Postal Services Bill

Baroness Dean of Thornton-le-Fylde Excerpts

Wednesday 6th April 2011 Lords Chamber

[Baroness Dean of Thornton-le-Fylde]

My Lords, Amendment 24PB, which stands in my name and that of my noble friend Lord Brooke of Alverthorpe, would insert a new clause related to the indebtedness of a potential universal service provider. In following the Bill’s progress, it has become clear to me that we have a willing seller. However, the financial model has not been revealed to us. We do not know whether it will be an IPO or some other type of financial structure. We also do not know whether there is a willing buyer; we will not know that for some time yet. We do know that it will be a regulated business, which is right. I think that many Members on this side of the Committee would identify entirely with the criticisms of Postcomm. Some of us believe that it has been positively damaging for Royal Mail services over many years and that it is completely non-commercial in its outlook.

This amendment has been drafted against a background of not knowing what the structure might be. In any sale, however, whatever the structure might be, there is a real danger that the acquirer of Royal Mail might be burdened with enormous debt. We have to consider that possibility very seriously because an overburdening of debt will threaten the viability of the new organisation, certainly in the longer term and possibly also in the shorter term. This is not a new phenomenon but is often encountered in any kind of sale or takeover. Two recent and obvious examples in the private sector come to mind—the Kraft takeover of Cadbury and the Boots takeover some time earlier.

In this case we are looking at a business that will be regulated, and there are some direct parallels. For instance, in moving to purchase BAA, Ferrovial was warned—perhaps that is too strong a word—by the Civil Aviation Authority, the aviation industry regulator, about the high level of indebtedness it would take on to implement the takeover. We all know the result. At that time, when considering its review, the CAA indicated that it might take that issue into account in reaching its decisions, which included price increases.

I should declare an interest as a member of the board of National Air Traffic Services. After its recent review of NATS, the CAA imposed on NATS a maximum debt level that would protect it from over ladening itself, a decision which was welcomed by many although not welcomed by some. It is protection for a company which is investing £150 million a year in its infrastructure and which will continue to need to do so.

Although the amendment does not require Ofcom to impose a maximum debt level, Ofcom would have to publish guidelines on how the new USP’s indebtedness and valuation of assets will be calculated. As the regulator of a regulated company, Ofcom would then have to monitor the situation. If it judges that action has to be taken, this amendment will permit it to do so. It will also enable Ofcom, in publishing the regulations, to limit the debt burden that can be applied. In other words, it is a protective clause for a company that is currently wholly publicly owned but that, under the Government’s current policy, probably will not be in future.

--- Later in debate ---

Moved by

[Baroness Dean of Thornton-le-Fylde]

24PB: After Clause 34, insert the following new Clause—
“Indebtedness of potential USP
(1) OFCOM, in designating a postal operator as a universal service provider must take into account the financial indebtedness as a proportion of the value of the company of any potential USP, and may limit this indebtedness to such a percentage as OFCOM may from time to time determine.
(2) For the purpose of this section—
(a) “financial indebtedness” means, at any time, the aggregate outstanding principal, capital or nominal amount of any indebtedness of the company calculated in accordance with guidelines published by OFCOM, and(b) “value of the company” means the value of the company’s assets calculated in accordance with guidelines published by OFCOM and taking into account the timing of material transactions affecting that value.”

[Baroness Dean of Thornton-le-Fylde]

My Lords, I was encouraged, and I hope rightly so, by the Minister’s response that this matter would be considered between now and Report. Will that consideration include ensuring that we are not faced with Ofcom regulating after the sale, and that we have cover for the sale itself? If I had that assurance, I would be delighted to withdraw the amendment.

[Lord De Mauley]

I am sorry. May I ask the noble Baroness to repeat that? I was having words in my right ear.

[Baroness Dean of Thornton-le-Fylde]

I noticed that the noble Lord was somewhat distracted. My concern on this amendment is that if, on looking at the indebtedness of a potential USP, the Government come forward with a wholly acceptable measure, they do not do so after the boat has sailed—in other words, not after the sale. That is because the debt level which may or may not be raised by whatever model the Government decide on for the sale could still burden the company, although there would be provision for the future. Will the Minister please take that into account when he considers the matter before Report?

[Lord De Mauley]

Of course, my Lords.

[Baroness Dean of Thornton-le-Fylde]

I thank the Minister very much for that. I beg leave to withdraw the amendment.

Amendment 24PB withdrawn.