§ Mr. Mellor
asked the Secretary of State for Industry whether an adjustment is necessary to the external financing limit of the Post Office for 1980–81.
§ Sir Keith Joseph
The Post Office's external financing limit for 1980–81 net of the effect of billing problems was set at £65 million, of which British Telecom's share is £78220W million and that of the postal and giro businesses a net repayment of £13 million. Despite the tariff increases introduced last autumn to restore British Telecom's financial position following the loss of £19 million shown in the first half of the current financial year, the chairman-designate has informed me that the effects of the recession on revenue make it unlikely that British Telecom's real return on net assets for the year as a whole will exceed 5 per cent. This compares with a return of around 6 per cent. assumed when the external financing limit was set and in the"Government's Expenditure Plans" 1980–81 to 1983–84 (Cmnd. 7841).
In view of this, and of increased working capital requirements due to difficulties with forecasting stock levels at the time when control procedures were disrupted by industrial action, British Telecom does not expect to be able to meet its share of the Post Office's external financing limit, despite the exercise of strict economy in its expenditures. The Government expect British Telecom to do everything in its power to keep the gap to a minimum and not to allow it to exceed £145 million. Accordingly, the Government have agreed to increase British Telecom's share of the external financing limit to £223 million net of the effects of the billing backlog. On that basis, the external financing limit of the Post Office as a whole would be adjusted to £210 million.
This increase of £145 million in the external finance available to British Telecom in 1980–81 should be seen in relation to a forecast turnover in the year of about £4.5 billion. The funds are being found from the unallocated contingency reserve within the planned totals of public expenditure.
As foreshadowed in the 1980–81 Financial Statement and Budget Report, the Post Office's external financing limit has been adjusted to take account of the effects of billing delays in 1979–80 caused by industrial action. It is estimated that those delays caused £345 million of bills which would otherwise have been paid in 1979–80 to be paid in 1980–81. Allowing for this adjustment, the Post Office will now be required to make a net repayment in 1980–81 of £135 million.