Baroness Hoey
Main Page: Baroness Hoey (Non-affiliated - Life peer)Postal Services Bill
Baroness Hoey Excerpts
Vince Cable
If hon. Members want to make the same point, there is no point in pursuing their interventions, but if the hon. Lady’s is on a different point, I shall take hers.
Kate Hoey
If everything that the previous Government wanted to do was so good—and many Opposition Members opposed what they wanted to do—why are the coalition Government not simply taking up where they left off? Why are they going even further and totally privatising Royal Mail rather than leaving a majority share in the public sector?
Vince Cable
I shall take the hon. Lady through the arguments step by step, but the situation has deteriorated badly. I think that she lost seven post offices in her constituency, so she will know that the situation is not satisfactory and that the status quo cannot be maintained.
Vince Cable
We certainly do not have any doctrinal or other objections to foreign ownership. I spend a lot of my time trying to attract foreign investors to the country, but, as far as the royal charter is concerned, it is clear that the association with the monarchy is probably the most powerful brand that the company can possibly have, and there will be every interest in the new owners continuing to maintain it.
We need to be careful of specific issues. We need to be careful that the new owners do not abuse the royal association, and we are discussing with the palace how we build in those protections. The monarch will continue to have the right, which we are also building in, to ensure that any new stamp, for example, is cleared by the palace. So, the royal interests in the matter are fully protected. We are very sensitive to them and to their importance.
Let me return to the core of the argument, which is the sale of shares in Royal Mail. That is a departure from the previous Government’s Bill, but I should remind the House that the purpose of the Bill before us is not the sale of shares in Royal Mail for its own sake, but rather, as I pointed out to the right hon. Member for Croydon North (Malcolm Wicks) a few moments ago, the protection of the universal postal service and Royal Mail as the only company capable of providing it.
It is therefore right that we allow for the flexibility to seek the investment required to secure the future of Royal Mail and the universal postal service. So, we see no reason at this stage to set an arbitrary target for how much we must sell, by when and by which method. Those are critical decisions that need to be taken with proper advice and in the full knowledge of market conditions, assessing both value for money and the company’s needs.
Of course, Parliament will be kept informed of those decisions, and the Bill requires a report to Parliament once a decision has been taken to begin a sale process. I hope to be in a position to report to Parliament on the sale process in the first half of this Parliament. In the longer term, I do not believe that there is a need for the Government to keep a stake in Royal Mail, but I will ensure that the Government have the flexibility to ensure the right outcome for taxpayers, for Royal Mail and for its employees.
Let me turn to the interests and concerns of the employees. The employees are critical to Royal Mail’s ability to modernise and thrive, and it will come as no surprise to Members when I say that Royal Mail has a history of poor industrial relations. Members may have noticed that Unite announced two days ago that it would ballot Royal Mail managers on industrial action. That recent development aside, I have been heartened by some of the positive steps that have been taken to improve industrial relations—in particular, the agreement with the Communication Workers Union on the modernisation of the business. The agreement accepted that, unfortunately, job losses would be associated with the modernisation. It accepted, too, that there would need to be changes to working practices, and that mail centres would close. The plan has already been agreed with the CWU, and the company is implementing it now.
Kate Hoey
One depot that has been suggested for closure is the very large one at Nine Elms in Vauxhall. There has certainly been no agreement in London that it should close, and everybody will fight its closure very hard, because it would be just crazy for everything—lorries and vans—to go in and out of London, adding to pollution.
Vince Cable
I am not familiar with the details of the argument in that case. I was referring to the fact that there has been a constructive relationship between the union and management on modernisation, but such issues do exist, and they are essentially commercial ones that must be dealt with by management and their employees in the normal way. None the less, I would be interested to know whether there is a specific role in the matter for the Government, and I shall respond to the hon. Lady on that.
So, I acknowledge that there will be job losses. The company is losing money and the market is declining, and that is regrettable, but it is unavoidable. The question that we need to pose is, what happens if we do not take action? What happens if Royal Mail fails and the market collapses? That is the current trend. I know that the CWU has been in Parliament today, talking to many hon. Members about their views, and I and my hon. Friend the Under-Secretary, who has responsibility for postal affairs, met the CWU to discuss Royal Mail. We look forward to continuing to talk to its representatives as the Bill goes through Parliament.
However, I have one thing to say to the union directly today: the worst thing for its members, Royal Mail’s employees, would be to do nothing, because that is the real threat to jobs in Royal Mail. The employees of Royal Mail also deserve better than constant battles between the union and the management. They deserve to be properly engaged in the business that they work for, and to have a real stake in its future. That is the only way in which we will break for ever the cycle of antagonism and mistrust that has bedevilled the company. The Bill therefore requires the creation of an employee share scheme, which will hold at least 10% of the equity in Royal Mail in future. That is very far from being a token gesture; it is nothing less than the largest employee share scheme of any major privatisation.
The employees of Royal Mail will also be concerned about their pensions, and they have good reason to be, because Royal Mail’s pension deficit is huge, growing and volatile. Put simply, it is not sustainable. Even the recent agreement between the pension fund trustees and the company is fragile. It requires that Royal Mail pay off its deficit over 38 years, which is at least twice as long as any other UK company’s repayment plan, and the pensions regulator has already said that it has substantial concerns about the agreement.
Mr Denham
The hon. Gentleman may have a point about the use of those profits, but I would rather they went to the Treasury or to the Royal Mail, not to a private company whose owners lie overseas. The defence of the national interest lies with public ownership.
Today’s Bill provides, for the first time ever, for the breaking up of the Royal Mail, with different organisations providing the universal postal service in different parts of the country. It breaks the umbilical link between the Royal Mail and the network of local post offices prized by residents and communities up and down the country, and does so in a way that threatens the future of thousands of local post offices. It is a very serious Bill, and it must be considered seriously and in detail in the weeks and months ahead.
Of course, serious discussion of the Bill must acknowledge why the coalition Government have concluded, as the previous Labour Government did, that doing absolutely nothing is not an option. The competition for the services offered by Royal Mail, including from new ways of communicating, has changed more dramatically than anyone envisaged even 10 years ago. Last year, it reported a drop of 7% in letter volumes. Other operators have been taking business upstream faster than expected. Some 87% of all mail in the UK is sent by businesses to people at home or to other businesses, and competitors have already won more than 60% of the upstream, pre-sorted bulk mail market, delivering their customers’ mail into the Royal Mail system for final delivery.
Over the fast-approaching horizon will come the full impact of technological change—e-mail, web-based advertising, text messaging, mobile phones and all the other modern ways of communicating. The worldwide postal market is expected to decline by 25% to 40% over the next five years. The problems with the pension fund, which had their origin in the 13-year pension holiday until 2001, have mounted. There was, therefore, a consensus that action needed to be taken.
Kate Hoey
My right hon. Friend has mentioned a number of issues, but he has not drawn attention to the EU directive on postal services, which allowed companies such as TNT to cream off all the profitable parts of Royal Mail and leave the universal service within the public sector. That directive was agreed to. Does that not show that we should examine EU directives a little more carefully in future?
Mr Denham
All EU directives should always be examined very carefully as a matter of principle. There is perhaps a debate to be had about whether a six-day service exceeds the strict requirements of the EU directive, but my hon. Friend raises an important point. If she will allow me, I will return a little later to how competition has developed in practice and whether we have a level playing field.
There was consensus about the nature of the action that needed to be taken. The Royal Mail needed to be transformed to become more efficient and competitive, and that transformation would need new management and vastly improved industrial relations. The taxpayer would need to take on the liabilities of the pension fund, and access to investment was needed.
However, the central question that the House must ask today and in the coming weeks is whether the Secretary of State’s way forward is the best. We will oppose the Bill, although we do not oppose every element in it. We believe that abandoning the commitment to keep Royal Mail as a publicly owned organisation is wrong. Clause 1 abandons that commitment, which was restated by the Labour Government. That will inevitably threaten the public interest, from the moment the sales process starts to the long-term future of both Royal Mail and the Post Office.
Public ownership of the Royal Mail provides the ultimate safeguard for the public interest. It ensures that even if other policy fails, it is not too late to defend the interests of the public, whether by protecting the delivery of letters six days a week to every home in the UK at a standard price, or by guaranteeing the business that can sustain a network of local post offices. Public ownership can ensure that public money is invested for public benefit, not private profit.
The front-line defence of the public interest lies, of course, in the legal framework in which Royal Mail and the Post Office operate. The Bill will transfer responsibility for regulation from Postcomm to Ofcom, as did Labour’s Bill. We will need to consider carefully in Committee whether a regulatory framework designed for a publicly owned company remains as well designed for the foreign-owned or private equity-backed company that might soon run Royal Mail.
The relationship between the public interest and Royal Mail is not governed by regulation alone. Local post offices need a continuing public subsidy, and that in turn depends on the commercial relationship between Royal Mail and the post offices. Both those issues have properly concerned Ministers and Parliament in the past. In some crucial areas, such as the relationship between Royal Mail and the Post Office, the Bill will weaken the ability of Ministers and Parliament to act in the public interest. In other areas in which Parliament might wish to defend the public interest, such as the universal service obligation, it leaves too much discretion for the regulators and Ministers to waive the public interest.
The Secretary of State made no case for why he had decided to go beyond the limited equity stake that was proposed, not without controversy, by the last Labour Government. I wait with interest to hear the remarks of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), if he catches your eye, Mr Deputy Speaker. The Secretary of State made no case for the full privatisation of Royal Mail.
As the Secretary of State said, we recognise parts of the Bill from our own legislation, and we broadly support parts of it, including employee share ownership. The possible mutualisation of the post office network deserves positive examination at the very least.
I have set out the changes that everyone agreed were needed, but in truth many people thought that Royal Mail could not change while it was a public company. However, change has happened. Considerable progress has been made, and more is under way. An important agreement was reached this March between the Communication Workers Union and Royal Mail supporting the £2 billion modernisation plan, £1.2 billion of which has now been spent. CWU members supported the agreement by a 2:1 majority.
Differences are being felt in operations. The opening hours of delivery offices have been extended and new generation letter-sorting machines have been installed. There are new machines so that mail is sorted for the exact route that postmen and women walk, and there is better equipment, including hand-held devices to track and record items of mail. Of course, the pace of change must be maintained, but in an industry dogged by difficult industrial relations, both the CWU and management should take credit for the start that has been made.
Our debates on Royal Mail have for some time been informed by the Richard Hooper reports of 2008 and 2010. Two years ago, Hooper’s report called for two changes: the injection of private capital and, closely related to that, the involvement of private sector management. However, he rejected full privatisation, saying that that
“option would only be appropriate and feasible if modernisation had been completed.”
His recent report also identified a need for private sector capital, but was markedly more confident about the quality of existing management and the capacity for change given the changes that had already taken place. The 2010 report states:
“The specific need for corporate experience is reduced today”.
It used to be said that Royal Mail could not change without an injection of private investment and management, but change has been possible. The argument now seems to be that change is needed so that Royal Mail can be sold, but that is simply not true.
The House needs to ask what the real costs could be. The public are making a heavy investment in preparing the postal services offered by Royal Mail for sale, including through a £2 billion loan to fund the modernisation process. In addition, the subsidy for the post office network was already set to increase from £150 million to £180 million next year, and we heard today of a further investment in sub-post offices, to which I will return. The Bill also leaves the taxpayer assuming the huge liabilities of the pension fund while Royal Mail benefits from a reduced contribution.
That is a huge public investment in preparing Royal Mail for sale, yet the returns look pretty low—according to media speculation, the sale price will be around £700 million, meaning a one-off income of less than £1 billion in return for costs of many billions. The Secretary of State did not make clear the timing of the changes. I simply point out that if he goes early, he will probably get the lowest possible price, but the later he goes, the more essential it will be to complete the transformation of Royal Mail, because as he said, Royal Mail cannot simply stand still and mark time. There is no relationship between the change that is necessary and his desire to sell the whole of Royal Mail.
As the Government’s own briefing makes clear, a fully efficient and competitive Royal Mail could generate a very significant return. Companies such as Deutsche Post in Germany achieve profit margins of 13% from their mail operations, even though they face greater end-to-end competition than Royal Mail does in the UK. There are similar profit margins in the postal services of Finland, Austria, France and other European countries. Some are private and some public. That shows what efficient companies can do. However, the Bill excludes the public from any gain from a transformed Royal Mail.
Kate Hoey (Vauxhall) (Lab)
I feel like saying, “Here we go again”, because in my time in Parliament we have been through three different attempts to privatise Royal Mail in some form or other. All three attempts have failed, and I think that we will decide not to get this one through. I am convinced that the public, whatever their attitudes and their knowledge of what is going wrong on some of the issues relating to Royal Mail, do not want a fully privatised Royal Mail or, indeed, a partly privatised one. It is a pity that the previous Government’s approach—my Government—almost left it open, as many Labour Members said, for another Government to carry on and go much further. So I feel a kind of déjà vu here.
The bit of the Bill that I really welcome is the lifting of the pension fund burden, but that can be done anyway—it should have been done by the previous Government. We did not need to go through all this time, effort and waste of money on consultants to know that the Royal Mail was in a bad state. Part of that was because of the pension fund deficit. Whose problem was that? It was certainly not that of the men and women who deliver our post or the members of the Communication Workers Union; it was, purely and simply, that of Governments of all complexions, who allowed the pension holiday to be taken.
A lot has been said about modernising, but the thing that made such a difference to why the Royal Mail started to decline in many people’s view was that for some years it had shockingly bad management. All they seemed to want to do was pay themselves grotesque salaries at the top, while the limited investment that was being made was not put into the modernisation that should have taken place. The position is slightly changed now, because the new management at Royal Mail are a different kind of management. I am not saying that they are absolutely perfect; I was very disappointed in the letter that was sent out, to which reference has been made, concerning the question of wanting to free up some of the universal service points. That is worrying, but recently there has been a real improvement in relations between the management and the CWU.
A lot of the modernisation has gone ahead: new machinery and technology has been introduced, aligned with the new six-day standardised work plan; delivery methods have improved; and the equipment and the ways of working have changed. We have to examine mail and distribution centre rationalisation but, as I said in an intervention, closing the Vauxhall Nine Elms facility would be crazy, because it would involve huge additional costs of moving post out of London in lorries and vans. I hope that there is still room for discussion on that and that we will be able to prevent it from happening.
What I am trying to say is that change is taking place and there is a changed attitude. Therefore, there is now no reason why the new Government, with the right support from those on the Opposition Benches, could not create a Royal Mail, minus its pension deficit, that has the kind of support that will give it sustainability and allow it to compete with anyone else in the world. The Bill, as it stands, contains so few safeguards. How sad it is that we could end up with our famous, wonderful Royal Mail, which has had so many loyal workers over many years, is a lifeline to people in rural communities and is seen by many people living in isolated communities as the one bit of contact that they have—in the form of their postman or postwoman—end up in the hands of a foreign owner. It is not just that that ownership is foreign. They will hand our precious asset over, out of the public sector, and for what? I saw no argument for it. There is no argument.
The changes are already happening; we have a work force who realise that things need to change and they are changing. I cannot believe that some of the Liberal Democrats are going along with this, although I accept that they want to see the support for the post offices. I welcome again that support for those post offices, but it is a separate issue that should be happening anyway. I urge my party not only to oppose the Bill, which we are, but to say that we were wrong to move for semi-privatisation, because it has allowed us to go this way and has allowed the Government to pick up from where we left off.
The Communication Workers Union is signed up to all the modernisation, but we do not want to see a service that is stripped back to the minimum, getting rid of the second deliveries and a number of such issues, as well as posing an overall threat to the universal service obligation. The public do not want this and they will not let it happen. The coalition Government are taking on public opinion at their peril.