Post Office (Hansard, 4 November 1986)

§ Mr. Pattie

As I announced on 24 July 1985, at columns565–66, each of royal mails and counters was required to secure a 4.5 per cent. return on turnover, on the current cost accounting convention, before tax, but after interest for the financial year 1985–86.

As to 1986–87, I announced on 31 July this year that the postal business of the Post Office had been set an overall target of securing a return on turnover of 3.25 per cent. before interest and tax in each of the years 1986–87 to 1988–89. The full text of my announcement was as follows: Last year the Post Office moved towards the separation of the Royal Mail and Counters businesses, and earlier this year it announced its decision to divide Royal Mail into two separate businesses, Letters and Parcels. The process of establishing these three businesses and of separating their accounts will not be complete for about another two years. This limits the robustness of the available figures. But after consulting the Post Office I have decided that the time is right for separate medium-term targets to be set for the three businesses for the three years 1986–87 to 1988–89. National Girobank is already targeted separately. Last year the Government set the Royal Mail business the performance aim of reducing its real unit costs by 2.2 per cent. in 1985–86 compared with 1984–85, and the Counters business 378W was targeted for a reduction of 1.5 per cent. compared with 1984–85. In the event, Counters achieved its target and Royal Mail bettered its target by 0.2 per cent. I congratulate the management and work force of the Post Office on their achievement. Nevertheless, I am confident that those employed n the Post Office understand that in order to protect the future of the businesses, it is essential to retain existing customers and attract new work. Further improvements in efficiency remain the key to maintaining and improving the Post Office's competitiveness. Accordingly I have set the Post Office the target of achieving a reduction of 5.5 per cent. in the real unit costs of the postal business at the end of 1988–89, compared with 1985–86, with at least a 1.5 per cent. reduction to be achieved by the end of 1986–87. I have agreed with the Post Office that the component businesses should be set individual targets to reduce real unit costs over the same period. These will be 6 per cent. for Letters; 5.4 per cent. for Parcels; and 3.7 per cent. for Counters. The lengthy process of separating the accounts of the new businesses raises problems in attempting to set financial objectives. The review that was announced in July last year of the financial objective for Royal Mail and Counters concluded that the appropriate overall objective was a return on turnover of 3.25 per cent. before net interest and tax, on the current cost accounting basis, in each of the years 1986–87 to 1988–89. Although the Post Office has proposed profit targets for each of the three businesses in each of those years there must be uncertainty about the reliability of the underlying assumptions until further progress has been made with the new information systems. To support the overall target of 3.25 per cent. in 1986–87 I have agreed with the Post Office that the three businesses should secure returns in that year on the same basis as the overall target. These will be 3 per cent. for Letters; 6 per cent. for Parcels; and 13 per cent. for Counters. It is my intention before the end of March next year to agree with the Post Office and announce target returns for the three businesses for 1987–88.