Universal Postal Service

Alan Reid Excerpts

Thursday 17th July 2014 Commons Chamber

[Mr Alan Reid (Argyll and Bute) (LD)]

I congratulate the Backbench Business Committee on giving us time to debate this important issue, and my constituency neighbour, the hon. Member for North Ayrshire and Arran (Katy Clark), on introducing it in a very measured and sensible way. It is a pleasure to follow the hon. Member for Ynys Môn (Albert Owen), although I must correct him on one point. Before Postcomm introduced licence conditions for Royal Mail, it had refused to deliver to the lighthouse he mentioned, so not everything was perfect in the past.

The universal postal service is obviously extremely important to my constituency, with its scattered population and its many islands, and to all rural constituencies in the country. Royal Mail has an extremely dedicated work force, who go out in all weathers to deliver the mail, often up muddy tracks and in very difficult conditions, and they have a detailed local knowledge that private rivals simply do not have, as in the example given by my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith).

I supported the Postal Services Act 2011 because it enshrined the universal service obligation into law. That means that Royal Mail is legally obliged to deliver to every home and business in the country, as well as to collect from every post box in the country six days a week, at the same price throughout the country. To back up the legal requirement, the Act imposed on the regulator, Ofcom, the legal responsibility to ensure the sustainability of the USO.

We must remember that competition is not new—it did not just start with the 2011 Act—because it was introduced more than 10 years ago by the previous Government, who, in an all-too-familiar story, gold-plated a European directive. Competition means that delivery companies can cherry-pick cheap-to-deliver urban areas, and leave Royal Mail the more expensive job of delivering to sparsely populated rural areas, such as my constituency. As has frequently been pointed out, Royal Mail relies on its cross-subsidy from profitable urban routes to sparsely populated rural routes.

TNT Post has made most use of the ability to cherry-pick the areas to which it is cheapest to deliver. Its end-to-end business has expanded rapidly since it started trials for the service in west London in April 2012. According to Royal Mail, TNT aims to cover about 42% of UK addresses by 2017. As well as cherry-picking areas, companies such as TNT can also cut costs by delivering only on certain days of the week.

[Sir Robert Smith]

That point is very important. The Ofcom argument is about volume, but such companies are cherry-picking the very high margin, good-quality business.

[Mr Reid]

My hon. Friend makes an important point. Some forms of high-volume business mail incur lower costs than for people sending Christmas cards or postcards. Obviously, if a company has high-volume mail from a big organisation coming into its system, that is much easier for it to deliver.

In fairness, it should be pointed out that Royal Mail has some advantages. For example, it has a nationwide infrastructure and benefits from economies of scale.

Royal Mail is very concerned about TNT’s plans and sees them as a threat to its ability to deliver the USO. We must always remember that Royal Mail is a private company with a duty to maximise the revenue for its shareholders. Therefore, it may or may not be crying wolf. It is Ofcom’s responsibility to decide whether Royal Mail is crying wolf.

Ofcom has many tools at its disposal to protect the USO. It could impose regulatory conditions on other operators to level the playing field. For example, it could require other providers to deliver over a larger geographical area than just a small urban area or to deliver on more days in the week. Ofcom also has the power to introduce a universal service fund. It can review whether delivering the universal service places a financial burden on Royal Mail and determine whether it is fair for Royal Mail alone to carry that burden. However, that cannot be done before October 2016 without Government direction.

[Katy Clark]

The hon. Gentleman has mentioned the possibility of a compensation fund, which organisations such as TNT could pay into. Does he agree that organisations that deliver business mail, which they have been able to do for many years, might also be required to pay into such a fund, given the amount of money they make from the lucrative work that they do?

[Mr Reid]

I agree with the hon. Lady that it is not just TNT and companies like it that would have to pay into the fund, but a wider range of companies. That would be a decision for Ofcom.

If Ofcom finds that there is a net burden on Royal Mail, there is a provision in the 2011 Act that allows the Government to direct Ofcom to establish the universal service fund. That would require other operators to contribute financially to support the universal service. I do not think that we are at that stage yet, but the Government and Ofcom might have to use that power at some time in the future.

Royal Mail has pointed out that it has to meet all the targets that are set by Ofcom and publish its performance against those targets quarterly and annually.

[Mike Crockart (Edinburgh West) (LD)]

My hon. Friend spoke earlier about whether Ofcom recognises that there are extra costs. Of course, Ofcom did recognise that there were extra costs, but its answer to Royal Mail was that it should change its charging structure and charge other organisations more on a zonal basis. Royal Mail immediately did so, but TNT complained and we are now in a year-long re-examination under the Competition Act 1998. Ofcom tried to provide a way out, but it has not worked. Surely it now needs to come up with something else.

[Mr Reid]

I certainly agree with my hon. Friend. The universal service is so important for the country that I hope that any reviews or inquiries will be given a high priority and be conducted as quickly as possible, whether they are being carried out by Ofcom or the Competition and Markets Authority.

As I was saying, Royal Mail has pointed out that it has to meet all the targets that are set by Ofcom and publish its performance against those targets quarterly and annually. However, its competitors do not have to meet or publish any targets, other than the figures on complaints. Ofcom should use its powers to set targets for all operators and compel them to meet them. That would provide transparency and allow consumers to make an informed choice between operators.

[Mr McKenzie]

I fully accept what the hon. Gentleman says about the need for a level playing field. Does he accept that companies might want to produce information on targets to show that they have a process of continuous improvement and that they are providing a good-quality service?

[Mr Reid]

The hon. Gentleman is perfectly correct. A company that has any ethos at all will want to demonstrate that it is doing a good job. I therefore do not see how rival operators could possibly object to such a proposal.

In an e-mail that it sent me, Royal Mail alleged that TNT has dumped and misdelivered mail. We heard interventions from two London Members earlier who said that they had evidence of that happening in their constituencies. That backs up the need for the publication of performance statistics. Such statistics would show if mail is not being delivered and is disappearing from the system.

Ofcom has stated that before the end of next year, it will commence a review of the impact of end-to-end competition to assess any potential threat to the provision of the universal service. I do not think that it should wait until the end of next year. It should commence the review now because this is such an important service. That would be in the interests not just of Royal Mail and the consumer, but of rival operators. It is in everybody’s interests to know as soon as possible what conditions Ofcom will impose on mail delivery companies. I can see an operator such as TNT complaining if, in two years’ time, conditions are imposed on it that it was not told about before it made the investment. I see no advantage in waiting another 17 months before beginning the review.

My hon. Friend the Member for West Aberdeenshire and Kincardine pointed out that we have been here before with Postcomm, which seemed to prioritise competition over protecting the USO. Ofcom’s most important legal duty is to preserve the USO. That was written into the 2011 Act by a Liberal Democrat Minister. I expect Ofcom to do everything possible to protect the USO. I believe that that means holding a review now. I see no purpose that will be served by waiting another 17 months. If Royal Mail is crying wolf, there is no harm in having the review now, because it will show that. However, if Royal Mail is correct in its concerns, having a review now is essential.

The universal service is essential to rural communities such as Argyll and Bute. Thanks to a Liberal Democrat Minister, the law protects the universal service. Ofcom has a duty to ensure that that legal protection is delivered. As long as Ofcom carries out its duties properly, the USO will be sustainable. However, I believe that Ofcom must carry out the review now.

--- Later in debate ---

[Mr Weir]

I do not disagree with that; in fact, I am very keen for it to start, but even with the best will in the world, given previous investigations of this nature, it will take time, and time may be what we do not have. Does anyone really believe that it will be done in a few months? What will be the state of the USO if it takes 18 months or even two years to undertake such a review? What will Ofcom do? Does anyone in the Chamber really believe that the Government would go to competitor companies and say, “You cannot continue to expand” or “You must contract”? I very much doubt that.

It seems to me that its options under the 2011 Act are constrained. Under section 8—no one has mentioned this point so far—the Government could review the minimum requirements in terms of section 33, and therefore reduce the minimum requirements of the service. We should remember that under section 29 of the Act, at all times when securing the universal service Ofcom must also take into account

“the need for the provision of a universal postal service to be financially sustainable,”.

Does that not also open the door, for example, to raising the price of the universal service? I have previously made the point that with the abandonment of price controls over all other services, second-class post is now the only truly universal service, and even that could be at risk under the proposals. Many small businesses have already seen a rise in costs since privatisation, with an increase in first-class costs and small package rates.

The hon. Member for Ealing North (Stephen Pound) recently sponsored a meeting in this House at which Royal Mail presented its case for a review of the USO. I asked it directly whether it was seeking a diminution of the USO, but it denied that. I cannot say that I entirely believed that, but we must be aware that it is one possible outcome of a review, whether or not that is the company’s intention.

[Mr Reid]

The hon. Gentleman is well aware that the USO can be changed only if there is a vote in both Houses of Parliament, and I cannot believe that any sane political party would vote to reduce the USO.

[Mr Weir]

I am not sure that the present Government are sane political parties, but I will let that one go.

The Government will rightly point out that the 2011 Act enshrines the USO in law for the first time. That is true, but during the passage of the Act many of us asked specifically what will happen if the company comes back and says that it can no longer sustain the service. Royal Mail has been privatised, investors have made their profits, and we may well be about to explore the answer to that question.

--- Later in debate ---

[Mr Weir]

Indeed, that is my understanding.

[Mr Reid]

Will the hon. Gentleman give way?

[Mr Weir]

No, I have given way enough already.

[Mr Reid]

On a point of order, Madam Deputy Speaker. Am I right in saying that the procedures of the House are that an affirmative resolution requires a vote of the whole House, not just a vote in Committee?

[Madam Deputy Speaker (Mrs Eleanor Laing)]

The hon. Gentleman is correct, and it is interesting that he has taken the trouble to inform the House of that fact this afternoon. I thank him for that, but I point out that the hon. Member for Angus (Mr Weir) has the Floor and will continue his speech.