Royal Mail Privatisation

Baroness Clark of Kilwinning Excerpts

Tuesday 18th January 2011 Westminster Hall

[Katy Clark (North Ayrshire and Arran) (Lab)]

It is a great pleasure to see you in the Chair again, Mr Dobbin. I am pleased to have secured this timely debate on the implications of the proposed privatisation of Royal Mail for our post office network. There will, of course, be many repercussions if the privatisation goes ahead, but the subject of this debate is, perhaps, the aspect about which the public are currently most concerned.

No other country in the world has separated its mail service from its post office network, and I hope that the Minister will accept that there is genuine concern that this privatisation will have a negative effect on an already vulnerable post office network. Many of the issues that I will raise today have already been raised with the Government during the proceedings of the Postal Services Bill in this House, and I suspect that they will be raised again in the Lords. I have given the Minister notice of what I will say today—I will ask him many questions that have been put to the Government but that have not, as yet, been answered adequately.

We heard many warm words from the Government during the progress of the Bill about their commitment to the post office network, and, indeed, an announcement of a short-term subsidy. However, my contention is that those warm words will not be sufficient to protect our post office network and that the legal framework that the Government are putting forward with a privatised Royal Mail, which will have a legal duty to its shareholders to maximise profits rather than any duty to the general public, provides no guaranteed protection in law for the post office network as we currently know it, and will put our post offices at risk.

We have read in the media that some fear that the privatisation will result in 4,400 post office closures. That figure comes from the fact that the current access criteria mean that we would have a post office network of 7,500 post offices, and we also know that approximately only 4,000 post offices are currently considered to be financially viable. There is, therefore, a great deal of concern that privatisation could lead to the closure of post offices. There is also concern about whether the standard rate for stamps will be able to survive in a uniform way throughout the country, and that there could be a serious deterioration of the service provided, particularly in rural communities, deprived urban areas and in any part of the country where the postal service is expensive. There is a concern that a privatised Royal Mail will cherry-pick the business and that the post office network will be left with what was left.

During the passage of the Bill, the Government were asked to guarantee the size of the network. The Minister will be well aware of those calls being made to him. We currently have 11,905 post offices. The access criteria laid down by the previous Government would, according to Post Office Ltd, mean that there would have to be a minimum of 7,500 post offices. The Government have said, in the course of proceedings, that they are committed to the post office network and would like to see a network of 11,500 post offices. In her evidence, Paula Vennells, the managing director of Post Office Ltd, said:

“What is absolutely important in this new approach is that there will be no closures whatsoever.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 5, Q6.]

That call has been made repeatedly to the Government in the past few months. I ask the Minister again today whether he agrees with that statement by Paula Vennells and that a central plank of the Government’s policy is that there should not be post office closures, and whether he will undertake to ensure that the size of the network will remain at 11,500 post offices, as opposed to outlets, which is something that I will come on to in more detail later.

When those questions have been put to Ministers, the response has been an explanation of how the post office network operates—that, as we all know, post offices are run by private individuals who may decide that they do not wish to continue in the business for a whole range of reasons and that such decisions may not be in any way connected with Government policy or, indeed, the framework in which those people are operating. We all appreciate that, but we are asking the Government to confirm that their policy will be to create a framework that enables existing post offices to continue. It would assist if we had a specific answer on why legal guarantees would not be helpful. Surely the Minister agrees that it would be helpful to the post office network if he came forward with a legal guarantee on post office numbers, given the huge concern. If he is not willing to do so, will he explain why it is such a priority to get a quick sale—probably to a foreign buyer—but not a priority to find a way to give legal guarantees to our post office network?

We also know that the Government are being pressed by a wide range of organisations to guarantee the inter-business agreement between Royal Mail and the post office network. The National Federation of SubPostmasters, the Communication Workers Union and Consumer Focus, as well as a whole range of other organisations, have made that call and, in particular, are asking that a 10-year contract be entered into by Royal Mail to ensure some kind of security for at least that time. Consumer Focus has said that it is concerned about how few safeguards the current legislation proposes. Andy Burrows, its postal services expert, has said:

“There are few safeguards to keep that contract in the long term. It’s entirely conceivable—though it seems an odd thing to suggest—but several years down the line you could have a post office network where you cannot undertake mail transactions. It would be for Royal Mail to determine which operator—whether it was Post Office Ltd or Tesco or whomever—to offer mail services and there would be no requirement for stamps or parcels. You could see a scenario where Royal Mail looked to cherry pick so Tesco, say, could meet its requirements in urban areas and the Post Office could pick up the slack in rural areas where there isn’t anyone else. And that has very serious implications in terms of the viability and integrity of the network because urban areas typically make money.”

That really goes to the nub of the concerns that many people have about the future of our post office network.

Will the Minister respond to the allegation, which has been made again and again, that many of those who run post offices will view the future of work in a privatised Royal Mail to be so uncertain that they will be more likely to leave the business? The Government must respond to that allegation. There is huge uncertainty about what will happen if Royal Mail is privatised, which is bound to lead to individuals making business decisions that will take them out of the trade.

Will the Minister say what steps the Government would take if a privatised Royal Mail decided to award the work to supermarkets rather than to post offices? I want to know whether the Government would allow that to happen. If Royal Mail were to decide not to award work to post offices but to another organisation or range of organisations, would they allow that to go ahead?

My final request to the Minister—again, it has been put to the Government on many occasions—is that we use the opportunity of the Postal Services Bill to guarantee the access criteria in law, so that there is more certainty about the future. I have already referred to the view that the access criteria guarantee only 7,500 post offices, but even that is subject to uncertainty, given the legal framework.

I ask for all that because our post office network is already so vulnerable. More than 150 post offices closed on a long-term basis over the past year, and 900 are up for sale. Over the past 30 years, the number of post offices has almost halved, and the trend has been consistently downwards, irrespective of which political party or, as now, combination of parties is in power.

As someone who represents many deprived mainland communities, many small towns in areas of unemployment and rural island areas, it is clear is that the public are well aware of the vulnerability of the post office network. They are rightly suspicious of the Government’s assurances. That may be why people express a great deal of concern about the proposal to privatise Royal Mail whenever they are asked about it, whether it is through opinion polls or in other ways. The fear is that post offices will be at risk, particularly in deprived and remote rural communities. The Government may say that there will be no closure programme—indeed, they have said that—but that does not mean there will not be post office closures.

We know that the majority of work for post offices comes from either Royal Mail or the Government, but business from those providers is not secure. Royal Mail provides post offices with about one third of their work, and we are told that it is unthinkable that it would not use the network. However, it is clear that many competitors may be interested in the work, including supermarket chains, PayPoint—they are the two most obvious options—and a range of other providers. Surely it is a real possibility that a privatised Royal Mail would tender the work, either in whole or in part, to the cheapest provider in the future.

The reality is that because of how Royal Mail will be constructed legally, it will be under an obligation to ensure that it gets best value for its shareholders. There will be nothing to make it use post offices to the same extent. As a private company, its duty will be to its shareholders, which would put the work that many post offices currently rely on at risk. It is only common sense to think that more post offices would be in greater financial difficulty and that more of them would find it difficult to justify their existence.

We have heard a great deal about alternative sources of work for post offices. Indeed, the previous Labour Government were doing a considerable amount of work to develop a people’s bank, which was dropped by this Government. Will the Minister explain why the Government are not proceeding with some form of post bank or people’s bank? We would like an explanation as to why they do not accept that local post offices would be on a stronger footing if the post bank work had gone ahead. I also understand that the Department for Work and Pensions green giros contract is under threat. Will he explain why DWP work is not being channelled to the Post Office?

The reality, of course, is that the historic link between Royal Mail and the Post Office means that Royal Mail supports post offices in a range of different ways. The Royal Mail chief executive has said that, in effect, Royal Mail subsidises the post office network by £150 million a year through the central provision of services alone. Obviously, if the two organisations were to separate, that would be another way in which funding and support would be taken away from the network.

The previous Labour Government put substantial funding into the post office network, and this Government have announced a £1.34 billion subsidy, which I welcome, although I have been told that it will not increase the level of annual social subsidy to the post office network. However, my greater concern is that the funding is not guaranteed beyond 2014-15, and, even more, that the Government’s stated policy is that the subsidy will reduce over time. That must give us great concern. I do not know whether post offices will be able to survive in the future.

Does the Minister expect that the number of post offices or outlets will shrink over the coming period? Also, does he believe not only that the number of post offices or outlets will reduce but that the quality and extent of the service operated at post offices will shrink? The Government’s plans for changing the network over the next four years include replacing 2,000 post offices with “essentials” or “locals”, which will provide a more limited range of services, often from a venue such as a shop. I understand that the scheme is designed as a pilot, but many of us will already know from our constituency experience of examples of a Crown post office closing down and the service moving into, perhaps, a local newsagent. It is clear that our constituents feel that the quality and range of the service has decreased, even if it is simply because there is less space in the post office area. There is less ability to take in wheelchairs—the conditions are more cramped. That is a great concern to our constituents.

[Lorely Burt (Solihull) (LD)]

I congratulate the hon. Lady on securing this important debate. There is great potential for a more flexible approach to the format of post office that people want. I have one in my constituency that is in a convenience shop. A point has been opened in the shop itself, so people do not have to wait for post office opening hours. The number of open hours is phenomenally greater, so everyone who wants to cash in their lottery winnings goes to the shop. There are great opportunities, and not everyone needs all the services or wants them at specific restricted times.

[Katy Clark]

There may be some benefits in certain circumstances. The example that I was thinking of is a local one. The small town of Kilwinning in my constituency previously had a spacious Crown post office that was heavily used by the local community. When the service moved into a newsagent, the quality of service experienced by constituents became much worse. However, there may well be other situations that are success stories.

One of the concerns at present is that many of the proposals would actually mean a reduction in the number of hours that postal services will be available in some communities. That is the point that I have put to the Minister. There may be exceptions where the service improves, but my contention, and the evidence from the work that has been done, is that the trend is for the range and quality of services to diminish. The reason for that is the difficulty in making post office services pay, which is why we are having this debate. For public policy reasons, post offices are essential parts of our communities, and we should be finding a framework within which post office success would be most likely.

Related to that, a great deal of concern has been expressed about the network size being affected by the extension of outreach services, which are often provided by a van and often mean a substantial reduction in the hours a postal service is available in a specific community. Instead of having a post office, which would be available all week, a van might come once or twice a week, for a relatively small period. Those vans, or many of the facilities to which the hon. Member for Solihull (Lorely Burt) has referred, often do not provide the whole range of postal services that might have been available in a more traditional post office. I ask the Minister to respond to the considerable concern expressed about the quality of services provided by some outreach services.

The Select Committee on Scottish Affairs, for instance, made submissions to the Government after taking evidence in Scotland on such issues. An extension of such outreach facilities leading to a continuing deterioration of service is a concern. I have to declare an interest, because of the kind of constituency that I represent. I have many remote rural areas in my constituency, in particular the island of Arran, the kind of area for which outreach services are often proposed. As we know from the evidence given by members of the public and by hon. Members, often the view is that the level of service is far less good than that which was previously provided.

Huge concern has been expressed about the universal service obligation and whether a postal service could be maintained in all parts of the country, no matter how remote. What is perhaps more at risk is the continuation of the universal service as a six-day service everywhere and of a uniform affordable price throughout the UK. Can the Minister give an assurance on that continuation and whether there will be legal protection? The proposed legislation, similar to current legislation, allows Ofcom to waive the universal service obligation given exceptional geographic or other conditions. Will the Minister outline when that opt-out would be used? What guidance would be given about when Ofcom is allowed to say that the universal service obligation need not operate?

If the Postal Services Bill becomes an Act, we are creating a legislative framework in which it would be quite possible and highly likely that Royal Mail will move its work in the future. MPs of all political parties are concerned about their local post offices and wish them to survive. I urge the Minster to ensure that we organise our postal services in a way that enables them to have the business to make that a realistic possibility in the future. In particular, I ask that he uses the opportunity of the legislation to ensure that we have a legal framework whereby post offices can continue. There is huge concern that a privatised Royal Mail will operate in a manner that will undermine our post office network. Will the Minister please respond to the points made today and over the past few weeks?

[Anne Marie Morris (Newton Abbot) (Con)]

I thank the hon. Member for North Ayrshire and Arran (Katy Clark) for securing an excellent opportunity to talk about the future of the wonderful post offices that we all love and need and upon which our constituents—in particular, some of our small businesses—are dependent. However, I am surprised that the hon. Lady raised the issue of post offices when the Bill we are talking about and have been debating recently is about Royal Mail. The debate is meant to be about Royal Mail, rather than about post offices, but I was encouraged by the response that the Government gave, indirectly, with regard to post offices, effectively guaranteeing that we would be able to retain post offices, which we all value. I was absolutely delighted.

The other measure in the Bill, which the hon. Lady did not mention but which I find exciting, is the concept of mutualisation. It is a huge opportunity.

[Katy Clark]

There have been many opportunities over the past few weeks to make all sorts of points about Royal Mail privatisation. The debate today is about the implications of Royal Mail privatisation on the post office network. There are genuine concerns. Does the hon. Lady share any of those concerns?

[Anne Marie Morris]

I thank the hon. Lady for her comment but, to be honest, hearing her discussing the concerns about the future of the post offices was very reminiscent of the concerns felt by Opposition Members under the previous Administration. Our concern in opposition, when there were mass closures of post offices, was that the Government of the day had failed to recognise that such post offices were crucial to communities and were providing a social service as much as anything else.

I am delighted that both parties supporting the coalition Government are determined to ensure that post offices have a bright future. I do not share the hon. Lady’s concern about the future of post offices; they are far better off under the new coalition Government than they ever were under the previous Administration.

The hon. Lady made some points about universal delivery, but I am very heartened. It is important. The Government look on it as fundamental and will retain it.

Turning to post offices, we must remember that 99% of the population live within three miles of a post office. In the grand scheme, that is not a bad position to be in. The Government subsidy to non-commercial post offices is currently £150 million, but I am pleased that it will increase to £180 million in the next financial year.