§ Mr. Joseph Dean
asked the Secretary of State for Industry whether he will make a statement about the financial objective for the Post Office's telecommunications business.
§ Mr. Varley
I have agreed with the Post Office a financial objective for the telecommunications business for each of the three years 1976–77 to 1978–79 of a real rate of return of 6 per cent. "Real return" is defined as the profit before interest but after historic and supplementary depreciation, as a percentage of 279W average net assets revalued to replacement cost. This formulation allows for the effects of inflation both on the depreciation provision needed and on the valuation of the asset base. It thus takes account of the Post Office's current practice of providing in their accounts for supplementary depreciation; and of the work of the Sandilands and Morpeth Committees.
Since it is not yet possible to undertake a full revaluation of the asset base in accordance with principles agreed by the accounting profession, it has been necessary to use a preliminary estimate of the replacement value of the assets. The objective will be reviewed and if necessary adjusted at such time as results of a full revaluation may be available; or if there are other significant changes in the industry; circumstances which call for a review. It is also intended each year to roll forward the objective for a further year at a level to be agreed.
I understand that the Post Office is confident that it can achieve the objective without early increases in telecommunications charges. Reductions in charges for certain operator connected calls will take effect in the New Year. And the Post Office stated on 21st December that, beyond the voluntary standstill in telecommunications charges to 31st July 1977 already announced, there are now good prospects that it will prove possible to avoid increases for a further period up to 31st March 1978.