“( ) the principal objectives intended to be achieved by any disposal,( ) the extent to which the Secretary of State considers that the disposal will achieve those objectives, and( ) the expected time-scale for undertaking the disposal.”
Lord Young of Norwood Green
My Lords, I shall also speak to Amendment 11. These amendments concern the report that the Secretary of State will be required to lay before Parliament after deciding to dispose of Royal Mail, whether through a trade sale or an IPO share sale. We have already put on record the Opposition’s disagreement with the principle of privatising 100 per cent of Royal Mail and that we believe that it should be kept in overall public control. However, in this Committee we are seeking to improve the Bill by casting a critical eye over the detail before us. The Bill might enable Ministers to conduct a sale of Royal Mail, but how they set about that task is important; it can be done well or badly.
We have pointed out some of the dangers that lie before Royal Mail and the country if the Government set about this disposal in the wrong way. So much can go wrong. It could be sold to an owner with short-term horizons who cherry-picks the most valuable parts and breaks up the company, perhaps, heaven forbid, on the road to administration—hence the need for Part 4 of the Bill. The Bill could create a Royal Mail that, against the wishes of Ministers and the current management of the company, decided to break the historic link with the post offices of this country. Either case would be catastrophic for our post office network, and there is nothing in the Bill to prevent them from happening. The company could be sold off cheaply, with a few individuals getting rich at the expense of the country’s taxpayers at a time of public austerity, with taxes going up, public services being curbed, wages being frozen, the retirement age receding and jobs being lost. I hope that Ministers are aware of the public anger that would be unleashed if that happened due to a lack of care and attention by Ministers and civil servants.
We know that in the past many privatisations have resulted in the sale price on the day of sale being dwarfed by the trading price on the first day of trading. The track record of trade sales is not much better. I well recall the Select Committee investigations that ensued when the Royal Ordnance factories in this country were sold, apparently over cocktails between the Minister and a businessman, for the princely sum of £1. The site of the old Enfield rifles establishment and the associated site on either side of the M25 must have been worth a pretty sum on their own. This sort of sale did not instil confidence that the long-term future of the company and its staff would be foremost in the mind of the new owner.
We want to avoid these disasters, as I am sure do the Ministers, and that is why we are bringing forward amendments that might help to make the process safer and more successful. These amendments therefore seek two simple improvements in the report to Parliament: first, to set out clear objectives for the disposal of Royal Mail, not just the process itself but the sort of Royal Mail that we want to emerge at the end of the sale and a clear timetable for action; and, secondly, clear criteria in deciding whether to undertake the disposal. Ministers have made it clear that they would sell to almost anyone. Well, I hope that they will not and that they will show some discretion. They say that they would not sell at any price but give the impression that they would not even obtain an independent valuation, so they will have no benchmark against which to judge whether any offer is too low to accept.
The wording of the amendments might have a familiar ring, but I hope that they will not send the noble Lord, Lord Hunt, racing off to his doctor complaining of another Groundhog Day moment. He need not worry; these are the self-same provisions which the noble Lords, Lord Hunt and Lord Razzall, sought to insert into the 2009 Bill—this is certainly déjà vu—and that were agreed on Third Reading. They were therefore incorporated into that Bill. Imagine our surprise to see them omitted from this Bill, no doubt through some oversight. We simply thought that we would ask why these measures have been omitted and, given their provenance, I am sure that the noble Baroness will have no trouble in accepting the amendment.
The Government have allocated £1.34 billion of funding for the post office network over the next four years of the comprehensive spending review. Fifty per cent is above the social network payments. That is welcome, but what happens in 2015? What happens if a privatised Royal Mail wants to reduce its use of the post office network? After all, we have already witnessed the awarding of one significant contract—the green giro contract—going not to the Post Office but to Citigroup. What happens if there is compulsory competitive tendering for a substantive contract which the Post Office fails to win?
Once again, there are so many unanswered questions. If the Government do not know what the assets of Royal Mail and the Post Office are before moving on to sell Royal Mail or to hand over the Post Office to mutual ownership, they might well sell the people of this country short. That will increase the risk of asset-stripping and of selling at too low a price. That could change the nature of who owns the company and how they run it. Amendment 12A, in the name of my noble friend Lord Whitty, at least seeks to establish a proper record of Royal Mail’s assets in the division between Royal Mail and the Post Office. It also draws attention to the vital inter-business agreement, a subject to which we will return later in the Committee’s deliberations.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, I thank the noble Lord, Lord Young, for his most helpful opening words. Telling me that his intention is to enable those on these Benches to make a better Bill is welcome.
The amendments seek to insert additional reporting requirements into the Bill on the Government’s objectives for a disposal and the principal criteria used for deciding to make a disposal. I believe that the Government have already been very clear about why we wish to dispose of shares and the objectives for such a sale. Like the previous Government, we believe that Royal Mail needs an injection of private capital and disciplines. In addition, we also wish to give the employees the opportunity to own shares in the company. We believe that this, along with the other measures in the Bill, is the best way to ensure that the universal postal service is maintained in the United Kingdom.
When making a disposal, we have already stated clear objectives. These are to secure the future of Royal Mail and to ensure that we achieve value for money for the taxpayer. Clause 2 requires the Secretary of State’s report to state the type of disposal that would be made. Quite broadly, this is likely to be either through a sale by auction or through a flotation. It also requires that the timescale for undertaking a disposal be included in the report.
The Secretary of State would not, especially for the first sale of shares, lay a report before Parliament that had two lines stating, for example, that there will be a trade sale and that it will take place in 2012. We know that Parliament would expect more than this. Indeed, we believe that on the occasion of the first significant sale of shares an Oral Statement is likely to be appropriate. As arrangements have to be made for an employee share scheme before any shares can be sold, the report would also include information on how and when the employee share scheme would be set up.
On the suggestion that criteria for deciding whether to sell Royal Mail should be included in the report, at one level we have already set out those criteria—that Royal Mail is poorly served by the Government as its sole shareholder and needs urgent access to private capital and disciplines to secure the future of the universal services. I have doubts, however, about the inclusion of detailed criteria for a sale in a report before a sale is made. The previous Government’s Postal Services Bill 2009 required information to be provided to Parliament on the criteria for a sale of Royal Mail. However, the report in the 2009 Bill would have been presented to Parliament after an agreement had been entered into to sell shares to a third party. Clause 2 of this Bill requires a report to Parliament before a sale. I hope that noble Lords on all sides of this House will welcome this earlier provision of information to Parliament.
As I have said in response to other amendments that we have debated, it would not make commercial sense for the Government to lay all their cards on the table when entering a commercial negotiation. We will have criteria for a sale, but I see no logic in revealing this before a transaction has taken place. Therefore, I ask the noble Lord to withdraw the amendment.
Lord Young of Norwood Green
I cannot say that we are completely satisfied with the noble Baroness’s response. Nevertheless, we shall reflect on it between now and Report. In those circumstances, I beg leave to withdraw the amendment.
Lord Kennedy of Southwark
“( ) the means by which the name Royal Mail is to be protected and used by the universal postal service provider.”
Lord Kennedy of Southwark
My Lords, I hope that I will get a favourable response from the Minister as my amendment should cause the Government no problems whatever. It has no effect on the thrust of the Bill and its objectives should be welcomed by noble Lords on all sides of the Committee. In the Bill, the Secretary of State is required to lay before Parliament a report on the proposed disposal. Clause 2(3) sets out, on page 2 of the Bill, what the report must state. My amendment would add that the Secretary of State should detail in the report how the name “Royal Mail” is to be protected. Noble Lords might ask why we should do that. The Royal Mail is an institution that can trace its roots back to 1516. Parliament and government should be concerned to protect its name and not to leave that to chance. Royal Mail for me conjures up images of hardworking postmen and postwomen working in all weathers to deliver post to our homes. It is a great brand name.
I raised this issue at Second Reading. I hope that the Minister will not tell me not to worry about this as any new owner would be daft to change the name. However, organisations do daft things all the time. Just because something is right, proper, obvious, reasonable and sensible has never stopped people doing daft things. My amendment would give the Government the power to stop anything daft happening to the name “Royal Mail” and stop it being confined to the dustbin at some point in the future. It would stop another Consignia fiasco happening. No one had any idea what Consignia was. Some people thought that it was a relaunch of a 1980s deodorant called Insignia, not the universal service provider.
The Government have a real opportunity today to stand up for the brand name Royal Mail and protect it for the future. I hope that they will do so.
Baroness Wilcox
My Lords, I fully appreciate the sentiment behind the amendment. The name “Royal Mail” has been synonymous with the delivery of the postal service in the United Kingdom for hundreds of years. In fact, the noble Lord, Lord Kennedy, has told us the date on which it was established, and I can understand why he seeks reassurance that the name will be preserved. However, I have to say that the choice of the name of the company delivering the universal service provider should be a commercial decision for the company and its shareholders. I do not believe, however, that future owners of the company will rush to change its name, because this would not make commercial sense.
I say that because “Royal Mail” is, as the noble Lord said, one of the most recognised brands in the UK, perhaps in the world. There is no doubt that the name is a commercial asset to the company—an asset that potential investors will value; and so will we. It is the Government’s firm belief that any future owners of Royal Mail would recognise the power of the brand, and it would be folly on their part to seek to dismantle such a brand in any way.
Your Lordships will remember the previous attempt to change the name. Once again I repeat the noble Lord’s point; “Consignia” was not a success. It is not a name that you hear mentioned at Royal Mail headquarters these days. As my noble friend Lady Wheatcroft said at Second Reading, the BBC summed up the name change as,
“nine letters that spelled fiasco”.
It would take a brave, or perhaps foolish, owner to seek to change the name again.
Noble Lords will also wish to note that while there might be support for ensuring that Royal Mail continues to be associated with the universal postal service, there are those in the other place who are opposed to a privatised company using the name or the other royal associations currently used by the company. We do not agree and we believe that Royal Mail, as the universal service provider, should continue to be able to use the name and the royal association, provided that suitable safeguards are put in place to ensure that the associations are used respectfully and appropriately at all times. Discussions about these safeguards are ongoing.
I am therefore afraid that, although I greatly sympathise with the noble Lord’s request, I ask him to withdraw the amendment.
Lord Borrie
I would have spoken immediately after my noble friend Lord Kennedy, except that I imagined—wrongly—that there was no answer to his point and that the noble Baroness would give way. It is unsatisfactory that when a sale is to be made, there is no firm or unfirm indication in the Bill that the name will be kept. I suppose that the name “Royal Mail” is protected in one sense, because it is a trademark that no one else can use. Perhaps I was wrong to think that the noble Baroness would adhere to that and say, given the radical change in terms of privatisation, that the name should be protected in more than one sense, not only as a trademark but as a name that cannot readily be altered. We all remember the absurdity of “Consignia”, of which my noble friend Lord Kennedy reminded us. Goodness knows what name someone might think up in the future. People, even heads of business, do silly things in relation to their names. Some of us remember other names that have been changed and had to be changed back again because they turned out to be a complete failure. I ask the Minister to change her mind and at least agree to think further before Report.
Lord Swinfen
Does the noble Lord, Lord Borrie, think it would be appropriate for the name “Royal Mail” to be owned by a foreign company that had bought the postal services—indeed, a foreign company from a republic?
Baroness Wilcox
My Lords, I say to the noble Lord, Lord Borrie, that we intend to put safeguards in place to ensure that the royal associations are used by Royal Mail respectfully and appropriately at all times. We have not yet finalised how these will be structured, but they could, for example, be set out in a legally binding agreement between the company and the Secretary of State. When drawing up such an agreement, we would seek to ensure that the use of the name “Royal Mail” was linked to the provision by the company of the universal postal service, and this would prevent it being used in other circumstances.
I wondered whether someone was going to ask whether there is not the potential for a foreign owner to misuse the royal associations. That was almost the thrust of the question. We appreciate that there might be concerns about the potential for misuse of these associations, and we propose to put safeguards in place to ensure that they are used respectfully at all times. However, this is a commercial transaction and we wish to stop at this point. I am sure that the noble Lord, Lord Borrie, who knows what brand names are all about from his time as director-general at the Office of Fair Trading, will know all the protections that are encompassed around that.
Lord Kennedy of Southwark
I thank the Minister for her response, which I am a little disappointed by but hope she will reflect on. I reserve the right to bring this matter back on Report. I beg leave to withdraw the amendment.
Lord Clarke of Hampstead
“( ) how the Secretary of State will ensure that the provision of universal postal services will be maintained following the disposal;( ) how much of the Royal Mail company’s modernisation budget—( ) has been spent, and( ) remains unspent,at the proposed time of transfer; and( ) what progress has been made towards existing modernisation goals by the proposed time of transfer.”
Lord Clarke of Hampstead
My Lords, I first declare the interest that I declared many times when my party was trying to push through the disposal of Royal Mail. I am a former postman, a former trade union official, a former trustee of the Post Office pension fund, and I have had a few jobs in the Post Office. I am sure that that declaration will suffice as we consider the Bill.
My amendment seeks to add new paragraphs to the part of the Bill that deals with the situation after the Secretary of State has made a decision on the disposal of shares in Royal Mail, and then makes a report to Parliament. My purpose is to require that any report that the Secretary of State may make on the disposal of shares includes the requirements listed in the amendment. It simply asks that in his report the Secretary of State recognises the need for clarity before Parliament is asked to agree to any of his proposals.
The first new paragraph calls for what should be a vital element in any proposal—that there should be a clear understanding of how the Secretary of State proposes to enshrine universal service provision in respect of the new legislation. We have just heard a little about that. The second new paragraph outlines that the necessary information be provided regarding the expenditure of Royal Mail’s modernisation budget and how much of the budget remains unspent at the time of the disposal of shares. Noble Lords who were here a couple of years ago will recall the repeated requests that I and others made for information on what was meant by “modernisation”, what the programme was, and what machines were being talked about. Unfortunately, the Secretary of State at that time did not answer any of those questions. The third new paragraph instructs the Secretary of State to report on how much progress has been made towards the existing goals at the time of the transfer.
Many people would agree that Royal Mail is part of our national infrastructure and cannot be looked at as just another company to be sold off on the Stock Exchange or otherwise. Such a view is shared by me. As the Bill progresses, I shall try very hard not to become too emotional. It hurts me deeply that we are contemplating the destruction of Royal Mail, and it saddens me to the point where I feel that I am witnessing an act of legislative vandalism. When the Minister spoke last week on the first day of the Committee she said:
“I have of course listened to what has been said, and it will of course go on the record. I know that there are Members of your Lordships’ House who would rather that Royal Mail was not sold at all, and I understand people who have been associated with Royal Mail for many years finding all discussions of this sort very difficult, especially having gone through all this a year ago with the previous Government—a Government of their own. Yet that Government, too, could not successfully find a way out”.—[Official Report, 8/3/11; col. 1549.]
I do not know whether the Minister had me in mind when she said that but she can certainly count me in as one of those who are very saddened at what is going on. I would rather Royal Mail was never sold off, and the alternatives should have been examined before rushing into what is happening today.
Before noble Lords opposite remind the House of the role played by the previous Government, perhaps I may say that I and a very few other noble Lords tried to point out the error of their ways at the time. I suppose that a redeeming feature of this Bill is that it is not a direct contradiction of a government manifesto commitment, as was the previous Bill under the Labour Government. It was like a dagger in my heart that the party for which I had worked for so many years proposed to sell off this valuable asset. I am sorry that that Bill ever saw the light of day, especially when my party had promised the British public that they would not make such a sale. I shall say no more on that at this stage.
I believe that this Bill is scant on information regarding the sale of Royal Mail. As the Secretary of State has only to report on his decision, Parliament would merely be noting the sale and would not be able to ensure that it was value for money or that it was in the appropriate format. Later amendments will deal with the need for a proper and thorough valuation of Royal Mail. There is a good argument for ensuring a stronger form of accountability to Parliament by the Secretary of State regarding the terms of the sale. This could be through a variety of methods, including further legislation, the super-affirmative resolution procedure, the affirmative resolution procedure and so on.
The Bill states that the Secretary of State needs only to lay before Parliament a report on the proposed disposal, but unfortunately the requirement to report comes into force only after a decision is made. This seems to close off the opportunity for Parliament to influence how the sale takes place. I hope that, when the Minister replies to this debate, the House will be told exactly what form the report will take. We should consider what the Minister for Postal Services said on the form of that report when he was challenged in the Public Bill Committee in another place. He said that,
“in clause 2, we are putting a requirement on ourselves to report back to Parliament. No doubt, when we debate clause 2, you will want us to do far more than that. I can just imagine the amendments that you will put forward”.
The clause states only that a report will be laid and not how it will be laid. At that time, the Minister was asked whether he intended just to pop it in the Vote Office. He would not be drawn but he did state that,
“there will be a Command Paper”.—[Official Report, Commons, Postal Services Bill Committee, 11/11/10; cols. 126-27.]
A Command Paper, as this House well knows, can cover a multitude of sins. It is a document issued by the British Government and presented to Parliament. It encompasses a wide range of forms, including White Papers, Green Papers, treaties and reports from royal commissions and various government bodies. Therefore, the House is no further forward in understanding the Government’s intention to allow parliamentarians to arrive at an informed decision on the future of Royal Mail.
I am confident that the House will also agree that any decision to sell off part of such an historic and valued organisation as Royal Mail must, at a minimum, be subject to a vote by the people’s representatives on the value of the deal on the table. A Bill would provide the most certain way of ensuring that objective. I stress to the Minister and the House the importance of bringing before Parliament for approval any proposal to sell Royal Mail. As the Bill stands, the only duty of the Secretary of State after deciding to sell is to lay a Command Paper in the Vote Office. Surely we need a little more detail from the Government, as well as a larger commitment from them to report adequately to Parliament on this vital issue. The people of our nation, in poll after poll, overwhelmingly support the Post Office—that is how they see Royal Mail, whether we like the term or not. The public see the Post Office and Royal Mail as the same thing. They deserve better than the cavalier way in which their Government are proceeding.
Would it not be better to accept the need for clarity now rather than face criticism in the future that not enough consultation has taken place and that the proposals have been rushed through Parliament with indecent haste? I said that a few times about the previous Bill that we discussed. The previous Government broke their neck to try to get these things through. I hope we can learn that lesson and not rush this Bill through. I hope that the Government will take the opportunity to ensure that Parliament is properly consulted on the decision to sell a part of the national institution that we all know as Royal Mail.
Lord Skelmersdale
My Lords, as the Committee knows, I look at the Bill from a totally different perspective from that of the noble Lord, Lord Clarke of Hampstead. I look at it from the perspective of a user of Royal Mail and of the universal postal service that is contained within that contract. Wrapped up in the Second Reading speech that we have just heard, the noble Lord, Lord Clarke, makes a very valuable point about the continuation of the universal postal service. I fail to find in the Bill sufficient words to give me confidence that, post the sale, that will continue.
On the other point raised by the noble Lord, Lord Clarke, about the Royal Mail company’s modernisation budget—the second provision in his amendment—the noble Lord caused me to pause and think. When you sell a business, any money that is contained within that business, such as in its bank account, is sold with the business and the price of the business reflects that. Therefore, to whom will the money that remains unspent in the modernisation budget belong? Will it belong to the Post Office or to the Government? Is it a draw-down facility or is it a cash amount? It would be helpful to know. However, if the modernisation goals had been achieved we would not be in this sorry situation, but I am afraid we are.
Lord Hoyle
I pay tribute to my noble friend Lord Clarke of Hampstead. No one else has more knowledge of the Royal Mail and the postal service than him, as he displayed. He may have gone wide of the amendment—he was right to do so—in exposing the history that has led us to this sorry state of affairs. Indeed, he will recall that I was one who supported him and warned of the dangers of going down the road of selling up to 49 per cent—I asked why it would remain there.
Turning to the amendment, I agree that we need to know more about what will happen to the universal postal service. Will it be maintained and in what form will it be maintained? It would be quite easy to destroy the universal service by pricing it out of the market, which is one thing I am afraid could happen as a result of the Bill. Perhaps the Minister could reassure us both on whether the universal service will continue and on whether it will still remain attractive to users of the service, which is equally important. We have had two points of view: one from the person who has been in the service and the other from the person using the service. Perhaps the Minister could provide some clarity. What provision is being made, will the universal service be maintained and will it be prohibitive to use? If it is prohibitive, it will be destroyed.
My noble friend was also right to ask how far the modernisation programme will have gone and how much will have been spent on it. It is a pity that we are where we are because there is agreement between the Royal Mail and all the unions on the need to achieve modernisation; they want it carried forward and the money is available to do it. We need these kinds of assurances. We also need to know what progress has been made towards modernisation and what has developed in the relationship between the present Royal Mail and the unions in achieving that.
It is usual to ask such questions and I know that the Minister has tried to provide us with the answers. I hope she will be forthcoming in this regard. It is not only those who have been involved in the Royal Mail as currently constituted but those who use the service who are asking questions, and they need reassurance. I look forward to the Minister's reply.
Baroness Howe of Idlicote
My Lords, I was present on the previous occasion and listened with considerable sympathy to the noble Lord who spoke, certainly not in support of what the previous Government were doing but from his own immense loyalty and background in the postal service. I remember that well. We all have a duty to reassure ourselves on the point made by the noble Lord, Lord Skelmersdale, that there is nothing that he can see, in the Bill as it now stands, that will guarantee that the service will continue. We are due more clarity on this point and, as many noble Lords have said, we are in a worse situation in many ways than we were before on the financial side. I pay tribute to what the Government have done in their plans to open up the possibility of a better future but some form of reassurance would be welcome.
Baroness Kramer
My Lords, the statements made by the noble Lord, Lord Clarke, expressed the distress that is widely felt and which we all understand. He got to the crux of the matter when he said that a previous Government had liberalised the market in mail without first putting Royal Mail on a secure basis. I agree totally with that analysis. Just as happened with Deutsche Post in effect, Royal Mail should have had private capital brought in in that period to put it on to a secure and thriving basis before the market was liberated. We can see that.
However, I ask the House to be careful that we do not repeat that mistake. Since Royal Mail is bleeding money daily, there is urgency in dealing with the problems facing it to make sure that it survives and that a universal service provider survives. Sometimes in these conversations we might occasionally overlook the reality that if there is no secure financial future for Royal Mail, which requires not just the current very important modernisation programme but steps beyond that requiring considerable additional outside money to establish it as a pre-eminent and effective organisation, the role of universal service provider is indeed in jeopardy. It is making sure there is a successful financial future for this organisation that makes the universal service provider concept viable. Rather than reading this legislation as some sort of attack or as a lack of faith in the universal service provider, I see it as attempting to put into place the structural underpinnings that make the USP a realistic ongoing proposition, because consumers and those who work in the Post Office wish to see that as part of our future.
Lord Brooke of Alverthorpe
I agree with the principal point that my noble friend Lord Clarke of Hampstead made about the universal service. As the House knows, I was one of those who recognised the problem that Royal Mail was facing and who was in favour of substantial capital investment to try to help with modernisation and moving forward, but I was not in favour of 100 per cent privatisation. There is a difference between those who are now expressing concerns in a way that they did not before. The major difference is that we are talking about 100 per cent privatisation as opposed to only a very substantial part of the shares being sold.
My worry is that we could find ourselves in a position where a foreign buyer might already be in the business in a country that no longer has a universal service and that might decide in due course that it will no longer maintain a universal service in this country. That would be very bad indeed for Britain. People are waking up to what is happening in the health service, with the threats and fears that they are starting to see, and I hope that they will start to recognise that while we need change in this area as quickly as we can have it, there have to be fundamental safeguards to meet the wishes of the British people. I hope that they will recognise that there is conceivably a threat at the end of the day to the universal service.
We are governed by European Union legislation in this area to a degree. Originally, the European Union was very much in favour of the retention of the universal service. Bit by bit over the years, the European Union has changed the legislation and has eased its position on it. A number of European countries have now moved from being totally state-owned to 100 per cent privatisation, and in some of them operatives are not required to deliver a universal service. It is quite conceivable that one of those could bid and be successful in purchasing the Royal Mail. I listened to the previous debate and the assurances given by the Minister. She hopes that there will be ways in which we would avoid any such difficulty arising. Ofcom would be involved. Will Ofcom have the right to stop a foreign bidder of the kind that I have just described proceeding with the purchase of 100 per cent, less the employees’ share, of Royal Mail? If so, how would it prevent the universal service disintegrating bit by bit if such a buyer were in possession of the Royal Mail?
Lord Swinfen
Apart from Royal Mail, there are a number of other providers of postal services, none of which produces a universal postal service. They all rely on Royal Mail to deliver the last mile, particularly in remote areas. We need something in the Bill, and I would like the Minister to tell the House how a universal postal service will be ensured by someone taking over Royal Mail. If she cannot, she must bring something forward on Report to ensure that. Otherwise, this Bill is not satisfactory.
Lord Lea of Crondall
My Lords, unless I have read this Bill wrong, Clauses 28 and 29 leave no doubts about the universal postal service. I shall put the question to the Minister the other way round. We are not debating these clauses now, but because the point has been raised it is worth looking at them. Can we take it that they mean what they say?
Viscount Eccles
My Lords, the Postal Services Act 2000 “liberalised” the postal service. There are now, I think, 49 licensed postal operators in addition to Royal Mail, which is also licensed. If that number of people were willing to become postal operators, they must have expected it to be possible to do that successfully. As the noble Lord, Lord Lea, said, the Bill quite clearly states that there has to be a universal service, so whoever buys Royal Mail in whole or in part, wherever they come from, would not be acting in accordance with the law if they did not maintain a universal postal service. That is not really the problem. The difficulty we are in is that we have had an inappropriate regulation system in which the regulator tended to believe that competition was more important than the universal service and acted accordingly.
The problem with the universal service is that it is a monopoly. As noble Lords will have seen from the lobbying that they have had, it has been said that it will become a privatised monopoly. However, it is not a natural monopoly but a completely artificial one. It is not like a railway line or a water pipe. In my part of England, the so-called final mile is absolutely nothing like a final mile but a final 10 miles. It is running about on the roads, which are a public asset and nothing to do with the assets of Royal Mail or the Post Office. There has been confused thinking about whether the so-called final mile is an advantage or a disadvantage. The private operators are trying to tell us in this House that it is an advantage, an asset that enables people to charge monopoly prices. In fact, that is not what has happened. It has been entirely the reverse. The final mile is a disadvantage to Royal Mail. Therefore, in the progress of this Bill, we should concentrate more on regulation and the prospective system of Ofcom than upon anything else.
Lord Razzall
My Lords, I apologise for not being in my place on the previous day or at the beginning of the Second Reading-style speech made by the noble Lord, Lord Clarke, which of course I would have missed at Second Reading because he did not deliver it. Am I not right that this issue should be dealt with under Clauses 42 and 43? I thought that we would talk about the Ofcom relationship to the universal service obligation in relation to those clauses. I am very puzzled that we are having this discussion now. As I have said, the noble Lord, Lord Clarke, made a Second Reading-style speech, and no doubt ranged very widely over the topic.
Lord Young of Norwood Green
My Lords, I support this amendment. At this juncture, I am happy to share the same analysis, if not completely then certainly key parts of it, with my noble friends Lord Clarke and Lord Hoyle. Like the noble Lord, Lord Brooke, I confess that I was not on the side of the angels or the angels as defined by my noble friend Lord Clarke on the previous occasion, but on this occasion I share his analysis.
We and fellow Peers of several party affiliations and of no party affiliation, as we have seen in this interesting debate, have submitted amendments that seek to ensure that the sale of Royal Mail meets four main objectives if it goes ahead. First, it should be done in a timely fashion, which does not present the prospect of an endless cloud of doubt hanging over the future of the company. Secondly, proper measures should be taken to ensure that value for money is gained for the taxpayer and that the company is not sold at too low a price. Thirdly, there should be greater clarity and accountability than the Bill currently provides. Certainly, a number of speakers in this debate have expressed that concern. Fourthly, a privatised Royal Mail should be put on a secure footing and not be subject to the ravages of asset stripping or disintegration, or be doomed to failure because of the circumstances which this Bill creates.
The proposed 100 per cent privatisation is at the heart of our concerns about the future of the universal postal service. At Second Reading, I think that I declared my interests as a former employee of the GPO, albeit at the time when it reigned over telecom as well as postal, and a significant involvement in the union as the company changed from a nationalised company on the telecom side to a privatised company. We are concerned about the future of the universal postal service. I share the points made by the noble Lord, Lord Skelmersdale, on the future of the nation’s post office network.
Private shareholders are more likely to argue that it is unsustainable and too costly, which will undermine the universality of the service. Many rural, distant or sparsely populated areas are costly to reach. I did not agree with every part of the analysis given by the noble Viscount, Lord Eccles, but he rightly reminded us that the final mile is rather a metaphorical term, given that it can be sometimes 10 miles or more. The danger with a totally privatised Royal Mail is that a private company will not necessarily want to invest in a business burdened by a costly universal service. Such a company might lobby the regulator and the Secretary of State to reduce the level of such a service.
My noble friend Lord Clarke was absolutely right to remind us that one potential buyer has already commented in very blunt terms. Noble Lords might recall that the managing director of TNT, Pieter Kunz, said that the universal service obligation was,
“a kind of Jurassic Park and we should get rid of it”.
We are not indulging in a sort of fantasy or paranoia when we draw to the Minister’s attention the view that some potential buyers have of a universal service obligation. The noble Lord, Lord Swinfen, drew to our intention the importance of making this Bill absolutely clear and his concern that it is not clear in its current state.
I was interested in the point made by the noble Viscount, Lord Eccles, about the way in which the regulator functioned in the past in relation to competition being more important than the universal service obligation. He is right. I think that we got that wrong, although it is not fashionable to admit that. While I did not agree with the conclusion made by the noble Baroness, Lady Kramer, that it needed private capital first, I certainly could not help but acknowledge her point about regulation and the way in which it was introduced and functioned.
Lord Razzall
My Lords, before the Minister responds, could I make one point that I think is important? In the context of a number of comments by noble Lords, there is an assumption that the cost of the universal service obligation bears most heavily on remote areas. However, the figures for Royal Mail show that that is actually not true. The real problem does not lie in Orkney and Shetland; it lies in Hampstead and Norwood Green.
Baroness Wilcox
My Lords, we have had a great debate across the Committee, which has been provoked by the noble Lord, Lord Clarke, whose credentials are immaculate in this area. I missed hearing him in the debate on Second Reading because he was not able to be here for it, so we have been able to listen to him today, when he has had the opportunity to put his words on the record. It is a great occasion for us to listen to him. I may not agree with everything that he says, but I believe in the absolute sincerity of what he says, given the background from which he comes.
I share the noble Lord’s desire to ensure that the universal postal service is maintained throughout the United Kingdom and I suggest that that is what binds us all together today. Given that we all want to see the universal service maintained, I suggest that we have no time to waste in getting the finances that we need to ensure that that is possible. It is the overriding purpose of the package of measures set out in the Bill. We need to ensure that the universal service is maintained both for the deliverers of that service and, as we heard, for the customers who need to use it. My noble friend Lord Razzall quite rightly referred to Part 3 of the Bill, which we will discuss in detail in future Committee sessions. It confers on Ofcom a primary duty to protect the universal postal service and gives it the powers to deliver that duty. A disposal of shares in Royal Mail may mean a change in ownership from the public to the private sector, but the obligation on Ofcom to ensure the provision of a universal service will remain.
Lord Skelmersdale
My Lords, perhaps I may briefly interrupt my noble friend. Does that mean that the original purchaser of Royal Mail will be bound by the UPS?
Baroness Wilcox
I think that the answer to that question is yes. In fact I am sure that the answer is yes. The universal postal service is protected by Parliament throughout this regulatory framework, not by the Government’s ownership of Royal Mail. I hope that that gives some comfort to my noble friend Lord Skelmersdale and, if he has the stamina to stay with this Bill through all its stages, I hope that by the end he will feel that he has a lot more comfort than obviously is the case now.
As part of its duties, Ofcom will ensure that the minimum requirements of the universal service as set out in the Bill are upheld. As we know, the minimum requirements are above those set out in the European postal services directive in terms of the requirement to deliver letters six days a week and for a uniform tariff and service to apply. Ofcom is required to report annually to the Secretary of State on its activities, which in future will include how it has performed against its primary duty to ensure the provision of the universal service. The Secretary of State is required to lay that report before each House of Parliament. Therefore, I do not believe that Parliament would be served by an additional report on the future of the universal service at the time of sale.
The noble Lord, Lord Brooke of Alverthorpe, asked what will happen if a privatised Royal Mail no longer wants to provide a universal service. Royal Mail is rightly proud of providing a universal postal service and there is no reason to expect that to change, but in the unlikely event that Royal Mail no longer wishes to provide it, the regulator, Ofcom, will have a primary statutory duty to secure the provision of the universal service and has been provided with the regulatory tools to ensure that the service is maintained. In the first instance, Ofcom would do this by imposing regulatory conditions on Royal Mail that would oblige it to deliver a universal service. Ofcom will also have the power to impose penalties on companies found in breach of the regulatory conditions.
The noble Lord was also concerned that foreign owners could run down Royal Mail. Whoever owns the Royal Mail, as the universal service provider, will still be required to provide that universal postal service. The regulatory regime set out in Part 3 will ensure that. Ofcom, the proposed new regulator, has confirmed that it is satisfied that the powers in Part 3 are sufficient to protect the universal service. We will not let nationalist criteria stand in the way of the right deal for Royal Mail and the taxpayer. Investment is a global business nowadays. For example, around a third of the listed shares in Deutsche Post are owned by UK investors.
The noble Lord, Lord Young, was concerned that a future owner of Royal Mail might lobby Ofcom to reduce the minimum requirements of the universal service. As he will be aware from Clause 33, there can be no such change without an affirmative resolution both in this House and in the other place. This Government have been clear that they have no intention of supporting any such resolution. As we will discuss in later sessions, Clause 33 is a vital new safeguard for Parliament.
Modernisation of Royal Mail is also not directly related to ownership. The company has to modernise whether it is in the public sector or in private ownership. Modernisation does not end with the current transformation plan. If Royal Mail is to succeed and provide our universal service, ongoing modernisation will need to be an integral part of its DNA, so while the current modernisation plan is fully funded, it is clear that Royal Mail will need to go further and faster. Royal Mail therefore requires ongoing capital investment over a long period. Despite the good progress that is being made on the current transformation plans—and here I praise the management and the CWU on that progress—Royal Mail needs upfront cash, which it simply cannot generate for itself at the moment. It needs access to flexible capital, which, given the EU state aid requirements, the Government cannot provide.
Lord Hoyle
Before the Minister sits down, will she answer my point? I said that you could maintain a universal service but price it out of the market by making it unattractive to users because of the price.
Baroness Wilcox
On maintaining the universal service, as I said, Ofcom will be watching like a hawk to make sure that there is a fair balance between Royal Mail and the consumers of the products that Royal Mail produces. Ofcom has had a good reputation in the past and we feel confident that in the future it will do its very best to make sure that all is fair.
Lord Clarke of Hampstead
My Lords, I start by thanking all those who have taken part in what has been a useful exchange of views on a whole range of subjects. Two noble Lords considered that my earlier comments were more suited to a Second Reading debate. I carefully looked at the background to my amendment and tried to draw from my experience to explain how it would affect the clause in the Bill. If I have offended the noble Lords, Lord Razzall and Lord Skelmersdale, I can only apologise.
Lord Razzall
The noble Lord, Lord Clarke of Hampstead, could never offend me.
Lord Clarke of Hampstead
That is a bonus.
I will briefly try to answer some of the points. The noble Lord, Lord Skelmersdale, was the first person to speak in the debate. I recognise that he is a most important person to the people whom I worked with all my working life: he is a user of the Post Office and Royal Mail. Every decent Post Office worker—they are all decent—knows that we rely on customers for our livelihoods. I pay tribute to him because I know from one of my first exchanges some 11 or more years ago that he was in the goods-by-post business. I always respected anybody who did not give work to the cowboys who are trying to undermine the Post Office.
The noble Lord, Lord Skelmersdale, asked how far people have got towards achieving the goals. I think that they have done pretty well. On the first goal, modernisation, there has been a terrific move. The previous Government could never answer questions about walk-sequencing machines, but we have seen those come in. We have seen changes in attendance patterns. There have been reductions in staff. It hurts when a member of staff loses a job. I would never have dreamt that the modernisation programme could have happened in so short a time as the past year or so.
Industrial relations have never been better in all the years that I have known the Post Office. There is a genuine desire to lift the Post Office and the Royal Mail in particular from the reputation that they were getting that they could not do their job. It is much easier now because there is only one delivery and you might get that in the afternoon. The rules have been changed, so there is bound to be some progress.
One thing that came out of the Hooper report, as has been said many times in previous debates, was the need for expertise in management. Everyone in the Committee will recognise the tremendous influence that Moya Greene has brought from running a big post office network in Canada and using that expertise to help us. Some of us were arguing two years ago that expertise could be found not necessarily in the board members of TNT, Deutsche Post or Federal Express. We found somebody worthy of being the chief executive and I pay tribute to her for the way in which she has welded together various different views.
I thank my noble friend Lord Hoyle for his support. He was one of the two or three of us who sat here night after night trying to get the previous Government to understand where they were going wrong. The noble Baroness, Lady Howe, asked for clarity. That is really all that the amendments seek. What is the intent? Let us have some detail.
The noble Baroness, Lady Kramer, whom I have not had the pleasure of meeting personally, made an important point about the need for private capital. It has been required for more than 40 years. That is why in my maiden speech in this House I said that we needed access to funds so that we could have automatic letter facing machines and optical character recognition—things that we were desperately trying to get hold of but were stopped by political interference. The external finance limit was always there to prevent us from getting the money that was needed. She is right. This is urgent and it will not stop when this present programme is over. It must keep on going to be successful. I thank her for illustrating that point.
My noble friend Lord Brooke talked about the European Union, but the less I say about that the better. I have perhaps said too much before about the way in which the Government stampeded into liberalisation without thinking it through. They told the world that we would have a Post Office fit for the 21st century. That was Stephen Byers, but I will not abuse this House by going back. I say to my noble friend Lord Brooke that the sooner we start thinking about the British Post Office and the British Royal Mail, the better for all of us, instead of looking over our shoulders at what other people are doing.
The noble Lord, Lord Swinfen, also talked about clarity and the need to be clear about what we mean when we talk about the universal postal service.
The noble Viscount, Lord Eccles, talked about the inappropriate regulator and the 40-odd private people who are competing for Post Office work. I am surprised that there are not 140 when they have been subsidised by Royal Mail all these years. The noble Lord, Lord Razzall, mentioned the regulator, although I did not introduce it in this sense. The new regulator must start thinking about this issue. The question is not whether this is about Hampstead or Norwood Green. There are parts of Hampstead where you could talk about the final mile, such as North End or Spaniard’s End. You could talk about the places where it takes a lot of time to deliver, such as the 140 flats in South End Close with 1,400 steps to climb. This was not discussed in the Second Reading debate, but as it has been introduced here I have a chance to respond. Thank you very much. As for Tony Young—I mean my noble friend Lord Young—it is wonderful to be on the same side as my own Front Bench. I am pleased to find that he is giving support for these measures.
I am sure that I am leaving out a lot of people, but I address my final remarks to the Minister. I thank her sincerely for her kind words. I know that every endeavour will be made to find accommodation as we go through this Bill. I recognise that she has a bit of a job on her hands, as there are so many competing interests out there, as well as in here. I just wanted to say thank you very much, because it has been a good debate. I shall reflect, as the Minister asked me to do, and I beg leave to withdraw the amendment.
“( ) that the receipts of the sale will be used exclusively for the purpose of investment in the Post Office network of branches and future investment in the delivery of the universal postal service by a Royal Mail company in so far as permitted by applicable competition and state aid regulations.”
Lord Stevenson of Balmacara
My Lords, the purpose of this amendment is to ensure that the proceeds of any sale of Royal Mail are invested in the post office network and the delivery of the universal postal service. In our debate in this House at Second Reading, the Minister explained what would happen to the assets of the pension scheme at transfer. She said:
“The cash transferred to Government will be transferred to the Consolidated Fund, gilts to the Debt Management Office and the remaining assets—stocks, property, et cetera—will be transferred to a newly created government fund. They will then be sold in a measured fashion, with cash proceeds from disposals going to the Consolidated Fund”.
Do you not love that “measured fashion”? It summons up an honourable Dickensian clerk selling fusty bills of exchange for gold coin. Measured fashion—what are they talking about? What century are they in? The Minister promised the Government,
“will be entirely transparent about the effect of these transfers throughout the government accounts”.—[Official Report, 16/2/11; col. 776.]
Despite the words and despite my rather wild fantasy, the proceeds are going back directly or indirectly to the Treasury. There is no doubt about that at all.
There is always a presumption that the Treasury will be the beneficiary of privatisations, but surely this should not happen to the proceeds of the sale of shares in Royal Mail. In 2009, the previous Secretary of State stated to this House that,
“the Government intend to use the money received from the minority share sale to benefit Royal Mail Group, including Post Office Ltd”.—[Official Report, 31/3/09; col. 970.]
In answer to the Business Select Committee, the previous Government also made it clear that the proceeds of any partial sale would be ploughed back into the postal business and used to fund modernisation. The Liberal Democrat manifesto was quite clear in proposing that the proceeds of the sale should be invested in the post office network. Royal Mail itself has stressed the need for investment in the post office network. Moya Greene has estimated the need to have £2 billion of investment over the next few years. As for the post office network, there is a great deal to be done to bring many post offices up to date and ready to survive in a fast-changing world.
We would all agree that the post office network is a suitable candidate for investment within the Royal Mail group. To the extent that they have provided £1.34 billion for the network, the Government seem to agree. However, if it emerges that the Government do not intend to reinvest the proceeds of the sale back into the business, that sheds a different light on the claims that they have made about the £1.34 billion. We know that half of this is fulfilling the programme of social network payments introduced by the last Government to support loss-making but socially valuable post offices such as those in rural areas. Surely we would all agree with this. The rest is set aside for investment in the post office network, including converting 2,000 sub-post offices into post office essentials or post office locals.
Noble Lords may be aware that such provision is itself becoming an area of controversy. There are certainly concerns among sub-postmasters, who have been drawing to our attention that some of this money is being set aside for temporary compensation payments to smooth the transition of sub-postmasters into either into the new model or out of the business altogether. This is associated with what they fear may mean a substantial fall in guaranteed or actual income, according to what we have heard from sub-postmasters. Be that as it may, if the receipts from the sale of Royal Mail are handed over to the Treasury rather than reinvested in the business, it will be a sad day for our post office network and all those working in them. We ask that the proceeds of any sale should be reinvested in the postal business. Insofar as this requires European state aid approval, it should be cleared in parallel with the pension fund deficit action.
The Minister has reminded us of the stark future facing postal services as letter writing declines and electronic communications grow. Royal Mail may be able to manage these changes under new ownership, presumably through economies of scale and what is called “managed decline” to match reducing turnover in the core business. But the issues facing the Post office in the future are of a different category altogether, and they will get worse if there is no long-term interbusiness agreement with Royal Mail and if the Government do not commit to use the Post Office for face-to-face transactions wherever possible in their business. We of course understand the pressure on Ministers in relation to this issue from the Treasury, but our point is that there is also a case for investment in our post office network. This probing amendment will allow the Minister to place on the record the Government's intentions regarding the proceeds of any sale of Royal Mail.
The post office network has been umbilically linked to Royal Mail for so long, that it is hard to envisage how it will transform itself when it is separated. Mutuality is mentioned in the Bill, but although we welcome that idea, mutuality of its own does not materially affect the question of how many thousand small businesses are to rethink and re-engineer their shops and businesses. How will they up their footfall, redesign their product lines, introduce efficiencies and harness the new technologies? All this will take money—far in excess of the £1.34 billion already provided—so the post offices need the proceeds from the sale of Royal Mail. I beg to move.
Baroness Wilcox
My Lords, Amendment 12 wishes to direct any proceeds received from a sale of shares to investment in the post office network and the universal postal service. I certainly agree that the both the Post Office and the universal service require long-term funding certainty if we are to secure both their futures, but I cannot agree at this stage that the proceeds of a sale should be used for either of these purposes. For a start, it is too early to estimate the potential proceeds from a sale, and too early to estimate where the proceeds should most sensibly be used. But the Government will, of course, look to use the proceeds that they receive to part-compensate the taxpayer for taking on the £8 billion deficit in the Royal Mail pension plan.
The Government absolutely recognise that investment is required in the post office network. That is why, as noble Lords will know, we announced last November a funding package of £1.34 billion for the post office network over the spending review period—a package that will be used to put the network on a sustainable footing, not to fund a programme of closures as the previous Government chose to do. We made this upfront commitment to fund the post office network precisely because we recognise its importance to communities across the UK. Funding for the network should not be dependent on the sale of shares in Royal Mail.
The primary purpose of the package of measures in this Bill is to secure the future of the universal postal service. This package will give Royal Mail access to the flexible capital that it needs to modernise and adapt to a changing postal market on a continuous basis. It will reform the regulatory regime with an increased emphasis on the protection of the universal service and remove the burden of Royal Mail’s historic pension fund deficit.
We will come on to discuss the detail of Part 3 in later sessions, but I draw the attention of noble Lords to Clause 28(3)(a), which requires Ofcom, in performing its duties under this Bill, to have regard to the need for the provision of the universal service to be financially sustainable. This is a vital new requirement on Ofcom, which was not in the 2009 Bill. The Government therefore believe that securing the future of Royal Mail by giving it access to private capital and establishing the right regulatory framework is the best way to support the universal postal service.
During the passage of the 2009 Bill, the previous Government resisted an amendment that would have required the Secretary of State to report on the Government’s intentions for the proceeds from a disposal of shares. In rejecting the amendment, the noble Lord, Lord Mandelson, undertook to inform both Houses how the payment for shares would be distributed. I am happy today to give the same undertaking for this Government. I therefore ask the noble Lord to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her response, which is rather depressing in its rejection of our proposal.
My reference to the pension deficit fund dealt with the assets. Tagged on to the end of that discussion was a comment that, in return for obtaining the assets, the Government were also acquiring the liabilities. I am not sure that that is an exact parallel. As I understand it, the assets are real and, even if sold in a measured way, will generate cash for the country which will go to HM Treasury, but the liabilities are ongoing. If I am right, the main pension responsibilities will be met on a pay-as-you-go basis. We are comparing apples with pears. One is a substantial reduction in our deficit position; the other is admittedly a long-term commitment but does not need to be capitalised on the resource accounts. Although I accept that £8 billion is a substantial sum of money, it does not really come into the question of whether the funds from the sale of Royal Mail should go back into the Post Office.
Secondly, the £1.34 billion package—which, as I mentioned, is both a continuation of work started under the previous Government and a commitment on behalf of the present Government to ensure that the Post Office is retained on a sustainable footing—is also a mixture. As I tried to say, the evidence is that it seems to result in a reduction in the number of post offices and certainly a change in the nature of post office services very similar to that which was available before.
My third point is that, without a proper package of business activities, there is no way that the Post Office can survive, however it is organised. It is depressing to read that the latest contract for services which could have gone to the Post Office from government has been given to Citigroup to operate. I suspect that that is only the first of a number of difficulties facing the network in future.
However, this was a probing amendment. The Minister has been kind enough to share her answer with us. I beg leave to withdraw my amendment.
Lord Whitty
“( ) a schedule of assets held by Royal Mail Holdings plc and used for the provision of directly managed Post Office branches which also details—(i) a schedule of those assets which will be transferred to the Royal Mail company;(ii) a schedule of those assets which will be transferred to the Post Office company; and( ) the terms and duration of the Inter-Business Agreement between the Royal Mail company and the Post Office company.”
Lord Whitty
My Lords, this is a fairly straightforward amendment, and I am sure that the Government will have no great difficulty in accepting it.
The noble Baroness will know that I have expressed some scepticism about the changes of ownership proposed by the Government. However, I have supported the proposals by both the previous Government and this one to unravel the status of Post Office Ltd from that of Royal Mail. It is important that we do that on a basis which is transparent and clear and which can therefore be the basis for future financial arrangements and effective and robust services to consumers of Post Office services, on the one hand, and Royal Mail logistics on the other.
Both new paragraphs to subsection (3) relate to the requirement on the Secretary of State to produce a report, as set out in subsection (2). The first, which would be new paragraph (c), requires transparency on the allocation of assets. My concern is that, because of the slightly blurred position between Post Office Ltd, Royal Mail Group and Royal Mail itself, the assets of Post Office Ltd are not as clearly recorded but must be at the point of transfer and unravelling the two parts of the business. I am particularly concerned because Post Office Ltd’s property portfolio consists mainly of Crown post offices, directly administered branches, mostly located in city centres and prime locations. That is the reason for my suspicion.
Before Parliament endorses any report from the Secretary of State, it must know that the full range of assets from Post Office Ltd is to pass across to the new sector—which, initially at least, will remain a publicly owned body. Therefore, that list of assets must be complete and where there is doubt—because some sorting offices are attached to Crown post offices; and there are other complications—the assets of Post Office Ltd must be clearly delineated and not by stealth handed over or promised to any potential investor in the Royal Mail side of the business. My suspicions may be entirely groundless, but there can surely be no argument that the schedule of assets should be clear to Parliament before it makes such a decision.
The second paragraph of my amendment is probably more substantial. If we are to unravel the two businesses, it is important that the relationship between them is understood by Parliament before it gives its decision in principle. That is complicated. The inter-business agreement between Royal Mail and the Post Office is long-standing and there are a lot of inferred obligations on both sides. It is important that the Government commit to the maintenance of an inter-business agreement. The Government have previously indicated that a renegotiated inter-business agreement will take effect prior to separation coming into force. Before that, Parliament must understand what the principles of that agreement will be and whether they will reflect the current relationship between Royal Mail and Post Office Ltd or whether they are to be modified.
Some within the Post Office would argue that Post Office Ltd has hitherto been a rather junior partner in that relationship and we want to ensure that both parties to this division, this partial divorce, are on a robust basis. It is therefore important that Parliament should understand that; that the principles should be set out in the report; and that the duration that the Government are requiring the parties to stick to is clear. There are different conclusions between a short IBA and one which lasts a number of years. Clearly, there needs to be some process for modification as times change, but we also need some certainty about the nature of the relationship.
Those are not unreasonable requirements to include in the report, and I therefore hope that the Government will at least accept the principle of the amendments. I beg to move.
Baroness Kramer
The comments of the noble Lord, Lord Whitty, arouse some questions in my mind, and this seems the appropriate time to raise them with the Committee. In an earlier Committee debate, several Members of the House talked about how important it is that the Minister’s report comes as soon as reasonably possible after he has made his decision—which, of course, is well ahead of the disposal itself. I am concerned that the proposal of the noble Lord, Lord Whitty, today does exactly the opposite. It militates in the direction of forcing the report to be delayed until much later.
An asset register—so that we know which assets will go to the Post Office and which to Royal Mail—is obviously desirable, but we can be reasonably sure that for about 80 per cent or 90 per cent of the assets that will be obvious. There will be others where it is exceedingly complex and where it may take years to unravel who is the legal owner. There will have to be some sort of agreement between the parties on how that process is to be managed. I would expect that to come in the detailed negotiations between the various parties, not immediately after the Minister's decision. There could be a very long delay if we place that requirement on the report.
On the inter-business agreement, again, general terms have already been laid out in the Bill. The purpose of the Bill is to make sure that the inter-business agreement is for as long as is legally possible, but we work with the knowledge that the arrangements will have to be sorted out in detailed negotiations between the parties. That, too, would substantially delay the report to this House. I stress a point at which the noble Lord, Lord Whitty, perhaps hinted: this is not a simple matter of saying that we should keep the inter-business agreement in place for the next decade or so. I have heard many complaints, from various parts of the Post Office, at how restrictive is the current agreement and how it prohibits them entering into various kinds of business which are necessary to make them sustainable.
There are highly complex aspects to all this. While we can expect general principles to be discussed in any report, if we start putting into it great commercial and negotiating detail, we delay it and it becomes something that we see after, rather than before, the fact of the disposal. I believe that it is the preference of this Committee to see the report before the disposal and not after it.
Baroness Drake
My Lords, the Minister in the other place, the honourable Ed Davey, has tried on several occasions to reassure stakeholders by arguing that both Royal Mail and the Post Office want an extended inter-business agreement. In Committee, he said:
“I refer the Committee to what the chief executive of Royal Mail, Moya Greene, and Donald Brydon, the chairman, said. Moya Greene said it was unthinkable that there would not be a long-term relationship between Royal Mail and Post Office Ltd. Donald Brydon said that he wanted to have the longest possible legally permissible agreement”.—[Official Report, Commons, Postal Services Bill Committee; 11/11/10; cols. 121-22.]
Those are wonderful and fine sentiments. The only trouble is that the current board cannot bind a wholly privatised Royal Mail board. Noble friends have said that Moya Greene is a very impressive figure and a great asset to Royal Mail. Having met her, I wholly agree. However, she cannot speak for the board of a new owner whose identity we do not yet know. It is wonderfully reassuring that the existing CEO and the chairman have such positive sentiments, but they are not necessarily translatable into what will effectively be an agreement between the Post Office and any new owner.
If one looks at the Bill and the statements that the Government have made, one sees that, as things currently stand, a privatised Royal Mail has little obligation, nor is it required as part of any terms of sale, in principle or in detail, to be bound to any obligation towards the Post Office beyond the current inter-business agreement.
Many people are anxious to extend the agreement significantly beyond the current five years because there is no firm confirmation that it will be so extended. At the point of sale—because one has no idea how long it will take to negotiate and confirm the details of a purchase—there may be only two to three years left on the existing agreement. The situation could be even more insecure, therefore, because at the point of confirming the sale the Post Office may discover that its fortunes are not well favoured and have only a limited time to deal with that.
As far as I can see—I am sure that the Minister will correct me if I am wrong—the Government have to date refused any amendment that would guarantee a continued relationship between the two businesses. They have suggested that there are legal difficulties in legislating on an inter-business agreement, but they have neither detailed why such legislation would be illegal nor defined what is the longest legally permissible period for any inter-business agreement. More to the point of the noble Baroness, Lady Kramer, who said that we should not get into the detail but take command of principles, nor have the Government said anything about whether a renewed agreement or a sustained relationship with Post Office Counters beyond the five years of the current agreement would be a condition of sale, or whether there would be an expectation that any bidders would make submissions as to the relationship with the Post Office.
In reality, there are very few safeguards for keeping the Post Office contract for the long term. As things stand, it is entirely conceivable that, just a few years down the line, there will be a post office network where you cannot undertake mail transactions. That is simply a proposition of possibility under the terms of the Bill. A privatised Royal Mail will be free to cherry-pick, as my noble friend Lord Clarke said. It could select a supermarket chain to meet its requirement in urban areas, with the Post Office picking up, if it was able to, the slack in rural areas where no one else wanted to compete to deliver the service. That would have serious implications for the viability and integrity of the network.
I refer to the very appropriate comments of the noble Lord, Lord Dobbs, in his maiden speech at Second Reading, who captured the point far better than I could. He said:
“In many rural areas, far from the post office subsidising the shopkeeper, it is the shopkeeper who is now subsidising the post office”.—[Official Report, 16/2/11; col. 732.]
This is not careless speculation on my part, because I think that it is highly possible that a private owner would take such an approach. No access criteria are laid down to which a privatised Royal Mail would need to adhere specifically in relation to post offices. This is important for the small business community, which makes an important economic contribution in sustaining employment in key areas. Fifty-nine per cent of small businesses use post offices at least once a week and 77 per cent use them to send their parcels. Perhaps I may therefore put two questions to the Minister. First, what exactly are the legal constraints on extending the five-year inter-business agreement? I may be able to speculate on the legal restraints on an unlimited extension, but I am not at all sure what they are on extending it. Secondly, why are the Government not confirming that maintaining a business agreement with the Post Office for at least a further five years beyond the existing agreement is a defined provision within the terms-of-sale agreement or invitation to tender that potential bidders would have to address? It strikes me that if everyone is saying that they are so committed to Post Office Counters, one would welcome such a commitment to that being in any documentation prepared, or terms set, for potential bidders.
My noble friend Lord Whitty expressed concern about who owns the assets and how they will be allocated. If the Post Office has to compete in a world where the Royal Mail is privately owned, its ability to do so will be heavily influenced by the assets on its balance sheet at the point of separation of the businesses within the post offices.
I noted that in the Second Reading debate in the other place, the honourable Mr Ed Davey, the Parliamentary Under-Secretary of State in the Department for Business, Innovation and Skills, argued that,
“a privately owned Royal Mail will not act against its own commercial interests. It will not give up valued retail space in the heart of communities the length and breadth of Britain”.—[Official Report, Commons, 27/10/10; cols. 426-27.]
He is no doubt correct that a privatised Royal Mail will not act against its own commercial interests and that it will not give up valuable retail space, but he could be incorrect in supposing that its commercial interests will necessarily lie with the Post Office. When the honourable gentleman says,
“It will not give up valued retail space”,
one has to ask whether he has taken a view as to whose retail space it is to give up. If the Crown Office estate is to be with the Post Office, it is not the Royal Mail’s to give up but Post Office Counters Limited’s to sell. My noble friend Lord Whitty is quite right to be concerned that there should be visibility as to who owns which assets at the point of sale.
Lord Skelmersdale
My Lords, I tend to agree with my noble friend Lady Kramer on this. Although what comes out of the discussion on this amendment will be valuable to our future discussions, as it is it rather puts the cart before the horse. As far as the noble Baroness, Lady Drake, is concerned, I will ask my noble friend one question, if she will deign to answer it. Quite clearly, from what she said in our last exchanges, she has as high an opinion of me as I do of her. The Government have a policy of supporting post offices and it is quite clear that this is what they intend. The inter-business agreement—currently lasting five years, as the noble Baroness, Lady Drake, has just said—is one of the ways in which post offices are supported. Should her worst fears be realised and there is no future inter-business agreement at the end of the five years, does my noble friend think that the policy of supporting the post offices will continue to be self-sustaining?
Lord Stevenson of Balmacara
My Lords, I support the amendment in the name of my noble friend Lord Whitty. A couple of noble Lords have suggested that these discussions, particularly in relation to the assets, are putting carts before horses but I am not sure about that. We are really talking about the transfer schemes that are referred to in Clause 8 and Schedule 1. Those are clearly mammoth undertakings, which will take a lot of time, so while I understand the points being made that they should not be in a position to hold back the main purpose of this Bill, they really do underpin it.
The Post Office is a massive enterprise. The business has revenue of £838 million with a profit of £72 million and employs more than 8,000 staff. There are nearly 12,000 post offices, of which 500 are outreach services and 10,000 are sub-post offices. That network, taken together, is bigger than all the bank and building society branches put together so we know that its scale will require a lot of attention. It would be rather surprising if some work was not already being done in that way. First, it is necessary to identify the assets, then to get into the complicated task of disaggregating the parts of those assets which have to go to Royal Mail and the parts which have to go to Post Office Ltd.
It is, of course, not just a question of assets. I am sure that the Minister will want to refer to this; quite a lot of the Royal Mail’s outstanding loans, including the modernisation loan from the Government, are secured against the assets. What effect will the splitting of the assets have on that and how will that be moderated as we move forward? Then there are the normal activities that one would expect in this sort of process about headquarter costs and shared administrative functions, which will be hard to disentangle—particularly where premises and the supervision of Royal Mail activities take place on Post Office premises.
Baroness Wilcox
My Lords, Amendment 12A seeks to require the Secretary of State to include in his report to Parliament details of the assets held by Royal Mail Holdings plc and asset transfers between Royal Mail and Post Office Ltd. It also requires the Secretary of State to report on the terms and duration of the inter-business agreement between Royal Mail and Post Office Ltd. Currently, Royal Mail Group Ltd and Post Office Ltd each already own the vast majority of the assets they require to carry out their own business. However, it is likely that some residual asset transfers will need to be carried out before any disposal of Royal Mail shares is completed. That is why the Bill contains the transfer scheme powers set out in Clause 8 and Schedule 1. These powers give the Secretary of State ultimate control over which assets sit with what company.
However, there is no set timetable for the transfer of these assets. That may be taken forward before a decision has been made to undertake a disposal of shares in Royal Mail, or it may happen after. If the latter is the case, the Secretary of State would clearly not be in a position to provide details in his report to Parliament as required by Clause 2. Relevant information relating to a transfer of assets will, however, be set out in the transfer scheme or schemes made under Schedule 1. Transfer schemes may impact on third-party contracts and agreements with Royal Mail and Post Office Ltd. I therefore assure the Committee that details of the schemes should and will be made publicly available.
On the ongoing commercial relationship between Royal Mail and the Post Office, there was significant debate in the other place about the inter-business agreement—the IBA—particularly about its duration. The Government’s view is that legislation is not the appropriate place for the commercially sensitive terms of a relationship between two independent businesses to be settled. Contractual negotiations between these businesses will involve a complex interaction of many different factors—such as pricing, volume, service levels and duration—and such negotiations would not be improved by government intervention.
The noble Baroness, Lady Drake, was concerned that the current board of the Royal Mail cannot bind the actions of a future, privately owned Royal Mail. I am afraid that I take a different view on that. Any legal agreement entered into by Royal Mail will remain legally enforceable for its duration whoever owns the company. The Government have been clear that we will ensure that the chairman of Royal Mail fulfils his commitment to Parliament to conclude the longest legally permissible agreement with the Post Office before the two companies are separated.
The noble Baroness, Lady Drake, also asked about the legal barriers to including an inter-business agreement of 10 years in the Bill. Legislation requiring an exclusive arrangement between Royal Mail and Post Office Ltd for, say, 10 years would face significant risk of legal challenge for being incompatible with competition law. Guaranteeing a revenue stream to the Post Office would also face the risk of a successful state aid challenge. It is important to note that a successful state aid or competition law challenge to the Post Office’s commercial relationship with Royal Mail that struck down the contract would present a serious threat to the Post Office network.
My noble friend Lord Skelmersdale asked whether the Post Office would be self-sustaining if the inter-business agreement ended. As I said, the chairman of Royal Mail has been clear that he has no intention of letting it end.
I am well aware that the House, like the other place, is in need of reassurance regarding the ongoing relationship between the two companies and the future of the post office network. I note the comments of my noble friend Lady Kramer, who voiced her concerns in that area. I hope that I will be able to provide further reassurance on those issues when we discuss Clauses 4 to 7, which relate to the future ownership of the Post Office. If the noble Lord is content, I therefore ask that he withdraw his amendment so that I can give the matter further consideration after all the issues have been discussed in full.
Lord Whitty
My Lords, I thank the noble Baroness, particularly for her last few sentences; clearly we may well come back to the matter on Clause 4. However, I did not find the rest of what she said very reassuring.
I am grateful to the noble Baroness for referring to the legal difficulties on the inter-business arrangement. However, there are different legal opinions on it. If it is primarily the Government’s view that an ongoing agreement would run up against both state aid and competition laws, before we complete consideration of the Bill it would be helpful to have an opinion that spells that out in writing. The question asked by the noble Lord, Lord Skelmersdale, is absolutely pertinent to this. If a legally defensible agreement between Royal Mail and Post Office Ltd could not be sustained in law, how can that be compatible with the Government’s very clear—and, frankly, very political and public—commitment to maintaining a post office network of roughly this size? I do not think it is possible to square that circle, which raises deeper alarms than I had when I tabled the amendment. I am certainly not arguing that the inter-business agreement in its present form should last for ever, but both Houses of Parliament will need to be reassured as to which principles of that agreement the Government will see sustained through the ongoing relationship between the two parts of what is currently the Royal Mail Group. I hope that we get greater clarification when we move further into the Bill but, if anything, this short debate has alarmed me more.
I have also been alarmed more on the assets; I am not sure that the Minister alarmed me, but the noble Baroness, Lady Kramer, definitely did. She effectively said, “We can’t set out in the report to Parliament”—the trigger for giving the go-ahead to the Secretary of State—“what assets we are and are not privatising”. In previous privatisations, on occasions there have been huge schedules about that. We do not have such a schedule attached to the Bill, and I do not propose that we do. There may be some obscurities attached to that schedule, in which case some footnotes may be needed.
Baroness Kramer
I fear that the noble Lord, Lord Whitty, may have misunderstood me; I obviously was not clear. If I remember correctly, the report comes after the Minister has taken the decision but before the actual disposal. After the fact of the disposal—that is what the noble Lord is now discussing—a clear schedule would be available. However, we are talking about a report to Parliament, which most of this House welcomes, coming at a far earlier stage than is normal.
Lord Whitty
But, my Lords, the report to Parliament provided for in Clause 2 is a necessary stage for the Secretary of State to go through before the disposal actually takes place. I agree about the decision in principle; I do not seek to delay that or take things out of sequence, but when Parliament discusses the report it needs to know what is and is not being privatised, at least in broad terms. The reasons for not saying so that the noble Baroness adduced—that we could not do so until we saw the final details of the negotiation—really alarmed me; as I said in my opening speech, there are some pretty good assets here. If a negotiation went on whereby the decision of the putative buyer was rather marginal as to whether it went ahead, and someone said to it, “Okay, we’ll throw in a couple of dozen prime-site Crown post offices in our major city centres. Does that make it any better?”, that would cause all parliamentarians a degree of alarm. Therefore, if the register of assets is dependent on the negotiations, we have something to worry about. I would have thought that the Government ought to know pretty clearly which assets go on one side of the line and which are on the other already, although they may have to sort out one or two things. If it is subject to negotiations, and if any premises that have a faint double usage by the two parts of the business could go into the bundle offered to the incoming investor taking over the Royal Mail side in whole or in part, the viability, the effectiveness and the asset base of the Post Office Ltd side of the business come into question again.
I hope that we return to those issues. I come out of the debate somewhat more alarmed than I went into it.