Postal Services Bill

Baroness Wilcox Excerpts

Wednesday 16th February 2011 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, we have had an excellent and informative debate and I thank all noble Lords for their contributions. It is my pleasure and privilege from the Front Bench to congratulate the two maiden speakers on their speeches; I will refer to some of the questions that they asked later. The debate has been worthy of this House’s reputation as the revising House and I look forward to the rigorous scrutiny that the Bill will receive over the coming weeks.

When I made my opening remarks I reminded your Lordships of the context for action. It is sometimes easy to let that slip our minds as we focus on the detail of specific policies or clauses, but I stress that the Royal Mail is facing an enormous challenge. The letters market is in structural decline, with volumes falling ever faster. Royal Mail urgently needs to modernise and increase efficiency. The company is weighed down by a huge and unsustainable pension deficit, and the regulatory framework is no longer fit for purpose. Action is urgently needed to address those issues. First, Royal Mail needs access to private sector capital and commercial disciplines. Secondly, it needs to be relieved of its historic pension deficit. Thirdly, the regulatory framework needs fundamental reform. That threefold package of measures is urgently required if we are to secure the future of the universal postal service. As Richard Hooper said in his update report:

“If all these policies are implemented without further delay, and Royal Mail modernises to best in class with management, workforce and unions working together, then despite the very real market difficulties the company has a healthy future”.

Let me begin with the Post Office, which has played a key part in today’s debate. I am sure that your Lordships need no reminding that Royal Mail and the Post Office are very different businesses facing different challenges. However, as many noble Lords have emphasised, they are both cornerstones of our society, and the Bill will benefit them both. We have heard concerns over the future of the post office network. Noble Lords are worried that post offices will lose business from Royal Mail or from the Government. I would like to provide reassurance on that point. The Government are absolutely committed to the post office network. It provides an enormously good service, as I have said many times before. The post office network is a unique national asset.

The noble Lord, Lord Dobbs, raised the important issue of rural post offices and the outreach services that have replaced them in a few areas. Outreach services were introduced following the last Government’s closure programme, to mitigate the impact of large closures. They offer more than simply access to mail—access to cash, pensions, benefits and many other services. Many communities highly value their outreach services and in some cases their introduction has brought in services that were not available at the post office that they replaced.

Both the noble Baroness, Lady Kennedy of The Shaws, and the noble Lord, Lord Kennedy of Southwark, spoke of the importance of getting new business into the post office. I agree wholeheartedly. As the Government set out in our policy statement on the post office published last November, we want it to be the front office for government. That would make it the natural place for citizens to access face-to-face government services, with an important role in supporting the delivery of online services—for example, through identity verification and check-and-send services.

The noble Baronesses, Lady Wheatcroft, Lady Kennedy and Lady Kramer, raised the issue of the Post Office bank. I can inform the House that we have looked at the case for a Post Office bank, but, in this financial climate, it is just not a viable option. The Post Office has an important role to play in making financial services accessible. It already provides a wide range of financial services, including savings, credit cards and mortgages. On top of this, thanks to the Royal Bank of Scotland’s recent commitment, almost 80 per cent of current accounts are now accessible at post offices.

The noble Viscount, Lord Tenby, asked about the extent of the rollout of the Post Office Local model. As we set out in our policy statement published last November, we envisage that, over the next four years, around 2,000 small sub-post offices out of a total of nearly 12,000 will transfer to the local model, with the major implementation starting in 2014.

The noble Lord, Lord Cope, and the noble Viscount, Lord Tenby, raised the issue of losses in the Crown post office network. The Crown network is losing £55 million a year. This is not acceptable. Post Office Ltd is committed to eradicating these losses over the next four years. This will be facilitated by the Government’s investment of £1.34 billion in the post office network announced last year.

The noble Lord, Lord Whitty, raised a number of questions about the future long-term viability of the post office network. A number of the clarifications that he sought can be found in the Government’s November 2010 policy paper, Securing the Post Office Network in the Digital Age. He asked in particular about subsidy beyond 2015. I confirm that, while we believe that these measures will help to reduce the subsidy substantially over time, there will almost certainly remain a need for a residual level of subsidy to maintain those branches which could never be profitable, such as those in remote rural areas, but which serve a valuable social purpose.

I am trying to answer as many questions asked by noble Lords as I can. It will make my speech slightly disjointed, but it will hopefully mean that I bring everybody on board.

The noble Lord, Lord Young, asked about the relationship between the Royal Mail and the Post Office and the inter-business agreement. I can make it clear that the inter-business agreement between Royal Mail and the Post Office is a legally binding contract. The Royal Mail and the Post Office will of course continue to work closely together. The post office network of more than 11,500 branches dwarfs any other retail network in the country and offers unrivalled access to communities the length and breadth of the UK. I echo my noble friend Lord Razzall in saying that it is inconceivable that Royal Mail would not want to take advantage of the post office network. The chairman of Royal Mail has given a commitment to Parliament that, before any sale involving Royal Mail, the companies will put in place between them a new commercial contract that will run for as long as legally possible. That is a strong commitment, but the Government have gone further. We said in another place, and I repeat it today, that we shall ensure that the companies are held to the commitment that has been made by the chairman of the Royal Mail.

The noble Baroness, Lady Howe, and the noble Lord, Lord Sawyer, raised interesting points regarding the potential for a mutually owned Post Office. I reassure noble Lords that a mutualised Post Office is not a step towards a privatised Post Office. The Bill is quite clear that Post Office Ltd may be owned only by the Government or by a mutual organisation that acts for the public benefit. The design of a Post Office mutual must put the views of sub-postmasters, employees, business partners and customers first. That is why we have asked Co-operative UK to look at this proposal in detail and propose options for how a mutualised Post Office might work. It is due to report to Ministers in the spring of this year. I reassure noble Lords that, before any changes to the network are made, there would be a full public consultation.

We heard from several noble Lords the case for the privatisation of the Royal Mail. Here, the noble Lord, Lord Mandelson, spoke from his own experience and of Royal Mail’s need for a settled existence. I wholeheartedly agree with that.

The noble Lord, Lord Selsdon, asked what has become of the Postmaster-General. I am very sorry to inform him that the position was abolished some years ago under the Post Office Act 1969. The last post-holder was John Stonehouse. The responsibilities of the Postmaster-General have been divided between the Secretary of State for Culture, Media and Sport, who is responsible for telecoms, and the Secretary of State for Business, Innovation and Skills, who is responsible for postal affairs.

Why private capital? Royal Mail urgently needs access to fast, flexible capital, and this must come from the private sector. The reasons for this are threefold. First, government is simply not a fast and flexible provider of capital; there are so many competing priorities for public funds and any government funding must, of course, be subject to European Union state aid approval from Brussels, which can be lengthy. Secondly, private sector capital will bring with it commercial disciplines that will benefit the company. Finally, the spectre of government interference in commercial decisions must be removed.

On privatisation, the noble Lord, Lord Tunnicliffe, said that the case has not been made for full privatisation, as did the noble Lord, Lord Brooke. The noble Lord, Lord Christopher, was concerned about how and when we would sell Royal Mail. I hope that the noble Lord will be reassured by Clause 2, which requires the Secretary of State to report to Parliament when he has decided to undertake a sale. This report must include details of the type of transaction and the timescale for undertaking it.

As we have heard, the extent of private sector investment is one of the key areas of difference between this Bill and the Bill put forward to this House by the previous Government. The Opposition prefer partial privatisation, which was the approach that they took in their Bill, but a partial privatisation model did not and will not solve the problems that Royal Mail faces. It places too many restrictions on the deal and takes away the flexibility to get the best outcome for the company and the taxpayer. We see no reason why the Government should retain a stake in Royal Mail in the long term, but we will retain the flexibility to ensure that we can negotiate the best deal for Royal Mail and for the taxpayer. Public ownership has not helped Royal Mail to move with the times and to make the changes that it needed to succeed. That is why we need a different approach if we are to safeguard the six-day, one-price-goes-anywhere, universal postal service.

The noble Lord, Lord Tunnicliffe, asked about privatisation and raised concerns that Royal Mail should remain in public ownership on the basis that this is the only way to guarantee the provision of the universal postal service. I fear that some noble Lords may be confusing effective regulation with government intervention. The universal postal service is protected by Parliament through legislation; it is not protected through the Government’s ownership of Royal Mail. The Government are committed to protecting the universal postal services.

As I have mentioned, employee shares are a new innovation. I am delighted to say that they are supported by my noble friend Lord Hunt, who knows all about Post Office Bills, and by my noble friend Lord Cotter. A commitment to employee shares was not a feature of the previous Postal Services Bill but it is an important addition to this legislation. I am pleased that it has support from all sides of the House. The noble Lord, Lord Sawyer, joined the noble Lord, Lord Brooke, in ideas that he will no doubt develop in Committee. The noble Lord, Lord Brooke, used to chair the employee share trust for NATS. He has valuable experience to bring and I look forward to hearing him in Committee.

It is not only the commitment to an employee share scheme that will benefit members of the Royal Mail workforce. Members of the Royal Mail pension plan are rightly concerned about whether their pensions are safe. The pension deficit is a huge and unsustainable burden on the company and is dragging Royal Mail down. I repeat: the proposals in Part 2 of the Bill represent a positive outcome for members of the plan, who can take comfort that their hard-earned benefits will be protected and that Royal Mail, going forward, will be better able to deliver the USO once relieved of this burden.

The noble Baroness, Lady Turner, said the pensions deficit has already been solved. Unfortunately, it remains very real—the scheme deficit stands at more than £8 billion today. As Hooper made clear, the deficit must be addressed in order to facilitate an injection of private capital. The noble Lord, Lord Rowe-Beddoe, asked what would happen to the assets of the pension scheme. The cash transferred to Government will be transferred to the Consolidated Fund, gilts to the Debt Management Office and the remaining assets—stocks, property, et cetera—will be transferred to a newly created government fund. They will then be sold in a measured fashion, with cash proceeds from disposals going to the Consolidated Fund. Alongside these assets, the Government will also of course be taking on the corresponding debt and much, much larger liabilities. We will be entirely transparent about the effect of these transfers throughout the government accounts.

Finally, let me turn to regulation and the universal postal services. This is a key part of the Bill; I want to address the universal postal service because noble Lords have expressed concern that it is at risk or will be downgraded. I am afraid that Richard Hooper has made it clear that we cannot do nothing—the universal service is already under threat and that is why we must take urgent action. The purpose of the Bill is to secure the future of the universal service. The Government are committed to the existing service—six days a week collection and delivery of letters, at uniform and affordable prices, for all the United Kingdom’s 28 million addresses. This is at the heart of our legislation. We have no intention of downgrading the minimum requirements of the universal service. This Bill puts in place new protections to safeguard the level of the universal service—protections not in the current regime or in the previous Government’s Bill. Crucially, this Bill gives both Houses of Parliament a say in whether the universal service can be amended in the future.

The noble Lords, Lord Tunnicliffe and Lord Low, were worried that this Bill will allow the universal service to be reviewed and downgraded in 18 months’ time. I am happy to reassure them that this is completely untrue. There is no small print allowing this. What I believe they were referring to is the requirement that within 18 months of Part 3 of the Bill coming into force, Ofcom must have conducted a market review to ensure that the services offered as part of the universal service reflect user needs. These are set out in statute and the review cannot recommend a downgrade of the minimum requirements after 18 months.

Some noble Lords questioned whether the Royal Mail will be left facing too much regulation under the Bill. As Government, it is our role to strike the right balance between protecting the universal postal service and promoting competition in the sector. Our position is clear: competition is beneficial but not where it undermines the universal postal service. Ofcom, the new regulator, will have the regulatory tools it needs to ensure that this balance is protected. The noble Lord, Lord Jenkin, was concerned on the other hand that the Government were easing competition on the Royal Mail in order to increase its value. I assure my noble friend that this is not the case. We have two objectives: first, to secure the future of the universal service; and secondly, to secure the future of Royal Mail as the only company capable of providing that service.

The noble Lord, Lord Low, raised concerns that the needs of disabled and blind or partially sighted people would be neglected under the Bill. I will try to reassure the noble Lord. Clause 30 includes services to blind or partially sighted people as a minimum requirement, ensuring that they will be part of the universal service. This was not the case in the 2009 Bill. Furthermore, the Communications Act 2003 gives Ofcom a general duty under Section 3 ensuring that it must take account of the needs of persons with disabilities when carrying out their functions. The noble Lord, Lord Empey, and the noble Baroness, Lady Drake, were concerned that competitors would cherry-pick profitable areas of the market. I hope that I can reassure them that the Bill gives Ofcom the ability to put conditions on other operators to ensure that there is fair and effective competition in the market.

The noble Lord, Lord Whitty, argued that the Bill should not leave it to Ofcom’s discretion to impose certain conditions and should mandate that it does so. The Government believe that we should impose regulation only when it is necessary, and that it must be flexible enough to respond to the changing needs of the market. We believe that the Bill strikes the right balance between ensuring that proper protections and safeguards are in place while freeing the sector from unnecessary and burdensome regulation. The Bill allows Ofcom the discretion to utilise regulation in the way that it considers most appropriate to meet its statutory duties, which include having regard to the needs of consumers. Placing on Ofcom statutory requirements to use its regulatory tools in any and every circumstance is inappropriate and at odds with the thrust of the new regulatory framework that we seek to establish.

In conclusion, I thank noble Lords again for today’s debate. It is clear that these issues need urgent action. The fact was emphasised by my colleague Edward Davey, the Minister for Postal Affairs, when he sent this Bill to us from the other place, and it has been emphasised by Richard Hooper, the independent expert commissioned by both the previous Government and the present one to review the sector. We have covered many issues today and I have no doubt that we will cover many more over the coming weeks. I am heartened that there is much on which we can agree, and I am looking forward to scrutinising, and no doubt improving, this Bill with your Lordships’ help. I am confident that we will work together to ensure that this Bill is the best that it possibly can be for Royal Mail, its employees and for all users of the universal postal service. I commend it to the House.

Bill read a second time.