Post Office (Hansard, 14 July 1992)

§ Mr. Leigh

On 18 January 1990 the Secretary of State, in agreement with the Treasury announced profit targets for the Post Office.

The targets were set as an annual average percentage return on mean capital employed—ROCE—for the three-year period to 1991–92. The returns are determined before taxation and interest receivable on accumulated past surpluses.

The targets are flexed if the actual interest rates differs significantly from that assumed when targets were set.

The overall targets were an expression of a Government requirement that each of the Post Office businesses and the Post Office Group as a whole should be in 1991–92, work up to a profitability consistent with a real rate of return of 8 per cent. in line with Government policy on the rate of return that public sector industries should achieve on their investment. Yearly group and business targets on this basis were set and announced to the House on 18 January 1990. The Post Office achievement against these annual targets has been:

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	Three-year period average to 1991–92
	Target as announced Per cent.	Target after interest flexing Per cent.	Actual Per cent.
Group	6.4	6.6	5.7
Royal Mail	6.4	6.7	9.3
Parcelforce	5.8	5.8	(25.8)
PO Counters	7.0	10.0	10.8

The three-year group achievement reflects the After change in measurement system consequences of plans formulated in 1990–91 to change significantly the geographical and administrative structures of the Royal Mail and Parcelforce businesses, thereby focusing more sharply on the customer. Future costs of restructuring and development together with accelerated depreciation, in total amounting to £106 million, were provided for in that year. If these exceptional items are ignored, the average performance over a three-year period to 1991–92 at group level was 7.4 per cent. against a 6.6 per cent. target.

Also in 1990–91 the basis of apportioning stamp and meter income between Royal Mail and Parcelforce was revised. A new methodology using direct measurement of parcel volumes transacted at Post Office Counters resulted in an income transfer from Parcelforce to Royal Mail and revised charging arrangements for costs. While this did not affect group results, Royal Mail and Parcelforce ROCE were affected.

If the changes had not been made the ROCE results for 1990–91 would have been:

1990–91
	Target performance (per cent.)	¹Actual performance (per cent.)
Royal Mail	6.8	4.9
Parcelforce	4.8	(35.8)
¹ Before income transfer and revised charging arrangements for costs.

Because there was a change of methodology in one year, it is not possible to produce data on a comparable basis for 1989–90 and 1991–92.

The Secretary of State also announced on 18 January 1990, following consultation with the Post Office, real unit cost—RUC'—targets for Royal Mail and Post Office Counters. These businesses were targeted to achieve in 1991–92 a 1 per cent. and 2 per cent. reduction respectively in RUC against a 1988–89 base. Counters target was flexed to a 2.4 per cent. reduction to reflect movement in interest rates. No RUC targets were set for Parcelforce or for the Group.

Actual achievement against target is:

	1991–92
	Real unit cost achievement per cent.	Reduction target per cent.
Royl Mail	1.0	1.0
PO Counters	2.7	2.4

If the improve method for apportioning stamp and meter income between Royal Mail Letters and Parcelforce introduced in 1990–91 had not been effected, Royal Mail Letters' RUC performance to 1990–91 would have been different:

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	Reduction/ (Increase)¹
Interim Target	(0.5)
Result before exceptional items Without change in measurement system	2.0
After change in measurement system	3.5
Result after exceptional items Without change in measurement system	0.5
After change in measurement system	2.1
¹Against a 1988–89 base

Because relevant data are not available for 1988–89 and 1991–92, no reliable assessment can be made of the effect of the changes in the measurement system on the achievement reported for RUC for 1991–92.