid down our plans
to roll out a much bigger range of products.
66. The purpose is to maximise your value as
a business and your contribution to the economy. Do those kinds
of changes go as far as you would wish to go? Do you think that
they are likely to meet that target? How long will it be before
you feel the full effects of the new commercial freedoms?
(Mr Holmes) So far as maximising the value of our
business is concerned, and the effect of the new commercial freedoms
on that, the development of this non-coin gifts and collectibles
activity is seen as a five-year plan in which this is year one.
The development will be gradual but it will increase substantially
the scale of our collector coins business and ultimately improve
profitability. In the short term, we are having to invest in promotional
expenditure, so the effect in year one will be neutralneither
profit nor loss. As we go forward, we expect a substantial increase
in the value of our business from that. As far as the value to
the economy is concerned, the Mint's whole business is a contributor
to the UK economy, not only in terms of what we do ourselves,
including our export business, but also in terms of what we buy
from local suppliers. With the extra business from non-coin gifts
and collectibles we shall source quite a lot of product from other
suppliers as well as producing ourselves.
67. What kind of products are they? What volumes
do you have and who buys them?
(Mr Holmes) There is quite a mix. We are still feeling
our way in this matter by trialing products to see what works.
We have already started to produce some jewellery with a Mint
connection. We try to make our products as closely as possible
related to what the Mint does or to the heritage of the Mint or
to things that the Mint commemorates through coins or medals.
We have introduced some jewellery, silver salvers, trinket boxes,
watches and time pieces of various sorts.
68. That does not actually fall within the statutory
backing for what you can do. As I understand it, this went through
on a vote, but it is not within your statutory remit as the Royal
Mint. Is that correct? Should there be statutory backing? How
far can you go down this list of things in relation to extending
your commercial business?
(Mr Holmes) The range of products that we can produce
within the Trading Fund Order 1975 is described as the manufacture
of coins and medals and operations conducive to those. This additional
vote that we acquired at the end of last year, which gave us the
ability to extend our product range, was very widely drawn. The
words were, "to enable the development of the Royal Mint's
commercial operations aside from the manufacture or supply of
coins and medals".
69. Do you think that it is right for a state-owned
Mint to get into that area of production? How far can you go before
it becomes a commercial trinket business which would not be appropriate
for the Mint?
(Mr Holmes) The vote is a temporary situation. The
ultimate objective is for the Treasury to amend the Trading Fund
Order to define what extra products or what extra activities we
can carry out in addition to the coins and medals and related
work. According to the statutory position, you cannot extend the
remit of the trading fund unless the activity has been carried
on already. We have to put these additional activities on a vote
for a certain length of time. I believe that the minimum is about
six months before the Trading Fund Order can be amended. I believe
that when the Trading Fund Order is amended there will be a slightly
narrower definition of what we can do instead of this wide definition
in the vote. That will be based on the experience of how we shall
operate. I want to emphasise that our objective is not to sell
everything to everybody, but it is to supply products and services
that have a link to the Royal Mint and which are consistent with
the high quality of the Royal Mint brand.
70. In relation to some of your traditional
productsI refer to things like the OBEs and the MBEswhat
proportion of them do you produce? Is there any reason why you
cannot win 100 per cent of the tender for that work?
(Mr Holmes) There are a number of other private sector
medal producers in the UK who are rather smaller than we are.
Normally those medals go to tender, not necessarily every year
but every three years. We tend to have the bulk of the military
business at the moment, but we have a lower proportion of the
civil awards. That is simply as a result of the last round of
tenders. Each time there is a tender process we go for them and
whether we win tenders or not depends on the price that we quote
and on certain other factors. We would like to have all the medal
business that we can, but we do not expect to have a monopoly.
71. On the non-coin gifts, the position seems
to be that you have a well-established monopoly in coins and blanks
which you have enjoyed for years. You employ a thousand people;
you have sales of £95 million, but you are making virtually
no profit at all and you are asking Parliament for permission
to make trinkets in competition with private businesses. Is that
(Mr Holmes) As I have suggested, our collector coins
business is profitable anyway and there is no suggestion that
we are cross-subsidising from other parts of our businesscirculation
coins and blanksin order to compete unfairly. In this marketplace
it is simply a question of what product you can generate which
will be of interest to the consumer and good value. I do not believe
that there is any possibility of our competing unfairly with the
private sector in this kind of area.
72. Does the state set up the Royal Mint to
(Mr Holmes) We are not saying that we are going to
turn over all our business to that. We are saying that it is a
natural extension of our business. We have a large mailing list
of people who could be interested in things other than coins and
medal products. We have a good reputation in the marketplace and
we want to offer a broader range of products where we feel that
the Royal Mint brand can make a difference.
73. As I understand it, in some cases you are
not even making the trinkets, but you are buying them in and retailing
(Mr Holmes) That is right. In some cases we make them
ourselves, or make part of them ourselves and in other cases we
buy them in. Normally we will do that in a co-operative venture
with a private-sector supplier who will benefit from that extra
business. We are co-operating with people like Wedgwood, Edinburgh
Crystal and Caithness Glass. The benefit to them is that they
get access to our mailing lists for the things that they make.
74. There may not be a logical relationship
between the product that you retail on behalf of someone else
and your own business?
(Mr Holmes) There will be a relationship, either in
the type of product that we produce or the fact that it may have
a coin or medal embedded in it or it relates to a commemorative
theme that we shall be promoting because we have a coin to commemorate
that particular event.
Judy Mallaber: What is the limit in relation
to that. Do you think that you can produce or supply anything
that has a Royal Mint logo or an object with a coin in it?
75. Perhaps you could sell chocolate mints?
(Mr Holmes) I think the limit will be a natural one.
If something is consistent with a high quality brand like the
Royal Mint or we have the expertise to do something ourselves
in terms of marketing, I believe that will set very tight limits
which suggests that we shall not turn our whole business over
76. I have a high quality chocolate maker in
my constituency. You could enter into an arrangement with them
to produce Royal Mint chocolates. Is there any reason not to do
that? I might suggest it to them.
(Mr Holmes) We are not trying to produce products
that are the same as anyone in the private sector is doing. We
are trying to do something a little different that has a Royal
77. What options for forming partnerships with
the private sector have you explored? What kind of relationships
are you looking towards? Have you joined any such partnerships?
(Mr Holmes) We have not made any new major partnerships
with the private sector since the Treasury announcement of July
1999. We already had a number of partnerships, including a consortium
relationship with De La Rue and Birmingham Mint. As I have already
mentioned, on some of the new non-coin products, we are entering
into commercial deals with private sector suppliers who are producing
products for us or co-operating with us on joint products. Those
kinds of relationships may develop into something a little bigger
in terms of a joint venture in time. We are not constrained any
more in terms of how those relationships may develop over time.
78. Do you see any potential dangers in developing
those kind of relationships? I note in a memorandum from the unions
that they are obviously still anxious about the potential of the
wholesale privatisation of the Mint, although up to now it has
been discussed and rejected. They also specifically refer to difficulties
in relation to security, given the kind of work that you carry
out. Are there any similar dangers in going, not totally down
the privatisation path, but in going into greater commercialisation?
(Mr Holmes) I do not believe that there are any particularly
major security considerations in joint ventures of the kind that
we are talking about. As far as privatisation is concerned, the
next review of the Royal Mintgovernment agencies have regular
reviews of their statusis scheduled for 2003/4. There is
no immediate plan, that we are aware of, to look at that in the
immediate future. We believe that we are comfortable co-operating
with the private sector and we believe that we can develop that
without prejudicing any future discussions about ownership at
the next review.
79. Looking at the structures, in your memorandum
you refer to the responsibility of your new non-executive directors
as "contributing to the enhancement of the Royal Mint's business
over time", which is a rather vague phrase. Can you be more
specific about what you had in mind and how you think they will
(Mr Holmes) That was the Treasury's statement, and
the reason for that was to distinguish the position of the Royal
Mint non-executive directors from the members of the Shareholder
Panel. What was said there was that the Royal Mint executive directors
are part of the Mint board and their objective is to help us maximise
the business, whereas the members of the Treasury Shareholder
Panel are to advise the Treasury on being a good shareholder.
Prior to that, the Royal Mint non-executive directors had a dual
remit, as they were also in the position where they could advise
the Treasury. The feeling was that they were playing two roles
when it would be better to concentrate on one.