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Ordnance Survey (Trading Practices)

Volume 87: debated on Thursday 21 November 1985

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9.21 pm

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Neubert.]

I am grateful for the opportunity offered by this debate, in which I shall be discussing the livelihood, careers and job security of between 600 and 700 people who have their homes and work in Edinburgh, Glasgow, Cheltenham, Sevenoaks and London. They all work for companies whose names will be familiar to hon. Members from days long ago in the classroom, from evenings by the fire, from motoring journeys and from wet nights canvassing on unfamiliar city streets.

Those companies are John Bartholomew in Edinburgh, William Collins in Glasgow, Geographers' A-Z in Sevenoaks, Geographia in Cheltenham and George Phillip in London. They are all small, private sector companies in competition with each other. They draw—this is an important point in what I shall say—and publish their own atlases, maps and street plans. They recruit and train young map-makers. It is a skilled and interesting job offering a good career and worthwhile prospects in the private sector.

Those companies have jointly formed the Map Publishers' Fair Trading Committee to represent their legitimate worries and concerns to Government and Parliament. For more than two years that committee has made representations to the Government about the present trading activities of the Ordnance Survey.

At least 37 Conservative Members are concerned about the issue. Representations have been made to the Secretary of State for the Environment and his Ministers, to the Secretary of State for Trade and Industry and to the Prime Minister. The matter was raised in debate at the Scottish Conservative party conference and was the subject of motions at the Conservative party conference at Blackpool this year. Most of those 37 Members of Parliament have reflected the bewilderment and anxiety of their constituents who work or are otherwise involved in the private sector companies I have mentioned.

The confusion arises because the Ordnance Survey, which is a Civil Service Department controlled by the Secretary of State for the Environment, has entered the commercial sector of road atlas publishing. The map publishers contend—I fully support them and speak on their behalf—that the activities of the Ordnance Survey represent unfair competition. The Government argue otherwise, and in each and every case Ministers have repeated the original arguments that were presumably drafted by the Ordnance Survey and puffed up by officials and Ministers on their way to a formal letter of response.

I shall later state why I think such competition is unfair, but I shall now argue the points of principle. The Ordnance Survey, as a Government-owned trading activity, is required to be as commercial as possible. The Government have already decided that the Ordnance Survey cannot be privatised—so far, well and good. However, both this Government and their predecessor, elected in 1979, have given the highest possible priority to free enterprise and the growth of the private sector. In the atlas and street plan market, fully competitive trading has provided a rich variety of material to the consumer. In 1979, 1983 and even more so today, Government policy is to stimulate and encourage small business, to privatise Government-owned business wherever possible, and to ensure the greatest possible efficiency and value for money for the taxpayer.

As for activities that must necessarily remain Government controlled—against the Government's clearly stated principles of free enterprise—why are the Government not only allowing but encouraging the Ordnance Survey to move in and use its massive resources, funded by the taxpayer, to seize the lion's share of a market hitherto well served by the private sector? The danger of the Ordnance Survey doing that is not imaginary. It is likely to lead to nationalisation by the back door, through a monopoly of map making in the hands of a Government Department, while a hitherto healthy private sector takes a caning and risks eventually going right down the pan. How can that be sensible Government policy? Is it just a staggering example of the right hand not realising what the left is doing?

There is some doubt about the fairness of the competition provided by the Ordnance Survey publications. The Government have said that it is fair, but the map publishers argue that it is not. I hope that the Minister will deal with these points and the question of unfair trading. No one denies that the Ordnance Survey is taking business away from the private sector. The Department of the Environment justifies that by arguing that the Ordnance Survey commercial business is expanding the market. The Ordnance Survey uses the same justification for the expensive advertising campaign that it has recently commissioned.

How does the Minister reconcile this with the Ordnance Survey's annual report for 1984–85, which clearly shows a 4·9 per cent reduction in the volume of Ordnance Survey small-scale maps sold during the past three years and a reduction of 8·9 per cent in the volume of large-scale maps sold during the same period? How can the charge of unfair trading by the Ordnance Survey be denied when in respect of the Ordnance Survey atlas of Great Britain the cost of compiling and drawing the maps used in that atlas—estimated at £500,000—was not taken into account?

The maps used in that atlas—the first Ordnance Survey joint venture—are a publicly owned asset worth at least £500,000. Therefore, why was a private company—in this case Country Life Books, which was the co-publisher—allowed to profit from the use of this asset without being charged an appropriate fee, especially as the independent map publishers would have to pay an appropriate fee?

Ordnance Survey advertising costs are extremely high compared with those of the private sector map maker and publisher, and some of its advertisements relate both to the commercial and non-commercial products of the Ordnance Survey. Will the Minister give an assurance that there has been no cross-subsidy?

The Ordnance Survey spends most of its money on large-scale surveys, and that is inevitably the area of greatest loss. Last year's expenditure was £33·6 million, with a revenue of only £11·4 million. Rather than trying to reduce the deficit of £22·2 million by commercial undertakings that are causing so much difficulty and are blatantly unfair to the private sector operator, why not follow the principle of leaving costs where they lie and recover the deficit from those who benefit from large-scale mapping? This could be done by placing an appropriate charge on the use of this mapping for, say, the sale and purchase of land, buildings and houses, and a small charge, possibly relevant to agents' fees, could eliminate that deficit altogether.

Why is the Ordnance Survey, which is now a competitor in atlas and town plan publications, still allowed to dictate the rules and costs for the use of national survey data by its very own competitors, all of which operates to the single advantage of the Ordnance Survey? In the case of the Ordnance Survey motoring atlas, co-published with Temple Press, why was the facsimile royalty charge not included in the product pricing?

The first Ordnance Survey co-publication arranged with the Hamlyn group was done without any invitation to bid being offered to any other publisher, yet a condition of Ordnance Survey co-publication is that only Ordnance Survey mapping material is used and that the copyright remains vested with the Ordnance Survey. Private sector map makers and publishers, such as Geographers' A-Z and Bartholomew, are thus prevented from entering such agreements as it would mean discarding their own mapping material. Does my hon. Friend agree that this is discrimination against the private sector map maker, who has invested a great deal of capital in the cartography of the country?

I come back to my earlier point of principle. The risk that we run is of gradually losing the activities of the private sector map maker and moving to a monopoly where map making is carried out only by the Qrdnance Survey; and although it may co-publish with publishers, none of those 600 or 700 map makers will be working in the private sector. That cannot be right in terms of the Government's political principles.

It has been argued that the review by Peat Marwick Mitchell and Company has been used as evidence of fair trading by the Ordnance Survey. In their report, the accountants said that this was not the purpose of their investigation. In paragraph 2.11 they said:
"Our brief did not ask us to comment substantively on the equity of the Ordnance Survey's commercial operations, but rather to recommend a form of presentation in the trading accounts which would allow the reader to draw his or her own conclusions as to equity."
Paragraph 2.4 says:
"we have not conducted an audit of its accounts and not attempted to check either compliance with systems explained to us or the accuracy of the accounting statements so far produced."
Will my hon. Friend confirm that the accountants did not investigate any specific Ordnance Survey commercial production, such as the Ordnance Survey atlas, to prove or disprove the specific charge of unfair trading on specific products?

An undertaking was given that Peat Marwick Mitchell and Company would conduct an independent review and that it would investigate the charges that the Ordnance Survey was trading unfairly. I attended a meeting with a previous Minister when that assurance was given. Why, then, were the accountants given their terms of reference by the very organisation that they were required to investigate? We know that their findings went first to the Ordnance Survey before being presented to the Minister. Naturally, the group that I represent cannot feel confident that that survey was completely impartial.

Will my hon. Friend guarantee that the presentation of Ordnance Survey trading accounts will, in accordance with the terms of reference given to the investigation, be in sufficient detail for the reader to be able to judge whether trading has been fair for any particular Ordnance Survey commercial publication? We are competing with new products in the shop and on the street.

I move on to the general efficiency of the Ordnance Survey as an organisation. The Department of the Environment has said that detailed reviews of the map-production facilities—

I do not think that my hon. Friend means to imply that Peat Marwick Mitchell and Company was not impartial, although I agree with his point. Is not my hon. Friend saying that the terms of reference that the company was given were not sufficiently all embracing for it to answer the questions that we should have liked it to answer?

I am grateful to my hon. Friend for making that point. I am casting no aspersions upon the professional ability of Peat Marwick Mitchell. As I am sure my hon. Friend will agree, if one wants consultants or accountants to answer a question it is crucial to detail the exact question that they must cover. In this case that was not done to the satisfaction of those who are worried about unfair trading practices.

As I said, the Department of the Environment has told us that detailed reviews of the map production facilities at Ordnance Survey headquarters have established that the current operating arrangements are the most economic method of working. Who has undertaken those reviews? Can the people involved be asked to explain how it is more economic to confine the expensive equipment and air-conditioned accommodation that exists there to single-shift working? In our view, the kind of capital tied up in the Ordnance Service operation, if held in the private sector, could not be sustained by single-shift working. Machinery and equipment would have to be used far more extensively.

I find it surprising that the Government do not pursue that point directly and specifically. Do we not argue in every other case that when free enterprise is involved it is its need for continuous profitability that forces management to make the best use of its capital equipment? I suggest that the pressures are not there in this case.

I also bring to my hon. Friend the Minister's attention the fact that a Rayner inquiry was carried out into the former directorate of overseas surveys, the sister organisation to the Ordnance Survey abroad. That has now been dramatically reduced in size and incorporated into the Ordnance Survey. That survey by Rayner found that the directorate of overseas surveys was less efficient than the private sector. The standards of operation and staffing at the directorate were at the time of the inquiry comparable to those of the Ordnance Survey. The private sector, not unnaturally, believed itself to be more efficient than the Ordnance Survey. As there has been no similar inquiry into Ordnance Survey efficiency, does my hon. Friend agree that such an inquiry should be initiated as soon as possible?

I am grateful for having had rather longer than one normally gets to develop my point in this Adjournment debate. I said that a considerable number of Conservative Members are, not unnaturally, worried about this matter. I can perhaps summarise that anxiety in the words of one of my hon. Friends who wrote in support of the points that I have been airing tonight. He said:
"In the light of my strongly held views that small business should be encouraged and not subject to what is unfair competition, I certainly support the thrust of the argument put forward by members of the Map Publishers Fair Trading Committee.
That is merely one quotation from similar points made by a great many of my hon. Friends who are also bewildered, uneasy and angry at what appears to be a contradiction in terms of Government policy and action.

9.45 pm

The Parliamentary Under-Secretary of State for the Environment
(Mrs. Angela Rumbold)

I am pleased that my hon. Friend the Member for Sevenoaks (Mr. Wolfson) has initiated the debate. I am pleased also to acknowledge that he has included a number of colleagues in much of what he has said. He knows that I share his concern that a Government Department should not be allowed to enter the market and to take work away from successful private sector businesses by any means of unfair competition. I acknowledge the task that he has undertaken on behalf of private map makers throughout the country in his remarks. I shall do my best to set out in context the position of the Ordnance Survey in relation to private sector operators.

My hon. Friend the Member for Sevenoaks knows that in 1981 my right hon. Friend the Member for Henley (Mr. Heseltine), when Secretary of State for the Environment, set out clearly the Government's policy towards Ordnance Survey activities. In particular, this policy required the Ordnance Survey to reduce its call on public funds while remaining efficient. The main method by which this was to be achieved was by raising the financial recovery targets for its large-scale activities, by maximising the recovery on small scales and by encouraging greater co-operation with private sector publishers. Within the management of the organisation, it had to operate within the constraints of financial and manpower limits and to recover the cost of commercial products from its customers together with a return on the capital employed.

It has been suggested that the Ordnance Survey should meet its financial targets solely by improving sales of its existing products. It has, of course, attempted to do this, but without success. It therefore finds itself competing in the area of the market which private map publishers find commercially attractive. It is worth mentioning that practically all private sector publishers which produce atlases and maps of Great Britain use Ordnance Survey material as their base.

Without the co-operation of the Ordnance Survey in making this mapping available, many of these publishers could not have created their mapping businesses and could not continue in business. It is, of course, the Ordnance Survey which carries the large costs of keeping the mapping up to date, and it continues to do so within the much more stringent guidelines introduced in 1981, which, as my hon. Friend says, are continously under review. Despite this, on entering the market previously dominated by the private sector, the Ordnance Survey has not sought to withdraw permission for the private sector to use Ordnance Survey material, which obviously it could have done. It has entered the market on equal terms by charging itself royalties for the use of its own material and by using full commercial guidelines and overheads.

My hon. Friend referred to advertising. I know that there have been criticisms about the way in which the Ordnance Survey has used advertising. It has been criticised by consultants for spending too little in the past on advertising campaigns. The current campaign is being funded by small-scale map revenue. Even so, there has been some criticism of the Ordnance Survey's commercial activities by a minority of publishers, and it was to eliminate any possible worry about unfair competition from the Ordnance Survey that my hon. Friend the Minister for Environment, Countryside and Local Government announced the publication of "Guidelines for Ordnance Survey Commercial Activities" in July 1984. These guidelines direct that the Ordnance Survey undertakes its commercial activities on a fair basis and it is a cardinal requirement that there should be no unfair cross-subsidy of this commercial work from the basic scales to which the taxpayer contributes. My hon. Friend will know that the Ordnance Survey commercial trading practices were queried when the map publishers fair trading committee put a case to the Office of Fair Trading, but will also know that the OFT eventually concluded that the complaints were not justified.

The Ordnance Survey is meticulous in ensuring that its commercial trading practices are not just fair, but seen to be fair. It is a matter of routine that, when establishing a selling price, all costs contributing to co-publications are considered. The use of marginal costing is not employed. Not only are the Ordnance Survey direct material and overhead costs considered; so, too, are the co-publisher's costs which normally include editorial, printing, design and storage costs in addition to salaries and overheads. The accounting methods used by the Ordnance Survey are as nearly as possible in line with those used by any commercial undertaking.

A royalty rate in line with that charged to private sector publishers for an equivalent product is similarly included in the costs. The value of the Ordnance Survey name is taken into account and selling and distribution costs are included. Finally, a realistic profit margin is added before the selling price is determined. Unless the profit is attractive to both the co-publisher and the Ordnance Survey, such a project will not proceed. Later this year, the Ordnance Survey will publish its 1984–85 trading accounts. This will be the first time—I hope that this answers my hon. Friend's point—such detailed accounts have been published. I am sure that they will be of interest to all other map makers for comparison.

To establish its co-publications, the Ordnance Survey invites publishers to come to open days at its Southampton headquarters so that ideas can be exchanged. These open days have so far attracted about 80 publishers, some of which are established map publishers and some of which are not. No publishers have been excluded from the open days, or from consideration as potential co-publishing partners. Ideas for such co-publications are generally put forward by private sector firms. It is very rare for the Ordnance Survey to initiate a co-publication.

After discussions with a potential co-publisher, a joint decision is taken as to whether the project will proceed. An important consideration at this stage is whether the project uses the archive sensibly. After initial approval, there are a number of stages during which the project is reviewed and a decision to proceed or cancel is taken, but the overriding principle in these reviews is financial viability.

The Government believe that one of the benefits of competition is to improve the standard of products, and since the Ordnance Survey expanded its commercial activities, the quality of maps, atlases and guidebooks has improved. Those new products have increased public awareness of maps and generally given a better understanding of maps. It is hoped that that will stimulate a greater demand, which will be to the advantage of private sector map publishers and the Ordnance Survey.

I have noted the points that my hon. Friend the Member for Sevenoaks has made so eloquently, and must assure him that the Government share his interest in the continuing viability of small businesses. That is why the Ordnance Survey is required to follow very correct trading practices so that there is no danger of successful private sector map makers being disadvantaged by unfair competition from a Government Department.

I have already mentioned that the Ordnance Survey will be publishing its trading account for the first time later this year. In 1984, the Government asked the eminent firm of city consultants Peat Marwick Mitchell to advise on the format and design of those accounts. My hon. Friend spoke at length about its report. At the start of the review, Peat Marwick and Ordnance Survey agreed that the study would not simply advise on the trading accounts, but would "examine underlying costing methods" in order to be confident that costs are attributed to different products fairly, particularly to the co-publications that are not Exchequer-supported.

My hon. Friend the Member for Bristol, West (Mr. Waldegrave), the then Parliamentary Under-Secretary of State, announced the publication of the Peat Marwick review in April 1985. It concluded:
"subject to the points made in the report we are generally satisfied that accounting methods used by Ordnance Survey to allocate costs between products are soundly based and cover all major costs"
and particularly

"the use in internal product costings of a notional royalty rate equivalent to that charged to third party publishers is fair; an argument can be advanced that the particular rates used in internal product costings are sometimes too high".
All the independent evidence therefore shows that Ordnance Survey is acting fairly. Most map publishers base their products on Ordnance Survey material and accept competition with each other. I am bound to ask: why should Ordnance Survey be the only publisher not allowed to use Ordnance Survey mapping in the profitable areas of the market? One can hardly expect Ordnance Survey to continue carrying out the expensive survey, providing the unprofitable mapping, producing the base-mapping as a source for its own competitors, while allowing them to keep the more lucrative areas.

Fears are also expressed that Ordnance Survey competition may undermine employment in private sector map publishing. My hon. Friend opened the debate by referring to employment. However, I think that it is true to say that Ordnance Survey co-publications have created considerable work in private sector printing, publishing and distribution sectors. In fact, all the co-publications have been printed by private firms, and some hon. Members will doubtless find many employers in their constituencies who support the new Ordnance Survey activities.

While I accept that there may be increased work through the co-publications, does not my hon. Friend agree that that work does not use map makers? It is only publishing work. I was being very specific about the career opportunities for those involved in map making in the group that I was speaking of.

I accept the point that my hon. Friend makes about employment, but I reiterate that the group of people to which he referred has several opportunities for its expertise in map making as well as increased opportunities for employment arising out of increased publication of Ordnance Survey and private sector map making.

With regard to continuing Government policy towards Ordnance Survey, I can do no better than quote from a recent letter by my right hon. Friend the Prime Minister, in which she stated:

"It is an essential part of the Government's policy that where there are Government-owned trading activities which cannot be privatised (and we have looked at Ordnance Survey and decided that it cannot be) then they should be run so far as possible on a commercial basis. That means that the cost of the services should fall to the fullest possible extent on the customers of those services, and not on the taxpayer. We therefore require Ordnance Survey to expand the market for their commercial products on the basis of fair competition without cross-subsidy or any Government guarantee".
Finally, Ordnance Survey has long been held in high regard and I am sure that under present policies it will continue to be, and that the Government, the private sector and the public will all continue to benefit from its activities.