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To:
SECRETARY OF STATE
From:
Brian Bender
3 October 2008
INTRODUCTION TO THE DEPARTMENT FOR BUSINESS, ENTERPRISE
AND REGULATORY REFORM: OVERVIEW & STRATEGIC DIRECTION
This note provides an overview of the Department and its strategic direction. It
should be read in conjunction with the accompanying Immediate Priorities
brief.
1. The Department’s purpose and objectives
The Department for Business, Enterprise and Regulatory Reform (BERR) was
originally created in June 2007, bringing together functions from the former
DTI and the Better Regulation Executive, with the remit to act as the voice for
business in Government and help ensure business success in an increasingly
competitive world. In its new configuration, it has an important role in
understanding the impact of the present economic downturn on businesses,
and to help ensure Government makes the right decisions so that the UK is
best placed to see us through this period.
We lead across Whitehall on the Public Service Agreement (PSA) target on
productivity. Our framework for assessing productivity performance
recognises five main drivers: competition, enterprise, investment, innovation
and skills. BERR leads policy on the first two and works with other
Government departments to influence all five (an Economics and Productivity
core brief is available in your pack). We also lead on 2 other PSAs: on
conditions for business success (where the target is supported by a series of
specific indicators on the market framework), and on Regional Economic
Performance. And we are key delivery partners on two other PSAs: on skills
(DIUS) and maximising employment (DWP).
BERR's strategic objectives (DSOs) for the CSR period (2008/2011) are now
as follows:
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BRIAN BENDER
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To:
SECRETARY OF STATE
From:
Brian Bender
3 October 2008
INTRODUCTION TO THE DEPARTMENT: IMMEDIATE PRIORITIES
(INCLUDING KEY DECISIONS FOR THE AUTUMN)
This ‘hot topics’ brief covers Departmental issues requiring immediate
attention either because action is required imminently or you may need to
respond to stories that are currently active. It should be read in conjunction
with the Overview brief.
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Postal Issues
Independent Review of the Postal Market Flag HT8
The Review, expected to report in October, is assessing the effect of
liberalisation, exploring trends in future market developments and considering
how to maintain universal service obligations. It will make several
recommendations with policy implications and BERR will need to decide
whether to respond directly or consult on policy options.
Post Office Card Account Successor (POCA) Flag HT9
A decision by DWP SoS on a successor to the POCA through which 4 million
people receive pension or benefit payments is expected imminently. We
expect significant ministerial discussions on handling prior to any
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announcement. The risks to BERR if Post Office Ltd. fails to win the contract
are a significant chance of post office closures — against a backdrop of the
ongoing closure programme of <2,500 offices by end 2008; and a possible
obligation to compensate POL for a revenue shortfall. In that case ministers
will need to consider whether to accept the rate and speed of potential
closures.
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PRIORITY ISSUE LEAD OFFICIAL
INDEPENDENT REVIEW OF POSTAL SUE BIDE - HEAD OF POSTAL POLICY, BR2
MARKET - HT8 ROB FAULL - ROYAL MAIL TEAM, SHE
Context
The Independent Review of the Postal Market was announced by John Hutton in December 2007.
The Review Panel is led by Richard Hooper (former Deputy Chairman of OFCOM), Dame Deirdre
Hutton (Chairman, Food Standards Agency) and lan Smith (ex-CEO Taylor Woodrow).
The Review's terms of reference are to assess the impacts of liberalisation, explore trends in future
market developments and consider how to maintain the universal service obligations in the light of
the trends and developments identified. It is due to report this year (likely October).
The Panel has received evidence from all major players and has established a good dialogue with
Royal Mail, the CWU, Postcomm, Postwatch, corporate customers and alternative carriers. The
Panel published an initial response to evidence (not a formal report to Ministers) in May. This
stated that the “status quo is untenable”.
The Review Panel is now working on solutions to the issues it has identified. It is expected to repor
to the SoS later in the “autumn” (likely October)
Key Facts: Supporting Policy/Issue Key Facts: Opposing Policy/Issue
e Review is independent e while there is consensus for change, there are
e HMG is committed to provision of universal differing views on what needs to be done
postal service « unions may react strongly to recommendations
e digital media is having huge impact on the if they disagree
way people communicate resulting in lower
mail volumes
e there is consensus that change is needed
to address market developments and to
ensure universal service
e Not appropriate to comment on likely
recommendations
e Look forward to receiving Review Panel's
recommendations
Next Steps
¢ Further iteration between Ministers/officials and the Review Panel/Team
¢ Publication of Review's Report later in year (October)
e HMG response to recommendations (need to decide whether to proceed straight to a policy
statement or a public consultation)
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PRIORITY ISSUE LEAD OFFICIAL
POST OFFICE CARD ACCOUNT (POCA) — JO SHANMUGALINGAM
HT9
Context
DWP is procuring for a successor to the Post Office Card Account (POCA), through which 4
million people currently receive their pension or benefit payments. Post Office Ltd (POL) is
competing against two other bidders for the new contract.
If POL fails to win the new contract, there is a risk of significant Post Office closures, due to the
POCA customers using an alternative network to access their benefits. The National Federation
of Sub-Postmasters estimates that 3,000 branches could close. This would come against the
backdrop of the ongoing programme to close up to 2,500 post offices by the end of 2008.
Additionally, there is a financial risk to BERR as POL’s shareholder arising from the
Department's obligation to compensate POL for any shortfall in forecast POCA revenue to the
end of the current contract in March 2010. DWP may seek to migrate customers to the POCA
successor account from April 2009, which could leave BERR obliged to pay POL up to £100m
for lost POCA revenue in 2009/10.
Key Facts
. DWP has legal advice that it cannot take into account value for money for
Government as a whole in awarding the contract — so the impact on POL (and therefore
BERR) of losing the contract will not be assessed.
e POL losing POCA would have three main impacts:
- POLs’ P&L - loss of c£75m net annual contribution;
- Going concern status jeopardised - at worst leading to the need for a £200m capital
injection;
- Reduced viability of individual Post Offices - precise impact dependant on choices of
individual consumers and sub-postmasters’ responses.
. To stem the closures, BERR would need to provide additional subsidy to POL.
We already provide £150m a year to support the non-commercial network, as
part of an overall £1.7bn package from 2007-11.
. There would be significant challenges in making a value for money case for such
additional funding within Government, obtaining the funds and securing State Aid
clearance: it is possible we may not be able to provide additional subsidy.
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Next Steps
. The decision will be taken by the DWP SoS. However, as this is a procurement
process we understand that in effect there will be no scope to disagree with the
Official advice.
. DWP decision is expected in mid September. We would then expect significant
ministerial discussions on handling before a potential announcement in early October;
e If POL lose, Ministers will need to consider whether they could accept the rate and
speed of potential closures. We will advise on the value for money and state aid scope
for any new Government intervention.
Priority Issue Lead Official
Business Support Simplification e Mark Gibson (DG)/Janice Munday
Programme (BSSP) — HT10 (HMU/Senior Reporting Officer)
Context
e Planned announcement - via SoS speech (scheduled for 23 Oct 08) on:
o BSSP compliant products going live from Oct 08 with last product being
available to business in March 2009;
© a singe brand for all publicly funded business support;
o delivery of PM commitment in 2006 Budget to reduce non-tax business
publicly funded support schemes from @ 3000 to no more than 100 by
2010 and make Business Link (BL) main channel for business to access
that support.
e BSSP is a cross-government initiative making publicly-funded business support
easier for businesses to access, more effective and better value for money. It
contributes to a number of BERR PSAs, including three cross government led by
BERR (PSA 14, 6 &7).
Key Facts: Supporting Policy/Issue Key Facts: Opposing Policy/Issue
« Govt spends around £2.5billion. ¢ Opposition parties agree provision of
e Business wants support easier to
understand and access. BSSP will
deliver this
e BSSP process has allowed all
proposed publicly funded business
support schemes to go live to be
rigorously assessed on ground of
economic viability and policy aims
and objectives.
¢ Business responded positively to
brand in market testing
business support very complex
e However, have questioned Govt's
evidence base
« Programme taken too long to deliver
Next Steps
e Building new capabilities into Business Link for them to deliver the BSSP portfolio
e Preparing BSSP launch material —- SoS speech, publications
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MEDIA NOTE
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Key contacts
LIVE ISSUES AND TOP LINES
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ISSUE - Post Office
The Government has a rolling programme to close 2,500 post offices by the end of
the year. Public consultations in local communities have been ongoing all year and
most are now complete. There has been significant, vocal, sustained opposition to
the programme in every region, which has been accompanied by substantial negative
press coverage.
Line to take:
e Asa society, we don’t use the Post Office as much as we used to. The Post
Office network is losing half a million pounds a day and has lost 4 million
customers a week in recent years, as people switch to direct payment of
pensions and benefits and more transactions are carried out online.
e This decline in use means that life is getting more difficult for the Post Office
but Government is giving the Post Office network a great deal of financial
support. It receives a subsidy of £150m a year to keep open thousands of
unprofitable branches which might otherwise be threatened with closure.
e In fact over the next few years the Government is putting ina package of
support for the Post Office network worth up to £1.7 billion. Without this large
level of government support even more Post Offices would have to close.
e We will still have a Post Office network that has a good presence in both
urban and rural areas and that is important. Even after the closures are over
the Post Office network will still be three times larger than the top five
supermarket chains put together and larger than all the banks put together.
ISSUE - Royal Mail Review
In November, John Hutton appointed Richard Hooper to lead a comprehensive
review of developments in the postal services market since its liberalisation two years
ago. Note the review is due to report in the “autumn”.
Lines to take: John Hutton said of the Review's initial findings, released in May, “The
initial findings from the Review Team paint a stark picture of the huge changes in the
postal market. New technologies are transforming the way we communicate and this
will only intensify in the coming decade. The findings are a wake up call to anyone
who believes it can be business as usual. It can't. I have therefore asked the Review
Team to urgently bring forward ideas, including changes to the system of regulation,
to meet our ambition for a Royal Mail that provides a timely and efficient postal
service for domestic and business consumers."
It is the right time to conduct a Review. It is seven years since the Postal Services
Act was passed giving Royal Mail greater commercial freedom and establishing
regulation in the sector. The review is independent of Government. Ministers will
receive the Panel’s recommendations later in the year, having received their initial
examination of the evidence.
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DEVELOPING THE GREEN ECONOMY AND IMPLEMENTING THE
MANUFACTURING STRATEGY:
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THE CHANGING FACE OF THE UK POSTAL SERVICE:
The postal service will continue to be a contentious issue, with the future of the Post
Office high on the agenda, particularly with the publication of the Hooper Review.
October POCA. Decision to be announced by DWP on whether Post
Office will lose the post office card contract, in favour of direct
debit.
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Oct/Nov Hooper Review. Publication of the Hooper Review into the
future of the postal service.
End of December Post office closure programme ends.
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