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Katy Clark (North Ayrshire and Arran) (Lab)
It is a pleasure, Mr Davies, to see you in the Chair and to have secured this debate on the privatisation of Royal Mail. I should declare an interest here. I am chair of the Communication Workers Union’s parliamentary group. Members may well be aware that only last week in a consultative ballot on Royal Mail 96% of CWU members voted to reject the Government’s proposals in relation to privatisation. Other organisations such as the National Federation of SubPostmasters have also expressed concerns about the Government’s plans and have called for a delay in the proposals. It says that post offices will face an “extremely uncertain future” should the proposals go ahead. Given the concern in the industry about the Government’s plans, Parliament should have the time and the opportunity to debate such issues.
In addition to the concerns that I have just outlined in relation to post offices, the affordable six-day service is under threat and would be less secure if Royal Mail is transferred into private ownership. The Government claim that the universal service is enshrined in law, but many aspects of the universal service obligation are set by the regulator and can be easily changed. The track record of the regulator to date does not inspire confidence. The regulator has recently consulted on user needs from the universal service. It looked at ways in which the universal service could be changed to make it cheaper to run, including getting rid of first-class mail and therefore next-day service, reducing quality standards and cutting delivery days from six to five days each week. The regulator stepped back from making any changes, but a privatised Royal Mail under severe pressure to compete and to generate a return for shareholders is likely to lobby for such changes.
In the coalition agreement, the Government said that they would aim to inject private capital into Royal Mail. The Postal Services Act 2011, which was passed by Parliament in the last parliamentary session, enables the Government to proceed with the sell-off of the 497-year-old postal service.
In January 2012, during the passage of the 2011 Bill, I secured a debate on the privatisation of Royal Mail that focused on the impact that privatisation might have on the post office network.
Mr Jim Cunningham (Coventry South) (Lab)
I am sure that, later on, my hon. Friend will touch on the matter of the remote areas of this country, such as Cornwall, Devon and the isles in Scotland. Under the proposals, many people will not get regular mail and will therefore feel cut off, especially when it comes to receiving giro cheques and other such things and communicating with their families.
Katy Clark
As my hon. Friend will be aware, I represent a constituency which has, as well as many deprived areas, rural and island communities. I am aware of the concern in such areas over the implications of privatisation should it go ahead.
Mr Andrew Turner (Isle of Wight) (Con)
Although this proposal is an opportunity, it also has some costs. My concern is that rural and island areas such as mine would face problems. Is it the case that keeping the service with Ofcom provides a guarantee and means that there will be no change?
Katy Clark
I hope to explore some of those issues in today’s debate. The fear is that the current regime, which was set up under the 2011 Act, will not give the kind of security that many of us feel is required.
Jim Shannon (Strangford) (DUP)
I thank the hon. Lady for being so gracious in giving way and congratulate her on securing this debate. The fact that so many Members are here indicates the interest in the matter across the whole United Kingdom of Great Britain and Northern Ireland. Is she aware that the annual profit of Royal Mail has risen by up to 60% in the past year, which shows that we now have a more viable and stable business? Does she also think that, perhaps for older people in rural areas, the post office represents more than just a place to go to buy their postage stamps and that the impact on them will be greater than on anyone else in the population?
Katy Clark
The hon. Gentleman makes a powerful point, which I hope to explore in my speech. The point that I was making 18 months ago when I previously secured a debate on this issue was that no other country in the world has attempted to do what the Government are doing here, which is to separate the mail service from the post office network. At that time, a great deal of the concern over the proposed privatisation related to the already vulnerable post office network. At the time, there were many warm words from the Government about how post offices would not suffer as they would become the front of house for the Government. Indeed, the Government said in that debate that they were looking at a range of both national and local government services that post offices could provide. They said that post offices could act as the front line for users in local communities.
One of the major reasons why the National Federation of SubPostmasters is now saying that there should be an immediate delay in the privatisation plans is that the Government have failed to deliver on that promise. Its concern is that post offices remain highly dependent on Royal Mail transactions. It says that both post offices and a stand-alone Post Office Ltd would have a highly uncertain future should privatisation of Royal Mail go ahead.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend is making an excellent speech. Integral to the whole postal and Royal Mail industry is the cross-subsidy, which is justified because the industry is, at least in part, a public service; it is not just a commercial service. Does she agree that if it is a public service and there is cross-subsidy, it does not fit with the private sector?
Ann McKechin (Glasgow North) (Lab)
May I add an additional factor? My hon. Friend and I are on the Business, Innovation and Skills Committee, and last week, we took evidence from Royal Mail on the impact of the independence referendum, which is due to take place after the timetable for privatisation. The representative was unable to provide any scenario planning by Royal Mail should the referendum result be a positive one for independence, or to tell us what the consequences would be for Royal Mail. Does she not agree that that was utterly astonishing?
Katy Clark
I thank my hon. Friend, who serves with me on the BIS Committee. I was also astonished by that fact. There are specific issues for Scotland, given its demographics and its large rural areas. My fear is that if Royal Mail was allowed to be privatised, the consequences in Scotland would be particularly harsh.
Jeremy Corbyn (Islington North) (Lab)
My hon. Friend has been generous with her time. I agree with the points that were made earlier about the separation and atomisation of the whole post office network between post offices and mail delivery. Is she aware that those of us who are fighting to defend our post offices, such as the one in the Holloway road in my constituency, are told that the solution is to hand it over to a supermarket, get rid of the staff and bring in staff on lower wages who will share what is already a very busy post office with the supermarket. The proposals are nonsense and are claiming all kinds of losses that I do not think exist to justify privatisation of a valuable public service.
Katy Clark
My hon. Friend clearly expresses the risks that exist in city as well as rural areas.
Before I move on to the next part of my speech, I call on the Minister to outline what work has been done to date to provide more Government work to the post office network and to say what work is in progress and will be completed prior to privatisation going ahead.
Margot James (Stourbridge) (Con)
I congratulate the hon. Lady on securing this important debate. However, will she not acknowledge that under the previous Government many post offices were closed with inadequate consultation? In my constituency, we saw several closures. At least under this Government there has been an end to those closures. Also, contrary to what the hon. Member for Islington North (Jeremy Corbyn) said, in my constituency we are working with some very good supermarkets to bring back a post office counter service that will deliver 95% of what a traditional post office would have delivered, and surely that is a benefit.
Katy Clark
I am grateful to the hon. Lady for that intervention. Of course, I served with her on the BIS Committee for a considerable period. Clearly, she is making a party political intervention. Unfortunately, we are still seeing post offices closing as a result of the vulnerable situation that they are in, and we must not be complacent. We need to ensure that we put in place a framework whereby the Post Office is able to survive and our mail services can operate in such a way that they have a long-term future.
Katy Clark
I will take one more intervention, from the hon. Member for Angus (Mr Weir).
Mr Weir
I thank the hon. Lady for giving way and she is quite right that some post offices are still closing. However, many other post offices are suffering from having to offer reduced services, because they are being moved on to the Post Office Local model, and in some cases the Post Office is approaching local postmasters and asking them if they want to change or retire and consequently downgrading the service.
Katy Clark
The hon. Gentleman puts his point well. I will now move on to discuss some of the issues relating to Royal Mail itself, because I think that we have fully explored some of the challenges that the post office service will face if this privatisation goes ahead.
Since the legislation was passed, the Government have taken a considerable number of steps to prepare Royal Mail for privatisation. Royal Mail Holdings Ltd, as it is now known, is currently a 100% publicly owned UK-wide company, which was established as a sister company to the Post Office. This restructuring took place as part of the preparation for privatisation. A legal framework has been created that makes Royal Mail responsible for the collection, sorting and delivery of letters and parcels under a universal service obligation. The Government have indicated that they intend to sell shares in Royal Mail in the financial year 2013-14. Indeed, in a written statement in April, the Minister said that the Government would proceed with the sale of shares at what he called a fair commercial price.
Lisa Nandy (Wigan) (Lab)
I am grateful to my hon. Friend for giving way, and I congratulate her on securing this debate. Earlier, she made a compelling case about who stands to lose from the Government’s sell-off of Royal Mail, but I am pleased that she has turned her attention to who stands to gain from it. Does she share my concern that the Government are refusing to answer questions from my hon. Friend the Member for Edinburgh South (Ian Murray) about the involvement of Goldman Sachs and UBS, and that—despite repeated requests under the Freedom of Information Act—they will not reveal the fees that Goldman Sachs and UBS stand to make from the sale of Royal Mail?
Katy Clark
I am very grateful to my hon. Friend for that intervention. Indeed, that was one of the questions that I was going to ask the Minister, and she has saved me from putting it to the Minister in my speech. I very much hope that he will address that issue when he responds to this debate.
In the Minister’s letter to all MPs dated 17 May, which enclosed a copy of a speech that he had made to the Policy Exchange, he stated that the Government’s policy was not ideological and a number of assurances were given to MPs. It would be useful if he could provide the House today with a great deal more information about what the Government plan to do and how many shares they will sell off.
Royal Mail is unique in the UK postal market in that it is the only universal service provider. The 2011 Act has enabled a regulatory framework to be created, so that persons are automatically entitled to provide postal services provided that they notify Ofcom and comply with the conditions set by that organisation. This is a serious threat to Royal Mail, as competitors are now entering the end-to-end market.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
I am very grateful to my hon. Friend for giving way and I congratulate her on securing this very important debate. I am sorry that I missed the early part of her speech. Does she agree that the current approach is really about privatising profitability but nationalising debt—in other words, corporatism?
Katy Clark
I agree with my right hon. Friend. Indeed, the profits currently being made by Royal Mail have already been highlighted in an earlier intervention.
Many MPs will be very aware of some of Royal Mail’s competitors, such as TNT, which for many years have had a role in the postal market through what have been called downstream access contracts. Of course, many MPs will be aware of that from their annual visits to post offices at Christmas, where they will have heard of the frustration of those who work in sorting offices at having to deliver items for TNT and other organisations for what is called “the last mile” or so, and at a financial loss to Royal Mail. There is a very strong view that this practice is unfair and that it is unreasonable to expect Royal Mail to carry out that work at such a loss-making rate. My experience of meeting delivery staff working for Royal Mail is that they have a very high level of public service ethos and wish to see the highest possible standards in service to the public. There was real frustration that Royal Mail was being forced to operate with its hands tied behind its back in this way.
Now, however, TNT is also being allowed into the end-to-end market. TNT has set up a delivery service in west and central London, and it recently announced the extension of that service to south-west London. Of course, TNT is able to win business because it can choose where, when and what to deliver, without the quality of service standards and by undercutting the jobs, pay and conditions of other postal workers.
Joan Walley (Stoke-on-Trent North) (Lab)
I congratulate my hon. Friend on securing this debate, and I hope that she will get some response from the Minister. However, I must say to her that it is not only in rural areas that we are concerned about the loss of what is the universal standard; it is also in urban areas. We could be facing the prospect of just one or two deliveries a week—far fewer deliveries than at the moment under the present certainties that we have.
Katy Clark
I thank my hon. Friend for that intervention.
It may well be possible for TNT to provide a service by undercutting in places such as London. However, it is highly unlikely that they would ever be able, or willing, to provide a similar service in areas such as North Ayrshire and Arran, or indeed in many other parts of the country. The TNT model of competition means cutting costs at the expense of decent jobs. TNT employs staff on zero-hours contracts at below-living wage standards. In London, I understand that TNT pays £7.10 per hour, which is £1.45 below the living wage. I am also advised that TNT over-hire staff to ensure that there are more than enough people to do the job every day, so that each day workers on zero-hours contracts are turned away.
Kelvin Hopkins
On this question of TNT and other private deliverers, they openly admit that what they provide themselves is the local deliveries, which are cheap, and anything that is long-distance they throw to the Royal Mail.
Katy Clark
The Government claim that Ofcom will regulate entrants into the postal services market, but there has been no attempt to prevent TNT cherry-picking in this way or to regulate the use of zero-hours contracts and other poor contractual conditions.
Mr Iain McKenzie (Inverclyde) (Lab)
I congratulate my hon. Friend on securing this very important debate. Does she agree that probably the first thing that the private sector would cut from the Royal Mail service is our unique Saturday delivery?
Katy Clark
I agree with my hon. Friend that that is indeed something that many people are fearful of.
Frankly, I say to the Minister that it is completely unacceptable to proceed to develop our postal services in this country in the way that TNT is operating at this time. We all know from our own experiences that if we allow sectors to offer poor conditions and poverty pay then it is the state and society as a whole that end up paying the price by subsidising bad employers. If the Minister is saying that his policy is not ideological, surely he must accept that allowing operators to come into the market in this way is highly damaging, both to the universal service obligation and to the public sector employer, which takes people on with better terms and conditions of employment. This cherry-picking of work is undermining the Royal Mail service and the universal service obligation.
If a privatised Royal Mail were to operate in a similar way, which we can only presume it would given that its main motive as a private company would be to maximise profits for its shareholders, then we can only expect it to try to cherry-pick, given that it has to compete with the TNTs of this world. This is incredibly bad news for our mail service.
Mr Jim Cunningham
I congratulate my hon. Friend on securing this debate. Another thing to consider is the pension fund and its future, particularly regarding effects on Royal Mail employees. A reasonable pension fund will be a magnet for a lot of asset strippers.
Katy Clark
The fact that the Government have taken over responsibility for the pension fund has made Royal Mail a far more attractive prospect to anyone who wants to buy shares. I believe that that was why the Government decided to go ahead in that way.
In the run-up to privatisation, price controls have been removed from the cost of stamps. The cost of first-class stamps increased from 46p to 60p in April 2012, and second-class stamps have gone up 36p to 50p, although there is a 55p cap on the cost of those. The Business, Innovation and Skills Committee, of which I am a member, expressed concern, in our report on stamp prices, about the impact that this will have on vulnerable customers.
On 29 May, the Government announced the appointment of advisers to the Government for the sale of Royal Mail. We understand that they are working on a flotation with a value close to £3 billion. This will be the largest privatisation in the UK since the railways in the 1980s. However, the Government have not specified what the form of that sale will be, whether an initial public offering or a sale to private equity, although they have said that an initial public offering is their preference. Will the Minister give an update to the House on the Government’s thinking on this aspect?
The Minister took the unusual step of saying that Royal Mail may be sold to a foreign buyer if the communication workers continue with their campaign against privatisation. Can the Minister say when a decision will be taken as to what the form of a sale will be?
As my hon. Friend the Member for Wigan (Lisa Nandy) highlighted, there has been a great deal of concern about the costs associated with privatisation, which are likely to be huge. Barclays, Bank of America Merrill Lynch, Goldman Sachs and UBS have been employed to work on the sale. It is believed that the banks alone will receive £30 million in fees. No detail has been provided to the House. Will the Minister outline in detail all costs that will be incurred by the taxpayer in the process of this privatisation, and undertake to ensure that all costings are put into the public domain?
Mr David Anderson (Blaydon) (Lab)
I congratulate my hon. Friend on securing this debate. She said that the Minister said that Royal Mail could end up being sold to foreign companies. Is that not the case, because as we have seen with railway privatisation this week, 64% of what was British Rail is now owned by foreign companies? Does the Minister, and does my hon. Friend, think that the public in this country are aware that our Royal Mail could be owned by foreign companies?
Katy Clark
My hon. Friend is well aware that many parts of the public sector that have been taken into private hands have ended up being owned by both private people abroad and by foreign countries. That is not in the public interest.
Robert Flello (Stoke-on-Trent South) (Lab)
I apologise because other business in the House detained me, although I know that my hon. Friend’s speech will have been excellent so far. I congratulate her on securing this debate. Does she agree that there is also quite a strong possibility—indeed, a probability—that because of Royal Mail’s land assets and buildings, often in central locations in our cities, we could end up seeing the complete dismantling of what we currently know as the Royal Mail, with bits being sold off, left, right and centre?
Katy Clark
My hon. Friend highlights a real threat.
The original Hooper report in 2008 identified a number of issues with Royal Mail that needed to be addressed, many of which have now been dealt with. We have already heard that the Government have taken over the pensions deficit and that regulation has been put in place. The Government’s case now seems to be based on the need for capital. However, Royal Mail is doing well in the public sector and, contrary to the Government’s claim, there does not seem to be any good reason why Royal Mail should not be able to borrow the capital it needs to invest, while remaining in the public sector.
We have heard that Royal Mail’s operating profits increased from £152 million in 2012 to £403 million in the last year. The state aid approval that enabled the Government to take on the pension deficit also gives them authority to write off almost £1 billion of Royal Mail’s debt, as £1.1 billion was allowed and only £150 million has been used so far.
Any revenue from the privatisation would go to the Treasury, not the company. If the Government believe that Royal Mail will be strong enough to borrow in the private sector, why do they not believe it will be strong enough to borrow in public hands? Network Rail, for example, is to all intents a public company, but it has borrowed more than £30 billion from private markets. This borrowing does not count towards public debt.
I have asked the Government today to confirm how many shares they intend to sell off. For example, should only 50% of the shares be sold, does the Minister believe that Royal Mail could borrow from the private sector, or does he believe that all the shares need to be sold off to do that?
The service to the public is severely put at risk by a privatised Royal Mail. No doubt, the Minister in response will explain the protections of the inter-business agreement between Royal Mail and the Post Office. However, he will also be aware that there are few safeguards to ensure that that agreement is not watered down significantly a few years down the road. The Government may say that this proposed privatisation is not ideological, but given the risks of proceeding down this path, surely the Minister must accept that it cannot be in the interests of the public for this privatisation to take place at this time.
I ask the Government to answer a number of questions. Will they explain whether the legal requirement for the provision of universal service is a UK-wide obligation or could it be met in Scotland, Wales or Northern Ireland alone? How frequently will Ofcom, the regulator, be required to carry out a review of the universal service requirement, to ensure it reflects the reasonable needs of postal service users? Will Ofcom be required to seek the Minister’s approval before it can carry out a review of the universal service requirement?
Will prospective purchasers be allowed to divest Royal Mail of its international parcels business, General Logistics Systems? Will Royal Mail purchasers be allowed to divest the business of the postcode address file? What steps is the Minister taking to ensure that the universal service is protected following privatisation? What steps are the Government taking now to publish the terms of the sale of Royal Mail and how they intend to proceed, so that Parliament can give proper scrutiny to what is going to happen in the next few months?
Several hon. Members rose—
Philip Davies (in the Chair)
Order. At least seven hon. Members wish to catch my eye. I intend to go to the shadow Minister no later than 3.40 pm. I shall not impose a formal time limit at the moment. I ask hon. Members to be considerate to each other, which will mean about five minutes each, as a guideline. If they can keep to that, that will help everyone get a fair crack of the whip.
Caroline Dinenage (Gosport) (Con)
It is a pleasure to serve under your stewardship, Mr Davies. I congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing this important debate.
As the hon. Lady says, Royal Mail is an essential part of Britain’s social and economic fabric. One of the UK’s largest companies, it has more than 150,000 employees and a turnover approaching £9 billion. In 2012, research from the Centre for Economics and Business Research found that, in terms of Royal Mail’s economic footprint, its core UK business ranks as the eighth largest organisation in the UK. It contributes nearly 0.5% to the UK’s total GDP, rising to 0.7% when its wider economic impacts are included. That means that, for every £1 Royal Mail pays in wages, an additional 57p is generated elsewhere in the economy; it is a massive organisation by anyone’s standards, and one that is operating in a fast-moving and ever-changing marketplace. Like any business of that scale, the key to Royal Mail’s future success is access to the flexible capital that it needs to innovate and invest.
My first real involvement with Royal Mail came back in the ’90s, when I was running my own small business. In the days before e-mail, as I am sure everyone recalls, we had a daily collection for franked mail, through which we sent out all our mailshots, quotes, artwork and invoices, as well as the products that we manufactured. Now, all those things, other than the products themselves, are sent electronically. My business, like many others, has seen a massive fall in its use of the post. Conversely, of course, there are other small businesses across the UK for which the internet has been the catalyst for a massive increase in their use of Royal Mail, with the growth of online shopping, eBay and mail order.
On average, the spend on post by small businesses is quite low—just £9 a month for the average micro-business. Royal Mail has always kept the needs of business customers at its heart, as far as I can tell. Prices of franking services used by businesses have lagged behind inflation for many years and continue to do so. Franking customers benefit from good prices and significant discounts, but even so, as the hon. Lady said, the marketplace is increasingly competitive. Many large businesses, such as banks and utility companies, already employ one of Royal Mail’s rivals, such as TNT and UK Mail, to collect bulk mail. According to its website, UK Mail is the UK’s self-styled leading alternative mail service provider and claims to handle more than 2 billion letters per annum and to support more than 1,000 businesses. To survive in the face of such competition, Royal Mail needs flexibility to act in the most businesslike way possible.
I was also on the Business, Innovation and Skills Committee’s visit to Glasgow, which the hon. Member for Glasgow North (Ann McKechin) mentioned a moment ago, and I was struck by how unbusinesslike the Royal Mail’s spokesperson was in his approach to potential Scottish independence. I found that shocking. Royal Mail must act in a more businesslike way, and it needs to improve its efficiency to invest and innovate, which means that it needs access to the capital that other large companies enjoy so that it is sustainable over the long term.
Mr Gregory Campbell (East Londonderry) (DUP)
The hon. Lady is accurately outlining the change in the business climate in how often small businesses use the post, but she is also outlining Royal Mail’s need to be adaptable. Does she understand that, as we have already heard, Royal Mail’s profit in the past 18 months has increased considerably in the face of all that she has just outlined? It is in the public domain that Royal Mail is earning a significant profit, which should continue to be the case.
Caroline Dinenage
The hon. Gentleman makes an excellent point, but for any business to continue, it cannot just look at what it is doing now; it must consider future challenges. As we have already heard, the self-styled rivals to Royal Mail offer daily challenges, and any company with long-term aspirations must be able to innovate, invest and grow in the future. That is the problem. At the moment, Royal Mail is competing for scarce public capital against other priorities such as schools and hospitals. Unless Royal Mail can access equity markets, every £1 that it borrows is another £1 on the national debt.
Robert Flello
I am listening carefully to the hon. Lady, but I do not recognise some of the things she is talking about. From my experience, the work force in Stoke-on-Trent have gone through incredible change and have adapted to new systems. Indeed, they are so efficient that I sometimes wonder how on earth our postal workers manage to do some of the things they are being asked to do. There is new equipment and new vans. There has been huge investment, and the work force have adapted incredibly to very stringent business standards. I really do not recognise the picture that she is painting when I see for myself what is happening in places such as Stoke-on-Trent.
Caroline Dinenage
I am sure Stoke-on-Trent is a fabulous paragon of what our wonderful mail services do—as is Gosport, I hasten to add. I do not think anyone today is in any way casting aspersions on either the service or the quality that Royal Mail delivers; we are talking about how to ensure that Royal Mail is able to continue doing that in the long term when we are facing other challenges to the public purse. Clearly, adding further to the national debt would not be responsible in the current environment, especially when Royal Mail can run on a fully commercial basis and already has the capacity to be profitable, as we have heard.
Royal Mail has the highest service specification of any major European universal postal service: 93% of first-class mail is delivered the next working day and 99.9% of delivery routes are completed each day. But I argue that the quality of service framework that applies to Royal Mail under public ownership would continue to apply under private ownership. We talk about private businesses being interested only in shareholder profit, but having run a private business for more than 20 years, we are also very keen on quality of service and maintaining our customers, which must be taken into consideration.
Leading postal operators that provide universal postal services in other European countries have moved into the private sector and been successful. The Austrian postal service and Deutsche Post, for example, have delivered consistently high mail profitability since flotation, and Deutsche Post is perceived as being in the vanguard of digital transition. Furthermore, levels of service have remained consistently high. In 2012, for example, the proportion of letters delivered the next day in Germany and Austria was 95%, compared with the 93% regulatory target in the UK. Those and other international examples show private sector investment delivering competitive, profitable postal frameworks without necessarily compromising on service levels.
The Government say that their overarching objective is to safeguard the one-price-goes-anywhere, six-days-a-week universal service, to deliver taxpayers value for money and to deliver customers the quality of service that they are used to. The best way to safeguard the universal service for future generations is to combine the best of both the public sector and the private sector and to give Royal Mail the independence, flexibility and, above all, access to the investment it needs to face future challenges.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
I start by declaring an interest: I am proud to say that I am a member of the Communication Workers Union, and I am also a member of the Communication Workers Union all-party parliamentary group. I congratulate my hon. Friend the Member for North Ayrshire and Arran (Katy Clark), who chairs that group, on securing this timely and important debate and on her passionate opening speech.
Of course, this debate is timely in that it closely follows the result of the ballot held last week. The result should embarrass the Government, as 96% of postal staff rejected their plans, despite the cash bribes that Ministers said postal staff would receive. That is a reminder to the Government that principles cannot be privatised, which I know is not something many Tory MPs understand. For them, privatisation is a panacea to every problem, whether or not the problem is even genuine. I say that because this debate strikes more than a passing resemblance to the debate on the privatisation of the east coast main line, with which I will draw some parallels to make my points even stronger.
Just as with the east coast main line, the Government want to privatise a key national asset against the wishes of the vast majority of stakeholders, and just as with the east coast main line, the desire to privatise clearly owes more to dogma than to the bottom line. The east coast main line has flourished under public control since the collapse of the private operator and has generated hundreds of millions of pounds in returns to the Treasury while requiring little subsidy and ploughing tens of millions of pounds from the remaining profits into service improvements. Similarly, last month we saw that Royal Mail profits are also showing hefty improvements —up to £324 million—as a result of modernisation and the increasingly buoyant internet sales market. Royal Mail has made a total of more than £0.5 billion over the past two financial years.
The east coast main line and Royal Mail are not failing monoliths or drains on public resources; they are valued services that can and should provide an ongoing contribution to the public purse. Yes, we should always look for them to be better, but private does not necessarily mean better and in many cases may well mean worse. In both cases, the fear is that the Government are opting for a short-term, one-off cash boost ahead of the election, rather than retaining assets that can and should generate ongoing returns to the public purse for years and decades to come. I am sure the Minister will say that that is not the case. Why, then, do the Government plan to pursue the sale of shares in Royal Mail during this financial year, while markets are still quite shaky, rather than waiting until the time is right, to ensure that the best value can be achieved for taxpayers? If Royal Mail is sold off in the next few months, what guarantees do we have that that would represent a good deal for the country? I know there is a difference between rail franchising and a flotation, but what guarantees will we have that the taxpayer will not be called on to foot the bill for private failure, if it comes to that, as happened with the east coast line?
It should not be forgotten that, in pressing ahead, Ministers are not only forgoing the decades of returns that could be realised, but undermining the job security of more than 100,000 postal workers. They are also putting at risk the future of a service that millions of people rely on, despite having no electoral mandate to do so. As always, a Tory Government are putting private profits before people.
My constituents want their Royal Mail to continue to represent their monarch, not to operate in the interests of overseas royal families as part of their investment portfolios. They also want their Royal Mail’s directors to concentrate on improving services, not the bank balances of shareholders, which they would have a duty to do. Finally, they want their Royal Mail to concentrate on maintaining local delivery offices and on keeping services affordable because of the social benefit they bring, not on stripping assets to satisfy the demands of institutional investors. I believe that the Minister’s constituents also want that and that he does too, if his infamous letter to his constituents represents his personal view.
The legislation may be on the statute book, but that does not mean that we have to rush into using it; I would rather that we did not use it at all. Let us at least wait until we can be sure that using it will bring real benefits to Royal Mail and the country as a whole.
Margot James (Stourbridge) (Con)
It is a pleasure to serve under you, Mr Davies. I would like to start by paying tribute to the Post Office and Royal Mail for the hundreds of years of service they have dedicated to the nation. In particular, I would like to pay tribute to the sorting office in Stourbridge. I visited the delivery office early one morning last summer, and it was an eye-opener to see the incredible hard work, commitment, organisation and efficiency that characterised it. I then went with a postman on his delivery round, which topped off the visit for me; indeed, it was one of the most rewarding visits in my constituency calendar last year.
Mention has been made of the price of stamps, and I was on the Business, Innovation and Skills Committee at the time the proposal was made to raise the price of first-class stamps to 60p. The Committee was concerned about that proposal, and I shared that concern, but if we are to guarantee a universal six-day-a-week collection and next-day delivery service, 60p is a fair price, and a favourable comparison can be made with other items we might purchase for a similar sum, such as daily newspapers.
The need for part-privatisation was accepted under the previous Government. Richard Hooper was appointed back in 2008 to conduct an independent review of Royal Mail’s future, and his report under the previous Government made the case for part-privatising the Royal Mail service to guarantee its future sustainability. The former Deputy Prime Minister, Lord Mandelson, was passionate about going ahead with part-privatisation at that point, firmly believing that Royal Mail was not sustainable in the form it existed in at that time. The current Government are merely taking on that unfinished business so that Royal Mail can, as my hon. Friend the Member for Gosport (Caroline Dinenage) said, seek private capital on the stock market. We can surely all agree that we do not want to add in any way, shape or form to the country’s debt if that can be avoided. If private capital can enable the Post Office and Royal Mail to innovate to meet the challenges of the future, that is surely to be preferred to increasing the debt burden on the taxpayer.
On the opportunities for staff, I do not accept that the 10% employee ownership proposal is a bribe. I am impressed by certain models of capitalism—notably the John Lewis Partnership, which is a model many people in the Government respect. Lessons can be learned from that way of doing business. Members of the important staff stakeholder community have an interest in the business for which they work. I think that model will come to be appreciated with the passage of time.
Mr Anderson
Does the hon. Lady accept, though, that there has been a full democratic ballot of the work force, with a 74% turnout, which is probably more than for any of us at the last general election, and 96% of the people balloted said they did not want to get involved with these plans? Surely, the Government should listen to them; the people we expect to deliver the service do not want to go down the road the Government are suggesting.
Margot James
I thank the hon. Gentleman for his intervention. No doubt there will be many pressures and issues on the minds of people who work in the Post Office and the Royal Mail, and they came to their conclusion, although I do not know what the precise wording of the question in the consultation was.
I was talking about what would happen in the fullness of time. I think most employees who get a stake in the business for which they work—especially one with a good future, such as Royal Mail, which has a rosy future now that the Government have taken its huge pension obligations to one side—would welcome such participation.
I am impressed by the protections that the Government are putting in place. Royal Mail will still be regulated by Ofcom. There is the second-class postage cap. The VAT exemption will remain. The service will remain free for blind people and those serving in the forces. There is also a commitment on the Post Office side to maintain 11,500 branches. As I said—I am sorry the hon. Member for North Ayrshire and Arran (Katy Clark) thought this was a party political point—I have seen with my own eyes in my constituency what has happened at several post offices. Only last Friday, I opened a branch that had been upgraded and renovated. We are also keen to get a Post Office Counters local service back in an area that had its post office taken away a couple of years ago, and we are close to achieving that.
There is, therefore, great promise for the future. I look forward to Royal Mail staff having the opportunity to take a stake in their business and the taxpayer having a fairer solution in terms of an ongoing commitment in the future.
Mr Mike Weir (Angus) (SNP)
I am pleased to appear under your chairmanship this afternoon, Mr Davies. I congratulate the hon. Member for North Ayrshire and Arran (Katy Clark), who made a fine speech in introducing this important debate.
I served on the Committee that considered what is now the Postal Services Act 2011. I opposed privatisation at the time; nothing that has happened since has persuaded me to do otherwise, and I still strongly oppose privatisation. Areas such as mine have seen major changes in postal services, with reductions in mail collections and ever later deliveries. I live in a town, but I do not now get my mail until about 1 pm; in rural parts of my constituency, it is much later. For me, it is a minor inconvenience, but deliveries are crucial for many businesses in my constituency.
It is the business side of the matter that I want to comment on. Royal Mail is not a drag on public spending, but an important economic driver, especially in rural areas. In his evidence to the Committee that considered the Postal Services Act 2011, Richard Hooper quoted the point that I made to him at the outset of his 2008 investigation of Royal Mail, during the Labour Government. I observed that the universal service is crucial to businesses in rural areas, and have argued that point ever since. It colours my whole attitude to the issue; the service is crucial to rural areas throughout the UK.
Mr Hooper made a point about a young lady with a mobile phone and laptop, and wondered why she would need anyone’s physical address. Perhaps she has now moved on to a smartphone, and I empathise with that view, because young people are no different in Angus from anywhere else. They use e-mail and texts. Mr Hooper made the point that only about 10% of mail is private letters, and about 8% of that is sent around Christmas—it is mainly cards. That is a sobering fact, and I suspect that things have deteriorated since then. It seemed to me that there were fewer Christmas cards about last year. Perhaps that was because of the rising cost of postage, or perhaps I am simply less popular—I do not know. The youngster with the phone and laptop may never feel the need to write a letter, but I am almost certain that if they live in a rural area they will use the internet to order books, CDs or DVDs, even though those may be under threat from digital streaming, and, increasingly, fashionable clothing—not a problem I have. There are very few outlets for entertainment and fashion items in rural areas now.
It is sobering that when last Christmas I, like many others, visited my local sorting office, I was struck by the fact that it was stacked with packages from Amazon and similar online retailers. That is where the great growth in mail delivery is happening. The important point for areas such as mine is that the process works both ways. Not only do people in rural areas use the post to get items delivered; crucially, small and medium-sized businesses in those communities use Royal Mail to get their products out. In many cases they do not have an alternative. The other private companies do not offer a service in many parts of rural Scotland. The universal service is crucial to those businesses, and it is crucial to those of us who hope that businesses will be created and sustained in rural areas.
The hon. Member for Stourbridge (Margot James) said that the regulations under the Bill were sufficient to enable a universal service obligation to be maintained. I am afraid I do not accept that. There are many aspects of the Bill that cause me great concern. That is nothing new, because under the previous system Royal Mail investigated the introduction of a zonal pricing system. I must ask what protection the customer really has. Ofcom has already removed price caps from all Royal Mail products, apart from the second-class universal mail service, with the result that that is now the only truly universal service. First-class mail can be priced out of the reach of many, and with the price of a first-class stamp already 60p—one of the highest in Europe—how many people or, crucially, small businesses will send first-class mail?
The Federation of Small Businesses in Scotland has noted a substantial increase in the small packages rate, which is affecting many small businesses in rural areas of Scotland; and things could get worse. There is nothing in the 2011 Act to prevent Royal Mail or a private owner from introducing zonal pricing. I took that point up with Ofcom, which confirmed in a letter to me:
“Ofcom does not have any powers to restrict Royal Mail from introducing this pricing variation related to user location, as the Postal Services Act 2011 limits our regulatory powers to universal services and access”.
That is from the horse’s mouth—from the regulator that oversees the service. There is nothing to stop such a variation in price being introduced now, never mind after the service falls into the hands of a private operator.
The Government have talked about an initial public offering, but they have not ruled out a sale to one of the major international companies, such as TNT and Deutsche Post. The Communication Workers Union in its document in relation to the Bill made the views of some of those companies about the universal service very clear: they amount to an intention to get rid of it if they can, because they consider it to be an anchor on their business.
Ministers have previously argued that the universal service is a benefit to Royal Mail, as it is the only carrier that guarantees a delivery to every address. However, that ceases to be true when other companies take on the most profitable routes. A couple of months back I met a man delivering mail on the stairs of the block of flats where I live in London. He was wearing a postal uniform, but not a Royal Mail one: it was a TNT uniform. Ofcom has already, as the hon. Member for North Ayrshire and Arran said, sanctioned trials in areas of London for other companies to run an end-to-end service. Quite how that fits in with attempts to sell Royal Mail to such companies I am not sure, but it is a sure sign of the huge pressures on the USO that will come with privatisation. You can bet the mortgage on the fact that they might do it in London, but they will not do it in rural Scotland.
I remind hon. Members that section 43 of the 2011 Act allows Ofcom to review the USO and recommend, among other things, a review of the minimum requirements —which amounts to cuts in what the USO must deliver. Royal Mail should be seen as part of our national infrastructure—an economic driver, not a drain on the public finances. It should remain in public ownership.
Mr David Anderson (Blaydon) (Lab)
I congratulate my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) on obtaining this debate on a serious matter.
It would be a nice change if in this place we listened to the people who know: the people who deliver a service. The service we are talking about has been delivered for 497 years, and I reiterate what my hon. Friend said: what is happening is bribing people with public money—asking them to take shares in an organisation. As I said in an intervention on the hon. Member for Stourbridge (Margot James), 96% of the members of the union who were balloted said, on a 74% turnout, that they did not want that. Even Boris Johnson, who constantly lectures the unions about ballot thresholds, could hardly argue against those sorts of figures.
I have no doubt that people will say, “It’s self-interest. They want to remain where they are,” but the bosses of Royal Mail said—pigs may fly one day—that the terms and conditions of the workers will not be affected; so they cannot be accused of self-interest on that point. Perhaps their self-interest is based on their pride and faith in the service. They believe that Royal Mail is not just a brand to be bought and sold in the marketplace; they believe in the principles and ethos of public service. So do many other public service workers. In the past 25-plus years the House has ignored their voices. We have always known better. For example, in 1992 the public services trade unions argued against the private finance initiative. Hardly anyone in the House today would speak in favour of PFI as a wonderful success, but for 25 years when the trade unions said anything the response was, “Ignore them—they are just looking after their members.” They were right when they said it would not work: it has not worked.
Likewise, members of the National Union of Mineworkers said, “If you close the mines in this country and privatise them, what will you end up with?” We can see what we ended up with: there are three coal mines left in this country; we import 50 million tonnes of coal from some of the least secure regimes in the world; and the reality is that the lights of this country may go out. Similarly there was the “Tell Sid” debacle: “Tell Sid” to have shares, and we will transfer all the risk to the private utilities. What did we end up with? The voice of the work force was ignored, and the utilities sector is not fit for purpose. There is a £200 billion bill—we will have to find that to make sure we can power our country for the future—and a pricing regime that has pushed millions of people into fuel poverty.
Exactly the same process that is now being suggested for Royal Mail was carried out in the deregulation of bus services. In my part of the world we had something called Busways. We were told clearly, “Sell the shares to the work force—it will be their company.” What happened? In a few short months there was a management buy-out. Four people walked away with millions of pounds; the people on the ground were left with worse terms and conditions, working bad shifts with lower numbers, a poorer service for the public, a worse deal for the work force, and huge hikes for those using the service.
It is not just on the privatisation agenda that the voice of the workers has been ignored. When the Care Quality Commission was mooted, people in the health service said it would not work; and of course they were ignored. We saw what happened last week, but I will tell you what: I bet the two previous Health Secretaries—and probably the present one—wish they had paid a bit more attention to the people who actually work in the service than they did to those who advised them. But our arrogance as the political élite is overwhelming. We assume we know better than those who have dedicated their lives to delivering a service to the people of this country.
I make a plea to the Minister to stop rubbishing the voice of Royal Mail’s dedicated work force and accept the fact that they have been flexible in recent years. They have accepted huge changes to their working practices, shown huge experience and commitment, engaged much better with the modernisation programme and delivered much better industrial relations than in the past. They might just know something that we in this place do not. I ask the Minister to listen to the voice of the workers, and of the public. I am convinced that the people of this country do not know that this is being done, and they will not support it if they are made aware of it.
I look forward to the Minister’s response, particularly to the pointed questions asked by my hon. Friend the Member for North Ayrshire and Arran. I look forward with almost as much keenness to what the shadow Minister, my hon. Friend the Member for Edinburgh South (Ian Murray), has to say, as I know that he is committed to the agenda of not privatising Royal Mail.
Ian Lavery (Wansbeck) (Lab)
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) on securing this important debate.
The Government are pushing ahead with plans to privatise Royal Mail and hope to do so within the 2013-14 financial year. Members have declared interests. My interest is anti-privatisation. I am absolutely opposed to privatisation in any guise, for the right reasons. As my hon. Friend the Member for Blaydon (Mr Anderson) mentioned, we only have to look at the coal industry, which has been completely obliterated, and the electricity industry, in which the big six companies make billions of pounds in profits, while millions of people head toward record levels of fuel poverty. We only have to look at the privatisation of telecoms and of the railways, where fares are sky high and investment is completely lacking. Privatisation fails this country. The record is there to be seen. That is my declaration. We should stop kidding people that privatisation is in the best interests of consumers—as though calling them consumers makes them feel more important. We should really call them the general public.
The Government are desperate and seeking to generate as much finance as possible to get them out of the hole that they created. Consequently, they are determined to press ahead with the fire sale of Royal Mail, which is scheduled for this autumn. The decision to sell and when has been dictated by what is politically expedient for the Tories and the coalition in the short term, not what is best for the country. For the record, Royal Mail is making a profit. It is a profitable and efficient business. Its operating profits were £403 million last year, up from £105 million the year before. It is not a failing business; it is a very successful one.
Looking back on what has happened since the Government argued for privatisation, the original Hooper report of 2008 identified a number of issues faced by Royal Mail. Many of those issues have been resolved, notably the pension deficit and regulation, which leaves the Government’s case resting entirely on Royal Mail’s need to access capital. Royal Mail is doing well in the public sector, and it is my view, and I am sure that of most people in the UK, that it is a public asset and should remain so.
I thank the Royal Mail work force, who have embraced much change in the name of modernisation. They have done everything that has been expected of them to turn Royal Mail around, so turning it into the successful business that it is today. I have visited the Royal Mail in my constituency and been on a round with the men and women who do that fantastic job.
Contrary to the Government’s claim, there is no good reason why Royal Mail should not be able to borrow the capital that it needs to invest, while remaining in the public sector. That would not be at the expense of public sector spending, and it would not need to count towards Government debt. In 2008, the Hooper report identified five problems with Royal Mail that it argued needed to be fixed: the pension deficit, the relationship with the regulator, pricing, modernising performance and industrial relations.
The report made three proposals: that the Government should take on the pension deficit, that the regulator should be changed and that Royal Mail should be part privatised. On privatisation, the only remaining step not implemented, the Hooper report argued that Royal Mail was trying to improve industrial relations and the quality of management, reduce political interference, introduce commercial and financial discipline and allow access to private capital. On pensions, the Government took on the assets and liabilities of the pension scheme in March 2012. Since then, Royal Mail’s annual pension spending has fallen by up to £300 million as a consequence.
It is worth reminding the House what Communication Workers Union employees were asked. The hon. Member for Stourbridge (Margot James) said that she was not sure what was on the ballot paper. It said, “Do you oppose the privatisation of Royal Mail?” Can it get any simpler than that? It was pretty simple and not ambiguous in any way. The result was a 96% vote yes. The work force are totally behind it, and rightly refused to be bribed by the Government’s offer of shares or finance to privatise Royal Mail. We cannot continue to allow the likes of TNT and other companies that ignore good industrial relations with the trade unions and the workers and that pay well below the living wage to undercut such a fabulous service as Royal Mail.
Thank you, Mr Davies, for allowing me to speak. Put simply, the Labour party opposed the privatisation of Royal Mail while we were in government, and we continue to oppose it in opposition.
Mr Iain McKenzie (Inverclyde) (Lab)
It is a pleasure to serve under your chairmanship, Mr Davies. I congratulate my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) on securing this debate. I suppose that I should declare an interest as the proud parent of a Royal Mail employee.
For me, this goes back to the 1980s, the last time a Conservative Government decided to go on a privatisation binge. I saw it up close, personal and at first hand when I was an employee of British Telecom and the Conservative Government at that time decided to sell it off, supposedly to make it leaner and more competitive. I saw job losses, closed depots and lost opportunities for a future generation to secure good employment in my neck of the woods.
Like the last time, these sell-offs have been driven by a desperate need for money to plug a gap left by failing Government policies and to pay for the rising number of unemployed. The current group of state-owned businesses proposed for privatisation could fetch nearly £9 billion, £3 billion of which would come from the sale of Royal Mail. The original rationale for privatising the Royal Mail was that it was making a loss. We now know that that is no longer true. Annual profits are up more than 60%, and figures show that the amount of mail being sent has risen.
Royal Mail still needs investment. The coalition’s policy does not make economic, political or social sense. Ministers are motivated by ideological blinkers and the desire to make a quick buck, not by the long-term best interests of the taxpayer, the Royal Mail or the public. Under privatisation, there will be no obligation to deliver the 26 million letters a day that Royal Mail currently handles. Service will worsen, especially in rural areas.
Red pillar boxes are a symbol of Britain and give people a connection to the past not only of the GPO and the Royal Mail, but of their own community. There are no Government safeguards to prevent the organisation from falling into foreign hands. Royal Mail is more than a business; it is a service. To cite only one of the services provided, I can identify our posties, who we see every day up and down the country. They do more than just deliver mail, and they go in early to set out their walks and deliver their full mail sack; some of the private sector firms, however, after too much time into the day will take the mail back and not deliver the full amount. Posties are the ones who we see in the community and who are recognised as part of the community; they are the ones who see that the curtains are still closed and that the milk is on the doorstep. They provide more than a mail service; they are part of the community, which would not be the case under privatisation.
Ian Murray (Edinburgh South) (Lab)
It is great to see you in the Chair again, Mr Davies. I pay tribute to my hon. Friend the Member for North Ayrshire and Arran (Katy Clark), who set out a compelling case for keeping Royal Mail in the public sector.
I also pay tribute to the Royal Mail staff, who have worked tirelessly alongside their management to create a leaner, fitter and more modern company. As we have heard, the recent results, with profits in excess of £300 million, are testament to not only the hard work of the staff, but the steely determination of management and staff working together, in partnership with the trade unions, to make the Royal Mail service the best it can possibly be. It would be wrong of me not to mention especially the Royal Mail staff in Edinburgh, who got the best performance stats in Scotland only last month, so I say congratulations to them.
As we have heard this afternoon, Royal Mail is a much treasured institution, with a universal service obligation covering all parts of the country—whether north, south, east or west—for one uniform price. It dates back to 1516, and I am sure that my hon. Friend the Member for Blaydon (Mr Anderson), who mentioned that, was there at the time. It touches all of us, whether through birthday or Christmas cards, letters to friends, bank statements or the Liberal Democrats’ “We’re winning here” letters—given that, no wonder delivery volumes are dropping. Royal Mail also happily delivers my letters to the Minister, six days a week at one uniform price. It is the last major publicly owned business, which is something that we should cherish and protect.
Royal Mail of course has challenges. Letter volumes are falling fast, as everyone turns to electronic communications. It has some way to go to complete the modernisation programme, to make itself the best it can possibly be. There is of course the risk of industrial action, given the industrial relations issues that we heard about in the CWU survey just last week. The maintenance of the USO is of course expensive, and the position of Royal Mail on delivering that USO is compromised by the ability of other companies to come in and cherry-pick the most profitable end-to-end services. One of the critical things, which has not yet been mentioned, is that Royal Mail service standards are much higher than the standards of any of the businesses coming in, which makes cherry-picking easier and, obviously, a lot cheaper.
There has been a lot of talk about the Hooper report, including by the hon. Member for Stourbridge (Margot James). That report, however, if we analyse what has been done since, shows that the company can be viable in the public sector. The issues raised by Hooper deserve a bit of attention. The pension fund assets have of course gone into the public purse, so the public purse is now responsible for the liabilities. In essence, having just nationalised the liabilities to the taxpayer, the Government now propose to privatise the potential profits. The regulatory environment has improved, following the transfer of responsibilities to Ofcom, and we have seen that in the deregulation of pricing, with the exception of second-class stamps; a lot of the profits over the past year or 18 months have been directly attributable to freeing up Royal Mail from some of those industrial strangleholds.
Furthermore, industrial relations and quality of management have improved. We must pay tribute to the management, the chief executive officer, Moya Greene, and the CWU for again working in partnership to ensure that industrial relations were improved and the modernisation programme taken forward. That was not an easy task for anyone, but they have come through it with aplomb, and the profits have helped. On the other side, the explosion of the parcel business, which was highlighted by the hon. Member for Angus (Mr Weir), has given a real opportunity for Royal Mail to become even more profitable. I am slightly disappointed that he did not tell us what the cost of a parcel or letter would be in an independent Scotland.
Ian Murray
I will not be taking an intervention, because I do not have much time, but perhaps on the next occasion that we debate Royal Mail, the hon. Gentleman might come prepared with some of that information.
The environment therefore has changed since the Hooper report in 2008. That is why we should allow Royal Mail, under its new regulatory regime and its new environment, the opportunity to thrive in the public sector.
What is the real purpose of privatising Royal Mail? First, ideology—there is an ideological thirst for privatisation in the Government—and, secondly, to plug a hole in the Chancellor’s funding gap, because he is borrowing £245 billion more during this Parliament, owing to his failed economic policy. The fire sale of Royal Mail is the opportunity for him to plug that gap.
Let us analyse who is against the proposals. The late Prime Minister, Baroness Thatcher, the architect of ideological privatisation in the Conservative party, said that it would be a step too far. More recently, the Bow Group, a right-wing think tank to which the Minister might give much credence, said:
“It is likely to be hugely unpopular, prices will rise at a time when people cannot afford it, an amenity that many communities consider crucial will be removed, it will undermine the heritage of Royal Mail. The privatisation of Royal Mail is likely to move swiftly from a poisonous legacy for the Government now, to a poisonous legacy for the Conservative Party going forward”.
I would include the Liberals in that.
Ian Murray
I will not, if my right hon. Friend does not mind, because I have only 10 minutes and I want to try to give the Minister an extra minute to respond to my hon. Friend the Member for North Ayrshire and Arran. I apologise for not giving way.
In future, the privatisation of Royal Mail is likely to move swiftly from being a poisonous legacy for the Government to being a poisonous legacy for the Conservative party. That will include the Liberal Democrats, even though the Liberal Democrat manifesto was against the privatisation of Royal Mail—in fact, the Deputy Prime Minister spoke against it not that long ago.
We heard about the CWU consultative ballot this week, which produced a clear result from 96% of the very staff whom the Minister wishes to bribe with 10% of the shares. I hope that they are not shares for rights, which is a whole other subject for debate. Before the Minister jumps to his feet to say that the CWU ballot had a low turnout, it was some 78%, but this is not just about the posties. Unite, which represents a number of managers in Royal Mail, heard serious concerns expressed by management and senior management, who have also been saying that they have significant concerns about privatisation.
Concern about the rise in stamp prices has been expressed by the Countryside Alliance, the National Pensioners Convention and the Scottish Family Business Association, which are all becoming increasingly worried about the pace of the privatisation. The cross-party Business, Innovation and Skills Committee, which many Members present serve on, was also against the speed of the privatisation. Critically, the National Federation of SubPostmasters, which originally supported the Postal Services Act 2011 when it was going through the House, said that it no longer supports the separation of the two businesses and the privatisation of Royal Mail, because of the potential impact on the post office network. That includes the 10-year inter-business agreement and the £360 million a year that goes into the Post Office by having that inextricable link between the business and the delivery units. The Minister needs to address that and to let us know the impact on the post office network of the privatisation of Royal Mail.
If there is any doubt at all that the Minister does not believe the Countryside Alliance, the Bow Group, the late Baroness Thatcher, the CWU or Unite, why does he not believe himself? In February 2009, when in opposition, he said clearly in a letter reported in the press:
“I certainly do not support the…plans for privatisation”,
with reference to Royal Mail. Even with the Hooper environment getting better, the Minister now says that he is not against it. He might pop to his feet to say, “That is because we’re giving 10% of the shares to the staff,” but if that is the justification for changing his stand from being against privatisation to fully privatising Royal Mail, it is a weak argument.
The Government have also failed to address a number of critical issues with regard to the justification for privatisation. On the timing of the sale, why now? I claim that it is because the Chancellor needs the money in his Budget come April next year. I hope that the Minister can dispel that myth. The hon. Member for Gosport (Caroline Dinenage) said that Royal Mail has to compete with schools and hospitals and everyone else for public money. It does, but the future profits of Royal Mail could be building schools and hospitals and every other piece of infrastructure that this country might put together. Public services are not always a drain on resources; a profitable Royal Mail could contribute to the Government’s resources, to build schools and hospitals.
There are unresolved competition issues and questions about what happens if the Royal Mail falls into trouble in the regulated environment. The USO is expensive and the most profitable parts could be cherry-picked by other end-to-end deliverers, so that it might become unaffordable. What happens then? Does it revert back to the Government and the public purse, as happened with the east coast rail line, which my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) mentioned, with the company handing back the keys? This is a huge issue, and there is an impact on customers and the post office network. If all that is put together, the strongest compelling case is to keep Royal Mail in the public sector, and that is what we will fight to achieve.
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)
I, too, congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing this debate, and I thank hon. Members who have contributed to it. It has been a good debate, and I welcome the opportunity to respond to the issues raised and to explain why the Government intend to sell shares in Royal Mail in this financial year.
The Government’s overarching objective is to secure the future of the universal postal service: the six-day-a-week service at uniform, affordable prices that delivers throughout the UK. The service is vital to our economy. The Government’s reforms go back to Richard Hooper’s independent review of the postal sector which was commissioned by the Labour Government because the volume of mail was falling. That review concluded that there was a substantial threat to Royal Mail’s financial stability and that the universal service was under threat. It recommended that action should be taken as a package to secure the universal postal service with responsibility for postal regulation being transferred to Ofcom, the Government tackling the historic pension deficit, and Royal Mail entering into a strategic partnership with one or more private sector companies to give it commercial confidence, access to capital and corporate experience. The Labour Government accepted those recommendations.
In 2010, following an updated report by Richard Hooper that confirmed his initial findings, apart from the need for a strategic partnership, the new Government introduced a Bill to enable implementation of the package of recommendations. Since the Postal Services Act 2011 received Royal Assent in June 2011, we have implemented two elements of that package by establishing Ofcom as the regulator with stronger powers to protect the universal service, and by taking on Royal Mail’s historic pension deficit. By removing those major barriers, Royal Mail has begun its journey to long-term sustainability. It is now profitable, as hon. Members have said, and its overall financial position has improved.
The challenge now is to maintain that positive momentum. We should not forget that in recent history the Royal Mail group has swung between profit and loss. Royal Mail’s core UK letters and parcels business suffered losses in five of the last 12 years. During that period, overall losses were around £1 billion and around 60,000 jobs were lost, so resting on the current year’s profitability is not enough. The core UK network made a margin of 3.9% in that financial year, which was an improvement, but it was well below international peers such as Deutsche Post and Austrian Post with a margin of more than 8% and Belgium Post with a margin of 17%.
A more profitable Royal Mail will be better able to weather any future market weakness and, more importantly, will be able to take advantage of new opportunities. The company needs future access to private capital to be able to continue its modernisation programme and to seize opportunities for growth such as the boom in on-line shopping. The final phase of our reforms and implementation of the Hooper recommendations is the sale of Royal Mail shares, which will give Royal Mail future access to private capital.
That is the way to put Royal Mail’s future on to a long-term sustainable basis. It is consistent with developments in Europe where privatised operators in Austria, Germany and Belgium have been profitable and continue to provide high-quality services. Only last week, there was a successful sale of shares in the Belgian post operator, bpost. The Government’s decision to sell shares in Royal Mail is not ideological. It is a practical, logical and commercial decision, just as the Labour Government’s decision was in 2009. What they got wrong and what everyone opposed, including me and most Labour MPs at the time, was of course their proposed implementation.
I will turn to some of the more detailed questions that the hon. Member for North Ayrshire and Arran asked. She asked about the effect on the Post Office, which is now a separate business. As my hon. Friend the Member for Gosport (Caroline Dinenage) said, we put an end to the closure programme. I am looking forward to re-opening the refurbished Otford post office on Friday. It is winning a range of front-line service contracts from the Driver and Vehicle Licensing Agency, the Skills Funding Agency, the Department for Work and Pensions, the Border Agency and many others.
The hon. Member for North Ayrshire and Arran asked me about the type of sale. We have not made a decision on how much of Royal Mail to sell, nor what form the sale should take. I assure hon. Members that when we decide, we will make a statement to Parliament and under the legislation we must lay a report to Parliament at the same time. The hon. Lady asked about the fees involved. If there is an initial public offering, the fees will be set out in a prospectus. I assure her that we will be very careful to keep them as low as possible.
The hon. Lady also asked whether the universal service provision is UK-wide, and the answer is yes. She asked whether Ofcom can review the universal service provision and throw it up into the air at any particular point, and whether ministerial approval is required to do so. The answer is that Ofcom may review it at any time, but cannot change it. Only the House can change the universal service provision—
Michael Fallon
When I was interrupted, I was replying to the important question from the hon. Member for North Ayrshire and Arran on what triggers a review of the universal service requirement: could Ofcom do it at any time or does a review need ministerial permission and so on? The answer is that Ofcom can review user needs at any time and it must carry out such a review before it can modify any part of the universal service order, but it cannot modify the order in a way that changes the minimum requirements. That can be done only by Parliament amending the Postal Services Act 2011, which gives all of us the protection we need, and that protection continues irrespective of the ownership of Royal Mail.
The hon. Lady asked about disposables. The directors of the company—a privately owned Royal Mail—must act in the best interests of the company. The Royal Mail is already clear that it sees the postal access file as an integral part of the business. It is separately regulated by Ofcom, and that separate regulation continues irrespective of the particulars of ownership. If I have missed any of her questions, I will write to her after the debate.
The Royal Mail is a business with a £9 billion turnover, which employs more than 150,000 people, and of course, a company of that size and importance to the British economy should have access to the flexible capital it needs: to continue to modernise; to become more efficient and competitive; to innovate and invest; and to seize opportunities presented by new markets, such as the rapid growth of online shopping. Over the past years, Royal Mail’s investment in the business has increased from £555 million to £665 million. As I said earlier, Royal Mail is profitable, but its margins are still behind those of its competitors. Investment remains crucial if it is to continue to improve margins and provide the services that customers demand.
No responsible party would propose that in the current environment Royal Mail should have to compete for scarce public capital against other services, such as schools and hospitals. Royal Mail, run on a fully commercial basis, has the capacity to be cash-generative, profitable and perfectly able to raise the capital it needs from the private sector. A sale of shares will also reduce the possibility of any future Government interference in the operations of the company. It is time for Government to step back from Royal Mail, to allow its management to focus wholeheartedly on growing the business and planning for the future. We will give Royal Mail the commercial freedom it has needed for so long.