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To: ci: PS/Mr McCartney
PS/Sir M Scholar
MR BAKER Mr Macdonald
CGBPS Ms Britton CGBPS
Mr Sibbick CGBPS
From: Mr bynes CGBPS
Mr Corry SpAd
CHRISTOPHER WOOLARD
PS/Secretary of State
ea -S,
1 Victoria Street
17 June 1999 : “ Oe a “tp
MEETING WITH THE POST OFFICE: 10 JUNE 1999
You were present along with Mr McCartney, Ms Britton, Mr Sibbick and I
when Neville Bain, John Roberts and the non-executive directors of the Post
Office called on the Secretary of State.
Discussion with non-executives
The first part of the meeting centred on a discussion of the Horizon between
the Secretary of State and the non-executive directors of the PO (John Lloyd,
Rosemary Thorne and Miles Templeman; Mike Kinsky could not attend).
Dr Bain told the Secretary of State that the board had a unanimous view.
They wanted to go forward in a positive way and put the Horizon project on
a firm and positive footing. However, they had concerns about the process
and felt that they had been excluded at times and that the implications for the
PO had not been taken on board. Under B3, POCL would go from a profit of
around £35m a year to an average annual loss of £240m. But despite these
problems, the PO would work hard with ICL to find something they could all
support.
Dr Bain continued that he wanted to stress the fiduciary duties of the board.
There was also an interplay with the critical points outstanding on the White
Paper. He stressed that the Board were all pretty new. They were not being
deliberately awkward, but exercising commercial judgement.
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Ms Thorne and Mr Templeman added that they were excited at the prospect
of working in a commercial board. But at the first hurdle, their commercial
judgement was second-guessed. It could be that the Horizon “hit” would
make sense in a wider context. Dr Bain added that it would be huge blow to
the PO to get rolled on the White Paper too.
The Secretary of State said that in corporate governance terms the PO was in
an interim period where it was moving to a more modern role. Of course, the
PO played an important social role. The maintenance of a network posed an
immediate conflict with the commercial role. The WP would spell out how
this role could be built in. In the early days of the transition, issues like
Horizon had the potential to occur, although the Secretary of State did not
foresee an issue of this size again. As we moved forward we needed to
develop structures at DTI to handle the new relationship.
Mr Templeman commented that if there was a clear social goal, we needed
to have a way of achieving it. Mr McCartney commented that this was a
period where we had to clarify the PO’s objectives with the whole of
Government. All future work would really flow from the platform. The
Secretary of State agreed that we should identify the key OGDs the PO
wanted as their clients. Mr McCartney said the PO needed a strategic
approach. They needed to combat the perception in Whitehall that the PO
took its client Departments for granted.
The Secretary of State thanked the Board once again for their help in a
difficult weekend. Bain stressed he had a good team. The non-executives
then departed.
Meeting with Bain and Roberts on the White Paper
Dr Bain said he thought there were 5 issues of key importance to the Post
Office.
i) Financial Targets - the regulator should take into account the targets
the government had set the PO when looking at pricing.
The Secretary of State responded that the regulator would be constrained by
the strategic plan. You added that who went first in this process was a critical
issue. The Secretary of State reiterated that there would be a strategic plan
and the regulator would have regard to it.
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ii) The Treasury were attempting to introduce the words “and pose no
undue burdens on the taxpayer” into the test of commercially robust for
future PO investment.
Mr Roberts recalled the big issue there had been around commercially robust
at the time of Peter Mandelson’s statement on 7 December. There was big
issue for the PO if the Treasury tried to pull it back. The Secretary of State
acknowledged there would be some difficult issues that would not be dealt
with directly in the WP.
iii) Dr Bain noted his concern that a monopoly reduction ahead of Europe
represented a weakening of value for the taxpayer. Any reduction of the
monopoly to 50p had to be held in real terms.
The Secretary of State said that the monopoly would be reduced and
probably to 50p. His personal view was to go for April 2000. This was his
personal advice to the Prime Minister. Dr Bain said this was judgement call.
He was “disappointed, but not rabid”. Mr Roberts urged the Secretary of
State to look at the real pricing issue.
iv) Dr Bain said the PO wanted year end flexibility on borrowing of
around £20m
v) They were also looking for some flexibility on pay
The Secretary of State said that we were broadly happy with the PO
approach on this, although we were still waiting for a response from the
Treasury.
Mr Roberts asked if the planned publication of the WP would now be 1 July.
The Secretary of State said that this was the case. Mr Roberts said that they
would try and move their annual report meeting to 14 July.
Finally, Mr McCartney gave a short report on the first meeting of the
Horizon working group. There would be a series of meetings with ICL, BA,
a timetable for implementation and discussions with OGDs. Mr Roberts said
that they had managed to deliver the board before. They were working hard
towards the 19 July and had already met ICL. The select committee hearing
would be awkward, but the PO would be positive and forward looking.
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CHRISTOPHER WOOLARD