Supplementary memorandum submitted by
POST OFFICE EXTERNAL FINANCING LIMIT AND
The Post Office became a public corporation
in 1969. The telecommunications business was separated from the
organisation in 1981. From then until March 2001, the Post Office
was a public corporation. In March 2001, the property, assets
and liabilities of the Post Office were transferred to Consignia,
a publicly owned plc.
While the Post Office was a public corporation
control of its expenditure was through a limit on the company's
requirement for external financing of its activities - the external
financing limit (EFL).
Since 1981 the Post Office generated post-tax
profits every year. Following discussions with Government on its
cash requirements it was set a negative EFL under which it was
obliged to invest a proportion of the profits that it generated
predominantly in gilt-edged stock or National Loan Fund (NLF)
deposits. The table at Annex A sets out details of the
The gilts and NLF deposits are separately identified
on the company's balance sheet. At September 2001 these totalled
£1.816bn. The company received interest on these holdings,
which was reflected in its profit figures.
In March 2001 the Post Office became a publicly
owned plc, Consignia. The regime outlined in the White Paper,
"Post Office Reform", was for the company to pay a commercial
dividend to Government. The Postal Services Act, which gained
Royal Assent in July 2000, removed the previous constraints on
such a dividend payment. The dividend payment is currently set
at 40% of expected post-tax profits and subject to a floor (90%
of the expected dividend).
No payment has yet been made for this (2001-02)
financial year (we would not expect payment until after the end
of the financial year), and Consignia have indicated that they
will formally writing to Government requesting that the dividend
for 2001-02 and 2002-03 is waived. This request is being considered
in the context of the 2002-03 strategic plan and the review of
Consignia's capital structure.
Transitional period 1999-00 and 2000-01
During this transitional period to plc status,
following the Secretary of State's statement in December 1998
and the publication of the White Paper in July 1999, the level
of EFL was set on a dividend basis. In practice the Post Office
invested the equivalent of a commercial dividend for these
two years in NLF deposits. As with previous EFLs, these remained
on the organisation's balance sheet and there was no expectation
that they would be paid to the Government while the organisation
remained a public corporation.
For 1999-00 the Post Office was obliged to invest
£151m in NLF deposits and for 2000-01 the Post Office was
obliged to invest £93m.
Consignia have indicated that they would like the
Government to waive the "dividend" payment for 1999-00
(£151m) and 2000-01 (£93m). This would mean that Consignia
would be allowed to retain the £244m in the business.
As with the request to waive the 2001-02 and 2002-03
dividend, Government is considering this in the context of the
2002-03 strategic plan and the review of Consignia's capital structure.