Postal Services Bill

Lord Christopher Excerpts

Tuesday 8th March 2011 Lords Chamber

[Viscount Eccles]

My Lords, I, too, apologise for not having been present at Second Reading, but I support my noble friend Lady Kramer and the noble Lord, Lord Jones, on the Cross Benches. This amendment may be based on a misunderstanding. If there is to be a successful deal to move Royal Mail on and to bring in private capital, that deal will need to be set up by the board of Royal Mail and the chief executive of Royal Mail. It will not be set up by the Secretary of State, who I hope will stay right out of any negotiations that might take place to achieve that deal. The noble Lord, Lord Young of Norwood Green, seemed to expect the Secretary of State to play an active role, which is completely mistaken.

[Lord Christopher]

I was not going to speak on this amendment, but I have been provoked. I hope that the Minister will answer directly the question just asked from behind her on whether the Government will have some say on the sale or whether it will be left exclusively to the board of Royal Mail. I do not think that it should. One issue has not been mentioned in this discussion. While there may be much anxiety about the hope that by Christmas 2012 we can all go back to where we were, underlying this is another issue—on this matter I hope that the noble Baroness will have something to say. As I said at Second Reading, it is easier to say to whom you would not wish to sell Royal Mail than it is to say to whom you would. There is such a lack of clarity on this that the Government need to give reassurance. Would we, for example, be prepared to see it sold to a hedge fund? Would we be prepared to see it sold to a private equity fund? Would we be prepared to see it sold to a sovereign wealth fund? If so, would that be to all, to none or to some?

I have one final point on this issue. Would we sell it to any buyer with a reputation for asset stripping? I hope to come to this point on a later amendment, but I believe that unless we get the price right, there are assets in Royal Mail which could easily be sold at a very significant profit.

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

My Lords, I wonder whether it would be okay with your Lordships if I deal with the question put by my noble friend Lord Skelmersdale and supported by the noble Lord, Lord Borrie, before moving on to the amendment. Clause 1(2) ensures that the two major issues under Part 1, the ownership of Royal Mail and the ownership of Post Office Ltd, are addressed in the very first clause. We believe that, given their importance, this is appropriate. The purpose of subsection (2) is to assist the reader in understanding the full implications of the Bill. It is intended to highlight the relevant provisions that appear further on in the Bill and of which the reader might not yet be aware. Without subsection (2), the clause may read as lifting the restrictions on ownership of Post Office Ltd with no indication that new restrictions have been put in place further on in the Bill.

While the majority of readers will look at the full Bill and draw up relevant connections, we believe it is important to consider how to make the Bill accessible to those who may be unfamiliar with legislative text or to those with an interest in one particular aspect of the policy. It is these readers who may look at what they believe are the relevant provisions and then fail to see the other relevant provisions further on. Provisions such as Clause 1(2) are designed to assist readers by making explicit any interdependencies between clauses. Furthermore, subsection (2) ensures that the two major issues in Part 1—ownership of Royal Mail and ownership of Post Office Ltd—are addressed in the very first clause, thus reflecting their importance. I hope that this explanation addresses the concerns of noble Lords, but I am sure that they will come back for further clarification if they feel that we have not been able to cover the point at this stage.

--- Later in debate ---

[Baroness Wilcox]

I think that it was someone's hearing aid that they have now switched off. I will return to the specific protections in the Bill against asset-stripping that could affect the universal service. A number of protections are in place in case asset-stripping or other shareholder actions become a concern. These protections are contained both in the Bill and in other legislation. Ofcom has the power to impose designated USP conditions akin to condition 16 in Royal Mail's existing licence, which does not allow it to do anything that would create a significant risk that necessary resources would not be available to continue its business. If Royal Mail is found to be in breach of its regulatory obligations, Ofcom could fine it up to 10 per cent of the annual turnover of its postal business. On current turnover, this would be more than £650 million.

Directors of a company must act in the way that they consider most likely to promote the success of the company for the benefit of its members as a whole. If an asset disposal or dividend payment did not meet that test, they would be in breach of that obligation. Royal Mail's debt is secured on its assets, so it is simply not possible to transfer assets away from the business and its debts. The Pensions Regulator may also not allow such behaviour, as it would weaken Royal Mail's covenant to its pensioners. I hope that the noble Lord, Lord Lea of Crondall, will find that helpful.

[Lord Christopher]

I hear what the noble Baroness says, and I will certainly have another look at the Bill. However, it does not seem that the sale of a particular asset would necessarily interfere one way or the other with the service. For example, if I provide a much cheaper-sited sorting office and sell one that is very valuable for another use, that may not alter the delivery service at all.

[Lord Lea of Crondall]

Perhaps it would be convenient if I asked for confirmation from the noble Baroness at the same time as she answers the noble Lord, Lord Christopher. We all have the Bill in front of us. If I heard correctly, Clause 35 was drawn to our attention. That does not provide all the requirements that the noble Baroness referred to.

--- Later in debate ---

[Baroness Wilcox]

Perhaps I may deal with that when we get to Section 35. I turn to the point of noble Lord, Lord Christopher.

[Lord Christopher]

I will put it in simple terms. If I owned a big sorting office in Oxford, I could sell the site at a good price to the university and build a sorting office outside Oxford. I would not have interfered with the universal service, but I would have made a nice profit.

[Viscount Eccles]

Perhaps I might ask the noble Lord whether he would describe that as asset-stripping.

[Lord Christopher]

Of course.

[Viscount Eccles]

Many of us would describe it as a very sensible piece of business.

--- Later in debate ---

[Viscount Eccles]

My Lords, we are dealing with a very different situation here. Unless and until the Bill becomes an Act and the pension issue is resolved for the time being, it would be a very bold person who said that you could put any value on Royal Mail. In the context of a willing-buyer willing-seller market, I do not think that you will find a willing buyer. Even if the buyer thought that the business was residually worth something, he would not want to enter into the deal. This amendment goes to the same point. In a willing-buyer willing-seller deal, neither the seller nor the buyer wants to know exactly how the sums have been worked out and if they thought that the sums had to be submitted to a third party and debated in this Chamber as a matter of parliamentary interest, I think you would scupper almost any deal.

[Lord Christopher]

My Lords, I do not understand what has just been said. However it is done, someone somewhere in Government has to decide whether the Royal Mail is worth X. The issue in front of us is how to arrive at X. I am very sceptical about whether Royal Mail knows what it owns.

To take a trite example, there are some valuable stamp collections in this country: Her Majesty has one, the Board of Inland Revenue has another and, I understand, the Post Office has one. The Revenue’s collection used to be displayed in cases as you walked into Somerset House. A representative of Stanley Gibbons walked in to ask the chairman, “Do you know what you have in those glass cases?”—there were three big ones. The answer was that it was worth well over £1 million. I think that the Post Office has a stamp collection, but I am pretty sure that no one there knows what it is worth. The outfit could well be sold lock, stock and barrel and then someone opens a safe one day and finds all those stamps.

There should be a proper valuation of all the assets of Royal Mail and the Post Office, because it will be divided up. Until that is done, we cannot satisfy the British people that we are asking a fair price. I do not complain about a modest discount, but we should have a clear idea of what assets we have. I will use my mythical Oxford sorting office as an example. What is it worth? An acre of land in most parts of the country is worth £5,000. With planning permission, it is worth nearly £1 million. Unless we explore the assets and ensure that we have an objective valuation of what is there, we will never feel that we have sold the Royal Mail properly.

Others have mentioned previous experiences. There have been two relatively recent ones, one by us of a company whose name I can never get my tongue around— QinetiQ—where people have walked away with millions. I have talked to many Members opposite who would never have privatised our railways in the way they did. Over the first two or three years, people walked away with very large sums of money. We have to avoid that. We cannot value the company in the way that companies are generally valued. Price/earnings ratios and so on have no relevance in that context. We must be sure that when we say to the British company, “We are trying to sell this for X”, that X is a reasonable, accurate figure.

[Baroness Kramer]

My Lords, I fully understand the concern of the noble Lord, Lord Christopher, that Royal Mail fully assesses the value of what it is, what it owns and what it has to offer, so that it understands its full value in the marketplace. That is an important process. I agree that that has not always been done when public entities have been sold. Indeed, there has often been an anxiety to achieve a sale quickly. I think that Governments have sometimes been seduced by investment bankers who would like a cheap, easy deal rather than trying to ensure that they get the maximum for the seller—in this case, the public. I hope that those lessons can be learnt. I agree that internal due diligence is critical.

However, I must say to the noble Lord that, although I care a great deal about transparency and openness, the day that this House or the Government put a value—£700 million or £800 million—on the asset, no bidder will offer a penny more. The art in a negotiation when you are selling a property is to get the buyer on the other side to decide what value he will bring to the table and give up some of that value to the seller. The goal is not just to achieve the value of the assets as they stand in some neutral and abstract form but to extract further value because of the benefits that a particular buyer sees because of their business plan and goals.

All of that disappears the day that the Government come out and publicly say, “This is what it is worth. You will not get X plus a penny, you will only ever get X”. I think that that is unadvisable for the taxpayer.

[Lord Christopher]

How would the noble Baroness value it? How would she put a price on it?

[Baroness Kramer]

Internally, due diligence is critical. The specifications and the instructions to the investment bankers, accountants and others engaged in the valuation have to be tough and in the monitoring and examination rigour should be applied to the response that they come back with. However, it still has to be in an internal setting, not a public setting. People will have many opinions across this House, but this will be a highly complex process with a great deal of detail. While this House has the ability to understand all that, there may be a subset of people who might be interested in being part of the consultation process by taking a look at that on behalf of the House. However, to me, it certainly would not be possible to do it in a public setting without giving the buyer the most impossible leverage.