Universal Postal Service

Debate between Lord Hain and Lady Hermon

Thursday 17th July 2014 Commons Chamber

[Mr Peter Hain (Neath) (Lab)]

I commend the hon. Member for Northampton South (Mr Binley) for the excellent points he made, notwithstanding his support for the privatisation Bill. I hope the Minister listened carefully to them, because they illustrate that this is a cross-party matter. There is a genuine fear about what will happen to Royal Mail. In making those points, I must apologise to you, Madam Deputy Speaker, and to the House that I will not be here for the wind-ups. As a former Secretary of State for Northern Ireland, I need to go and answer questions in interviews, following the Northern Ireland statement.

I was privileged to work for the Union of Post Office Workers—as it was called in the 1970s—for 14 years, into its new incarnation, before I was elected to this House. What has always worried me greatly about the competition regime around Royal Mail is that it is not a level playing field. Royal Mail’s competitors are not treated in the same way as Royal Mail. I believe that poses a great danger to the universal service obligation. It does not pose a danger to its existence, which has been provided for in statute under this Government, as has been pointed out—I am not arguing that—although the universal service obligation is not defined.

I should say that my criticisms of the competition regime, which has basically stayed the same with the transfer to Ofcom from its predecessor, apply to our previous Labour Government as well and are not simply against this Government. There has been a failure to understand the fundamental problem in this whole matter, which is that Royal Mail has to deliver not just to Swansea or Cardiff from London, which is easy and cheap to do—straight down the M4. Rather, Royal Mail has to deliver up to valley communities in my constituency such as Cwmllynfell or Rhiwfawr, which is expensive to do, let alone making deliveries in constituencies represented by hon. Members from Scotland or other parts of Wales, for example, or indeed rural parts of England. That is where the cost comes in. The expensive part of the delivery network is getting things not between city centres, which TNT and other competitors love to do—

[Lady Hermon (North Down) (Ind)]

Will the right hon. Gentleman give way?

[Mr Hain]

I will in a moment—by the way, this applies to Northern Ireland as well, if the hon. Lady was going to correct me.

The easy part, which competitor companies such as TNT obviously seize on, is getting pre-sorted business mail, which is provided to them by the businesses themselves, along with large-scale deliveries from banks, credit card companies and so on. They bring it in pre-sorted cassettes and containers, and then TNT or whoever rushes it down the M4 or whatever distribution network they use. That is cheap to do—indeed, often they dump it back into Royal Mail, so that it has to do the expensive part of delivering to remote areas. That is the problem. I believe it is a matter of urgency—a point made earlier in the debate—that the Government and Ofcom grasp the problem and sort it out. It cannot wait until late next year; that will be too late for the Royal Mail.

If the delay continues, what I predict will happen to the universal service is this. Yes, it will be there in name, but it will not necessarily apply for six days, because that is not in statute. It will not necessarily apply door to door either, because that is not required on a six-day basis. The universal service is required to apply to every address, but “address” is not defined, as far as I know, over six days, and so on. It is therefore no good sheltering behind the commitment in the 2011 Act to honour the universal service obligation. It is not defined, and when we look at the experience elsewhere—in New Zealand, for example, where a similar process was followed—we find a steady erosion of it.

[Lady Hermon]

I am most grateful to the right hon. Gentleman for giving way and for mentioning the remote areas of Northern Ireland, as well as the remote areas of Wales and Scotland. As he has already mentioned that he is a former Secretary of State for Northern Ireland, will he take this opportunity to put on record the enormous sacrifice and courage of postal workers—Royal Mail workers—throughout the worst of the troubles in Northern Ireland? Many paid with their lives, while others were held hostage or very badly injured in bomb explosions. I would just like him to mention that for the record.

[Mr Hain]

I am grateful to the hon. Lady for making that point. She is absolutely right: postal workers—postmen and women—were extremely vulnerable in the terror and the troubles. In some instances they paid with their lives and in others suffered terrible deprivation.

That brings us back to the value of the posties we all depend on, especially if we do not live in city centres—we depend on them here as well, but they might be posties from organisations other than Royal Mail. However, we will not find TNT staff delivering up Snowdonia, up in the highlands or in some of the remote areas of Northern Ireland, which Royal Mail had to do during the troubles prior to the new regime—a point the hon. Lady rightly draws our attention to.

Let me emphasise that the problem with this competition regime is that it allows Royal Mail’s competitors to cherry-pick and cream-skim the most profitable mail. The access charges paid by those competitors to dump their mail back into the Royal Mail, to make sure it gets delivered to the final address when it is in a remote area, are pitifully low. Unless we urgently increase those access charges and unless Ofcom gets out of its sleeping trance on this matter, which the Government might have to instruct it to do, if that is required—I ask the Minister to respond to this point in my absence, for which I again apologise—I fear for the future of the universal service, the quality of that service and Royal Mail’s ability to provide it, as it is required to do, but which none of its competitors is so required to do.

Postal Services (Rural Areas)

Debate between Lord Hain and Lady Hermon

Monday 2nd September 2013 Commons Chamber

[Mr Hain]

I completely agree with the hon. Lady, who makes a valid point about the impact on businesses, especially small businesses.

Equally, if quality of service targets were downgraded it would be the harder-to-reach locations that would be most affected. Ofcom’s recent review of user needs suggested that removing Royal Mail’s air network in the name of cost-cutting could mean areas of Scotland, Northern Ireland, south Wales and rural England seeing first-class quality of service fall to just 50% to 75%.

The Government say that they have no plans to change the universal service requirements in law for the duration of this Parliament, but that is hardly a long-term commitment, given that we are just two years away from a general election. Royal Mail privatisation is likely to place pressure on the Government to downgrade those aspects of the universal service that hurt the bottom line. Private companies are primarily responsible to their shareholders, and the public sector ethos behind the Royal Mail’s universal service does not sit well within that model. We need only look at private parcel delivery companies to see what happens when profitability rather than public service is the driving force.

As my hon. Friend the Member for North Ayrshire and Arran said, consumers in remote and rural locations are frequently charged extra. She pointed out that there are reports of £45 being charged for the delivery of £25 phones. The Government say that Royal Mail faces imminent danger and that privatisation is the only answer, but that is simply not the case. The most recent financial results show that under public ownership its profits more than doubled in the past year to £403 million. That demonstrates that Royal Mail can be profitable in the public sector, which is where most people—two thirds of the public, not just the vast majority of staff—want it to remain.

Privatisation of the letters service will also impact on post offices in remote and rural locations. The post office network is reliant not only on Government subsidy but on the commercial relationship with Royal Mail that allows its postal products and services to be sold through that network. The current chief executive of Royal Mail says that the commercial success of both companies is best served by their working closely together, but a new chief executive of a privatised Royal Mail may take an entirely different commercial view. There are legitimate concerns that a privatised Royal Mail responsible only to shareholders would seek to sever this relationship in line with its commercial interests. That would have a disastrous effect on the entire post office network, but branches in remote and rural areas would be at particular risk because of their low population density and their revenues. The last Postcomm annual report on the post office network in 2010 found that fewer than 23% of rural branches generated over £40,000 per annum, compared with 70% of urban branches and two thirds of branches in deprived urban areas.

The Government and Ofcom need to make sure that the universal service obligation in its current form endures and postal services in rural and remote areas are protected. This requires Ofcom to use the powers that it has to tackle the end-to-end competition from private postal operators such as TNT UK. It also requires the Government to consider an alternative business model for Royal Mail that would keep the postal service run in the interests of the public and properly engage the work force. The main problem is that the model of competition under the 2011 Act has meant, in a privatised context, cherry-picking of the most profitable parts of Royal Mail’s business—for example, taking the profitable parts such as business mail, sorting it and then delivering it to city centres, but dumping it back into the Royal Mail network for delivery to the most remote and costly rural areas. That imposes a double burden on Royal Mail, taking revenue away and then forcing it to bear the extra cost.

TNT’s stated aim over the next five years is to increase its end-to-end operations to a work force of approximately 20,000 and to deliver business post—that is, the most profitable post—to doorsteps across the UK. Evidence from Communication Workers Union members in the trial areas of London shows that Royal Mail’s postal volumes have been materially affected because of this competition. Loss of revenues on the scale that TNT is working towards would have very serious consequences for Royal Mail. It means Royal Mail missing out on the most profitable business that would usually subsidise the high cost of delivering to remote and rural locations. Such unchecked competition places the current universal service under significant threat.

[Lady Hermon]

The right hon. Gentleman may be surprised to learn that I agree with every word he has said on this occasion, though that may not have been the case when he was Secretary of State for Northern Ireland. I think it would strengthen his argument if he could throw a little light on the last part of the motion which

“calls on the Government to provide more concrete, long-term protections for postal services in rural areas”.

Will he explain what concrete, long-term protections for postal services in rural areas would be introduced if there were a Labour Government in 2015? That would be enormously helpful.

[Mr Hain]

I am grateful to the hon. Lady. I mostly agreed with her when I was Secretary of State, even if she did not agree with me, but there we are. I would want the next Labour Government elected in 2015 to ensure that the competition regime was fair and that Ofcom regulated the market to ensure that competitors did not cherry-pick the most profitable parts of the business. That is quite an easy thing to do, but it has to be driven ultimately by Government policy.

Royal Mail needs a level playing field where its competitors also have an obligation to deliver up remote Welsh mountains, or to the Scottish islands or the Yorkshire dales. That is why Ofcom must use the powers it already has to introduce general universal service conditions on competitors such as TNT which provide services that fall within the scope of the universal service. GUSCs do not require legislative change or ministerial approval, and they provide the best option for intervention on cherry-picking in the short term. Requiring Royal Mail’s competitors to deliver to a minimum area of geographic coverage for a specified number of delivery days and to a representative proportion of the population would go some way towards ensuring that competition was on much fairer terms.

Ofcom could also seek to introduce a universal service compensation fund through which rival postal operators would compensate Royal Mail for the costs of providing the universal service. Similar support funds are being established in a number of other European countries to ensure the long-term viability of the universal service.

Running Royal Mail as a not-for-dividend company, such as, for example, Welsh Water, would provide a suitable alternative model, and that is entirely compatible with the 2011 Act. The Government could choose that model and I urge them to do so.

Royal Mail’s recent profitability shows that it could raise investment capital through its own profits, which would be a step towards becoming a self-financing, not-for-dividend company under the Act. Without changing ownership, Royal Mail could borrow from money markets, at a cheaper rate, as is the case with Welsh Water, even under the terms of the Act. That would be a much better model for protecting rural postal services. Otherwise I fear that the future will be an end to door-to-door delivery in remote rural areas and the appearance of personal letter boxes in village centres, with the post office network all but disappearing.