Postal Services Bill

Baroness Wilcox Excerpts

Wednesday 16th February 2011 Lords Chamber

Moved By

[Baroness Wilcox]

That the Bill be read a second time.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, many of us in this House will no doubt be experiencing a mild sense of déjà vu. After all, it was less than two years ago that this House debated a Bill of the same name. That Bill, in the name of the noble Lord, Lord Mandelson, was thoroughly scrutinised and improved by this House. However, the previous Government were unable to take it further, thus we find ourselves debating the same issues once again.

The purpose of this Bill is to secure the ongoing provision of the universal postal service and to safeguard the future of the Royal Mail and the Post Office. Before I turn to the detail of the Bill itself, I wish to explain why we must now take action. The universal postal service is a vital part of our economic and social infrastructure. Individuals and businesses across the country rely upon it, as they have done for nearly 200 years. The United Kingdom has been a pioneer in postal services and it is our duty in this House to do justice to this proud heritage and to safeguard the universal postal service for the future.

The noble Lord, Lord Mandelson, stood before this House two years ago and declared that we were living in a digital age. He is right. Our means and methods of communication are changing, with traditional options, such as the letter, increasingly bypassed in favour of electronic alternatives such as e-mail. The previous Government recognised this and, in 2007, commissioned an independent review of the postal services sector, chaired by Richard Hooper. Hooper was unequivocal about the need for action to safeguard the universal postal service. With the letters market in structural decline, he identified an urgent need for the Royal Mail to modernise and increase its efficiency. To do this, he argued, Royal Mail needed access to flexible capital. Noble Lords then in Opposition, and now occupying these Benches, accepted the recommendations of Hooper’s excellent report in full and we were prepared to support the Bill that was subsequently introduced by the previous Government. Indeed, we were sorry that, having left this place, the Bill did not complete its passage through Parliament.

It should come as no surprise that one of the first actions undertaken by my colleague, the Secretary of State for Business, on assuming office, was to ask Richard Hooper to update his report. That update, published last September, confirmed that if we are to secure the universal postal service we need to do three things. Royal Mail needs access to private sector capital and commercial disciplines; it needs to be relieved of its historic pension deficit; and the regulatory framework under which it functions needs fundamental reform. But Hooper’s most worrying finding was that Royal Mail’s already precarious financial position has actually deteriorated in the 18 months since his original report. The fall in letter volumes has, in fact, been more dramatic than was predicted: we now send 16 million fewer items per day than we did in 2005—a fall of nearly 20 per cent—and experts are predicting further global decreases of 25 to 40 per cent over the next five years. This problem is not unique to Royal Mail but the latter’s financial state means that it is not able to respond sufficiently.

To meet the challenges of the declining market, Royal Mail must modernise. Despite some progress, Hooper concluded that Royal Mail is still some considerable way from being best in class. This view is reinforced by Royal Mail’s Chairman, Donald Brydon, who told Committee Members in the other place:

“Compared with any other postal operator of quality or substance in the world, the Royal Mail is at the end of the queue in its modernisation”.—[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 15.]

I am sure we will hear from noble Lords who will argue that Royal Mail must remain under the protection of public ownership. However, I put it to your Lordships that it is the Government’s ownership of Royal Mail that has failed Royal Mail. This company needs to be freed from the constraints of government ownership if we are to give it a chance to succeed.

I turn now to the Post Office and address some of the concerns raised both in this House and the other place, in particular, the concern that this Bill could lead to loss of business for the Post Office, and ultimately to Post Office closures. The Bill will enable the separation of Post Office Ltd and Royal Mail to allow for the private investment that Royal Mail so badly needs while maintaining the Post Office in public ownership. Opponents of the Bill have sought to portray this as a threat to the future of the Post Office. On the contrary, it is an opportunity for the Post Office. Separation will give its management the freedom to focus on getting the most out of the branch network and growing revenue across the whole business. Two thirds of Post Office Ltd’s revenue is unrelated to postal services, coming from areas such as financial services, government services and telecoms. It is in these areas that the growth opportunities for the Post Office lie. Government are far from alone in seeing the benefits of separation. The move has been welcomed by the experts at Postcomm and Consumer Focus, and by Richard Hooper himself.

Opponents of the Bill have argued that a privatised Royal Mail might not use the Post Office, leading to loss of business. Scaremongering over this issue was perhaps inevitable but I refer noble Lords to commitments made by Donald Brydon, chairman of Royal Mail, and a man who knows what he is talking about when it comes to Royal Mail’s commercial decision-making. In his evidence to the Public Bill Committee in the other place, Mr Brydon was clear that before any privatisation occurs, a new commercial contract will be put in place between the two companies for the longest time that is legally permissible. This is not a vague statement of hope. We have the chairman of Royal Mail putting on record his commitment that the commercial relationship between the two companies will continue, regardless of who owns Royal Mail, and your Lordships may rest assured that the Government, as shareholder, will ensure that this commitment is fulfilled. So we can be sure that the strong relationship between the two companies will continue, but with the Post Office in an even stronger position with its own fully constituted board and sole focus on what is best for the network.

However, the Government recognise that as well as the freedom to focus on its future, the Post Office also needs the means and support to do so. That is why we have committed to providing £1.34 billion in funding to the Post Office over the next four years. This will enable Post Office Ltd to undertake a substantial modernisation programme for the network and to maintain the network at its current size. This funding will help to put Post Office Ltd back on to a secure and sustainable financial footing. Once it has a stable financial base, the Bill offers the opportunity for Post Office Ltd to be transformed into a mutual. We believe that a mutual could be the ideal way to meet the distinct social and economic roles that the Post Office plays, giving sub-postmasters, employees, customers and communities a greater say in how it is run.

I should like to make one thing abundantly clear: there will be no programme of closures under this Government. Throughout this debate, we must never lose sight of the real reason for safeguarding the Post Office network. It is not about politics; it is about the millions of British people who rely on the Post Office—in particular, the vulnerable and those in rural and deprived communities. It is about the hard-working sub-postmasters and mistresses—the real-life Dorcas Lanes—who selflessly serve people up and down the country and whose value cannot be measured by profit-and-loss accounts alone. A mutualised Post Office will give these people a real voice, and I hope that noble Lords on all sides of the House will support these provisions.

I turn to the detail of the Bill. Part 1 removes restrictions on the ownership of Royal Mail. This is to enable the much-needed injection of private sector capital and disciplines. As I have already made clear, Royal Mail urgently needs to modernise. Some progress has been made already, which we welcome. But Royal Mail will need to continue the process of modernisation and transformation if it is to succeed in a declining market. This requires both capital and commercial disciplines that the Government simply cannot provide. The taxpayer has already made available billions of pounds for the current modernisation programme, and yet this covers only the costs envisaged three years ago. As Royal Mail’s Chief Executive, Moya Greene, told the Bill Committee in the other place,

“When you are in a business such as this, which is in a market undergoing dramatic change, you need to have access to capital continuously to keep up”.—[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 4.]

I think we can all agree that government is neither the most flexible source of funding nor the most timely. There are competing priorities to consider, and any funding we provide to Royal Mail must go through the European Union’s sometimes lengthy state-aid approval process. Besides, government funds are too often accompanied by the spectre of political interference. What Royal Mail needs is flexible investment and commercial disciplines. The private sector is best placed to provide these.

However, a successful company needs more still. It requires a motivated workforce. Royal Mail has some of the best employees in the world, as amply demonstrated in the recent bad weather, and they deserve a proper stake in the future success of the company. That is why the Government have included provision for an employee share scheme which will hold at least 10 per cent of the equity in Royal Mail in the future. This is the strongest legislative commitment and largest stake of any major privatisation, and I hope that your Lordships will support it.

In terms of pension provision, the Bill will allow for government to take on Royal Mail’s crippling and highly volatile deficit—a deficit that ballooned from £2.5 billion in 2007 to more than £8 billion in 2010. We should not underestimate what this means to members of the Royal Mail pension plan. Members are rightly concerned about the security and safety of their pensions. Under the Government’s proposals, we will stand behind their accrued rights, giving members the security and certainty they deserve. Royal Mail itself will be left in a much more secure position with a smaller, more manageable scheme going forward. This is a good outcome for employees, both in respect of pensions and in boosting the financial health of the company they work for.

The Bill will also enable fundamental reform of the regulatory regime. It will transfer regulatory responsibility from Postcomm to Ofcom. This measure is entirely appropriate, given the convergence of communication markets, and has broad support from stakeholders. Crucially, the Bill will ensure that the primary duty of the regulator in relation to postal services will be to secure the continued provision of the universal postal service. The previous Government recognised the need for this, and similar provision was made in the 2009 Bill. This Government, however, have gone further and have added the requirement that in performing this duty the regulator must consider the financial sustainability of the universal postal service. This will ensure that both the service and its financial health are at the heart of everything Ofcom does in relation to postal matters.

As for the meaning of the universal postal service, the Bill sets in statute the six-day delivery and collection of letters at affordable and uniform prices. Again, I should like to address some scaremongering on this issue. The Government have no intention of downgrading the minimum requirements of the universal postal service. On the contrary, this Bill introduces new safeguards: first, that any changes can be made only after Ofcom has conducted a review of user needs; secondly, that any changes are approved by a vote in both Houses; and, thirdly, that prices must remain uniform and there cannot be different minimum requirements in different parts of the country.

There was some debate surrounding the 2009 Bill as to whether it went far enough to ensure fair competition between operators. We have looked again at the relevant provisions and concluded that tougher tests should be met before Ofcom can mandate access to Royal Mail’s network. Thus the Bill before us today specifies that mandatory access can be granted only where it meets all of the conditions of promoting efficiency, promoting effective competition and conferring significant benefits upon users of postal services. This is a departure from the 2009 Bill, which allowed for mandatory access where just one of these conditions was met, and is a change that we feel is vital in ensuring the right balance between fostering competition and protecting the universal service. Our position is clear: competition is beneficial, but it should not undermine the universal service.

This Bill also reflects a deregulatory intent. We are clear that regulation should be imposed only where there is a need for it. We are confident that this Bill, combined with Ofcom’s existing duties under the Communications Act 2003, gives the regulator the tools it needs to ensure that regulation is focused and proportionate, and that it can deregulate rapidly where there is effective competition in the market. I look forward to debating the detail with the many knowledgeable and experienced Members of this House who are, or have been, involved in economic regulation.

Finally, Part 4 introduces a special administration regime. This will enable special arrangements to be put in place should the universal service provider be at risk of entering insolvency proceedings. Their objective will be to maintain the universal postal service. While we do not expect to use these provisions, they are a sensible and prudent additional safeguard for the universal postal service. The measures mirror those that have been taken in the energy and water sectors.

The Bill is largely based on the same evidence and independent analysis as the previous Government’s Bill. However, we have looked at the issues with fresh eyes. The result is a Bill that builds on the consensus surrounding its predecessor, but which also improves upon it. Thus we have a Bill that is better for consumers, who will benefit from a secure universal postal service, and a strong, stable post office network—one that is better for Royal Mail, giving the company the best chance of a successful future while relieving it of a crippling pension deficit. It is a Bill that is better for Royal Mail employees, giving them security over their accrued pension rights while offering them a real stake in the future success of the company through the largest employee share scheme of any major privatisation.

Some provisions before us today will be difficult for some noble Lords to accept. I do not ask them to change their political ideology, but I do ask them to reflect on the fact that the call for action is coming not from this Government alone. It came from the previous Government when they presented their 2009 Bill to the House, and it is coming from individuals who are intimately acquainted with the problems facing Royal Mail and who have no political allegiance, such as Richard Hooper, the independent adviser to both the previous and current Governments, and Royal Mail’s senior management.

We will spend many hours debating the detail of the Bill and I have no doubt that it will leave the House all the better for your Lordships’ attention. It represents not just the latest but the best chance of securing the future of the universal postal service. I beg to move.