Post Office (Hansard, 18 January 1990)

§ Mr. Forth

The Secretary of State, in agreement with the Treasury, has set the Post Office a target to achieve an annual average 6.4 per cent. return on mean capital employed over the three years 1989–90 to 1991–92. The profit used when calculating the return will be struck after interest (excluding interest on past surpluses) but before tax. The Post Office, in agreement with the Secretary of State, has set corresponding targets of 6.4 per cent. for the letters business, 5.8 per cent. for the parcels business and 7 per cent. for the counters business.

At the Post Office's request, the form of the target has been changed from a return on turnover to a return on capital employed, in line with usual practice in the private sector.

The targets are calculated from the following expected returns in each of the three years:

	1989–90 per cent.	1990–91 per cent.	1991–92 per cent.
Post Office	2.4	6.3	10.6
Letters	1.0	6.3	11.8
Parcels	2.5	5.0	10.0
Counters	6.0	7.0	8.0

The returns in the last year of the period are approximately equivalent to the real rate of return of 8 per cent. of capital employed which the Government announced in March 1989 that public sector industries should aim to achieve on their investment. The Government accept that the Post Office should work up to profitability consistent with the new rate of return over the target period.

The Secretary of State has agreed that the Post Office does not need to set an efficiency target for parcels, which operates in a competitive market, although he will monitor published tariffs for parcels sent between private people, a market in which parcels is dominant. The Post Office, in agreement with the Secretary of State, has sent the following real unit cost (RUC) targets for the letters and counters businesses.

358W

Cumulative reduction by 1991–2 over 1988–9
Letters—1 per cent.
Counters—2 per cent.

The financial and efficiency targets for the counters business are set for the business as a whole in accordance with the principles of the 1978 White Paper on the nationalised industries (Cmnd. 7131). They are not intended to set a level for prices charged by counters to its individual clients, which are subject to agreements achieved through bilateral commercial negotiations by the parties concerned in the light of the particular circumstances.