Universal Postal Service

Baroness Clark of Kilwinning Excerpts

Thursday 17th July 2014 Commons Chamber

[Katy Clark (North Ayrshire and Arran) (Lab)]

I beg to move,

That this House believes that the Universal Service Obligation as set out in the Postal Services Act 2011 is under threat from unfair competition from organisations which are rapidly expanding end-to-end delivery services in low-cost, high-density urban areas while leaving high-cost, low-density rural areas to be covered by Royal Mail, the universal service provider; and calls on the Government to instruct Ofcom to bring forward proposals to protect the Universal Service Obligation and the commercial viability of Royal Mail against this threat.

I am very grateful to the Backbench Business Committee for allowing us to have this important, timely, and indeed urgent, debate, given the threat to the universal service obligation. I refer to my entries in the Register of Members’ Financial Interests and advise the House that I have worked with Royal Mail, the Communication Workers Union and Unite the union on the issue in the run-up to the debate.

The London assembly yesterday passed a similar motion expressing concern at the expansion of end-to-end postal services by TNT Post and the ability of such organisations to cherry-pick services that provide the most lucrative work. The assembly was particularly interested in that, as TNT started off providing end-to-end services in London. The motion it passed went further than the one we are considering today, as it called on Royal Mail to be brought back into public ownership.

Royal Mail is the UK’s universal service provider. It is required under the Postal Services Act 2011 to deliver to 29 million UK addresses six days a week, and five days a week for other packets, all being delivered at an affordable, geographically uniform price.

Ofcom became the official regulator of postal services on 1 October 2011. Its primary duty is to secure the provision of the universal service obligation for postal services. It also has a duty, under the Communications Act 2003, to further the interests of citizens and consumers, where appropriate, to promote competition, but its duty to secure the universal service obligation always takes precedence.

There are two types of competition in postal services. The first is downstream access, which allows providers other than Royal Mail to collect and sort mail and then give it to Royal Mail to deliver over the so-called final mile. Obviously, it is not always only a mile, and sometimes it can be less than a mile, but that final part of the process is the part that Royal Mail has a legal obligation to carry out. The other type is the end-to-end service, which is the direct delivery of mail to the customer without any need for Royal Mail to get involved in the process. That is what I will focus on today.

TNT Post is currently Royal Mail’s main competitor in the end-to-end market. In 2012, it launched a direct delivery trial providing a full end-to-end service in west London. Since then, it has rapidly expanded into other parts of London and into Manchester and Liverpool. It plans, by the end of 2017, to cover over 42% of households in the UK, although only about 8.5% of the UK’s geographical area.

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

Is my hon. Friend aware of the many complaints about TNT’s service in London because of its use of agency staff, with letters being dumped and put through the wrong letterboxes? It does not just create unfair competition; it provides a poor service.

[Katy Clark]

Indeed, we are aware of the concerns about the inferior terms and conditions of TNT’s staff compared with those of Royal Mail, and about the service that customers are receiving. Of course, organisations other than Royal Mail are not required to meet the standards of service that it has a legal obligation to provide.

[Mr Gareth Thomas (Harrow West) (Lab/Co-op)]

I apologise for missing the first part of my hon. Friend’s remarks. Further to the point made by my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott), when the then Conservative-run council in Harrow decided to use TNT for the delivery of council tax letters, there was a whole series of reports of bad distribution processes—so much so that in the end Royal Mail had to be used to get the letters out in their entirety.

[Katy Clark]

I am grateful to my hon. Friend for that example, which illustrates the problems we are having and are likely to have to a greater degree as time goes on if the expansion takes place in the way that is intended.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I congratulate the hon. Lady on securing this debate. It is important for people to realise that one of the problems is that while the customer is the person posting the letter, it is the recipient who does not get their bank statement, bill or cheque, and they have no say in that. That is why conditions are an important part of what Ofcom needs to look at.

[Katy Clark]

Given the hon. Gentleman’s constituency, I suspect that he shares many of my concerns. I hope that we will explore all these issues in the debate.

I do not think the House necessarily fully appreciated that the expansion of TNT would take place quite so rapidly, and that is why this debate is so urgent. This expansion is a direct threat to the universal service because Royal Mail needs the universal service in order to be able to use revenues that it generates in areas where it is easier to deliver mail. In the areas I mentioned—London, Manchester and Liverpool—it is easier to deliver mail and therefore easier to generate profits. It is necessary for Royal Mail to use that work to generate profits to help to cover the rest of the national network.

I represent a large rural constituency in Scotland with islands and many small communities. In many parts of it, the costs of providing a mail delivery service will be quite considerable, no matter how we organise postal services.

[Mr David Hamilton (Midlothian) (Lab)]

Surely that is the whole point. Royal Mail needs the cross-subsidy to be able to deliver to the sparsely populated areas that my hon. Friend and I represent. That is key, and the ombudsman has to take it into account in relation to fair competition.

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[Katy Clark]

The hon. Gentleman, or rather my hon. Friend—

[Mr Hamilton]

Comrade.

[Katy Clark]

Indeed—he is both a friend and a comrade. I am delighted that he is here today. He represents a very similar constituency to mine.

Members in all parts of the House represent constituencies where we know it will never be profitable to deliver mail. That is why the universal service is so important. It is also important that we ensure that stamp prices are kept at a level that is affordable in all parts of the country.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Does my hon. Friend agree that we have seen this unfair competition before when the Conservatives were last in power and they privatised British Telecom? The other companies wanted the cities but not the rural areas, and now we see that again with Royal Mail.

[Katy Clark]

My hon. Friend makes an important point. Perhaps we can enter into that debate on another occasion.

The Government are allowing TNT to cherry-pick the services in more profitable city areas, where its presence has already led to reductions of 14% to 15% in the use of Royal Mail.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I apologise for missing the first two minutes of my hon. Friend’s speech in this very important debate. Does she accept that, although Labour Members voted to maintain the public ownership of Royal Mail, it is now notionally a private company? The USO is about providing a service, irrespective of the company that does it, across the country. There has to be an understanding from the Government, which was missing in Committee when Labour Members argued vociferously that this type of situation would occur, that we need to use a levy on TNT and other private sector companies or look at the structure of how mail is distributed across this country, on a regional basis or otherwise, to make sure that provision is universal.

[Katy Clark]

My hon. Friend is absolutely right. Many predicted that we would face this problem. Indeed, we are here to give a warning that it is already beginning to happen and that action is necessary now—we do not have time to wait. He is absolutely correct that that action is required whether Royal Mail is in the public sector or the private sector—given that most of it is not held by the Government or the work force.

[Mr Peter Hain (Neath) (Lab)]

I very much support my hon. Friend’s argument. I wonder whether, early in the morning a couple of weeks ago, she heard the interview on Radio 4’s “Today” programme with a business analyst who predicted the end of the universal door-to-door service because, he said, it will be impossible for Royal Mail, faced with this unfair competition, to sustain it. The universal service exists in statute, but does she agree that it is not specified what that means? It could mean collection from a central collection point, not delivery door to door.

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[Katy Clark]

My right hon. Friend is absolutely right. Of course, he has a very long track record and great expertise on these issues. If we do not take action now, then when the House considers this matter in a number of years’ time, there will be serious proposals for a reduction in the kind of service that people receive. We hope that the Government will take action now to make sure that we are not faced with that problem.

At the moment, Royal Mail still delivers 99% of mail in the UK. Our concern is that that situation could change very quickly given the current expansion plans of TNT, in particular, and perhaps other providers as well. Royal Mail itself estimates that TNT’s expansion strategy could result in a reduction of more than £200 million in Royal Mail revenue by 2017-18. The reality is that much of the most profitable section of the market, namely the business mail, is already handled by companies other than Royal Mail. Indeed, that has been the case for a considerable period. There has also been a significant reduction in the volume of letters over the past decade, which also continues to put pressure on the universal service obligation.

Royal Mail is subject to vigorous and rigorous performance standards. Its competitors are not subject to the same standards. There is also no requirement on competitors to report on service standards, as Ofcom says that service standards are driven by market forces. However, as my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) has pointed out, there are many concerns about the poor quality of service that customers receive from TNT in areas where it operates. There are also many concerns about the terms and conditions of the work force, which are considerably worse than those of the Royal Mail work force.

I believe that the motion is moderate. It calls on Ofcom to carry out a full review and to make proposals for regulation to create a level playing field in the postal services market. In particular, I ask Ofcom to consider whether a compensation fund could be established to support the provision of the universal service, which could be used to collect contributions from those that benefit from providing en-to-end service without the requirements of meeting the universal service. I also ask Ofcom to consider whether the general service conditions that currently apply specifically to Royal Mail alone should be extended to apply also to other operators.

We should also consider removing the requirement on Royal Mail to allow other operators to access its network. Hon. Members who visit the postal depots in their constituencies at Christmas will know that the work force have been raising concerns about that issue for many years. There is no doubt that that requirement to deliver mail for others has been a burden on Royal Mail.

[Mr McKenzie]

It is not only about the commitment to deliver that mail for others; often, Royal Mail also has to sort that mail before delivering it for them.

[Katy Clark]

My hon. Friend and his family have a great deal of experience in these matters, as do I. He is absolutely correct. I think that the situation is slightly less frustrating for the work force now, because the work used to be even more of a drain on Royal Mail and it made a considerable loss as a result. The financial arrangements have improved slightly, but this is very much an area that Ofcom needs to look at.

[John McDonnell (Hayes and Harlington) (Lab)]

My hon. Friend has come up with concrete proposals and a recommendation for Ofcom, but is not the problem that Ofcom has no sense of urgency at the moment? It says that it will not institute a review until the end of 2015 and that the 2011 legislation statutorily barred it from establishing a fund for five years, which means that it will not be able to do so until 2016, unless the Secretary of State acts. There is, therefore, a twin responsibility; on the Secretary of State to act in order to enable a discussion about the fund; and on Ofcom to institute the review now.

[Katy Clark]

There is a great deal of complacency on this issue from not only Ofcom, but the Government. We are seeing the warning signs now and we need the Government to make it very clear that we believe there is a real threat to the universal service. Ofcom needs to look at the matter urgently, carry out a full review and come up with proposals to ensure a level playing field in the postal services market and to protect the universal service.

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[Mr Reid]

My hon. Friend makes an important point. Some forms of high-volume business mail incur lower costs than for people sending Christmas cards or postcards. Obviously, if a company has high-volume mail from a big organisation coming into its system, that is much easier for it to deliver.

In fairness, it should be pointed out that Royal Mail has some advantages. For example, it has a nationwide infrastructure and benefits from economies of scale.

Royal Mail is very concerned about TNT’s plans and sees them as a threat to its ability to deliver the USO. We must always remember that Royal Mail is a private company with a duty to maximise the revenue for its shareholders. Therefore, it may or may not be crying wolf. It is Ofcom’s responsibility to decide whether Royal Mail is crying wolf.

Ofcom has many tools at its disposal to protect the USO. It could impose regulatory conditions on other operators to level the playing field. For example, it could require other providers to deliver over a larger geographical area than just a small urban area or to deliver on more days in the week. Ofcom also has the power to introduce a universal service fund. It can review whether delivering the universal service places a financial burden on Royal Mail and determine whether it is fair for Royal Mail alone to carry that burden. However, that cannot be done before October 2016 without Government direction.

[Katy Clark]

The hon. Gentleman has mentioned the possibility of a compensation fund, which organisations such as TNT could pay into. Does he agree that organisations that deliver business mail, which they have been able to do for many years, might also be required to pay into such a fund, given the amount of money they make from the lucrative work that they do?

[Mr Reid]

I agree with the hon. Lady that it is not just TNT and companies like it that would have to pay into the fund, but a wider range of companies. That would be a decision for Ofcom.

If Ofcom finds that there is a net burden on Royal Mail, there is a provision in the 2011 Act that allows the Government to direct Ofcom to establish the universal service fund. That would require other operators to contribute financially to support the universal service. I do not think that we are at that stage yet, but the Government and Ofcom might have to use that power at some time in the future.

Royal Mail has pointed out that it has to meet all the targets that are set by Ofcom and publish its performance against those targets quarterly and annually.

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[Katy Clark]

The debate has been extremely useful. I hope that what the Minister says in private is slightly different from what she has said in public today, because she has shown a level of complacency that was not seen in the contributions of Back-Bench Members on both sides of the House. There is a huge amount of concern about the speed at which TNT is expanding its service in the UK and about the impact that that could have on the universal service. I am interested that the Minister is meeting Ofcom later today and welcome the suggestion that Ofcom meet hon. Members, which would be useful. It would also be helpful if Ministers attended the meeting, so I would be grateful if she undertook to do so.

The Minister says that only a small proportion of work is currently undertaken by operators other than Royal Mail, which I made clear in my opening contribution. However, the concern is that TNT’s proposals, which are publicly available and which most hon. Members here have already seen, make clear the speed at which it will expand in this country. As a result, it will be covering a huge number—over 40%—of households, which is different from anything that the House discussed in the various debates that took place—

[Mr Binley]

rose—

[Katy Clark]

I am not sure whether I am able to take interventions when making a closing speech, but if I could allow anybody, it would be the hon. Gentleman given his track record on this issue.

Yes, we have had 10 years of competition, but the lesson that we have learned is that the market does not respond well to competition. The current regime is not protecting the services that we receive. The reality is that we have fewer services now than we did when competition came in. We all remember Sunday collections and twice-a-day deliveries. The road that we are on is extremely dangerous and is a threat to postal services in all parts of the UK. I hope that the Government will take on board the emotion and passion of hon. Members’ contributions today and insist that Ofcom urgently carry out a speedy review.

Question put and agreed to.

Resolved,

That this House believes that the Universal Service Obligation as set out in the Postal Services Act 2011 is under threat from unfair competition from organisations which are rapidly expanding end-to-end delivery services in low-cost, high-density urban areas while leaving high-cost, low-density rural areas to be covered by Royal Mail, the universal service provider; and calls on the Government to instruct Ofcom to bring forward proposals to protect the Universal Service Obligation and the commercial viability of Royal Mail against this threat.