Ref.
To: David Sibbick PORT ci: PS/SoS
Alastair MacDonald
From: Simon Lancaster Judy Britton
PS/Mr Johnson Martin Brebner
838/1VS David Whitehead
Matt Tee
Sue Bishop
SPAD
Date: 10 August 1999
POST OFFICE REFORM: MEETING WITH NEVILLE BAIN AND JOHN
ROBERTS - 10 AUGUST
i. You were present today when Mr Johnson met with Neville Bain and John
Roberts. The meeting was friendly and reinforced our links with the Post Office, but
it also underlined the Post Office view that they have now gone as far as they can (in
terms of compromise) and that they will now be looking for DTI assistance in some of
the difficult issues ahead, such as agreeing the relationship between the regulator and
government, approval of the strategic plan and finalising the process for agreeing
acquisitions (particularly ensuring that Treasury do not prove to be an insurmountable
stumbling block). I would be grateful if you could advise further on/note in particular
those sections which I have underlined.
2. Mr Bain started by congratulating Mr Johnson on his appointment and saying
that this was an extremely important time for the Post Office where there were some
challenges ahead and he was happy that Mr Johnson had been picked to deal with
them. Mr Johnson thanked him and emphasised that his role had clearly changed
from their previous dealings. He was a Minister, not a CWU representative, and he
was keen to ensure a balanced line was taken in the interests of the Government, and
no-one else.
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a. The discussions then continued concentrating on specific issues, as follows:-
Rewarding Employees
4. Mr Johnson said that whilst he did of course want the Post Office to have a
certain freedom to reward employees as they felt appropriate, it was necessary for the
Post Office to recognise the very real constraints on Government. The Post Office is
still a publicly-owned body with 180,000 employees. It would not be possible for the
Government to give the sort of freedom that the Post Office might like. John Roberts
asked when the Government would formally respond to the Post Office’s proposals on
rewarding employees and asked how it will fit in with the October pay talks. /t would
make life very difficult for the Post Office if the proposed changes were to be
pF Mr Johnson said he was also aware there was a problem with executive
bonuses. Mike Kinsie has written to Mr Johnson requesting a meeting (which Mr
Johnson is inclined to accept). Mr Johnson likened the current situation to being a
stick and carrot scenario, with perhaps too much stick being waved at present. Mr
Bain added that there were horrendous delays by HM Treasury in clearing executive
bonuses - this is simply not acceptable when PO executives are already being paid less
than the going market rate because of their public sector status.
5. Mr Bain invited Mr Johnson to attend one of the PO Board meetings at some
point in the future, as Mr McCartney had done in the past. Mr Johnson indicated he
would be delighted to and said that he was very keen that Government and Post Office
work as close together as they can now in order that the Post Office does not have to
work closely again with any-subsequent governments Government in the future.
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Monopoly Threshold
6. Mr Roberts said they were well aware that the CWU had been lobbying the
Secretary of State. Mr Johnson said that the Government had considered their
arguments carefully but had decided to stay with the 50p level. Mr Johnson did
however indicate that he was keen to explore further the possibility of linking the
tariff to, say, a formula of double the price of the first class stamp (-2p). He said that
the price of the first class stamp being likely to come down, this would reduce the
monopoly tariff and bring in an “RPI minus formula”. Mr Johnson said that this is the
way it is done in the US and the rest of Europe and he felt it would be a good way
the matter further. Mr Roberts said that hevas-happyawith-the the Post Office
accepted a reduction in the monopoly threshold level ef to 50p as and-feltitavas an
important part of a broad package of measures which on balance worked to the
advantage of the Post Office. . He did not comment explicitly on the suggest of index
linking with a minus formula. There was agreement that we should argue strongly
against any attempts by Europe to liberalise by content.
Interaction of Regulator/Government
7 Mr Bain said we must be very clear about the Regulator’s role. It was
particularly important that the Regulator’s power to dictate on social responsibilities
was as unambiguous as possible from the outset. Mr Roberts agreed this was
extremely important. Mr Johnson said that these matters were currently being
considered and Mr Byers would be in touch with them shortly. Mr Johnson said that
he did not think that defining the roles of the regulator/government was as difficult as
the Post Office believed. Mr Roberts said that what was important was that we had a
plan in place and that we needed to establish a pattern as to who does what etc.
Review of the Strategic Plan
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8. Mr Bain said that he would like to give a presentation to Mr Johnson on this.
woul ive thi: it wi
September.
Restructuring of the Balance Sheet
9. Mr Johnson said that we were about to engage consultants to help advise us
on the most sensible way of restructuring the balance sheet. Mr Roberts said that they
had no problems with this and agreed that # restructuring was probably long overdue.
He said that it was particularly important given that the Post Office was now setting
out to be a forward looking and modern organisation.
Investment Approval Process
10. Mr Roberts indicated that they would be seeking to make their first request
for approval of borrowing around mid-September. They were preparing a strategy for
target countries (keen on Austria and the Netherlands) and there could be more. Mr
Roberts felt however that the requirement for HMT to establish “business efficiency”
was disgraceful. Mr Johnson said that he was well aware of Post Office’s views and
that the Secretary of State was due to discuss the matter with the Chief Secretary early
in September.
Implementation of the Reform Package
ii. Mr Johnson indicated (off the record) that a slot had been found in the 2000
legislative calendar for a Bill. Messrs Bain and Roberts were pleased to note this.
Horizon
i Mr Johnson said that he was well aware of the large step that the Post Office
had teking+s-stepping-awaytrem faken in signing with ICL before the back to back
agreement with the Benefits Agency was in place. He would follow this up with his
Ministerial colleagues after the summer break. He also drew their attention to the
forthcoming Performance and Innovation Unit study of the Post Office which he
hoped would arrive at some helpful conc
ntention to hold a meeting of th
Margins of Meeting
13. After Messrs Bain and Roberts had left, you discussed with Mr Johnson Dan
Corry’s recent note and whether or not Financial Consultants should be brought in to
look at the Strategic Plan. Mr Johnson’s view was that it was a sensible idea but that,
as a courtesy, we should write now to Messrs Bain and Roberts letting them new
know that this w: ‘ ‘:
Simon Lancaster
PS/Mr Johnson
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