House of Commons Trade and Industry Committee Crown Post Offices

Third Report of Session 2004–05

Volume II

Oral and Written Evidence

Ordered by The House of Commons to be printed 20 December 2004

HC 91-II Published on 10 February 2005 by authority of the House of Commons London: The Stationery Office Limited £14.50

The Trade and Industry Committee

The Trade and Industry Committee is Evointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry.

Current membership

Mr Martin O’Neill MP (Labour, Ochil) (Chairman) Mr Roger Berry MP (Labour, Kingswood) Richard Burden MP (Labour, Birmingham Northfield) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Jonathan Djanogly MP (Conservative, Huntingdon) Mr Nigel Evans MP (Conservative, Ribble Valley) Mr Lindsay Hoyle MP (Labour, Chorley) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Linda Perham MP (Labour, Ilford North) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine)

Powers

The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publications

The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/t&icom.

Committee staff

The current staff of the Committee is Elizabeth Flood (Clerk), David Lees (Second Clerk), Philip Larkin (Committee Specialist), Grahame Allen (Inquiry Manager), Clare Genis (Committee Assistant) and Joanne Larcombe (Secretary).

Contacts

All correspondence should be addressed to the Clerks of the Trade and Industry Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected].

Witnesses

Tuesday 16 November 2004

Mr Peter Carr, Ms Kay Dixon, and Mr Ian Fisher, Postwatch Ev 1

Dr Peter Skyte, Ms Olivia Fitch and Mr Phil Pinnell, Amicus-CMA Ev 7

Mr Billy Hayes and Mr Andy Furey, Communication Workers Union Ev 10

Tuesday 30 November 2004

Mr Allan Leighton, Sir Michael Hodgkinson, Mr David Mills and Mr David Miller, Post Office Limited Ev 15

Tuesday 14 December 2004

Mr Gerry Sutcliffe MP and Mr Nigel Leese, Department of Trade and Industry Ev 32

List of written evidence

1. Post Office Ltd Ev 44 2. Post Office Ltd Ev 54 3. Post Office Ltd Ev 54 4. Post Office Ltd Ev 55 5. Department of Trade and Industry Ev 60 6. Communication Workers Union Ev 62 7. Communication Workers Union Ev 69 8. National Consumer Council Ev 70 9. Postal Services Commission Ev 71 10. Postwatch Ev 73 11. Postwatch Ev 90 12. Amicus-CMA Ev 93 13. London Borough of Camden Ev 97 14. Manchester City Council Ev 99 15. Royal Borough of Kensington and Chelsea Ev 100 16. Councillor Pat Mason, Royal Borough of Kensington and Chelsea Ev 100 17. North Kensington and Notting Hill Post Office Closures Action Group Ev 101

Trade and Industry Committee: Evidence Ev 1 Oral evidence

Taken before the Trade and Industry Committee

on Tuesday 16 November 2004

Members present:

Mr Martin O’Neill, in the Chair

Judy Mallaber Sir Robert Smith Linda Perham

Witnesses: Mr Peter Carr, National Chairman, Ms Kay Dixon, Chairman, Postwatch Greater London, and Mr Ian Fisher, Senior Director of Network Policy, Postwatch, examined.

Q1 Chairman: Good afternoon. If any member of that activity because these are all urban post oYces the Committee starts asking questions about matters and, therefore, if you revised and restructured the other than the Post OYce, it is just that this is the urban network, then this should have been included third separate hearing we have had today and the and indeed they were cited in nearly all of the plans. fourth one is tomorrow morning, so if somebody I have a figure here that says of the 1,100 branches starts asking you questions about Jaguar, it is first closed, 425 out of the 550 Crown oYces were because they are reading tomorrow’s brief and they cited as being receiving branches that would remain should not be! You are no stranger to the to take up the footfall of those urban sub-post oYces Committee, Mr Carr, but could you maybe that were going to close, so it is something of a introduce your colleagues? surprise now that we should be looking at the Mr Carr: Yes, on my left is Kay Dixon, who is the potential disposal and even closure of some of these Chair of the Greater London region and on my right post oYces against that background and we think is Ian Fisher, who is the senior Director in charge of that that is rather remiss. Anyway, it is timely that the network businesses. this is happening because the uncertainty that is created by this within the post oYce network is shared both by the customers, but also by the V Q2 Chairman: If I could maybe start o with the potential sub-postmasters who might come into the Y timing of Post O ce Limited’s review, over the years industry and we understand that it is proving to be I think it is fair to say that you have hammered the quite diYcult to get people into the industry because Y Post O ce and Royal Mail for the losses that they of this uncertainty. To answer your question have made, but, on the other hand, on this occasion directly, we do not know how long it will take, but it you are saying that if there are to be savings, they is something that is now urgent and will only come should be achieved over a longer period and you say out of the fact of having an overall strategy for the that a longer period will allow not only the savings whole organisation. perhaps to be made a little more gently, but also to have the new products in place so that they are able to make some kind of impact. How much more time Q3 Chairman: You have just mentioned there the do you think Post OYce Limited needs to get the fact that we have had Urban Reinvention, and we Y balance right between new products, a more eYcient have had the rural post o ce reviews, but to what network and probably at the end of the day some of extent have you been involved in, shall we call them, the reforms that they are advocating? the DMB network review? What has been, as the Mr Carr: Well, I think that it is probably consumer watchdog, your involvement in this? appropriate to answer that question by saying that Mr Carr: In the directly managed branches? we do not know because, in the absence of an overall strategy for the organisation, and by Q4 Chairman: Yes. “organisation”, I mean the Crown oYces, it is very Mr Carr: Well, very little at all because up until now diYcult to understand how one can apply timing to the only involvement has been governed by a code of this sort of thing. The background that you have practice which is way out of date and maybe the described of our criticisms of Royal Mail generally, Committee should understand that although we had it is now back in profit and our understanding is that a process that we agree with POL to deal with the the group will make something in the region of £400 contested urban closures, which included an appeals million profit this year overall, despite losses that process, this has never applied to the directly will continue in the Crown oYces and the POL managed branches. In other words, the only rights business. However, I think the important thing here that we have as the consumer body are to be notified is that we have been surprised by the fact that there four weeks in advance of a closure and to be has been no overall strategy for the Crown oYces consulted, but we have no right of appeal. There is simply because we have gone through two years of no process, such as we had under Urban the Urban Reinvention programme and it would Reinvention, which was a three-stage appeals have been appropriate to include Crown oYces in process. Once the consultation has taken place for Ev 2 Trade and Industry Committee: Evidence

16 November 2004 Postwatch four weeks, the decision is then made and it is branch per week. This is way, way above the footfall interesting to note that never have we ever been able on average to the rest of the network. They are to reverse or influence a decision on a Crown oYce. critical, they are key to the customers because they We were able to change the decision on 145 of the are large, because they are well located and very sub-post oYces proposed under Urban Reinvention prominent in the high street, so it is absolutely and we influenced the outcome of some 450, but fundamental that these services are preserved in every time we tried to change the decision or some form or another. Now, in relation to your influence the decision on a Crown oYce, we got question, the Government owns these and they do absolutely nowhere. The process is out of date, it provide essential public services, such as, with every does not work and something has got to be put in Crown oYce you can get passport vetting, you can its place. get DVLA car tax discs and so on, and everybody knows that they provide the full range of public Q5 Chairman: As I understand it, Post OYce services, yet the Government owns them through its Limited, who will be coming to give evidence in due shareholder executive, but it is also the body which course, have told us that no decisions have been appoints the consumer council, appoints the made. On that basis, do you not think that there is regulator and, therefore, there is this dichotomy, this still an opportunity for you to provide some input? conflict of interest, what are the commercial interests Have you sought to have discussions with POL on that the shareholder executive wants to see and yet this issue? what are the social responsibilities because of these Mr Carr: Yes, we have done that and we are in essential public services, and how is that going to discussion with them on the subject, but I have to say equate with the demands for commercial success and we are not altogether hopeful simply because of the profitability? It is a problem and it is a problem in history and the current attitude. They are proving to lots of other areas within the postal sector, but, to be very diYcult people to deal with in this respect me, it is a conflict of interest and the Government and their argument is, “These are owned by us and wants post oYces to be used as an agency, for people our first obligation is to our employees”, which we to access these essential services, and if it does that, fully agree with and we understand, and, “Of course then it has got to pay a commercial rate. these are matters of commercial confidentiality”, which is something which we do not accept. These Q7 Linda Perham: You say they do 25% of the businesses are in public ownership, they provide business, but they are losing £70 million a year, so essential public services, they are owned by the presumably that is why the Post OYce wants to Government and there appears to be some conflict address the problem. of interest there, but I think we were mildly rebuked Mr Carr: Yes, I accept that and we are not in any in your Report on Urban Reinvention for not way suggesting that this activity is anything other having enough influence or not exercising enough than necessary. However, there is too much focus on influence. We take that on the chin because we loss. Losses occur for lots of diVerent reasons, not respect this Committee and its judgments, but we least poor management, but what we do know is that would like to have a lot more influence and certainly, many of these buildings which are occupied are far as we sit here today, we do not have the authority or too big, POL has inherited them because previously the power to insist that proper procedures are put in they were sorting oYces and they are occupying place with the right of appeal and ultimately, we space that they do not need, there are upper floors believe, the right of veto. that are not being used, yet they are being charged a Chairman: Well, I think that is quite a clear Y impression. We are going to be talking to the unions commercial rent, in the case where the Post O ce and we will get the degree of consultation that they owns it, by their own masters. The sensible thing to have enjoyed with management, but we will move on do is, if necessary, to leave these buildings, but in to that slightly later on this afternoon. exchange for an adjacent building at lower rents of the precise size that is necessary to provide the service, so losses can be reduced by modernising the Q6 Linda Perham: In one of your recommendations, business, introducing new products, but also by number 10, you say that the Government should occupying buildings which are appropriate for the identify a body with the authority to veto a closure, purpose. and you suggest possibly the Minister for Postal Services, Postcomm or a third party appointed for the purpose. Does that not conflict with the Q8 Linda Perham: And Post OYce Limited have Government wanting to allow the Post OYce to told you that they intend to reduce the number of manage the business? directly managed branches to a sustainable network Mr Carr: Yes, I do believe that there is a conflict of of between 320 to 390 oYces over the next five years. interest here. If I could just make one point for Do you have a view on that figure? Is that too many emphasis, the importance of Crown oYces vis-a`-vis or too few? the whole of the network and sub-post oYces in Mr Carr: Once again I think until we get a strategy, particular; there are 555 Crown oYces and they and this is one of the reasons we welcome this represent about 3% of the total network number of investigation because at least you are forcing a outlets, but they do 25% of the turnover and they strategy out of a business which should have had one have approximately 7 million visitors a week, and already, it can only come out of that strategy. that is an average of about 12,700 customers per Whether the methodology that is applied is either to Trade and Industry Committee: Evidence Ev 3

16 November 2004 Postwatch close or to franchise or to relocate, that must be a primary obligation should be on POL to replace that decision for the management. Their job is to produce franchisee within the timescale of the notice period break-even or profits, they must be free to manage and, if not, that they should then run the branch or the business and if the Government wishes to impose provide alternative facilities immediately as a result impediments on them, such as the essential public of their primary obligation. services, then they have got to pay for that, but it must be up to the management to decide how to do it. The most important thing from a consumer point Q11 Sir Robert Smith: Presumably that is one of the of view is that there is continuity of provision of the dangers with franchising because if you franchise services in the areas where they exist today. into what is a supermarket and then the owner of the supermarket decides to use the space for something Q9 Linda Perham: Going back to the numbers else, suddenly you have not got a location for the involved, the company has told us that it does not post oYce to walk into to keep the service going? mean 165 to 235 closures and that it anticipates no Mr Carr: Yes, indeed. Kay is an expert on this, so more than a handful of closures next year. In fact I can I ask her to come in here? think we have had a letter saying that they only Ms Dixon: I do not claim to be an expert, but there anticipate five or six. That does not seem are just a couple of cases current in London at the reconcilable really, that number of hundreds moment which are worth looking at. One is in involved with saying there are only going to be a Romford and the other one is in Wembley. In the handful of closures next year. Do you think such case of Wembley, that is currently located in a large-scale closures are actually avoidable? Primark store and Primark have given notice1 that Mr Carr: Well, I keep going back to the strategy. I they wish to go some months ago now. Post OYce was surprised when I read only five or six next year. Limited, despite a great deal of searching, have not That sort of begs the question of how many in the been able to come up with alternative premises or years after that, but I think they are very sensible in indeed an alternative partner, which is the important their wording. They refer to disposals rather than part obviously in a franchise. Primark have agreed closures and I think in the collective noun of to a six-month extension, so that post oYce will now disposals, the idea is that they have an option either stay open until next March. In Romford, the to close a branch, relocate it and keep it under their franchised post oYce just closed2 with very little own management or to franchise it. We have some prior warning and there just is not a franchised oYce concerns around all three of those, but nevertheless, in the main part of Romford now, so although we it does give them a range of options and it gives them have all along taken the view that a franchised post flexibility. oYce is better than no post oYce at all, we are beginning to have concerns, first of all, of the ability of the Post OYce to get into long-term partnerships Q10 Sir Robert Smith: Could we move on to some of with people who want to be in business with them, those concerns because you are not opposed in and the fact that they have been searching for a principle to franchising, but you are concerned partner in Wembley for all these months is about its sustainability, particularly in the light of concerning, to say the least, and, secondly, there is a what has happened with some supermarkets having certain amount of evidence that comes to us, mainly taken on a franchise and then abandoning it. You anecdotal evidence, but it comes up time and time are suggesting in paragraph 3.14 of your submission again at public meetings, that members of the public that the Post OYce should take them back into do actually prefer using directly managed branches direct management if a franchise fails. Is that what to using franchised branches. I think I would you envisage in that situation? How do you envisage perhaps sum it up as having a greater degree of them coping when a franchise fails? confidence in the service that they get from the Mr Carr: Well, there are a number of instances directly managed branches, although, as I have said, happening right now and in a minute Kay Dixon will our policy at Postwatch has quite firmly been up give you some examples, but we did float this one until now that a franchised oYce is better than none past you in one of our previous meetings in relation at all, although we have now got some concerns to Urban Reinvention because, as you know, we about it. were not happy with the selection for closures as it was all done on a volunteer basis. We believe that that has left gaps and bigger gaps will occur through Q12 Sir Robert Smith: And your research from force majeure closures, and we felt it was important MORI, will that be published for public reading in that there was an obligation on the Post OYce that December when you research the views of the public if they had closed the wrong branches or there were on the diVerent ideas? gaps in the market, then they should have an Ms Dixon: Indeed. Well, we can supply it to the obligation to fill them. However, having told you Committee probably sooner than December. how important these Crown oYces are, they are Mr Carr: This afternoon! absolutely vital to large numbers of people, 7 million people a week, and this is not something that can be 1 Postwatch believes this was late 2003, we became aware of glossed over, so our view is that if franchisees the end of the end of the agreement in January 2004. ultimately fail or choose to withdraw, then the 2 This branch closed in March 2004. Ev 4 Trade and Industry Committee: Evidence

16 November 2004 Postwatch

Q13 Sir Robert Smith: That would be helpful. OYce does not want to run them, I think we have got Ms Dixon: We have got the headlines. a problem until we can confirm whether the private Mr Carr: We will share it with POL tomorrow. sector is prepared to take on the risk.

Q18 Chairman: Before we leave the franchising, Q14 Linda Perham: Just on a point of information, there was one thing I just wanted to check. Am I if a directly managed branch becomes a franchise, is right in assuming that the arrangement, and we will it always a part of some other business—a grocery take it up with Post OYce Limited later, is that if store or something—or are there ones which are they decide to close a Crown post oYce and they transferred as they are and run by someone other Y approach someone else and say, “Do you want it?”, than the Post O ce? does money change hands? Is there a written Ms Dixon: No, my understanding is, but clearly the agreement? Is there an undertaking to keep the Y Post O ce will give greater clarity on this, that it just business going for so many years? Is there a penalty would not be a viable proposition for a franchisee to if they chuck in the towel early doors? What V take on something without any retail o ering. They happens there? Y support each other; the Post O ce brings footfall Mr Carr: There is a franchise arrangement which is V V into the retail o ering and the retail o ering documented. I have to say that I have never seen one, probably to a certain extent cross-subsidises the post but I would imagine that it does involve a fee, it does oYce counter, so I do not think it is possible to have involve notice periods, it does involve penalties, or it a freestanding franchise, no. should anyway, and my understanding is that they are normally for a period of seven years and they Q15 Sir Robert Smith: You already mentioned that a cannot be given up during the period of those seven lot of business goes through these directly managed years. There is a notice period at the end whereby they have to notify POL that they do not intend to branches. In paragraph 3.6 of your memorandum, renew, but I understand that there is no right of you make reference to the amount of business withdrawal during the seven years. transacted should not be any less than 15% of the total of the network as a whole, which I think stems back to the Government’s White Paper in 1999 and Q19 Chairman: I think what we are talking about in an agreement with the unions. part here is where there have been chains, and they Mr Carr: That is correct. are not always directly managed shops, but where there have been chains of convenience stores that have perhaps been bought over by a larger player, Q16 Sir Robert Smith: Is that a sustainable way of Tesco, for example, or the Co-op, when they have managing a commercial organisation to put that in? inherited a post oYce and if there was only a year to Mr Carr: I will ask Ian Fisher to come in on this in go, then after 12 months they could shut it down. a minute, but the short answer is that we think it is Would that be your understanding of it? irrelevant, the commerciality of the organisation, its Mr Carr: These are not franchises, but sub-post drive to be successful, and I should say there are a lot oYces. of new initiatives which are being successful, particularly in the case of the directly managed Q20 Chairman: But there are instances, are there oYces, but it seems to me totally irrelevant now. not, where Crown post oYces have gone into Mr Fisher: In a sense it is a bogus statistic. For convenience stores and they have been closed example, you could shut every Crown oYce in because the new owners of the chain of convenience London and you could still achieve 15% of the stores have decided that they could use that space business going through the directly managed more profitably? Now, would it not be the case that, network, but you would actually leave the whole of perhaps in the franchising agreement, if the owner London bereft of any Crown oYces. So whilst it changed, then the clock would start again? might be quite useful as an indicator of a floor below Mr Fisher: My understanding, and I think you will which the Post OYce should not go, I think there need to check the detail with Post OYce Limited, but needs to be something in tandem or on top which when they are oVered a franchise contract, it is for a says that in certain types of areas if there are not minimum of seven years and the expectation is that suitable post oYces to provide the services, then the they will continue until the end of that period and directly managed branches should continue. then they would have to take a decision whether to renew or not, so I suspect that some of the franchise contracts which have been let over the last seven Q17 Sir Robert Smith: Is this where you talk about years, as they come up for renewal, we will see certain core locations for directly managed whether the partners want to continue. We are aware branches? that with the consolidation that has been going on in Mr Fisher: I do not have a ready answer for you on the high street with the convenience oVerers, the that at the moment, but I think there needs to be policy decision taken, and you mentioned Tesco’s, some work about defining what sort of areas. What but there are others, is that they do not see a post we want to see is a presence on the high street, I think oYce as a particularly lucrative business to continue that is crucial to people, and not everybody can running, so we think there is a risk that when these conveniently access a suburban post oYce, so there renewals come up, we will not see such certainty need to remain high street branches. If the Post about the franchised operations continuing, hence Trade and Industry Committee: Evidence Ev 5

16 November 2004 Postwatch our recommendation that if that happens, in order Q23 Judy Mallaber: You also gave us the example of to weigh customer interests, the Post OYce ought to the case that you made for retention of the Notting have an obligation to maintain the service in the Hill branch to Post OYce Limited. What has the area, perhaps only on a temporary basis until they company’s reaction been to that and to the find somebody else to take on the franchise. representations that others made, including the local authority? Mr Carr: I will ask Kay to answer that because she Q21 Judy Mallaber: You talked earlier about led the campaign in conjunction with Tony Benn. consultation, but could I just clarify that where Post Ms Dixon: Notting Hill was a very interesting case OYce Limited say that quite clearly the act of because everybody was absolutely in agreement conversion, as such, is not a matter of consultation, there, the Member of Parliament, the local and they say this very firmly, that it is up to them as authority, the local action group which was set up to how they deliver their services, whether directly or very rapidly and very eYciently, and Postwatch. We through agents: do you accept that argument at all? were all of the opinion that the Notting Hill Crown Mr Carr: No, but what we do understand is that they oYce, a directly managed branch, should not close. are in charge, it is their business, and if they decide Frankly, it all got oV to a bad start right from the to make that conversion, then that is based purely on word go because the consultation was during July a commercial decision and there is very little that we and August and any of you who know anything can do about it. It is the substance which occurs after about Notting Hill and Kensington will know that that in which we are involved. In other words, they on the whole it is pretty empty during July and say, “We will make this conversion because that is August, so that went down badly to start with, so the V our right to do so and we will consult you about the whole thing really got o to a bad start. The local detail afterwards”, but it is a very perfunctory authority were not consulted at an early stage, which arrangement which does not go into any sort of is something we have asked for for some time now, detail and we have no rights or powers during the but this is not happening. Everybody was against course of that process. Furthermore, there is no right this closure, particularly local businesses, and it is a of appeal beyond that. If we do not agree with them, thriving area, Westbourne Grove. It is not the main the final decision is theirs and we cannot appeal to Notting Hill shopping area, but it is still a primary anybody. shopping area with a lot of small businesses and shops all the way along Westbourne Grove and down the side streets. The point that they make is that as the post oYce was closing, and it is now Q22 Judy Mallaber: I take it you think, on the closed in fact, with the closure of this post oYce it question of consultation generally, that there should was going to aVect their working patterns. Whereas be no diVerence at all between consultation on at the moment, they can put up “Back in five Crown post oYces and consultation such as we had minutes” on the door and rush up to the post oYce on the Urban Reinvention programme? Can you see V to post a package to a customer or whatever it might any di erences at all in terms of the principle or the be, now they are going to have to go oV some practicalities of how that consultation should take distance across the borough to a diVerent post oYce place? and it may only take 35 or 40 minutes, but that is a Mr Carr: None whatsoever. In fact, if anything, jolly long time to leave a small shop closed, so there there should be an even more detailed arrangement. was that, the impact on local businesses. Notting It was the view of this Committee that the Hill has a higher than average percentage of people consultation period should have been 12 weeks working from home and again it has an impact on because that is a standard government thing, and we them. There is also a delivery oYce in the same agreed with that. We thought we had done well to building as the Notting Hill post oYce, so we get to eight weeks. particularly asked that a mailing facility should be Mr Fisher: I think there is a diVerence and I think it left available so that these small businesses and is the scale, that you might get a sub-post oYce people working from home could go and drop oV where a matter of hundreds of people use it, and their mail at the end of the day without having to put obviously it is very inconvenient for them if that post in the time to drive through the traYc or walk or oYce closes, where you can take a fairly quick whatever it was going to be, but that has been turned decision about how that aVects an area. I think it is down as well. The Post OYce said that, for quite diVerent where if a Crown oYce closes, that operational and other security reasons, it would not may have an impact on a number of sub-post oYces be possible, which seems quite extraordinary nearby and we, and others, I think, need time to because this is a facility that is there anyway. There evaluate what that impact would be and whether are vans and people going in and out all day, so it there is adequate service provision in those oYces, seems absolutely extraordinary that a small counter and some may need improved disabled access, they could not have been kept open at the caller’s oYce to may need extra counter positions, so I think, if provide this facility that local people had asked for. anything, there should be a longer timescale for The response to all the representations from all the Crown oYce closures. You can argue slightly people that I have mentioned was very disappointing diVerently for conversions, but I still think it is an indeed. The only small concession we got on the important category and needs to be thought through whole issue was that we managed, because of the separately. summer holiday period for example, to get the Ev 6 Trade and Industry Committee: Evidence

16 November 2004 Postwatch consultation period extended by two weeks just to them for some kind of package of support in this bring it in line with consultations that were going on case where the Crown oYces may be kept open if a in a Network Reinvention area plan for the whole closure is threatened in areas of deprivation, constituency. Very disappointing indeed was the particularly areas of urban deprivation. reaction we had and I know the local action group Ms Dixon: There are two separate issues which come were particularly upset about it. together. There is the letter we wrote to the Minister Mr Fisher: Under the Urban Reinvention about the urban deprived isolated oYces, which was programme, where an oYce is closed there is trying to clarify the Government’s policy on the Government funding for improvements to the degree of protection they wanted to oVer because of remaining oYces. That funding does not apply to the social role they provided. Some of the Crown sub-post oYces impacted by a branch oYce closure. oYces do serve those sorts of areas. Coming back to I think there is an argument that if POL are going to the earlier point, if we are looking at what are the save a couple of hundred thousand pounds a year by characteristics that determine whether a Crown closing a branch oYce some of that first year of oYce should stay open, that is exactly the kind of savings should be used as a fund to help sub- thing we would want to take into account, plus postmasters to improve the lot of their oYce. distances to alternative oYces, transport links and suchlike. Q24 Chairman: Perhaps we can mention the role of Government in this. It is a publicly owned enterprise Q28 Chairman: I think the point we will probably that is carrying this out. Have you made any reflect in our Report is that there are a number of representations to Ministers at this stage on this oYces which cater for segments of areas in which issue? there is severe deprivation. It may well be in areas Mr Carr: Not specifically on the Crown oYce issues. like Notting Hill, where you have considerable aZuence alongside considerable squalor, the degree Q25 Chairman: We know that you have made of disadvantage greatly outweighs the aZuence, representations on a number of issues, Mr Carr. even if it does not outweigh the number of people Mr Carr: We sent a letter in to the Minister on 13 concerned. The high dependence on such places is a October on some contested closures related to the matter of some significance as well. This is deprived areas and we still have not had a response. something that we are anxious to identify and if you Responses are fairly slow these days from the DTI. can point to any instances where you have seen it It would be wrong to suggest that the DTI are not that would be of assistance to us. interested in Crown oYces, but they are somewhat Ms Dixon: At the end of the Network Reinvention reticent and reluctant to get engaged in the detail and programme, which we more or less are at in Greater this has been the case throughout the Urban London, we had a meeting with all the local Reinvention programme. There was one exception authorities at which Post OYce Limited were to that and that was Minister Timms who intervened present and there were a number of in February because the Urban Reinvention recommendations that came out of it, but one of the consultation processes were not convincing key things was that were there to be any such anybody, and he was able to step in and force programme again—we did not know about what changes which did have a beneficial eVect, not looks like a fresh programme at that time—there entirely, but it was noticeable and I think we did a should be some way of looking at deprivation on a much better job as a result of it. We would welcome smaller scale than on ward boundaries. As you have that kind of interest and support because this is just pointed out and Notting Hill is a very good going to be an important thing. I go back to the example, there are some very, very poor people at point I made at the beginning which is that these the non-posh end of Notting Hill and that is oYces are not just post oYces, they are Crown common to many, many wards throughout Greater oYces and they are absolutely vital to seven million London and I am sure other cities as well and that is people a week and that is the diVerence. I would something that we have raised with Post OYce imagine that that kind of information would get Limited and it would be something for us and for them to step up to the plate and start making certain them and probably for the Government to get that this thing goes in the right direction and that involved in because there has got to be a measure means that they have got to be prepared to say what other than the index of multiple deprivation which is they want and agree that with both sides of their done on a ward basis and which is too wide a business, the shareholder, the executive and the measure for post oYces. consumer side and, if necessary, be prepared to ensure that proper rates are paid to POL for the Q29 Chairman: It begs the question why do they not services that they provide to the public. use postal districts. Ms Dixon: Indeed. Q26 Linda Perham: Did you say you had put Mr Carr: Just one final point which I forgot to make something in to them about the deprivation issue? earlier. As I said, we want to see a full operational Mr Carr: Yes, that is correct. overall strategy for the future of this network but with full consultation with the staV, the unions and Q27 Linda Perham: They did not provide a package the stakeholders, but there should be no closures of support for the rural post oYces. I am just until this Committee has finished its work on wondering whether you are envisaging appealing to Crown oYces. Trade and Industry Committee: Evidence Ev 7

16 November 2004 Postwatch

Chairman: We will bear that in mind. Thank you have any additional information you think may help very much for that. As ever, we would be grateful to us. Thank you very much.

Witnesses: Dr Peter Skyte, National OYcer, Ms Olivia Fitch, Research OYcer, Mr Phil Pinnell, Amicus- CMA Executive Committee member, Amicus-CMA, examined.

Q30 Chairman: Good afternoon, Dr Skyte. We network issue and 24 of the directly managed know you of old. We do not know your colleagues. branches are rural post oYces, the overwhelming Perhaps you could introduce them and then we will majority are in the network, there needs to be a get started. strategy. There is a diVerence between the way that Dr Skyte: On my right is Phil Pinnell who is a a directly managed Crown oYce operates and the member of the Executive Committee of the CMA way in which a franchised oYce would operate. By section of Amicus and he works for Post OYce converting it you do not necessarily replace what the Limited, and on my left is Olivia Fitch who is our Crown oYce did as a franchised operation. Research OYcer. Q34 Chairman: The companies told us that it does Q31 Chairman: Fine. Thank you very much for not mean a reduced network and that the closure of coming. Maybe we could start oV with the Network Y 165 to 235 anticipates no more than a handful of Review. Has Post O ce Limited consulted you on closures next year. Do you think that that is really the conclusions of the review of the directly managed possible if they are going to make savings of £70 branches? million on the network? Dr Skyte: It is approaching it in two ways. First of Dr Skyte: You have got to look at it over a longer all, we are involved with Post OYce Limited and period than one year. Our overall concern has been with the CWU in a review of the regularly managed with Royal Mail as a whole and its approach because branches which is mainly looking at the costs against it has been driven very much by the need to reduce a background of Post OYce Limited trying, V costs overall and to deliver a £400 million profit by e ectively under a direction from Government, to Y remove the losses of the last four years. Secondly, we the end of March 2005. In terms of the post o ce are involved in and are consulted over every change, network element of that, it may be that there will whether it is a closure or whether it is a proposed only be a small number closed in the next year, but conversion to a franchise, in respect of individual to get to a stage of eliminating the whole of the £70/ branches. I think the problem is the two things do £71 million deficit over the next four years may not mesh together. We believe there needs to be a require more than that. The other side to it is what coherent approach taken to the whole of the service you get coming out of that and this is the network, particularly the urban network, rather conflict between the role of Government and the role than looking at it in a piecemeal fashion. The point of Royal Mail as the overall holding company of Y we have made, as your Committee did in its Seventh Post O ce Limited and having to deliver profits and Report, is that the review of the directly managed financial targets and a public and community Y branches is approached separately from the review service. I think you should ask Post O ce Limited of the Network Reinvention programme and the what it is going to mean over the four years. two things should be looked at as a whole. Our concern is that this will be driven purely by financial Q35 Sir Robert Smith: You have already mentioned costs or by property considerations to do with the your view on franchising is the risk that the ease of disposal or the transfer of a lease coming up franchisee can lose interest, but you have also rather than any coherent view of the whole of the suggested that maybe you do not get quite the same network. range of services from a franchisee. Does franchising play any role at all in plugging the gaps in balancing Q32 Chairman: The conclusion of the company’s the directly managed Crown oYces? review as we understand it is that a core network of Dr Skyte: Over the last ten or 15 years there has been 320 to 390 branches would be sustainable. What is a reduction in the number of directly managed your view of that picture? oYces of around 800 and a substantial proportion of Dr Skyte: That review has yet been concluded. those have been converted to franchises. We have two considerations: one is as a union representing Q33 Chairman: I am using the expression that this our members employed and, secondly, as a union might be what they will end up with. with a wider public remit of looking after our other Dr Skyte: That appears to be the directional members who use the services. In terms of the thinking of Post OYce Limited. Our view is that position of our own members, in the past we have there is no definable number. What there ought to be been able to accommodate securing the future of our is a coherent view. There needs to be a joined-up members either by people accepting voluntary policy to provide an integrated and sustainable redundancy or being redeployed within Post OYce network and a particular strategy in place to deliver Limited or the wider Royal Mail organisation, but that rather than it being driven by pressures on that is going to be much more limited in the future, individual oYces. Whilst this is largely an urban not least because of the loss of 3,000 managerial Ev 8 Trade and Industry Committee: Evidence

16 November 2004 Amicus–CMA positions. Secondly, we may be reaching an early Q37 Linda Perham: Looking at operational end in so far as it is possible to see a straight eYciency, one of your submissions says that you conversion because it is usually the case that if you think DMBs lack managerial resource and you convert a directly managed branch to a franchised mentioned 3,000 managerial jobs had been lost operation you lose a number of counter positions within the Royal Mail Group. Are most of those in and ultimately that means there are less people post oYces or are they spread across the group? serving and you get longer queues. The people in Dr Skyte: They are spread across the group. There post oYces are going to be responsible for moving would be fewer within Post OYce Limited than there from a transaction-based process to one of a sales- have been on the letters side because the letters side is based organisation and ultimately you need people a bigger business. Our view, unlike First World War in place to do sales. If you change an oYce from generals, is that it is not about fighting the last battle, being a directly managed branch to being a whether it is over post oYce card accounts or it is franchised operation, not only will you have to over the change to direct payments, although the queue longer because of fewer positions, but there way that has been handled we can comment and are fewer staV to be able to generate the sales of new criticise, but it is how you move forward to the future products and services which are absolutely critical to that is as important if not more important. The role the future success of the post oYce network. of managers is critical in changing it from being a transaction based organisation which is reactive in the main to one that is going to be sales orientated and that is going to be proactive and the managers are critical in that. Managers are paid less than £20,000 a year and they are under a lot of pressure. Q36 Sir Robert Smith: Moving on to that second There is a need to provide a more incentivised point, obviously one way to sort out the finances the approach to managers and staV to help that. The other way is to increase the business and income that current reward schemes within Post OYce Limited is coming through the post oYces. With the changes are ineVective and that needs to change. to the way pensions and benefits are paid by the Government there has been a move to a wider use of banking by people and, therefore, where possible, a Q38 Linda Perham: You were talking about tying up in allowing people to still use the post oYce experienced managers leaving the business and high to access their bank accounts. You highlight the fact levels of stress and illness amongst post oYce that HSBC, Halifax Bank of Scotland and Royal managers as a result of working excessive hours and Bank of Scotland still refuse to let their customers you make the point that POL needs to invest in its with normal accounts use the post oYce. Can you staV. If they are losing £70 million a year through the see any way that more pressure could be applied on Crown post oYce network, how do you reconcile them? I suppose we can name and shame them now. that fact with paying more staV which would Post OYce Limited is probably trying hard to improve eYciency and help those already there with convince them of the commercial argument. the need to save costs? Dr Skyte: Yes. It has been a domino approach of Dr Skyte: I think it is quite possible to do that trying to secure agreement with the banks one by because the way to look at productivity and one, but HSBC, HBOS and RBS are the three largest eYciency is not to do it in the way too many and account for 50% of all the current accounts in employers do, which is to look at what goes in, ie the the UK. We will do what we can to try and highlight cost and the numbers of employees, but you should the eVect of this and hopefully other people will too. also look at what comes out. It is equally possible to There is a geographical dimension which I think increase productivity and eYciency and possibly some of you may be interested in which is that in either have the same number of staV or employ more Scotland and Northern Ireland various banks came staV if you are producing more revenue and, in together to form these banks and there is less of a particular, move towards new products and services choice and therefore these banks have much more of which there are some signs that Post OYce Limited a dominant role in Scotland and Northern Ireland has been starting to be successful in, for example in than they do elsewhere. What is also interesting is foreign transactions, e-top-ups and so on, because that at the same time as these three banks have not then you can actually improve productivity and been so far persuaded of the need to oVer their eYciency without necessarily seeing that as a slash customers access to accounts through post oYces and burn approach of reducing the number of our understanding is that some of them are objecting employees in general or reducing the pay and to how Post OYce Limited is going into the sale of conditions. It is a question of how much comes out financial products. On the one hand they are not and it is increasing the footfall, the number of people allowing them to access services and on the other that go through the door and the number of people they are complaining behind the scenes that this is that buy products and services rather than just unfair competition at a time when there have been carrying out transactions. One of the important over 11,000 closures of banks and building society things is investment in the network of post oYces. branches in the past and there are another 1,800 that We are opposed, for example, to going back to a five we understand will take place over the next five minute queuing indicator as a measure of years. It is critical that these banks are persuaded, performance on its own because that puts pressures encouraged, shamed, into doing the same as all of on managers and that also discourages the their competitors have done. opportunity to sell and market new products and Trade and Industry Committee: Evidence Ev 9

16 November 2004 Amicus–CMA services. Some of the initial thoughts need to be to try and provide a degree of support to those post developed because they have not necessarily worked oYces which are judged to be essential for a in the right way. Some of the new oYces in Luton particular community or the area and which without and in North Finchley in London may generate such support would either close or would have to diVerent ways of doing that. For example, rather move somewhere else. In the Network Reinvention than just having a five minute queuing time you programme when decisions were made about could split the queues so that somebody queuing up whether particular urban post oYces should close it just to get some stamps or to post a package or was based upon whether there was a Crown post something is not stuck behind somebody that is oYce within the vicinity that could be the receiving getting his Lotto, you would direct them in a branch, but if there are no directly managed oYces diVerent direction. You could increase the close by then you are left without that support. We throughput and possibly reduce the queuing time believe there ought to be consideration given to and try and become more eYcient and productive. network support through urban oYces plus also There needs to be overall a more commercially- support from other beneficiaries of the service, based approach. Building societies’ staV are clearly whether it is local authorities or third party agencies, cross-selling products more than the post oYce as happens in other countries. There is no reason branches are and there needs to be more of that. why local authority services could not be developed in a greater way through post oYce branches. In Q39 Linda Perham: Do your views on management London I do not see why people should not be able of the directly managed branches conflict with those to pay the Congestion Charge or buy Travelcards of the CWU as far as you know? from the post oYce, which currently they cannot do, Dr Skyte: The only diVerence that I saw was that we and you can have similar things in other local are not into reducing the five minute queuing time authority areas. and we put some evidence in about improving eYciency and productivity. I will just explain why Q41 Judy Mallaber: Is that what you have got in there is a diVerence. When there was this five minute mind when you talk about support from the queuing performance indicator it put incredible community in which directly managed branches are pressure on the managers because the way in which sited, that kind of revenue raising from other the Post OYce had approached it was not that they sections within that community? brought in more staV but that they had the manager Dr Skyte: Yes. spending more and more of his/her time serving on the counter which meant that they were not Q42 Judy Mallaber: Do you have any other managing the oYce. It is important that the examples? managers are there to manage, which is their role, Dr Skyte: Parking permits and charges, rates, third rather than spending more time actually on the party agency services, for example in Sweden they have Postem. Messaging and logistics services are counter. being developed through the network of post oYces. It is a question of being more imaginative and Q40 Judy Mallaber: You have called for moving towards a place where people can provide a Government support for the directly managed service to the community over and above those that branch network similar to that given to rural post exist already. There needs to be a joined-up policy oYces, particularly in areas where it is needed to both nationally and locally. If managers were given maintain a social and community service. The encouragement to manage and more investment was Government has made it clear that they want the put into training they could develop local initiatives post oYce network to operate on commercial lines. that will not have to be developed from the middle What arguments would you make to persuade the of London, they can be developed locally with Government to act otherwise? managers making connections and joining up with Dr Skyte: There is no problem whatsoever in Post local providers in the vicinity. OYce Limited and the whole of the post oYce network operating on commercial lines and making Q43 Chairman: I think we have covered pretty well a surplus, you would just close 80% of all the post all the points, Dr Skyte. Is there anything else you oYces. Going against that are the social and want to say at this juncture? community needs and services. The Government Dr Skyte: No. I think we have covered everything cannot have it both ways. There is a need to support that we wanted to cover. Thank you very much. rural post oYces because of their nature and we Chairman: We will get back to you if there is would say in a similar way there is a need, not anything else we need to hear from you about. necessarily permanently but as an interim measure, Thank you very much. Ev 10 Trade and Industry Committee: Evidence

Witnesses: Mr Billy Hayes, General Secretary, and Mr Andy Furey, National OYcer, Communication Workers Union, examined.

Q44 Chairman: Good afternoon Mr Hayes and Mr programme, which has been a previous questionto Furey. You are familiar faces on this subject. You the earlier groups, a new incentive scheme, new have been round some of the tracks before, but this products and services, possible relocation of oYces one, of course, adds another dimension. Perhaps we and changes to the floor spaces. To summarise, it is could start oV with the DMB Network Review. It clearly best for the CWU and its members to engage would appear from what you have been telling us in in these issues that could have a significant impact on your written evidence that you have been having their members. discussions with Post OYce Limited of an exploratory nature. Where are you? We have had all Q45 Chairman: Could we get maybe a handle on the kinds of stories about potential intentions, possible numbers game. There are about 580 post oYces at conclusions of earlier reviews. What is your reading the moment: 570, 580? of the situation? Obviously we are going to take this Mr Furey: 555 now. up with the Post OYce in a short while. Mr Hayes: Chairman, first of all, thank you for Q46 Chairman: 555, sorry. The company’s own inviting us to address the Select Committee. We have review has suggested that a core network of 320 to been here at other times, and this Committee has 390 would be sustainable. That suggests quite been quite a useful forum to give our overview. Andy substantial numbers being reduced I think 165 to Y Furey is the National O cer who deals with the 235. If you were looking at this dispassionately— negotiations in terms of where we are in the network, and I am not sure if you can, and I do not want to but I think we also have to look at this in context of put words in your mouth—do you think that 390 is Y the whole of the Post O ce. We went through a a defensible figure? period where we created £2.5 billion that we have Mr Hayes: Obviously, as we are in negotiations, I do given back to the Government and is held in gilts. not think we want on the record to talk about a set We now face a situation where the Government is figure. I suppose in one sense we are interested Y prepared to subsidise some of the post o ce network parties, so it is very hard to be dispassionate, but I but does not seem to be concerned too greatly about would throw that back in this sense. How is the Y the Crown o ce network. One thing we have made Government looking at this in terms of its absolutely clear is that the Government must take responsibilities and how are MPs looking at this in responsibility for that which it owns as the primary terms of their responsibilities? We had 1,500 Crown shareholder. As a trade union, as you will oYces a few years ago; we are now down to 320. Our appreciate, obviously we have the wider issue of concern really is in terms of the Crown oYce Crown oYces. We are getting a bit of what you network and the post oYce network per se; I have might call a “glitterati” eVect in terms of Crown had a very senior manager in the Post OYce say to oYce networks, the most recent being the Notting me that there is not a postal administration on the Hill Crown oYce that was closed which attracted a planet that manages to squares the circle in terms of lot of attention, everybody from Tony Benn to the network, and I do not think the Government can Damon Albarn of Blur. (Blur are a pop group for be let oV the hook on this. It has to take those who do not know.) So we are obviously responsibility. If at some stage we arrive at a registering the social impact of what is taking place pragmatic solution as a trade union, what that figure in terms of Crown oYce closures going from 550 will be obviously is in the context of what is possible now with the potential to go down to 320 if nothing for us to achieve in negotiations, but the circle we are is done. We are obviously very concerned about trying to square all the time is with the Government that, but it would be wrong for us as a trade union providing so much of the revenue streams and the not to also look at, if you like, the interests of our work in post oYce counters, Chairman, we get to members; so we have obviously entered into 320, and I am sure at some point the danger is that discussions with Post OYce Limited, which Andy we are sitting here once again. It is the uncertainty of Furey is heading up, so I will ask Andy to deal with what has happened and the lack of the Government that aspect. taking responsibility for its Crown oYce network, Mr Furey: Yes, Chairman. The talks are precisely which as the only shareholder it should take how you described: they are exploratory at this responsibility for. So we are entering into those juncture. We have entered into the talks on the basis negotiations in a pragmatic manner. We may well of a clear statement from Stephen Timms when he achieve, but I think at the end of the day it is a was the Minister that the remit to David Mills, the question of the Government taking responsibility Chief Executive OYcer, is that he is to bring the for the network. Crowns back to commercial viability. So, on the remit of the Stephen Timms statement, Post OYce Q47 Sir Robert Smith: One thing we have touched on Limited invited us into discussions about the already is that what is happening to some of these network. It would be irresponsible of the CWU not oYces is they are being franchised in replacement. to enter into those discussions. We need to listen to What is your view on the eVect of franchising? the employer’s position on an issue of this Mr Hayes: In terms of franchising, it is a form of importance. The issue around the review is not just privatisation. There is no question about that. One on the number of Crown oYces going forward; the of the great ironies when people talk about the review is also looking at pay bargaining, changes to public character of the Post OYce, there is a hell of working practices, an operational eYciency a lot of small business men and women running post Trade and Industry Committee: Evidence Ev 11

16 November 2004 Communication Workers Union oYces and sub-post oYces and rather than doing a about 65% to 57% and that trend is across the post hell of good work in terms of the work they perform oYce network, but in terms of the specifics, that is they are restricted somewhat in terms of some of the exactly the discussion that you are having now. products they can sell. Nonetheless, they do a good Mr Furey: Yes, very simply the position is that we do job of work. Our concern is that the quality of not believe Post OYce Limited should just be service goes down invariably, the conditions tend to concentrating on franchising. There are many other be less than what we would expect for the type of ways of returning the network to profitability. We work we do and all the evidence is that, once it has have engaged positively in the operation’s eYciency gone through the process of downgrading, then it is programme, 44 Crowns have been reviewed and the not a long way oV, particularly if it is down to an saving, thus far, equates to 10% of staV costs. So we individual and their negotiations with the Post support that process. The Crowns remain, albeit OYce, which from what we get told can be quite with less employees in them. The reason ostensibly is tortuous in terms of—. So, while accepting that there because of the fall-oV of pension and benefits agency are a lot of people here doing a good job of work, I recipients coming into the post oYces every week think you will find that most customers feel that the because of the change to direct payment. The CWU service is not quite what it was when it was a Crown fully supports the Crowns being made more eYcient post oYce. and more eVective, and operational eYciency is the way forward rather than just franchising. Q48 Sir Robert Smith: Would you share Postwatch’s concern that, obviously, once it is a franchise, then Q51 Linda Perham: So staV are being lost at the the franchisee at the end of the contract can lose moment from Crown oYces because of the interest. If you take a major Crown oYce and reduction in work from DWP? franchise it out and then the franchisee decides after Mr Furey: Absolutely. The 44 Crowns that I have the contract comes to an end that they are walking spoken about are not due to open the new duties away, suddenly there is a huge hole in the network? until 10 January. Obviously with Christmas coming, Mr Hayes: Yes. we need to ensure that excellent customer service is given for December, but in the New Year the 44 Crowns that we have spoken about will receive less Q49 Sir Robert Smith: The Crown oYces are than 10% of their employees there, and that is a providing a major chunk? rolling programme. Week on week every single Mr Hayes: Absolutely. There has to be some kind of Crown will have an operational eYciency and by the partnership here. There is no possibility of every end of the next financial year we expect every single single post oYce counter being owned wholly by the Crown to have lost some jobs, and the estimate at the Post OYce, but the fact is that all the evidence is moment is that Post OYce Limited anticipate saving exactly your point, that once you have had the pain £14.5 million just on that operational eYciency barrier in terms of downgrading, it seems to suggest programme, that is purely in staV costs. not long after that its status and its long-term future is in doubt. That is the big thing in terms of when it Q52 Linda Perham: They are telling us at the is so downgrade, but Andy would like to add to that. moment that staV costs account for 54% and staV Mr Furey: Put in very simple terms, in essence the salaries in Crown oYces appear to be higher than in Crowns are the flagships. There are significant some equivalent operations like banking and numbers of employees in the Crowns and our view Y retailing. Do you accept that comparison? is that franchise cannot replace that. Sub-post o ces Mr Furey: Not at all. In our recent exploratory provide a vital service, but in many instances the Y discussions the business sought to demonstrate that sub-post o ce is a single counter position or two the wages of the counter clerks were significantly counter positions. There needs to be a balance and a higher, and one of the comparisons they looked at blend, and, quite frankly, as you have heard was Argos. I am not criticising or demeaning the previously from Peter Carr, the Crowns serve 25% of staV that work in Argos, but there is no comparison the nation’s customers every single week that go between a counter clerk working in a flagship Crown Y across post o ces. The Crowns only equate to 3% of post oYce and an Argos employee. The other factor the network and yet they serve 25% of the overall is that Post OYce Limited cannot have it both ways. population of the UK. They are significant post They cannot not try and compare with retail and oYces in major high streets, and long should they next want to get into the financial services market. remain there. Post OYce Limited and CWU have exchanged submissions prior to today and I have seen their Q50 Linda Perham: Looking at operational comments on pay rates. We simply do not accept eYciency, Amicus-CMA and Post OYce Limited them. Indeed, we will be writing a further report to you to respond to that very point that is in Post appear to agree that there may be scope for increased OYce Limited’s submission. eYciency and productivity in the DMB network. Would you agree with that? Mr Hayes: When I was looking towards improving Q53 Linda Perham: The submission they have given the eYciency of the network per se, just as overall to us, the figures are maximum basic hourly rate for group staV costs are reducing in terms of percentage staYng directly on Post OYce branches, is £9.25, of turnover, and we have got something like from and approximately 80% of branch staV paid at this Ev 12 Trade and Industry Committee: Evidence

16 November 2004 Communication Workers Union rate compares to more typical ranges of £7.70 to counter, it would be such a help. I am not saying it £8.20 an hour in banks or £4.20 to £7.50 in the retail would completely solve the problem, but it would sector. You are challenging those figures? help in terms of access. It used to be the case that you Mr Furey: Absolutely. I think they are being very used to be able to find a phone box outside every post selective in the way they are positioning that. We oYce counter. We should be thinking about that in need to look at annualised earnings as opposed to terms of post oYces. If you want Internet access, you hourly pay rates. We are on net hours in Post OYce can go to a post oYce counter. So eYciency is not Limited. Obviously with net hours versus gross just pay and conditions, it is eYciency and, I would hours there is a diVerential, so I do not accept the say, imagination. figures that are there. Incidentally, the 80% that they are talking about is because we have actually got a Q55 Chairman: The last bit that we would like to talk two-tier work force in terms of earnings. All new to you about is financial support for the network. employees since 2000 are on significantly lower pay You have made several suggestions in your paper. rates than people that were in place prior to 2000. Y Y You call on government to use its powers of The Post O ce did that as a cost cutting e ciency persuasion on certain high street banks to allow their measure. It has not found favour with us and we are customers to use the post oYce network. This has trying to do something about that, but, no, I do not been something we have been kicking around as an accept what is in paragraph 4.21 under “costs” in issue for years now, Mr Hayes. The Post OYce have their submission. tried, the Government has tried and have failed. How do you compel a bank do this? Q54 Linda Perham: Are there any other ways the Mr Furey: Unless the legislation has changed, I do operating deficit can be reduced with them claiming not think you can compel a bank. The Government’s to lose £70 million a year? vision of the Post OYce was that it would provide a Y Mr Hayes: I think this is the whole point. There is a universal banking service. Post o ces do provide the real ambiguity of the Government on this. They ability for people to use basic bank accounts, but cannot have it both ways. On the one hand it that needs to be extended to current accounts. The Y provides financial assistance to the Royal post oYce three big banks, as I understand it Post O ce network, £150 million per annum, and that has just Limited have sought commercial negotiations to put been extended up to 2006—it is about £0.75 billion, in place arrangements for current account holders Y we put this in our evidence—but, on the other hand, to access their money at post o ces, but in terms of the Crown oYce network what they seem unsuccessfully. They have had some recent success to be suggesting in terms of pay rates is that the with Clydesdale Bank, and I think there is a hope V market will determine whether something stays that there is a domino e ect that, as one comes on open. There is no postal administration on the board, the other two will possibly do so, but what planet that has solved this problem of post oYce needs to be understood here is that the Government counters whether they be sub-post oYces or Crown made the decision to move pensions and benefits oYces. On the one hand they are providing into direct payment and in doing so they took away Y assistance to the sub-post oYce network, so this is a a £400 million income stream from Post O ce Y subsidy, if you like, to private industry, if you want Limited. Post O ce Limited had an income of £977 to put it that way, a welcome subsidy nonetheless, million last year, and, if it is going to be run as a V but in terms of the Crown oYces they are saying commercial concern, what company can a ord to there is a race to the bottom. Andy has dealt with the lose 40% of its income overnight? The Government question of pay and conditions, but in some sense, in really has some responsibility here to prop up the Y terms of pay and conditions, we regard good pay Crown post o ces. Not least of all, they have to give and conditions as one of the problems the Post OYce a chance for the new services and new products to V has yet to tackle per se and it is one of the reasons take o and be developed, so their needs to be why we have got such attrition generally. If I can just certainly some two to three years support, very address the issue of eYciency in terms of the lack of similar, as our submission says, to the sub-post Y imagination from the Government, the Prime o ces. I think the Crowns need to be given a fair Minister gets up at the Labour Party Conference and crack of the whip. says, “Everybody who wants Internet access shall have it.” Strangely enough, or coincidentally Q56 Chairman: It has been suggested that part of the enough, we represent both groups of workers who success of the Post OYce Limited in having financial provide both. One of the ideas that were looked at services to sell is that there is now no incentive for the was providing Internet access at post oYce counters big banks to direct their customers to the or having an Internet facility in post oYces. That is competition, as they perceive it, and so in some an idea in terms of reinvention of the network that respects by getting into bed with I think it is Allied they should take up. You can see this demonstrated Irish Bank the Post OYce is going to shoot itself in in Camden Crown oYce, but probably more the foot, if you can shoot yourself in the foot while accessible in terms of MPs is the post oYce in Kings being in bed! Cross, which is a modified post oYce. Nonetheless, Mr Hayes: Just a general point. You could make the there is an idea. The Government says we want to same argument about ATMs, but the more have joined-up government, and yet here we have ubiquitous they are everybody benefits in terms of this fantastic network of retail outlets, and, if it was services; but in terms of the Government, it has to just to put an Internet access in every post oYce take responsibility. It is responsible for its Crown Trade and Industry Committee: Evidence Ev 13

16 November 2004 Communication Workers Union oYce network. It amazes me that they are not taking particular, you have got the sub-diversion in terms this responsibility in terms of modernising the of the royal network, Chairman, but it seems as if the network. It might seem like a small point, but, if Crown network—We have done some figures, you anything, it demonstrates a lack of joined-up know, it almost feels as if it is a ha’p’orth of tar government. That is a classic. This is something that letting the Crown postoYce network go down the is wholly owned by the Government, and Andy is sink. right in terms that it was the Government that Mr Furey: May I add, the rurals have been decided that Post OYce Limited would take on the supportive and we are not opposed to that, we Horizon project of £500 million. This often gets support that. Our postmen and women collect and missed when we are talking about the problems that deliver mail from them every day, so they are a vital the Post OYce face. A £500 million cost in terms of part of the community and the service that is the computerisation of post oYce counters. On the provided to the public at large. The urbans have one hand the Government tries to have this arms’ been supported to the tune of £210 million on the length approach, but on the other hand it determines urban network reinvention programme and, quite the benefit payments, it determines that we take a simply, if the rurals had been supported and the £500 million hit, but Andy wanted to come back. urban subs had been supported, it makes sense that Mr Furey: First of all, I believe the Government the Crown oYces should be supported; and simply should use its powers of persuasion fully sweeping embarking upon a closure franchising programme is major banks and that it is not for the Government to not the answer, in our opinion. say, “CWU, what do you want to do about this?” It is their responsibility. I have some sympathy with your position about: “Have they shot themselves in Q58 Chairman: To what extent have you been involved in relocating exercises in the sense that we the foot?” The joint venture with the Bank of Ireland Y is for five years. We are supportive of that venture. know that a number of the Crown post o ces attract The Bank of Ireland have invested £125 million into local government taxation of a quite Post OYce Limited as part of that joint venture and disproportionate level: because historically they new products are coming on board virtually every have been in absolutely prime sites which they do not month; home insurance came on board this month. need to be in. They need to be in good but not necessarily prime sites. I got the impression that the So we are supportive of that initiative and that Y approach, but to say that they are directly in Post O ce, as is so often the case, have got up rather competition with other financial institutions, I late in the day on these issues. They have not accept that, in oVering home insurance, loans, disposed of a lot of their property and perhaps etcetera, but Barclays, Lloyds, TSB, Alliance and relocated to more modest facilities. Leicester and Co-op have already allowed their Mr Hayes: Andy will go into detail, but you are Y current account holders to access their money at the right, the Post O ce estate, as you would imagine, is post oYces either through a plastic card or through one of the biggest in the UK, and I think it is a cheque, and if it is good enough for Barclays and improving in terms of a realisation of the potential Lloyds TSB, why should it not be good enough for of its estate, and we give some evidence in terms of the other three big banks, HBOS, RBS and HSBC? how we are dealing with some aspects of that, and I think with a bit more imagination, you are right, it could realise—. You are right, they do need to be in Q57 Chairman: I think it is fair to say that the good sites, but Andy has some details on that. banking fraternity are not interested in poor people Mr Furey: We are supportive of the concept of because poor people do not have money and they are relocating and re-siting, where appropriate, to save only interested in people who have money. As John costs in property. That should not mean that you put Kenneth Galbraith said, “The rich are not like us. post oYces down a back street where nobody knows They have a lot of money.” Lastly, I do not want to where it is. I think, if you look at Paris, you see the put words in your mouth, but to sum up, am I right signs all over the place for post oYces in Paris, and in saying we have identified rural post oYces and, they are bidding for the Olympics, London is through urban reinvention, we have identified bidding for the Olympics. Post oYces need to be seen problems in urban areas, which in some respects by the public, by the tourists, by everybody; so may be exacerbated by the removal of Crown post relocation is not the be all and end all. On the oYces because they were going to be the receiving property portfolio, our view is that the Post OYce outlets for a number of people, and that money has has been asset stripping Crown post oYce premises been put into them but no money is available either and when they franchise a post oYce invariably the for the refurbishment or for the support of Crown people that take over the franchise develop the post oYces? premises upstairs and behind it into luxury flats. Our Mr Furey: Absolutely. I just make one other view is that if there is that opportunity for a potential additional point in terms of investment. La Poste has entrepreneur, or a businessman or woman to do so, just been given by the French Government £3.5 why cannot Post OYce Limited? Post OYce Limited billion in Euros in investments, which roughly, I have got this property; they could actually do it in a think, is about £2.6 billion, for the modernisation of way that is socially inclusive and make it aVordable the whole of the Post OYce, and I am labouring this housing, as opposed to luxury penthouse flats, and, point because I think it is an important point that quite frankly, it is total and utter asset stripping and often gets missed. There is an investment issue here not investing in the property portfolio they have at in terms of the Post OYce per se, where, in the moment. Ev 14 Trade and Industry Committee: Evidence

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Q59 Chairman: On that note, gentleman, we will Mr Hayes: If you ask them just one fact. Adam finish. If you could send us that note on the wages, Crosier is paid 38 times more than a postal worker. and it would be helpful if we could get it sooner You ask about our wages, I would not mind if you rather than later, because it is two weeks today that want to have a discussion with them about what we have got the big bad wolves coming in, I am money they are on! sorry, the Post OYce coming in, to answer some Chairman: Thank you. questions. Trade and Industry Committee: Evidence Ev 15

Tuesday 30 November 2004

Members present:

Mr Martin O’Neill, in the Chair

Mr Roger Berry Mr Lindsay Hoyle Richard Burden Linda Perham Mr Michael Clapham Sir Robert Smith Mr Nigel Evans

Witnesses: Mr Allan Leighton, Chairman, Royal Mail Group, Sir Michael Hodgkinson, Chairman, Mr David Mills, Chief Executive, and Mr David Miller, Chief Operations OYcer, Post OYce Limited, examined.

Q60 Chairman: Good afternoon, Mr Leighton, understand exactly where we are. The other thing to welcome once again. It is about three or four months think about in this is that there are 1,500 what we call since we last saw you. Perhaps you could introduce full service post oYces, which was basically the your colleagues. I think we have met them all before whole of the old Crown estate. Our view is that even but it would be helpful if you introduced them. in five years’ time there are going to be about 1,500 Mr Leighton: David Miller, who runs all the full service post oYces, so there will be exactly the operational stuV at the Post OYce; Sir Michael same number. They might move around in Hodgkinson, who is the Chairman; and David Mills, location—we will come to that in a minute—because who is the Chief Executive. of diVerent reasons. Of those 1,500, 950 are already franchised. On this whole franchise thing, which Q61 Chairman: Thank you. I think you know why everybody seems to think is something that has come we are holding this hearing today. It is because, as out of the sky and is completely new, two-thirds of you will be aware, when we were looking at the the oYces have been franchised since the late 1980s Urban Reinvention Programme it kind of dribbled and in last ten years 280 of the oYces have been out that the Crown post oYces were not being franchised, and I do not think anybody blinked an considered under that programme, there was eye during the process. So there will be a small another one for them, and while it did not quite number of closures, and they are the real numbers, assume the proportions of Hamlet without the and 1,500 full service post oYces that are likely to Prince, nonetheless it did seem a rather significant still be there. The issue between franchise and element that needed to be visited, so we are happy directly managed is something worth debating but that you have been able to come along today. As you from the public’s perspective there is hardly any are aware, we have had the rest of the usual suspects diVerence between the two. Hence two-thirds of about two weeks ago so maybe we could start today what was the Crown estate are already franchised with a question that we are trying to get a hold on and nobody would know anything about it and 280 and it is the question of the Universal Service have gone in the last ten years and nobody has really Obligation. Is there any statutory or other known anything about it. That is really to do with requirement on the Royal Mail Group to maintain a how you can run them more eYciently and that is the comprehensive network of post oYces, that is to say dialogue we have got with the unions and everybody ones that are under your direct management? Is else. The other piece which constantly comes up is there a dimension of that character in any of the that this is the way in which we can sell the Crown agreements? Jewels. Firstly, if we are only going to close about 30 Mr Leighton: Chairman, may I say it is always a there is not a lot of money in 30. Secondly, we only pleasure to come before the “Trade and Inquisition” own half the freeholds on this estate so it is not a big Select Committee, as it has become known. Because opportunity to sell oV the family silver and, anyway, there has been so much stuV written in between it we are only going to be closing roughly 30 of them. might be worth giving a bit of context just to say There is a catalyst, however, which might aVect exactly what is happening because I think that is not location, which is that for a number of these leases, clear to people. The first thing is that we have said, about 100, we will have to do something about them max, we will close five Crown oYces next year and, in the next five years and clearly where we can max, six Crown oYces the following year which does relocate, we will do that. In some instances we are not quite add up to half the Crown oYces which of going to be in a situation where we have leases that course is what has often been reported. I think it is are pepper-corn that could become significant and also safe to say—and I am always conscious of we are going to have to do something about them. that—if you take a five-year view (because the next Just as a piece of context that is really quite question is does that mean you are going to close 100 important because it sets the scene for everything in year three and 120 in the following year?) it looks and puts on the record exactly what is happening as as if the max that will close in the next five years is opposed to what everybody talks about. My 30—3-0—out of a population of 550. I think it is understanding is that one of the agreements that has quite important to get that on the record so people always been made, whether it is in the Universal Ev 16 Trade and Industry Committee: Evidence

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Service or the Postal Services Act, is that the directly real estate on the high street and people think that managed oYces would always represent no less than the Crown post oYces are wholly owned by the Post 15% of the business of the post oYces and, to my OYce and they are not. knowledge, that is the only thing that is in there. Mr Mills: That is the informal agreement, that is Q68 Mr Berry: I entirely accept that. I was just exactly right, and that is the target we are working making the point that I think you were being to. In fact they currently represent 19.8% of selective— business. Mr Leighton: —I was not being selective but I accept Chairman: That is helpful. It may also appear a bit your point. of a snow job in a wee while so we will go back to our Mr Berry: I make the point, that is all I am saying. own questions, if we may. Roger, you want to come in quickly? Q69 Mr Hoyle: Roger has made one part of the same point I want to make. I think the other part is that Q62 Mr Berry: In referring to the Crown Jewels you close five this year and six next year, but how argument, Mr Leighton, you said that is not valid many of those are actually ones that you own which because you are only closing 30, but, presumably, if are on very long-term leases where there is a value to you franchised what was owned, directly managed them? It is very easy to say we only own so many per branches you do get capital gain? cent but if those are the ones you are getting rid of, Mr Leighton: Not necessarily. Mike, do you want to people will obviously say, yes, of course, you are pick that up? cashing in the money. Whether you squander the money or not, that is how people will view it. Q63 Mr Berry: Why not? Mr Leighton: I will get Mike to deal with the Sir Michael Hodgkinson: Fundamentally you are specifics. The point is that if you close the 30 and if moving potentially out of one leasehold property you owned the 30 then in the scheme of things the that is finished into a diVerent property that is amount of money that you would realise for those franchised. 30 would be relatively small compared to the comparisons that everybody makes where Q64 Mr Berry: I was talking about the properties everybody thinks you are selling half the chain and you own, not those you are leasing. they think you own all of them. There is a huge Sir Michael Hodgkinson: If any of those 30 were diVerence in perception between the two things. freeholds there would be a capital gain but— Mr Leighton: —it is marginal. Q70 Mr Hoyle: If the only ones you are getting rid of are the ones that you may own or that are on long Q65 Mr Berry: Hang on. I am not worried so much leases, the perception would be quite right to say this about the 30, I am worried about the majority that is purely cashing in. If it was only those on short are up for franchising which you did not mention leases or ones that you did not own which were all when you referred to the Crown Jewels argument. the ones that were coming up people would say, “He My question was: is it not the case that if you is not such a bad chap after all, he is not cashing in franchise out of a property you currently own you the jewels.” The fact is that there is a cloud of get a capital receipt? mystery here that we have not really been given the Mr Leighton: That is absolutely right. answer to. The question is: are the ones that you are getting rid of, the five and six that you have Q66 Mr Berry: With respect, you did actually omit proposed, the ones that you own and which are on to make that point. In addressing the Crown Jewels very long leases which are valuable to the estate? argument I am sure the record will show that all you Sir Michael Hodgkinson: Can I give another piece of did say, Mr Leighton, was that this cannot be an background which I think is quite important. First argument because we are only closing 30. That is an of all, it is quite important to say that this is an entirely invalid proposition because, as you have exercise that is under process. This is not a now acknowledged, when you franchise from a conclusion reached site-by-site. We are in property that you own you get the capital gain, so we consultation with the varying stakeholders on this are talking about rather more than 30. exercise and we have not reached a conclusion and I Mr Mills: Yes, the implication of course is that the think that is an absolutely fundamental part of this money we are receiving by way of the Crown Jewels particular debate. Therefore, in one way you might will be somehow squandered somewhere. That is not think it is fortunate that I am not making any the case at all. judgment, but in another way it is unfortunate because there are a lot of questions we cannot Q67 Mr Berry: No, no, no, I would not dream— answer because the exercise is not concluded. So that Mr Mills: —Every pound note is reinvested in the is a very important point. I think the second point to network. make is that of our 555 branches, 256 are leasehold, Mr Leighton: I take your point, you are right, that 169 of the freeholds are on Royal Mail sites, of which was not the point made. The point I am making is quite a few are adjoining sites with sorting oYces, that everybody thinks we own all of these and we do which leaves only 130 Post OYce owned sites, some not; we own less than half of them. The way that this of which could also be with sorting oYces. I think has been written up is that this is a great asset- that is quite important just to put in context. Alan stripping exercise because we own massive pieces of asked me to give a view being the new kid on the Trade and Industry Committee: Evidence Ev 17

30 November 2005Post Office Limited block and it is very clear to me that over the last 25 Q71 Chairman: That is fine but I think what our years this operation has been asset-stripped and it concern, at least in part, has been is that within the has been doubly asset-stripped insofar as several of Urban Reinvention Programme a number of Crown the profitable operations have been sold oV, like post oYces were cited as receiving branches and they Girobank. We have seen freeholds reduced and the may well be not just not receiving but removed from Crown Jewels sold oV and so therefore there is the the board. We can go into that later on. I think that possibility that the easiest and most very valuable will do for the moment as an introduction. I just ones have already gone. I am not saying that for want to try and get one other thing clear. As I definite because we have not finished the exercise. understand it, the motive for part of this exercise is That has eVectively brought the Post OYce into a to staunch the flow of losses and, as I equally relentless decline and the reason we are here now of understand it, there was correspondence between course is the final straw has been the biggest part of yourself and the Secretary of State in December 2002 the residual business which had been the benefits in which she gave pretty clear instructions that she payments is actually going. That background is wanted losses eliminated, that is the losses that were actually quite important. Not only are we faced with incurred by the directly managed branch network. a very large number of our residual properties being Were any of you around at that time? I think you leasehold: 256, of which 96 have renewals coming up were, Mr Leighton. in the next three years, but the state of the freehold Mr Leighton: David was as well. properties, I can tell you, is either inappropriate to today or very poor in the vast majority (not every) of Q72 Chairman: I am not asking you to show us the cases. If you take, for example, the Hastings branch, scars but, on the other hand, what was your reaction which is a freehold operation, to get it legally safe to the Secretary of State’s point here about loss- and weather-protected for the next future years there making? is a £500,000 investment just to make the building Mr Mills: I think it was an a priori point, Chairman. suitable for purpose. So we are dealing with a whole When I was recruited I was asked if I could see load of quite serious property issues here. The whether or not it was possible to bring the Post second question that has been asked is why did we OYce in plurality into profit within five years and I not start two and a half years ago with the Crown think you will probably know what progress has post oYce programme? I think it is very clear that been made in financial terms so far. In drawing up a the new management team with Allan and David plan which took the Post OYce into profit, for the have actually started to try and make a viable post first three years of that five years, I said that at that oYce network. It was absolutely crucial that the very point in time I was not able to be sure of what could first thing that was tackled was trying to make sure be done with two things, the cash operations of the that some of the sub-postmasters wanted to stay in business and the directly managed branches, and it business. It was very important to get clarity on the was left that I would draw together a strategy for urban programme, with the network closure, and both of those in the fullness of time. I firmly believe very important to get clarity, which we have done, that it is possible to bring the directly managed with extra money for the rural network, and what we branches into profit. I strongly believe that. It will are just beginning to see for the first time for many, require, though, attention on almost every single many years is some new sub-postmasters expressing front. This is a non-trivial exercise. It can be done an interest in the business. That is very important. but it requires determination by everybody. The second thing is of course you could not make a judgment on the viability of the Crown post oYce Q73 Chairman: From what you are saying it is a network with knowing how much cost you could fairly massive task. Given that in the public sector, actually take out of the business, and a lot of as on occasions in the private sector as well, there progress has been made on that, but the final and could be an element of cross subsidy, do you think most important part has been what is the success of V the new products? Were we going to be able to do a that the amount of e ort that is required to meet the deal with a financial institution to put a significant challenge set by the Secretary of State is worth the candle or that it might be better just to say we can sum of money in the business to help us launch it? Y Having done that, which we have been able to do make it a bit more e cient but really to fulfil our with the Bank of Ireland, are we actually going to be non-Universal Service Obligation, which is able to be successful? We are beginning to see green nonetheless an obligation, that we might have to shoots there as well. We have got some very continue to bail out some of the branches from other successful products. Foreign currency has been revenue streams within the Royal Mail? extremely successful. Some of our insurance Mr Mills: It might be better to pose that question to products are beginning to be very successful. We are the 15,000 sub-postmasters who have got in excess of now in a position to know broadly what the network a quarter of a million pounds of their own capital could look like in the future. I think it is quite invested in these businesses because for as long as we important again to emphasise that the programme are making losses on the directly managed branches we are on at the moment is not about closures, is not what we are doing is we are taking resource away Y about reducing service to the public and our from the main part of the Post O ce, which is the Y customers; it is about finding the most eYcient 15,000 franchised o ces. properties and the most eYcient way of providing the main post oYce service to the public, and I think Q74 Chairman: They are in a number of respects that is extremely important to understand. being subsidised anyway. Ev 18 Trade and Industry Committee: Evidence

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Mr Mills: No, not at all. With respect to the rural Sir Michael Hodgkinson: I think there is another network they are being paid for social services that point and that is it is not just about funding the are provided by them for the Government because losses. These branches need a significant amount of that is what the Government wants to occur. That capital to keep them up-to-date and to be able to sell was one of the only conditions where Brussels agreed products of the future. People historically have not to the payment for services of £150 million per been prepared to fund both losses and significant annum. future capital expenditure.

Q75 Chairman: But, on the other hand, why should Q77 Mr Hoyle: I think people will think that you are it only be rural customers that get subsidies in the a bunch of magicians and it is trickery that you sense that there are many poor urban customers of, exercise because in your urban closures and I can let’s say, current post oYces, the removal of which give you an example of the Park Road/Commercial post oYces from their present sites could result in it Road branch in Chorley you have said, “Ah, we are being highly inconvenient? closing this but, don’t worry, you are next to the Mr Mills: For the same reason as the directly general post oYce in the centre of town.” Where managed branches needed to be brought into profit. does that leave people? The pensioners were told, First of all, as you know, there is a duty on every “Don’t worry, it is so close to your general post oYce company director not to run an insolvent business we are taking this post oYce out,” and if we take the and not to run an unprofitable business. That is a other post oYce by The Lane you also said, “Those duty at law. I could continue to run the rural people shop in the town so they will pick up their network at a loss and as a consequence I could be pensions, their services from the general post oYce.” sued as a director of this company. If I do not run it Now what you are saying is, “Well, we closed those, at a loss then that will mean that we close a very, very that is the case, now we have closed them,” and we large number of rural post oYces. They stay open have got empty shops in the town and pensioners are merely because we currently have a payment for now using the post oYce recommended by your services rendered of £150 million per annum. good selves and you are saying, “Here is a cloud of mystery over it. We may well be closing it and we are not going to tell you.” In the meantime people are Q76 Chairman: This is my last question. Do you suVering, people are worried. Is this the way to think in retrospect that perhaps what you should operate? have done was to say to the Secretary of State that Mr Mills: I think I would just say that that is a there is a case for certain directly managed branches misrepresentation of the introduction that we made to be given a degree of support in the way that rural to the Committee which I would repeat: this is not post oYces are? a closure programme. We said at the very most we Mr Mills: I definitely do not. We have, if you like, anticipate at the very most closing five Crown post the last bastion of nationalisation on our hands here. oYces in the coming year. So I do not think it is We are seeing the last throes of a terminal whale on trickery. the beach. We either put it right or it will go the same way as every other nationalised industry; it will cease to exist. Once upon a time we had 170,000 miners; we Q78 Mr Hoyle: Is Chorley not closing then? have got 6,000 now. It would be very nice for this Mr Mills: You know exactly what the case is on national jewel to be kept as it is, as a national jewel, Chorley because you have received a letter from the to be refurbishished and to be a very valuable asset Secretary of State telling you with great precision for our customers. what the case is with regards to Chorley. Mr Leighton: Chairman, could I just add to that Mr Hoyle: And what is the case? point. First of all, the Secretary of State asked us to Chairman: Share it with the rest of us. do that, but we would have done it anyway. My whole sense of this is if you come from a position— Q79 Mr Hoyle: Please share it with the Committee. and I know we always fall into this—of what we are I think we ought to put it on the record because there supposed to be, until somebody changes the brief was no answer in the letter. (and if they change the brief they change the brief) is Mr Mills: The answer in the letter said that we have we are supposed to be a commercial organisation not made a decision yet and that we do not intend to that provides a public service and funds that itself. I give you a priori advice on it either. felt from day one there is no reason why that should not be the case. It just takes a bit of time and a bit of pain. There is no reason why if we do the right things Q80 Mr Hoyle: So the pensioners suVer after what that the Crown piece of this business should not be you have told them, “Here is the general post oYce, profitable and, more importantly, should not be please use it, but in the meantime be aware that we profitable in a way that also does not take away the may close it.” I do not think that is good enough. I services that it oVers, and that is the objective. am sure you do not really think it is good enough, do Where we stand at the moment is that we are still you, Mr Mills, or do you not care about the people pretty sure we can get there. We are always going to that you are meant to serve and that is the get things around the edges that are slightly wrong customers? but our brief is to be a commercial organisation that Sir Michael Hodgkinson: That is a complete provides a public service, not just a public service. misrepresentation— Trade and Industry Committee: Evidence Ev 19

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Q81 Mr Hoyle: —Come to Chorley and I will Q86 Mr Evans: Next door in one giant leap. Going show you. back to your last point, I am not so sure on the retail Sir Michael Hodgkinson: Just listen. What we have sector because Tesco are opening branches said is that this is a programme about improving the everywhere. eYciency of the post oYce network in a way that still Mr Leighton: Yes, but they closed a lot to start with provides main post oYce services to the public and as did the Co-op as did everybody else. Everybody that we are in the middle of this particular exercise. goes through a period of rationalisation. If you look at all the great retail businesses, they start with a period of rationalisation. The one thing they do not Q82 Mr Hoyle: We could not trust your word do is they will not have any shops that lose money. previously. Can we trust your word this time? They come from the premise “we do not have things Sir Michael Hodgkinson: I do not know why you that lose money”. could not trust our word previously. Mr Hoyle: Because I was told that this general post Q87 Mr Evans: Let’s go back to that then. From oYce was the post oYce that we need to use. Now what I can see of your directly managed branches the fact is that nobody can clear up whether this post Y only three of them make money. o ce has a future. The people deserve to know. You Mr Leighton: That is the issue. It goes back to the should be able to tell them. You are well into your original point which the Chairman raised. We really programme and somehow you do not want to let believe that we should be able to make this part of people know. The sooner you tell people the sooner the business profitable. They are good locations, we know where we are going. It is the fact that you they are in the middle of high streets, they have got are not sharing what your decisions are with quite a lot of people going through them. If you step anybody. back and say, “Hang on a minute, how don’t they make any money?” then you think we should be able Q83 Chairman: Mr Mills, I think you want to to do something. So we are very confident that we comment? will be able to make this thing make some money. I Mr Mills: I think the relevant paragraph from the did not want to come here today and have an Secretary of State to the honourable Member is that: argument: you are only going to close five, then six, “No company can give cast iron guarantees about and then you will close 200 so I said let’s scope this the future and I” the Secretary of State—“would not out. We are saying in five years: max 30. That probably means down the track we will still have 100 expect the Post OYce to be in a position to give you or 150 of them that are not making money, but it is in the categoric assurance about the future of the a network that is profitable. I would not lose Mike’s Chorley directly managed branch that you called point. I badger these two and David about it all the for, particularly whilst the company is in the process time. What it is we are trying to do is not just get the of discussing future options,” and in that regard we thing profitable but create some money to invest in it have to bear in mind that we are discussing the future V because actually, as Mike rightly says, some of these options with our sta , and their futures are oYces have had no money spent on them for years. immensely important to us. If you do not spend any money on anything for a contracted period of time then you become out of Q84 Mr Hoyle: And yet you shared Hastings with date and you have a big problem. The one thing that us. Chairman, I think we have got to clear up this we want to get across above anything else, and not V point. Hastings has been shared with us. Can you in a defensive way, in a very o ensive way because I share the same view of Chorley as what you have think we have been too defensive about it, is this is shared about Hastings or are you cherry picking not a closure programme; this is about getting the which you want to share with the Committee? thing into profitability, and it is also finding a way of Mr Leighton: Can I move to defuse the situation. getting some money to invest in the thing. Will we There are always individual cases and we should have individual issues? Yes we will and we have to fix take those oV-line and Lindsay should take them oV- those out, we cannot have uncertainty and all those line. Part of the not knowing is the bit I—I would bits and pieces, but in the scale of things the biggest deal here is not the five or six that we are going to rather have some certainty one way or the other. I close (although it is locally) the biggest deal here is just want to get back to the point that it is one of five what are we going to do about the rest? That is the or six and in the scale of things closing five or six real big deal. Crown oYces in a year—we must have the smallest level of closures of any retail business in the world ever. Q88 Mr Evans: The Minister has told us that the Urban Renewal programme is no closure programme either but when you look at how many Q85 Chairman: The only problem, Mr Leighton, is post oYces have closed then people ask is it a closure it is a wee bit careless when it is a member of the programme or is it not? Looking to the 30 post Committee! oYces that you are going to close, it is a small Mr Leighton: Lindsay knows that. number compared to the number you have got. Chairman: Nigel, can we move across Lancashire Mind you, if one of those 30 lands in one of our away from Chorley— constituencies then you have got a real problem! I Mr Hoyle: To Clitheroe! am looking at it as profitability versus social Ev 20 Trade and Industry Committee: Evidence

30 November 2005Post Office Limited amenity. You are admitting now that there is going Q93 Chairman: So you cannot have it where the to be a number even after this that simply are not property values are too high even although it is of going to make any money but which are a social some use? You closed down another one just oV amenity and you are prepared to cross-subsidise Horseferry Road which was within spitting distance those post oYces? so that whole area has been denuded of a sizeable Mr Leighton: You are not cross-subsidising it post oYce. through all the other bits and pieces. You have got a Mr Miller: There are still a significant number of network which is what I call the Crown oYces post oYces in that area, Martin. because I like the idea of calling it a network that is Mr Mills: Can I just mention to you that within the profitable and therefore it is within the network that next six months or have already been done this year you are managing it. At the moment it is just net loss. Belfast, Canterbury, High Holborn, Portsmouth, Wrexham, Corby, Dudley, Hull, Sunderland and Q89 Mr Evans: As I say, there are only three that are Windsor are all cases in point where we are having making any money and to turn this round is a huge to move premises and invariably we are doing it to gigantic challenge and opportunity for you to do so. the benefit of the post oYce. I will quote just one in Does it mean that roughly the 30 that you are particular, and that is Belfast, we have moved from looking at closing are going be to the 30 biggest an old, very unproductive, very unhealthy premises loss makers? 200 yards up the road. We have got a nice corner site Mr Leighton: Not necessarily. now. It is completely refurbished and it has been re- Mr Mills: Almost invariably the 30 that we think opened. In doing that we have saved something in may need to close over the next five years will close the order of a quarter of a million pounds a year in because of force majeur – the landlord is throwing us rent alone. out, there is some physical problem with the premises that we just cannot put right, we are being served a compulsory purchase notice, as indeed we Q94 Mr Clapham: Can I ask Mr Mills a number of are in Cambridge, so these are not acts that we questions on the directly managed branches, particularly want to do. Almost invariably it is being particularly in relation to what you said earlier? I thrust upon us. understand that your internal review of the network Mr Evans: The bit on cross-subsidy has been covered so I am happy with that. came to the conclusion that an economically sustainable direct managed branch network would be around 320-390. Bearing in mind at the present Q90 Linda Perham: If it is force majeur does that time there are 555, if we take that lesser figure we are mean that you would actually try and find saying that there is likely to be the disappearance of somewhere nearer? If it is a post oYce which is well about 230. Is that your thinking? used and which otherwise you would not close, if you are being forced to would you then look for a Mr Mills: No, not at all. To repeat: this is not a site or would you just say, “Sorry, we have got to closure programme. We do not anticipate shutting close that one there and they will have to use the sub- any more than approximately five a year for the next post oYces”? five years. The branches that you are referring to Mr Mills: Absolutely not, no. We would definitely would be franchised. They would still exist, almost endeavour to look for a site. In fact we are doing that invariably in the same location. We have been almost invariably in conjunction with the local franchising branches now for the last 15 years. We authorities and we are saying to local authorities we have franchised 950 and there has been not a single have got this problem here. We have got a consumer complaint to date of a substantial nature compulsory purchase on here. We do not want to and, not only that, we have very substantial move out of your town. We know that you do not consumer market research to say that on many, want us to move out of your town. Can you help us many counts the franchised branches are equal or to stay in where we are? It does not always work and better than the directly managed branches. we cannot always do it in the timescale available and sometimes we are just forced to close down. Mr Miller: There is a case in point in Wrexham at the Q95 Mr Clapham: Could I ask you then about the minute where we were going to be forced to move contrast between the concepts of sustainability and out and we have now agreed that we will replace that viability. Are you saying that the directly managed oYce at a cost of half a million pounds. Where we branches must be viable or are you saying that in need to do that we will do it. order to be sustainable they are required to provide a wider service to the British population? Which is it: Q91 Linda Perham: If you can find somewhere you is it viability or is it sustainability? can run more eYciently? Mr Mills: For it to be sustainable it has to be viable. Mr Miller: Yes. For it to be viable it has to make a profit. The directly managed branches will not make a profit on the basis Q92 Chairman: There used to be one down the foot that has been set out and on the basis of the products of Victoria Street. The whole building was and services that they have lost over the last few redeveloped. Was it ever replaced? years. You cannot remove £400 million-worth of Mr Miller: No, the cost of replacing that was getting income and expect things to survive. You have to towards £1 million. replace that income. Trade and Industry Committee: Evidence Ev 21

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Q96 Mr Clapham: Given what you have just said Mr Mills: Correct. and bearing in mind that your memorandum says little about how you reach your deliberations could you say a little about how you actually reached your Q101 Chairman: So when we talk about franchised deliberations, how you decided on the size of the branches in the future we will be talking about franchised branches mark II not mark I? directly managed branch network, and what is the Mr Mills: With respect to these franchised branches concept that underpins it? they have a clause in them saying that they have to Mr Mills: Yes I can. Let me say we have not keep them open on the same terms and conditions as concluded our deliberations. I think that is they are currently operated on. They have to receive something we have probably said two or three times the same training as they are currently operated on. now to the Committee. We are still in a deliberating They have to maintain the same product line that we period and part of the reason for that is unless we maintain for directly managed branches and so V can carry our sta with us anything that we want to forth. implement is unexecutable and a strategy that is unexecutable is not worth the paper that it is written on. However, what I can say to you is that we have Q102 Chairman: And for how long? used our own intelligence and we have also tried to Mr Mills: I think it is ten years. use the intelligence of other firms so we have consulted very widely with people who are experts in Q103 Chairman: That is from the date of the change this field, and we have pulled together as much of ownership? knowledge as we can about it and then we have Mr Mills: Yes. presented every single fact that we have in our Chairman: Fine. I am sorry but I think this is possession to our unions and we are in very close something that has maybe saved us a wee bit of time consultation with them and have been in fact since because our concern about franchising was that it early July of this year. seemed that the previous deals were a wee bit sloppy in the sense that for whatever reason when they were transferred into supermarkets or convenience stores Q97 Mr Clapham: Given what you said there about it was not clear that they had to remain providing this evolving development with regard to the directly that service not quite in perpetuity but at least for a managed branch network, can we be quite sure that reasonable period of time, so when we had evidence there would be no going back to the figure in the of some of the supermarket chains which had internal review, and that you are not likely to decide acquired convenience stores— that in order to meet viability we must get the numbers down to 320? Mr Mills: I will repeat: this is not a closure Q104 Richard Burden: —How many of those clauses programme. We do not anticipate closing any more were previously there in the franchise agreements? than five branches per annum over the next five None of them? years. We may well franchise a number of branches Mr Mills: I am sorry, Richard, I do not know the but this is not a closure programme. We will still answer to the question. have the 1,500 full service branches in five years’ time Mr Miller: Relatively few. If you want the exact as we have now. number we can send it to you. Mr Clapham: Fine, Chairman. Q105 Richard Burden: I am having some diYculty V Q98 Chairman: Just one small point. When you working out exactly what the di erence is between franchise will you be able to put in the franchise franchising mark II compared to franchising mark I, agreement a clause which apparently your so could you describe if last year because you said predecessors did not have before which is that they you have been franchising for ages you franchised a Y directly managed branch what that would mean and will be kept open as a post o ce when it is franchised V and not transformed into another form of business? what the di erences are now. Mr Mills: That is exactly what we do do, Chairman. Mr Miller: Primarily that the person taking on a site would be required to ensure there is a post oYce on that site for a minimum period of ten years.1 Q99 Chairman: What about the supermarkets that have closed down franchised facilities that are within Q106 Richard Burden: So one diVerence is timescale. their floor space because they can make more money What about the other things on training and things out of other activities? like that? Mr Mills: What they have done is they have bought franchised branches and not directly managed 1 The current standard length of a franchise agreement is branches. seven years—this will be reducing to five years in May 2005 as a consequence of changes in Competition Law. However, where Post OYce Limited have sold a freehold or granted a Q100 Chairman: The directly managed branches long lease over a property in which a directly managed branch is based, we have required the other party to ensure that will become franchised branches will be on the that a Post OYce branch is operated on the premises for a basis of a diVerent type of franchise? period of ten years. Ev 22 Trade and Industry Committee: Evidence

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Mr Miller: We have always built training and a Q112 Mr Berry: And there is no certainty in life requirement to train into the franchise contracts. We anyway. have probably beefed that up over the past couple of Sir Michael Hodgkinson: A large part of the network years so they get the same amount of training now as already has a large degree of uncertainty in it. our directly managed staV. Mr Leighton: The fact that we have changed it from where it was to ten years in itself is quite significant. Q107 Mr Berry: This raises two questions. One is Chairman: Not A-plus but it is an improvement. that when you say you have been doing franchises now for quite a number of years, clearly the nature of the animal has been diVerent and the nature of the Q113 Mr Berry: The original regime was pretty arrangement now is diVerent to what it was before. awful. The second point is what happens after ten years? Mr Leighton: No, ten years is significant. Let me help you. No, let me help you— Mr Leighton: There are other things you can help us Q114 Sir Robert Smith: As one part of that whole on over the next ten years! process how do you monitor the standard of service maintained by the franchisee? What sort of clauses? Q108 Mr Berry: I might get into trouble from some Mr Miller: We have got certain requirements of quarters for saying this but one of the Crown post retail standards and every month we monitor the top oYces in my constituency was franchised to the local 3,000 oYces and we have mystery shoppers who go Co-op and when I have been asked by the Post OYce round monitoring those standards. That is done on have I had complaints about the new service I have a regular basis month in month out. They are given said no I have not and I use it myself and so on. the result and given a requirement to get back up to However, what I really do not know and what has standard if they are falling below standard. always worried me about it—apart from, frankly, the appalling consultation procedure whereby that outcome was achieved, which was almost as bad as Q115 Sir Robert Smith: Postwatch have had a the urban reinvention programme of consultation MORI mystery shopper going round and the which was just awful, leaving that aside—is what exercise that was conducted on their behalf is happens after ten years? Suppose the supermarket, suggesting that your directly managed branches whichever it might be, or the Co-op or whatever, come out as more clearly laid out with clearer decides that that is it, end of story; what happens presentation of information. Is that something you next? would recognise? Mr Miller: In those circumstances we would find Mr Miller: I have not actually been given access to another franchisee. the Postwatch information and I hope that will be Mr Leighton: They can change and we would have forthcoming. I think they did about 300 oYces and to find another franchisee. we are doing about 3,000 a month. The comparison that we get is that there is very little diVerence Q109 Mr Berry: Suppose you could not? between the franchised oYces and the directly Mr Leighton: Suppose you could. managed oYces. That is what is coming through our research, which is done every month, as I say. Q110 Chairman: I think what our concern here would be is why was it ten years? Q116 Sir Robert Smith: You mentioned that in July Mr Leighton: David, why was it ten years? you started to consult with the unions. Have you had Mr Miller: Because in consultation with our lawyers any discussions yet with Postwatch on your and looking at our commercial plans ahead, ten procedures or plans? years seemed to be a very reasonable period of time to require somebody to commit to us. That is quite Mr Mills: Yes, quite detailed discussions but not in a long time for a commercial organisation to the sense that you may mean. For example, have we commit, Martin. laid out our strategy in front of them? No, we have not because we do not have a strategy to lay out in front of them. We are trying to develop that strategy Q111 Mr Berry: Precisely because it is viewed that with our people first. way and I understand why for a commercial organisation you will understand why many of us who would not complain necessarily about the Q117 Mr Berry: You talk about no more than five in quality of service provided under a franchise (which one year and no more than five the following year. is what I have just said) are however desperately These are pretty precise numbers. Where do these worried about the uncertainty about the future numbers come from if there is no strategy there? because we think there is absolutely no guarantee Mr Leighton: We are into the semantics of what is a that that service will be provided in a planned kind strategy and what is not. of way and it could be seen as a way in which you are simply oV-loading that problem on to somebody else. Q118 Mr Berry: I am not talking semantics. Sir Michael Hodgkinson: Do not forget that there is Mr Leighton: Clearly we know what it is for the next no certainty with the 256 leaseholds we have two years, which is the five and the six, which we anyway. have always talked about— Trade and Industry Committee: Evidence Ev 23

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Q119 Mr Berry: So it is a business plan? and do not quote the number because it is illustrative Mr Leighton: —Because we have already started that there are going to be possibly at least 100 or 150 that work. We might not be ten years ahead but we of these leasehold premises or where redevelopments are a couple of years ahead. I asked people to have are taking place where the precise decision will a look at them because I knew where we were going depend on what properties are available at the time to end up. We would have come and talked about in the high street, where you can go, what the options five and six and everybody would have said then it are. I think it is quite important to understand that will be 100, then it will be 150, and then 200. For there are going to be these three broad phases to the certainty I wanted to make it very clear and I said, strategy. For example, for a leasehold coming up in “Right, let’s have a look judgementally at all the five years we might say we know we have got a stuV we have got on 80/20 and say, realistically, what problem, but the chances of knowing precisely the do you think the number is going to be?” because way of best solving that leasehold problem is somebody is going to ask the question and that is probably four and a half years away. I think it is how we got to the number. There has been a huge quite important that everybody understands the amount of work done on the back of this because we nature of this exercise which is heavily property are looking at products, we are looking at cost, and dependent, and some of those property-dependent we are looking at the properties. There is a huge decisions come up at the time the leaseholds are amount of work being done on the back of it. Our naturally rolling forward, and so that is what we are view is that there is very little diVerence between the trying to manage here. It is quite a complex exercise two. The Postwatch research, whether it is 300 or and we have to do it, as David has said, with as much 3,000 is quite a good piece of work. It says there are honesty as we conceivably can with the staV and the some diVerences. It says there are longer queues in public as the decisions become clear. the directly managed and everything else is better in Mr Leighton: And there is a piece of negotiation the others. It is all quite helpful stuV. The most clearly on each one of these but also you cannot interesting thing I thought in their piece of work declare your hand too far in advance. which was picked up is the opportunity to sell more stuV, so you have to use all those things in tow. Q123 Richard Burden: I am afraid I would like to take you back to the relationship between this review Q120 Sir Robert Smith: From what you said is it five years’ time where you plan to be in a sustainable and the Urban Network Reinvention Programme position? because to some extent we are here today because in Mr Leighton: About five years. the middle of our discussions about the Urban Network Reinvention you dropped it on us that Sir Michael Hodgkinson: It is a challenge. Y Mr Leighton: It is a challenge but that is the there was going to be a review of Crown post o ces. challenge we have got. It should be do-able. At that point we did not know about that. Accepting that you are only looking at five over the next year, if you have got 425 of the 555 Crown post oYces that Q121 Sir Robert Smith: So is there going to be a are receiving branches, and even one of those is timetable for consultations on the strategy once you scheduled for closure, that undermines the network have got it? reinvention process in that area, does it not? Mr Leighton: Let me take this. The answer to your Mr Mills: It may do but I cannot give an aYrmative question is we ought to talk to Postwatch about it answer to your question because we would need to but, frankly and I go back to my point we are talking Y Y look at the individual branch that we are discussing about five o ces and six o ces. It is not as if we are and in any event that branch would go into talking about thousands of oYces and therefore if consultation with us about the need to close. we cannot deal with some of these things oVside and say, “Look, this is where it is,” have a conversation, does it fit— Q124 Richard Burden: This is what I am getting at because urban network reinvention was based, we Q122 Sir Robert Smith: But you are developing a were told, on area plans. Area plans were first talked strategy that involves a) a reduction, be it physically about not when we were having you in front of us or of availability and b) quite a considerable amount about the urban network reinvention; they were first of franchises. You are negotiating first of all with talked about when you were in front of us looking at your workforce to understand where you are coming the impact of direct payment. The point we put to from and then presumably you are going to develop you then and it was the summer of 2003 if I towards a general strategy for implementation of remember is we said to you, look, the real problem achieving what you say in five years will be a is that as you are responding to the pressures on you sustainable network? Is there not a point at which and suggesting the closure of an individual post consultation— oYce here, you are pepper-potting, so could we not Sir Michael Hodgkinson: I think it is quite important look at it and have individual communities got the to understand that there are going to be right to look with you at what the needs of the area approximately three phases to this programme. The are, what the pressures of the area are, what the first one is getting a broad outline agreement, which pressures on you as a commercial operation are, and is what we are in consultation on at the moment. The you draw up a plan on that. You said, yes, good idea second phase will identify as many properties where and later that year you published that and you said there can be clarity as is possible. We have to accept that is what you were going to do. Ev 24 Trade and Industry Committee: Evidence

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Mr Mills: Yes. of diVerent premises in the vicinity or some of those premises when they are changed could also move to Q125 Richard Burden: That was not what you did. franchise. Mr Mills: Yes it was. Q131 Richard Burden: So are you suggesting that Q126 Richard Burden: If it was what you did, how really you would only think it relevant to talk to come at the end of that process you say, “Actually, people if you are suggesting a closure? there is something that we were not telling you about Sir Michael Hodgkinson: Or very substantive at that stage which is the fact that we are going to be change. reviewing the Crown post oYces as well,” which was not part of the previous discussion? Why did you not Q132 Richard Burden: With respect, that is not what synchronise the two? you said to us in 2003. Mr Mills: That was not what we were telling you Mr Leighton: Richard, again, with respect, 99.98% about at all. What we said was that the Crown post of all of the closures are being consulted on in oYces in terms of their receiving value and in terms advance. Okay. For the 0.02%, which might be the of the volumes that they are likely to receive and/or five or six Crown oYces, it looks as if we have not were conducting themselves were all included in but on the assumption that Mike’s point is correct every single area plan, without exception. and the intention is to keep them open in a similar location in better premises, frankly, if we got that Q127 Richard Burden: So in that case why did you wrong, I apologise but in the scheme of things I just not consult on that? do not think— Mr Mills: Consult on what, I am sorry? Q133 Richard Burden: I just want to put to you what Q128 Richard Burden: If they were included in the would have been the problem if, let us take my own area plans and you were meant to consult on the area area, when you came out with your network reinvention proposals for you to say, “This is what plans, why did you not consult on that aspect of the Y Crown post oYces in those area plans? we think needs to happen as far as the sub-post o ce is concerned.” These are the issues for the Crown Mr Mills: I do not understand what there was no Y consultation on. post o ce, which you had identified by then anyway (not necessarily solutions but you had identified the issues), what would be the appropriate mix of the Q129 Richard Burden: I thought the idea of the area two, what are the opportunities for the new plan and what you were assuring us was to involve franchises, which actually by the sound of it could local people and local authorities and so on in the have helped safeguard at least one of the sub-post service for their area, so the existence or non- oYces you have decided to close? What would have existence or possible pressures on the existence of a been the problem in involving people in that way? Y Crown post o ce is relevant to that, particularly if Sir Michael Hodgkinson: Can I say two things, Y it is the main receiving branch of a sub-post o ce. which is why I made the introduction at the Mr Mills: I am sorry, I still do not understand what beginning. I can look at this from the outside there was that we did not consult on with you. because I came in not at the beginning. You had the most appalling business you could ever imagine here Q130 Richard Burden: Your strategy. then facing a crisis of losing the benefits system, the Mr Mills: The strategy is of no closures. sub-postmasters desperate to get out if they possibly Sir Michael Hodgkinson: Could I help in this could, so a new management team coming in simply exercise? had to prioritise its tasks and the most important Mr Mills: I have said that about four times now. thing was to try and ensure that we had sub- Sir Michael Hodgkinson: Could we just look at the postmasters through the 15,000 network who could position of Belfast which is quite illustrative of the potentially have a viable business and wanted to types of things that are going on. Do we think it is of stay. The second thing was to take as much cost as material change to network reinvention that we we sensibly could out of the business that did not moved to a better, newer, more appropriate, cheaper impinge on the public. The third thing was to go for post oYce 200 yards down the high street? If that is brand new products that would give the post oYce a really serious then the answer is we may have got a future. The next part of the exercise was very slight problem, but I would argue that that is complicated because, first of all, you could not really fundamentally replacing with more appropriate start it until you had done the first two. In an ideal premises the Crown post oYce network. This world, if this had been a very well-managed business exercise is not about closing large numbers of the and it was not lurching from crisis to crisis, I think Crown post oYce network. This is about finding there would be a point in what you are saying, but more appropriate premises from both a cost point of that is not where these guys were two years ago. I view, handling the leaseholds as they come up for think people do have to accept that. Whether we like review, and also looking at very diYcult freehold it or not, that was a fact. The second part is that this properties like the Hastings one. What we are saying is a very complex exercise and you are dealing is as part of that process and we are not closing, we heavily property by property but we also have to are trying to maintain the services of the main post consult with our own staV and other people on the oYces in the area that we might well be operating out general shape of the exercise and what was done, and Trade and Industry Committee: Evidence Ev 25

30 November 2005Post Office Limited what is still the intention, was that people did put in services in one of those oYces it is pretty important. their view of what the Crown post oYce receiving I asked if there was any question of a Crown post capability was and this exercise is about attempting oYce in my constituency which was assuming it will to maintain that same Crown post oYce receiving stay to provide the service because it was clearly capability, albeit in possibly diVerent properties and marked on the map and so on and they said no. My possibly some of those oYces being franchised. I point is that the Urban Network Reinvention think people did the very best they could, given consultation in all cases has been based on the where they found themselves. That was an honest assumption of the existing network of Crown post view from what I saw from outside. oYces. Yes, okay you can move the site, it can be franchised, but not a closure. The problem is you Q134 Mr Hoyle: Who were the consultees? then come along with a closure and people will be Sir Michael Hodgkinson: The first one is our staV. shouting foul from the rooftops and they would be absolutely right. I cannot believe that the strategy Q135 Mr Hoyle: We recognise that and quite rightly has got to a stage where you are saying no more than so, but who is second, third and fourth? five the first year, no more than another five the Mr Mills: In terms of working out how we handled second year and yet you do not know where they are the strategy for the managed branches? going to be. I am absolutely convinced you know where they are going to be. Q136 Mr Hoyle: Who do you consult if you are Mr Leighton: People can call foul if they want to. thinking of closure? We know you consult the staV. Who else do you consult? Let us say you are closing Clitheroe. Who would you consult? Q143 Mr Berry: They would be right as well. Mr Leighton: They can call foul in five or six. This Mr Mills: Postwatch. It is a natural part of the Y consultation process. Group along with Post O ce Limited have done a remarkable job. This business was in the can. We Q137 Mr Hoyle: How many? met nearly every night for five weeks. Sir Michael Hodgkinson: We have to divide this between closures and franchises. Q144 Mr Berry: I accept all of that. You must have some criteria that give you five in the first year and Q138 Mr Hoyle: Sir Michael quite clearly said that another five in the second. you consult and you have a section of consultees that Sir Michael Hodgkinson: As David said, Postwatch you must consult with. Who are they? and many other people have an input into these Mr Mills: MPs, local authorities, local exercises and if there was going to be any one of these representatives, local organisations that have an potential closures that would totally undermine interest in the Post OYce, as many stakeholders as what was said before I am sure that they would make we can find who would represent a view to us that an objection and the likelihood of that particular can be focused down on Postwatch so that oYce closing is unlikely. The object of this exercise Postwatch can come back to us and give a whole is to do the very best we can to provide services to series of points about what we are doing or not so the public in the areas that these Crown post oYces that we can improve what we are doing. Perhaps I currently serve and that is what we are attempting to could give you an illustration of that. We were set do. As I said earlier, there are three stages to this and Y upon the closure of 3,000 urban post o ces. We we are still at the generic phase of this post oYce have halted that at roughly 2,500 because we found analysis. As Lindsay said, there is a process to 500 locations where the arguments against what we reviewing the very small number of closures that will were doing were compelling when the consumer come up on an individual basis. interests were taken into account.

Q139 Mr Hoyle: I know one where you did not. Q145 Mr Evans: So who invented the figure five? When does the consultation process start? How Mr Mills: We did on the basis of the number of long before? Compulsory Purchase Orders we are likely to get in Mr Mills: How long before the closure? any one year for example. I said to the Committee earlier that we are talking about things that are force Q140 Mr Hoyle: Yes. Let us say it is a general post majeure, that are beyond our control. These are not oYce, Clitheroe or something more. things where we are going in and saying at a flip of a Mr Mills: Including Postwatch’s 2 weeks advance hand we are going to close that post oYce. Our notice of the closure programme, then it is eight intention is to do our very best to maintain this weeks of consultation. network of post oYces which we personally value and I know you do. It is as if we are actually trying Q141 Mr Hoyle: So it is roughly a ten week period? to destroy something and we are saying to you as Mr Mills: Yes. clearly as we possibly can that that is not our intention. Q142 Mr Berry: We were talking about the way this Mr Leighton: Yes, it is important if it is Chorley and is or is not related to the Urban Network Clitheroe. It is five or six, it is not 56 or 560. It is not Reinvention programme. I accept that five or ten all the things that have been said. It is very important may be a small part of the total, but if you use the people see that and, more importantly, they see that Ev 26 Trade and Industry Committee: Evidence

30 November 2005Post Office Limited the idea here is to have a thriving population of full you have gone ahead and sustained the operation by service post oYces, not to have massive closures, getting premises by one means or another in order to that is not our job. maintain the service. Mr Leighton: Belfast would be the same. The key Q146 Mr Hoyle: IambaZed on that last point if it thing is it is a network. is forced through a CPO. I understand that can be four or five, but if you are only planning five then the Q153 Mr Hoyle: Where a franchise opens and, quite reality is, unless you have got a CPO, none of us rightly, you are concerned about the staV like I am, should be suVering a closure. Would that be right? are they TUPE-ed across to a franchise? Sir Michael Hodgkinson: Or the leasehold comes up Mr Miller: Obviously TUPE applies, but we do two and is not renewable sensibly. things. First of all, we do not have compulsory Mr Leighton: Or it is a ridiculous lease, ie you are redundancy, we always endeavour to find other jobs paying £250 a year now and suddenly it goes up to for the staV. Secondly, we have early voluntary £250,000. Clearly everybody would need to know retirement schemes. We find in many cases the staV what the reason was. There could be diVerent actually like to take advantage of those schemes. reasons for each oYce, but everybody would have to know what the reason was. Q154 Mr Hoyle: What happens to those people who have been working at the Crown post oYce in Clitheroe for ten years and a franchise opens down Q147 Mr Hoyle: The danger is that the press will be the road operated by whoever, have the staV got the writing down, “Don’t worry, you can’t close because right to apply for a job there or not? if you have no CPO, no lease to come up and Mr Miller: The staV have got that right under law, everything is all right, you should be rosy.” I am not yes. sure that is the case, but that is the message we have Mr Hoyle: I just want to make sure. got. If we close Clitheroe down completely and there is no franchise to be converted and nowhere to go, what will happen to those services that people enjoy? Q155 Chairman: The franchise covers TUPE. V What is the alternative? Mr Miller: What we find is that the sta normally Mr Mills: Presently 98% of the urban population is prefer to take one of those two alternatives. within one mile of a post oYce. We have already said that within Urban Network Reinvention we will Q156 Mr Berry: I accept that you are now looking maintain 95% of the urban network within one mile to close five in year one and five in year two and you of a post oYce. The circumstances you describe are are saying there may be particular circumstances unlikely to occur. where there really is not much of an alternative. In a situation like that this would presumably mean there would be substantial extra traYc for the sub- Q148 Mr Hoyle: What if they do? postmasters and sub-postmistresses in the vicinity. Mr Mills: They will not. Would you be providing finance for them to upgrade their facilities to adjust to that extra traYc? Q149 Mr Hoyle: I will give you an example. Let us Mr Miller: Yes, we have got funds available for that say you have a Crown post oYce and the lease is up to happen. tomorrow and they say we are not renewing it, you have looked around and there is nobody willing to Q157 Mr Berry: Does that mean you would in take the franchise, what would happen? It is not your normal circumstances intend to do that? fault, but this could happen. What would you do? Mr Leighton: Yes. Would you then use your nearest urban network as giving that full provision of services? Q158 Linda Perham: Mr Mills, you said you wanted Mr Miller: We have just used the example of to bring the directly managed branches into profit Wrexham where that actually happened and in those and to carry the staV with you and how important circumstances we are replacing the Crown oYce in V V 1 the sta are, but of course in any organisation sta Wrexham with new premises at a cost of £2 million costs are a fair proportion, I think you say it is 54% because that is what we need to do to maintain of the total cost of maintaining the DMB network services there. and you also claim that 80% of staV in DMBs earn a maximum rate of £9.26 an hour compared to £7.70- Q150 Mr Hoyle: So there is an alternative if £8.20 an hour in banks and £5.20-£7.50 in the retail everything else happens? sector. When we interviewed the CWU they said this Mr Miller: Yes. was not an accurate picture and in supplementary evidence they are claiming that the maximum that counter staV can earn is £17,386 and it is only Q151 Chairman: The one in Wrexham is a DMB, £15,000 if they joined during or after 2000. With staV is it? costs and wanting to consult the staV and how Mr Miller: Yes. important they are, where do you see the balance between making sure that staV who are doing a very Q152 Chairman: There are precedents of cases where important job are motivated and everybody has to the lease expires, there is no franchising opportunity, work together to get the directly managed branches there are no obvious easy alternative premises and into profit? Trade and Industry Committee: Evidence Ev 27

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Mr Mills: We have to make a very careful judgment Q161 Chairman: Could the diVerence in your figures and balance the interests of all of our stakeholders and what the union is saying be accounted for by and this is not an easy task to do. We certainly do not perhaps service or seniority payments? Is there a big prefer our shareholder to our staV and we do not turnover of staV in DMBs? prefer our staV to our shareholder either, and we Mr Mills: There is not at all, Chairman. certainly do not ignore the public interest. Obviously we would be pretty careful when we are gathering Q162 Chairman: That is what I was meaning. data to present to a Committee such as this on Mr Mills: In fact, it is a very small turnover of staV hourly rates or whatever the rates are. The data to in DMBs. which you refer was based upon 22 high street retailers and averaging their entire payroll with Q163 Chairman: So there is not really the kind of respect to retailers, and with respect to financial range of career opportunities that might exist in services, we took data from HSBC, Abbey, HSBC or Abbey or somewhere like that? Nationwide and Royal Sun Alliance to name but a Mr Mills: No, because the product range is not as few. We think our data is reasonably accurate. The extensive. answer to your question is that we have to balance the interests of all stakeholders, not just our staV and Q164 Chairman: Also, there is not the range of back- not just our shareholders. oYce activities that you might have in a bank. Mr Mills: Correct. Q159 Linda Perham: In your evidence you were Q165 Chairman: With the figures which you have pitching that your staV were in some way overpaid quoted in relation to the counter staV of DMBs as compared to other comparable areas, whereas they against the counter staV of retail banks you may not are saying that they would prefer to be compared to be comparing like with like in terms of length of customer advisers in banks and building societies service, age of the staV and issues of that nature who get £16,000-£18,000. Are you saying your staV where there may well be plus payments for people are reasonably well paid? who have been there a long period because by and Mr Mills: What we have said is that, on the basis of large when you go into banks you find and you know V the data that I gave you, our sta are paid 37% this better than me, Mr Mills, because you were higher than 22 high street retailers and 14% higher yourself involved in this for a long time the people at V for counter sta than the financial services the counters tend to be the younger members of the companies that I have mentioned to you. staV, whereas when you go into a post oYce there is adiVerent age spread. Q160 Linda Perham: When you think about wanting Mr Mills: I think the only observation I would make to bring the DMBs into profit, is there a problem is that nowadays there is a tendency for people to there with negotiations for salaries? Is it something pay for the job and not to pay for age. you would have to bring into any negotiations about wanting to keep the business going and would that Q166 Chairman: There is still a residual element hold salaries down? because if they are aging, they have been there for a Mr Mills: No, I do not think it would. The reason I while and they may well have benefits. That was just an observation which may serve to qualify part of it. do not think it would is that historically, if you think Let us look at the property costs again and I do not about it, the directly managed branches are the want to get bogged down in some of the detail we engines of government distributions and they are had before, but as I understand it around about 30% very important in that respect. They have been the of DMBs are in buildings owned by the Royal Mail. engines of the benefit agencies, they are the engines Does the Royal Mail charge Post OYce Limited of the passports, the driving licences and so forth commercial rents for these or are the rents subsidised and, as you know, the more we write of that business or have they been forgotten about? the bigger the losses we make and the more we get Sir Michael Hodgkinson: They have not been into financial services the bigger the profits we make. forgotten about, unfortunately! The margins that are available in financial services, if we are successful at competing with the banks and Q167 Chairman: It has happened in the public the building societies, are very good indeed. I firmly sector before. believe that we can maintain both the standards of Sir Michael Hodgkinson: The Royal Mail does V living of our sta and their overall package charge a commercial rent. My understanding is that providing we can make this cultural change and shift it was very clearly laid out in the three year renewal that we have embarked upon, but it is not an easy plan that in fact there should be a very clear process, it means that we have to do lots of relationship on an open market basis between Royal retraining, it means we have to keep our staV Mail and the Post OYce and I am pretty certain that compliant with the Financial Services Authority and this is the upcoming requirement under the it means that we have to be refreshing their European Postal Directives. It is not only what our knowledge constantly, but that is in a sense good for understanding is of our particular requirement, it is them because they have a greater skills base and pretty much a general requirement of business that because they are more skilled, they should earn trading relationships are done on an arm’s length more money. basis where possible. 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Q168 Chairman: You have spoken about the Mr Mills: The court did not find that it was so. likelihood of leaseholds terminating. Are you at the mercy of many rapacious rentiers? Sir Michael Hodgkinson: Thirty per cent of our Q175 Mr Hoyle: We know that in Chorley you did leaseholds are property companies, 21% are private not stick to your criteria because you did not consult individuals, 16% are institutional investors, 14% are with me in the first place and you had to restart the private companies, 11% are local authorities, 7% are programme because you had failed. How often do still BT and 1% the Government. We could give you you fail, and why was Notting Hill taken out? that information in writing. Mr Mills: We tried to redress a mistake that we made Chairman: That would be helpful. in Chorley and we did that redress in good faith. We have persistently tried to address the issues that you have raised both face to face and in writing. Q169 Mr Hoyle: Can we assume that a branch eYciency review is being conducted across the whole Q176 Mr Hoyle: of the DMB network branch by branch? And, quite rightly, the people in Notting Hill feel that they now have no real Mr Miller: Yes, you can. alternative. Is that fair to say? Mr Mills: No, it is not fair to say. I would repeat Q170 Mr Hoyle: Except in the case of Notting Hill? what I said before, that two judges in open court Mr Mills: Yes, because that branch is closed. found in our favour and found that our consultation process was fair. Q171 Mr Hoyle: Why were they taken out of the process? Q177 Mr Hoyle: That does not mean that that was Mr Mills: Because they were not required within our the right decision by the people who use the post reading of the network. As you will know, that went oYce. into consultation. Furthermore, it went to a case Mr Mills: No, but it does say that our consultation where an appellant wished to take us to judicial process was fair. review. In doing that the appellant appeared before a judge who found in our favour and the appellant Q178 Mr Hoyle: Even though those people are now appealed and went before another judge who also without a post oYce? found in our favour and specifically found that our Mr Mills: You would expect that to be the case if we consultation process had been “fair”. were consulting over a closure. Mr Hoyle: Absolutely. So the people that have Q172 Mr Hoyle: That is interesting because it is suVered must be the customers. working on your guidelines and you said if there is a public interest out there you will consult with them. Q179 Chairman: How far are people from a post Mr Mills: Yes. oYce? Mr Miller: There are eight other post oYces within Q173 Mr Hoyle: What is interesting is that in court that immediate locality. you had Michael BeloV QC for the Post OYce claim Mr Leighton: Immediate locality being how many that the reason more detailed information was miles? unavailable on the business case for post oYce Mr Miller: Within a mile around where the Notting closures and on the social eVects of reducing Hill one was. capacity was because the Post OYce then believed that the level of information was too complex for Q180 Mr Hoyle: Is that as you fly or walk? local people to understand. I think that is totally Mr Miller: Either way. unacceptable. Your QC said in court that this was Mr Leighton: Closing post oYces is not a popular too complex for local people and that you were not decision anywhere and we know that. However, the going to share information. task we were given was for a commercial entity that Mr Mills: Our QC was referring to the econometric provides a public service. It stopped at 2,500 which modelling that we have taken the Committee means that with 500 we have said, “Actually, you’re through and it took them half an afternoon to begin right. We’ll not do it.” People still think the closure to start to think about the way in which they could of 2,500 was the wrong thing to do. That is a fact. In use it. Whilst I do not believe our QC intended to 500 out of the 3,000 we have changed our minds. belittle local communities, I think he was saying that some of the work that we do of necessity involves quite detailed econometric modelling which is not Q181 Mr Hoyle: Was this Notting Hill post oYce within the usual domain of the public. one that you owned or was it on a long-term lease, or did you have to get rid of it? Mr Miller: It was owned by Royal Mail. Q174 Mr Hoyle: We know you made mistakes in the closure programme, we do know that you do not stick to your own criteria and that has been a Q182 Mr Hoyle: What was the value of that post problem. Is this one of those problems? oYce? Trade and Industry Committee: Evidence Ev 29

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Mr Miller: I am not sure about that. probably seeing nearly 50% going in this last quarter. So what you saw in that period was less loss Q183 Mr Hoyle: It has been sold, has it not? of the benefits than we had thought plus some of the Mr Miller: Not as far as I am aware. new products starting to kick in as well as the big cost reductions. Q184 Mr Hoyle: So it is on the market? Mr Miller: It is part of a bigger establishment. It has a sorting oYce with it. That sorting oYce is still in Q190 Mr Berry: In relation to DMBs, are you saying V use. it does not say anything particularly di erent or interesting about what is happening there? Q185 Mr Hoyle: So it could be one of the jewels in Mr Mills: Not yet, but that is because when you the crown that has gone rather than a lease or a write new banking products it takes anything CPO? between three to five years for that sort of activity to Mr Miller: It has got a sorting oYce as part of that come into profit. However hard they are working at building and that delivers letters into west London. this moment in time, they are writing new losses at It is still performing that function. the moment.

Q186 Mr Hoyle: Could you let us know what the Q191 Mr Berry: Amicus-CMA have called for better value is? incentives for managers and staV to assist in the Mr Miller: Yes. move from a transaction-based way of working to a more sales-based environment. Is that part of your Q187 Sir Robert Smith: It is a Royal Mail building, strategy? Y so from a post o ce point of view you are a tenant, Mr Mills: Absolutely. We have to create line of sight are you not? between what people do for us and what they receive Mr Miller: Yes. for their activity. One of the things we have done in Mr Berry: I think I ought to declare the fact that I particular with regard to directly managed branches am a member of Amicus before I ask these is that we have said to every directly managed questions. branch, hypothetically speaking, “This year you Mr Hoyle: I am also a member of Amicus. made £100. Next year you make £150 and we will Chairman: Many of us are. share that £50 with you pound for pound.” They actually get a direct benefit from the amount of the Q188 Mr Berry: Your interim half-year results income that they increase their branch by. published on 18 November showed a substantial increase in turnover and a substantially reduced operating deficit for Post OYce Limited as a whole, Q192 Mr Berry: As I recall, the CWU and Postwatch they were very good results. It may be that new have suggested that your performance targets products are generating more income than is being should include factors like queuing times but lost through the shift to direct payments. What Amicus-CMA is not happy about that. Would you proportion of those gains in improvements in the care to comment? position of the operating deficit was due to better Mr Mills: We very strenuously asked Postwatch to performance by DMBs? eliminate queuing times from the criteria by which Mr Mills: I think Roger is referring to the entire we were measured for the very simple reason that Royal Mail Group. most retailers in the land do not try and get rid of Mr Leighton: No, Post OYce Limited. their customers as quickly as they can. What they try to do is to keep them before them as long as they can Q189 Mr Berry: I was talking about Post OYce so that they can sell them more things. The sorts of Limited. The losses in the first half of the year were products and services that we are going into are not reduced by about 38%. amenable to a sale within the first two seconds so Mr Mills: The answer in terms of the gains is very that people can then walk out, it is just not like that little indeed. The directly managed branches currently handle in the order of 19.5% of the in financial services. What we have developed is a turnover. However, they generate in excess of that relatively complicated customer satisfaction index by way of their costs. The main gains that have been that we have shared all over the country with made in the last two years have been by very Postwatch and which we firmly believe, based upon strenuous central cost cutting and without any cost market research, represents those things which are cutting at the front line. We have taken something in better in our customers’ interests. the order of 3,000 head oYce staV out and that is the Mr Leighton: My general concern with performance main gain that we have had in addition to is that we will soon have more performance renegotiating contracts with our suppliers. standards than products. The most important thing Sir Michael Hodgkinson: The other thing which is about performance is that it improves. Having set quite important is that the phasing out of benefits performance standards which are pass/fail and take that one could initially have assumed would happen account of whether anything has improved for in blocks of six months, six months, six months and 220,000 people who are going through massive six months over the two years has been heavily last change does not change anybody’s motivation to do quarter loaded and so instead of 25, 25, 25, 25 we are anything. Ev 30 Trade and Industry Committee: Evidence

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Q193 Mr Berry: Mr Mills makes the point about oYce and they have got a whole series of things that retailers wanting to hold on to their customers. If they need to do, they have got commercial decisions you browse around Tesco or Sainsbury’s or to take and the longer you ask them to wait the more whatever retail organisation you want to think diYcult and more risk there is in those decisions for about for a moment, that is not quite the same as them. If we insisted on 12 to 13 weeks our ability to standing in a queue at a post oYce. You know what attract franchisees in our view would be diminished you want, it is just taking time to get it. quite considerably. Mr Mills: We said earlier on that we are persistently reviewing our top 3,000 branches. As of this very Q197 Richard Burden: Given the experience you moment in time eight and a half out of every ten have been through over the last few years not just in customers that go into our top 3,000 branches are these hearings but also in events up and down the out within five minutes. country, do you not think another couple of weeks on top of maybe what you are suggesting might be Q194 Chairman: Mr Mills, you keep going on about worth it if it is going to buy one of the things that you the 3,000 best branches. What about the 3,000 crap have failed to achieve, which is public confidence? branches which are the ones most of us seem to go Mr Mills: Yes, we think exactly what you have just into? said, Richard. Mr Mills: In the rural network it is typically quicker than that. Q198 Richard Burden: Good. I look forward to the Mr Leighton: It is not the same queuing at a post response. oYce as it is at Tesco because you have already been Mr Leighton: It does not mean we will change in Tesco for 40 minutes before you get to the queue. anything! If you think about the urban post oYces and the privately owned ones, part of their success is the fact Q199 Linda Perham: In the memorandum you gave that because they sell more products that side, ie all us some weeks ago you rejected Postwatch’s the groceries, papers and everything else, you do not suggestion that Postwatch and stakeholders such as queue because you get some other stuV and then you MPs and local authorities should be consulted in go. Queuing times is an issue for us but in a strange advance of the public consultation and you justify way it is focusing on the wrong thing. that by saying, “It would be wholly inappropriate to introduce an advance notification in the case of Q195 Richard Burden: Our discussions today have change in the directly managed network as we have been about consultation and we have made the a duty to engage our employees prior to any other suggestion in the past that the consultation period stakeholders in these circumstances.” I understand should be longer so as to allow what you may think that, but what about informing external are the misunderstandings to be worked through stakeholders after the staV consultation? properly. In your memorandum you said you are Mr Mills: We have no problem with that one. considering extending the period of consultation with post oYces. Is there any reason why it could not Q200 Linda Perham: So you agree with that even be extended to the 12 weeks we were recommending though in your memo you said that was a problem? back in our Report on urban reinvention? Mr Mills: We were specifically referring to the point Mr Miller: Our understanding on the 12 weeks, as it of advising MPs and local authorities before we is applied elsewhere, is where there are specialist advised our staV. We thought that was an facilities involved then it is normally a shorter period inappropriate act because we could be talking about of time. Our concern is that if you look at the areas redundancy for one member of staV and/or the where we are talking about, we have people who we impact on their families. It seems wrong to be are talking to about franchises and to extend to a consulting MPs about that before telling our staV. period of 12 to 13 weeks makes it quite diYcult for them in terms of committing and being able to Q201 Linda Perham: How long would you allow for commit and the degree of risk it is putting into the consulting employees and would you then, the equation from their point of view. We are in the following week, go out to external stakeholders? process now of talking to Postwatch. Postwatch Mr Mills: Yes. have put some proposals to us. We would like to respond to those obviously with a certain degree of Q202 Linda Perham: How many weeks would you flexibility. The 12 to 13 week period does give us have for consulting staV? some diYculties. Mr Mills: We do not consult staV, they would be told. It is an issue of advising staV, assuming that we Q196 Richard Burden: I do not understand why it have already agreed with our staV representatives presents the diYculties you say because the 12 week this is the direction that we are going in. As I said to period is actually laid down as the standard for you earlier, we have not agreed how we are going to consultation on public consultations. That is where move forward on the directly managed branches we got the figure from. It was not a figure plucked with our unions yet and we really are actively trying out of the air. I do not see why it is more diYcult. to get agreement. Mr Miller: My understanding is that that relates to policy questions. What we are saying to people is will Q203 Linda Perham: If you are just advising staV you come and will you do a franchise in this post that would not take much time at all, would it? Trade and Industry Committee: Evidence Ev 31

30 November 2005Post Office Limited

Mr Mills: No, that is quite correct. Q206 Mr Hoyle: You said if closures take place TUPE would apply and that you would find people alternative jobs. Mr Mills has just said you do not Q204 Linda Perham: And so you could go straight consult because there could be redundancies. That is out after that? diVerent from what you have said earlier. Mr Mills: Yes. Sir Michael Hodgkinson: Not necessarily. Chairman: I think a number of us have been placed in a position where we maybe could have been given Q207 Mr Hoyle: I just want to be clear. Earlier I was information. Certainly in my own case I have told you do not have redundancies. rejected the oVer of information because I knew Mr Mills: There are no compulsory redundancies. roughly what was going to happen, that it would be more appropriate for the workers to be told before Q208 Mr Hoyle: What message can you give my the Member of Parliament. I would not be very constituents when you have said to them not to popular with my constituents if I knew before they worry when a post oYce is closed because they will did and I did not tell them, I think it would put us in be able to use the post oYce next door to the general an invidious position. In some respects Postwatch, post oYce in the centre of Chorley? I just wonder maybe with the best of intentions, have got the what we tell them in the meantime. wrong end of the stick here as far as that side of it is Mr Leighton: Where there is noise then we have to concerned. have some certainty to it.

Q205 Richard Burden: I think there may have been Q209 Mr Hoyle: They were promised that we were a misunderstanding. I do not know what Postwatch closing this, but the backup to this is the general post were saying. The demand that has come forward for oYce. Now there is a question mark because of earlier consultation and involvement, whether it be Patricia Hewitt and her question in the Chamber. of MPs or whatever and local authorities, has not We have to get rid of the uncertainty. When do the been about earlier consultation on a decision made, five get announced for the forthcoming year? the demand is for earlier consultation on a range of Mr Mills: We will let you know when we announce options and strategies. I am not aware that the them. unions representing your staV would have any problem with that earlier consultation of external Q210 Mr Evans: What is the timescale? stakeholders, in fact they might like to be involved in Mr Mills: I am sorry, I cannot tell you. it themselves. Mr Leighton: Clearly the purpose of the Q211 Mr Evans: Do you know? consultation is how you get a good solution rather Mr Mills: No. than what is the solution. There is no correlation Mr Leighton: Let us have a conversation about how between a four week consultation and a 12 week much information we think we might be able to push consultation and a better result because in the end out to the individuals concerned. We are talking everybody hates the result anyway, you are just about five or six here, not 500 or 600. making people feel better. Just on the Crown oYces point, because of the lack of scale of what we are Q212 Chairman: Thank you very much for your talking about the ability to be tailored is much easier time. We will get back to you on one or two points than it is when it is 2,500 of these and I think that is of detail. something we will take away. Mr Leighton: Thank you, Chairman. Ev 32 Trade and Industry Committee: Evidence

Tuesday 14 December 2004

Members present:

Mr Martin O’Neill, in the Chair

Richard Burden Judy Mallaber Mr Michael Clapham Linda Perham Mr Nigel Evans Sir Robert Smith Mr Lindsay Hoyle

Witnesses: Mr Gerry SutcliVe, a Member of the House, Minister for Employment Relations, Consumers and Postal Services, and Mr Nigel Leese, examined.

Q213 Chairman: Good afternoon, Mr SutcliVe. Chairman: I do not know if any of my colleagues Welcome to the Committee. I think we are going to want to pursue this matter any further? have a vote at about 3.30. Whether we have finished the questions by then remains to be seen but the idea Q214 Mr Hoyle: Quite rightly, the Minister said is that after the vote we return because it was once there are no plans to privatise the Post OYce, but suggested to me that Whips organise votes in the does that mean in its entirety that there are plans for middle of ministerial evidence in order to give small parts of the Post OYce to be privatised? I think ministers the chance to slip away. We will be that is what the essence of the story was about. It was accompanying you and we know where you stay! I not saying it is a total sell-up but they may start think it is your first appearance before us and we are unloading pieces as competition begins to bite in. I delighted that you are able to come. As a kind of think it is clarification over the whole Post OYce taster for this occasion we all read in Sunday’s paper that we would like. and some of us heard on Saturday afternoon that the V Y V Mr Sutcli e: I can understand you raise the issue post o ce was going to be sold o . It was probably because of the speculation but it was speculation in about four months since the last Sunday newspaper The Mail on Sunday. No comment is attributed to carried that story. It is never very clear whether it is Y any other than the Chairman himself in terms of the forces of darkness within the Post O ce or taking a view on that. I reiterate there are no plans whether it is the trade unions trying to flush out the to privatise any element of the Royal Mail. In the government or whether it is the government trying to role that I have undertaken, I have spoken to all soften up the back benches. I think perhaps the last elements of the Royal Mail in terms of members option might be the most attractive on the basis that themselves, Post OYce Limited, Postwatch, there is probably no time of the year when it would Postcomm, the National Federation of Sub- be more inappropriate to run a story of that kind, so Postmasters, a variety of organisations. What we will put it down to the cackhandedness of the concerns me is that I want to see the agenda moved government. That may be a tasteless aside on my forward because clearly there is a job of work to be part which I shall immediately withdraw for the done in turning the Royal Mail round. benefit of the Whips’ OYce. Perhaps you could just explain to us what the status of these stories is and whether or not there is a scintilla of truth or whether Q215 Mr Hoyle: We can say there are no parts, not they are the latest bit of manifesto writing by those even the Westminster post oYce, that are going to be in the Labour Party who are inclined towards that privatised or sold oV? If we can take you round the activity. general post oYces, direct managed post oYces such Mr SutcliVe: Thank you very much for the as Chorley or Morecambe where the members opportunity of coming to the Committee today. It is turned up who have a keen interest because you Y my first appearance before the Trade and Industry campaigned to ensure that that post o ce did not Select Committee for which I am truly grateful. It close under the Tories. Can we say that they are now follows hot on the heels of an appearance before the safe under Labour? V Treasury Select Committee on consumer credit Mr Sutcli e: You ask me directly about the directly Y issues which I found delightful as well. On the point managed o ces and the situation in Chorley which about the position of the Whips, as an ex-member of I know has been taken up with my right honourable the Whips’ OYce I have no collusion with the Whips friend, the Secretary of State. I am aware of no plans Y about the voting this afternoon and I am happy to to close the directly managed o ce in Chorley. come back after the vote. You are quite right. The stories appeared in The Mail on Sunday this Q216 Mr Evans: The government had no plans to weekend. They are part of a number of stories that introduce tuition fees and then they did. How are we have appeared over a period of time. I have had this supposed to take what you say at face value? job for two to three months now and I have seen Mr SutcliVe: Because you and I have known each various stories linked to Royal Mail being other for many years in all sorts of capacities. All I privatised. There are no plans from the government can give you is my word at this moment in time and to privatise the Royal Mail. I cannot say any more than that. Trade and Industry Committee: Evidence Ev 33

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese

Q217 Mr Evans: Have you been in touch with them but at the end of the day it is open to anybody from the Post OYce to find out how this competitive tender. It is not the concern of this story materialised? Committee. Mr SutcliVe: I have not but I intend to in terms of Mr Hoyle: It is not that they have withdrawn; it is communications. There are issues there and it is just that that may be going out to tender? something I will undertake to do. I cannot be Chairman: I do not know. It is something that should responsible and neither can the Post OYce and be directed elsewhere but it would not be out of others for speculation in Sunday newspapers. order for them to do so because they have that power. It would be for you as a Member of the Q218 Sir Robert Smith: What do you say to someone House to raise with the appropriate House who has worked in a directly managed branch if that authorities, not with either the Minister or the Royal branch is franchised? Is that not the privatisation of Mail because it is someone else who does it. that branch from the point of view of the workforce? Mr Hoyle: Unless they have withdrawn from the Mr SutcliVe: No. The franchising that has taken tender and then who would that be? place has been a longstanding situation. On Crown Chairman: We have to wait and see. post oYces, what I would expect to happen is that Mr Hoyle: If they have not put in a tender and they there is an agreement between the trade union and have no wish to— the company to sort out issues relating to transfers. Chairman: The Minister has no responsibility for Royal Mail in that respect. Post OYce Counters activities are a matter for the board. It should have Q219 Mr Hoyle: The only answer I did not get was been raised last week when they were here. about the postal service in the House of Commons. Mr Hoyle: I did not know last week. I understand it is out to tender. Mr Leese: There are no plans I have heard of for Royal Mail to close its post oYce in the House of Q222 Chairman: It was the case last week because Commons. any service under the Postal Services Directives, as I understand it, could be up for bidding. It is something that could have been raised last week with Q220 Mr Hoyle: It is the postal services which are the appropriate people, were they prepared to enter operated, I believe. it. I am sure if you wrote to them you would get an Mr Leese: It may be that the postal service is answer. If we can move on to the other aspects of the operated by the House and I am not sure on this but Y postal services, Counters and the Urban that is not to do with the Post O ce. The House Reinvention Programme, we have had a lot of authorities have chosen to put it out to tender. V evidence which suggests that the directly managed Mr Sutcli e: We can investigate. branch network which, for the purposes of shorthand, we will call the Crown oYces today, has Q221 Chairman: If it is the House of Commons been recognised as one of the main deliverers of authorities, it is not a matter for the Minister. It is a government services. As the Minister—your matter for Members of Parliament. If there are predecessors have done so as well—you have done privatisation regulations and directions, it is down things in relation to the urban post oYces and in to the House of Commons, us, to deal with the relation to the rural post oYces. In a number of matter, not the Minister, because the Minister has instances in the context of urban reinvention, we no say on anything relating to House of Commons have had clear indications that the receiving oYce, matters. as I understand it to be called, might well be the Mr SutcliVe: That is very good news. Crown post oYce. What we are not very clear about Mr Hoyle: Can we check that? is the extent of the government’s commitment to Chairman: I am telling you from the Chair that is the sustain Crown post oYces as well as urban ones or, position and if my honourable friend wanted to have for that matter, rural ones because they are in a the catering services totally privatised it would be diVerent position. What is your attitude towards the within his powers to do as a Member of the Crown post oYce as a part of the network? Committee. There is an appropriate committee Mr SutcliVe: We need to take a few steps back first. which deals with those House of Commons services You have to look at why we are where we are. The relating to postal matters and it is not for either Post House approved the recommendations of the PIU OYce Counters or for the Royal Mail in general. It report in terms of the development of Royal Mail is the House of Commons. Therefore, it is not an because of the problems that were there and appropriate matter for us to look at. accepted many of the recommendations of that Mr Hoyle: For clarification through you, Chairman, report. There was a need to support the rural as you are the expert, could you say whether the post network which has been done. I accept the Urban oYces which operate at the moment on the Reinvention Programme has caused a lotof parliamentary estate are safe and that is not an issue? concerns and in my short time as a Minister I have Chairman: They are not safe in as far as they are been made well aware of those concerns from a within the gift of the committee whom we and our number of Members right across the House. We colleagues in the Whips’ OYce appoint. It is to them believe that the Reinvention Programme is the right that you must direct your questions, not to the way forward. It needs to be managed and we need to Minister or even for that matter to Royal Mail make sure there is a viable PostOYce at the end of because Royal Mail doubtless put in a bid to run the day as we do with Crown post oYces. Part of Ev 34 Trade and Industry Committee: Evidence

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese those recommendations was the loss that Crown meets the requirements of consumers because, at the post oYces were involved with and the need to turn end of the day, that should be the reason for them that round. That was the request made of Post being there. Consumers are our constituents. OYces Limited. Members will be aware of the letter sent by David Mills to Members of Parliament in Q226 Sir Robert Smith: You said in that answer that November explaining what was planned. I would you had asked the Post OYce to look at the losses expect to see that whatever position is reached will but can you clarify that it is an instruction from the be reached between Post OYce Limited and the Government that they should not make a loss on the trade unions as far as the future of Crown post directly managed branches? oYces is concerned. From the government’s Mr Leese: I do not think it is quite as clear as that. perspective, we want to see the balance in place. We It goes back a bit further. First of all, it was the PIU want to see the agreement that was struck under one report that identified three distinct parts of the of my predecessors that no less than 15% of the work network for which it proposed diVerent policy tools. be done through Crown post oYces. The rural one where the key thing was to try and take them through the changes over the next few years; Y Q223 Chairman: As we understand it, the losses the urban sub-post o ces where clearly it was incurred by the direct managed branches network rationalising and bringing into line supply and Y have to be eliminated. The Secretary of State has demand; and lastly the Crown o ce network, where said, “No more losses in this area.” That is fine but it identified the ongoing losses as being the biggest they do deliver an important social service. They are threat to them and said that should be where considered by their customers in small towns we should tackle those losses. It did not come particularly as an amenity. Even although there is a straight from ministers. We accepted those post oYce past which they might walk, there is recommendations. In discussing the strategy with always a sense in which the current post oYce is the the company, it was clear that what we wanted was place where you can get a passport, your road fund for them to concentrate in this area on reducing the licence, you can get documents authenticated, new losses. There is no instruction that they must reduce driving licences and the like. How do you balance those losses to zero; nor that they could not cross- these kinds of social obligations with this rather hard subsidise within the Crown network or indeed nosed approach that the Secretary of State has taken within the network if they thought that was best in regard to profitability? operationally and for consumers going forwards. Mr SutcliVe: I would not agree with the hard nosed The expectation is that they will drive down the approach. losses. Hopefully they will bring it back into profit but they must reconcile the social and the commercial in delivering that. Q224 Chairman: You have given the Post OYce the right as an organisation to run as an independent Q227 Sir Robert Smith: Whilst it was a body but you have said in this specific area, “You recommendation from the PIU, if the Government cannot run the direct managed branches at a loss. endorsed the recommendation, the Government’s You cannot have cross-subsidy.” There is nothing message to the company is from the Government, is under European competition rules that requires you it not? It is not the PIU to the company? to deny yourself the option of cross-subsidy so why Mr Leese: That is fair. The Government, in have you picked out this bit and said that the £202 accepting that recommendation, has said to the million or whatever it was of loss has to be wiped out company that it wants it to tackle the loss-making in its entirety? There might well be cases where a Crown oYces. It expects it to do so not by closing degree of subsidy might be appropriate. them down and forgetting the social obligations but V Mr Sutcli e: If I have what you are saying correct, by trying to deliver the service more eYciently and, Mr Chairman, are you implying that the Crown post as highlighted by the PIU, one of the key ways that Y o ces are going to close? they are now going about that is by transferring some of these things through franchises. Q225 Chairman: No. Are you confident that you can balance the profitability of the Crown post oYces, Q228 Sir Robert Smith: The evidence from Post even if it is just one pound a year of a profit that is OYce Limited when they spoke to us is that some of made, with the maintenance of the quite important the turnaround they have managed to make has not social role which a lot of people associate with the been delivered by the directly managed branches yet. direct managed branches? The point was put to us that the full eVect of the Mr SutcliVe: I think it is in the spirit of the PIU Government’s decision to shift direct payments and report again in terms of recommendations that were benefits has not hit yet and that the directly managed made. The 555 Crown oYces made a combined loss branches in particular will be at the forefront of of £71 million last year and only three Crown oYces being hit by that because they tended to take the bulk return a profit for the company. The losses are a of that business. The message from Post OYce massive drain on those resources which could be Limited is that it is going to be quite a struggle. What better used for the benefit of customers. I think a we were wondering is, if they cannot deliver a balance can be achieved and it would look a bit odd breakeven, what is the Government’s long term view if we did not ask the Royal Mail to look at these of the directly managed branches? Are you happy to losses but to maintain a post oYce network that see them going on being subsidised? Trade and Industry Committee: Evidence Ev 35

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese

Mr SutcliVe: We are happy to make sure that they consumer interests and stakeholder interests. They can be turned round. The indications from Post needed to make sure that every angle was looked at. OYce Limited are that they can be turned round in I see that as vitally important. The issues on Crown light of the results of the Post OYce over the past post oYces are on finance, to turn round what is a period. You have to remember the amount of money drain on resources that aVect the service to the the Government have put in terms of subsidy to the consumers, but within the framework of the social Royal Mail, £2 billion, and honourable Members requirements what we all want to see is a sustainable would be the first to criticise if the Government did postal network. not get a good return on that investment. We want to see the element of the Crown post oYces within V Q232 Richard Burden: I understand that. The issue that framework of postal services that are o ered of the economics of it is something that has to be supported. We have no indication from the addressed but the PIU report had two elements to it. company that they are not going to be able to One was how do the sums add up and the other was achieve what has been asked of them. how do we develop the role of the Post OYce, including Crown post oYces, in a way that maybe Q229 Mr Clapham: Given that the PIU set direction could change the equation within which the sums and that you asked Post OYce Limited to look at the have to add up and which could create new Crown post oYce scene and we know that a review opportunities? We will come back to this later but in has been carried out, have they reported to you on making the calculation you say you have made, what how many Crown post oYces they think would be consideration have you given to the opportunities suYcient to provide a viable service? and potential for expanding the role of Crown post Mr SutcliVe: No, they have not. oYces rather than just making them pay for Mr Leese: We are about to start the next strategic assuming this role, as much as it has always been? planning exercise in which I would expect to see their Mr Leese: The Government accepted all the plans that they are discussing now with the unions recommendations of the PIU report, including the being merged into that. At that point we might see one on your guide and did fully pilot the service in the kind of numbers that you are talking about. In Leicestershire. It was just unfortunate in the results terms of a viable service, they would categorise it as of the pilot. The assessment of that was that it just the service that is important, not the ownership of was not cost-eVective to roll it out. Looking at new that particular part of the service. services, yes; accepting things from the PIU, yes, but in that particular case it was just unfortunate that Q230 Mr Clapham: The reason I ask is that the the facts on the ground did not support rolling unions suggest that there is a document that talks this out on a nationwide network. In terms of about between 320 and 390 directly managed oYces new services more generally, another PIU being left. It struck me that they may well have recommendation was universal banking and that reported to you. was successfully launched on 1 April 2003. They are Mr Leese: In terms of have they reported that to us building on that with other banking services. The as a target, no. I am however aware of those numbers Post OYce management whom we have tasked with because I am aware that those are numbers that they introducing new services that consumers want are are talking about in principle with the trade unions. introducing a range of financial and other services at Mr SutcliVe: Any decision needs to be met by the moment. It is not all just looking at the hard agreement between Post OYce Limited and the management figures. trade unions. I would expect that both organisations Mr SutcliVe: Barring the financial services that have would have a view to the wider perspective of what been oVered by Post OYce Limited, we need to look we are trying to achieve in terms of post oYces in the at what else can be done through evidence that social network. comes from the benefits of the investment into the rural post oYces. There has been movement to look Y Q231 Richard Burden: I was a little surprised by the at taking post o ces into community centres and emphasis that you put on the PIU report as the basis things like that. There is a whole range of things that for the current review of Crown post oYces because, can be looked at but we have to balance and are whilst I understand that without the PIU report the balancing future needs and direction against the issue of economic viability would be a matter of financial position that they find themselves in as concern for yourselves and also Royal Mail, if the well. PIU report is the basis of the whole discussion, as central to the PIU report as economic viability of Q233 Mr Hoyle: Most people think there ought to Crown post oYces are things like our guide and be a cooling oV period anyhow because what we are actual expansion of the role of Crown post oYces not doing is seeing the eVects of new business coming and indeed in some cases sub-post oYces. If that is into directly managed post oYces, the Crown post the basis of it for this, how do you square that with oYce. We have seen urban closures and part of that the fact that your guide has been abandoned? reason was, “Do not worry; you still have the Crown Mr SutcliVe: The principle is about the losses that post oYce in the town. That is nearby. You go have occurred, the need to have a sustainable shopping”, so we have not seen the eVect of that network, the need to develop a sustainable and business coming through yet. The business case for viable Post OYce Limited. The government through a lot of Crown post oYces needs to be assessed in 12 Postcomm and Postwatch are looking at the or 18 months’ time when that business has been seen Ev 36 Trade and Industry Committee: Evidence

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese and there is a real eVect. The problem is that the but if his shop goes bang that is the end of the post excuses were used to close those urban post oYces, oYce and you have to find somewhere else. It is that using the Crown post oYces as the next best step and danger that people are worried about. the fact is we are now looking at those before we Mr Leese: First of all, the obligation is on the Post have seen the business because they are losing OYce to find that. If the circumstances you describe money. I think it is very premature and I am not sure happen, they have to find another partner. They that we are getting the real reasons for what is going have to find another way of delivering the postal on within the management of post oYces. services there. In terms of whether a franchisee is Mr SutcliVe: At the end of the day the Government more or less likely to have circumstances that and Parliament has given Post OYce Limited the change, there is no certainty across business at all. commercial freedoms to bring what we all wanted to Nobody knows what will be happening in 15 years’ see which was a viable, sustainable network. Clearly, time, particularly what customer demands might be a problem has been identified in the PIU report, for the services. although I accept things have changed around that. Mr Hoyle: The answer is keep the Crown post It would be wrong in a commercial framework not oYces. to address problems that have been identified. That Chairman: The point was made by Mr Leighton last has been identified not only by the company but by week that if there is going to be any franchising in the the trade union as well in that discussions are taking future there will be quite a clear, explicit place to look at what that future holds. commitment to sustain a post oYce for ten years, not for 15. You may have been out of the room at the time, Mr Hoyle, but it was made clear on that Q234 Mr Hoyle: The danger with that is normally occasion that there is no likelihood, as we you wait for an assessment of the trade following the understand it, of Crown post oYces which are closure. If you have two breweries and they are both franchised not remaining open for up to ten years. losing money you close one brewery, you then assess That is something of an improvement on what had whether the other brewery is viable in the future. been the case before because we did have instances What we are doing here is closing both at the same where particularly supermarket chains took over time. We are also not seeing what is transparent convenience store networks and decided to move the about the closures, how it works, what the rationale goalposts. is, what were the circumstances. As you pointed out, three are profitable; the rest are not. Is it because business has been moved? Is it because there are Q236 Linda Perham: I would like to think about how extra charges being put on? We do not know that the Government monitors the performance of the and I think that is half the problem. You can maybe Post OYce. As you know, the Government is the assist if you know what the reasons are. You do not shareholder. I am sure you have come across, as all know how to treat the patient because we are not of us have, a confusion amongst the public about the being told what the symptoms are. Government’s responsibilities. It is why we all get Mr Leese: In terms of the Crown oYces following these problems with the way a post oYce has been from urban reinvention, the key point I would like closed under the Urban Reinvention Programme to make is that the Post OYce do not have a Crown and what are perceived as threats to Crown post oYce closure programme that they are moving into. oYces. The Minister has talked about the What they are looking to discuss is increasing the reconciling the social and commercial roles and your number of franchises they do. I would contend that memorandum says that the Government does not if they simply franchise an oYce in the same area, no seek to direct or micro-manage the company and has oYce closes. Therefore, there is no material impact established an arm’s length relationship with them on urban reinvention. An oYce that was there is still to ensure they have the freedom to act commercially. there. It just happens to be managed within the Co- Does this mean that there are no circumstances op or some other such arrangement. I do not think under which you would intervene in the Y there is a negative impact following one on from the management of the Crown post o ce network? V other. It is diVerent where there is a closure and they Mr Sutcli e: There are a number of questions there. did admit that over the next five years they might The first is how do we monitor the company’s have anything up to 30 closures. Where they have a performance? That is done in a variety of ways. closure of a Crown oYce that moves on, they have There is a regular, quarterly shareholder meeting Y said that that will largely be in force majeure which is attended by the DTI and Treasury o cials. Y circumstances but even with that they are still bound O cials have regular meetings with senior managers by their undertaking that, at the end of urban to discuss operational performance and there are reinvention, 95% of urban population will be within also regular meetings with non-executive directors. I a mile of a post oYce. I do not see that undertaking have just been through a process of meeting with Mr as stopping the day that the urban reinvention Leighton, Mr Mills, Mr Crozier, since I took over programme comes to an end. I see that rolling these responsibilities, so these are regular, separate forward. discussions that take place about what progress has been made. Since the 1960s, the Post OYce has had this arm’s length position that previous governments Q235 Mr Hoyle: The danger with that is that you have welcomed as well. What are the circumstances have no guarantees if it is a franchisee. Yes, he may when government will intervene? When progress is sign up to say he will keep this post oYce for 15 years not being made. When there are concerns as there Trade and Industry Committee: Evidence Ev 37

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese were with my predecessor around February time, Postcomm towards the spring of next year which will when he changed the criteria in terms of the issues on be helpful to look at the basis of how the reinvention consultation. We would and do take an active view programme has gone. at times when we feel there is a major impact on the service, but because of the commercialisation that Q239 Linda Perham: You mentioned about the House voted for it is up to the Royal Mail Group Postwatch. Although they have had some success in to manage that business in a commercial way set stopping some closures of sub-post oYces, they have against the criteria that Government put forward for not stopped the closure of a single directly managed Postcomm in terms of revitalisation of the market branch. They have not been able to have any eVect and at the same time maintaining a Royal Mail on possible closures of Crown post oYces, have service. We believe we have set good parameters; the they? need for a managed change to profitability and to Mr SutcliVe: There is no significant closure look towards the future. Part of the diYculty for all programme for Crown post oYces. I have said that, of us, including me, has been that we reflect on the Mr Leese has said that and Post OYce Limited have Post OYce of the past as opposed to a Royal Mail said that. There is a look at the need to turn round and a Post OYce and where they are going to head. the losses within the business. Postwatch have a view We only have to look at what happens in the rest of about how they see things but we think this is a Europe in terms of what has happened to postal commercial issue that Post OYce Limited should services. That is the reason why there was a need for look at in conjunction with their employees, commercial freedoms and for there to be a step represented through the trade union. We are happy change in how the service operated. Had there been that the franchising that could take place can be unplanned and unmanaged closures, we feel that the discussed. On the Urban Reinvention Programme, gap would have been too wide and we would have the Postcomm survey will be helpful. On Postwatch gone past the time to be able to do anything positive. involvement on the Urban Reinvention Programme, Hence why that significant £2 billion of investment on the whole, it has gone well although I have had went in. representations from some Members where it has not gone so well and I am taking that issue up with Postwatch. Q237 Linda Perham: Obviously, if the Post OYce has a commercial role run by business people, the Government, would you say, has to protect the Q240 Linda Perham: At the beginning of my Y questions, you described how you monitor the social role of the Post O ce? We have talked about Y the Urban Reinvention Programme. Quite rightly, performance of post o ces. Are you happy that that as I see it, you could not have let it carry on with post is the right balance with what you described at the oYces closing here and there. There had to be some beginning and it is not that close and that is the way sort of plan but under that plan there were receiving you do it? Mr SutcliVe: You could always improve post oYces, Crown post oYces, the ones that were communication and there are every now and again intended to take the business of sub-post oYces communication issues between Royal Mail, the Post which were closing. It looks now as if, although the OYce and government but the structural Royal Mail has said they are only closing five or six infrastructure is quite right and I do not think we next year, if there is any move to reduce the numbers want to change that in any way. of Crown post oYces significantly, that aVects the social role even more, would you say, because they provide so many more services and accept a lot of Q241 Mr Evans: Looking at the sustainability of the business from post oYces that close? What is your network, do you see this simply in economic terms or view about the Government’s job to protect the do you see it in service terms? V social role of the Post OYce? Mr Sutcli e: I see it as a mixture of both economic Mr SutcliVe: That is why the Government gave the and consumer terms. powers it did to Postcomm and to Postwatch, to protect consumer interests. On the whole in terms of Q242 Mr Evans: As you know, the Urban urban reinvention, that seems to have worked well. Reinvention Programme as it is known, or the I am happy to announce to the Committee, although closure programme as it is commonly known they may know already, that Postcomm are going to outside, means that there are huge areas now that do a review of the Urban Reinvention Programme in used to have post oYces, including my own the new year to see what impact the changes have constituency. In Clitheroe, for instance, now we are made. That is a positive step forward in terms of down to one post oYce where we have had two looking at what has happened. branches close recently. A constituent told me today that there were huge queues outside the post oYce into the street meaning a police oYcer had to make Q238 Sir Robert Smith: Postcomm advise sure that the people queuing did not go into the road Government Ministers on the issue. They do not because of the traYc. Clearly, there has been a control the Post OYce when it comes to the network. deterioration in the quality of service in that area Mr SutcliVe: That is correct but Committee now for those who used to have the other branches. Members are asking Government to take a view or Under the programme that has now gone on, there to be closer to the action, if you like. I am saying that must be a real worry that we have reached there will be a very useful survey that will come from threadbare as far as the network is concerned and Ev 38 Trade and Industry Committee: Evidence

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese that any further closures are just going to deteriorate prepared to consider financing any of the direct even further the current threadbare network that managed branches that might come up for closure in there is. given areas? Mr SutcliVe: There has been a MORI survey looking Mr SutcliVe: Obviously within the Urban at people’s confidence post-closures that shows 90% Reinvention Programme through the ODPM’s confidence in terms of when an oYce has closed and deprived and urban post oYce fund 350 post oYces they have been referred to other areas. You raise the received up to £15 million. We saw a need in that issue of the Ribble Valley. There are 36 post oYces particular area. We do not see at this stage, because in the constituency, 29 that are rural that are getting nobody has put it to us, the need to carry that protection from the rural fund, seven that are urban forward to the directly managed oYces for the of which three have closed under the programme. reasons that we outlined. We do not see that there is That is when we move on to Postcomm and the going to be a massive closure programme and that issues that they survey and identify. If that was an the balance will move from Crown post oYces to issue that was clear across the country, I am sure inappropriate franchises. At this point we would not action would have to be taken. At the end of the day, see the need for that. what we also want to see—and it is part of the manifesto of sub-postmasters and mistresses—is Q245 Mr Clapham: If it were put to you, that could bigger, brighter, better post oYces oVering new be something that you would look at? services. The Government is committed to that as Mr SutcliVe: We think it would not be a proposition well. that would come easily. If something unforeseen were to happen where that route with the franchisees Q243 Mr Evans: It is not bigger, brighter, better was not appropriate and there were particular certainly in Clitheroe where there are longer queues. problems, although we would argue that the way Are you happy, Minister, that the service that you that the company have been able to turn round their want to give the people now is being given through losses in the last two years, we hope that they will be the network that is currently there? Are you also able to make contributions from their own funds for concerned, as the public are, that any further areas. I am not ruling anything in or out at this stage. closures are going to deteriorate the network? We appreciate what is happening in rural areas, but the Q246 Judy Mallaber: CWU told us that the Y post o ce is far more important in rural areas in company might be losing money on some of the some cases, as you know. There must be an services it delivers for the Government. Is that true? acceptance on behalf of government that there Mr SutcliVe: Each of the contracts that are delivered simply are some branches that will never, ever is entered into by the company and each government make money. department has separate contracts. The details of V Mr Sutcli e: I know you will accept the extent of the those negotiations go through the individual investment that has gone into post oYces from spending departments. I would not expect there to government since 1999, which has covered the area be uneconomic arrangements and if there are we of rural post oYces, which has set the social would expect them to be put right. framework in terms of urban reinvention, the mile rule and the money that has been coming from the OYce of the Deputy Prime Minister for post oYces Q247 Judy Mallaber: When Post OYce Limited in deprived areas. I am happy that we have tried to replied saying that they would be looking to increase cover all the various aspects of that but I also want their prices because the margin on government to see a continuation of that monitoring and that is contracts was too low, you would expect that to be why I say that the Postcomm survey will be of use in taken into account when they review the contract? V Y the spring of next year. Had we gone on in the way Mr Sutcli e: One of the di culties that I personally of the past, there would have been unmanaged have seen in the role that I have undertaken is that, closures. There would have been no queues because whilst it is necessary to have the commercial aspect there would have been no post oYces for people to and the arm’s length approach, there could have go into. What we are seeing now is an improvement been better discussions between Royal Mail and in that but we want to see things improve even other government departments. I personally think more so. that is an area where there could and should have been more discussion and consultation.

(The Committee suspended from 3.28pm to 3.58pm for a division in the House) Q248 Judy Mallaber: One of the arguments that the Post OYce makes in their supplementary evidence to us is that in eVect the customers they serve are Q244 Mr Clapham: Given that the Government has becoming more costly to serve as some of the recognised the importance of post oYces in government products can be provided in other constituencies like mine where you have a large, outlets. Inevitably, they are dealing with some of rural area and, at the same time, you have pockets those people who find it more diYcult to access those of deprivation and has therefore provided financial other services elsewhere so therefore the costs to support for sub-postmasters, are there any them of providing those services could be higher circumstances in which, for example, you would be than might be expected. Again, presumably, you Trade and Industry Committee: Evidence Ev 39

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese would agree that the post oYce network should not Q252 Richard Burden: So is a directly managed be forced to deliver government services at a loss and branch being scheduled for closure? that any arrangement should meet those costs? Mr SutcliVe: It is being looked at for closure. Mr SutcliVe: I would expect there to be an economic price paid but also I would expect that Post OYce Q253 Richard Burden: If you in your capacity as Limited would acknowledge their social local MP— responsibilities as well. Mr SutcliVe: I have to be very careful.

Q249 Sir Robert Smith: Is there any active attempt Q254 Richard Burden: —and local councillors and in Government to co-ordinate between other stakeholders are consulted on the process, on departments’ best practice for trying to see Post the assumption that a range of post oYce counter OYce first as a point of delivery or access to services would be available to local people, and they customers? would be available at a directly managed branch and Mr SutcliVe: I think you will find from the then that directly managed branch ceases to exist or comments I have made that I think that is an area is being considered for closure, it must undermine where there could be some improvements and I will the consultation, surely? undertake to try and see that those improvements Mr SutcliVe: In terms of the reality of what happen. happened there, as constituency MP representations Sir Robert Smith: Thank you very much. have been made to Post OYce Limited and they are considering those representations following discussions with the local authority. Q250 Richard Burden: Can we just move on to the relationship between the directly managed branches Q255 Richard Burden: If that leads then to the Post and the whole Urban Reinvention Programme. OYce reconsidering, presumably there would not be When the Urban Reinvention Programme was a problem? explained to us, how it is going to work—and Mr SutcliVe: No. certainly the way people have been told it works in their own areas—the centre of it was the idea of area plans. In a large number of those area plans, in fact Q256 Richard Burden: Does that not lead on to most, when it said sub-post oYces would close the something else—which is how we come to be having this inquiry in the first place—which is the fact that receiving branch would, in a lot of cases, be the Y directly managed branch, the Crown post oYce. I when we were questioning Post O ce Limited about think 425 out of 555 directly managed branches were their Urban Reinvention Programme, in the middle designated one way or the other as receiving of our cross-examination of them on that they said “By the way, we are having a review of the Crown branches under the Urban Network Reinvention Y Programme. That being the case, you understand post o ces as well”. That was the first we knew the concern that if a directly managed branch is about it and the first a lot of people knew about it at scheduled for closure—and we know you do not that time. Is that not at the root of a number of the anticipate there being a lot of those—does that not problems with the Urban Reinvention Programme, undermine the whole basis of the Urban this review and the rest of it, that all of us feel we are the recipients of the latest bit of information about Reinvention Programme in the area concerned? Y Mr SutcliVe: Because I do not believe there are going what is going on which pours out of Post O ce to be large scale closures, as I said earlier— Limited rather than being involved overall in what the plans are for the future? For local communities in their own area to be approached by Post OYce Q251 Richard Burden: Even if there is one. If the idea Limited saying “This is what we want to do in the of the Urban Reinvention Programme, the area area, here are the problems, here are the plans, is to look at an area as a whole and within that opportunities, here are the options for closure, here it is said that the directly managed branch should be is where the new business could be, this is how we the receiving branch, if one of those is scheduled for want to do it”, is that not really where people should closure it undermines the Urban Reinvention be involved in discussion rather than being Programme in that area. It may not undermine it consulted on whether a particular branch is going to anywhere else but in that area presumably it close, whether it be a directly managed branch or a undermines it. sub-post oYce? Mr SutcliVe: My initial reaction to that would be Mr SutcliVe: I will let Mr Leese answer that on the that I would expect that a discussion would take basis that he was involved at the outset. place. I do not see that it does undermine the process Mr Leese: I think in terms of the area plans, first of because I think we are very clear on the diVerence all, as they have moved to area plans what the Post between directly managed branches and the OYce have done is they have mapped out where they branches managed by sub-postmasters and sub- feel local consumers would be best served and what postmistresses. I think that is very clear, I do not see will be the most viable network in each area as they that it would undermine the issue. I find myself in a go along. While people are consulted on the diYcult position, Chairman, in a sense, because one individual closure, they are consulted against the such incident has happened in my locality, it did not backdrop of a plan which, as you say, includes undermine the process of the Urban Reinvention Crown oYces as receiving oYces or staying oYces as Programme. well as sub-post oYces. In terms of the review going Ev 40 Trade and Industry Committee: Evidence

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese forward, I think the key is there is a review about Q261 Richard Burden: We put this to them when reducing costs, there is not a review about whether they gave evidence to us a week or so ago and we put and how to close Crown oYces, therefore at the end it when we were discussing it with them on the Urban of that review, whatever else happens, they will not Reinvention Programme and we put it to them when be putting forward proposals to close extra oYces so we were talking to them about the impact of direct there will not be a closure in an area. If your payment. What is the problem with them sitting constituency has seen a certain plan, they will not be down with stakeholders in an area, whether they proactively closing a particular branch, whether it is be Members of Parliament, councillors, users’ a Crown oYce or a sub-post oYce. At the end of the representatives or Postwatch, and saying “Look, short phase, if you like, of Urban Reinvention, there this is not about consulting with regard to closures, is a particular plan on the ground but nobody has it is about saying how do we construct a viable post ever committed that will be how it will look forever oYce network serving this community? What do you more because nobody can predict what is going to want to see out of that plan? What do we want to see happen. There is still uncertainty about where out of that plan? What are the constraints? What are demand will go for post oYce services going the opportunities?” They have never ever done that forward. I do not think that looking at the Crown anywhere and what is the problem with them doing oYces in terms of eYciency has any material eVect it? That is what we keep asking them to do. V on the Urban Reinvention Programme at all, nor Mr Sutcli e: I have some sympathy with that in the indeed on the certainty of how those oYces are going sense that I do not see it is going to be a mass closure to survive going forward. programme, that is not what it is going to be. I see a need for Post OYce Limited to speak to their employees and work out, as a starting point, those Q257 Richard Burden: Do you know how the area arrangements. Postwatch and Post OYce Limited plans came about in the first place? are reviewing the relationship they have got Mr Leese: How they began? following the Urban Reinvention Programme, so that could be part of it. I will ensure for the Committee I will speak to David Mills to make sure Q258 Richard Burden: What was the process which that happens. led to Post OYce Limited deciding to go for area plans rather than suggesting individual closure of post oYces where they felt that they were not Q262 Richard Burden: It is proactively looking at the economically viable? plans for an area rather than reactively looking at Mr Leese: My understanding is they changed from plans? Mr SutcliVe: It must be in their interests in the one to the other. They started, if you like, going with overall position we are trying to achieve, which is a the ones that were the ones most likely to close viable network. almost imminently. Richard Burden: Absolutely. Thank you.

Q259 Richard Burden: No, I mean the principle of Q263 Mr Clapham: Minister, can we turn to doing area plans and looking at an area as a whole, franchising because we were told by Allan Leighton where that all came from? and David Mills that this next year there would be Mr Leese: They started from that and they moved no more than five or six of the direct managed because in going through the process a number of branches closed. Given the figures which we know concerns were expressed to them both by the public are being bandied about from the review that is and Members of Parliament in particular saying— taking place, the direct managed network is going to indeed, this Committee no doubt made some rely very heavily on conversion to franchises. Given comments on it—“How could you respond to an that the Communication Workers’ Union is individual closure if you did not know what was opposed to franchises and given that both parties going to be happening in the rest of your have suggested in the past that the service provided constituency over the next two or three years or, by franchising is not of the same standard as the indeed, in neighbouring constituencies and towns?” service that is provided by the direct managed They moved to reflect those concerns to try and map branches, are you confident, for one thing, there will it out in a way that was looking ahead all in one go. be suYcient franchisees of a proper standard in order to ensure that the service is able to be provided and the service will be able to be sustained? Q260 Richard Burden: Given that history, to then be Mr SutcliVe: How I would answer that is, first of all, told there is another review unrelated to it that may there need to be—and I know that this is taking change the conclusions of that first review and place—ongoing discussions between Post OYce actually cause a lot of concern for the credibility of Limited and the trade union about the future of that first review, do you not see why people are Crown post oYces and the franchises that are taking concerned about that and why we are concerned place. I am quite happy because it is one of the things about that? I asked to look at about the criteria of franchising to Mr SutcliVe: I would if there is a plan for closure but make sure that was adequate. I was concerned there there is not. I would if it is that they are going to shut had been issues raised by Members of Parliament down half of the Crown post oYces, they are not about people not being able to get franchises and going to do that. diVerent franchisees being picked, so I am quite Trade and Industry Committee: Evidence Ev 41

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese happy now with the criteria that exists. As Mr Leese Mr Leese: Crown oYces all do have the full range of said earlier, there have been some changes in terms post oYce services but they do not have those of some of the larger supermarkets not wanting to exclusively, there are at least another thousand post continue with post oYces and that has been looked oYces that carry the full range. Whenever they at, I do not know if he wants to comment on any of franchise they carry that full range into them and I those. I think franchising and the criterion for that is think it is covered by my previous answer that the adequate but, of course, there has to be the quality of service continues to be high. negotiation taking place between the company and their employees. Q271 Chairman: You have repeated on a number of occasions this afternoon that provided the unions Q264 Mr Clapham: Has the union submitted to you are agreeable and the Post OYce is agreeable, you their concerns about franchising? are quite happy. What about the customers? At the Mr SutcliVe: Not at this stage but I have been in end of the day they are the people for whom the discussion with the union today and I am looking service is provided; it is not for the unions, it is not forward to a document they are going to present to the Post OYce. me in the not too distant future. Mr SutcliVe: The reason why I make the comment I do is as Minister for Consumer AVairs and that is Q265 Mr Clapham: Given what they have said about why it is under my responsibility that a consumer franchising and their concerns, are you satisfied that must come first. At the end of the day it must be a Post OYce Limited is a proper monitoring system in service to the consumer which the consumer wants. being to be able to oversee what is happening in the That has been part of the problem in terms of the franchised branches? changes that have taken place because consumer Mr SutcliVe: I am at the moment, but clearly I look needs have changed. We are talking about a complex at any concerns that are put to me and review those organisation, complex sets of relationships where concerns in the light of what evidence is given to me. there have been historical problems. What I want to see is the consumer being put first but that there is good discussion between Royal Mail and their Q266 Mr Clapham: Would you be prepared to ask employees either at the group level or at the Post them to provide you with evidence that customer OYce Limited level to take it forward because at the service standards are maintained in the franchised end of the day if there are not good industrial branches? relations then the consumer will lose out. Mr Leese: They have already provided us with that type of information because they monitor the service levels provided through their own branches against Q272 Chairman: One of my colleagues is going to ones that are recently franchised and, indeed, come on in a moment to one or two notable Y examples of closures. One of the things which we through sub-post o ces. Those consistently show Y high levels of customer satisfaction. There is very have discussed with the Post O ce, and we have not little diVerence between a Crown oYce and a raised with you, is the length of time available for franchised one. On some counts, higher scoring for consultation. Quite correctly it is appropriate that the franchised oYces which typically might be open the workforce in the place concerned should be for longer hours and oVering a wider variety of consulted or not consulted but told what is going to products that customers want. happen, it would be nice if they were consulted but the chances are under our legislation at the moment, because of the Government’s refusal to introduce Q267 Mr Clapham: In terms of the proportion of consultation legislation on the European model, we franchised units, which I understand is about 900 just have to take what we can get. Given that you out of the 1500, is it possible to say how many of have to speak to the unions first, are you satisfied those franchised units have been given a tick as about the length of time for consultation because the providing a high standard of service? Cabinet OYce has said that they think 12 weeks is Mr Leese: That is a question we would have to ask the best available time for public consultation? The the Post OYce. Post OYce, as I recall, moved from six weeks to eight weeks and the 12 week period is being set down as a Q268 Mr Clapham: Is it one we can ask? gold standard. Why do you think that this body Mr Leese: We will. which you are a major shareholder of should not be required to meet the same standards as the Cabinet OYce? Q269 Mr Clapham: Is it one that you will ask? Mr SutcliVe: Chairman, my other responsibility is Mr Leese: We will ask that question. that of Minister for Employment Relations and in April next year the Government will be introducing Q270 Chairman: There are certain services which are its new regulations on information and consultation provided by the Crown post oYces, for example the which is a key cornerstone to industrial relations and verification of passport information and things like employment relations in the United Kingdom. I that, are you content that the consumers’ interests would hope the principles which are applied in that are being protected in the franchised facilities? legislation, which takes place in April, are applied in Mr SutcliVe: I am, and that is the advice given to me the relationship between Royal Mail and its by the oYcials. employees now because we are trying to get Ev 42 Trade and Industry Committee: Evidence

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese voluntary arrangements in place. I am aware of the Mr SutcliVe: I do not want to give the impression— Committee’s concern about the 12 weeks but, as I and it seems to me to be coming, and I know not said earlier, no decisions have been taken yet. I will intentionally from the Committee—that there ask David Mills to look at the viewpoint of the appears to be a massive closure programme as far as Committee that 12 weeks might be an appropriate directly managed oYces are concerned. That is not time. going to be the case.

Q273 Judy Mallaber: If I can follow up on that and Q276 Judy Mallaber: If there are to be any closures also the positive response you made to Richard or changes at all, you would be encouraging them to Burden’s questions. It looks to us really as though consult maybe more positively than they could be we are in your hands to get Post OYce Limited to regarded as having done in the past? Mr SutcliVe: It would be good practice to consult accept any consultation at all or the requirement to and I have passed on that view to Mr Mills. do it. They rejected prior consultation and the points that Richard Burden was making, and I was pleased at your positive response. As you know, as with the Q277 Mr Evans: Just an add-on to reinforce what Urban Reinvention exercise, we found huge Judy said, I am delighted they are looking again at dissatisfaction with the way Post OYce Limited the consultation process. It is a shame it has consults stakeholders prior to any changes. They happened so late because there are a number of will not consult in advance on what their programme people who have made protestations about the might be but even when they have got their closure of their post oYce. Local newspapers are programme on the detail of what is happening with joining campaigns to keep them open and it seems as individual closures or changes they seem to be rather if it is all a done deal, they are going through the reluctant and there is a great dissatisfaction with motions and it is all done. The Notting Hill case, for how they go about it. Are you satisfied with the instance, is a good example whereby some of the consultation they have used and what can you do to information only came out afterwards as to why they try to give them a kick to consult in a more positive were really closing it. One of the reasons we suspect Y way and regard that as being an important function? as well is we found out the value of the post o ce Mr SutcliVe: The criticism of Post OYce Limited there was £950,000 and I am sure that somewhat perhaps is a bit too harsh in the sense that the way influenced the decision which was finally taken, not that the consultation has taken place has given the the service they were giving to people around that area. opportunity for Postwatch, particularly the Urban V Reinvention Programme, to have its say in terms of Mr Sutcli e: I hope the Committee can be clear, and issues it could take to another stage. There have let me be clear, that the Urban Reinvention Programme and the consultation process that was been, as I said earlier, occasions that have caused me changed by my predecessor on 5 February gave concern which I am taking up with Postwatch in adequate opportunity for consultation to take place. terms of some next steps that may have taken place There was a safeguard in terms of Postwatch which that did not take place. was overlooking from the consumers’ point of view about that closure programme. Members of Q274 Judy Mallaber: Postwatch say that they never Parliament and others in co-operation with even managed to get any modification on any plans Postwatch have managed to be successful in some for Crown oYce closures and they have not got any post oYces not closing. The Crown network is a changes at all. The impression certainly from diVerent body and a diVerent situation applied. I Kensington and Chelsea Council when the Notting have said what I think should happen in terms of Hill closure came about was that the Post OYce Post OYce Limited in respect of Crown post oYces believe they are under no formal responsibility to but I do not think we should confuse the two. consult at all and are only doing so under a protocol Mr Evans: I hope they listen to you, Minister. negotiated directly by the DTI and Postwatch because their belief is they are not a public body but Q278 Chairman: Can I thank you, Minister. I realise an arms’ length private company and, therefore, there was an interruption to your diary as a there is no requirement for them to consult. Do you consequence of the two votes. Our concern started think those criticisms are too harsh then? initially, as I said earlier, as a consequence of the Mr SutcliVe: Post OYce Limited, quite rightly, as receiving branches, and something in the order of they see how the directly managed oYce fits within 425 out of the 555 Crown post oYces were deemed their framework see the separation, diVerently as it to be receiving branches. We know there are likely to did on the Urban Reinvention network. As I have be at least 30 closures over five years which may be said, and you have heard me say, I do believe there attributable to leases ending or other forms of has got to be full discussion. We are aware that Post compulsory purchase or whatever. Also, we know OYce Limited are reviewing their consultation there are probably another 80 on top of that over five procedures. years which have to have leases renewed. We know on the other side of the coin in Wrexham and in Belfast, at considerable public cost, there have been Q275 Judy Mallaber: Can we take it from that you new post oYces built but if that were to happen even are going to be encouraging them to be more open in a few of them it would not be long before we were and to consult more widely? up to the £70 million deficit. We find it a little bit Trade and Industry Committee: Evidence Ev 43

14 December 2004 Mr Gerry Sutcliffe MP and Mr Nigel Leese diYcult to balance the ambitions to make the sector well be some flexibility as far as cross-subsidy is financially viable, the significance of them as concerned or, alternatively, that you would look as receiving branches when other places are closing and favourably towards Crown post oYces as you have the fact there have to be, for other reasons, branches done towards other urban post oYces or rural post changing location. That is the background. It is all oYces where there has been a case made for some very well to say we have only been told there are 30 form of financial support because we do think this is branches closing, what concerns us is there may well important. We hope you will bear that in mind. be more than that through circumstances which may Mr SutcliVe: Thank you, Chairman, for the way the in large measure be due to the financial strictures Committee has formed this afternoon in terms of the imposed on this sector of Royal Mail by the letter details of the issues which have been raised. Clearly I sent by the Secretary of State. Therefore, what we will reflect on not only what the Committee says this want to make clear, also, is we would look towards, afternoon but in any subsequent report that comes within the whole of the Royal Mail, that there may from the Committee. Chairman: Thank you. Ev 44 Trade and Industry Committee: Evidence Written evidence

APPENDIX 1

Memorandum by Post OYce Ltd

1. Executive Summary 1.1 Post OYce Ltd’s aim is to secure a viable, long-term future for directly managed branches. We remain committed to maintaining a significant core of directly managed branches in the network as a whole. 1.2 The directly managed network operates at a loss—£71 million in the last financial year—and this is forecast to continue unless we take action now. These losses are a massive drain on resources that should be focused on improving the network and stimulating growth. We are therefore looking, with our unions, at all the options open to us to return this segment of our operation to profitability. 1.3 Our primary objective is to ensure that the Post OYceC has a sustainable future—this means oVering products customers want, while providing excellent customer service, through an accessible network of Post OYceC branches. To achieve this we are looking for improvement opportunities in all parts of our business—in directly managed branches, urban and rural agency branches, and in our central functions. These activities are complementary to one another. 1.4 If we do not address the losses in the directly managed network, we will not be able to invest in our branches, our people or our products. With the decline of some of our traditional markets, it is imperative that we organise for the future. We are exploring, as part of our normal management activity, the actions we can take over the next five years to mitigate and eliminate these losses.

2. Background 2.1 Post OYce Ltd is in the process of a business turnaround. Network transformation is a key element of this strategy. There is an overriding need to ensure that the network as a whole is sustainable for the long term, and consequently Post OYce Ltd are in the process of reviewing the operation of each of the three network segments: urban agency branches, rural agency branches, and directly managed branches. The urban Network Reinvention Programme is now nearing completion, and work is ongoing in relation to the long-term prospects for the rural network. This submission details progress to date with the review of the directly managed segment of the operation. 2.2 Post OYce Ltd currently directly manage 5551 Post OYceC branches. This equates to just 3% of all Post OYce branches—the rest are operated by agents and partners on behalf of Post OYce Ltd. 2.3 Shortly after the General Election in 1997, the Government announced a moratorium on closure or conversion to agency status of directly managed branches, while a review of the Post OYceC was carried out. The Government allowed closures and conversions of directly managed branch oYces to resume, following publication of the 1999 Post OYce White Paper, subject to retaining 15% of business transacted through the directly managed network. 2.4 In June 2000 the Performance and Innovation Unit of the Cabinet OYce produced a report, “Counter Revolution: Modernising the Post OYce Network”. The report identified, amongst other things, the need to improve the eYcient running of the network, by minimising the losses of directly managed oYces, and concluded that the Post OYceC would need to convert more branches to privately run operations to make these oYces viable. 2.5 The Government, as the sole shareholder of Royal Mail Group plc, the parent company of Post OYce Ltd, is responsible for approving the strategic plan of the company. In December 2002, the Secretary of State, Rt Hon Patricia Hewitt MP, specifically instructed the Board of Post OYce Ltd to seek to return the directly managed network to profitability as part of its strategic plan: “If the rural network is set aside, the directly managed oYces appear to account for most of the remaining losses, so I hope that they are high on your agenda for action . . . I would like to understand more clearly how you intend to go about reducing and eliminating the losses.” 2.6 Our vision is for a strong and healthy network of main Post OYceC branches that continue to provide our full range of products and services into the future. Change is necessary if we are to achieve this—if we do not address our losses we will not be able to invest in the network. We are keeping Government and other stakeholders informed of the areas we are looking to address, but at this stage we do not have a definitive approach to resolving the problems of the network. We are encouraged that the CWU and CMA are engaging in constructive discussions with us on possible ways forward.

1 Figure correct as at end of Quarter 2, 2004–05. Trade and Industry Committee: Evidence Ev 45

3. Overview of the Directly Managed Network 3.1 The following graph sets out the number of directly managed branches in the network over the last 10 years:

Figure 1

DIRECTLY MANAGED BRANCH NUMBERS 1991–92 TO 2004–05

Number of directly managed offices

1200 1000 800 600 400 200 0

91/9292/9393/9494/9595/9696/9797/9898/9999/0000/0101/0202/0303/0404/05*

3.2 This demonstrates that the number of directly managed branches has remained relatively stable for the last 10 years, during a period of dramatic change. However, this stability has come at a cost which is unsustainable going forward.

4. Directly Managed Network Economics—The Problem Explained

4.1 Overview 4.1.1 The PIU report noted that “for every pound of income generated, a branch oYce costs more to run than a typical sub post oYce in a similar location”. The report attributed the problem to higher property and staV costs, as well as the lack of additional income associated with complementary retail businesses. 4.1.2 Postcomm echoed this view in their report “Access to Post OYce Services” of August 2002, which stated that “Directly managed branches have a reputation for being very expensive to run and for being a major contributor to Post OYce Ltd’s losses”. Postcomm published a further report in December 2003, “Post OYce Networks Abroad”, which identified that “solutions for the UK network’s losses appear to be structural”. 4.1.3 The directly managed network made a loss of £71 million in 2003–04. This equated to a loss of £127,000 for each directly managed branch. Only three directly managed branches currently deliver a profit. 4.1.4 Income in directly managed branches equates to only 77% of the costs of operating the network. Ev 46 Trade and Industry Committee: Evidence

100%

8 17 2 19 75%

54 50%

25%

0 Income as Staff costs Property Other Direct Allocated proportion variable support costs of costs costs costs Figure 5 - Breakdown of directly managed branch costs 2003/4

4.2 Costs 4.2.1 StaV costs amount to more than half of the costs associated with the operation of the directly managed network. Salary levels at Post OYce Ltd directly managed branch oYces are significantly higher than those found in comparable high street businesses. The maximum basic hourly rate for staV in directly managed Post OYceC branches is £9.26, and approximately 80% of branch staV are paid at this rate. This compares to more typical ranges of £7.70 to £8.20 per hour in banks, or £5.20 to £7.50 in the retail sector. 4.2.2 The second largest cost in the directly managed network is property. Almost half of the properties in which directly managed Post OYceC branches are located are occupied on a leasehold basis from landlords other than Royal Mail. Of these, almost half are due to have their lease expire in the next five years. This represents a huge risk for the business, as landlords may choose not to renew leases, or may increase the lease costs beyond our means.

Branches sited in Royal Mail Freehold owned by POL owned building2 Leasehold Number 130 169 256 Percentage 23% 31% 46%

Figure 3

ANALYSIS OF DIRECTLY MANAGED BRANCH PROPERTY PORTFOLIO

Lease expiry dates Number of leases Percentage of leasehold properties Less than one year 44 17% Between one and three years 52 20% Between three and five years 22 9% More than five years 138 54%

Figure 4

DIRECTLY MANAGED BRANCH LEASE EXPIRY DATES 4.2.3 Post OYce Ltd owns the freehold for less than a quarter of the sites occupied by directly managed branches. We are not, contrary to press speculation, embarking on a strategy to sell oV these assets. Many are in key locations for us as a business, where we will continue to need to have a presence if we are to succeed in a competitive market place.

2 This figure also includes directly managed branches permanently sited in House of Commons, Portcullis House etc. Trade and Industry Committee: Evidence Ev 47

4.2.4 We hold a small number of leases at peppercorn rents for historical reasons. This represents a further risk as we approach the end of lease periods, as new rental figures proposed by the landlords can be dramatically higher than we are currently paying. For example, the rent for the branch oYce at Cambridge is currently £250 per annum. The commercial terms due to be oVered with a lease renewal in 2006 would see the rent rise to £250,000. 4.2.5 Post OYce Ltd, like many companies, allocates central and support costs—the provision of back oYce services such as transaction processing, security, cash in transit services, IT, marketing—against the income from the operation, so that we can understand the true cost of our sales. We have identified the need to reduce our central and support costs across the board, and in 2003–04 savings of 5% were achieved in these areas. Further cost savings are planned for 2004–05. However, some central costs, such as transaction processing, rise or fall in proportion with sales, and therefore the more business generated, the higher these costs will be in total. The targeted costs reductions are therefore challenging for the business. 4.2.6 We have invested approximately £200 million per annum in recent years in technology improvements to make transactions faster and more eYcient. This is a necessary cost to ensure that we can meet the needs of our operation and our customers, but it is a sizeable overhead. We have renegotiated our contract with Fujitsu in relation to the Horizon system, and this has had a beneficial impact on our costs. There will however continue to be a significant ongoing amount of money spent in this area (approximately £145 million per annum) to maintain our systems.

4.3 Income 4.3.1 Our financial plan projects that overall income will be flat after the impact of inflation going forward, as the impact of sales of new products will be oVset by the decline in traditional income streams such as benefit payments. Directly managed branches have been among the most successful in the Post OYceC network in driving sales in new markets, but given the scale of the business that branches are losing and the network’s structural problems, this will not be enough to improve the underlying economics. 4.3.2 As the number of state benefits paid through Post OYceC branches declines, the historical customer profile of Post OYceC customers is changing. Post OYce Ltd are developing new products to replace the loss of this income, but if we are to compete eVectively in this market we need to invest in an appropriate sales environment for the future.

4.4 Implications of doing nothing 4.4.1 Post OYce Ltd’s economic analysis shows that the directly managed network will still be loss making in 2008–09 unless we tackle our underlying costs, even after we take the beneficial impacts of new products into consideration.

0

20

40 £m 60 +14

(74) 80 +32 (71)

100

(48) Financial 2003/04 Cost Svs JV Income 2008/09 loss inflation contribution inflation loss

Figure 5 – Forecast loss of Directly Managed network in 2008/9 4.4.2 It is not therefore an option for the Post OYceC to do nothing about the problems faced in the directly managed network. The losses of this segment represent a massive drain on resources that should be Ev 48 Trade and Industry Committee: Evidence

focused on growth. Our aim is to bring the directly managed branches back into profitability, and in doing so we will have more scope to invest in the things that benefit customers and staV, such as training, high quality retail and service standards, new products and appropriate delivery channels.

5. Plans for the Directly Managed Network

5.1 The Review 5.1.1 We do not at this stage have a definitive solution to the problems of the directly managed network. We know that unless we take action the losses will continue to grow. The nature of our property portfolio means that we are facing an increasing number of natural decision points on the future of individual branches over the next few years. As part of our normal management of the network we have therefore begun to review ways in which we can address these issues. 5.1.2 To inform our initial views on the options available to us to turnaround the network, our management have undertaken extensive examination of the cost and service drivers of directly managed branches. We also commissioned some supplementary analysis by external consultants, who highlighted a number of areas where our current operation had potential to become more eYcient. 5.1.3 We are in the process of discussing the nature of the problems of the directly managed network with our unions, and are actively seeking their input to possible solutions. We are pleased that the CWU Executive meeting on 12 October 2004 endorsed terms of reference for ongoing discussions with us on the future of the network. 5.1.4 We are looking to develop a number of strategies for restoring the directly managed network to profitability. These include: — operational eYciencies; — better property utilisation; — overhead reductions; and — alternative management of branches. 5.1.5 We remain committed to a significant core of directly managed branches in the network as a whole. We want to ensure that the directly managed oYces continue to act as flagships for Post OYce Ltd. The review is therefore looking at ways in which we can improve our customer proposition and reduce our costs so that the network has a viable and sustainable future. 5.1.6 When considering the options for individual directly managed branches Post OYce Ltd therefore has to undertake an economic analysis of the viability of the oYce—looking at the cost and income forecasts. The impact of diVerent change scenarios will then need to be considered. Post OYce Ltd will also form a view on the strategic importance of branches in particular locations, and the extent to which this outweighs any financial considerations. For example, some city centre sites are key to our commercial aspirations, but these locations typically attract high property costs.

5.2 Operational eYciencies 5.2.1 Over the years we have improved the eYciency of directly managed branches significantly, through flexible staYng models and more cost-eVective working practices. There is however further scope for greater eYciency in the way that staV duties are organised, so that they better reflect the pattern of customer demand. We are currently working with our unions to reduce branch staV costs and believe this could yield further savings in some parts of the network. However, it may also identify branches where staYng should increase to meet customer demand at peak times.

5.3 Property 5.3.1 A number of the sites currently occupied by directly managed branch oYces are no longer suited to the type of the business conducted at Post OYceC branches today. As the Post OYceC continues to diversify, our focus is changing from transactions to sales. This means more emphasis on interaction with the customer, and less on paperwork. We therefore want to maximise the amount of space we can devote to public areas and retail activities (such as Postshop). 5.3.2 We have developed a new format for directly managed branch oYces that demonstrates the new sales environment that we wish to adopt. Post OYce Ltd has invested significant sums in a pilot of five “Next Generation” oYces. These branches have a number of new features, such as open plan layout, a welcome desk and colour coded product zones that steer customers to the services they need, such as mails or travel. Pilot branches have also dispensed with a screen between customers and staV. We are closely monitoring the impact of the new format on business performance and customer satisfaction in the pilot branches, and will be considering which of these elements to use when we refurbish or develop a site. We envisage committing a minimum investment in the order of £20 million on branch improvements over the next two years, subject to the necessary approvals. Trade and Industry Committee: Evidence Ev 49

5.3.3 In a network that is making a loss, it is clearly very diYcult to justify the substantial investment required to refurbish sites without any prospect of a commercial return on the investment. Furthermore, some of our current premises cannot easily be adapted to meet our changing requirements. We are therefore looking at other options that might provide an economic means of improving our retail environment, such as relocation.

5.4 Overhead costs 5.4.1 We are examining ways of reducing our overhead costs by driving further eYciencies out of our cash in transit (CIT) business. We have launched a major programme of transport revisions in our CIT operation in order to cut our operational costs, and to reflect changes in the branch network and in the nature of cash flows through oYces. We intend to maintain lower cash holdings in the network, and to reduce the level of cash deliveries to an operationally suYcient level. 5.4.2 We are also seeking to make further savings from overheads related to our Headquarters operation, and this will mean a further reduction in central headcount.

5.5 Management 5.5.1 The Performance and Innovation Unit Report recognised that a directly managed branch costs more to run than a typical sub-oYce in a similar location, due to a combination of high staV and property costs, and (in most cases) the lack of an on-site retail oVer to attract footfall. 5.5.2 We are committed to a maintaining a significant core of directly managed branches, but given the cost implications for the network, we anticipate that the number that we manage directly will need to reduce from present levels. Our analysis indicates that an economically sustainable number of branches that we could continue to manage “hands-on” might be somewhere between 320–390, but this is only an estimate. We are talking to our unions on options for the long term size of the network, and have no fixed view on how many oYces we will continue to manage ourselves, or how many will be converted to franchise operation. Availability of the full range of Post OYceC services is unaVected by the change in management. 5.5.3 We do plan to engage our current, and prospective, franchise partners in exploratory discussions over the next few months on the possibility that we might wish to convert more directly managed branches to franchise status. We are also actively pursuing opportunities for conversions as leases come up for renewal in the near future, and we anticipate that there may be 25 main branch oYces transferred to franchise operation in 2004–05. 5.5.4 All of these diVerent options may however not be suYcient in all cases to resolve the viability of individual oYces. We therefore may have to consider closure of a directly managed oYce in exceptional circumstances. We are currently looking at a handful of sites where this may be the case—we envisage that there will be a maximum of six directly managed closures in 2004–05, although the final number may be less.

6. The Franchised Network 6.1 Approximately 97% of all Post OYceC branches are managed by agents or partners, on behalf of Post OYce Ltd. This includes 283 main oYces that have been converted from Post OYce Ltd management to franchise status. Independent subpostmasters manage 42 of these, while 241 are managed by a company3. In the last 10 years there have been 128 conversions, and 308 franchise agreements have been concluded (some for the third time). There have been 55 transfers of main branches to new partners. Only three franchised main oYces have closed. 6.2 The process of conversion of a directly managed branch to franchised operation is tried and tested. There are rigorous procedures in place for the recruitment and selection of franchisees. These begin with Post OYce Ltd advertising for prospective franchisees, who have to go through a registration and vetting procedure to ensure that they are suitable to run a Post OYceC branch. The prospective franchisee would then be required to submit a detailed business case relating to the specific branch(es) they are interested in operating. Finally, candidates that have met our criteria are interviewed. 6.3 We ensure that an incoming franchisee and all staV employed have the skills to manage/work in a Post OYceC branch. New agency staV receive the same training as our own personnel before being allowed to serve customers. The franchisee will also receive the support of a Post OYce Ltd manager, who will work with the agent to ensure that our standards are maintained. 6.4 A franchise agreement is for either five or seven years. Franchisees have the right to renew the agreement, subject to satisfactory performance.

3 There are currently 74 diVerent companies running the 241 converted oYces. Ev 50 Trade and Industry Committee: Evidence

6.5 All franchise oYces are obliged to continue to provide the same range of products and services as previously available. A franchisee is also required to ensure that their premises are fully compliant with the requirements of the Disability Discrimination Act. Many franchised oYces also provide additional customer benefits, such as longer opening hours, and adjacent retail oVerings.

7. Customer Satisfaction 7.1 We regularly monitor customer satisfaction across all of our network, using an independent market research agency. Over 90% of customers are satisfied with their branch. We are proud of the fact that 96% of the UK population trust the Post OYceC. 7.2 The Post OYceC enjoys a strong corporate reputation. Customer research4 in the 10 months to September 2004 demonstrates that the Post OYce has a reputation on a par with Boots the Chemist, and higher than Tescos, Marks & Spencer, BT, British Gas, Lloyds TSB, Shell and Orange. 7.3 Customer satisfaction and our corporate reputation are very important to us as an organisation. There is a clear link between satisfied customers and sales growth, and therefore we are continually looking at ways in which we can improve customer service as an end in itself, and as a means of stimulating increased revenue levels.

8. Products and Services 8.1 The full range of Post OYce Ltd products and services are available in directly managed branches. Our products are summarised in Annex A. Branches that are converted to agency status all provide the full range of products and services—this is part of the franchise agreement between Post OYce Ltd and the agent. 8.2 A number of these services are provided by Post OYce Ltd on behalf of various Government departments. Where this is the case there is a contractual relationship with the relevant Government department. This sets out the remuneration that Post OYce Ltd will receive in return for providing the service through our network, and the basis on which the service will be made available according to the requirements of the client depart. For example, the DVLA determine the number of branches from which Motor Vehicles Licence can be obtained. 8.3 A key element of the turnaround strategy for Post OYce Ltd is the development of new products, designed to meet the needs of our customers and to grow our income. This will in particular help to oVset the decline in revenue from the various Government departments that are responsible inter alia for providing state benefits. 8.4 Post OYce Ltd have put considerable investment into developing our banking capability. Customers of Alliance & Leicester, Barclays, Lloyds TSB, cahoots, smile, The Co-operative Bank, First Direct and Clydesdale Bank can all undertake banking transactions at Post OYceC branches. While this is a valuable source of income, this is also providing a much needed service for our customers and those of our partner banks, particularly in deprived or rural areas where there may not be a bank branch in the vicinity. 8.5 In addition, Post OYce Ltd are entering the Financial Services market, through a joint venture with the Bank of Ireland. Personal loans and car insurance are already available, and future products will include guaranteed equity bonds, growth bonds, and home insurance. Information on all of these products will be available through the directly managed and franchised branch networks. 8.6 We have also recently launched, through all branches, Post OYceC savings stamps. These are designed primarily to assist customers on lower income with budgeting for bills. The product is proving particularly popular with customers in directly managed branches, as these oYces have traditionally had a high proportion of benefit claimants.

9. Public Consultation 9.1 Post OYce Ltd have agreed a Code of Practice on Post OYceC Relocation, Closure or Conversion with Postwatch. This governs the process of public consultation that we use in a range of diVerent circumstances. 9.2 The Code of Practice is also quite clear that “the act of conversion as such is not a matter for consultation”. This is a matter of fundamental importance for Post OYce Ltd. While we recognise that the public hold directly managed oYces in high esteem, it is our responsibility to decide whether to deliver our services through outlets operated by our own staV, or through agents. We do however invite our customers, local representatives and Postwatch to comment on any service implications of conversions, and allow an eight-week period for receipt of their comments, which we consider carefully. 9.3 The Code of Practice requires a minimum period of public consultation of one month for any closure proposal, whether of a directly managed or an agency branch.

4 Research interviews were conducted with approximately 6,000 customers in the period November 2003–September 2004. Trade and Industry Committee: Evidence Ev 51

9.4 For the purposes of urban closures under the Network Reinvention Programme only, enhancements to the consultation process were agreed with Postwatch. In their most recent form, these arrangements provided for two weeks of advanced notification for Postwatch, one week of advanced notification for MPs, and six weeks of public consultation. In addition, all closure proposals are made with the agreement of the Subpostmaster, who will therefore be aware in advance of the consultation exercise. The overall duration of the consultation period for a Network Reinvention closure is therefore the same as the duration of the comment period for a directly managed conversion. It would be wholly inappropriate to introduce an advanced notification period in the case of change in the directly managed network, as we have a duty to engage our employees prior to any other stakeholders in these circumstances. 9.5 The Trade and Industry Select Committee report on Post OYceC Network Reinvention recommended that we adopt a twelve-week public consultation period on proposals to close a Post OYce branch. We understand that the guidelines for a twelve-week period were intended to relate to public policy matters, whereas we are faced with operational decisions that have financial implications for our business. We have previously advised the Committee of why in our view it was inappropriate to extend the duration for consultation on Network Reinvention closures. We are however now considering the aspirations of our stakeholders to have a longer consultation period where this does not compromise the needs of the business. 9.6 These considerations notwithstanding, it would be commercially damaging for the business to extend the period for comments when we are converting a branch. Prospective franchisees have given us feedback that they are not comfortable with the length of the current consultation process, which encourages protracted speculation on their potential involvement. Some (most notably independent operators) have been subject to significant levels of personal pressure and criticism during this period. Our end-to-end franchise process is already longer than in the external market. These arrangements are not conducive to Post OYce Ltd attracting the best types of franchisee when other ventures are much less problematic. There is a real risk that it will become even more diYcult to find viable franchisees if the period for representations is extended.

10. Urban Network Reinvention

10.1 The Network Reinvention programme was primarily aimed at ensuring that there was a sustainable urban network providing good customer access. There were too many branches serving too many customers, and as a result the viability of many oYces in these areas was questionable. The network was therefore vulnerable to unplanned closures. The Network Reinvention programme was therefore designed as a planned reduction in the number of urban agency branches, so that the remaining Subpostmasters would benefit from increased footfall and better economic prospects. The programme also attracted much needed investment into the urban network. 10.2 The need to reduce the losses of directly managed branches is not a new problem, and we have been historically tackling this by franchising or occasionally closing oYces where opportunity presents itself— this is often associated with the timing of lease renewals. The development of the closure programme for urban agency branches has not changed this approach. Where at all possible we incorporate any proposal to convert or close a directly managed branch into our communications and consultation on an Urban Network Reinvention Area Plan, and because of this we have allowed extra time for the public consultation where appropriate. 10.3 In some cases however we are simply unable to synchronise the timing of Urban Network Reinvention Area Plans with any proposals for directly managed branches contained within the constituency. By way of illustration, 38 directly managed branches are occupied on leases from third parties (other than Royal Mail Group) that are due to expire in 2006. At the point at which Area Plans were put together it was not possible to know what would happen in relation to these directly managed branches because landlord intentions are rarely clear that far ahead; it may therefore be that in due course some of these branches become candidates for conversion to franchise operation, or possibly even for closure.

11. Conclusion

11.1 Our primary objective is to meet our customers’ requirements and to make the network sustainable for the long term. We are undertaking a programme of improvements to achieve this objective. We remain committed to a sizeable directly managed network, but we can’t aVord to stand still. We need to address our losses so that we can invest for the future. 11.2. We are still talking to our unions about the way forward, and remain flexible in our commercial response. Above all, we want to ensure that we oVer excellent customer service—whether delivered through Post OYce Ltd management or through our partners. Ev 52 Trade and Industry Committee: Evidence

Annex A

POST OFFICE LTDPRODUCTSANDSERVICES

Products or Services Offered on Behalf of, or Which are Associated with Government Products are Highlighted in bold

Product/Service Branch Availability Features Travel Passport 2,000 branches At selected Post OYceC branches, for a fee, you can have your Checking passport application checked and sent for priority processing, so that it is returned to you within two weeks. Bureau de All Branches At the Post OYce you can exchange sterling for a wide range of Change foreign currencies and American Express travellers cheques, free of charge. 750 branches sell Euros and US Dollars on demand. 950 branches sell a further 20 currencies on demand. The remaining branches oVer a pre-order service Travel insurance All Branches We oVer a wide range of travel insurance policies at competitive rates. And if you take out a Family or Individual policy, we’ll insure your children free of charge. 10,000 branches can issue a policy on demand, the remaining branches can provide details of the service which is accessed via a telesales service. E111 All Branches An E111 form entitles you to free or discounted emergency medical treatment. Money Transmission Postal Orders All Branches You can buy or cash Postal Orders at any branch nationwide. MoneyGram 3,000 Branches International money transfer of up to £5,000 to over 150 countries, taking just 10 minutes. Financial Services Personal Loans All Branches Personal loans from £1,000 to £25,000 are available. Details are provided through all branches and the service is then accessed over the phone or via an internet service. Car Insurance 200 branches Details of the service will soon be made available through all initially plus internet branches with policies being arranged over the phone or via an internet service. Telephony E-Top Ups All Branches Electronic prepayments for mobile phones. Post OYce All Branches Post OYce phonecards for cheaper rate calls when calling from Phonecards the UK to abroad. Available in £5, £10 and £20 denominations Holiday Available to all Post OYce phonecard that allows cheap rate phonecalls to be Phonecard branches but made from over 50 destinations abroad. stocked on demand Mobile Phone 8,000 Branches Pre-pay vouchers for all main providers: Vodafone, O2, vouchers T Mobile, Orange and Virgin. Home Phone Currently a pilot in Post OYce C Homephone provides customers with a better a small number of value phone service, key features include cheaper calls, no branches—national minimum charges, free calls to favourite numbers. There are no launch planned for connection charges and confusing tariVs and customers can January 2005 keep their existing number. With a national launch in January customers will be able arrange the service by calling a free phone number, on-line or by handing in an application form at branches. Driving Photo licence 700 Branches Apply for your new photo driving licence, by bringing along application your application form, passport sized photo, and drivers checking service licence, or proof of entitlement to state pension. Applications are checked and sent to the DVLA. Trade and Industry Committee: Evidence Ev 53

Product/Service Branch Availability Features Motor Vehicle 4,700 Branches You can apply for a new tax disc at selected branches Licence nationwide. Appropriate documentation, including an insurance certificate is required. Home TV Licences All Branches Apply for TV licences at your local branch, special licence for the over-75’s. Postal Services Express Services All branches A variety of express delivery services, including Royal Mail Special Delivery. Options available for 9.00 am or 12.00 noon deliveries within the UK. Overseas delivery service options also available (not all branches oVer Parcelforce Guaranteed Services—see entry below). PFW 3,500 Branches Guaranteed Parcel delivery services including Parcelforce 9, 10, Guaranteed 12, 24 and 48. Standard All branches Parcels and letters accepted for standard 1st class, 2nd class Services and overseas delivery, standard parcel service as well as additional services such as recorded delivery. Philatelic items Available through Royal Mail special issue stamps and associated products, such all branches but as presentation packs and first day covers. stocked based on demand. Banking and Bill Payments Banking All Branches, If you have a bank account with one of our banking partners, however, some you can cash personal cheques, and make cash or cheque banking partners deposits, free of charge. Banking Partners are: Alliance& not available in Leicester, Barclays, cahoots, Lloyds TSB, smile, The some parts of the Co-operative Bank, First Direct, Clydesdale Bank. UK Online automated banking is available for current accounts with Alliance & Leicester, Barclays and Lloyds TSB. Cash withdrawals from a range of Basic Bank Accounts are also available from branches. National Savings All Branches Variety of savings products, including Premium Savings Bonds, and Investments Fixed Retirement Savings/Pension Income Bonds, Ordinary Account deposits and withdrawals, Investment Account deposits and withdrawals, Capital Bonds, Children’s Bonds and Savings Certificates Bill Payments All Branches Post OYce branches will accept payment and pre-payment towards a variety of bills, including gas, electricity, water, phone, council rent, mail order and insurance. Easy payment methods and budgeting schemes are also available. Eg Utility Smart Card Charging, Utility Key re-charging, Transcash Bill Payments, Home Care Stamps, Council Tax/Rent. Some of the range and type of services available depend on the service providers in the local area. Benefits All Branches At your local Post OYce, you can cash all benefits payments, pensions and allowances, even if they are paid into a bank account (provided that the account is held with one of our banking partners). Issuing Milk Tokens; Payment of Prescription Refunds. Post OYce Card Account payments can be made at any branch. Savings stamps All Branches Post OYce savings stamps oVer an easy and aVordable way to save on a week-by-week basis for household expenses. Available in £5 denominations the stamps are available at all Post OYce branches and can be used to pay for all products and services available at the Post OYce including payment for household bills, including gas, electricity, water and phone, travel services, postage and purchases of postal orders. Leisure Fishing Licences All Branches in Range of Rod licences available for Angling in England England and Wales and Wales. only Ev 54 Trade and Industry Committee: Evidence

Product/Service Branch Availability Features Retail 200 Branches Range of stationery, packaging and greetings cards; Books and Publications, for sale in selected branches nation wide. Photo Booths. (note: many subpostmasters also oVer a range of retail services as part of their private business) Lottery 5,000 Branches National Lottery scratchcards for sale. Main lottery draw terminals selling tickets for Lotto, Lotto Extra and Thunderball games Ticket and All Branches Local availability as agreed with Local Authorities/special Travel Products attraction venues. Post OYce All Branches Flowers can be ordered and paid for at the counter and the Flowers flowers are delivered by post.

APPENDIX 2

Letter from Post OYce Ltd Post OYce Ltd is concerned by recent reports suggesting that large numbers of directly managed oYces are to close as a result of the review of its directly managed operations. I would like to take this opportunity to clarify the position, and am sending a note today to all MPs to this eVect. I am also sending to the Trade and Industry Select Committee today a written submission for your forthcoming inquiry into our plans for the directly managed network. There are now around 15,500 branches in the Post OYceC network and the review focuses on the 555 branches, which are directly managed by the company and staVed by Post OYceC employees. These branches lost more than £70 million last year. Unfortunately, losses are projected to continue and are already a serious constraint on investment in the business. Post OYce Ltd is working on plans, in consultation with the unions, which would bring the directly managed branches to break-even. This is something that the Secretary of State, Rt Hon Patricia Hewitt MP, asked us to look at as part of our strategic plan for the business. Although we have yet to finalise what action we are going to take to achieve this objective, I would stress that this is not a closure programme. We anticipate that fewer than five directly managed branches will need to close in 2005–06. Many directly managed oYces operate from old, expensive and unsuitable premises, which are neither customer friendly nor conducive to selling our new products and services. With over 100 leases due for renewal in the next five years, many important property decisions need to be made, with opportunities for local relocation in some cases. In parallel, we plan to invest around £20 million in the next two years to improve directly managed branches for customers. It is likely that plans will include transferring some branches to be managed by partners, although no target has been set. It is important to note that franchised branches would oVer exactly the same range of products and services, the same number of counters and the same or longer opening hours, in the same locality. Over 280 main Post OYceC branches are already operated by franchise partners, with customer satisfaction on a par with the rest of the network. Any changes will be made in line with the Code of Practice, agreed with the consumer organisation Postwatch, and our commitment that nationally 95% of people in urban areas will live within one mile of a Post OYceC branch. I hope that this letter provides some reassurance as to our intentions. We are still at the planning stage, but our aim is to provide main Post OYceC services to customers on a sustainable basis. We will not compromise customer service—or access to our services—in the process. I look forward to discussing this issue in more depth with you at the inquiry. 8 November 2004

APPENDIX 3

Supplementary Memorandum by Post OYce Ltd 1. Following the extensive and inaccurate media speculation on the future of the directly managed Post OYce branch network in recent days, this supplementary memorandum seeks to clarify the service implications of converting a directly managed branch to franchise status. 2. All of Post OYce Ltd’s products and services, and those of our clients, are available in directly managed branches. This service proposition remains unchanged for those branches converted to franchise status as part of our contractual requirements with franchisees. Trade and Industry Committee: Evidence Ev 55

3. The level of customer satisfaction at franchised oYces is equal to or better, than at directly managed branches. 4. We regularly analyse customer satisfaction across the network, and use independent agencies to produce market research data for this purpose. The most recent research conducted for Post OYce Ltd was completed on 1 November 2004. 5. This compared customer satisfaction in branches that have been converted in the last four years with that of a number of directly managed branches. Analysis of this data indicates that there is no significant diVerence between the percentage of customers who describe themselves as satisfied (or better) in directly managed or converted branches—both enjoy customer satisfaction levels in excess of 90%. This latest research also indicated that in areas such as speed of service, physical access and privacy at the counter, converted oYces gained higher average satisfaction scores than directly managed oYces. Customers also like the longer opening hours and more extensive retail oVerings that are enjoyed in many franchise branches. Whilst we know that some people feel that franchised oYces are not as prestigious as directly managed oYces, the only discernible diVerence between directly managed and franchised branches is one of ownership. 8. We are proud that Post OYce branches are held in such high esteem by our customers, and appreciate that for many we provide a valuable social service. We are committed to ensuring that we have a comprehensive, sustainable network of Post OYce branches, whether managed by our own employees or by agents. It is our aim that nationally 95% of the urban population will continue live within a mile of a Post OYce branch. 9. This however presents a major dilemma for Post OYce Ltd. On the one hand the general public sees us an “always there” social service. On the other hand, we have to face up to the reality that we are losing money. Our shareholder requires us to return the business to profitability. We therefore have to reconcile these competing expectations. It is for this reason that we try, where possible, to consider conversion of directly managed oYces rather than closure—this way we continue to have a presence close at hand for our customers, while at the same time reducing our cost base and improving the consumer oVer. 10. There are parts of our network that are technically insolvent, and which despite all our eVorts are expected to remain so. We do not operate in these areas on a commercial basis, and therefore in providing a social service we are fulfilling a function that Government agencies would otherwise have to deliver. This eVectively means that we are cross-subsidising unprofitable areas from other parts of the network. This in turn acts as a drain on our resources, and restricts our ability to invest in the overall business. 11. We are extremely cognisant of our social role. We operate under a clear commercial mandate from Government. We are radically improving our cost eYciency, productivity and new product development at an unprecedented rate. We are tackling conventional competing stakeholder issues, but we need a sophisticated understanding of the complex underlying problems in order for us to deliver an “acceptable” result to all parties. 12. We understand that Postwatch have expressed to you their interest in understanding more about a piece of work conducted for us by McKinsey, a firm of external consultants. We anticipate therefore that you will also be interested in this piece of work. McKinsey were commissioned to do some analysis of the economics of the directly managed network. At the same time we were carrying out a great deal of our own work, and this was one input amongst many into our very early thoughts on the way forward. We did not however agree with some of the assumptions behind the analysis, and we felt that it did not address the needs of our stakeholders, including our customers or our employees. We did not feel that the suggestions McKinsey made for the network were appropriate for our business, and would have made it diYcult for us to start discussions with our unions. For these reasons the Post OYce Ltd did not accept aspects of the McKinsey analysis. Their work has however stimulated our focus on the key areas of cost that we need to bring under control, and we are continuing to work with the CWU and CMA to formulate options for addressing these and other matters. November 2004

APPENDIX 4

Further supplementary memorandum by Post OYce Limited You asked for some further information from Post OYce Ltd to assist your with your inquiry into Directly Managed branches. Answers to your questions are supplied below. 1. Is your estimate that a sustainable DMB network might have 320–390 branches (with the others predominantly replaced by franchises) simply a reflection of how many of the current branches can be made profitable or does it include a calculation of what is needed as a basic national network of branches to deliver the full range of Government services to the population of the UK and to continue to transact 15% of POL business through the DMBs? Ev 56 Trade and Industry Committee: Evidence

Directly managed Post OYce branches lost £71 million in 2003–04, and losses on this scale are forecast to continue unless we take action. We have analysed the financial impact of rolling out planned improvement activities and possible property cost savings, but this does not return the network as a whole to profitability. On this basis we could not aVord to sustain a directly managed network of the current size and we have estimated that an economically sustainable DMB network in the future might be in the order of 320–390 branches. This is therefore a purely theoretical calculation rather than a target or a plan, and in arriving at this figure we have not yet referenced other factors which might have a bearing on future network size. 2. One of the discussions on franchising identified the fact that the requirements placed on franchisees and the terms of the franchise agreement now oVered by POL are diVerent (better) from what was required and oVered under previous management. Could you provide an analysis of the diVerences?

The first conversions of directly managed branches to franchised operation took place in 1991. The standard length of the franchise agreement at that time was five years. In 2000 we changed the standard length of the franchise agreement to seven years. As changes in competition law are due to take eVect in May 2005, we will be reverting to a standard five year term with right to renew. We are taking the opportunity to update other aspects of the agreement at the same time, including (but not limited to) sections on disabled access, and data protection. Other aspects of the franchise agreement which relate to staV training, product lines that must be oVered, and customer service will continue to apply in the new agreement. In addition to the normal contractual arrangements that bind the operator of a franchise, in the few examples where we have sold a freehold or granted a long lease over a property in which a DMB is based, we have required the other party to ensure that a Post OYce branch is operated on the premises for a period of 10 years, and that it is not relocated without our consent. 3. How are franchisees selected, or do you have to go out and find them? Are the standards that franchisees have to meet now higher than those demanded of them earlier?

The process for selecting a franchisee has not changed, and our standards are very demanding. We advertise for franchisees on a generic, rather than an oYce specific basis. We do this through our website, where prospective franchisees can get information on opportunities and express an interest in running a franchise. We are also included on the website of the British Franchise Association. We also undertake advertising in publications, for example, the Independent Retail News, the Subpostmaster, and Convenience Store magazine. Any party who expresses an interest in operating a franchise will be sent a Registration Pack. The applicant then completes a registration form that we assess on the grounds of commercial and retail awareness, customer focus, and management skills. Security checks are then completed on applicants that meet these tests, after which a number of interviews will be held. A confidentiality agreement will then be signed, details of specific branches will be disclosed to the applicant who will prepare and submit a business case to Post OYce Ltd. We will then interview the applicant and review the business case, and make a decision on whether or not to proceed. 4. The discussion at Qq 153–156 referred to the rights of DMB workers under TUPE when their branch was converted to a franchise. Can you confirm that such rights are fully protected under TUPE in such circumstances (accepting Mr Miller’s point that many do not wish to transfer to the new branch)?

As we stated at the hearing, TUPE applies in the case of a conversion of a directly managed oYce to franchise operation. 5. At Qq 158–166 Mr Mills stood firm behind POL’s assertion that DMB staV were well paid compared to others in the sector. The CWU dispute this and have provided information from IDS to support their contention. Is it possible to convert your estimate of pay rates from hourly to annual to allow direct comparison of the two positions?

The pay rates for external organisations quoted in our memorandum were based on 2002–03 data, and looked at the maximum hourly rate of basic pay across the retail and banking sectors. We cannot translate this analysis to an annual salary basis, as we do not have suYcient information on the other companies to be able to gross up these figures. We have however very recently updated the benchmark data, and a copy of this is attached at Annex A. It is this more recent data that we referred to in our answer Q158. 6. The Committee was interested in the photographic evidence provided on the day, but Sir Michael did not really get an opportunity to discuss it with Members. Would it be possible to provide a brief written commentary to get your points across?

The photographs provided on the day were a sample selected to illustrate the physical state of our directly managed network. We have categorised these as branches that are: — “Uninviting”—Blackpool is an imposing building which does not have the kind of retail frontage that would be more suited to our needs. North Walsham is in a shared building with the Royal Mail delivery oYce, and again does not have retail frontage. Trade and Industry Committee: Evidence Ev 57

— “Lack of retail development potential”—London Bridge, Dereham, Lowestoft, Sevenoaks, Maldon and Uckfield are either short of space to develop a retail oVer, or the space that is available is not ideal. Many of these branches also look quite dated and could do with refurbishment. — “Examples of customer friendly branches”—Basingstoke, Newcastle and North Finchley are examples of branches that are in suitable premises, have received investment, and as a result are customer friendly. — “Examples of franchises”—Dunnington Costcutter, Blyth Co-op and Westminster Bridge Spar are examples of franchises that are thriving in a mixed retail environment and with the benefit of investment from our partners. 7. At Q 168 Sir Michael oVered to give a breakdown of your landlords in writing. Could that note also confirm (or otherwise) that each category of landlord has a policy of charging you full commercial rents or are some amenable to the argument that you and they are providing public services? All of our third party landlords charge market rents. Thirty-five per cent of these properties are leased from private companies or individuals; 30% are from property companies; 16% are from institutional investors; 12% are from Local Government; 7% are from BT. 8. Qq 170–187 covered several aspects of the decision to close the Notting Hill branch, but did not really address the question of why you decided to close it. Was it simply because it was losing £68,000 per year, or were there more complex reasons for the decision (and if so, what were they)? The documentation that was provided to opinion formers in relation to the decision to close Notting Hill directly managed branch is attached at Annex B. This documentation explains our rationale for the closure. 9. At Q 186 Mr Hoyle asked about the value of the building vacated by POL in Notting Hill. He would also like to know what plans Royal Mail have for that part of the building. Royal Mail owns the building vacated by Post OYce Ltd in Notting Hill. Royal Mail currently use part of the building as a delivery oYce, and plans to continue to operate from this site for the foreseeable future. The part of the property that was used as a Post OYce branch has been valued at £950k. 10. Your evidence (oral and written) for this and previous inquiries has referred to the decline in income from Government departments. In the past POL has refused to divulge details of the contracts it holds with government departments, citing commercial confidentiality, and I am not going to go over that ground again here. However, it would be helpful to have POL’s response to CWU’s suggestion that you lose money on those contracts. Is this true? Post OYce Ltd needs to earn a suYcient gross margin on each of its contracts to cover its fixed costs. The margin on some government contracts is too low and we will therefore be looking to increase our prices when the contracts are next renewed. It is also our view that Government customers are becoming more costly to serve. Government products that have traditionally been available to customers either through Government oYces or Post OYce branches (such as Motor Vehicle Licences, TV Licences, Passports, Benefits payments) are now available through alternative channels. Although this may result in lower demand for over-the-counter provision from Post OYces, our residual customer base will be people who find it diYcult, or are unwilling, to use other means of accessing these services. These people typically require more time to serve at the counter. Consequently our unit costs of serving these customers will increase, and our existing contractual agreements with Government departments do not reflect this growth in our costs. I trust this information is helpful—please let me know if you require any further clarification on these matters. Senior Government Relations Manager Post OYce Ltd 10 December 2004

Annex A

Updated Pay Benchmarking November 2004

Salary Post OYce Ltd £13,723 £14,842 £17,386 £15,555 FINANCIAL SERVICES MIN MID MAX Average Abbey National £11,300 £12,500 £14,100 £12,633 HSBC £9,800 £12,250 £14,700 £12,250 Nationwide £11,104 £13,879 £16,655 £13,879 Royal & SunAlliance £10,701 £14,269 £19,384 £14,785 COMMUNITY MIN MID MAX Average Library Assistants £10,278.00 £16,515.00 £13,396.50 Ev 58 Trade and Industry Committee: Evidence

TRAVEL INDUSTRY MIN MID MAX Average Thomas Cook (Sales Consultant) £8,500.00 £10,500.00 £9,500.00 Thomas Cook (Foreign Exchange £9,000.00 £10,500.00 £9,750.00 Consultant) First Choice (Sales Consultant) £8,500.00 £11,000.00 £9,750.00 First Choice (Foreign Exchange £9,000.00 £12,000.00 £10,500.00 Consultant) RETAIL MIN MID MAX Average per hour per hour per hour Post OYce Ltd £7.31 £7.90 £9.26 £8.29 Tesco £5.10 £5.38 £5.66 £5.38 Tesco Express £4.87 £5.11 £5.38 £5.12 Argos £5.36 £5.91 £6.77 £6.01 Percentage diVerence to FS13.93% Percentage diVerence to retail 37.29% AVERAGE 25.61%

Annex B

Text of letter sent to Opinion Farmers in relation to the decision to close Notting Hill Branch

Post OYceC Notting Hill branch 224 Westbourne Grove, London W11 2RG Consultation on our proposal to close the above branch has now ended and I am now writing to let you know the final decision regarding the future of this branch. Before reporting on the consultation process itself, I thought it might be helpful to give some background to the original proposal relating to the Notting Hill branch. The Post OYce branch network is the largest retail branch network in the UK. It is also the largest Post OYce network in Europe. Around 94% of the UK population currently live within a mile of a Post OYce branch, and in urban areas at least 95% of the population live within a mile of a branch. Approximately 97% of Post OYce branches are owned by the people who run them as agency branches, and most of these are run alongside private businesses. The remaining branches are those that are directly managed by Post OYce Ltd, such as the Notting Hill branch. At the end of 2003–04, there were 560 directly managed “Crown” Post OYces. In the 1990s, there were a number of factors that put considerable stress on the Post OYce network. In particular, the income that Post OYce Ltd receives from Government clients has reduced in recent years, compounded by the decision to pay benefits direct into bank accounts. Whilst this was happening, the need for investment in individual branches increased through computerisation and customers requiring higher standards of service. This has led to a reduction in margins, where many branches and the network as a whole, now make a financial loss. For the urban agency network, the Post OYce Urban Network Reinvention Programme was designed in conjunction with Government to address this decline, through closures in areas of over-capacity and investment in remaining oYces, to help create a modern and sustainable network. This will also create opportunity for improved profitability for urban sub-postmasters, and generate greater investment in the fabric of the network through a programme of match-funded grants. Although changes to Post OYce Ltd’s directly managed branches, such as Notting Hill, are not included in the Network Reinvention Programme, the problems faced by branches in the directly managed network are fundamentally the same as faced by the agency branches. The directly managed network operates at a significant loss—our latest figures indicate that these are in the order of £70 million. Over the past decade, Post OYce Ltd has undertaken a wide range of initiatives to improve performance. These have included more flexible staYng structures and steps to reduce unnecessary costs in branches, along with technological improvements to make transactions faster and more eYcient. The business has also launched its banking services and begun to introduce a range of new financial service products to boost sales and strengthen our customer oVer. This work has been supported by substantial investment in sales and marketing and staV training. Despite the hard work and commitment of Post OYce Ltd staV to tackle the problems, there has continued to be a substantial reduction overall in the number of customers using Post OYces during the last few years. Post OYce Ltd is committed to a significant core of directly managed branches in the network, but they must be financially sustainable. There are clearly some diYcult decisions to make if Post OYce Ltd is to be viable and, at the same time, to protect and strengthen its national network of urban Post OYce branches. Regrettably, it is these factors that have led to the proposal to close the Notting Hill branch. These changes Trade and Industry Committee: Evidence Ev 59

are diYcult for everybody involved, particularly our customers. However, our aim is to create a sustainable future urban network, including a significant core of directly managed branches, so that we can provide service and accessibility to our customers in the future. During the consultation period, feedback was received from the local Member of Parliament, Karen Buck, other locally elected representatives, customers and Postwatch. A number of petitions were submitted and there was also a representation from the North Kensington and Notting Hill Post OYce Closure Action Group, in the form of a three-part report. My colleagues Drew McBride, Head of Area for commercial branches in the area and Simon Storer, External Relations Manager, attended meetings with local Councillors and members of the public. Post OYce representatives including Dave Miller, Chief Operating OYcer and Richard Barker, General Manager for our commercial network also met with Karen Buck MP at a meeting with the London Labour MP’s group. We also met customers in the Notting Hill branch on three separate occasions and at a local venue, The Tabernacle Trust. In addition the consultation period was extended by two weeks, bringing the total public consultation time to 10 weeks. Over the last month I have very carefully considered the issues raised and have reviewed them against the original proposal. I have now fully considered all the points raised in response to our proposal and have decided that the permanent closure of Notting Hill branch should proceed. All of the feedback was extremely useful in helping me reach my final decision and I would like to highlight the more frequently expressed views for you below. I hope the following summary of points raised and how they have been considered in the decision making process is useful to your understanding of that decision. Understandably one of the main questions asked was why such changes need to be made, particularly when the branch appears to be busy. Regrettably this does not always mean that a branch is commercially viable. Directly managed branches are considerably costlier to run than comparable branches in the commercial network. The reasons for this diVerence and losses sustained by directly managed branches, such as Notting Hill, are high property and staV costs. Having said that, the decision is not based simply on the financial performance of the branch. Before putting forward the proposal for closure of Notting Hill, we not only carried out a vigorous internal assessment of the needs of our business, but also looked very carefully at the needs of the local community and the alternative service provision available to it. We also considered a range of options including whether the branch might be relocated, or its business transferred to a franchise partner. However, our primary aim is for a healthy, viable network of Post OYce branches that are economically sustainable and, therefore, safeguard their long-term future. I realise that many customers will feel that they are losing a vital part of the community but the inescapable fact is that, having considered carefully the level of our service provision in the area, we have concluded that there are too many branches, chasing too few customers. If Post OYce Ltd is to continue on the road to recovery and achieve its aim of a sustainable, accessible network of Post OYcebranches, we must change the way we provide our services even if this means making diYcult decisions to close individual branches. Our customers were also concerned that the alternative Post OYce branches are diYcult to get to. I appreciate that using a diVerent branch will be a major change for some and know that this particularly aVects our elderly and less mobile customers, which is sincerely regretted. Of the three alternative branches we have suggested, the key and secondary receiving branches, Kensington Church Street and Kensington High Street, have good public transport links, with bus stops within 125 yards of these branches and concessionary fare schemes available for elderly and disabled people. The branch we expect to receive the lowest migration of customers from the Notting Hill branch is 2 Ladbroke Grove branch, which is located half a mile away and will involve a steep uphill walk if approaching from the existing branch. There is no direct bus link but as with all of these branches, car-parking facilities are available nearby. For customers not wishing to use the alternatives we have suggested, there are a further six branches within a mile of the Notting Hill branch; 116 Ladbroke Grove; Portobello Road; Queensway; Harrow Road; Maida Hill and Leinster Terrace. Two of these, Maida Hill and Queensway oVer the full range of main Post OYce services. I would like to reassure you that before Notting Hill branch was put forward for closure, we took into account the number of customers likely to visit the alternative branches against current workloads. Post OYce Kensington Church Street branch, located half a mile away, oVers the full range of main Post OYce services and products. Opening up and staYng three currently unused serving positions will increase the number of serving positions, bringing the total positions in service to eight. This branch is currently being completely refurbished, which will provide a more attractive environment for customers to carry out their business with us. A combi-till handling retail transactions and basic Post OYce transactions is shortly to be installed at the Ladbroke Grove branch, which is also expected to received some migration of customers who currently use Clarendon Cross branch. Car tax renewal facilities will also be extended to this branch. The branch will open earlier on Monday and Tuesday mornings, as well as opening until 5 pm on Saturday afternoons, the latter of which will be particularly beneficial to those customers who bank with us. Whilst there will be no physical changes at Kensington High Street branch, we will of course continue to monitor service levels to ensure the level of counter coverage meets customer flow. Ev 60 Trade and Industry Committee: Evidence

When making my decision I have also discussed with my colleague, Drew McBride, Head of Area for agency Post OYce branches in the area, the separate proposals that were put forward for a number of sub Post OYce branch closures in this area, to ensure an integrated plan has taken into account the total changes planned. I am satisfied that given the number of alternative branches that are near to our Notting Hill branch and the improvements we are making, we will continue to oVer the right services to meet the needs of the local community, as it currently stands. As a result, this branch will close on 10 November 2004. Whilst I recognise the closure of this branch will be a disappointment to the customers who use it, I firmly believe this is the right thing to do and am confident that surrounding branches will provide our customers with the high standard of service they have come to expect. If you would like further information on the services which will be oVered at the alternative branches please contact the Post OYce customer helpline on 08457 22 33 44 or for details of other Post OYce branches, visit our website at www.postoYce.co.uk Head of Area Post OYce Ltd 4 October 2004

APPENDIX 5

Memorandum by the Department of Trade and Industry

Introduction 1. The Government regards it as most important that people have reasonable access to postal and Government services and access to cash. We are committed to doing all we can to ensure a viable Post OYce network for the future. But ensuring that is a massive challenge for everyone involved. 2. The Performance and Innovation Unit report on “Modernising the Post OYce Network”, published in June 2000 found that the Post OYce had failed to keep up with change. Dramatic improvements in technology, greater mobility and changes in shopping habits have meant that people were simply not using the post oYce in the way that they used to. The business had lost touch with its customers’ needs, which are very diVerent now to what they were a generation ago. Following years of under investment the business was in a spiral of decline. 3. We have appointed a strong new management team committed to turning the business around. They have our full backing, underpinned with a £2 billion investment.

Directly Managed (Crown)Post Offices 4. The Performance and Innovation Unit found that almost all Directly Managed “Crown” post oYces, as they are often known, were loss-making and concluded that, as a matter of priority, the Post OYce should take forward work to maximise the commercial potential of the network, the eYciency of its operations and the quality of individual post oYces. In particular, the Performance and Innovation Unit recommended that more Directly Managed oYces should be converted to privately run operations as a means of addressing the poor profitability of the Directly Managed part of the network. 5. Directly Managed branches are typically the largest post oYce outlet in a given area and in most cases are prominently located in town centres. Due to the higher running costs involved, Post OYce Ltd’s network of Directly Managed oYces continues to make substantial losses. In 2003–04 alone losses were £71 million. Clearly that is unsustainable and with Post OYce Ltd projecting losses to increase, particularly as property and staYng costs rise, the continuing losses of Directly Managed post oYces need to be addressed in the wider interests of the business and its customers. 6. Post OYce Ltd is taking action to reduce these losses with the aim of retaining a core of Directly Managed branches whilst bringing the network to breakeven point. Conversions are an important part of the strategy, but Post OYce Ltd is also piloting new look branches and exploring ways of enhancing the service provided by Directly Managed post oYces. 7. The process of converting Directly Managed post oYces to agency or franchise status began in the late 1980s as a means of strengthening the economic viability of the Post OYce network. Since then, over 900 Directly Managed branches have been converted to agency/franchise status in a programme that has been generally successful in maintaining service, whilst reducing costs and enhancing sustainability. An agency post oYce typically shares overheads with a vibrant retail oVer—and conversion often enables customer service improvements (such as longer opening hours). Trade and Industry Committee: Evidence Ev 61

8. Individual conversion had been controversial locally and the programme was opposed by the Communication Workers Union. On taking oYce in May 1997, the Labour Government imposed a moratorium on further conversions pending a review. This moratorium was lifted in December 1998 following agreement on proposals put by the Post OYce to the trade unions on a future strategy for the Directly Managed oYce network. These arrangements were included in the 1999 White Paper on the Post OYce. 9. There is an agreement between the parties that Post OYce Ltd will ensure that the total proportion of business transactions carried out at Directly Managed oYces is maintained at no less than 15% of the total business transacted by the Post OYce network as a whole. The intention is that this should ensure the maintenance of a core of Directly Managed oYces within the network. 10. There are some 550 post oYces directly owned and operated by Post OYce Ltd, accounting for around 3% of the total Post OYce network of over 15,000 post oYces. Post OYce Ltd employs around 8,500 staV at its Directly Managed oYces, and some 20% of total business volume is transacted through Directly Managed oYces. 11. Post OYce Ltd’s policy, which has the Government’s support, is to maintain a core network of Directly Managed oYces whilst continuing to drive eYciencies, with the aim of making the business commercially viable.

Link with the Urban Network Reinvention Programme

12. The Post OYce network has historically been managed in clearly demarcated categories. Given Post OYce Ltd’s intrinsically diVerent responsibilities for its directly owned and staVed branches—the management of Directly Managed post oYces necessarily stands separate from that of urban and rural sub- post oYces. 13. It is essential that Post OYce Ltd continues to consider the locations of all oYces, urban, rural and Directly Managed in developing proposed changes, so that customer needs are reflected in these decisions. Post OYce Ltd routinely assesses the Directly Managed network and as suitable opportunities have arisen has converted, and in some isolated cases, closed, Directly Managed branches where this is perceived to be in the wider business interest. Post OYce Ltd has given assurances that, wherever possible, changes to the Directly Managed network have been considered alongside proposed changes to the network of urban sub- post oYces under the Urban Network Reinvention Programme.

Role of Government

14. The Government is the sole shareholder of the Royal Mail Group and has introduced reforms that allow the company greater commercial freedom. The Government does not seek to direct or micro-manage the company and has established an arm’s length relationship with them to ensure they have the freedom to act commercially. Subject to agreeing its strategic plan with Government, the Board is able, like any other business, to structure the business as it decides best to meet the challenges of market developments and changing customer needs, and has so far made good progress in introducing new products and services to attract new customers. 15. Other than in the context of the Secretary of State’s responsibility for approving the Post OYce Ltd Strategic Plan, which sets out plans for the Post OYce network, the Government does not and should not intervene in the implementation of the current, approved policy or in the operational and commercial issues relating to proposals for individual Directly Managed oYces.

Role of Postwatch

16. Closure proposals for Directly Managed post oYces are subject to full public consultation with interested parties, in accordance with the “Code of Practice on Post OYce Closures and Relocations’ agreed between Post OYce Ltd and the independent consumer body—Postwatch. The service implications, but not the principle, of the conversion of Directly Managed oYces to a franchise or agency with a private sector partner are also subject to public consultation under the Code of Practice. 17. Clearly, the implementation of the Urban Network Reinvention Programme has given Post OYce Ltd and Postwatch significant additional experience of how to ensure that consultations on proposed post oYce closures are inclusive and eVective. We would expect both parties to continue to work together to ensure that the views and needs of customers can be fully considered on proposals for Directly Managed oYces. Ev 62 Trade and Industry Committee: Evidence

Role of Postcomm 18. The independent national regulator—Postcomm has an advisory rather than a regulatory role in relation to the Post OYce network. Postcomm monitors changes in the network, liaises with key stakeholders, conducts research and provides an independent view as the national regulator via reports annually to the Secretary of State for Trade and Industry. These annual reports are published on Postcomm’s website and copies have been placed in the Library of the House of Commons. Postcomm intends to conduct research during 2005 on the eVects of the Urban Network Reinvention Programme.

HMG as Customer 19. Post OYce Ltd currently holds contracts for a wide range of Government services including, benefits collection, car tax, passport renewals, TV and fishing licences. Individual spending departments negotiate the detail of contracts with Post OYce Ltd with due consideration for the need to balance convenience for the customer and costs. None of these Government services are restricted to Directly Managed outlets. For example, motor vehicle licences are available at around 4,700 branches. Similarly, none of Post OYce Ltd’s branded financial service products are restricted to Directly Managed oYces.

Looking Ahead 20. Post OYce Ltd faces an enormous challenge to turn the business around, including getting to grips with the escalating and unsustainable losses incurred by “Crown” oYces. Inevitably this will mean considerable further change for the network, from which Directly Managed oYces cannot be immune. 21. The Performance and Innovation Unit report recognised that if the Post OYce network is to survive and thrive it needs to change significantly. The Government accepted all of the recommendations of the Performance and Innovation Unit and wants to see a Post OYce network that can prosper—on the basis of future customer and client needs—not on those of 20 or more years ago.

APPENDIX 6

Memorandum by the Communication Workers Union

Introduction 1. The Communication Workers Union (CWU) represents 247,379 employees in the postal, telecoms and related industries. It is the recognised union in Royal Mail Group for all non-management grades, including those employees working in Crown OYces. 2. The Trade & Industry Committee (TIC) launched its inquiry into the future of the Crown OYce Network on 13 October 2004. It has requested the submission of written evidence by 3 November 2004, with a hearing for oral evidence scheduled to take place shortly thereafter. In particular the Committee is seeking to address the following issues as part of its inquiry: — The reasons for the financial losses made by Crown OYces; — How Post OYce Ltd has approached its review of the Crown OYce network, whether it wishes to reduce the network by a specific number of oYces, how it judges the need for and viability of individual oYces; — Conduct of public consultation during the review, and the role and eVectiveness of Postwatch; and — The role of Government as both sole shareholder in Post OYce Ltd and as a major user of the post oYce network to deliver key Government services throughout the UK.

The CWU Position 3. From the outset the CWU would like to emphasise the very serious concerns which it has in relation to the present position of the Crown OYce network. In recent years a number of factors have conspired to prevent the Crown OYces from achieving profitability. Key factors include the Government’s decision to transfer the payment of benefits to a Direct Payment system and the rates which are paid by Government to Post OYce Ltd for the provision of government services. In each case we believe that the actions of Government have made a significant contribution to the present poor financial performance of the Crown OYce network. 4. It is our firm belief that the Government is eVectively ignoring the vitally important role which the Crown OYce network plays in communities across the United Kingdom. In addition, the importance of these oYces in delivering social inclusion for some of society’s most vulnerable members has been consistently underestimated. Current estimates indicate that some 125 Crown OYces are located in areas of urban deprivation, and these oYces provide essential services which local residents would otherwise have Trade and Industry Committee: Evidence Ev 63

great diYculty in accessing. This wider value of the Crown OYce network must be recognised before any changes to this part of the network are considered. The Government must also be called to account for its failure to ensure that a true universal banking service is available through post oYces—a central aim of the CWU’s own “Banking on You” campaign. 5. Set out below are the CWU’s views on the range of issues highlighted by the Trade and Industry Committee’s inquiry into the Crown OYce network. We have also set out our vision for the future of the Crown OYce network, which we firmly believe will deliver a viable and successful network in the coming years. It is only through a fundamental change of approach by the Government that the future of these oYces, and the vital public services which they provide, will be protected.

The Current Situation

The Financial Position of the Crown OYce Network 6. As has been widely reported in the media and elsewhere, the payment of benefits and pensions in the UK is currently undergoing the most significant programme of change in its history, through the introduction of Direct Payment (discussed in more detail below). This programme of change is in turn having a clear impact on the profitability of the Crown OYce network. The Government’s decision to transfer to a system of Direct Payment of benefits and pensions is leading to a potential loss in revenue to Post OYce Ltd of more than £400 million per annum in comparison to the existing DWP contracts (a significant proportion of which would have been allocated to Crown OYce accounts). A vital core revenue stream has therefore been removed from the Crown OYce network and, we believe, this has directly contributed to the current poor financial position of this segment of the post oYce network. As reported recently by David Mills, CEO of Post OYce Ltd: “We are developing a strategy for the future of . . . [the Crown OYces] . . . and we need to because, in round figures, it is losing £80 million a year”. Minutes of the Trade & Industry Committee 18 May 2004 7. Simultaneously, it has become increasingly apparent that Post OYce Ltd does not receive the proper market rates for many of the key services which it provides to customers. An interview with David Mills in the Financial Times observed: “Apart from selling stamps, the Post OYce has traditionally been the distribution network for many government benefits and products, from pensions to passports, and Mr Mills says some of the transaction fees do not cover costs.” Financial Times 31 August 2004 8. An additional factor which impacts upon the financial position of the Crown OYce network is the extremely high property costs in central urban areas in the UK. The CWU firmly believes that the benefits which accrue from having oYces in these locations make such costs worthwhile. We are aware that Post OYce Ltd is investigating the limited potential for relocating a small numberofoYces. We are supportive of such activity where it can be clearly demonstrated that this would not have an adverse impact on customer ease-of-access. 9. The CWU firmly believes that the combination of all these factors is the major cause of the present poor financial position of the Crown OYce network. We also note that the Government’s desired solution to the financial diYculties of the Crown OYce network has been explicitly stated: “Losses of £80 million a year are clearly unsustainable and the Government has tasked David Mills and his team with returning the business to profitability . . . I would reiterate that David Mills’ appointment was designed to bring the Post OYce in totality to profit over the period of the strategic plan, and he was specifically charged with bringing forward proposals in relation to Directly Managed oYces.” Letter from Stephen Timms, Minister for Postal Services, to CWU—23August 2004 10. The CWU rejects the Government’s position in relation to the Crown OYce network. We have consistently supported the introduction of new products and services to maximise the commercial revenues taken across the Post OYce network, in line with the current approach of POL management. However, we are convinced that the Government’s actions in relation to the Direct Payment programme, together with the fact that the Post OYce does not receive a fair market rate for many of the Government services which it provides, means that the Government must take a significant proportion of the responsibility for the current financial position of the Crown OYce segment. 11. We are simultaneously keenly aware that the Government has chosen in recent years to provide financial assistance to the rural post oYce network, amounting to some £150 million per annum. It has recently been announced that this financial assistance, which was originally scheduled to last for three years until 2006, will be extended for a further two years. This will result in a total expenditure of £0.75 billion over the five-year period, an amount which has been provided from Government gilts in turn derived from Post OYce profits. The CWU supports this financial assistance as it ensures that people living in rural areas are able to have access to vital public services through their local post oYces. However, we are unable to see why this principle of providing financial assistance to ensure public access to the services provided at Ev 64 Trade and Industry Committee: Evidence

sub-post oYces does not equally apply to Crown OYces in rural areas and the Crown OYce network in urban areas. There are currently 24 Crown OYces in rural locations, and we believe that these should also be subsidised under the Social Network Payment. Furthermore we firmly believe that there is an equally strong case for the Government to provide assistance to the Crown OYce network in urban areas. In view of the above, the CWU is urging the Government to provide financial assistance to the Crown OYce network while it undergoes a period of transition following the introduction of Direct Payment and the related factors outlined above.

Recommendation 1

The Government should provide financial support to the Crown OYce network while it undergoes a period of transition following the cessation of the Direct Payment programme.

Recommendation 2

Post OYce Ltd should receive viable market rates in exchange for the services which it provides on behalf of Government agencies and other organisations. POL should examine the payments which it receives for each service and renegotiate its existing contracts accordingly.

Recommendation 3

The Social Network Payment should be extended to Crown OYces in rural areas.

Direct Payment of Benefits and Universal Banking—The CWU Banking on You Campaign

12. As set out above, one of the most significant challenges facing the Post OYce network at the present time is the Government’s programme to transfer the payment of pension and welfare benefits to Direct Payment into bank and building society accounts. The CWU does not disagree with the Government about the case in principle for moving to the new payments system—it is clearly in the public interest to improve the security and eYciency of the existing payment methods. However, we believe that the approach of parts of Government to the implementation of Direct Payment has clearly placed financial savings ahead of the needs of the general public. This in turn is increasing the pressure on the Crown OYce network at a time when it is already experiencing serious diYculties as set out elsewhere in this submission. 13. The most notable area in which we believe the Government has not acted in the interests of the general public in its implementation of Direct Payment relates to the Post OYce Card Account (POCA). The intended purpose of the Post OYce Card Account is to provide those recipients of pensions and benefits who wish to continue to access their payments through post oYces, but who do not have the appropriate bank or building society account, with a means to do so. As we have highlighted in our Banking on You campaign, we believe that there is significant evidence that the DWP has sought to undermine the profile of the POCA to potential users, mainly because the cost of making payments through the POCA is more expensive than making payments directly into other bank and building society accounts. We believe that it has therefore placed financial considerations before customer needs. 14. We are also simultaneously concerned that the Government has failed to meet its commitment to develop comprehensive banking capabilities within the Post OYce network, to ensure “Universal Banking” access and financial inclusion for all. While a number of High Street banks and building societies have agreed to allow their customers to have access to their current accounts at the postoYce, three major banks— Halifax Bank of Scotland, Royal Bank of Scotland and HSBC—have refused. Taken together customers of these three banks hold approximately 50% of current accounts in the UK. It is therefore impossible to achieve true “Universal Banking” without their involvement. It goes without saying that the refusal of these banks to allow access to their accounts through the Post OYce network is also particularly lamentable in view of the fact that the size of bank branch networks has in many cases fallen markedly in recent years. 15. The CWU has been campaigning strongly to improve access to Post OYce Card Accounts and to secure true Universal Banking at local post oYces. It is clear that the achievement of these twin aims is absolutely fundamental to the future success of the post oYce network in general, and the Crown OYce network in particular. It is again our belief that a considerable amount of culpability lies with the Government in this area—on the one hand for presenting obstacles to the take up of the POCA and on the other for failing to do enough to deliver universal banking and financial inclusion through local post oYce branches. In each case we believe that this has undermined the position of the Crown OYce network and those employees working within them. Trade and Industry Committee: Evidence Ev 65

Recommendation 4 The Government should allow easy access to Post OYce Card Accounts for all those pension and benefits recipients who wish to utilise them.

Recommendation 5 Maximum pressure from the Government must be brought to bear to ensure that the remaining three High Street banks allow access to current accounts through post oYce branches.

Post OYce Ltd’s Approach to a Review of the Crown OYce Network. 16. We note that the Trade and Industry Committee has requested views on PostOYce Ltd’s approach to its review of the Crown OYce network. As a result of the Government’s stated position that the Crown OYce network needs to return to pure commercial profitability, the CWU has in recent months engaged in discussions with the employer about the future of the network. It should be noted that these talks have been purely exploratory and that no proposals have been put to the CWU at this stage. In light of the Government’s current refusal to support Crown oYces—which are of course publicly owned and the recognised distributor of state services—the union has a responsibility to its members to discuss the network’s financial predicament and ways this can be improved. It is impossible to say at this stage if any agreement will be possible. The CWU’s stated aim is to secure a long-term viable future for the network, which in turn delivers improved job security and basic pensionable pay for our members. 17. The analysis which Post OYce Ltd has shared in the course of these meetings indicates that a profitable Crown OYce network could be achieved with between 320 to 390 branches. This would represent a reduction of between 170 and 240 branches in comparison with the existing figure. In the meantime substantial franchises and closures continue to be announced on a piecemeal basis. The POL Business Plan for this financial year is to reduce the Crown OYce network to 512 branches. Details of the programme of closures and franchises which are currently underway are set out below:

Branch Pol Proposal

Dorchester Franchise Barking Franchise Exchange (Bradford) Closure Haverfordwest Franchise Ruislip Franchise Chippenham Franchise Withington (Manchester) Franchise Govan (Glasgow) Franchise Frome Franchise Notting Hill Closure Greenwich Franchise Canon Street (Bristol) Franchise Gosport Franchise Weston Super Mare Franchise Shirley (Southampton) Franchise Taunton Franchise Newport (Isle of Wight) Franchise Welwyn Garden City Franchise Newton Abbot Franchise Clapham Common Franchise Crosshill, Glasgow Franchise

18. It is also extremely important to remember that we are only now coming to the end of the Network Reinvention programme, a period of extremely fundamental change for the wider Post OYce network. We believe that it is absolutely essential that the network is now allowed an extended period of stability with no further substantive cuts. With this in mind, it must be remembered that, over the last 15 years, the Crown OYce network has reduced in size from some 1,340 oYces in 1989 to 560 oYces at the start of the current financial year. This cannot be allowed to continue. 19. For the avoidance of doubt the CWU would like to clearly state its opposition to the ongoing programme of closures and franchises of Crown OYces. Instead, we believe that the Crown OYce network must be revitalised through a range of measures to meet customer needs and to ensure a viable future for this part of the network. Further details of our proposals for the future of the Crown OYce network are set out below. In the period while these changes are taking place we believe that it is the Government’s clear responsibility to provide financial assistance to this valuable public asset, rather than tacitly condoning a programme of closures and franchising. We therefore believe that the Government should request the immediate cessation of closures and franchising of Crown OYces. Ev 66 Trade and Industry Committee: Evidence

Recommendation 6 The Government should ensure that all current and planned closures and franchising of Crown OYces cease.

The Role of Postwatch in Consultations on Crown OYce Closures/Franchising

20. The CWU strongly believes that the existing Code of Practice on consultations which is utilised by Postwatch when POL proposes the closure or franchising of Crown OYces is fundamentally flawed. The CWU has long campaigned against closures or franchising. There have been many cases in which the general public have also campaigned against closures or franchising. In almost every case POL has largely ignored the wishes of customers and employees. The inability of Postwatch to prevent a given closure or conversion is a serious weakness which must be addressed. The Crown OYces are an extremely valuable public asset, and Postwatch must be given the powers to safeguard the services which they currently provide.

Recommendation 7 Postwatch should be given the power to prevent the closure or franchising of Crown OYces in cases where it considers that this is justified.

The Future of the Crown OYce Network

21. There are a number of key elements to our vision for the future of Crown OYce network. In contrast to the process of closures and franchising which has been underway in recent years, we believe that the Crown OYce network and their employees are a valuable national asset which provide important public services and have the potential to be financially successful. A key strand of activity must be to implement some of the key recommendations contained in the Policy and Innovation Unit (PIU) report—Counter Revolution: Modernising the Post OYce Network—which recommend the creation of higher quality oYces oVering better services. The main areas in which we believe change is essential are set out below.

The Value of the Crown OYce Network

22. It is absolutely integral to our vision of the future of the Crown OYce network that all interested parties should recognise the vital importance of this part of the post oYce network and the employees working within them. It is our firm view that the Crown OYces are a valuable asset to Post OYce Ltd and to the wider general public. Employees in Crown OYces have an excellent knowledge of the entire range of products and services on oVer and are dedicated to providing the highest possible levels of service to the general public. These qualities are consistently reflected in market research seeking customer views of service quality in Crown OYces. 23. It is also vital that the potential of the Crown OYces themselves are fully realised. The oYces themselves are generally located in convenient urban locations. It is our view that POL should build upon the strong potential available in the existing sites, in particular by developing these oYces in line with the recommendations contained in the PIU report. While we recognise that to date two oYces (Luton Arndale and North Finchley) have undergone significant improvements to provide a more modern environment, it is absolutely essential that these sorts of improvements take place across the wider Crown OYce network. We recognise that such improvements will necessitate substantial financial investment, however, we believe that such investment will allow the oYces concerned to provide the high standards of service required by customers, and this will in turn assist in ensuring their future profitability. 24. Post OYce Ltd has argued one of the reasons for the Crown OYce network’s poor financial performance is the relative lack of selling space. Some branches have as little as 24% of total space as actual public space. Whilst we accept many branches are poorly configured and therefore not suitable for redevelopment, this is not always the case. In 2003 POL sold one of its biggest Crown oYces in Station Road, Edgware to a franchisee. This branch is in a prime town centre location, close to all other major retail outlets, and has major potential development opportunities as it is a detached two-storey building with its own secure oV-street parking. In South Harrow, POL also sold its Crown oYce to a franchisee in 2003. The new owner has now lodged a planning application with Harrow Council to turn the top floor of the building into a residential development. Additionally, Marchmont Street oYce in central London was franchised earlier this year. At a public meeting the prospective franchisee unveiled plans to convert the first floor of the property into two luxury flats. It is our contention that this sort of activity is little more than asset stripping and instead Post OYce Ltd should properly explore all alternative options for non-selling space at its Crown oYces before letting a franchisee buy the property. There is a precedent for this. At the Crown oYce in Oxford, POL leased the top floor of its property to a private business and used part of the proceeds to revamp its branch downstairs. Trade and Industry Committee: Evidence Ev 67

Recommendation 8 Post OYce Ltd must build upon the strong potential of the existing Crown OYces, providing the necessary investment to ensure that they are high quality oYces oVering excellent customer service.

Recommendation 9 Post OYce Ltd should properly explore all alternative options for non-selling space at its Crown OYces before letting a franchisee buy the property.

Providing the Services Which the Public Require 25. We believe that it is essential to the future of the Crown OYce network that further key recommendations from the PIU report—Counter Revolution:Modernising the Post OYce Network—are finally satisfactorily implemented. We recognise that Post OYce Ltd is currently in the process of developing and introducing a range of commercial products and services designed to improve the financial position of the business. We also recognise that if successful these new products will provide a valuable contribution to the financial viability of the Crown OYce network. However, we believe that it is vital that these activities are supplemented by the additional introduction of a wider range of public services, as originally recommended in the PIU report. 26. The CWU believes that the following PIU recommendations must be implemented: — The Post OYce should develop a role for the network as internet learning and access points. The Government should positively support the development of this role” — The Post OYce should develop a role for post oYces as Government General Practitioners. The Government should positively support the development of this role” 27. While we recognise that these recommendations were trialled in Leicestershire under the Your Guide initiative, we remain unconvinced by the Government’s stated reasons for discontinuing the trial, which related to the cost and take up of the scheme. We believe that a national rollout of these services across the Crown OYce network would deliver economies of scale and therefore lower costs in comparison with the limited pilot. We also believe that utilisation of these services by the general public would be markedly enhanced by greater public awareness and a wider understanding of the available services.

Recommendation 10 The proposals contained in the PIU report for the extension of internet and government services through the post oYce network should be rolled out to Crown OYces.

Funding Urban Deprived OYces 28. As noted above there are currently approximately 125 Crown OYces which are located in urban deprived areas. These oYces provide essential services for some of the most vulnerable sections of society, and thereby provide an invaluable role in ensuring social inclusion for people living in these areas. As a result, we believe that it is important that the social function of oYces located in these areas is eVectively ensured. As a consequence we believe that the Government must provide ongoing subsidies for Crown OYces located in areas of urban deprivation, and that it should recognise that such payments may be necessary even once transitional support for the remainder of the Crown OYce network is no longer required.

Recommendation 11 The Government should provide financial subsidies to Crown OYces which are located in areas of urban deprivation, and it should recognise that such payments may be necessary for a longer period than those which are currently required for the wider Crown OYce network.

Quality of Service in Crown OYces 29. A key impact of the wider network reinvention programme has been to concentrate a greater number of customers in the remaining post oYces. Post OYce sources have recently indicated that some 90% of the business of closed oYces has been retained within the existing network. This is clearly in the interests of the business. However, it appears that a significant proportion of this additional custom has been focussed within Crown oYces. This is clearly a welcome development, as in the longer term it should improve the financial position of this part of the business. However, we are also concerned that this additional pressure is having an unforeseen adverse impact on customer service in these oYces. Ev 68 Trade and Industry Committee: Evidence

30. We note that, until the end of financial year 2002–03, Royal Mail Group’s licence included quality of service standards in relation to queuing times in post oYces. For example, in 2002–03 the licence stated that 95% of customers should queue for no longer than five minutes in post oYces for postal services, based on national average performance at all counters. The CWU strongly supported the concept of this service standard as we believed it provided a robust independent measurement of quality of service in post oYces. 31. Since the beginning of April 2003 this quality of service standard has ceased to form part of Royal Mail group’s licence, although we understand that Postwatch is now proposing that this target should be reinstated. We strongly support the reinstatement of this measurement, or a similar mechanism. We have had a significant number of reports from Union representatives in Crown OYces that the concentration of additional custom in these oYces is resulting in falling quality of service, which not only fails to meet customer interests but also places significant extra pressures on staV working in these oYces.

Recommendation 12 Postcomm should reintroduce the measurement of queuing times in post oYces as a Royal Mail licence quality of service indicator at the earliest available opportunity.

Conclusion 32. First and foremost, the CWU believes that the Government must recognise it’s responsibilities in relation to the Crown OYce network. In particular the change to a system of Direct Payments of benefits and the continuing provision of government services in post oYces for which POL receives uneconomic rates is having a severe impact on the financial viability of the Crown OYce network. As a result the Government must recognise its role in worsening the financial position of this vital public asset and provide financial support for the Crown OYce network while it undergoes a period of transition. In addition the Government must ensure that there is easy access to the Post OYce Card Account and that the maximum possible pressure is brought to bear on the three remaining large High Street banks which have refused to allow access to current accounts through post oYce branches. Furthermore we believe that all current and planned closures and franchising of Crown OYces should cease with immediate eVect. 33. Alongside the key short-term activities outlined above, we believe that concrete steps must be taken to guarantee the future role of the Crown OYce network. The value of the Crown OYce network and all those employees working within it must be recognised, and the necessary investment in modernising the oYces must take place, in line with the recommendations contained in the PIU report. Coupled to this, we believe that the proposals contained in the PIU report for the extension of internet and government services through the post oYce network should be rolled out to Crown OYces; this will supplement POL’s own activity to develop and introduce new commercial products and services. We are further convinced that Government must recognise the importance of Crown OYces located in urban deprived areas, and should accordingly introduce special funding arrangements for these oYces. Finally we believe that it is essential that quality of service targets relating to the measurement of queuing times in post oYces are reintroduced at the earliest possible opportunity. 34. It is the CWU’s firm belief that, if the approach outlined above is taken, the present poor financial position of the Crown OYce network will be addressed and these oYces will in turn meet the needs of the general public in the future. We are absolutely opposed to the existing short-termist approach which seeks to squander a valuable public resource in the interests of securing short-term profitability. 35. A summary of the recommendations contained in this submission is attached below.

SUMMARY OF RECOMMENDATIONS

Recommendation 1 The Government should provide financial support to the Crown OYce network while it undergoes a period of transition following the cessation of the Direct Payment programme.

Recommendation 2 Post OYce Ltd should receive viable market rates in exchange for the services which it provides on behalf of Government agencies and other organisations. POL should examine the payments which it receives for each service and renegotiate its existing contracts accordingly.

Recommendation 3 The Social Network Payment should be extended to Crown OYces in rural areas. Trade and Industry Committee: Evidence Ev 69

Recommendation 4 The Government should allow easy access to Post OYce Card Accounts for all those pension and benefits recipients who wish to utilise them.

Recommendation 5 Maximum pressure from the Government must be brought to bear to ensure that the remaining three High Street banks allow access to current accounts through post oYce branches.

Recommendation 6 The Government should ensure that all current and planned closures and franchising of Crown OYces cease.

Recommendation 7 Postwatch should be given the power to prevent the closure or franchising of Crown OYces in cases where it considers that this is justified.

Recommendation 8 Post OYce Ltd must build upon the strong potential of the existing Crown OYces, providing the necessary investment to ensure that they are high quality oYces oVering excellent customer service.

Recommendation 9 Post OYce Ltd should properly explore all alternative options for non-selling space at its Crown oYces before letting a franchisee buy the property.

Recommendation 10 The proposals contained in the PIU report for the extension of internet and government services through the post oYce network should be rolled out to Crown OYces.

Recommendation 11 The Government should provide financial subsidies to Crown OYces which are located in areas of urban deprivation, and it should recognise that such payments may be necessary for a longer period than those which are currently required for the wider Crown OYce network.

Recommendation 12 Postcomm should reintroduce the measurement of queuing times in post oYces as a Royal Mail licence quality of service indicator at the earliest available opportunity. November 2004

APPENDIX 7

Supplementary memorandum by the Communication Workers Union CWU View on the Issue of Pay Comparator Information—Post OYce Ltd Employees

Overview The CWU notes that in its submission Post OYce Ltd (POL) asserts: “Salary levels at Post OYce Ltd are significantly higher than those found in comparable high street businesses. The maximum basic hourly rate for staV in directly managed Post OYce branches is £9.26 . . . This compares to more typical ranges of £7.70 to £8.20 per hour in banks or £5.20 to £7.50 in the retail sector.” [Post OYce Ltd submission to the Trade and Industry Committee—November 2004] Ev 70 Trade and Industry Committee: Evidence

The CWU absolutely rejects Post OYce Ltd’s views in this area, as we believe that it has been extremely selective in its presentation of information in relation to pay comparisons between POL and “comparable high street businesses”. There are two issues for us here. The first is to identify the most appropriate sector with which to compare post oYce employees. We note that POL has selected two diVerent sectors—banking and the retail sector. The CWU believes that, in view of the content and profile of the work carried out by employees working in Crown OYces, the most appropriate area of comparison is with the banking sector and not with the retail sector. This is a longstanding issue which was most recently discussed in detail by the CWU and POL during the 2004 pay round, at which time there was general agreement then that employees working in banks and building societies would constitute the most appropriate comparison. We are disappointed that POL has chosen to return to this issue, in a bid to portray its own employees as overpaid. The second issue is to select a fair range of organisations with which to compare POL’s employees. Details of the two main grades employed in Post OYce Ltd—Postal OYcers and Customer Service Advisers are set out in the table below, alongside a range of Customer Advisers employed in diVerent banks and building societies.

Table

COMPARISON BETWEEN THE PAY OF POST OFFICe LTDANDBANK/BUILDING SOCIETY EMPLOYEES

Company Job Description Grade Max pa

Post OYce Ltd CSA (Pay Point 5)* £15,000 Post OYce Ltd Postal OYcer £17,386 Comparators Alliance & Leicester CustomerAdviser £17,945 Bristol & West Branch Customer Adviser £18,400 Co-op Bank Customer Adviser £16,000 HSBC Customer Adviser £14,700 Nationwide Building Society Customer Adviser £16,169

Source: IDS Pay Benchmark *Although pay points 6 and 7 exist in theory, there are no agreed progression arrangements beyond pay point 5 at the present time. There are currently only negligible numbers of people employed beyond pay point 5. Even when progression beyond this point is agreed, it will only extend the maximum to £16,000 (pay point 7). We believe that the information presented above provides a much more accurate picture of pay diVerentials than those provided by Post OYce Ltd. In each case it is clear that POL employees are not overpaid in comparison with employees providing very similar services in banks and building societies. Indeed it is particularly clear that the CSA grade, which carries out identical work to the Postal OYcer and which was created following executive action by the business in 2000, has a much lower pay maximum than the majority of companies shown above. The CSA maximum is paid some 16% less than comparable employees at Alliance & Leicester and some 18% less than those working at Bristol & West. While the Postal OYcer pay maximum is positioned in the upper quartile, this is consistent with Royal Mail Group’s publicly stated aims for all employees. We therefore absolutely reject POL’s claim that their employees are overpaid compared to those working in comparable roles.

APPENDIX 8

Memorandum by the National Consumer Council The National Consumer Council welcomes the opportunity to submit evidence to this inquiry. The Government has already recognised the vital social function that the post oYce provides to vulnerable consumers through its recent announcement for continued support for the rural post oYce network. A recent survey1 revealed that elderly and lower income consumers ranked the post oYce as their second top local service, only just trailing traditionally popular local health services. Post oYce closures of any type have an eVect on local users, therefore the NCC is keen to see that any closure programme is carried out in a way that is fair, giving suYcient weight to the social impact that any reduction in service may have on all consumers, particularly vulnerable individuals. We consider that essential services that are so well trusted and held in high regard by these groups should be maintained wherever possible.

1 National Consumer Council, Halloween Omnibus Survey: October 2004. Table 1b. Trade and Industry Committee: Evidence Ev 71

While we understand the need for the post oYce to rationalise its operations to a certain extent, we are concerned at the un-co-ordinated approach that has been taken in trying to achieve this. We do not think that it is in the consumer’s best interests to have a Crown post oYce closure programme running in isolation from the urban reinvention and rural closure programme. This could inflict further costs and inconvenience on consumers who have already experienced the closure of their local sub-post oYce. This will hit vulnerable and low-income individuals particularly hard. We were unable to identify cases where consultation responses had been successful in preventing a crown oYce closure, or cases where an alternative solution to closure had been found. This suggests that the current arrangements for consultation may not be working eVectively for consumers. Therefore we suggest that the consultation system should be reviewed. More specifically, in order to take account of social need independently of the post oYce’s economic targets, the NCC believes that there should be an independent adjudicator appointed to make the final decision on the future of a crown oYce (directly managed branch) where the closure is disputed. We understand that the post oYce is considering franchising the operations of some Crown post oYces. This course of action does not guarantee post oYce services for the local community in the long term. A number of sub-post oYces have been closed down where a major retailer has taken over a smaller chain or local shop and not wanted to continue providing post oYce services. It is possible that a similar outcome could occur with franchised branches. It is also possible that once a franchise comes to an end the holder might not renew it. Failure to find someone to take on the franchise could result in a withdrawal of post oYce services from the local area. We do not think that this is an ideal solution. We would seek a commitment from the post oYce to re-establish direct management of post oYce branches if a franchise is not a sustainable option. Finally, we are concerned at the wider impact on the local economy that a Crown oYce closure is likely to have. It is likely to contribute to falling revenue for local businesses and long-term service reduction for consumers through shop closures. This increases the barriers to accessing goods and services for vulnerable and low-income consumers, who trust and rely heavily on their local post oYce as a source of information and social contact as well as service provision. I enclose a copy of NCC’s recent consultation pack Why do the Poor Pay more . . . or get less? which highlights the importance of post oYces in the areas of social and financial exclusion. We hope that the committee is able to take on board our concerns about the latest round of post oYce closures. 3November 2004

APPENDIX 9

Memorandum by the Postal Services Commission (Postcomm) 1. Postcomm’s assessment of the current position on Directly Managed Branches (DMBs) is set out in its Post OYce Network Annual Report “Building a viable network” which was published last month. Postcomm’s report reflects advice and information on the DMBs from a variety of sources including Post OYce Ltd, CWU, CMA and others. Postcomm’s thinking is also informed by meetings around the UK to hear the views of Post OYce customers and their representatives. 2. Postcomm recognises that DMBs are running at a considerable loss to the network (over £70 million in 2003–04) and that Post OYce Ltd needs to take action to make them more sustainable. However, there is increasing concern at local and national level about these branches because of an apparent lack of transparency and consultation about their treatment and the knock on eVect for the rest of the network. A key concern is that DMBs are being assessed outside of the Urban Reinvention Programme and that this could lead to gaps in the network and a poorer service for customers. 3. Changes to or potential closures of any of DMBs tend to be controversial because traditionally they are larger branches, based in prominent high street locations, oVering customers more counters and a full range of services. In the light of comments on the DMBs, Postcomm therefore takes the view that for DMBs to become sustainable a range of issues need to be taken into account: — High property and occupancy costs, and property no longer fit for purpose (some of them were also once sorting oYces); — Low investment in the actual interior, coupled with high support and central costs; — Uneconomic use of cash distribution due to poor planning; — Loss of benefits traYc, and dealing with Government products that do not oVer the network high monetary rewards; and — IneVective reward schemes for staV who are therefore not properly motivated, and who are paid a higher wage costs than staV in comparable businesses such as banking. Ev 72 Trade and Industry Committee: Evidence

4. There is currently no evidence to suggest that service provision has suVered once a DMB becomes a franchise store, as it is expected to continue to oVer the Post OYce Counter services that were previously available at that branch. In fact it might be argued that customers may benefit from the wider range of goods being made available at a franchise store. There are also signs that with investment and planning some of these branches could act as “flagship” stores. North Finchley DMB, for example, has been given a new lease of life with a modern refurbishment, zoning, and a floor walker to assist with queue management. 5. It appears that customers still want to use these branches in order to access the wider range of services and talk to knowledgeable staV that they trust. However, the general trend, as in other parts of the network is one of declining customer use as they increasingly find other channels to access the services they need. Postcomm’s view is it important that Post OYce Ltd takes account of the lessons from the Urban Reinvention Programme and actively involves stakeholders to ensure that its approach to the DMBs fits with what is happening locally and elsewhere in the network.

Research 6. In our annual report on the network, Postcomm recommended that there should be research into queuing times in DMBs and other urban branches, to assess the impact on diVerent client groups. This is because we want to examine the eVect of Urban Reinvention on these branches, as we are told that that as a result of the programme DMBs have gained more business. Postcomm is currently undertaking this research in a joint project with Postwatch. The results are expected in December 2004. 7. The research is expected to evaluate any diVerences between Directly Managed Branches and franchise oYces that were once DMBs. In particular it will examine: — Queuing—time spent in the queue and the number of counter positions open, any queue management measures, numbers queuing; — Other Observations—counter advice, product knowledge, customer service, standard of outlet and disabled access; — Availability of Information in the Post OYce—opening hours, posting dates, complaints information, Post OYce financial services and products; — Observations away from the post oYce—transit times of posted items, receipt of posted items. 8. In the New Year, Postcomm plans to follow up this research with a wider review of the impact of the Urban Reinvention Programme on customers, subpostmasters and the viability of the network. This research will include an assessment of any diVerences between urban and urban deprived branches and of the impact on vulnerable groups.

Background

Postcomm’s role and duties in relation to the network

9. Postcomm’s role is to monitor and provide independent advice on developments in the post oYce network. Postcomm’s work results from the recommendations of the Performance and Innovation Unit report “Counter Revolution: Modernising the Post OYce Network” (accepted by the Government in June 2000) to: — report annually on developments in the UK’s network of post oYces; — advise the Government on the best way to target financial assistance to the rural network of post oYces; and — develop a shared understanding of the role that post oYces should play in the longer term and advise the Government on the main options for the policy framework after 2006. 10. Under section 42 of the Postal Services Act 2000, Postcomm is required to give the Secretary of State advice and information on the number and location of public post oYces and their accessibility to users of postal and other services. 11. Since 2001, Postcomm has published four reports drawing on research and the views of customers, subpostmasters and stakeholders to assess whether the network’s services and number of outlets meet the current and future needs of customers, especially those in rural and deprived urban areas. As part of a widely based research programme, Postcomm has looked at what services are particularly needed by customers, at the role of post oYce branches in areas where there are few retail outlets and limited service provision, at how people cope when access to post oYce services is diYcult, and at regional diVerences in customer behaviour and service provision. Trade and Industry Committee: Evidence Ev 73

Postcomm’s overall advice on the network 12. Postal services are vital to the social and economic life of the UK, and as well as providing access to postal services, post oYces provide a vital link to advice, information and cash locally. As part of its remit to monitor network developments, Postcomm therefore pays particular attention to how post oYces meet the needs of isolated communities and people disadvantaged by physical disability, old age, low income and diYculty in accessing transport. 13. In the light of research and consultation on the network, Postcomm’s independent view is that what matters is accessibility of post oYce services to those that need them, rather than the number of post oYce buildings. For this reason we attach great importance to the work on pilots that Post OYce Ltd is stepping up now so that it can report at the end of 2005 on diVerent ways of getting post oYce services to customers. Furthermore, Postcomm also believes that the future health of the network depends upon the Government being clear about what it wants from the post oYce network and what support it will give it to deliver those objectives.

Access to postal services 14. Postcomm does not regulate Post OYce Ltd (part of the Royal Mail Group) and only 25% of post oYce business is postal services. However in its role as the national regulatory authority for UK postal services, Postcomm overseas the minimum requirement for accessibility of access points for postal services (ie Post OYces). In this respect, Royal Mail’s licence specifically states that: “the distribution of access points capable of receiving the largest relevant postal packets and registered mail is such that: — in the authorised area as a whole the premises of not less than 95% of users or potential users of postal services are within 5 kilometres of such an access point, and — in all postcode areas the premises of not less than 95% of users or potential users of postal services are within 10 kilometres of such an access point, and — such access points are available to the public in accordance with conveniently published schedules”. November 2004

APPENDIX 10

Memorandum by Postwatch

Executive Summary Postwatch welcomes this timely inquiry into the future of the Crown Post OYce network. Postwatch recognises that Post OYce Ltd is expected to operate commercially and that the Crown OYce network lost some £70 million last year. It is not surprising therefore that Post OYce Ltd has been reviewing ways of reducing, if not eliminating, those losses. Crown oYce closures or conversions are not the only option; indeed, Post OYce Limited is confident that the range of new products being introduced will further support the profitability of both the privately owned (franchised or sub-post oYces) and directly managed (Crown OYce) branches within the urban network. Postwatch accepts that there will be circumstances when the closure of a Crown OYce becomes necessary. Indeed, as the cost of the Crown OYce network is cross-subsidised by the profits made by the urban sub- post oYce network, continued losses put the sub-post oYce network at risk. But closures should be a last resort only when all other options have been fully considered. Postwatch is not opposed to all closures of Crown OYces, nor is it opposed to all conversions of Crown OYces to franchised operations. It recognises the commercial pressures that are placed on Post OYce Ltd, but also requires that any changes to the network must be made only if they are in the long-term interests of customers, the majority of whom still see the Post OYce as a public service. Customers value the presence of post oYces in UK High Streets and the PIU report “Counter Revolution” (2000) recommends that post oYces should be located where people shop. Post OYce Ltd must retain a High Street presence as it moves into more competitive markets, whilst customers need accessible postal and financial services. It is yet to be determined what proportion of this presence should be in Crown OYce form and whether franchised post oYces meet consumer needs in the long term. Postwatch would be opposed to the closure of any Crown OYce that has acted as a receiving branch for customers of sub-post oYces closed during the Urban Reinvention programme. Of the 555 Crown OYces in the UK, 425 have been advertised as receiving branches for such closures in the past two years. The closure of such branches would make a mockery of the publicly funded programme. Ev 74 Trade and Industry Committee: Evidence

Crown OYce closures cannot be viewed in isolation from the rest of the network. Post OYce Ltd must consult fully and genuinely on any proposed closure and be willing to change its mind. Postwatch has been successful in campaigning for the withdrawal of 143 cases during the Urban Reinvention programme, but is yet successfully to campaign for the withdrawal of any proposals to close Crown OYces. The experience gained during the Urban Reinvention process is valuable and should be incorporated into the Code of Practice on Post OYce branch relocation, closure and conversion by Post OYce Ltd and Postwatch. The Government has an important role to play in shaping the future of the Crown OYce network through its roles of shareholder, customer and due to its responsibility for determining the social obligations of Post OYce Ltd.

Recommendations R1. Postwatch asks that no new closures are proposed until the Trade and Industry Committee reports, and responses are made by the DTI and Post OYce Ltd. R2. Branch closures must not be the only response to financial losses by the Crown OYce network. Customers want post oYces to remain in UK high streets. To sustain this accessible service Post OYce Ltd must adopt multiple approaches to curbing financial losses. R3. Decisions on the future of individual Crown OYces should not be driven solely by financial expediency. Such decisions should take into account the level of deprivation in the area, the location and sustainability of the closest alternative branches, and the level of service found at those alternatives. The future of Crown OYces must not be considered in isolation from the rest of the network. R4. Crown OYces must currently transact no less than 15% of total post oYce transactions. The Government must decide whether this should be replaced or supplemented by an obligation for Post OYce Ltd to retain a service in certain core locations. R5. Any decisions on the commercial future of the Crown OYce network must take account of the level of profitability of its new products and services. R6. If Post OYce Ltd decides it no longer wishes to operate a particular Crown OYce it should always consider the option of converting the oYce to a franchised operation. If franchising is not considered feasible or necessary, Post OYce Ltd should explain why as part of its consultation on the proposed change. R7. To safeguard franchised post oYces in key locations Post OYce Ltd should be prepared to take over the branch, even if only for a temporary period, until the transfer to an alternative provider can be arranged. R8. In the absence of any Government funding for SPSOs aVected by the closure of a Crown OYce, Postwatch proposes that Post OYce Ltd should establish a fund, financed by savings arising from the closure, to pay for any necessary improvements to remaining oYces nearby. R9. Changes to the Crown OYce network, and indeed the wider post oYce network, should be subject to the consultation process developed during the Urban Reinvention programme. Postwatch recognises that there are lessons to be learnt from this programme and would like to work with Post OYce Ltd to agree changes to the consultation process before any further Crown OYces are proposed for closure or conversion. R10. As an avenue for resolving strongly disputed proposals to close a CrownOYce where the closure does not appear justified, Postwatch believes the Government should identify a body with authority to veto a closure. This could be the Minister for Postal Services, Postcomm or a third party appointed for the purpose.

1. Background 1.1 In its inquiry on The Post OYce Urban Network Reinvention Programme, the Trade and Industry Committee expressed concern that Post OYce Ltd was undertaking a separate review of its directly managed post oYce branches (ie “Crown” oYces). The Committee’s report stated that “for any one area, the absence of certainty over the future of a Crown OYce in that area must, to some extent, undermine the credibility of decisions taken over the neighbouring network of sub-post oYce branches”. 1.2 Postwatch shares the Committee’s view. Of the 560 Crown OYces in the UK, 430 have been advertised as receiving branches for the Urban Reinvention closures, and it is regrettable that Post OYce Ltd did not conduct a full review of the Crown oYce network in tandem with Urban Reinvention. 1.3 Nevertheless the timing of this inquiry is welcome: — The impact of the Urban Reinvention programme on Crown OYces is emerging, and Post OYce Ltd should be able to better predict their viability in the longer term. — The experience gained from the consultations under Urban Reinvention should facilitate a collaborative approach to a review of Crown OYces that was not possible under Urban Reinvention due to procedural constraints. Trade and Industry Committee: Evidence Ev 75

— The impact of direct payment of benefits and pensions was not fully understood at the start of the Urban Reinvention programme. The fall in related transactions will undoubtedly impact the viability of branches across the network. — Post OYce Ltd has introduced new, more profitable products. — Consolidation of the supermarket industry in 2003–4 has resulted in further unplanned closures, bringing the sustainability of franchised oYces into question. 1.4 The impacts of recent developments should be understood before finalising any further changes to the network.

1.5 Recommendation 1 Postwatch asks that no new closures are proposed until the Trade and Industry Committee reports, and responses are made by the DTI and Post OYce Ltd.

2. The Reasons for the Financial Losses Made by Crown Offices 2.1 There are currently 555 Crown OYces. According to Post OYce Ltd, the Crown Network ran at a loss of over £70 million in 2003–04. 2.2 In its Fourth Annual report on the network of Post OYces, Postcomm suggests a number of reasons for these losses including: — High property costs; — Property no longer fit for purpose (eg unable to support a Post Shop); — Loss of benefits traYc following the move to direct payment; — High support and central costs; — Uneconomic use of cash distribution; — Dealing with loss-making Government products; — Unmotivated staV due to ineVective reward schemes; — Higher paid staV than in comparable businesses such as banking; and — Uneconomic use of cash distribution. 2.3 Postwatch recognises that the current scale of losses is unsustainable and that Post OYce Ltd has been making eVorts to drive down costs, eg by reducing the number of non front-line staV supporting the Crown Network. 2.4 However, before Post OYce Ltd takes any final decisions on the scale of closures or conversions it believes are required, Postwatch would welcome clarification on the scale of savings that can be achieved by: — Minimising property costs eg by: — making best use of the space available; — maximising the returns from any space that it not used for post oYce purposes (such as renting vacant space above the ground floor); and — moving to cheaper, possibly smaller, premises in some areas. — Obtaining appropriate payment from Government departments for the services it provides on their behalf; — Continuing to streamline the processing of transactions to reduce handling time; — Continuing to drive down central overheads such as staV and cash distribution costs; — Making maximum use of the more flexible working patterns to match staYng levels in branches to demand; and — Allowing time for the higher margin products that are being introduced to feed through to the bottom line. 2.5 Costs apart, Post OYce Ltd needs to assess and factor in the extra revenues and profits expected by the introduction of new products and services. Crown OYces are among the busiest branches and can expect a higher turnover from new products. 2.6 According to Postcomm, 124 of the 555 Crown OYces are freehold properties owned by Royal Mail Group. Postwatch would welcome assurance that the rents for these publicly owned sites are reasonable and are not being used to boost Royal Mail Group’s profits. 2.7 If, ultimately, Post OYce Ltd decides that a particular Crown OYce is no longer viable, Postwatch believes that conversion to a franchised branch should always be considered as a first option. Provided Post OYce Ltd ensures a good quality of service and access to the same range of products, franchising may provide a viable alternative to the Crown OYce network. Ev 76 Trade and Industry Committee: Evidence

2.8 Recommendation 2 Branch closures must not be the only response to financial losses by the CrownOYce network. Customers want post oYces to remain in UK high streets. To sustain this accessible service Post OYce Ltd must adopt multiple approaches to curbing financial losses.

3. Post Office Ltd’s Review of the Crown Office Network 3.1 Post OYce Ltd has informed Postwatch that it intends to reduce the number of Crown OYces to a sustainable core, estimated to lie between 320 to 390 oYces, over the next three to five years. The reduction of some 165 to 235 oYces will be achieved by closures or conversions. 3.2 Crown OYces are important to customers. They are generally located in primary shopping areas, and oVer the full range of postal services. They are often located close to centres of economic activity and transport hubs. Customers can couple post oYce use with other retail or work-related journeys, and they are often more accessible to those reliant on public transport than alternative SPSOs in neighbouring communities. In addition, our visits to these branches show that these branches are better equipped for customers with disabilities than those SPSOs that are reliant on individual sub-postmasters’ investment. 3.3 Customers have told Postwatch that what they want is a facility that is: — Readily accessible in terms of location; — Open at convenient times; — Large enough to cope with demand, especially at peak times; — StaVed by friendly, helpful and knowledgeable personnel; and — With a pleasant environment, with facilities for customers with disabilities.

3.4 Recommendation 3 Decisions on the future of individual Crown OYces should not be driven solely by financial expediency. Such decisions should take into account the level of deprivation in the area, the location and sustainability of the closest alternative branches, and the level of service found at those alternatives. The future of Crown OYces must not be considered in isolation from the rest of the network. 3.5 Postwatch is aware that Post OYce Ltd’s thinking has been influenced by the outcome of a review of the Crown Network carried out by McKinsey consultants. However, Postwatch does not know what terms of reference were set for the review, what factors it covered, what its finding were or what recommendations were made. In particular, Postwatch does not know whether and if so how the McKinsey’s review considered what impact any changes would have on customers. Nor, so far as Postwatch is aware, has Post OYce Ltd separately sought customers’ and stakeholders’ views as part of its considerations. 3.6 It is unclear whether Post OYce Ltd genuinely wishes to maintain a core Crown OYce network of around 350 branches, or whether it is required to do so as a matter of Government policy following the Government’s endorsement of the Post OYce White Paper (1999), to ensure that the amount of business transacted by Crown OYces nationally should not fall below 15%.

3.7 Recommendation 4 The Government should reconsider whether the current obligation should be replaced or supplemented by one that obliges Post OYce Ltd to retain a service in certain core locations. 3.8 Postwatch welcomes the introduction of new products and services, and is concerned that branches could be closed before customers have the opportunity to adopt them. Maintaining a significant high street presence would show Post OYce Ltd’s faith in these new income streams whilst keeping them accessible to customers.

3.9 Recommendation 5 Any decisions on the commercial future of the Crown OYce network must take account of the level of profitability of its new products and services.

Franchising Crown OYces 3.10 Postwatch believes that the Post OYce must retain a core of High Street branches. Provided levels of service, accessibility and product ranges are equivalent or better, and, more importantly, sustainable, Postwatch is not opposed to this core being composed of Crown OYces and franchised post oYces. 3.11 Postwatch recognises that in the past there has been opposition to a number of conversions of Crown OYces to franchised branches. We have therefore commissioned research by MORI to examine certain quality of service issues at Crown and franchised post oYces across the UK (see Annex 1). The research Trade and Industry Committee: Evidence Ev 77

examines queuing, quality of advice and the standard of the outlet, and will allow Postwatch to compare Crown OYces with franchise branches. The results, which should be available by the end of the year, should help to aid understanding of the impact of franchising on post oYce customers.

3.12 Recommendation 6

If Post OYce Ltd decides it no longer wishes to operate a particular Crown OYce it should always consider the option of converting the oYce to a franchised operation. If franchising is not considered feasible or necessary, Post OYce Ltd should explain why as part of its consultation on the proposed change.

3.13 Postwatch does have reservations about the mid- to long-term sustainability of franchised post oYces. Recent consolidation in the supermarket/convenience store sector has shown that changes can have an immediate impact on franchised operations, eg Morrison’s decision to remove post oYces from all Safeway stores and Tesco’s decision not to continue to operate all post oYces located in T&S stores.

3.14 Recommendation 7

To safeguard franchised post oYces in key locations Post OYce Ltd should be prepared to take over the branch, even if only for a temporary period, until the transfer to an alternative provider can be arranged.

4. Co-ordination with Urban Reinvention

4.1 Crown OYces are for the most part busy and well located, and Postwatch estimates that these branches have absorbed a high proportion of extra custom migrating from branches closed under Urban Reinvention. Indeed, some 425 Crown OYces have been named as receiving branches in over 1,100 of the Urban Reinvention closure proposals.

4.2 Often the presence of a nearby Crown OYce has been a key factor in Postwatch’s acceptance of a proposed closure, as they oVer the “bigger, brighter, better” premises envisaged by the PIU report “Counter Revolution” (June 2000). Closures of any of these oYces now would seriously undermine the rationale for, and the consultations during, the Urban Reinvention programme.

4.3 Ideally, a review of the Crown OYce network would have taken place alongside the Urban Reinvention programme once the impact of the move to direct payment of benefits was fully understood. Closures at this time will further undermine customers’ trust in the Post OYce brand and could lead to a downturn in the accessibility and quality of service at the remaining branches.

4.4 Post OYce Ltd has made conflicting comments to justify its proposals in diVerent areas. For example, customers of sub-post oYces have been told that closures are needed in secondary retail areas due to changing consumer patterns, whereas those in primary retail areas, such as Notting Hill and central Edinburgh, have been told that Crown OYces are unsustainable in primary retail areas due to rising property values and falling transactions. Whilst both views probably both contain elements of truth, they underline the diYculty Post OYce Ltd has in maintaining a consistent and credible overall strategy.

4.5 The urban reinvention programme is resulting in more business for CrownOYces, but as yet there is no research to allow key stakeholders to understand the actual impact. This is one of the aspects that Postcomm will assess at the end of the programme.

4.6 Postwatch has found that some Crown OYces have experienced capacity problems as a result of nearby post oYce closures. If these Crown OYces are now closed, neighbouring sub-post oYces are unlikely to be able to cope with the migration of customers. Consequently Postwatch believes that, if the closure of a Crown OYce is Post OYce Ltd’s only option, the company must ensure neighbouring post oYces are able to provide customers with adequate standards of service, access, and the same range of Post OYce products and services.

4.7 An example of a Postwatch response to a Crown OYce closure proposal is attached (Annex 2). Regrettably, Post OYce Ltd failed to address the issues raised and Postwatch remains concerned about the adequacy of alternative provision in the area. Ev 78 Trade and Industry Committee: Evidence

4.8 Recommendation 8 In the absence of any Government funding for SPSOs aVected by the closure of a Crown OYce, Postwatch proposes that Post OYce Ltd should establish a fund, financed by savings arising from the closure, to pay for any necessary improvements to remaining oYces nearby.

5. Conduct of Consultation Process for Crown Post Offices 5.1 Whilst Postwatch has been successful in encouraging the withdrawal of 143 plans from the Urban Reinvention programme following public consultation, no plans for Crown OYce closures have been withdrawn, or even significantly modified, following Post OYce Ltd’s consultation. This experience suggests that “consultation” on these closures and conversions amounts to little more than notification by Post OYce Ltd of its intentions. 5.2 Consequently, Postwatch has written to the Minister to ask him to ensure Postwatch can defend the interests of customers when the future of their Crown OYce is threatened (Annex 3). At the time of writing we are still awaiting a response. 5.3 Postwatch learnt a number of important lessons from its role in the urban reinvention programme, and successfully negotiated revisions to the consultation process during the programme. 5.4 Postwatch believes these changes have been valuable, and should not be abandoned at the close of urban reinvention. The following recommendations for future consultations on Crown OYce closures are in line with concerns raised by customers and other stakeholders during the Urban Reinvention programme: — A consultation period lasting a minimum of twelve weeks, in line with Cabinet OYce guidelines. — Early involvement of local authorities, MPs and members of devolved administrations. — Provide customers its rationale for specific proposals. This includes provision of business levels at the branch proposed for closure and transparency about the scale of losses being incurred. — Develop an eVective review mechanism between Post OYce Ltd and Postwatch to resolve disputes over closures of Crown OYces. The final decision on contested closures should not rest solely with Post OYce Ltd. The government, as main shareholder, should consider where best this decision should lie. 5.5 The Code of Practice on Post OYce branch relocation, closure and conversion agreed between Post OYce Ltd and Postwatch (referred to here as the Code of Practice) does not set out a formal mechanism for Post OYce Ltd to report back on the ways in which it took on board comments made during consultation. Postwatch wants to work with Post OYce Ltd to ensure that, in future, stakeholders’ concerns are addressed in decision-making. 5.6 Finally, specific to conversions of Crown OYces to Franchise Post OYces, the Code of Practice currently states, “the act of conversion as such is not a matter for consultation” (p15). Rather, the consultation aims to ensure that the converted branch continues to meet customer needs. A more structured survey to identify local customers, needs (aVecting product range, opening hours, staYng hours) would help Post OYce Ltd and the future franchisee retain and attract custom. The consultation process for conversions should also be reconsidered in the light of the Urban Reinvention programme.

5.7 Recommendation 9 Changes to the Crown OYce network, and indeed the wider post oYce network, should be subject to the consultation process developed during the Urban Reinvention programme. Postwatch recognises that there are lessons to be learnt from this programme and would like to work with Post OYce Ltd to agree changes to the consultation process before any further Crown OYces are proposed for closure or conversion.

5.8 Recommendation 10 As an avenue for resolving strongly disputed proposals to close a Crown OYce where the closure does not appear justified, Postwatch believes the Government should identify a body with authority to veto a closure. This could be the Minister for Postal Services, Postcomm or a third party appointed for the purpose.

6. Role and Effectiveness of Postwatch 6.1 Postwatch is the consumer body for postal services, and has a specific remit to represent the interests of individuals who are disabled or chronically sick; are of pensionable age; or who are living on low incomes. 6.2 Due to its specific remit to these customers, Postwatch is concerned that Post OYce Ltd’s judgement on the need for and viability of individual oYces is driven primarily by financial considerations. If the Government believes that the urban post oYce network has a social role, it is our view that this needs to be more clearly defined. Trade and Industry Committee: Evidence Ev 79

6.3 Postwatch assesses every proposed post oYce closure. It is not the policy of Postwatch to oppose all Post OYce closures, as we recognise that some closures may be necessary in order to sustain an accessible network. Outright opposition to closure is a position that we take only where we believe that the local community will be significantly disadvantaged and where the alternatives proposed by Post OYce Limited are inadequate. 6.4 Postwatch investigates each proposed conversion of a Crown OYce to a franchise. Postwatch does not oppose the principle of conversions but does have concerns about levels of service at franchised post oYces (following customer complaints) and is currently conducting research into this area. 6.5 Postwatch also monitors the consultation process to ensure that it is conducted in line with the Code of Practice. During the Urban Reinvention programme Postwatch and other stakeholders have raised concerns about the approach adopted by Post OYce Ltd. Postwatch’s concerns about the consultation process itself are outlined in section 5. 6.6 Postwatch is yet to campaign successfully for the withdrawal a proposal to close a Crown OYce, or to secure a significant modification to a plan. 6.7 During the Urban Reinvention programme, Postwatch has been eVective in monitoring the consultation process and conducting focused campaigns against individual proposals on behalf of consumers’ long-term interests. Postwatch has no power of veto, but does expect, as a minimum, Post OYce Ltd to meet its social obligations as set by its owner, the Government.

7. Role of Government 7.1 Postwatch would welcome clarification from the Government on its vision of the role of Crown OYces in the future. 7.2 Postwatch believes the Government has three responsibilities to post oYce customers: — The Government must ensure that Post OYce Ltd adheres to its social obligations; — The Government must ensure that the fees paid for particular Government services are cost- reflective; and — Whilst Post OYce Ltd remains under public ownership, the Government needs to assess the full cost to society of closing post oYces against the benefit of the savings to be made. 7.3 While recognising that some conversions would be beneficial to customers and Post OYce Ltd’s business, the Post OYce White Paper (1999) stated that the amount of business transacted by CrownOYces should not fall below 15%. The Government, in agreeing this strategy, committed to a sizeable minority of Crown OYces. The White Paper stated that the advantage of this is that such a network provides Post OYce Ltd “with direct contact with the customer, and enables them to develop high standards of service and products which their customers need”. 7.4 Postwatch would like the Government, and Post OYce Ltd, to clarify whether it intends to continue to require Post OYce Ltd to meet the 15% threshold. 7.5 The Government has set Post OYce Ltd the social obligation that post oYces in urban deprived areas without another branch within half a mile should not close other than in the most exceptional circumstances. Postwatch assumes that this criterion will be rigidly enforced for Crown OYces that serve such areas. 7.6 Government departments are a significant customer of the Post OYce network; prior to the introduction of Direct Payment, benefits payments accounted for 40% of transactions. Postwatch does not know what impact the change to direct payment will have on post oYce income but it is likely that the decline in such transactions has placed further financial burdens on the Post OYce network. Given its current finances and the immaturity of its new products this loss cannot be absorbed by Post OYce Ltd, and will be passed on to the consumer through poorer service (due to fewer staV) and a less accessible network (through further branch closures). 7.7 Postwatch has become acutely aware that savings made by Post OYce Ltd through the Urban Reinvention programme may not be shared by taxpayers. The reduction in the network externalises costs on to society. These costs have not been quantified, although Postwatch has asked Postcomm to investigate this as part of their review of the Urban Reinvention programme. Such costs include (for further detail see Annex 4): — Customers take longer to reach post oYce services, and queues are often longer at the remaining branches. This has an economic impact on personal and business customers. — Customers’ expenditure on transport may rise. This is particularly concerning for those on very low incomes. — Local economies suVer from the loss of footfall, leading to further shop closures. 7.8 Postwatch will continue to promote and protect customers’ interests, but believes that the Government continues to play an important role in shaping the future of PostOYce Ltd through its roles as shareholder, as a significant customer of the network, and due its responsibility for determining the legal and regulatory framework and therefore the social obligations of Royal Mail Group. Ev 80 Trade and Industry Committee: Evidence

ANNEXES Annex 1

Terms of Reference for Quality of Service research MORI is currently conducting research on behalf of Postwatch in to the level of service at post oYces. This is due to be delivered to Postwatch in December 2004 and will include an assessment of the following across the UK post oYce network: Queue Duration—measure the length of time spent queuing in particular post oYce branches; Quality of advice—product knowledge, including proactive questioning to determine what service is most appropriate, advice on packaging; Observational factors—post oYce environment, friendliness of service, transit time for postal items, receipt of postal items and assessment of condition of items. The research will provide this information in a clear and concise manner and be robust enough to allow the diVerences between types of post oYce (receiving vs non-receiving branches, urban post oYces vs urban deprived etc) to be analysed.

Annex 2

Postwatch’s response to Post OYce Ltd’s proposal to close Notting Hill BO

PROPOSAL TO CLOSE NOTTING HILL BRANCH OFFICE (1 SEPTEMBER 2004)

Executive Summary Postwatch, the independent statutory consumer watchdog for the postal industry, is opposed to the proposed closure of Notting Hill branch oYce, 224 Westbourne Grove, London W11 2RG. The demographics of this area are diverse, with some of the wealthiest neighbourhoods in the country lying alongside some of the most deprived communities. Postwatch has identified that the closure will significantly impact elderly customers, people with disabilities, those on low incomes, local businesses and home workers. Whilst income from benefits payments may be decreasing, the demography of the area suggests that there is a strong market for Post OYce Ltd’s new financial services. Customers and key stakeholders repeatedly cite concerns about the long queues found at the alternatives. There are three concurrent proposals to close sub-post oYces in this area. They would impact the branches that are suggested as alternatives for Notting Hill BO’s customers, further increasing the queues. Waiting in line is costly for business users and causes extreme discomfort to customers who have diYculty standing for long periods of time. Long queues also deter people from entering the branch to enquire about Post OYce Ltd’s new products and services. Notting Hill BO is located in Westbourne Grove, a distinct retail area. With this proposal Post OYce Ltd is asking consumers to change their shopping patterns. This is contrary to arguments used by Post OYce Ltd when presenting proposals to close sub-post oYces in secondary parades where the need to adapt to changing shopping patterns is often cited as a key driver for closure. Postwatch recognises that a commercial organisation needs to recognise changing consumer patterns, and therefore the need for some closures. In this case the closure would not be following consumer footfall and is therefore unacceptable. In their concurrent proposals to close sub-post oYces under the Network Reinvention programme, Post OYce Ltd is seeking to close Westbourne Park SPSO. This is the closest sub-postoYce to Notting Hill BO, leaving an unacceptable gap in the network around this primary retail area. Postwatch therefore wishes to see this proposal withdrawn. If it is not economically viable to continue providing post oYce services from this location then Post OYce Ltd needs to demonstrate a more innovative approach through the relocation or franchising of this branch. The consultation process itself has been criticised by many stakeholders. Postwatch recommends that Post OYce Ltd shows greater awareness of the impact of the timing of consultations and the location of public meetings. In the light of customer and stakeholder experience with this consultation Postwatch will request that the applicability of the Code of Practice to consultations on branch oYce closures is reviewed and revised.

Introduction 1. Postwatch has been asked to respond to Post OYce Ltd’s consultation on the proposed closure of Notting Hill branch oYce, 224 Westbourne Grove, London W11 2RG. 2. Postwatch has a specific remit to represent the needs of people who are elderly or disabled or who are living on low incomes. Trade and Industry Committee: Evidence Ev 81

3. It is not the policy of Postwatch to oppose all Post OYce closures. Outright opposition to closure is a position that we take only on those occasions where we believe that the local community will be significantly disadvantaged and where the alternatives proposed by Post OYce Limited are inadequate. 4. This document details Postwatch Greater London’s view on the proposed closure of Notting Hill branch oYce. It outlines Postwatch’s concerns in line with each branch likely to be impacted by this proposal. This document also details the relevant aspects of the concurrent proposals to close three sub-post oYces (SPSO) in this area. 5. This consultation has been conducted in line with the Code of Practice on Post OYce branch relocation, closure and conversion agreed between Post OYce Ltd and Postwatch (referred to as the Code of Practice in this document). However, Postwatch and other stakeholders have concerns about the process adopted by Post OYce Ltd. Postwatch’s concerns are detailed in this document and recommends that Post OYce Ltd and Postwatch review the application of the Code to proposals to close directly-managed branches. 6. This document concludes that the closure of Notting Hill BO would cause immediate and serious inconvenience to local residents and businesses; and that, in the mid- to long-term is likely to result in a gap in the post oYce network to the detriment of both customers and Post OYce Ltd. 7. The final section presents recommendations for sustaining an acceptable level of post oYce provision to Notting Hill residents and businesses.

Demographics 8. There is a densely populated residential area immediately surrounding the, retail area of Westbourne Grove. A map illustrating the density of the population, particularly to the north of Westbourne Grove is attached.4 This map was kindly supplied by the Royal Borough of Kensington and Chelsea. 9. Notting Hill BO is located in Colville ward in the Royal Borough of Kensington and Chelsea. The indices of deprivation 2000 gave this area the rank of 1,509 out of a total of 8,414 English wards (where 1 is the most deprived) putting it in the 20% most deprived areas in England. According to the more recent indices of multiple deprivation 2004, this branch is still located in one of the 20% most deprived areas in the country with a rank of 6,542 out of a total of 32,482 Super Output Areas. The breakdown of this ranking indicates that this area has low levels of income and employment; that there are already barriers to services; and that there are particularly high levels of crime. These statistics demonstrate a need, for retaining this branch in this area; in addition to the number of benefits claimants in the area who may still wish to draw their money from the post oYce and the fear of crime from those having to travel further, the distance to a post oYce is used as an indicator in the measure of access to services by the OYce of National Statistics. 10. The map attached5 maps the levels of deprivation in the Royal Borough of Kensington and Chelsea. The most deprived areas are found to the north and west of Notting Hill BO. There are three concurrent proposals that would halve the post oYce provision to these areas. Postwatch is extremely concerned that the remaining branches, particularly the branch at 116 Ladbroke Grove, will not be able to cope with the closure of all four branches. 11. Unemployment within this ward (Colville) is 7%, double the national average, whilst the proportion of residents who are classified as permanently sick or disabled is higher than the national average at 6%. 12. Postwatch has a particular remit to older customers, to customers with disabilities, and to customers on low incomes. Such customers often need to undertake their shopping needs in a single location. Not only does this minimise their spending on travel, it also means that they can get to know retailers and maintain their independence. The closure of this branch puts this independence at risk. 13. This area is served by a number of bus routes. However, whilst the elderly benefit from Freedom Passes, many benefits claimants will have to pay to reach alternative post oYces. For those with limited mobility the cost is magnified, some will have to fund an additional weekly taxi journey away from their normal retail centre of Westbourne Grove to access basic ’post oYce services. One customer, who is unable to use buses or walk to the alternatives, has stated that the journey will cost a minimum of £1.50 each way using her Royal Borough of Kensington and Chelsea Taxi Card, as she says: “To lose at least £3 each week from a state pension creates quite a hole!” 14. A survey of local businesses by the North Kensington and Notting Hill Post OYce Closure Action Group found: (a) Travelling time to alternative branches will cost 85% of local businesses an additional hour of staV time a week. For the most frequent users (13%) the impact on staV time will be over four hours. (b) 94% of businesses cited proximity to the Westbourne Grove Post OYce as being a crucial factor in their location.

4 Not printed. 5 Not printed. Ev 82 Trade and Industry Committee: Evidence

(c) 15% of businesses use the Post OYce for banking; of theimail services, 53% use it for recorded delivery, 70% use it for registered delivery and 48% of businesses use it for Parcel Force Delivery. (d) Local business people have described the proposal as: (i) “a short, medium and long term disaster for both business and private customers” Mr Lacy, The Lacy Gallery (ii) “The longer journey will mean we lose custom . . . we have to close the shop to run errands” Susan Yates, Yates Buchanan (iii) The Westbourne Grove PO is crucial to the everyday running of our business” J Paternoster, Ann Winberg (iv) “It will rob a whole community of an essential service” Venetia Nathan, Wild at Heart (e) This survey, both the eVort made to collect the responses, and the thought that has gone into the responses themselves, demonstrates the importance of this service to local businesses and consumers. 15. Postwatch is also aware of the reliance of another demographic group on post oYce services: home- workers. The closure of this branch will substantially impact the working day of those reliant on using the post oYce every day. These workers make frequent visits to post oYces to have packages weighed and posted, to register foreign mail, and to get certificates of posting. Such workers cannot aVord the additional time to travel to post oYces located further away. 16. Attached6 is a map showing the numbers of home workers by hectare. This maps the responses to the 2001 census. Following the advances in technology, and its pricing, there are likely to be a higher number today. Nationally 9.2% of respondents to the 2001 census responded that they mainly worked from home. In the wards that include part of Notting Hill BO’s catchment area, the proportions show a higher than average number of home workers (Source: ONS): (a) Bayswater 12% (534 home workers) (b) Colville 12.5% (479 home workers) (c) Norland 15% (590 home workers) (d) Pembridge 14% (616 home workers) 17. Home workers have indicated that if this closure goes ahead they will be forced to use courier companies rather than Royal Mail as they cannot carry their parcels business to a branch further away. They have also highlighted that post boxes in the area are too narrow to post A4 envelopes and are concerned that they will have to travel to Kensington Church Street just to post these size envelopes. Post OYce Ltd needs to ensure that posting facilities remain in the area for these most basic postal items. 18. Additionally, if the delivery oYce is to remain as Post OYce Ltd has assured Postwatch, will there be a facility for customers to leave packages for posting? As residents and shoppers tolerate the additional traYc and parking congestion created by the presence of the sorting oYce, there is a social responsibility to oVer a suitable posting facility in return. 19. One respondent commented that he is expected to shorten his working day in order to travel to alternatives before closing time yet there is no extension of the opening times at those alternatives to make it more convenient for customers. If Post OYce Ltd is serious about reinventing the network the remaining branches should mirror the changes in its customers working and retail patterns. 20. The diversity in the income of the area’s residents means that this branch’s catchment area is ideal for Post OYce Ltd’s existing mail products and its new financial services products.

Capacity

(a) Notting Hill BO

21. Notting Hill is one of the smaller branch oYces in Greater London in terms of its physical size. Customers report that there are regularly queues to the doorway, and this was visible on Postwatch’s visit on 31 August when our visitor had to wait 14 minutes to be served (12:26; four out of six counters were open and one of those closed at about 12.30 despite the long queue). 22. When customers have to wait this long to be served, and with the closest sub-post oYce also proposed for closure, Postwatch predicts that levels of service,at the surviving branches, will be unacceptable at peak times.

6 Not printed. Trade and Industry Committee: Evidence Ev 83

(b) Kensington Church St IFPO 23. Post OYce Ltd has predicted that about a third of Notting Hill BO transactions will migrate to Kensington Church Street. If the proposed closure of Westbourne Park SPSO takes place concurrently it is likely that this number will be far higher. Whilst it is not an attractive branch it is the closest large branch in another primary retail area and therefore one that customers may prefer to alternatives on Ladbroke Grove. 24. At present, this branch is poorly presented, it is already busy and it is not clear that the additional serving positions will be able to cope with additional custom. Whilst the consultation paper for Notting Hill BO describes the state of the decor at this branch as “moderate”, in a concurrent proposal (to close Clarendon Cross SPSO) Post OYce Ltd describe the decor at Kensington Church Street as: “in need of redecoration, writing desks dirty. Flooring in poor state. Lighting is extremely dull”. 25. As this consultation has coincided with the start of the school summer holidays, Postwatch is concerned that the timings of queues do not reflect the customers’ experience over the rest of the year. Certainly customers have listed the length of queues at this branch amongst their significant concerns. 26. Postwatch’s visitor to this branch on 26 August at 10:12 had to wait 8 minutes to be served. Queues earlier in August were shorter than this, and a follow-up visit on 31 August found the branch completely shut due to a faulty safe. 27. If the closure of Notting Hill BO is to go ahead, Post OYce Ltd needs to prove that customers are served within an acceptable time at Kensington Church Street. Such timings need to be taken outside the summer holidays. Postwatch will include this branch within its mystery shopping survey for the autumn and will make these available to all stakeholders in this consultation and, of course, to Post OYce Ltd. 28. Kensington Church St IFPO is also predicted to see a rise in custom if the Clarendon Cross SPSO. closes as proposed under a concurrent plan’, putting further pressure on the quality of service at this branch.

(c) Kensington High Street BO 29. This branch appears to have suYcient capacity but as stated elsewhere, it is highly unlikely that customers will migrate to this branch. Instead they are likely to migrate to Queensway or Ladbroke Grove SPSO— two branches in neighbouring shopping areas that are not mentioned in Post OYce Ltd’s consultation documentation.

(d) Ladbroke Grove (2) SPSO 30. This branch, has suYcient capacity, and indeed would welcome the migrating business,that closures of other branches would provide.

(e) Ladbroke Grove (116) SPSO 31. Whilst this is not listed as an alternative by Post OYce Ltd, it will be the closest for those living and working to the north of Westbourne Grove, particularly if Westbourne Park SPSO also closes. This branch is cramped, customers have complained about the queues in the branch, and one of the many businesses that responded to the North Kensington and Notting Hill Post OYce Closure Action Group’s business survey said that this branch refused to post its parcels. 32. On our visits during the summer, Postwatch visitors have not had to wait more than 5 minutes to be served, and have found the staV helpful. However, Postwatch is concerned about the physical capacity of the branch. This is a popular CTN and the queues for the two sides of the business quickly merge and crowd the store.

(f) Queensway IFPO 33. Customer representations have shown Queensway IFPO to be a more accessible alternative than Kensington High Street BO. However, this is a small and busy branch. On our visits to this branch over the summer Postwatch consistently had to wait 5 minutes or more to be served:

Date Time Number of counters open Length of wait

6 July 2004 11:30 5 (out of 12) 5 minutes 26 August 2004 9:35 7 8 minutes 26 August 2004 10:35 6 11 minutes 31 August 2004 10:10 5 5 minutes 31 August 2004 12:00 5 5 minutes Ev 84 Trade and Industry Committee: Evidence

34. Our visitor on the 31 August saw people walk away when they saw the length of the queue. The routing of the queue means that it is not forced to turn and heads to the doorway. To avoid customers having to queue out of the door at peak periods, and to avoid deterring custom, Post OYce Ltd should address the configuration of this queue.

Accessibility

(a) Notting Hill BO 35. The consultation paper for this case describes the interior and exterior of this branch as “very poor”. This gives a false impression of what is a highly attractive building, which has an interior that would normally be described as “directly-managed standard” by Post OYce Ltd, in Postwatch’s experience. 36. The branch is entered by steps, but other than that customers have said that they find this branch more user friendly than Kensington Church St IFPO. The problems found at that branch are detailed below. 37. If the branch stays open it requires improvements to its accessibility, through the installation of a low level counter and a work around bell.

(b) Kensington Church St IFPO 38. It is proposed to install three additional serving positions at Kensington Church Street IFPO. Postwatch has also been informed that the interior will be improved (replace carpet, install queue barriers, general redecoration) as will accessibility for those with disabilities (improve lighting, install low-level desk and hearing loops) 39. One disabled customer has highlighted the diYculty faced at this branch for those with physical disabilities. Whilst queuing at Westbourne Grove these customers have a solid support to lean against. The customer highlights the following problem: “The Kensington Church Street Post OYce only has a flexible queue control barrier and I have already fallen, bringing down the barrier and two other elderly people.” Another customer has complained that she cannot physically stand for the time required at that branch and is not oVered any assistance by staV. 40. As part of the DDA, Post OYces are expected to make reasonable adjustments to cater for the needs of customers with disabilities. Postwatch want to know how this branch caters for customers who find it diYcult to stand for long periods of time. Alternatives could be a move to stronger barriers, the oVer of a chair, or the assistance of a queue monitor in ensuring that the customer can wait elsewhere in the store, sitting down or standing with better support, without losing their place in the queue.

(c) Kensington High Street BO 41. This branch has no steps, and has a low level counter, a hearing loop and plenty of space for wheelchair users. However, the distance to this branch is likely to deter customers.

(d) Ladbroke Road SPSO 42. This branch is seeing improvements to its accessibility (installation of a ramp, a low level counter and a hearing loop), and has the same level of accessibility as Notting Hill BO does at present.

Location of Branches

(a) Notting Hill BO 43. Notting Hill BO is an attractive site, central to the popular retail area of Westbourne Grove and the wider residential area of Notting Hill. It serves a densely populated area, with residents from diverse socio- economic backgrounds. 44. According to Post OYce Ltd, Notting Hill BO has seen only a 5% decline in transactions. Whilst the branch is located in one of the 20% most deprived areas in the country, almost half the transactions undertaken at this branch are mails-related products and services, an area that can be expanded. 45. This branch serves a clearly defined community between Westbourne Park and Notting Hill Gate. It is a distinct retail area, independent of Queensway and Notting Hill Gate. Customers are extremely concerned about the loss of basic services in this area. 46. The closure of such a busy post oYce is also likely to impact the footfall in Westbourne Grove, negatively impacting other retailers particularly those selling everyday goods such as food retailers and newsagents. Residents now fear for the future of other basic services in Westbourne Grove. Trade and Industry Committee: Evidence Ev 85

(b) Kensington Church St IFPO

47. Kensington Church St IFPO is located half a mile from Notting Hill BO with an incline en route. 48. Kensington Church St IFPO is located to the south of Notting Hill Gate, a busy road which elderly customers find diYcult or impossible to cross. 49. There are buses serving the two areas (from Kensington Park Street or Pembridge Villas), however they become very crowded at peak times as they link north-west London to the popular shopping areas of Notting Hill and Kensington (there is no direct tube link). 50. Use of the bus services to Kensington Church Street will still require users either to cross Notting Hill Gate, or cross Kensington Church Street. Both roads are extremely busy and customers have said that they do not feel comfortable making this a regular journey. 51. There is parking outside the branch; however customer representations and our own visits have shown that finding spaces is diYcult in this area. 52. Kensington Church St IFPO is located in a primary shopping area, but so is Notting Hill BO. The closure of Notting Hill BO forces a change in shopping patterns on its current customers.

(c) Kensington High Street BO

53. The inclusion of Kensington High Street BO as an alternative post oYce is diYcult to comprehend, as it is located 1.6 miles away. Customers would not walk to this alternative and, as it is found to the far west of Kensington High Street’s main retail area, it is not an area that Notting Hill BO customers would be habitually using for retail purposes. Again, the plan shows that it is forcing rather than following a change in consumer shopping patterns. 54. There is a bus from Pembridge Villas that travels close to Kensington High Street branch. However, as stated above, it is unlikely that people will make this journey for post oYce services, particularly as that bus service passes Queensway and Notting Hill Gate.

(d) Ladbroke Road SPSO

55. There is a bus that travels between Westbourne Grove and Ladbroke Grove, but the information supplied by Post OYce Ltd is misleading: the 23 bus is no help for customers wishing to travel to that branch. The route from Westbourne Grove travels north up Ladbroke Grove from Elgin Crescent. Walking from the stop suggested by Post OYce Ltd would require customers to climb the steep Notting Hill. 56. Customers are only likely to use Ladbroke Road PO if they live within close proximity (0.3 mile) of this branch. Again, access is limited by the geography of the area, as it is the far side of Notting Hill. In addition, it is in a secondary shopping area and would not prove attractive to people used to accessing post oYce services along with their main shopping trips. 57. The map in Appendix 1 illustrates the density of the population in this area. It is clear that the branch in Westbourne Grove is central to a greater residential population as well as in a more attractive retail area than is found to the south of Ladbroke Grove. 58. The branch is located in a secondary retail area and so is unlikely to attract many customers, as they will not travel to this area to meet other retail or social needs. 59. Ladbroke Road SPSO will not oVer the same range of products and services as oVered at Notting Hill BO.

Impact of Concurrent “Network Reinvention”Proposals

60. This proposal has been put forward alongside the proposed closure of six other branches in the Regent’s Park and Kensington North constituency. In terms of this proposal, Postwatch is most concerned about the joint impact of those plans that lie both within that constituency and the boundaries of the Royal Borough of Kensington and Chelsea. The SPSOs proposed for closure in this area are Clarendon Cross SPSO, W11 4AP; St Helens Gardens SPSO, W10 6LL; and Westbourne Park SPSO, W11 1EA. 61. Full responses to Post OYce Ltd on the proposed sub-post oYce closures will be provided separately. The following points focus on Postwatch’s concerns about the impact of these proposals on the proposal to close Notting Hill BO. Ev 86 Trade and Industry Committee: Evidence

(a) Clarendon Cross SPSO 62. If the closure of Clarendon Cross SPSO goes ahead it is expected to impact the same branches as the closure of Notting Hill BO, as well as St Anns Road SPSO. The additional custom at the latter is welcome, in order to ensure that branch’s long-term viability. Postwatch is concerned about the joint impact if both this branch and Notting Hill BO close. Kensington Church St will be impacted the most (according to Post OYce Ltd), further lengthening queues. 63. Post OYce Ltd has provided Postwatch with its predictions for the migration of Clarendon Cross’ custom. The three listed alternatives (St Anns, Ladbroke Grove and Kensington Church St) account for only 22% of Clarendon Cross’ current transactions. Whilst Postwatch recognises that there are a large number of branches in west London, customers are most likely to use the closest branch in a primary retail area. In this case, Postwatch does not believe that Post OYce Ltd’s modelling programme has formed an accurate picture of local shopping patterns and that there is a large margin for error. This is likely to be demonstrated by long queues at Kensington Church Street IFPO if all the proposed closures go ahead.

(b) St Helens Gardens SPSO 64. If the closure of St Helens Gardens goes ahead it will have the most impact on North Pole Road SPSO, Ladbroke Grove (116) SPSO and Portobello Road SPSO. Of these, Ladbroke Grove SPSO will also be significantly impacted by the proposed closures of Notting Hill BO and Westbourne Park SPSO. 65. Whilst Ladbroke Grove SPSO is not listed as a receiving branch by Post OYce Ltd in their proposal to close Notting Hill BO it is in a more attractive location for users of that branch oYce, particularly to those living to the north of Westbourne Grove. It is located in a busy secondary shopping area, close to Ladbroke Grove underground station. Of particular importance are the demographics of the area. The more deprived wards/super output areas are found to the north of Westbourne Grove. It is therefore likely that Ladbroke Grove SPSO will see lengthening queues at peak times. However, no further counters or staYng hours are planned for this branch and customers have raised concerns about the current service levels at this branch: “The service there is ineYcient and ill-mannered. The post oYce counter is at the back of the narrow shop made particularly claustrophobic by the cluttered arrangement. Tension frequently builds up in the queue because of this.” 66. Post OYce Ltd has not provided Postwatch with a prediction of the impact on Ladbroke Grove (116) SPSO. Customers will come to Ladbroke Grove from both Westbourne Park SPSO and Notting Hill BO as well as St Helens Gardens and it appears that it has insuYcient capacity to cope with additional custom.

(c) Westbourne Park SPSO 67. Westbourne Park SPSO is currently the closest branch to Notting Hill BO, yet is also proposed for closure. The figures provided by Post OYce Ltd account for the migration of only 20% of Westbourne Park SPSO’s current transactions. Postwatch is therefore concerned that the impact of this closure on surrounding branches (particularly Ladbroke Grove SPSO) is underestimated. 68. If Westbourne Park SPSO was to close and Notting Hill BO remains open it is highly likely that the branch oYce would be the main beneficiary of the migrating custom. 69. Our visits have shown that this branch is busy and well-used.

Long Term Post Office Provision in Notting Hill 70. This branch is a leasehold building with Post OYce Ltd having a lease from Royal Mail Group; according to the Land Registry it is owned by the Postmaster General. Whether this building is leased or sold the closure of this branch would undoubtedly be an irreversible move due to the escalating rents in the area. 71. As the upper floors of the building are owned by Royal Mail, Post OYce Ltd appears to have no option to develop these into a supporting venture. 72. This closure may have a short-term benefit for business levels at the branches on the fringes of Notting Hill. However, it is extremely concerning that no branch in this area will be protected from the opposing commercial pressures of declining income and rising fixed costs. For those who own their retail units there is the further temptation to sell and capitalise on the growth in property values in the area. 73. Whilst Post OYce Ltd may consider issuing a letter of intent to retain services in the area, the private nature of sub- and franchised post oYces along with the declining levels of custom means that Post OYce Ltd has very little leverage in opening branches in their choice of location. This is borne out by recent experience in Greater London. For example, in the past year Post OYce Ltd has shown intent to relocate branches in Wembley High Street, Belsize Park and in Lillie Road, Fulham. Whilst Postwatch does not doubt their desire to retain services in these areas, it is clear that the proposition is currently not attractive either to existing or incoming businesses in these areas where retail space is highly valued. Trade and Industry Committee: Evidence Ev 87

Consultation Process 74. The consultation has been conducted in line with the code of practice agreed between Post OYce Ltd and Postwatch. In this case the consultation started in July and ran for 8 weeks, longer than suggested in the code of practice. However, common sense dictates that Post OYce Ltd should avoid consulting during late July and August as many customers and stakeholders have diYculties in responding in full due to holidays. Postwatch’s significant concern is that the length of queues in post oYces during the peak summer months does not reflect the capacity of the alternative branches in the rest of the year. Just as Post OYce Ltd, for its part, argues that queues are longer than normal in December, Postwatch expects them to realise that the queues seen in the summer are much shorter than average. 75. Postwatch formally requested the extension of this consultation period following the postponement of the final public meeting to the 1 September. This meeting was postponed at the request of stakeholders in order that it could be held in a more accessible venue. Post OYce Ltd has now extended the consultation period until 1 September 2004, and Postwatch asks that future public meetings take into account the accessibility of the venue.

Conclusion 76. Demographics: The diversity in the income of the area’s residents means that not only are Post OYce services vital to some members of the community, this branch’s catchment area is ideal for Post OYce Ltd’s existing mail products and its new financial services products. 77. Capacity: Postwatch has received many complaints about the queuing times at the alternative branches in the area. The shorter queues during the summer are not representative of the rest of the year, but Postwatch has identified particular problems at Queensway IFPO and Kensington Church Street IFPO. 78. Accessibility: The main concern raised by customers about the alternative branches’ accessibility for people with disabilities are related to the time spent queuing. Postwatch notes that further improvements have been agreed at Kensington Church Street IFPO and Ladbroke Road SPSO. 79. Location of branches: The alternatives are not located in areas that Notting Hill BO customers would normally travel to on a daily or weekly basis even if they may be accessible by bus or car (at a cost in terms of time and money). Post OYce Ltd itself has stated that changes in consumer shopping patterns often means low usage of sub-post oYces in secondary shopping parades and, under the Network Reinvention programme, has sought to consolidate their business in accessible, more popular retail centres. The closure of this branch in a prime retail area is clearly contradictory in the light of this knowledge. 80. Impact of concurrent “network reinvention” proposals: The closure of the smaller sub-post oYces would undoubtedly increase transactions at Notting Hill BO if this branch were to remain open. If all the closures go ahead, Postwatch is extremely concerned about the cumulative impact on Ladbroke Grove (116) SPSO, which does not appear to have the physical capacity to cope with additional custom, and on Kensington Church Street IFPO, which already suVers from long queues. 81. Long-term provision in Notting Hill: Postwatch is extremely concerned that Post OYce Ltd is closing the only directly-managed branch serving Notting Hill. Falling sub-postmaster income and high property values mean that the future of the remaining, privately-owned branches is not guaranteed. Elsewhere in Greater London, Post OYce Ltd has found it impossible to replace branches following resignations of sub- postmasters, and the particularly high property prices in this area means that this is highly likely to be the case should further ad hoc closures take place in the future. 82. Consultation process: In future consultations Post OYce Ltd needs to show greater awareness of the impact of holiday seasons, and ensure that venues are accessible. Postwatch also recognises the frustration of stakeholders that there are no options open for discussion, as many would expect from a “consultation”. In the case of Notting Hill BO, Postwatch would like to have seen a more innovative approach to continuing provision of post oYce services to this area—perhaps through a franchised post oYce, a relocated directly- managed oYce in cheaper premises (eg move to an appropriate first-floor location or to the back of another building, or to a site in a side street). A consultation of this type would generate a more collaborative spirit in the process, safeguarded the goodwill that is so important to the Post OYce brand and, most importantly, had a higher possibility of retaining post oYce services in this primary retail area.

Recommendations 83. The proposed closure of Notting Hill should not proceed, for the following reasons: The closure will be detrimental to local businesses, as shown by the North Kensington and Notting Hill Post OYce Closure Action Group’s business survey. Small businesses, particularly home workers, will be particularly impacted by the reduction in their working day imposed by the longer journeys to alternative branches. Alternative branches do not have the capacity to cope with the additional levels of custom due to the number of closures proposed in this densely populated area. Ev 88 Trade and Industry Committee: Evidence

Postwatch has significant concerns about the provision of post oYce services in this area into the mid- to long-term. With high property costs and falling income aVecting the remaining, privately owned, branches, it is possible that a gap could be left in the network in one of the most densely populated and popular retail areas in London. The closure of this branch forces a change on customers that is not a mere inconvenience. It will prove costly to business and personal consumers in terms of both time and money. The diverse wealth in the area makes it an ideal market for Post OYce Ltd’s expanding financial services range. 84. If it is not possible to continue from this location due to the lack of space to provide a supporting retail oVer Royal Mail Group should use any proceeds from the lease of the space to invest in the future of PO services in the area: (a) As suggested by Karen Buck MP, Royal Mail Group should investigate the possibility of developing the site to release some of its value whilst maintaining post oYce services. (b) This service should be relocated or oVered as a franchise. The profit from the lease of this site should be reinvested to ensure that the post oYce has a secure future in Notting Hill. For example, through the purchase or lease of larger premises on a side street. 85. If the closure of Notting Hill BO goes ahead despite widespread opposition Postwatch believes there are steps that Post OYce Ltd can take to ameliorate some of the diYculties customers will face. Postwatch recommends: (a) Increasing staYng hours at Ladbroke Grove (116) SPSO (b) Withdrawal of the proposal to close Westbourne Park SPSO. (c) Investment in, or relocation of, Westbourne Park SPSO to provide an accessible service to Westbourne Grove. (d) Kensington Church Street IFPO to extend its opening hours to ease the time constraints facing small businesses in Notting Hill who will need to make longer journeys to the post oYce at the end of their working day. (e) The closure only proceeds once Post OYce Ltd has proven to Postwatch that queues at Kensington Church Street IFPO average 5 minutes or less. 86. The code of practice should be adapted in recognition of the diYculties faced by stakeholders responding to consultations over the month of August and the month of December. Customers and community stakeholders have identified the following diYculties: (a) The timing of the consultation clashes with the parliamentary recess. (b) Council meetings are kept to a minimum, and planned well in advance, in order to facilitate councillors’ holiday plans. For this reason many councillors and oYcers are not able to spend as much time on their submissions to Post OYce Ltd as they require. (c) Due to the summer holidays, many customers will change their shopping patterns, or have additional pressures on their time (eg additional childcare), which prevent them from responding to the consultation. (d) Postwatch is concerned that the changes to shopping patterns during these two months give a false impression of the quality of service at alternative branches. In December, branches are extremely busy giving the impression that alternatives cannot cope with any more custom; in August custom declines and the long queues routinely found in certain branches temporarily disappear. The data captured during these visits is vital to Postwatch’s submission. 87. Postwatch and Post OYce Ltd to review the application of the Code of Practice to proposals to close directly-managed branches. 88. Kensington Church Street IFPO needs to ease the diYculty that some customers have waiting for long periods of time.

Annex 3

Letter to the Minister regarding Post OYce Ltd’s refusal to abide by Government policy (13 October 2004)

Crown Post Offices You will no doubt be aware that McKinsey consultants recently completed a review of the loss making Directly Managed (Crown) post oYce network. Although we are not privy to the findings of the review, we expect that Post OYce Ltd will wish to close certain branches and to convert others to franchised oYces. I am sure that you will also be aware that any change to a Crown oYce generates considerable interest amongst members of the public, their representatives and the media. You will therefore wish to know that Postwatch has considerable reservations about the way Post OYce Ltd consults about changes to the Crown network. Trade and Industry Committee: Evidence Ev 89

Our experience to date is that consultation on these closures and conversions amounts to little more than notification by Post OYce Ltd of its plans. Postwatch cannot identify a single Crown post oYce closure where Post OYce Ltd has changed its mind or even significantly modified the proposal following consultation with customers, Postwatch and others. Most recently Postwatch Greater London opposed the closure of the Crown post oYce in Notting Hill. We presented Post OYce Ltd with evidence that there were not suitable alternatives should the post oYce close. We asked Post OYce Ltd to explore the options for converting the Crown oYce into a franchise operation or to seek to open a large sub post oYce in the area. We know that many local customers also rejected Post OYce Ltd’s proposals. Despite widespread and well-argued opposition Post OYce Ltd announced its decision to close the post oYce without making any changes to its original proposal. Postwatch Greater London Chairman, Kay Dixon has told me that it is diYcult to see that Post OYce Ltd has taken any account of the genuine concerns put to them by businesses and residents. Indeed, the local community group is now considering mounting a legal challenge to the process. The public and stakeholders know the role Postwatch plays in the urban reinvention programme and that it has successfully intervened in closures that are not in the best interests of customers. Not surprisingly they expect us be able to help also when their Crown post oYce is proposed for closure. In reality we have no power to compel Post OYce Ltd to listen to its customers and Post OYce Ltd has denied us the opportunity to appeal their decision. I urge you to exercise your influence to ensure that Post OYce Ltd undertakes genuine consultation on any further Crown oYce closures or conversions. Peter A E Carr Chairman

Annex 4

The Cost to Society of Post Office Closures 1. It takes customers longer to reach post oYce services, and queues are often longer at the remaining branches. This has an economic impact on personal and business customers: — Postwatch has received complaints that use of post oYce services takes up to 2 hours longer due to the need to travel and wait at busy Crown Post OYces. — This has extreme consequences for those reliant on a carer for such visits—not only is there the discomfort of the longer journey, but it also eats in to the carer’s valuable time which was previously spent cleaning and preparing meals for the individual. The cost either has to be born in worse care for those individuals or the provision of more carers by the local authority. — Small businesses, who are often reliant on post oYces for posting packages, have complained of the cost such closures place on their productivity. Faced with the proposal to close Notting Hill BO, a survey of local businesses by the North Kensington and Notting Hill Post OYce Closure Action Group found: — Travelling time to alternative branches will cost 85% of local businesses an additional hour of staV time a week. For the most frequent users (13%) the impact on staV time will be over four hours. — 94% of businesses cited proximity to the Westbourne Grove Post OYce as being a crucial factor in their location. — 15% of businesses use the Post OYce for banking; of the mail services, 53% use it for recorded delivery, 70% use it for registered delivery and 48% of businesses use it for Parcel Force Delivery. — Local business people have described the proposal as: “a short, medium and long term disaster for both business and private customers” Mr Lacy, The Lacy Gallery “The longer journey will mean we lose custom . . . we have to close the shop to run errands” Susan Yates, Yates Buchanan “The Westbourne Grove PO is crucial to the everyday running of our business” J Paternoster, Ann Winberg “It will rob a whole community of an essential service” Venetia Nathan, Wild at Heart — Home workers are another demographic group reliant on post oYce services. The closure of post oYces substantially impact the working day of those reliant on using the post oYce every day. These workers make frequent visits to post oYces to have packages weighed and posted, to register foreign mail, and to get certificates of posting. Such workers cannot aVord the additional time to Ev 90 Trade and Industry Committee: Evidence

travel to post oYces located further away. In the case of Notting Hill BO, home workers indicated that if the closure went ahead they will be forced to use courier companies rather than Royal Mail as they cannot carry their parcels business to a branch further away. 2. It costs customers more to reach post oYce services: — People on low incomes are particularly reliant on the financial services provided by post oYces. The additional transport costs is a significant proportion for those livingoV state benefits. — Those with limited mobility, who cannot use public transport, will have to fund a taxi journey away from their regular shopping centre simply to access postal services and cash services. 3. Local economies suVer from the loss of footfall, leading to further shop closures: — Government spending on regeneration initiatives appears to recognise the need to maintain local economic centres in order to sustain safe and sociable communities. However, no obligation has been placed on Post OYce Ltd either to recognise the impact their actions have on communities, or even to avoid closing branches in areas where public funds are being spent on attracting and retaining retailers through direct grants or improvements in the attractiveness of the local environment. — Postwatch would welcome research into the impact of closures on community cohesion, and on local economic activity. In the meantime it requests that the Government places an obligation on Post OYce Ltd not to put public spending at risk by closing branches in areas that are subject to regeneration activity.

APPENDIX 11

Supplementary memorandum by Postwatch

1. Introduction 1.1 Postwatch gave oral evidence to the Trade and Industry Committee on 16 November 2004. Since that time MORI has delivered its preliminary results on its comparison between directly-managed and franchised Post OYces. Postwatch and Postcomm have jointly commissioned this research, and believe that the findings are material to the Trade and Industry Committee’s inquiry into the Crown post oYce network. 1.2 This memorandum also oVers further information on two areas explored during Postwatch’s oral evidence: a suitable framework for defining a “core location”, and outlining the Government’s response to concerns raised by Postwatch.

2. Research into Quality of Service—Key Findings 2.1 Queues are generally longer at directly-managed branches. However, these branches perform better in all other aspects of customer service (see Annex 1). For example: — Directly-managed branches are better laid out, and information is more clearly presented than at franchised post oYces (FPOs). — StaV at directly-managed branches are better at probing customers for information in order to advise on appropriate services than staV at FPOs. — Customers with disabilities will find directly-managed branches more accessible than FPOs. 2.2 Improvements can be made across both networks, to the benefit of both customers and Post OYce Ltd. There are three areas of the research that are pertinent to the questions posed by the Trade and Industry Committee on 16 November, which they may like to seek clarification on with Post OYce Ltd. — On average only 60% of counter positions, in the sample of 302 directly-managed and franchised urban post oYces, were open and manned—only one oYce had a “queue host”. Some branches require the remaining positions for use at peak times, but could space be utilised in a more eYcient way at others? — Post OYce Ltd requires franchisees to sign minimum level service standards, but the findings show that there is a significant gap between the performance of FPOs and that of directly-managed branches. What are these standards, how are franchisees’ standards of service monitored and managed, and how rigorously does Post OYce Ltd enforce its standards where shortcomings are identified? — In total, the mystery shoppers spent £510 on sending packages. If post oYce customer advisors had elicited all the correct information from mystery shoppers, and sold the most appropriate products on each occasion, the mystery shoppers would have spent £1,020. Customers may be spending less as a result, but they are not getting the service that would best suit their needs or Trade and Industry Committee: Evidence Ev 91

protect their interests in the event of a complaint. What are the implications of this finding on Post OYce Ltd’s finances and on the introduction of new financial products with more rigorous requirements for probity? 2.3 The full research will be available in December 2004. A copy will be sent to the Committee on its completion.

3. What is a Core Location? 3.1 Postwatch has indicated both in its written and oral evidence that it believes an obligation should be placed on Post OYce Ltd to retain branches in core locations. The Committee asked for clarification of what Postwatch views as a core location. 3.2 Essentially we mean high streets. They are accessible to all due to good transport connections, their location alongside centres for retail, work and social activities and therefore they attract high footfall. The distance to alternative post oYces and the size and type of these oYces is also relevant. 3.3 Such an obligation would be in line with the OYce of the Deputy Prime Minister’s planning policy (PPG6) to promote retail and leisure development in town centres. It makes sense for both the customer, the environment and for local economies for post oYces to remain in UK high streets. 3.4 During the Urban Reinvention programme, local authorities have raised concerns with Postwatch that proposed closures clash with this policy. It appears that it would be sensible to align core locations with the Government’s existing planning guidelines. 3.5 The rising price of property coupled with the falling number of transactions means that primary retail space may no longer be aVordable for Post OYce Ltd or its franchise partners. Rather than deserting High Streets altogether, Post OYce Ltd should seek relocation to “edge-of-centre” or secondary frontage locations as defined in the ODPM’s consultation on PPG6 (Annex 2). 3.6 The Committee expressed an interest in gaps left in the post oYce network in urban deprived areas. The definition of a core location in line with PPG6 should apply equally to all town centres. Postwatch is not aware of any gaps left in the network by directly-managed branch closures in such areas, although closures in areas such as Notting Hill and Bradford will undoubtedly aVect the residents of such communities. Postwatch would also welcome the continuation of the obligation on Post OYce Ltd not to close branches in urban deprived areas without an alternative within half a mile unless there are exceptional circumstances.

4. Government Responses to our Concerns 4.1 The committee also expressed an interest in how the Government has met Postwatch’s concerns about individual closures and the wider consultation process. 4.2 Responses to Postwatch by the Minister and the DTI are very similar to those received by MPs raising concerns in parliament. The Government views decisions on individual closures and the consultation process as an operational matter for Post OYce Ltd. 4.3 Postwatch is concerned that leaving Post OYce Ltd to operate on a purely commercial basis could leave gaps in the network. Whilst Postwatch will continue to campaign on behalf of the consumer, without an enforced social obligation on Post OYce Ltd (with recognition of the cost that this could incur) Post OYce Ltd management’s priority is to meet the financial needs of its sole shareholder, the Government.

Annex 1

COMPARISON BETWEEN DIRECTLY-MANAGED AND FRANCHISE POST OFFICES (from MORI research for Postwatch and Postcomm, November 2004) Research was undertaken by mystery shopping visits to a sample of 302 directly-managed and franchised urban post oYces across the UK (from a total of approximately 1,200). All visits took place between 18 and 28 October 2004 and were started before 2pm. Data has been subsequently weighted by region and type of post oYce to reflect the national profile of urban post oYces.

Directly Managed Franchised Post OYces Post OYces (Base: 152) (Base: 150)

Layout and Displays Opening times displayed externally 91% 76% Proportion of customers queuing over 5 minutes 25% 20% Post oYces deemed to be tidy internally. 85% 74% Displaying information on banking services internally 88% 67% Displayed no customer service contact details 31% 39% Ev 92 Trade and Industry Committee: Evidence

Directly Managed Franchised Post OYces Post OYces (Base: 152) (Base: 150)

Advice and Sales Did customer advisor probe for additional information to 63% 36% recommend appropriate service? Did the customer adviser ask whether the item was urgent? 46% 23% Did the customer adviser ask whether the item was valuable? 68% 37% Proportion of occasions when most suitable product was sold 43% 37% Disability Access and Facilities2 Spoken announcements in store? 78% 20% Wide aisles? 67% 39% Clearly marked hearing loops? 37% 17% Chair available? 31% 14% Easily accessible form dispenser? 34% 17% Low level writing desk? 23% 12% StaVed low counter position? 22% 10% UnstaVed low counter position? 18% 4% Low level weighing scales? 18% 8%

Annex 2

DEFINITIONS OF RETAIL CENTRES Table 1 TYPES OF CENTRE

City Centres City centres will be the highest order of centre identified in strategic guidance. In terms of hierarchies, they will often be the regional centre and will serve a wide catchment. The centre may be very large, embracing a wide range of activities and may be distinguished by quarters or other areas which may perform diVerent main functions, such as leisure and retail. Planning for the future of these quarters or other areas can be achieved successfully through the use of master plans or area action plans with development briefs for particular sites. In London the “international” and “metropolitan” centres identified in the Mayor’s Spatial Development Strategy typically perform the role of city centres. Town Centres The term “town centre” encompasses a range of diVerent size of centres, including market and country towns and traditional suburban centres. In terms of size and function, they will usually be the second order of centres after city centres and so, in many cases, they will be the principal centre or centres in a local authority’s area (in rural areas, market towns and other centres of similar size and role function as important service centres, providing a range of facilities and services for extensive rural catchment areas). In planning the future of town centres, local planning authorities should consider the function of diVerent parts of the centre and how these contribute to its overall vitality and viability. In London the “major” and many of the “district” centres identified in the Mayor’s [draft] Spatial Development Strategy typically perform the role of town centres. District Centres District centres will usually comprise groups of shops, separate from the town centre, often containing at least one food supermarket or superstore, and a range of non-retail services, such as banks, building societies and restaurants, as well as local public facilities such as a library. Local Centres Local centres include a range of small shops of a local nature, serving a small catchment. Typically, local centres might include, amongst other shops, a general grocery store, a newsagent, a sub-post oYce and occasionally a pharmacy. Other facilities could include a hot-food takeaway and launderette. A network of local centres in an authority’s area is essential to provide easily accessible shopping to meet people’s day-to-day needs and should be the focus for investment in more accessible local services, such as health centres. The mix of uses in local centres should be carefully managed and the impact of other proposals on such centres carefully assessed.

2 31% of all franchise post oYces visited (out of a total of 150) had none of the above facilities for the disabled, nor any of the following: low level writing desks, low counter positions, low level weighing scales, low level post box, information for the disabled. Trade and Industry Committee: Evidence Ev 93

Table 2

TYPES OF LOCATION

Town Centres Service centre; preferred location for all key town centre uses. In larger centres may comprise a primary shopping area, and outside that a leisure and business quarter. Through the development plan, may be extended in scope to accommodate growth. Primary Shopping Area Defined area of retail development within larger centres (generally comprising the primary and secondary frontages) Primary frontage Primary frontages are most likely to include a high proportion of retail uses. Secondary frontage Secondary frontages provide greater opportunities for a diversity of uses. Edge-of-centre For shopping purposes, a location within easy walking distance (ie 200-300 metres) of the primary shopping area, often providing parking facilities that serve the centre as well as the store, thus enabling one trip to serve several purposes. For other uses, edge-of-centre may be more extensive, based on how far people would be prepared to walk. For oYces, this is likely to be within 500 metres of a public transport interchange, including railway and bus stations within the urban area. Local topography will aVect pedestrians’ perceptions of easy walking distance. For example barriers, such as crossing major roads and car parks, the attractiveness and perceived safety of the route and the strength of attraction of the town centre, are all factors which mustbe considered. Out-of-centre A location that is clearly separate from the primary shopping area within a town centre, but not necessarily outside the urban area. Out-of-town An out-of-centre development on a greenfield site, or on land not clearly within the current urban boundary.

Source: http://www.odpm.gov.uk/stellent/groups/odpm–planning/documents/page/odpm–plan–026232-06.hcsp

APPENDIX 12

Memorandum by Amicus-CMA

Introduction 1. The Communication Managers section of Amicus represents the interests of over 15,000 managers and senior managers working within the Royal Mail, of whom nearly 2,000 are managers in, Post OYce Limited. In addition Amicus represents members in other postal operators such as Deutsche Post and over 1 million members of Amicus are themselves users of postal services in the UK. 2. Post OYce Ltd is part of Royal Mail Group, which is a public limited company wholly owned by the Government. The company operates 560 Directly Managed Branches, formerly known as Crown OYces, with costs that currently run at an estimated deficit of £70 million. Royal Mail is currently undertaking a review of its Directly Managed Branches but it is rumoured that the company is planning to close or sell at least half of its oYces in order to save on operational costs. It is this review that has prompted the Select Committee Inquiry.

Amicus Position 3. It is our view that any review of the Post OYce network, or any of its segments, must be undertaken within the following context: (a) The Post OYce is a publicly owned organisation providing a public and community service. (b) Post OYce Ltd is strengthened as an integral part of Royal Mail Group and its ability to survive and thrive in the future is intrinsic and inseparable from the future of the UK letters market. (c) The review of Directly Managed Branches should not be undertaken in isolation to the urban network reinvention programme, due for completion in April 2005. 4. It is a fact universally acknowledged that the Post OYce network fulfils a vital social function, particularly within rural communities, where retail and financial amenities are not widely available. Furthermore, the post oYce is significantly more important to more vulnerable groups within the Ev 94 Trade and Industry Committee: Evidence

community such as the elderly, unemployed, disabled and carers who are reliant on local services. The social role is widely recognised and valued by all parties. However, the main contributor towards maintaining the social provision is Post OYce Ltd itself, or indirectly Royal Mail. 5. While Royal Mail until recently had a monopoly in the letters business, the Post OYce network has not been a monopoly. All of the latter’s services can be found elsewhere. Post OYce Ltd is an integral part of the Royal Mail Group. As such, the company and its sole shareholder, the Government, has previously allowed reserves that have been built as a result of the letters monopoly to be used to finance essential investment and modernisation processes within POL that could not be funded elsewhere, such as the Horizon Platform. However, if funding for the Horizon platform was required today, it could not be met from central Royal Mail reserves, as Royal Mail priority need for investment is to position itself to face competition and liberalisation in the letters market. 6. We share Postcomm’s concern about the review of the Directly Managed network being undertaken separately and at a diVerent pace from the urban network reinvention programme (Building a viable network: Postcomm’s fourth annual report on the network of post oYces 2003–04.) We concur that the absence of certainty over the future of a Directly Managed Branch in any one area must, to some extent, undermine the credibility of decisions taken over the neighbouring network of sub-post oYce branches as such decisions will necessarily have been taken on the assumption that the Directly Managed Branch was available to act as a receiving branch. The review of the Directly Managed Branch network must take account of any assumptions made about specific Directly Managed Branches during the implementation of the urban reinvention programme.

External Pressures on the Post Office Network 7. The Post OYce’s foundations are now being undermined by a number of external forces; (a) EVects of Competition, (b) Government Policy.

Effects of Competition 8. The 2000 Postal Services Act provided legislation to allow competition into the UK postal market and to end Royal Mail’s monopoly. It also established Postcomm as the industry regulator and Postwatch as the industry’s watchdog. 9. Postcomm’s remit concerning the Post OYce network is purely advisory. It has no direct regulatory role by comparison with the letters market and as such less leverage. In our view, Postcomm’s proposals concerning Market Opening and competition have failed to take into account the potential eVects on the Post OYce network. As stated previously, Royal Mail’s reserves are now concentrated on preparing for competition with the possibility of full market opening as early as January 2006. There is much less potential for the more profitable parts of the business to subsidise the less profitable, even if the ultimate aim is to improve the general infrastructure and level of service to the public. 10. Furthermore, the current status of Royal Mail as a public limited company with the Government as its only shareholder adds to confusion about the fundamental role of the Post OYce network. On one hand, post oYces are regarded as providing an important social function, particularly in rural areas. On the other hand, Royal Mail is expected to operate along the same lines as a private company in terms of financial performance and delivering a profit. To this end, Royal Mail has embarked on an ambitious three-year renewal plan that has focussed on returning a £400 million operating profit at the expense of service delivery and quality. It has also resulted in job losses of around 30,000, including 3,000 managers with a wealth of experience and expertise leaving the business. 11. This dual role cannot be sustained and needs to be fundamentally addressed by the Government. If Post OYce Ltd is expected to maintain its social and community function, which is never going to be commercial unless vast swathes of the urban and rural networks were closed down, the government and the public need to accept and continue to pay for it. It also needs to take a long-term decision about the future funding of Post OYce Ltd. If it is decided that the Royal Mail monopoly should no longer support the Post OYce network, a strategy that has worked for the last 200 years, alternative funding must be provided. 12. This confusion about the role of the Post OYce is reflected by Postwatch’s recent attention on queuing times, and the use of these as a performance target. Directly Managed Branches (DNBs) in particular are a victim of this scrutiny, especially in some urban geographical areas where there are staV shortages or where sub post oYces have been closed. In our view queuing times are not always a negative issue for customers, some of who will perceive the post oYce queue as a point of social contact. For others queuing times are no worse than in other comparable organisations. DMBs are in a better position to sell the Post OYce’s range of new products than sub post oYces that will also be pushing their sidelines—or those of other businesses— that they find more lucrative. 13. In reality DMBs can more eVectively generate revenue by increasing their sales through direct communication with their customers than by quickly rushing them through the door. However, there is a danger that Post OYce Ltd will invest more time, money and energy in reducing queuing times than in selling Trade and Industry Committee: Evidence Ev 95

its products and establishing itself even more firmly as a community resource. There is also the potential damage to customer perception of the Post OYce if it is constantly portrayed in a negative light which will lead to a decrease in footfall.

Government Policy

14. The Benefits Agency decision to move to direct payment has had a severe impact on the Post OYce network. An estimated 40% of income has been lost as a result of direct payment with the consequential drop in footfall leading to a reduction in retail sales. The loss has been greatly aggravated by the convoluted and over complicated method for customers to obtain Post OYce Card Accounts. The eVects of direct payment have been well documented and the subject of a previous Select Committee Inquiry last year. It was therefore disappointing, to say the least, that the Government chose to largely ignore the recommendations made in the Select Committee’s report following the inquiry. (“People, Pensions and Post OYces: The impact of ‘Direct Payment’ on post oYces and their customers”) 15. The loss of income generated by direct payment must be replaced by alternative revenue if the Post OYce network is to be sustained.

Reductions of Directly Managed Branches (DMBs)

16. Over the past decade, a considerable number of directly managed branches have ceased to come under Royal Mail’s direct control, either through closure or conversion (franchising). In 2003–04, there were eight closures and eight franchises of DMBs. Some 560 DMBs remain and the possible outcome of Royal Mail’s current review of its directly managed network could result in the loss of over half of that total. The closure of a DMB should only be made following a thorough assessment of the impact on the public and community it serves and the availability of alternative provision. Closures of DMB’s tend to controversial due to their prominent geographical position and disproportionate eVect on vulnerable groups. Once a post oYce is closed, the service is lost and there currently exists no means for it to be reinstated. There is clearly no way that the network can aVord to lose half of its DMBs, responsible for over 15% of volume, and alternative ways of addressing the current losses sustained should be sought, as we set out below. 17. Previously conversion has been the preferred option of the Post OYce/Royal Mail. Conversion puts the number, management and most crucially the reward structure of staV in the hands of a franchisee. Post OYce Ltd receives a payment from the franchisee and transfers to the franchisee all the costs associated with direct management. As a consequence, franchisees recruit staV at lower pay and conditions than exist in the Directly Managed network and then go on to take higher rewards than are available to existing management. 18. In the past, DMB employees, to assist a conversion, have been provided with other work across Royal Mail or have taken severance at terms they found acceptable. This is no longer the case as a result of changes bought about by the Royal Mail renewal plan. Finding alternative employment elsewhere in Royal Mail is far more diYcult than before and Royal Mail has already signalled its intent to reduce severance terms, particularly for employees over 50. 19. As a result of this, managers in Directly Managed Branches now wish to exercise a choice between remaining with the Royal Mail, severance and working for the new franchisee. As a union, we believe that long serving and committed managers should be oVered that choice.The new franchisee will have to oVer those who wish to remain in the Branch the terms and conditions protected by legislation, in particular the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and the European wide Acquired Rights Directive, pay and severance included. Moreover, the PostOYce is bound by the Cabinet OYce Code of Practice to oVer broadly equivalent pensions. The failure to attract franchisees has been blamed on perceived high wages of Post OYce employees. In fact, DMB managers are not excessively remunerated. Managers have a remuneration package judged at%just above the median of outside counterparts (Hay Benchmarking). In respect of pensions, most managers and staV are members of the Royal Mail Pension Plan. This scheme is judged to be below the upper quartile of defined benefit schemes. 20. The new franchisee will have to oVer those who wish to remain in the Branch the terms and conditions protected by legislation, in particular the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) and the European wide Acquired Rights Directive, pay and severance included. Moreover, the Post OYce is bound by the Cabinet OYce Code of Practice to oVer broadly equivalent pensions. The failure to attract franchisees has been blamed on perceived high wages of Post OYce employees. In fact, DMB managers are not excessively remunerated. Managers have a remuneration package judged at just above the median of outside counterparts (Hay Benchmarking). In respect of pensions, most managers and staV are members of the Royal Mail Pension Plan. This scheme is judged to be below the upper quartile of defined benefit schemes. Ev 96 Trade and Industry Committee: Evidence

21. Furthermore, franchising also could lead to longer waiting times for customers because of a reduction in the number of counters, a point highlighted in the Postcomm Fourth Annual Report on the Network of Post OYces published in October 2004. 22. It is our view that for the above reasons, conversions would not be a viable solution to resolving the financial position in the directly managed segment.

Reducing the Deficit 23. We believe the DMB deficit can be reduced by a number of measures. These include: (a) Increasing product range We support and commend the eVorts of David Mills, Chief Executive of Post OYce Ltd, to increase the range of products available. We believe that these oVers oVer the opportunity to generate new business and improve financial revenue. In overall terms, sales revenue in Post OYce Ltd increased by £78 million or 9% in 2003–04. A significant element of this improvement is through new products such as E-top ups (where Post OYce Ltd is now second to Tesco), growth in the Bureau de Change business (where Post OYce Ltd is now number one in the provision of foreign currency), other financial products and an enhanced marketing strategy.We are disappointed however that some of the major Banks—HSBC, HBOS, and RBS—continue to refuse to allow their customers to draw cash from Post OYce counters and play a full part in helping to preserve the future of the Post OYce network. We would wish to see this highlighted and these banks positively encouraged to enter into arrangements with PostOYce Ltd as have many other banks. (b) Increasing Sales As a retail provider the Post OYce must contribute to its costs by increasing its sales. Issues such as queuing times should not sidetrack it from this primary function which provides essential revenue. (c) Training All staV must be provided with adequate training to sell Post OYce products and adequate training time should be aVorded to all managers to fully equip their staV. (d) Improved Operational EYciency Opportunities for greater operational eYciency need to be identified. Amicus has long contended that DMBs lack managerial resource. Royal Mail remains a highly industrialised environment in which to work and greater managerial presence is needed to ensure eVectiveness. However, last year Royal Mail axed 3,000 manager jobs with the resultant loss of experienced managers leaving the business. Furthermore, our own research reveals the high level of stress related illness among Post OYce managers as a result of working excessive hours. POL needs to invest in its staV to achieve greater operational eYciency and not strip itself of a most important asset. (e) Resiting Branches Part of the cost of the DMB segment relates to accommodation. Many of the sites now charge greater rent than previously and lease renewals constantly increase costs. The location of DMBs is critical to the service provided yet at the same time can add to the burden of costs. Many oYces occupy large spaces that are now unwarranted, for example from the days when the sorting oYce was also on the premises. Opportunities for resiting or relocation of DMBs should be vigorously and actively pursued. (f) Refurbishment As stated above, DMBs are a neglected area. The accommodation in very many instances could be made more inviting and more comfortable for the customer. The “Next Generation” oYces such as the pilot oYce at North Finchley have proved successful in increasing customer footfall and resultant sales. Refurbishment of these post oYces would require substantial investment. However, the urban reinvention programme earmarked £30 million for the refurbishment of sub post oYces and in our view similar investment should be provided for the Directly Managed Branches. (g) Incentive Scheme The correct focus on a new product range and increased sales requires Post OYce Ltd to re- examine how it can best provide incentives to staV to sell more of its oVers. A fresh approach to incentive arrangements will improve sales possibly by quite a significant amount. (h) Implants There is spare space in a number of DMBs, perhaps about 50. This space should be exploited from a commercial point of view, for example to sub-let to other businesses or to develop as internet cafes, Government and local community information kiosks and so on. Trade and Industry Committee: Evidence Ev 97

(i) Community Input The post oYce provides an important social role within the community. There is value in exploring whether contributions should be sought from other avenues to maintain this role, eg local authorities and whether a greater obligation should be placed on banks and other financial providers to extend their services to Post OYce Ltd. (j) Network Fund The Government has committed £450 million to maintain the rural post oYce network and established a fund to maintain deprived urban post oYces. Post OYce Ltd does not receive funds to support its Directly Managed Network, a segment that has suVered much under funding in almost all aspects in the past decade. We would wish to see direct support by the Government, on similar lines to the rural network, to maintain the Directly Managed Branches where appropriate and necessary to maintain the community and social service.

Conclusion 24. The Post OYce is the nation’s most loved and most trusted network. All parties tend to agree that it is a welcome part of the social fabric of the nation. 25. Its positioning within Royal Mail has helped it achieve such status and provided the necessary finance for its public service to continue. Its work on behalf of the Benefits Agency provided it with a very substantial part of its income. However, external changes as the result of competition and government policy in other departments have led to a loss of income for the Post OYce and alternative revenue needs to be sought. 26. The Government now has to subsidise the rural network and substantial amounts of money are required to regenerate the urban network. No government monies have been made available to the directly managed sector. This sector has, in any event, been neglected over the years. Major refurbishment is required to accommodation, and a fresh and clear focus on sales is required with the necessary back-up resources. 27. Conversions are no longer a sustainable method of transferring post oYces away from the direct management of Royal Mail. Greater incentives would need to be oVered to franchisees in order to protect the employment rights of Post OYce Ltd employees who transfer through conversion.

Recommendations 28. Amicus invites the Select Committee to consider the following recommendations: (a) A complete review of strategy should take place in respect of the future for Royal Mail as a whole to embrace the hitherto neglected issue of the impact of Postcomm regulation of the Royal Mail Letters business on the Post OYce network. (b) The review of Directly Managed Branches by Post OYce Ltd should not be separated from the network reinvention programme. The future of such post oYces should be assessed by local need for postal services as part of a strategy for the whole of the Post OYce network. It should not be solely financially driven nor by the ease of property sale, conversion to franchised operation or closure. (c) The social role of the Post OYce network needs to be defined and a commitment made to fund it. Contributions from organisations who benefit from the Post OYce, such as other retailers, banks, local authorities could be sought. (d) Post OYce Ltd and the unions (Amicus/CMA and CWU) should be urged to conduct a thorough review with the aim of improving eYciency and productivity in the directly managed sector. (e) The Government should consider whether an Urban Network Payment would be appropriate to meet the costs of the directly managed sector as a whole and/or for specific oYces, as an interim or ongoing measure.

APPENDIX 13

Memorandum by the London Borough of Camden

I am writing, on behalf of the London Borough of Camden, to give evidence to Trade and Industry Committee’s inquiry into the future of the Crown Post OYce Network. 1. The London Borough of Camden has repeatedly stated its concerns to Post OYce Ltd about the impact of post oYce closures on the most vulnerable members of society, regardless of whether the closures are Crown Post OYces or those under franchise. Our concerns arise as a result of our own investigations through our Overview and Scrutiny Commissions scrutiny panel on this issue, through the public Ev 98 Trade and Industry Committee: Evidence

consultation meetings we have held to discuss specific closures, through the correspondence we have received from local residents, voluntary groups, local businesses and also from concerns raised by elected members.

Deprivation and Partnership Working 2. Despite the negative impact post oYce closures can have on urban deprived communities and local businesses, oYcials from Post OYce Ltd have displayed no appetite for working with local authorities and their partners to enable service provision to continue whilst reducing costs to Post OYce Ltd. This is underlined by the short deadlines set for consultation, by the minimal eVorts made to engage with local communities and by the refusal to share information. 3. We were also disappointed to note that, despite deprivation being a criterion for consideration when proposing closures, Post OYce Ltd had failed to use the updated deprivation information published by the government in June 2004.

Comments on the Reinvention Programme 4. We consider that Post OYce Ltd misled our community and us with its proposals under the Reinvention Programme that were purported to be ensuring post oYces were financially viable and that the network was modern, sustainable and accessible. 5. There have been 11 planned closures and two unplanned closures of post oYces in the London Borough of Camden. In all of the planned closures, Crown Post OYces have been named as the alternative receiving branch for displaced customers. It is easy, therefore, to understand people’s outrage at the proposals to review and close Crown Post OYces. 6. The Urban Reinvention Programme can be seen as simply a staggered approach to Post OYce Ltd divesting itself of direct service provision, Closing, as many local post oYces as possible and pushing customers towards the Crown Post OYces which then become financially attractive as going business concerns and which can easily be franchised and reduce the losses and costs of Post OYce Ltd.

Crown Post Office Review 7. There are five Crown Post OYces within the London Borough of Camden, Property prices in this borough would make the option of closing any Crown Post OYce to dispose of the asset and realise its value a very attractive prospect for Post OYce Ltd. The review of a Crown Post OYce must clearly show that the asset value was not a decisive factor in proposing its closure. 8. We remain concerned about the quality and level of service provision at current Crown Post OYces and are unconvinced that this would be improved through another closure programme. 9. We already have experience of the eVect on the local community when a Crown Post OYce is closed and becomes a franchised service. Local politicians and members of the local community have found themselves having to constantly lobby Postwatch, Post OYce Ltd and the new proprietor to determine responsibility for the decline in the professionalism of the service being provided, the unauthorised removal of posting facilities and absence of the appropriate signage that indicates that a post oYce exists within a new grocery store.

Social Impact Generally 10. We have no doubt that the impact of the recent closures are already having a significantly negative impact on the day to day lives of the most vulnerable and socially excluded members of our community, and this includes the elderly, disabled and those with young children. 11. The impact on these groups of having to make longer journeys and then have to face growing queues in order to access the services they need should not be underestimated. For some people, travelling the longer distance will be a physical impossibility and will make them less independent as well as potentially increasing feelings of isolation. For those who are able to travel the longer distances, the inevitable long queues, which are already in evidence in the receiving branches, will prove to be physically and emotionally challenging particularly for some elderly people, those with disabilities and for those people with young children. 12. We believe that the closures have also meant even more financial hardship for the elderly, the disabled, those with young children and for people who are on low incomes or receiving benefits as some will be forced to incur additional travel costs in order to be able to access the services and products provided by Post OYce Ltd, in particular, benefit payments. Trade and Industry Committee: Evidence Ev 99

I enclose a copy of the scrutiny panel report referred to previously. If you would like to discuss these issues further, please do contact me, Councillor Theo Blackwell Executive Member Social Inclusion, Equalities and Regeneration 15 November 2004

APPENDIX 14

Memorandum by Manchester City Council 1. Manchester City Council welcomes this timely inquiry into the future of the Crown Post OYce network. 2. As Members of the Committee may be aware the roll out of Post OYce Ltd Urban Re-invention Programme is now complete in Manchester with decisions on the last of the five Parliamentary Constituencies—Wythenshawe & Sale East—now made by Post OYce Ltd on 29 November 2004. With regard to the roll out of the Urban Re-invention Programme in the city we believe that it is fair to say that to date we have seen no innovation from the Post OYce in “reinventing“” the network and no willingness from the Post OYce to engage strategically in the development of a coherent planned approach to the creation of a sustainable branch network in the city. 3. As a City Council we have taken the issue of creating a sustainable branch network in the city very seriously as we believe that it is fundamental to our approach to neighbourhood renewal and regeneration. As early as December 2002 the Leader of Manchester City Council wrote to Lorraine Whitehouse, Head of External Relations North West, Post OYce Ltd calling for Post OYce Ltd to engage with the City Council on a structured approach to the development of the Post OYce network with the city. This message of wanting to develop a strategic relationship between the City Council and the Post OYce in order to create a sustainable branch network for the city was restated at two subsequent meetings between senior oYcials of the Post OYce and the Deputy Chief Executive of Manchester City Council in January and November 2003. 4. Like the Committee the City Council were surprised to find out that Post OYce Ltd was undertaking a separate review at a diVerent pace into the network of directly managed post oYce branches—the Crown OYces. The unwillingness of the Post OYce to engage in such any strategic working relationship has now culminated in press coverage indicating that post oYces identified as receiving branches in the current Post OYce Urban Re-invention Programme for the Blackley, Gorton, Withington and Manchester Central Parliamentary Constituencies now being highlighted as possible candidates for closure under a separate programme for directly managed branches. The Times on 1 November stated “Among the Crown OYces that may be closed or sold are those in Spring Gardens, Manchester”. It should be noted that Spring Gardens was identified as a receiving branch in respect of two branch closures (Hanging Ditch and Collyhurst Post OYces) within the Manchester Blackley and Manchester Central Parliamentary Constituencies. It should also be noted that Postwatch opposed the closures of Hanging Ditch and Collyhurst Post OYces but their views were not taken into account and Post OYce Ltd have now closed these Post OYces. 5. In our discussions with the Gerry SutcliVe MP, Parliamentary Under-Secretary of State for Employment Relations, Consumers and Postal Services, we have been assured that the Post OYce have no plans to close Spring Gardens Crown Post OYce in Manchester under the current review. As a City Council we have held meetings with the Communication Workers Union who have indicated their belief that the Spring Gardens Crown Post OYce will be closed. In light of these diVerent views on the likely future of Spring Gardens Crown Post OYce we have sought to establish from the Post OYce a clear position from them on the future of this and other directly managed Post OYces within the city. 6. We are producing this memorandum to the Committee to highlight the continuing failure of Post OYce Ltd to work in partnership with the City Council on the creation of a sustainable post oYce branch network that can meet the needs of residents and other stakeholders in a locality. In recent correspondence to the Chief Executive of Manchester City Council the Post OYce stated that in relation to directly managed branches “we are not in a position to confirm which branches may be considered for closure as we are still at the planning stage.” 7. The continuing uncertainty of Spring Gardens does throw into question the overall approach and processes being adopted by Post OYce Ltd. This uncertainty, as a result of this press coverage, and the unwillingness of the Post OYce to enter a strategic working relationship on the creation of a sustainable post oYce network for the city, does question the overall approach adopted to date by the Post OYce on the closures being put forward in the Blackley, Gorton, Withington and Manchester Central Parliamentary Constituencies through the Urban Re-invention Programme. Ev 100 Trade and Industry Committee: Evidence

8. From our experiences on the Urban Re-invention Programme, where Postwatch opposed five of the 15 closures to no avail, we now realise that Postwatch has no power to compel Post OYce Ltd to listen to its customers. We have also met with Nigel Stapleton, Chair of Postcomm, who despite Postcomm’s brief to give advice to Government on the future of the Post oYce network, they do not, in his words, have “any policy making role in respect of the Post OYce network”. As such we believe that it is only pressure on the Government that can bring about a more rational approach to the planning and development of a sustainable branch network in the city. 9. I urge you to exercise your influence to ensure that Post OYce Ltd undertakes genuine consultation— that is a minimum of 12 weeks—on any further Crown oYce closures or conversions and to persuade the Government and Post OYce Ltd that the active involvement of local authorities in helping to plan a sustainable branch Post OYce branch network should be at the core of any future programme of restructuring the network. Councillor Jim Battle Deputy Leader of Manchester City Council 9 December 2004

APPENDIX 15

Memorandum by the Royal Borough of Kensington and Chelsea I understand that the Trade and Industry Committee is conducting an inquiry into the Post OYce closure proposals and although I know that your deadline has passed, I am writing to record the experience of this local authority. The Royal Borough of Kensington and Chelsea is a demonstrably competent local Council. Various regulators confirm that our services are amongst the best in the country and we have a lot of experience in listening to our local population and then taking account of their requirements where we can, or explaining carefully where we cannot. We therefore expected to be taken seriously by the Post OYce when they came forward with proposals for their closure programme in our area. In particular we were concerned about the Crown Post OYce in Westbourne Grove, London, W11. This is a much loved and well-used Post OYce that we believe has been closed merely to save running costs in the region of £70,000 per annum. We would have been quite happy to have engaged with the Post OYce to look to see what options could be worked up to keep the site open. This would not have amounted to an operational subsidy, but we would have been willing to explore a number of options short of this. But the nature of the consultation exercise left a lot to be desired with the original timescales far too short and the rest of the exercise conducted on the basis of insuYcient information and no evidence of engagement by senior Post OYce staV in trying to look seriously at any alternatives. My local population and indeed the Council has been left enormously frustrated by the experience and we find it diYcult to believe that Post OYce Limited, who are carrying out this vital public function, can be allowed to behave in such a cavalier fashion. We understand that the Post OYce believe that they are under no formal responsibility to consult at all and are only doing so under a protocol negotiated direct by the DTI and Postwatch. This stems from their belief that they are not a public body but an arm’s length private company. If this is the case, then we argue that the protocol itself must be deficient and the Government should immediately lay down new expectations that no Post OYce will be closed until all opportunities to keep it open have been extinguished. I trust these views will be taken into account by the Select Committee as their work progresses. 23November 2004

APPENDIX 16

Supplementary memorandum by the Royal Borough of Kensington and Chelsea ClIr Merrick Cockell, Leader of the Royal Borough Council, and the North Kensington and Notting Hill Post OYce Closures Action Group have both made submissions that I agree with, so I will not repeat the points they have made. Trade and Industry Committee: Evidence Ev 101

But I think it is worth mentioning what led Irwin Mitchell Solicitors, who were representing the Action Group in the High Court injunction Hearing on 9 November 2004, to believe that the Post OYce had carried out a flawed and therefore unlawful public consultation process. Having reviewed all of the relevant papers regarding the Notting Hill CrownOYce, Irwin Mitchell reached the view that the Post OYce had failed to comply with the law by: (a) not consulting at (the Notting Hill) oYce when the proposal was still at a formative stage; (b) not giving suYcient reasons for closure to admit of intelligent consideration and response; (c) not providing the criteria upon which closures will be agreed or rejected: and (d) not providing adequate time for consultation, taking into account the summer holiday period; (e) by apparently not conscientiously taking into account the product of consultation before finalising the proposal for closure. In court, Michael BelloV QC for the Post OYce, claimed that the reason more detailed information was unavailable on the business case for post oYce closures, and on the social eVects of reducing capacity, was because the Post OYce believed this level of information was just too complex for local people to understand. They would have been unable to make meaningful use of it, the Judge was told. I nearly fell oV my seat in court when I heard this. The conduct of the consultation exercise suggests that the Post OYce decided at the outset on their closure programme, then went through the motions of consultation because they had agreed with Postwatch that they would consult, but they appeared to have no intention of listening to local people. I trust that these views will be taken into account by the Select Committee. Cllr Pat Mason 27 November 2004

APPENDIX 17

Memorandum by the North Kensington and Notting Hill Post OYce Closures Action Group The proposal to close the Notting Hill (hereafter NH) branch was communicated to me by the Royal Borough of Kensington and Chelsea (hereafter RBKC). The Town Hall had organised a public meeting in the evening at a local venue so that local residents could attend without disruption to their family and work commitments. Post OYce (hereafter PO) representatives were invited in advance; however, on the evening; no PO representatives were present. Only Post Watch (hereafter PW) representatives attended, which slightly improved upon the initial disappointment felt among the residents and Councillors. Initially I found the PW representatives only helpful in one respect. A representative pointed out that the “Urban Reinvention Programme” related to sub-Post OYces (hereafter sub-POs), which were run privately, and one should not interfere between PO Ltd. and the sub-Post Master’s freedom to consider his or her own commercial circumstances. Subsequently, the P W representative admitted that the NH branch was a “Crown” PO, which was not to be confused with the proposed sub-POs closing under the urban network modernisation programme. Subsequently, questions from the floor centred upon the nature of the decision to close the NH “Crown” branch. A person asked: why would PO want to close this branch, if it was always busy? I personally could not recall not joining a queue, and further questions from the floor emphasised this sentiment. Eventually, my turn to ask a question came; so I asked: Is there a “body” that one can appeal to, who is able to scrutinise the decision to close the NH branch? The representative replied that the NH branch was managed by PO Ltd., a private entity, and thus, only commercial considerations concerned PO ltd. I asked a second question: who is the owner of PO Ltd.? The representative replied: PO Ltd. is a private company, wholly owned by the Government. Another person asked: Is there no “public duty” whatsoever in relation to the “Crown” PO so that social matters can be considered? In response the representative appeared to emphasise that social considerations were discretionary rather than a public obligation, whilst acknowledging that the audience’s questions related to a “Crown” branch. Later the representative stated that the suggestion of a legal basis for contesting the proposal to close the NH branch was a “red herring”, because no legal protection existed, since the post oYce network had been incorporated into PO Ltd. (under the enabling legislation of 2000). The impression the representative left upon me was that the decision to close the NH branch was incidental to the modernisation of the “urban network of POs, and that the rationale under which the decision was made was limited to commercial considerations. A few days after this meeting I went to the NH branch to use its services and joined the queue in the normal way. I then noticed the “notice” for the “proposed closure of the NH branch” and began to read it. The notice stated that the proposed closure was “part of the restructuring and modernisation of our existing Ev 102 Trade and Industry Committee: Evidence

urban network”. Ordinarily, I assumed the review of the “existing urban network” applied only to the sub- POs. However, the wording of the “Proposed branch closure” notice inside the NH branch referred to the “restructuring and modernisation of our existing urban network”. And, I was subsequently confused because the wording inferred that the branch had been considered with the other sub-POs, whilst not being one of them. To compound my confusion, a seemingly obtuse question lay unanswered. I held the impression that the NH branch was understaVed, due to the incumbent pressure of a constant queue; a queue that was considered normal. If so, why did PO Ltd. wish to close this branch? The above question was addressed by a member of the public to a PO representative at a subsequent meeting formally organised by the RBKC. The representative replied that the NH branch was losing money. This reply elicited further questions from the floor: how much is the loss? The representative replied that commercial confidentiality precluded him from disclosing the amount, or any method used in extrapolating that amount. Furthermore, it was not necessary to attribute a specific loss. PO Ltd as a whole was making a loss. Subsequently, with the aid of Irwin Mitchell Solicitors, PO Ltd. has disclosed that the NH branch has lost £68,000 in its last financial year. However, PO Ltd. has not disclosed how this loss was extrapolated from the reportedly high turnover generated by counter transactions at the NH branch. The limited disclosure has meant that the public has been unable to access relevant facts, which may have strengthened public consultation. The aforementioned notice to close the NH branch states: “We want to hear from you. There will now be a public consultation period to enable input from you, your local community representatives and the consumer watchdog: Post Watch”. Regrettably, in light of the limited consultation, and the disclosure of any facts that support the view of PO Ltd. to close the NH branch, it has been impossible to apply any relevant questions to the purported consultation process. And, it is further regrettable that a number of questions raised by all those who believed they had a vested interest by their continued use and support of the NH branch remain unanswered. The following considerations remain unanswered: 1. Was the NH branch closed under the “urban reinvention programme”? If so, why? 2. Correspondingly, if the existence of a Crown branch is a justification for reducing the network of sub-PO’s, why close the NH branch? 3. Why is the same consultation process used for sub-POs and Crown POs, when pertaining circumstances are so diVerent? 4. Why has PO Ltd. made no distinction, so that more relevant questions can be raised in relation to the closure of a Crown post oYce? 5. If a distinction can logically be deduced between a sub-PO and a Crown PO; is PO Ltd. obliged to take into account non-economic considerations when assessing a Crown branch? 6. Is it not the case that “Crown” receiving branches should bear more consideration than sub-POs because the nature of receiving (business) parcels requires a capacity that is not ordinarily available at sub-POs.? 7. PO Ltd. has disclosed to Irwin Mitchell that the NH branch has made a loss, but without assisting this figure with the turnover figure. 8. PO Ltd. has not disclosed whether any alternative remedies such as franchising have been taken into account in the final decision to close the NH branch. NK&NH PO Closures Group 29 November 2004

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