Postal Services Bill

Lord Low of Dalston Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Low of Dalston]

My Lords, I count it a privilege to rise to offer the congratulations of the House to the noble Lord, Lord Empey, on what I am sure all your Lordships will agree was a most impressive maiden speech.

The noble Lord, Lord Empey, comes to us as a most substantial figure in Northern Ireland politics. He has been a Belfast city councillor for 25 years, as he told us, and mayor on two occasions. He is a Member of the Northern Ireland Assembly. He spent nine years on the police authority of Northern Ireland, which means that he must be blessed with a broad pair of shoulders and a tin hat—perhaps these will equip him well for the political rough and tumble in your Lordships' House. He played a prominent part in the Northern Ireland peace talks in the 1990s and was leader of his party from 2005 to 2010. What is most notable is that he is a man of moderation and a man of peace. He not only has a broad pair of shoulders but clearly has a wise head on them. I am sure your Lordships will wish to hear from him on many occasions to come.

Turning to the Bill, my noble friend Lord Empey talked about the need for certainty underpinning the provision of postal services and the need to secure and firmly anchor the universal service obligation. These issues will figure prominently in my remarks. The Bill clearly has a number of features one can welcome. It provides a basis on which it should be possible for Royal Mail at least to attain a degree of stability. The Government will relieve Royal Mail of the crippling burden of its pension deficit, which was put at £10.3 billion at the most recent actuarial valuation, and the lifting of the restriction on the sale of shares in the Royal Mail Group will provide the means of bringing badly needed capital into the business. It is perhaps a moot point whether this need could not have been addressed while retaining Royal Mail in public ownership, whether through borrowing from the Government or the market. Privatisation is certainly not popular with the public according to a YouGov poll last October, but at least the Bill, if it passes, as opposed to being stillborn like the previous Postal Services Bill, will point a way forward for the business.

My main concern is with regulation and the universal postal service. Royal Mail welcomes competition, but it maintains that the regulatory regime needs to achieve a more level playing field. That seems to be right. The access headroom rule already means that Royal Mail is competing with one hand tied behind its back. The regulatory regime means that Royal Mail’s competitors are guaranteed access to Royal Mail’s network at any point and enjoy a guaranteed margin. In other words, Royal Mail is regulated in such a way as to be forced to subsidise its competitors by 2.5p per item, which comes to a total of £160 million. Indeed, 80 per cent of the business is regulated. In introducing the Bill, the Minister pointed to the declining financial position of Royal Mail, but a good case could be made for saying that the draconian regulatory regime has a good deal to answer for in this regard. In order to be able to compete effectively, the proportion of the business that is regulated needs to be reduced so that Royal Mail can negotiate commercially, certainly with its larger customers. The postal service in no other country is regulated in this way. The Communication Workers Union agrees about this so, at a stroke, the Government have achieved the singular feat of uniting Royal Mail and the Communication Workers Union.

This is linked to the universal service obligation or the universal postal service, as it is now to be known. The Royal Mail is currently undertaking a vast modernisation programme costing hundreds of millions of pounds. This is based on the assumption that Royal Mail will continue to provide the universal service for the foreseeable future. Indeed, Royal Mail’s whole business plan is based on providing the universal service. However, the Bill designates Royal Mail as the universal service provider for a period of only three years. After that, the regulator can consider allocating the service to another provider or providers. This does not provide a stable planning horizon long enough to justify this level of investment. Something much more like 10 years would seem appropriate.

Such a short timescale also potentially undermines the interbusiness agreement with the post office network, 37 per cent of whose income comes from Royal Mail. Notwithstanding the Minister’s professions of good intent regarding the maintenance of the post office network, the loss of Royal Mail business could put many post offices at risk. The unpopularity of Royal Mail privatisation is as nothing compared to the hostility which would attend another round of cuts to the post office network, which is truly seen as part of the fabric of British society, as has already been underlined in the speeches that we have heard.

The universal postal service, a delivery and collection service for six days a week at a uniform and affordable price, is further put at risk, as the noble Lord, Lord Tunnicliffe, has pointed out, by the requirement in Clause 29 that Ofcom should carry out a review of the universal postal service within 18 months of Part 3 of the Act coming generally into force. A review of the universal postal service can go only one way: down, not up. The universal service obligation is loss making, and any private operator will inevitably seek to reduce the burden that it places on them. In the Netherlands, the privately owned incumbent, TNT, which has been mentioned as a possible investor for Royal Mail, has described the universal service obligation as a kind of Jurassic park that we should get rid of.

Ofcom, which will take over regulation from Postcomm, will have a primary duty to secure provision of the universal service obligation. In discharging this duty, it must give specific consideration to the financial viability and efficiency of the service. This contrasts with Postcomm’s primary duty to ensure provision of the USO, unqualified by considerations of finance and efficiency. This change is not in keeping with the public service character of the USO and can only tilt the balance in the direction of degrading it.

The Bill thus makes the universal service vulnerable, whatever the noble Baroness says. One reason—not the only one, but the one that I wish to highlight at a little more length in the time that remains to me—why this is of particular concern to me is that the universal service obligation is of particular importance to people with disabilities, given their greater reliance on and use of mail services. Postcomm recently carried out some research with Consumer Focus into consumers’ needs, which found that people with a disability are more likely to use mail services as a means of communicating than those without a disability, are more likely to rely exclusively on traditional means of communication such as mail, and are less likely to predict that their use of mail for communicating with family and friends will decline in the next three years.

The research also indicated that people with a disability are particularly vulnerable to reductions in the service or increases in a cost that a privatised Royal Mail is likely to push for. They are more likely to rely on second-class post, and are less likely to be willing to pay for specific delivery options or go to a delivery office to collect a package. They also receive less fulfilment mail—the more profitable items for Royal Mail. They also place greater value on the post office network, and use it more heavily for posting mail than those without a disability. There are also just under 4 million Post Office card accounts for the payment of benefits and pensions.

As I have already suggested, the separation of the post office network and Royal Mail could jeopardise the future of the Post Office. I am particularly concerned about the integrity of the universal service obligation because it includes the articles for the blind scheme. This stipulates that Royal Mail must provide, free of charge, first-class postage for packets of up to 7 kilograms in weight that contain letters, books, papers and a range of equipment designed for use by blind or partially sighted people. Nine million items were sent through the articles for the blind service in 2006-07, at a reported cost of £5 million to Royal Mail. A private operator is bound to wish to minimise such costs. The requirement for Ofcom to consider the financial viability of the USO is bound to come into play at this point.

When the previous Postal Services Bill was going through your Lordships' House, I managed to persuade the Government to include the articles for the blind scheme in the universal service obligation. Initially, the scheme was protected only by a complicated series of licence agreements, but I argued that it was not enough simply to rely on ministerial assurances. Ministers might fully intend, as I am sure the noble Baroness who has introduced the Bill today fully intends, the articles for the blind scheme to be safeguarded, but who can say what will happen in conditions of financial stringency?

Ofcom is currently consulting on abolishing its Advisory Committee on Older and Disabled People and merging this with its Consumer Communications Panel and the Advisory Committee for England into an advisory committee for the nations and communities. These individual committees were set up to support Ofcom’s specific duties to consumers under the Communications Act 2003. With no dedicated committee rooting for the consumer, the practical effect of these changes is likely to be a downgrading in the prominence given to these issues in Ofcom’s decision-making.

As we are constantly being reminded, we are experiencing conditions of extreme financial stringency. I can already hear the Minister’s words ringing in my ears, “Believe me, I would like nothing more than to be able to maintain the articles for the blind scheme. If it were up to me, how much I would wish it were possible to do so. But sadly it is just not sustainable in the current economic climate”.

The present USO is enshrined in statute, or at least it will be when this Bill is passed; I believe it should require an Act of Parliament to change the universal service obligation, or it should at least be guaranteed for a period of five or 10 years. I shall be seeking changes in the Bill in Committee to provide for this.