Postal Services Bill

Debate between Baroness Hoey and John Denham

Wednesday 27th October 2010 Commons Chamber

[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.