Postal Services Bill

Baroness Kramer Excerpts

Wednesday 16th March 2011 Lords Chamber

[Baroness Kramer]

My Lords, I will make a couple of comments. I very much support the employee ownership proposed in this Bill, which is a great improvement on the Bill that did not complete its progress through the previous Parliament, because it includes employee ownership and because the amount of ownership proposed is very substantial. The Government have more details on that than I do. For people working in Royal Mail, there are two issues of great concern. One is that they should be part-owners in a way that this share ownership will allow them to be, in order both to have a voice and to benefit from the profits that will flow from their efforts and from the future success of the company. It is also very important that there should be the maximum possible investment in the future of Royal Mail. Those two issues have to be balanced.

By expanding the number of shares that will be distributed to employees, the ownership potential for a private partner is reduced, which will reduce his, her or their willingness to put additional money into Royal Mail. I caution that there is a balance to be achieved here. Ten per cent is enough to provide a real voice and real reward, but potentially up to 90 per cent going out in some form to the private market is a real guarantee that the purchaser, whoever they are, will have to put in serious and large investment to make sure that this the company is very successful in future. That is surely what employees want, too.

The noble Lords, Lord Clarke and Lord Tunnicliffe, raised many issues that underscored the complexities of trying to set up share ownership for employees in an effective way. The more I heard about all those complexities, such as how shares should be distributed between employees, the more it struck me that the Bill is not the place to set up a structure such as that. It is good to have a discussion in this House, but with so many tax and legal issues there is a need for consultation and much greater involvement by many parties, including potential private partners as well as employees. We would be trying to make the Bill do too much by accepting these amendments, as well as some of those that we will debate later.

[Lord De Mauley]

My Lords, I thank the noble Lords, Lord Tunnicliffe and Lord Clarke, for tabling their amendments, and also thank my noble friends for their contributions. I should perhaps declare an interest; my wife owns and jointly runs a web-based mail order company that uses Royal Mail to deliver its products.

I am delighted that the noble Lords, Lord Tunnicliffe and Lord Clarke, agree with the Government about the attractions of the establishment of an employee share scheme. I say that in the most welcoming and genuine sense. We all agree that this key feature of the Bill will help to improve employee engagement and the culture of the company. We should not lose sight of the fact that the overriding purpose of the Bill is to safeguard the universal service and to secure the future of Royal Mail. A key means of doing that will be by introducing private capital. In deciding on the size of the stake that should go to employees, as my noble friend Lady Kramer said, the Government have had to balance giving a meaningful stake to employees with the imperative of ensuring the private sector investment that the company needs. This is a matter of judgment.

I will put in context the commitment that we are making through Clause 3. The minimum 10 per cent share requirement in the Bill is the largest statutory employee share scheme of any major privatisation. The share is unprecedented, and there is no doubt that it is meaningful. Most major privatisations did not even refer to employee shares in their respective Bills. Furthermore, the share schemes that eventuated offered smaller stakes: 5 per cent in the case of BT and British Gas, and less than that for the other utilities of electricity and water. Only Rolls Royce and BA came close, at 10 per cent and 9.5 per cent respectively. However, we are committed to at least 10 per cent.

I share with my noble friend Lady Kramer experience of advising companies in similar situations. I did that for nearly 20 years, and my experience convinced me that a requirement that employees should own at least 20 per cent, or even 25 per cent, of the shares in the company, as the amendments suggest, would jeopardise getting the investment that the company needs simply by virtue of the substantial size of that stake. We therefore unfortunately cannot accept the increases to the size of the employee share scheme proposed by these amendments. I hope that noble Lords will accept that what is offered is offered in good faith, and that to commit to more would prejudice our ability to achieve a sale.

The requirement to pay equal dividends to all participants of the scheme certainly has attractions. However, Clause 3 is designed to maintain as much flexibility as possible to design the right scheme. We would be ill advised to set in stone the form of an employee share scheme until we have more certainty on the form of the private sector investment. Furthermore, there are other equally sensible methods for determining the allocation of shares and therefore dividend payments. An example of another equally sensible method is length of service, for example. I therefore urge noble Lords not to restrict options at this stage.

The noble Lords, Lord Tunnicliffe and Lord Clarke, asked about the specific route to be followed. The noble Lord, Lord Tunnicliffe, helpfully compared, for example, share trusts against individual ownership. This subject will come up again in subsequent debates on amendments. In brief, some of the benefits of share trusts are that they can be structured to last indefinitely. Depending on their design, they would always keep the capital value of the shares within the trust. Against that, this may not be the appropriate form of scheme to motivate individuals, and we will assess the merits of a share trust and other designs at the appropriate time. Individual ownership clearly offers individuals the opportunity to build up a share pot while they are employed in the business, which they can benefit from when they retire or move on. Individual shares can also be better for employees, in that they offer a greater sense of ownership and can be more tax efficient. The noble Lord, Lord Tunnicliffe, suggested other options, which I found very helpful. This emphasises why it is important at this stage that we keep our options open.

The noble Lord, Lord Tunnicliffe, specifically pointed out some risks of going down the route of issuing shares to employees. As I have said, the exact form of the scheme is still being developed and will be likely to be dependent on the form of the private sector investment. If the share scheme allows for individual ownership of shares by employees, we will obviously explore the most appropriate way of encouraging employees to keep their shares for the long term. Many of the tax efficiencies associated with those schemes relate to a certain holding period, which could be incorporated into the scheme rules. Noble Lords should not assume that employees will automatically sell their shares. In its written evidence to the other place, ifs ProShare noted that two-thirds of BT employees retained their shares rather than selling them off.

The noble Lord, Lord Tunnicliffe, was concerned that there is no guarantee in the Bill that employees will get any shares until the Government have sold their entire holding. Employee shares are an integral part of our policy for Royal Mail, and we have committed to ensuring that there are shares within the scheme at the same time as private capital is introduced. This is the strongest legislative commitment of any major privatisation. The exact sequence of events in such a large and complex sale is difficult to predict at this stage. This means that we need to maintain a degree of flexibility about precisely when during the process the scheme is set up, so as not to complicate that process even further.

The noble Lord, Lord Tunnicliffe, quoted Employee Ownership Association evidence to the Commons Public Bill Committee, saying that 10 per cent was not enough. I might give another quote from evidence to that committee. Alexy Armitage of ifs ProShare said:

“Although they might not hold as much as 10 per cent, or more than that, they like the fact that they own shares in their company and they see that as a benefit and a worthwhile thing to do”.—[Official Report, Commons, Postal Services Bill Committee; 9/11/10; col. 71.]

That is at all levels, not just executives; it goes right through those organisations.

The noble Lord, Lord Clarke, was concerned about how to ensure that management does not get all the shares. I think that was the nub of his concern. He makes a very important point. As I have said, it is too early to get into the specifics, but we imagine that management will be able to benefit from the share scheme as well as other employees. However, the point is to incentivise employees and to give most of the shares to management would simply destroy that purpose; that is absolutely not the intent.

The future ownership of Royal Mail, by both private investors and its employees, will be inextricably linked. Within the important boundaries set by Clause 3, the exact size and form of the scheme will, therefore, be informed by the type and detail of the transaction. It is very important that we keep our options open, for the reasons mentioned by the noble Lord, Lord Tunnicliffe, among other things. I assure noble Lords who have taken part in this debate that their suggestions will be taken into account. I, therefore, ask the noble Lord to withdraw the amendment.

--- Later in debate ---

[Baroness Kramer]

This discussion is expressing general agreement, as the noble Viscount, Lord Eccles, said, that it would be advantageous to have employees represented. I think that the noble Baroness, Lady Donaghy, hit the problem on the head. I am sure that she states accurately that Deutsche Post employees are on the advisory board. Under a European structure, that is exactly where you want them because that board influences policy, but it is not the board that we would recognise under British law. There are so many complexities that I do not know how we could possibly write an appropriate clause that could sit in this Bill and yet work under the six or eight potential structures and options that may arise. Therefore, although this discussion may be crucial for expressing the intention of this House, and, hopefully, of the Government, I cannot see any way that we could encode it so that it would make any sense on the face of the Bill. That is one of the problems we face when we start getting into so much detail.

--- Later in debate ---

[Baroness Turner of Camden]

I rise to support my noble friend in respect of this amendment. It is very important to accept that post offices have an important social role. One of the social roles they perform is that they are a point of access for—often not very well paid—people, including elderly people, who do not use banks because they do not know how to use them, are too concerned about them or are anyway not interested in speculative investment. Some people simply want somewhere safe to put their savings so that the savings are readily available when they need them, and they know that the savings are going to be safe because they trust the Post Office.

For those reasons, along with the excellent case made by my noble friend on the Front Bench, the Government really ought to look very seriously at what is proposed here. I am sure it would be popular with a very large number of the less well paid members of the public. People want to have somewhere safe where they can put their savings. We are hoping that people will save more and we have been saying for a long time that people are not saving enough. Well, some people do save, but they do not always know where to put their savings or where to go for financial advice or assistance. This would be an excellent idea, so I hope the Government will be prepared to accept what has been suggested in this amendment.

[Baroness Kramer]

My Lords, I have long been a fan of the equivalent of a post bank—as you know, it was Liberal Democrat policy. All of the arguments were made very strongly about the advantages that a post bank would bring to the financially excluded and those who are looking more for vanilla banking as well as to improving access for small businesses. It is hard to do anything other than come up with a list of absolute positives for a post bank.

Obviously, my colleagues in the other place were very eager to seize the opportunity for a post bank as part of the restructuring of Royal Mail, but then they came across the contract between the Post Office and the Bank of Ireland—although I do not know how much they know about it because obviously the contract will be confidential. However, I notice that the three names down on this amendment are those of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, and—I am sorry if I get their histories slightly wrong—I think it must have been on their watch that the contract with the Bank of Ireland was signed. That contract hidebounds the Post Office and makes it virtually impossible for it to provide the kind of comprehensive service and range of financial services without buying out that contract. Without breaching any confidentiality, perhaps they could tell us how many hundreds of millions of pounds would have to be paid to Bank of Ireland to buy out the contract so that a post bank could be put in place. I do not have access to that information, but perhaps, having been on the watch when that contract was originally put in place, they could give us a sensible estimate of what that amount of money could be. I am rather afraid it is such a large sum that it would have been difficult even in a time of prosperity and exceedingly difficult in a time of deficit. I greatly regret that.

I am glad that we had some discussion—there will be other opportunities—about bringing on board the credit unions. This House will be well aware that the Minister, Ed Davey, and others are committed to financing the technical platform that would make it possible for the post office to be used as the face of the credit unions. Credit unions are far more fragmented than a coherent bank would be, but at least that would open up the opportunity. I will also have a few words later to say about at least providing access to current accounts in the various high street banks. I wonder if they would give us an indication of what they think the cost would be for the Government to buy out that Bank of Ireland contract to make this very attractive proposition possible.

[Lord Clarke of Hampstead]

The noble Lord, Lord Stevenson, said he had “a cunning plan”. Well, I wish it was cunning—it is not original. In fact, it was the Conservative Government of the 1970s that abandoned National Girobank. I was one of those who agitated for many years for the creation of Girobank. By copying the arrangements in the Netherlands, it was possible to introduce a simple banking system that brought cheque books and bank accounts to many thousands of people who never thought they would have a bank account. I mention National Girobank because one day, when I get enough money, I am going to ask a student or someone to do the proper research on what happened to our people’s bank, as it was in those days.

As I said in the debates on the previous Postal Services Bill a couple of years ago, only one paper in this country covered the story of what I considered the give-away of a national asset. Reference has been made to the shock that you get when you find you have got to buy out a contract, but if you had the figures on what happened at Girobank, you would start to worry even more. I know this because when it was announced that it was going to be abolished—and it was really abolished because it was so successful—Co-operative Bank, Unity Trust and a consortium of trade unions got together to try to buy the bank when it was put up for sale. First, they were told, “You need £200 million to buy Girobank”. That was the easy bit, because that was gathered together. Then the rules were changed, and Girobank was to be sold only to an established finance house—which the consortium was not—but the consortium established itself as a finance house. Then they were told, “You cannot buy it unless you have an alternative computer system that will be there if this system goes down”. So the dice were quite loaded from the start. The £200 million that was mentioned at the time of the sale of Girobank actually paled into insignificance, because the actual figure—I am quoting from memory as I have no notes here—was £118 million when it was sold to the Alliance & Leicester. The Alliance & Leicester obviously grabbed it because, at the time, there were thousands of people waiting to open an account with National Girobank. Political dogma said, “This has got to stop. It’s too successful and we’re going to do away with it”.

What has happened since? Alliance & Leicester of course has been swallowed up by Santander. If anybody thinks that the service they are getting from Santander is anything like what they got from National Giro in the beginning, and to some extent with the Alliance & Leicester, they are dreaming, because the rapacious way in which these banks work frightens me.

There is a demand for a people’s bank, so I welcome the comments from the noble Baroness, Lady Kramer. I ought to declare another interest: I am a member of the St Albans District Credit Union. During my years as a councillor in Camden, I saw what happened when people were at the mercy of loan-sharks, when people were threatened on their doorsteps with an extortionate amount of interest week on week. Of course there is a chance to get a link between the growth of credit unions and a people’s bank—or post bank, post office bank or Royal Mail or whatever—but the important thing to is to have a simple banking system, which allows people to have confidence in where they are putting their money. At the back of it all, despite all my criticism of what has gone on in the last few years, I still believe in the brand name of the Post Office. The Post Office has a good reputation and I hope that the Minister and her colleagues will go into one of those dusty offices, pick up the box file that says National Girobank and check what I have said about the way it was virtually given away. Incidentally, the punchline was that, within two years of trading, Alliance & Leicester cleared the amount that it paid for the bank.