Baroness Kramer
Main Page: Baroness Kramer (Liberal Democrat - Life peer)
Lord Whitty
My Lords, it would be the nature of any investor in any situation to maximise their degree of flexibility—any company investing in any potential asset, particularly one which has so many obligations on it in the public domain, wants to maximise its flexibility. I do not know the investors the Government have in mind—we have not been clear on that; we have not even been clear whether it will be a single investor or an IPO or another arrangement—but my expectation is that it will be one or perhaps one or two in a consortium buying Royal Mail. They would wish to maximise their investment, on that front, as on other fronts. Giving them that flexibility could seriously prejudice the future of a socially, economically and regionally important part of our infrastructure. That is the suspicion that lies, in my view, behind this amendment.
I do not understand the point of the noble Lord, Lord Razzall, about state aid because if you have an agreement of that length in any case, whether it was voluntarily negotiated or imposed by Act of Parliament, state aid may be involved. So either way the possibility of state aid interest arises, and I recognise that that is one of the inhibitions on government. I am afraid that, if the noble Baroness does not accept this amendment or something like it, then she is heightening the suspicion that we are going to fall over backwards to placate a potential investor to the potential detriment of the post office network and those who depend on it.
Baroness Kramer
My Lords, I want to come in now on this conversation. The noble Lord, Lord Whitty, talked about an elephant in the room and then dismissed the EU state aid issue. Many Members of this House have been following the debate from the beginning—some have come in perhaps a little later, but many have been engaged from the beginning—and have heard directly from Moya Greene, the current chief executive of Royal Mail, that she would wish for the longest possible agreement that she could achieve within the law for an inter-business relationship with the Post Office. Many will also have heard the same from Paula Vennells, the managing director of the Post Office part of the current Royal Mail Group whom I think we may regard as the chief executive presumptive of the Post Office when it becomes a completely separate entity. They have also heard the Government say, on many occasions, that they would wish for, and would try to achieve, the longest possible agreement that could be done legally.
The issue of European state aid rules is absolutely critical. The noble Lord, Lord Whitty, will have looked at the financial condition of Royal Mail Group and will understand that it is urgent that new investment comes in, in a very timely manner, if the group is to be preserved. The Post Office side also needs the injection of £1.34 billion that the Government are committed to putting into it, which would come through this legislation and the new structures. That is what will guarantee its future.
However, all of that would be jeopardised when—one could say “if”, but I suspect that if we go back to the lawyers and ask the Government it would be “when”—the state aid rules were tripped by one of these two amendments. I am rather under the impression that the Government have done everything they can to find language that would not trigger European state aid rules and cannot find it. The language proposed today by the noble Lords, Lord Stevenson and Lord Rogan, trips the European state aid rules. That would mean 24 months of constant wrangling, in which it is impossible to go out and bring in a new investor. All investors require some degree of certainty about what is happening to the organisation they are meant to examine and on which they are meant then to make an offer. It would also mean 24 months of uncertainty for the public. If this was two or three years ago, the luxury of including a clause like this and being resigned to spending two years fighting through state aid issues might have been possible. I suggest that we do not have that luxury at the moment.
We have two key organisations which matter to all our communities. We have people who work for Royal Mail—the regular staff who do incredibly hard work and need certainty about their jobs—and we have communities that rely on the Post Office. If we inject something like 24 months of further uncertainty, and who knows what comes out of the state aid negotiations, we jeopardise everything we have been trying to achieve—for weeks now in this House and in the other place—which is to make sure there is a secure future for the Royal Mail Group and that both the Royal Mail and Post Office parts of it can thrive. I understand that people have suspicions and concerns and will not take government assurances because they do not like to take them and perhaps do not quite believe Moya Greene or do not quite take the word of Paula Vennells. I understand all that, but there is an overriding issue and it has not been addressed by those who moved this amendment. The language triggers state aid provisions—we cannot afford the consequences of having that in the Bill.
Baroness Wilcox
My Lords, I thank very much indeed noble Lords who have spoken before me. I particularly thank my noble friend Lady Kramer for the exposition that she has just given to sum up with. I shall leave as many of those comments aside because they speak well for what I would like to say. I shall address some of the comments from the Opposition and the Cross-Benchers who moved the amendments.
The issue of the inter-business agreement between Royal Mail and Post Office Ltd is one of the issues which has stimulated the most debate throughout the passage of this Bill, both in this House and in another place. The noble Lord, Lord Razzall, summed up in his words the fact that all of us who have taken part in these discussions wish to see the same thing—this body established within the nation’s life to be continued in the best way possible. But we are going to do it in the way that we think will be effective; we have watched the Opposition try to do it in a different way and it was not effective. We are right to want to ensure the best possible future for the Post Office, which, as many noble Lords have pointed out, is a national institution highly valued by communities up and down our country.
Before I turn to the substance of the amendments, I would like to respond to the comments of the noble Lord, Lord Stevenson, on the 400 long-term temporary closures. There are inevitably changes in the total number of post offices from month to month, as some offices close and others are reopened. In fact, there has been a net reduction of only 58 offices in the last nine months—and this is, of course, constantly in flux. The Government have committed to no new programme of post office closures, as noble Lords have kindly noted.
Your Lordships are of course well aware of the fact that Royal Mail’s business is extremely important to the Post Office. This fact has not escaped us in government either, or the two companies themselves, as you have heard many times in our discussions. As your Lordships will by now be well aware, the chief executive and chairman of Royal Mail have pledged to ensure that the longest contract legally permissible will be in place before any sale. Edward Davey, the Minister in another place, and I have committed to both Houses that we will ensure that this pledge is upheld, and your Lordships have approved an amendment to the Bill to ensure that the report on the disposal of shares in Royal Mail will include details of the ongoing relationship between the two companies.
The new contract between Royal Mail and Post Office Ltd is not yet finalised, and, as I have said before, it serves little purpose to focus on the duration of the contract alone. The contract, which we hope to be ready to be signed next spring, will contain far more complex details, such as pricing and service level agreements, volume commitments and exclusivity agreements. The final nature of all of those details will have a bearing on the longest legally permissible duration of the contract. These details should not be presided over by government, but must be agreed by the two companies and their advisers. They are the experts, they know the businesses best, and it is they, not we in Parliament, who should fine-tune the details of this contract.
When this amendment was debated in Committee in this House, the noble Lord, Lord Young, posed various questions regarding what the longest legally permissible contract actually meant. I wrote to him following that exchange and, as I said in that letter, because the contract will focus on many other factors as well as duration, it is difficult to speculate on how long the longest permissible contract would be. We hope that the contract’s duration could be for as long as 10 years, or even more, but this cannot be finalised until all of the detailed negotiations are complete. The Government could not accept any contract between Royal Mail and Post Office Ltd which might be liable to legal challenge. Without a robust long-term contract between them, both companies would suffer commercially precisely the circumstances that noble Lords are seeking to avoid through their amendments. The Government could also not accept a legislative obligation which might lead to that very situation. As I have said repeatedly, the terms of this contract must be negotiated between those who know the businesses best.
In response to the concern expressed by the noble Lord, Lord Whitty, about the impact that a potential bidder for Royal Mail could have on the terms of the inter-business agreement, I would like to reassure noble Lords that any investor will have no input into these terms. As the chair and chief executive of the Royal Mail has stated, the longest legally permissible contract will be put in place before any investment into the Royal Mail. We will of course ensure that that happens. As I have said previously, what the Secretary of State, and indeed the Government, can and will help to do is to ensure that there is a contract in place between the two businesses before separation, and its duration will be for as long as is legally permissible. But most importantly, government must also help to create the conditions in which both businesses will flourish in partnership with one another.
Let me reassure this House that the separation of Post Office Ltd and Royal Mail will not lead to dangers for the post office network. As my noble friend Lord Razzall, emphasised, operationally, these companies are reliant on one another. Post offices carried out over 3 billion transactions for Royal Mail in 2009, and they will continue to be partners because there will remain an overwhelming commercial imperative for the two businesses to work together. The noble Lord, Lord Stevenson, noted that there are no international precedents for splitting a mail provider and retail arm. The Government are not aware of any international comparisons for the Post Office, which has such a vast branch network, offering a broad range of government, financial and mail services in the heart of communities. Separation from Royal Mail will give the Post Office the chance to focus on growing its revenue and getting the most out of its branch network. It will ensure that each organisation is able to focus more effectively on its own challenges and help to secure a sustainable network. The separation of Post Office Ltd from Royal Mail was welcomed during the Public Bill Committee evidence sessions in the other place by the consumer group Consumer Focus, the current regulator Postcomm, and the independent expert Richard Hooper.
It is of course important too that the Post Office continues to offer the very best possible service to Royal Mail, as well as to other current and potential clients. Our £1.34 billion funding package to the Post Office over the spending review period will ensure that the service provided by post offices is modernised and improved, to ensure that people continue to see their local post offices as the natural and convenient place to access Royal Mail products and that the Royal Mail management continues to see the Post Office as its retail partner of choice. This Government have not given Post Office Ltd such a considerable sum of money for nothing. We will do all we can to ensure that Post Office Ltd has a vibrant future, and continues its valued relationship with Royal Mail. As I have said before, it is primarily by attracting customers for all types of services that the Post Office will ensure its future success. With this Government’s funding and support, I believe that is precisely what it will achieve. As such, I would ask the noble Lords to withdraw their amendments.
Lord Low of Dalston
I should like to speak to Amendment 65A. I think I can be quite brief because the noble Lord, Lord Young of Norwood Green, has covered quite a lot of the ground. I thank him for his supportive remarks. My Amendment 65A seeks to curtail the Secretary of State’s power to make an order amending the minimum requirements of the universal postal service, as set out in Clause 30, by providing that, for five years after the Bill comes into force, he,
“shall not make an order which diminishes or erodes the minimum requirements of the universal postal service”.
I tabled a number of amendments at Committee designed to reinforce the minimum requirements of the universal postal service so that they could not be downgraded. My noble friend Lord Tenby kindly moved them for me in my absence on 6 April. At cols. 1782-84, the Minister gave comprehensive reassurances about Ofcom’s ability—or, rather, lack of it—to vary the minimum requirements. I confess myself fully satisfied with these. She made it clear that the primary purpose of the Bill is to protect the universal service. “Ofcom’s overriding duty,” she said,
“is to secure the provision of a universal service”.
The Bill requires Ofcom to secure the provision of the universal service. She continued,
“the market assessment that Ofcom is obliged to carry out as a result of Clause 29(4) is not a review of the minimum requirements”,
contained in Clause 30, and:
“It cannot change those requirements”.
Furthermore, the Minister said, “The power in Clause 33,”—for Ofcom to review the extent to which the minimum requirements reflect the needs of users of postal services—
“enhances the safeguards against changes to the … minimum requirements”.—[Official Report, 6/4/11; cols. 1782-83.]
Finally, the Minister made it clear that the Government have no intention of reducing the minimum requirements of the universal postal service. That is all very satisfactory and we can accept that Ofcom does not pose a threat to the universal service.
Amendment 65A therefore has a specific and narrowly focused target in view: the Secretary of State’s power under Clause 33(5) to amend the minimum requirements contained in Clause 30. As the noble Lord, Lord Young of Norwood Green, said, the Delegated Powers and Regulatory Reform Committee makes reference to this provision in its report on the Bill in paragraph (9), under the significant heading “Clause 33(5) alteration of the minimum requirements for the universal postal service”. It says:
“If OFCOM carry out a review (and they may be directed by the Secretary of State to do so) the Secretary of State may then, by order subject to affirmative procedure, amend clause 30. The Secretary of State is not constrained necessarily to follow any conclusions of the review. The Committee makes no recommendation on clause 33(5), but draws it to the attention of the House as a significant power which would allow the Secretary of State to alter the minimum requirements for a universal postal service”,
without reference to any Ofcom review.
Fears have been expressed that once Royal Mail has been sold off, the new owners will put pressure on the Secretary of State to reduce the minimum requirements of the universal postal service on the ground that they impose a burden on the business, which undermines its viability. What they really mean is that it will erode their profits. I believe this is a reasonable concern and my amendment curtailing the Secretary of State’s power to reduce the minimum requirements of the universal postal service for five years would afford a period of stability and be good for employees of Royal Mail and users of postal services across the United Kingdom.
I have had constructive discussions with Edward Davey, the Minister responsible for the Bill in another place, and I am grateful to him for making himself available to meet me. As I said, I believe I have identified a problem in Clause 33(5) and suggested what I think is a workable way forward which would meet the needs of both the Secretary of State and users of postal services. However, if the Minister can repeat her assurance this evening that the Government have no intention of eroding the universal postal service and can assure me further that they have no intention of using the power in Clause 33(5) within a decent period of time, we might be able to get by without the need to divide the House.
Baroness Kramer
My Lords, I want to make a couple of quick comments and ask a couple of questions of the Minister. I do not have the scope to get clarity myself.
Is it possible to constrain Ofcom’s powers to review by setting a clear period of time in which a review may not take place? We have a problem with the European postal services directive, which requires that the regulator responds to the needs of users. In other words, it has five years in which it cannot provide the response required under the directive. We have a possible problem with that.
I also looked quickly at the Communications Act 2003, which sits alongside this new legislation. Most of its content is about Ofcom’s regulation of television and radio, and so on. However, it also has a series of general obligations for Ofcom, which presumably apply to every activity in which Ofcom participates. These again require—as I read them; others may have a different view, but I think probably not—an ongoing process of review, so we have a potential conflict between two pieces of legislation. Does that exist? It would obviously add to the complication.
Having been in the other place, which I know is not always a good thing to say about oneself when in your Lordships’ House, I know that the chances that any Member of the House of Commons would allow an affirmative resolution to reduce the universal service obligation have got to be pretty close to zero. Frankly, I could think of nothing more suicidal in whatever election that individual has to face next. Some people may not consider that to be the strongest possible lock but, frankly, I find it hard to think of a stronger one. Far stronger, as far as I can see, than any legislation is the power of realpolitik that would apply under these circumstances.
Lord Borrie
My Lords, subject to the questions that have usefully been asked by the noble Baroness, Lady Kramer, and to which the Minister will no doubt respond, the amendments proposed by my Front Bench and the noble Lord, Lord Low of Dalston, are useful and would have definite gains if they were accepted by the Government. I want to make two points. First, in relation to a review by Ofcom, which is provided for and to which one cannot in principle object, Amendment 66, in the names of my Front Bench team, would confirm the uniform tariff. I do not see how the Minister can object to that; it is a brief and clear amendment. The second point, which was mentioned by both the noble Lord, Lord Low, and the opposition Front Bench, is that there should be a transitional period for the thing to work through. There should be a period in which there will be no change. That, too, seems a helpful and creative amendment, which has been modestly but clearly put forward.
Baroness Kramer
My Lords, I very much appreciate the thrust of the amendment. Obviously it is crucial to everybody in your Lordships’ House that whoever becomes the private partner or investor in the Royal Mail should have the resources to be able to continue the modernisation programme and make sure that it becomes a very successful company. From my guilty experiences of years as a corporate banker, I know it is extremely difficult to write a financial test that will do this. I understand that the noble Baroness, Lady Dean, has made a good thrust at it. However, the reality is that, unless there are also tests on cash flow and the income statement, and a variety of different tests looking at the balance sheet, there is not a hope of getting a grip. In the days of modern financial structuring, and with the range of options that are allowed under various accounting procedures, the chances that a financial test—even a carefully drawn one—would provide the ability for Ofcom to identify and winnow out a provider would be extremely limited. It will be a much more complex task that requires understanding the businesses and the broader scope of the work that they do. It requires ongoing monitoring; it requires a much more complex approach.
One of the comforts that perhaps some of us have in this House is that Ofcom is at least doing this with the media industries, and that it has that kind of business and financial understanding which ought to allow it to recognise if the private partners in the universal service provider have the appropriate financial structure and strength to be able to provide capital in the future. It seems to me that the thrust of the amendment is a very important one. However, in practice, this is not something that can be devised in a House like this and put in the Bill. There is comfort within the broader role that Ofcom plays. Its experience and expertise means that we should have every expectation that it would exercise real prudence in financial oversight of a universal service provider.
Lord De Mauley
My Lords, I am grateful to the noble Baroness, Lady Dean, for tabling Amendment 67, as it concerns a vital issue. I also hope that she found my letter on the matter following Committee useful even if she was not entirely satisfied by it. I am grateful to her for finding time to meet me to discuss the matter, which the Government take extremely seriously.
Amendment 67 proposes to give Ofcom the power to limit the indebtedness of the universal service provider in relation to the overall value of the company. The noble Baroness speaks from great experience on this issue and the noble Lord, Lord Young, expanded on her experience, which we value greatly. She made it clear how important it is that Ofcom has the power to monitor the finances of the universal service provider and to act where the situation demands. I very much acknowledge that point. I reassure her and your Lordships generally that Ofcom is well equipped to tackle the risk of unsustainable levels of debt within the universal service provider. As I said in Committee, Ofcom already has the power to impose designated USP conditions through Clause 35 that could include conditions akin to the condition 16 requirement in the Royal Mail’s existing licence. That condition does not allow the Royal Mail to do anything that,
“creates any significant risk that the necessary resources will not be available to”,
carry on its business.
As the noble Baroness, Lady Dean, has mentioned, Ofcom also has powers under Clauses 38 and 53 to require information from the universal service provider and to set accounting conditions to ensure it can accurately monitor the costs of the universal postal service. I appreciate that the noble Baroness, Lady Dean, is concerned at the conditionality implied by my use of “could include”, in the context of a condition 16 requirement in the Royal Mail’s licence. There is no reason I can think of why the condition 16 requirement will not be so included. However, it will not be a matter for the Government. It will be a matter for Ofcom. I hope that the noble Baroness will find considerable comfort when I say that Ofcom’s primary duty for the post is to secure the provision of the universal service. If Ofcom considered that it was essential to use any or all of the powers that I have mentioned in order to deliver that objective, it would, as my noble friend Lord Eccles has said, be legally obliged to do so. I hope and believe that this is what the noble Baroness seeks to achieve through her amendment. With these assurances, I hope that she will feel able to withdraw Amendment 67.