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Thursday, 24 February 2011

The case is made for HMRC and DWP to migrate from their 0845 telephone numbers to 03 NOW

HMRC and DWP agencies have decided to continue charging for enquiry calls on their "Business Rate" 0845 telephone numbers, rather than migrating to "Geographic Rate" 03 numbers. This decision is apparently supported by a determination that despite the premium charge, allegedly “callers pay less to call 0845 numbers than 03”! Such a perverse determination sadly requires some effort to challenge.

I have some important points to make, on issues of principle and matters of detail. I also touch on the NHS in passing.

Introduction and Summary

I understand it to be accepted that a 1.7p per minute subsidy is derived from receiving calls on 0845 numbers, and that this cost is passed on to callers by their telephone company, which has to pay it. If anyone does not accept this fundamental point, then I must ask that they please make contact with me, or Ofcom, most urgently.

When 0845 numbers are used by taxpayer-funded bodies, part of the cost of providing the service is being passed from the taxpayer to the service user.

For the NHS, this represents a breach of the terms of the NHS Constitution, which demands explicit parliamentary sanction for all NHS charges. Parliament does not sanction any charge for NHS services that is levied at the discretion of the NHS service provider, or can be thought to have a variable impact dependant on the patient's choice of telephone service provider.

The Department of Health has failed to enforce the terms of the Directions to NHS bodies and revisions to the GP contract, which should have had the effect of removing all 084 numbers from the NHS by now (0844 numbers yield a subsidy of around 5p per minute). The DH even repeats the total fiction that there are some 084 numbers that are not expensive to call than geographic numbers and fails to recognise that users of 084 numbers may migrate to the equivalent 034 number during the term of their contract for telephone service. Serious action on this failure will have to follow. (As I continue, focussed on HMRC and DWP, my mind is also on NHS Direct, certain PCTs and hospitals and many NHS GPs.)

The "constitutional" constraint on the NHS is however not matched by any equivalent restriction on the commercial activities of HMRC or the DWP agencies; they are free to levy charges for their services as they may choose. I understand that both intend to continue to do so through their use of 0845 numbers. (Asking about PAYE errors, pensions, benefits and jobseeking is not " free at the point of need".)

I trust that many to whom this briefing is circulated will stop reading here, regarding the practice of charging fees for telephone enquiries by benefit claimants and victims of HMRC errors to be wholly improper. Parallel adoption of the equivalent 0345 numbers as alternatives, is the first easy step that could be taken to address this issue.

I urge those who share my views to make their point loudly and clearly, as I move on to address some of the confusion that is brought out by those who wish to obfuscate this issue.

Those interested to learn more about the issue may wish to understand the detail and the ways in which the impact of this cost to service users may be assessed. I have attached, and published, a detailed spreadsheet which not only demonstrates that there is no sound basis for any determination that 0845 calls are "cheaper overall" than "Geographic Rate" 01/02/03 numbers, but provides those who wish to attempt to substantiate such claims with a basis for demonstrating how they reach their conclusion.


The 03 range enables those who find a worthwhile use for the additional technical facilities and locational anonymity provided by non-geographic telephone numbers to do so without imposing a charge on callers. Other non-geographic ranges provide these same benefits, but with the associated costs paid for (in part, in full or in excess) by callers.

The option to migrate (in full or to parallel operation), from any 0845 number to the equivalent 0345 number, offers a ready means for those who wish to avoid the expense and confusion of a full scale number change. I have long been proposing the minimal step of simply offering the 0345 equivalent number as an alternative to every published 0845 number. This facility could be advised through a general statement, without the expense of re-publishing literature etc.

The extra cost/benefit associated with calls to 0845 numbers (2p per minute including VAT) is now known by Ofcom as a "Service Charge". It is paid by callers in addition to an "Access Charge", which is added by the caller's telephone company. Under the present regulatory regime, the Access Charge is not clearly identified as such, as it is bundled in with the Service Charge to give a consolidated rate for the call.

This should therefore be a simple issue of a "premium"; however it is complicated due to certain historic factors. Those who may wish to conceal the fact that their callers are paying them a Service Charge would naturally wish to exploit these complications to obfuscate the issue.


BT is the leading provider of telephone calls, being responsible for originating around 25% of all non-business calls made in the UK. Currently BT is prohibited by regulation from adding any Access Charge on calls to 0845 numbers, so callers through BT only pay the "Service Charge" when calling 0845, and some other non-geographic numbers. All telephone companies are required to charge for calls to 03 numbers on the same basis as calls to other "Geographic Rate" (01/02) numbers. BT is not regulated in its charges for calls to Geographic Rate numbers.

Since January 2009, BT has taken payment of the Service Charge for calls to 0845 numbers as part of its "Call Plan" subscriptions, making no further charge when calls to 0845 numbers are made under the terms of the Call Plan.

The major complication arises when BT customers make calls outside the terms of the Call Plan which they have selected. An un-regulated and severe “penalty charge” is imposed for calls to 01/02/03 numbers, however BT is only able to recover the lower "Service Charge" on 0845 calls. (I repeat this same point later.)

Call Cost declarations

Because BT is the largest single provider of telephone call services, it is common for its rates to be quoted as if they were some sort of norm, from which others vary. This practice totally misses the point that BT is in fact unlike all other providers, being compelled to charge unusually low rates when originating calls to 0845 numbers.

The fact that all telephone service providers now base their contracts on packages including calls to Geographic Rate numbers, makes quoting rates for such calls largely meaningless. The intention is that these calls are made without a specific call charge, which is why penalty rates are applied when calls are made outside the terms of the package. Even some PAYG top-up deals provide a package of calls, contrary to the principle of PAYG.

Because of the need to not only cover costs and make a margin but also to pay on a Service Charge, most telephone companies exclude calls to 0845 (and other 084, 087 etc.) numbers from their packages. BT is in a wholly unusual position in that it can afford to include 0845 calls in packages without pushing the price for the package unreasonably high, because it cannot include any charge of its own.

Using the highly unusual case of BT when giving an example of call costs can be very misleading. IF BT rates are the only example given then it may appear that an attempt is being made to conceal the impact of the "Service Charge" on callers in general. Referring to those who apply an Access Charge as well as the Service Charge as being the ones who "vary", is to misstate the situation; it is BT that is the odd case.

Current Ofcom proposals for clarification

To deal with the fact that many users of 084 and other non-geographic numbers seek to conceal the benefit that they derive, Ofcom is currently consulting on proposals for them to be made subject to regulatory requirements to be transparent. (I hope that public bodies such as HMRC and DWP would not wish to be seen to be waiting to be compelled to do so by regulation before they are transparent about their Service Charges.)

To achieve this through its regulatory powers, Ofcom would have to classify them as providers of "Premium Rate Services". This would require them to subscribe to Phonepay Plus and adhere to the conditions it sets as the self-regulator of the "phone-paid services" industry. (I am not sure if it is distressing or amusing to think of JobCentre Plus as being in the same industry as providers of telephone chat-lines.)

Ofcom suggests that in place of references to the uniquely regulated rates charged by BT, a statement in the following form be used to describe the cost of calling 0845 numbers:

"Calls to our 0845 numbers cost 2p per minute, plus an additional charge added by your telephone company".

Ofcom also proposes that the present regulation on BT be replaced by regulation to cover all telephone companies, requiring them to adopt a simple structure of Access Charges which are clearly declared as such and to show the Access Charge and Service Charge as separate items on the telephone bill.

Whatever may emerge from Ofcom in future:

there is no good reason why such a statement could not be used today.

If reference were to be made to particular charges from particular widely used telephone companies, then information about the absence of an Access Charge from current BT tariffs should perhaps be accompanied by a reference to the fact that T-Mobile currently charges contract customers 41p per minute for calls to 0845 numbers.

The effect of "the BT anomaly"

One would naturally expect that with a 2p per minute additional cost to the call originator, all calls to 0845 numbers would be more expensive than equivalent calls to 03 numbers. The Ofcom proposals will undoubtedly have that effect, if and when they are adopted, as they will release BT to compete alongside other providers with Access Charges and Service Charges unbundled.

In the meantime there remains this historical anomaly dating from the time when BT was the monopoly provider of all telephone services; before widespread use of mobile phones, competition in the landline call market and inclusive packages as the primary basis for charging for ordinary calls.

To encourage use of advanced telephone features, BT was compelled to charge for calls to 0845 numbers at what was then the "local rate" - the distinction between "local" rate and "national" rate disappeared for charging purposes in 2004. Regulation of BTs charges for calls to "ordinary" numbers has been lifted, whereas that covering 0845 (and other non-geographic ranges) remains in place, in the form of a prohibition on BT making any money from originating these calls. No other provider is regulated in this way.

Back up to date

(Please forgive some repetition of points made previously.)

Most telephone companies now bundle calls to "Geographic Rate" (01/02/03) numbers into inclusive packages - the BT term is "Call Plans". For those who do not use their landline during weekday daytimes, there are cheaper Call Plans available (covering Weekends and optionally Evenings). If calling a "Geographic Rate" number outside the period covered by the Call Plan which the subscriber selects, a "penalty charge" is imposed. Those who use their BT landline for anything but the most occasional of calls during weekday daytimes (now up to 7.00 pm) are best advised to subscribe to the "Anytime" Call Plan.

The current BT penalty charge for weekday daytime calls to "Geographic Rate" (01/02/03) numbers, when not covered by their Call Plan, is a call setup fee of 11.5p plus 7p per minute. This is obviously greater than the 0845 service charge of 2p per minute which is all that BT may charge for such calls. (This was recently adjusted to 2.042p per minute to reflect the increase in the VAT rate.)

From April this BT penalty rate will increase to 7.5p per minute and the call setup fee to 12.5p; at the same time, the cost of the Unlimited Anytime Call Plan will be reduced from £5.00 to £4.70 per month. These changes will provide a further incentive for those who make calls through BT to switch to the appropriate Call Plan.

It may therefore be seen that the perverse effect of the current regulatory position is to cause those who would incur penalty charges for making daytime calls to 01/02/03 numbers outside the terms of their call plan to benefit greatly from the fact that BT cannot add any charge of its own for calls to 0845 numbers.

Non-BT providers

There are some landline call providers who choose to follow the same approach that BT is required to follow. Others however (notably Virgin Media) do not inflate their package fees so as to include the (higher) cost of 0845 calls. Neither do these others take inflated margins on other calls so as to cross subsidise to cover a failure to take any margin on originating 0845 calls. This is what is currently forced on BT, and some choose to copy it.

Virgin Media currently charges 10.22p per minute for weekday daytime calls to 0845 numbers, which fairly reflects the additional costs that it incurs over its charge of 8.68p per minute for non-inclusive calls to Geographic Rate numbers.

I note that some have argued that all telephone companies should be subject to the same regulatory requirements that are imposed on BT. I fear that such suggestions can only come from those who do not understand the situation. Alternatively they may be trying to defend an indefensible position as "improper" users of 084 numbers seeking to have their subsidy paid for by all telephone users rather than just those who call them.

What callers pay

The fact that some callers do not bear any additional relative cost as a result of paying the Service Charge on 0845 numbers, leads some users of 0845 numbers to rush out with claims that they (or taxpayers) are benefitting from subsidy at no cost to callers! If the recognition that this exemption from additional cost is neither natural nor universal is not enough to halt them in their tracks, then I have to press on.

In seeking to determine the extent of the financial impact on callers as a result of the use of 0845 numbers, it is necessary to make some determination about what they pay. I address this point with reference to four methods, all of which are reflected in the attached spreadsheet, which I will describe later.

Method one - the "Service Charge"

I personally take the view that one should look first at the impact of the "Service Charge". That is the sum of money which is passing (indirectly) from the caller to the person called. It is for the caller to decide if this is a reasonable fee to pay the person they are calling for the service provided, in addition to whatever they pay their telephone company. To make such a decision however, they must either be well acquainted with the issue or told about the Service Charge.

Every caller pays the Service Charge, even if this is bundled into a package fee or imposed without any Access Charge being added.

If HMRC and DWP are not content to impose a charge on callers for calling them, they cannot continue to use 0845 numbers, and must migrate away immediately. If they are content to impose this charge, then many would think it improper not to announce it to callers.

Method two - adding the effect of the Access Charge

Secondly, one may wish to consider the additional impact of the Access Charges imposed by the various telephone companies. As these are not currently declared separately, this can only be done by looking at the total cost of the call. It is therefore reasonable to make comparison with the equivalent cost of a call to a "Geographic Rate" number. In the current situation, the Access Charge inflates the impact of the Service Charge considerably, when it applies.

There are anomalous cases where the inability to impose an Access Charge (or even take a fair margin) on the cost of calls to 0845 numbers actually makes them cheaper. Where the Service Charge and Access Charge are bundled into a package fee, along with charges for calls to ordinary numbers, there is no clear distinct price for a single call.

Such cases therefore have no place in an assessment of the impact of the Access Charge and Service Charge. Any such assessment must therefore exclude cases where there is no impact.

Method three - aggregating cases

A third, and somewhat irregular, approach would be to consider the net overall relative cost (0845 vs. 03) as if one could play off one group of callers against another. This calculation is achieved by adding in the cases excluded under Method Two as neutral or negative. I understand that this approach is popular, although I struggle to see how it could be valid.

I cannot see how the fact that one caller can exploit BT's inability to impose a significant penalty when they call a 0845 number outside the terms of their call plan can have any bearing on the case of someone who is unable to rent a BT landline (due to their poor credit rating) or who chooses Virgin Media because of its broadband or cable TV services.

I certainly cannot see how public bodies would wish to promote BT against its competitors and furthermore discourage BT customers from selecting the "Anytime" Call Plan, so that they incur penalty charges at a lower rate for 0845 than 03 numbers.

Method four - "winners vs. losers"

A fourth, even more odd, approach is the "winners" and "losers" game. I am astonished to see this favoured by DWP, a department with agencies that are specifically focussed on meeting the needs of minority groups using funding from the majority of citizens.

This method looks at whether more callers would gain by calling a 0845 number than would so by calling a 03 number. This would cause 8 "winners" who breach the terms of their BT Call Plan and thereby each save 25p (a total of £2.00) on a 5 minute weekday daytime call to a 0845, rather than 03, number to outweigh a single caller on T-Mobile who "loses" by paying a premium of £2.05 - by a factor of 8:1.

My personal view is that 100 "winners" would do nothing to eradicate the damage to a single "loser", even if the respective individual amounts were the same. The "loss" is caused purely by the fact that a public body is obtaining subsidy; the effect is compounded by the vagaries of telephone tariffs, but that is not the cause of the loss.

If we are thinking about the administration of social benefits, there will (we hope) always be more taxpaying "losers" than "winner" beneficiaries. If the "winners and losers" game were to be taken as being a sound basis for policy decisions then all benefits would have to be scrapped.

My calculations

I have constructed some tables based on currently published telephone tariffs and the apportionment of calls between the various providers as published by Ofcom.

On top of this I have the added "parameters" to deliver models based on certain assumptions to give what amounts to an average call cost for calls of a particular duration.

The variables I use are as follows:

Call duration (differing approach to duration rounding make this best seen in terms of whole minutes to avoid odd distortions caused by calculating actual call costs)
The proportion of calls at Daytime rates (100% is applied in the cases used)
The proportion of calls from Landlines / Mobiles / Public Payphones.
The proportion of landline callers paying penalty rates vs. calling under the terms of their package.

I have extracted the spreadsheet (published at tinyurl.com/dhtiny/0845costs) from my tables to provide a standalone tool to demonstrate the results of the four different methods of assessment referred to above.

The only variable explicitly offered in the extract is that of the call duration. The distribution factors are shown and could be amended, on a copy of the worksheet, to reflect an alternative view of the different sources of calls. The tariff information is also shown, so this could be adjusted to reflect upcoming changes or alternative providers and terms. The calculation formulae may be copied to add new rows to the table.

For those interested in the schoolboy mathematics: A proportion for the total population of callers is attributed to each line for which call cost information is held, and extended by the duration. The proportion factor is applied to give "weighted costs" which may be totalled to give an overall average cost (for Method 3). Average costs for groupings (or the selection, in the case of Method 2) are obtained by aggregating the respective "weighted costs" and then dis-applying the respective aggregated factor. Method 1 is very simple. Method 4 avoids the "weighted costs" using simply the call cost and the factors. To reflect the structure of the original from which this extract was taken, the Totals for Methods 2 and 3 are assembled at the bottom of the worksheet and then presented at the top.

To produce absolute values, I provide the opportunity to enter a number of calls, so that the ratios and averages may be extended to give actual figures.

The conclusions as presented

The model in place reflects a ratio of 82%:15% for landline to mobile, with 3% for public payphones. I have also reflected an assumption that 90% of landline callers are paying penalty charges rather than calling under the terms of a package.

These are assumptions that have been applied by others, but I must stress that I do not think that these assumptions are reasonable at present. (I cannot believe that anything like as many as 90% of landline calls are subject to penalty charges. Furthermore, I believe that these assumptions will become less valid over time, as more callers recognise that they should not be suffering BT penalty charges.

I have however deliberately understated my case, as the conclusions quash any suggestion that callers benefit overall from use of 0845 numbers under present tariff conditions.

Under method 2 the excess cost to callers grossly exceeds the benefit of the subsidy to the taxpayer. This suggests that certain telephone companies are the primary beneficiaries of a decision to retain 0845 numbers.
Under method 3, where the excess cost to some is offset by perverse savings by others, not only is the net relative additional cost of 0845 calls still positive, it also exceeds the benefit of the subsidy to the taxpayer. Even when we allow for the current restricted position of BT, telephone companies as a whole are still net beneficiaries of the decision to retain 0845 numbers.
Under method 4, there are more 03 "winners" than 0845 "winners", except for a call duration of 1 minute, where the minimum call charge for payphone calls consumes the 0845 excess, tilting an always close overall balance on lower durations (2-6 minutes) in favour of 0845. If this odd method, which equates a 50p saving with a 1p or £4.10 loss, cannot produce the result that advocates of charges for public services may seek, then the game must be up.

I hope that those responsible for these matters will take the time to look into this in detail. I continue to offer my services to assist in the cause of a proper objective understanding of the issues.

I will be very happy to answer any questions from any source and to provide further information.

(The spreadsheet to accompany this release is published at tinyurl.com/dhtiny/0845costs. Please refer to the explanatory notes above).

1 comment:

  1. David,
    Thank you for a most interesting contribution to the debate on whether the NHS, DWP and HMRC should migrate to 0345 numbers, I like that approach.
    I am a CAB adviser and we regularly get clients who simply can't afford to pay for the calls to 0845 numbers.
    I had thought that the government departments ordered the move to 0300 numbers in 2009 but then I also believed that Ofcom had mandated 0845/0870 numbers to be no more than the national rate - your explanation shows that I should have been more sceptical.
    I am trying to get the government to take action on this but the CAB also use 0844 numbers for landlines and 0300 for mobiles so perhaps this will not happen.
    I can be contacted through my website www.minor.org.uk


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