Outlook: The Royal Mail and the secret postman's service contract

Financial risk; Merger test
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Adam Crozier, the football-loving chief executive of the Royal Mail, has, by all accounts, a service contract to die for. It might not be quite in the league of a Beckham or an Owen, but it is said to have enough bells and whistles on it to make any rival chief executive as sick as a parrot.

Unfortunately, none of this can be confirmed one way or the other because Mr Crozier refuses to make his contract available for public inspection. It is secret and in remaining so it becomes one more example of the double standards which Royal Mail employs.

On the one hand, it likes to be thought of as just another PLC, subject to the same rules and the same competitive forces as any other company. Indeed, having been granted full commercial freedom by the Government, Mr Crozier and his chairman, Allan Leighton, would love ministers to go the whole hog and privatise Royal Mail completely.

On the other hand, Royal Mail draws the veil of secrecy tight around itself when it is asked to conform to the same standards of corporate governance that apply to other public companies of its size. If the Royal Mail were a member of the FTSE 100, then the contracts of its directors would be available for examination by shareholders in the normal way.

Royal Mail uses the fig-leaf of state-ownership to exempt itself from this requirement. But in one sense, the fact that it is owned by every taxpayer in the country makes the case for full disclosure even more powerful.

As it is, the remuneration report in Royal Mail's annual accounts is hardly a model of clarity. It tells us that Mr Crozier is on a 12-month contract and that he earns a basic salary of £500,000. But beyond that it is impossible to understand the bonus scheme fully, turning calculations of his full pay package into educated guesses.

Mr Crozier and his chairman may have breathed some fresh life into Royal Mail. But if it wants to be treated like any other public company, then it must observe the same standards of transparency and disclosure. It is one thing to talk the talk, Mr Crozier, but you also have to walk the walk.

Financial risk

The days when a university student could be educated entirely at the taxpayer's expense and then enter a well-paid job offering a retirement pension based on their final salary seem to belong to a different age. The average student entering college today is more likely to graduate with £30,000 of debt around his or her neck and then be invited to buy a money-purchase pension scheme which relies on the quaint idea that financial markets can go up as well as down.

The chairman of the Financial Services Authority, Callum McCarthy, was making much the same point yesterday when he published the regulator's latest Financial Risk Outlook.

Top of the FSA's concerns is the worry that consumers are now being asked to assume much more financial responsibility for themselves despite only a flimsy understanding of the risks attached to the products they are buying.

Add to this the temptation for fee-hungry salesmen to foist unsuitable products on to unwary and poorly educated investors, and it is easy to create a toxic mixture which does no favours for either the buyer or the seller. Not surprisingly, the average consumer of financial products has become more risk averse having seen what a three-year bear market can do to their pension pot. But stuffing the money under the mattress is not the right answer, either. In the long run, buying an endowment or paying into a pension is always likely to be a better bet than accumulating pure cash, says the FSA.

The FSA's worries do not end there. Consumers may have become more risk averse but they have scarcely become any less debt-prone. Indebtedness is at historically high levels and borrowers can no longer rely on a spot of good, old-fashioned inflation to eat away at their debts. Furthermore, while the economic outlook may appear a good deal more benign today than a year ago, the one racing certainty is that interest rates and therefore the cost of servicing that debt are on the way up.

The question is what the regulators ought to be doing about all these horrible risks, other than pointing out their existence. Mr McCarthy says the FSA is putting more resource into monitoring financial promotion in order to provide an early warning system. But will this really stop the sound of the stable door being shut with a deafening bang after the next mis-selling scandal has struck? It seems unlikely, judging by the way pensions and endowment mis-selling have seamlessly made way for the more recent vintage of scandals concerning split-cap trusts and precipice bonds not to mention market timing, which makes victims of all investors.

Buying a complex investment product is not like buying a toaster which can be taken back the next day if it is not working. The problem, however, with many investments is that their faults do not become apparent for years and in many cases it requires a sharp fall in equity markets to expose them.

The FSA's solution is not to ban the product but name, shame and fine those who mis-sold it in the first place. Ultimately, however, the responsibility lies with consumers to invest wisely, based on an understanding of what they are letting themselves in for. That could take a generation to inculcate. Even though the education minister Stephen Twigg was banging on again yesterday about the importance of teaching financial literacy alongside drug awareness in schools, not much is likely to change until the Government puts it on the curriculum and provides the funding. In the meantime, as the FSA likes to remind everyone, don't say you weren't warned.

Merger test

John Vickers has been running around referring every takeover in sight since the Competition Appeal Tribunal ruled that the director-general of Fair Trading was wrong not to pack the merger of two medical software companies off to the Competition Commission. Even FirstGroup's bid for the ScotRail franchise has ended up parked at the Commission for five months, despite the fact that the biggest threat to public transport comes not from bus and rail companies getting together but the competition posed by the private car.

If you didn't know better, you might wonder whether the OFT wasn't trying to get the tribunal's ruling overturned by demonstrating just what a jungle the merger rules will become to negotiate if any deal which might lessen competition has to be subject to a lengthy investigation.

While enthusiastically following the tribunal's ruling, the OFT simultaneously decided to appeal against it. The case is due to be heard in the Court of Appeal early next month.

The appeal will turn, not on whether the OFT made some careless error in vetting the medical software merger or failed to observe due process, but on whether the tribunal was within its rights to overturn the OFT's decision. It is as fundamental as that.

If the Court of Appeal rules in Mr Vickers' favour, the judgment will seriously undermine the standing of the tribunal and give the OFT carte blanche to treat future mergers as it sees fit.

In the meantime, FirstGroup has decided to press ahead with its pursuit of ScotRail, irrespective of the Commission's inquiry which will not be complete until after the Strategic Rail Authority has selected one of the three bidders for the franchise.

If the Court of Appeal rules in the OFT's favour, does that mean it can reverse its ruling on FirstGroup/ ScotRail? Over to you, Mr Vickers.