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To Secretary of State
From Annette Rusling, ShEx Ext
Date 20 November 2015
Meeting with Tim Parker, Chair of Post Office Limited, 24" November 2015
Purpose
o. This is an introductory meeting with Tim Parker, who took up the post of Chair of
Post Office Limited (POL) on 1“ October 2015. This is the first time you have met Mr
Parker in this role. The objective is to understand Tim’s first impressions of the
business, its challenges, and his ideas on future direction.
Attendees
o Tim Parker (POL, Chair)
o Richard Callard (ShEx, HMG representative on POL board)
Topics likely to be raised by Tim
o POL’s freedom to operate commercially
o Banking framework and negotiations with the major banks
o Apprenticeships
CC list
o Baroness Neville-Rolfe, Perm Sec, George Freeman, SpAds, Richard Callard (ShEx),
ShEx POL team.
Annex A
Tim Parker biography
Annex B
YTD performance information
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AGENDA FOR MEETING - NOTES ON LIKELY TOPICS RAISED
Likely subject Points to make:
e Asa publicly owned business POL faces constraints that
prevent it operating as a purely commercial enterprise. These
include:
o Public Procurement — POL is bound by public
procurement legislation and must run open and fair
competitions to tender for contracts.
o Working Capital — POL has a £950m facility from HMT
to ensure cash in the network. HMT require more notice
of drawdown than a commercial lender.
o External Borrowing — POL is permitted to borrow
subject to shareholder approval. POL believes this
places a constraint on the business (precedent indicates
approval would be unlikely).
o Remuneration/ appointment approvals — Tim may
express frustration about the time it has taken recent
appointment and remuneration processes to be cleared,
including CEO and CFO 15/16 remuneration (which
resulted in the CFO’s bonus being paid late) and
approval of two Board appointments.
e Tim may also raise POL’s Remuneration and Nomination
Freedom for POL to Committees powers to operate independently of government.
operate Our advice is clear that, where appointments are made by
commercially . :
ministers or approved by them, then they need to be involved
at each stage in the process.
We recommend you encourage POL to engage with officials
where they have concerns and reiterate that we expect POL to
operate commercially but there are certain constraints around
remuneration, procurement and borrowing that all government
owned businesses have to adhere to.
e Exit payments: The Enterprise Bill includes provisions for
government to introduce a cap of £95,000 on public sector exit
payments, with the exact detail to be set out in regulations.
(Note this is HMT policy)
e¢ POL are expected to be within the scope of these regulations.
There are some public corporations which are likely to be
exempt, and Tim may ask you whether POL can be included in
those exemptions.
e POL are concerned that the rules may affect their ability to
move quickly in making structural changes if necessary. We
have advised POL that government expects all parts of the
public sector to put these arrangements in place, even if they
are not explicitly included in the regulations.
e POL has been working with the BBA and leading High Street
Banking framework banks to develop a “standardised service” that can be offered
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© to all High Street bank customers for common transactions.
e These services are already available for the majority of
account holders, but not on a consistent basis across all banks.
The standardised proposition has been agreed by the BBA, the
banks and POL but commercial arrangements now need to be
negotiated.
e POL is finding it difficult to progress negotiations, particularly
regarding a change in fee arrangements from variable-only
costs to fixed-plus-variable costs (higher overall). While this
change improves the economics for POL it is not clear why the
banks would voluntarily sign up to pay a higher price.
e For this “standardised service” to work / deliver an economic
return, POL needs a majority of the banks to sign up. The
banks are aware of this and POL considers that two of the
larger banks are stalling on signing up to an agreement. POL
also believes these banks are encouraging similarly slow
progress among the other banks.
¢ POL might raise the possibility of government exerting
influence on the banks to make progress. This is difficult —
these are commercial decisions being made by independent
businesses. It is not clear what Ministers can reasonably do
apart from encouraging progress.
e POL have been working on developing two new
apprenticeship schemes. The first is for direct employees (e.g.
those that work in POL's owned branches and its supply chain)
while the second is for those that work in the agency network
(e.g. sub-postmasters and their employees). POL is now
waiting for HMG's response to its consultation on the
apprenticeship levy before taking decisions on timings,
structure of the schemes and numbers.
e Asa publicly owned business it is important for POL to take a
lead on apprenticeships, and to set an example for other large
employers. We would recommend you encourage POL to
continue making progress while also setting ambitious targets
for a launch.
Apprenticeships
Note: POL currently has c.6,700 direct employees, and it works
with more than 10,000 sub-postmasters who in turn employ up to
30,000 people in their independent retail premises.
Spe
e BIS submitted a bid to HMT in the SR for POL that reflected:
(i) the legally committed contractual commitment we have to
. . POL for the years 2016/17 and 2017/18 (i.e. £220m and
Spending Review £140m respectively); and (ii) an indicative funding requirement
for subsequent years of between £50m and £60m
e This indicative requirement was developed in 2013 in
expectation of favourable market conditions, which did not
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materialise, and as such they could be considered to be at risk.
POL will be revisiting these numbers in 2016 and it is a real
possibility that the funding requirement for the post office
network for 2018/19 and subsequent years is higher than these
expectations set out
Depending on BIS’s final SR settlement this might require
discussions with BIS Finance and / or HMT in 2016 to make
sure the network has access to sufficient funding, otherwise
branches could be at risk of closure.
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Background and other notes if needed:
Background on POL
fe}
There are over 11,500 post office branches in the UK, with the Post Office network at
its most stable for over two decades.
Government has invested almost £2 billion in funding POL since April 2011 to sustain
and modernise the network ensuring communities have access to services and that
POL remains viable in the future. This includes £640 million for the period running
from 2015 to 2018.
93% of the national population (and over 95% in urban areas) live within one mile of
their nearest post office branch.
Around 18 million customers & a third of SMEs visit post offices every week.
Post Office Ltd was separated from Royal Mail in April 2012, and is an independent
company. It has a long term commercial agreement with Royal Mail to provide
access to Royal Mail services at post office branches.
Government services
O°
Tim may raise Post Office’s role as a provider of Identity Assurance via the
government’s “Verify” service. Post Office are one of a number of Verify providers
and currently have the largest market share and success rate. However, volumes have
dropped significantly below those projected by the Government Digital Service
(GDS), largely due to HMRC withdrawing some of their online products from the
Verify service. Post Office are therefore concerned that they will not meet their
revenue projections as a result of the promised volumes not materialising, and Tim
may ask you to raise this with Cabinet Office colleagues. We have already flagged
this to GDS at official level.
Horizon
fe}
Tim Parker agreed with Baroness Neville-Rolfe that he would undertake a review into
the Post Office “Horizon” IT system and various claims that subpostmasters have
been wrongly prosecuted as a result of faults in the system. Tim has appointed a QC
to assist him in that review, and expects to report back to Baroness Neville-Rolfe
early in the New Year.
We do not expect Tim will want to discuss this matter in detail. The government’s
position is that, while Tim is undertaking his review, while Post Office continue to
work through mediation of individual cases, and while the Criminal Cases Review
Commission considers the c.20 applications on this matter, it would not be
appropriate for government to intervene.
Consumer Futures (CF)/ Citizens Advice (CitA)
fe)
CF is a statutory consumer protection body, created by merging Postwatch and
Energywatch, with a general interest in “consumers of postal services” and may
investigate “any matter relating to the number and location of public Post Offices”.
The organisation was subsumed into CitA in April 2014.
CF has played the key role in overseeing the public consultations on changes to post
office locations.
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o. The step up in numbers of consultations related to Network Transformation (NT) has
been matched by a step up in the numbers of CF case workers. CF’s increased
scrutiny is beginning to create friction and frustration with the risk that this will
impact POL’s ability to meet NT targets.
o More troubling is CitA’s research programme which, through its narrow focus on
POL is lacking a strategic context to their findings.
o The funding for this activity comes from Royal Mail (RM) via a levy on that business.
RM has been challenging the levy (c £3.2m this year). BIS refutes RM’s claimed
entitlement to judge whether each piece of work meets a ‘relation to postal activity”
test. However, we are sympathetic to the idea that the levy should not be used for
CitA work looking at Post Office’s other business activity e.g. financial services.
CitA view any activity which may affect Post office’s viability as being worthy of
investigation and thus eligible for funding via the levy. We are challenging them on
this and will continue to do so as we move into reviewing CitA’s work plans for next
year.
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Annex A
Tim Parker biography:
e Mr Parker started as Post Office Limited (POL) Chair on Ist
I \ October 2015.
i G RO I He replaces Alice Perkins who stepped down in July 2015. Neil
H : McCausland had been interim Chair (having been Senior
Independent Director).
e Mr Parker is the current Chairman of the National Trust and of
” Samsonite. He has been CEO of Clarks, Kwik-Fit, the AA, and
Samsonite. He has been Chair of Channel Nine TV in Australia and the
Autobar Group, Europe’s largest vending company. He has also served as
a non-executive director on the Boards of Legal & General, Alliance
Boots, and Compass Group. He is also a director and owner of the British
Pathé film archive.
Annex B
YTD performance information:
1516 first 5 months’
performance. pptx