Post Office (Hansard, 21 July 1986)

§ Mr. Channon

I have today written to Sir Ronald Dearing, chairman of the Post Office, in the following terms.I believe that it would be helpful to you and your Board if I were to expose some of my thinking on the long term direction of the Post Office. In doing so, I have no wish to alter the relationship between the Post Office and the Secretary of State, which is established in existing legislation, nor to purport to assume or limit the Board's statutory responsibilities, nor to direct how they should be discharged. But Parliament has conferred powers on the Secretary of State and, without prejudice to my exercise of those powers in the light of circumstances prevailing at the time, I hope that it will be helpful to you to know the general considerations that will influence my view. I would expect to see the Post Office continue on the course it has adopted towards the separation of the Royal Mails business, the Counters Service and National Girobank proceedings subsequently to the separation, where appropriate, of discrete business activities within Royal Mails. The financial and performance targets and the external financing limits set by the Government will increasingly reflect this enhanced separation. The Post Office should seek to develop its financial accounting for the discrete businesses within Mails as quickly as possible to the point that separate accounts are shown in the Post Office's published accounts. I regard these developments as desirable in themselves. I welcome the completion of action to establish Girobank as a Public Limited Company and I wish the Board similarly to press ahead with the incorporation of the Counters Business as a subsidiary company. I wish the Board to consider the further application of this principle to its other main activities. To ensure the most responsive and efficient use of resources, I shall want continually to consider the possibilities 18W for introducing private capital into Post Office activities and I should welcome your positive recommendations in this area. The Post Office should also regularly and critically appraise the scale and nature of the postal network against the background of technological and market developments. I believe that the Post Office's prime objective must be to secure the maximum efficiency throughout the business by all practical means including, inter alia, sustained and detailed cost control of all aspects of the Post Office's activities and improved productivity. This will be reflected in the financial and performance targets and in the external financing limits set by the Government. In improving the efficiency with which it uses its resources, the Post Office should reduce the real manpower and other costs of its services and thereby achieve at least the Government's efficiency targets, where set. It should do this while providing the quality of services which gives the best balance between the services provided and the costs of supplying it. In addition, the Post Office should pursue an investment programme designed to support the objectives set by the Government. This programme should be evaluated on the basis of appropriate investment appraisal techniques, designed to take advantage of technology where this can be demonstrated to produce adequate returns, satisfy any guidelines set down by the Government and have regard to financial limits set by the Government. The Post Office should also seek to realise the full potential of its workforce through the pursuit of productivity schemes and improved practices. The Post Office should make a profit in each year in each of its constituent businesses sufficient at least to meet the Government's published financial targets and should make appropriate profits in those discrete activities subsumed within the wider targets. The Post Office should also seek to ensure that the main elements of its price structure are sensibly related to the costs of supply and the market situation and should avoid cross-subsidy, particularly from monopoly to competitive activities. In addition, the Post Office must continue the development of, and maintain, the necessary information and accounting systems to be able to ensure that it is following sound pricing principles, to ensure that it is able to monitor adequately the speedily the progress of each of its businesses, and in order to report performance through the published accounts. The review of the business environment, the corporate plans and the examination of strategic options should have a central place in the relationship between the Post Office and the Government. The reivew of the business environment should be brought up to date and resubmitted to the Government each December. The corporate plans should be submitted each March. They should fully reflect the financial and performance targets and the external financing limits set by the Government. The Post Office should ensure regular flows of information to the Government and meet the timetables settled with the Government to permit the monitoring of performance generally and specifically, both against the agreed strategies and in relation to the Government targets and external financing limits.