Baroness Wilcox
Main Page: Baroness Wilcox (Conservative - Life peer)Postal Services Bill
Baroness Wilcox Excerpts
Lord Young of Norwood Green
My Lords, I shall also speak to Amendment 11. These amendments concern the report that the Secretary of State will be required to lay before Parliament after deciding to dispose of Royal Mail, whether through a trade sale or an IPO share sale. We have already put on record the Opposition’s disagreement with the principle of privatising 100 per cent of Royal Mail and that we believe that it should be kept in overall public control. However, in this Committee we are seeking to improve the Bill by casting a critical eye over the detail before us. The Bill might enable Ministers to conduct a sale of Royal Mail, but how they set about that task is important; it can be done well or badly.
We have pointed out some of the dangers that lie before Royal Mail and the country if the Government set about this disposal in the wrong way. So much can go wrong. It could be sold to an owner with short-term horizons who cherry-picks the most valuable parts and breaks up the company, perhaps, heaven forbid, on the road to administration—hence the need for Part 4 of the Bill. The Bill could create a Royal Mail that, against the wishes of Ministers and the current management of the company, decided to break the historic link with the post offices of this country. Either case would be catastrophic for our post office network, and there is nothing in the Bill to prevent them from happening. The company could be sold off cheaply, with a few individuals getting rich at the expense of the country’s taxpayers at a time of public austerity, with taxes going up, public services being curbed, wages being frozen, the retirement age receding and jobs being lost. I hope that Ministers are aware of the public anger that would be unleashed if that happened due to a lack of care and attention by Ministers and civil servants.
We know that in the past many privatisations have resulted in the sale price on the day of sale being dwarfed by the trading price on the first day of trading. The track record of trade sales is not much better. I well recall the Select Committee investigations that ensued when the Royal Ordnance factories in this country were sold, apparently over cocktails between the Minister and a businessman, for the princely sum of £1. The site of the old Enfield rifles establishment and the associated site on either side of the M25 must have been worth a pretty sum on their own. This sort of sale did not instil confidence that the long-term future of the company and its staff would be foremost in the mind of the new owner.
We want to avoid these disasters, as I am sure do the Ministers, and that is why we are bringing forward amendments that might help to make the process safer and more successful. These amendments therefore seek two simple improvements in the report to Parliament: first, to set out clear objectives for the disposal of Royal Mail, not just the process itself but the sort of Royal Mail that we want to emerge at the end of the sale and a clear timetable for action; and, secondly, clear criteria in deciding whether to undertake the disposal. Ministers have made it clear that they would sell to almost anyone. Well, I hope that they will not and that they will show some discretion. They say that they would not sell at any price but give the impression that they would not even obtain an independent valuation, so they will have no benchmark against which to judge whether any offer is too low to accept.
The wording of the amendments might have a familiar ring, but I hope that they will not send the noble Lord, Lord Hunt, racing off to his doctor complaining of another Groundhog Day moment. He need not worry; these are the self-same provisions which the noble Lords, Lord Hunt and Lord Razzall, sought to insert into the 2009 Bill—this is certainly déjà vu—and that were agreed on Third Reading. They were therefore incorporated into that Bill. Imagine our surprise to see them omitted from this Bill, no doubt through some oversight. We simply thought that we would ask why these measures have been omitted and, given their provenance, I am sure that the noble Baroness will have no trouble in accepting the amendment.
The Government have allocated £1.34 billion of funding for the post office network over the next four years of the comprehensive spending review. Fifty per cent is above the social network payments. That is welcome, but what happens in 2015? What happens if a privatised Royal Mail wants to reduce its use of the post office network? After all, we have already witnessed the awarding of one significant contract—the green giro contract—going not to the Post Office but to Citigroup. What happens if there is compulsory competitive tendering for a substantive contract which the Post Office fails to win?
Once again, there are so many unanswered questions. If the Government do not know what the assets of Royal Mail and the Post Office are before moving on to sell Royal Mail or to hand over the Post Office to mutual ownership, they might well sell the people of this country short. That will increase the risk of asset-stripping and of selling at too low a price. That could change the nature of who owns the company and how they run it. Amendment 12A, in the name of my noble friend Lord Whitty, at least seeks to establish a proper record of Royal Mail’s assets in the division between Royal Mail and the Post Office. It also draws attention to the vital inter-business agreement, a subject to which we will return later in the Committee’s deliberations.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, I thank the noble Lord, Lord Young, for his most helpful opening words. Telling me that his intention is to enable those on these Benches to make a better Bill is welcome.
The amendments seek to insert additional reporting requirements into the Bill on the Government’s objectives for a disposal and the principal criteria used for deciding to make a disposal. I believe that the Government have already been very clear about why we wish to dispose of shares and the objectives for such a sale. Like the previous Government, we believe that Royal Mail needs an injection of private capital and disciplines. In addition, we also wish to give the employees the opportunity to own shares in the company. We believe that this, along with the other measures in the Bill, is the best way to ensure that the universal postal service is maintained in the United Kingdom.
When making a disposal, we have already stated clear objectives. These are to secure the future of Royal Mail and to ensure that we achieve value for money for the taxpayer. Clause 2 requires the Secretary of State’s report to state the type of disposal that would be made. Quite broadly, this is likely to be either through a sale by auction or through a flotation. It also requires that the timescale for undertaking a disposal be included in the report.
The Secretary of State would not, especially for the first sale of shares, lay a report before Parliament that had two lines stating, for example, that there will be a trade sale and that it will take place in 2012. We know that Parliament would expect more than this. Indeed, we believe that on the occasion of the first significant sale of shares an Oral Statement is likely to be appropriate. As arrangements have to be made for an employee share scheme before any shares can be sold, the report would also include information on how and when the employee share scheme would be set up.
On the suggestion that criteria for deciding whether to sell Royal Mail should be included in the report, at one level we have already set out those criteria—that Royal Mail is poorly served by the Government as its sole shareholder and needs urgent access to private capital and disciplines to secure the future of the universal services. I have doubts, however, about the inclusion of detailed criteria for a sale in a report before a sale is made. The previous Government’s Postal Services Bill 2009 required information to be provided to Parliament on the criteria for a sale of Royal Mail. However, the report in the 2009 Bill would have been presented to Parliament after an agreement had been entered into to sell shares to a third party. Clause 2 of this Bill requires a report to Parliament before a sale. I hope that noble Lords on all sides of this House will welcome this earlier provision of information to Parliament.
As I have said in response to other amendments that we have debated, it would not make commercial sense for the Government to lay all their cards on the table when entering a commercial negotiation. We will have criteria for a sale, but I see no logic in revealing this before a transaction has taken place. Therefore, I ask the noble Lord to withdraw the amendment.
Lord Young of Norwood Green
I cannot say that we are completely satisfied with the noble Baroness’s response. Nevertheless, we shall reflect on it between now and Report. In those circumstances, I beg leave to withdraw the amendment.
Baroness Wilcox
My Lords, I fully appreciate the sentiment behind the amendment. The name “Royal Mail” has been synonymous with the delivery of the postal service in the United Kingdom for hundreds of years. In fact, the noble Lord, Lord Kennedy, has told us the date on which it was established, and I can understand why he seeks reassurance that the name will be preserved. However, I have to say that the choice of the name of the company delivering the universal service provider should be a commercial decision for the company and its shareholders. I do not believe, however, that future owners of the company will rush to change its name, because this would not make commercial sense.
I say that because “Royal Mail” is, as the noble Lord said, one of the most recognised brands in the UK, perhaps in the world. There is no doubt that the name is a commercial asset to the company—an asset that potential investors will value; and so will we. It is the Government’s firm belief that any future owners of Royal Mail would recognise the power of the brand, and it would be folly on their part to seek to dismantle such a brand in any way.
Your Lordships will remember the previous attempt to change the name. Once again I repeat the noble Lord’s point; “Consignia” was not a success. It is not a name that you hear mentioned at Royal Mail headquarters these days. As my noble friend Lady Wheatcroft said at Second Reading, the BBC summed up the name change as,
“nine letters that spelled fiasco”.
It would take a brave, or perhaps foolish, owner to seek to change the name again.
Noble Lords will also wish to note that while there might be support for ensuring that Royal Mail continues to be associated with the universal postal service, there are those in the other place who are opposed to a privatised company using the name or the other royal associations currently used by the company. We do not agree and we believe that Royal Mail, as the universal service provider, should continue to be able to use the name and the royal association, provided that suitable safeguards are put in place to ensure that the associations are used respectfully and appropriately at all times. Discussions about these safeguards are ongoing.
I am therefore afraid that, although I greatly sympathise with the noble Lord’s request, I ask him to withdraw the amendment.
Lord Borrie
I would have spoken immediately after my noble friend Lord Kennedy, except that I imagined—wrongly—that there was no answer to his point and that the noble Baroness would give way. It is unsatisfactory that when a sale is to be made, there is no firm or unfirm indication in the Bill that the name will be kept. I suppose that the name “Royal Mail” is protected in one sense, because it is a trademark that no one else can use. Perhaps I was wrong to think that the noble Baroness would adhere to that and say, given the radical change in terms of privatisation, that the name should be protected in more than one sense, not only as a trademark but as a name that cannot readily be altered. We all remember the absurdity of “Consignia”, of which my noble friend Lord Kennedy reminded us. Goodness knows what name someone might think up in the future. People, even heads of business, do silly things in relation to their names. Some of us remember other names that have been changed and had to be changed back again because they turned out to be a complete failure. I ask the Minister to change her mind and at least agree to think further before Report.
Lord Swinfen
Does the noble Lord, Lord Borrie, think it would be appropriate for the name “Royal Mail” to be owned by a foreign company that had bought the postal services—indeed, a foreign company from a republic?
Baroness Wilcox
My Lords, I say to the noble Lord, Lord Borrie, that we intend to put safeguards in place to ensure that the royal associations are used by Royal Mail respectfully and appropriately at all times. We have not yet finalised how these will be structured, but they could, for example, be set out in a legally binding agreement between the company and the Secretary of State. When drawing up such an agreement, we would seek to ensure that the use of the name “Royal Mail” was linked to the provision by the company of the universal postal service, and this would prevent it being used in other circumstances.
I wondered whether someone was going to ask whether there is not the potential for a foreign owner to misuse the royal associations. That was almost the thrust of the question. We appreciate that there might be concerns about the potential for misuse of these associations, and we propose to put safeguards in place to ensure that they are used respectfully at all times. However, this is a commercial transaction and we wish to stop at this point. I am sure that the noble Lord, Lord Borrie, who knows what brand names are all about from his time as director-general at the Office of Fair Trading, will know all the protections that are encompassed around that.
Lord Kennedy of Southwark
I thank the Minister for her response, which I am a little disappointed by but hope she will reflect on. I reserve the right to bring this matter back on Report. I beg leave to withdraw the amendment.
Lord Razzall
My Lords, before the Minister responds, could I make one point that I think is important? In the context of a number of comments by noble Lords, there is an assumption that the cost of the universal service obligation bears most heavily on remote areas. However, the figures for Royal Mail show that that is actually not true. The real problem does not lie in Orkney and Shetland; it lies in Hampstead and Norwood Green.
Baroness Wilcox
My Lords, we have had a great debate across the Committee, which has been provoked by the noble Lord, Lord Clarke, whose credentials are immaculate in this area. I missed hearing him in the debate on Second Reading because he was not able to be here for it, so we have been able to listen to him today, when he has had the opportunity to put his words on the record. It is a great occasion for us to listen to him. I may not agree with everything that he says, but I believe in the absolute sincerity of what he says, given the background from which he comes.
I share the noble Lord’s desire to ensure that the universal postal service is maintained throughout the United Kingdom and I suggest that that is what binds us all together today. Given that we all want to see the universal service maintained, I suggest that we have no time to waste in getting the finances that we need to ensure that that is possible. It is the overriding purpose of the package of measures set out in the Bill. We need to ensure that the universal service is maintained both for the deliverers of that service and, as we heard, for the customers who need to use it. My noble friend Lord Razzall quite rightly referred to Part 3 of the Bill, which we will discuss in detail in future Committee sessions. It confers on Ofcom a primary duty to protect the universal postal service and gives it the powers to deliver that duty. A disposal of shares in Royal Mail may mean a change in ownership from the public to the private sector, but the obligation on Ofcom to ensure the provision of a universal service will remain.
Lord Skelmersdale
My Lords, perhaps I may briefly interrupt my noble friend. Does that mean that the original purchaser of Royal Mail will be bound by the UPS?
Baroness Wilcox
I think that the answer to that question is yes. In fact I am sure that the answer is yes. The universal postal service is protected by Parliament throughout this regulatory framework, not by the Government’s ownership of Royal Mail. I hope that that gives some comfort to my noble friend Lord Skelmersdale and, if he has the stamina to stay with this Bill through all its stages, I hope that by the end he will feel that he has a lot more comfort than obviously is the case now.
As part of its duties, Ofcom will ensure that the minimum requirements of the universal service as set out in the Bill are upheld. As we know, the minimum requirements are above those set out in the European postal services directive in terms of the requirement to deliver letters six days a week and for a uniform tariff and service to apply. Ofcom is required to report annually to the Secretary of State on its activities, which in future will include how it has performed against its primary duty to ensure the provision of the universal service. The Secretary of State is required to lay that report before each House of Parliament. Therefore, I do not believe that Parliament would be served by an additional report on the future of the universal service at the time of sale.
The noble Lord, Lord Brooke of Alverthorpe, asked what will happen if a privatised Royal Mail no longer wants to provide a universal service. Royal Mail is rightly proud of providing a universal postal service and there is no reason to expect that to change, but in the unlikely event that Royal Mail no longer wishes to provide it, the regulator, Ofcom, will have a primary statutory duty to secure the provision of the universal service and has been provided with the regulatory tools to ensure that the service is maintained. In the first instance, Ofcom would do this by imposing regulatory conditions on Royal Mail that would oblige it to deliver a universal service. Ofcom will also have the power to impose penalties on companies found in breach of the regulatory conditions.
The noble Lord was also concerned that foreign owners could run down Royal Mail. Whoever owns the Royal Mail, as the universal service provider, will still be required to provide that universal postal service. The regulatory regime set out in Part 3 will ensure that. Ofcom, the proposed new regulator, has confirmed that it is satisfied that the powers in Part 3 are sufficient to protect the universal service. We will not let nationalist criteria stand in the way of the right deal for Royal Mail and the taxpayer. Investment is a global business nowadays. For example, around a third of the listed shares in Deutsche Post are owned by UK investors.
The noble Lord, Lord Young, was concerned that a future owner of Royal Mail might lobby Ofcom to reduce the minimum requirements of the universal service. As he will be aware from Clause 33, there can be no such change without an affirmative resolution both in this House and in the other place. This Government have been clear that they have no intention of supporting any such resolution. As we will discuss in later sessions, Clause 33 is a vital new safeguard for Parliament.
Modernisation of Royal Mail is also not directly related to ownership. The company has to modernise whether it is in the public sector or in private ownership. Modernisation does not end with the current transformation plan. If Royal Mail is to succeed and provide our universal service, ongoing modernisation will need to be an integral part of its DNA, so while the current modernisation plan is fully funded, it is clear that Royal Mail will need to go further and faster. Royal Mail therefore requires ongoing capital investment over a long period. Despite the good progress that is being made on the current transformation plans—and here I praise the management and the CWU on that progress—Royal Mail needs upfront cash, which it simply cannot generate for itself at the moment. It needs access to flexible capital, which, given the EU state aid requirements, the Government cannot provide.
Baroness Wilcox
On maintaining the universal service, as I said, Ofcom will be watching like a hawk to make sure that there is a fair balance between Royal Mail and the consumers of the products that Royal Mail produces. Ofcom has had a good reputation in the past and we feel confident that in the future it will do its very best to make sure that all is fair.
Lord Clarke of Hampstead
My Lords, I start by thanking all those who have taken part in what has been a useful exchange of views on a whole range of subjects. Two noble Lords considered that my earlier comments were more suited to a Second Reading debate. I carefully looked at the background to my amendment and tried to draw from my experience to explain how it would affect the clause in the Bill. If I have offended the noble Lords, Lord Razzall and Lord Skelmersdale, I can only apologise.
Baroness Wilcox
My Lords, Amendment 12 wishes to direct any proceeds received from a sale of shares to investment in the post office network and the universal postal service. I certainly agree that the both the Post Office and the universal service require long-term funding certainty if we are to secure both their futures, but I cannot agree at this stage that the proceeds of a sale should be used for either of these purposes. For a start, it is too early to estimate the potential proceeds from a sale, and too early to estimate where the proceeds should most sensibly be used. But the Government will, of course, look to use the proceeds that they receive to part-compensate the taxpayer for taking on the £8 billion deficit in the Royal Mail pension plan.
The Government absolutely recognise that investment is required in the post office network. That is why, as noble Lords will know, we announced last November a funding package of £1.34 billion for the post office network over the spending review period—a package that will be used to put the network on a sustainable footing, not to fund a programme of closures as the previous Government chose to do. We made this upfront commitment to fund the post office network precisely because we recognise its importance to communities across the UK. Funding for the network should not be dependent on the sale of shares in Royal Mail.
The primary purpose of the package of measures in this Bill is to secure the future of the universal postal service. This package will give Royal Mail access to the flexible capital that it needs to modernise and adapt to a changing postal market on a continuous basis. It will reform the regulatory regime with an increased emphasis on the protection of the universal service and remove the burden of Royal Mail’s historic pension fund deficit.
We will come on to discuss the detail of Part 3 in later sessions, but I draw the attention of noble Lords to Clause 28(3)(a), which requires Ofcom, in performing its duties under this Bill, to have regard to the need for the provision of the universal service to be financially sustainable. This is a vital new requirement on Ofcom, which was not in the 2009 Bill. The Government therefore believe that securing the future of Royal Mail by giving it access to private capital and establishing the right regulatory framework is the best way to support the universal postal service.
During the passage of the 2009 Bill, the previous Government resisted an amendment that would have required the Secretary of State to report on the Government’s intentions for the proceeds from a disposal of shares. In rejecting the amendment, the noble Lord, Lord Mandelson, undertook to inform both Houses how the payment for shares would be distributed. I am happy today to give the same undertaking for this Government. I therefore ask the noble Lord to withdraw his amendment.
Lord Stevenson of Balmacara
I thank the Minister for her response, which is rather depressing in its rejection of our proposal.
My reference to the pension deficit fund dealt with the assets. Tagged on to the end of that discussion was a comment that, in return for obtaining the assets, the Government were also acquiring the liabilities. I am not sure that that is an exact parallel. As I understand it, the assets are real and, even if sold in a measured way, will generate cash for the country which will go to HM Treasury, but the liabilities are ongoing. If I am right, the main pension responsibilities will be met on a pay-as-you-go basis. We are comparing apples with pears. One is a substantial reduction in our deficit position; the other is admittedly a long-term commitment but does not need to be capitalised on the resource accounts. Although I accept that £8 billion is a substantial sum of money, it does not really come into the question of whether the funds from the sale of Royal Mail should go back into the Post Office.
Secondly, the £1.34 billion package—which, as I mentioned, is both a continuation of work started under the previous Government and a commitment on behalf of the present Government to ensure that the Post Office is retained on a sustainable footing—is also a mixture. As I tried to say, the evidence is that it seems to result in a reduction in the number of post offices and certainly a change in the nature of post office services very similar to that which was available before.
My third point is that, without a proper package of business activities, there is no way that the Post Office can survive, however it is organised. It is depressing to read that the latest contract for services which could have gone to the Post Office from government has been given to Citigroup to operate. I suspect that that is only the first of a number of difficulties facing the network in future.
However, this was a probing amendment. The Minister has been kind enough to share her answer with us. I beg leave to withdraw my amendment.
Baroness Wilcox
My Lords, Amendment 12A seeks to require the Secretary of State to include in his report to Parliament details of the assets held by Royal Mail Holdings plc and asset transfers between Royal Mail and Post Office Ltd. It also requires the Secretary of State to report on the terms and duration of the inter-business agreement between Royal Mail and Post Office Ltd. Currently, Royal Mail Group Ltd and Post Office Ltd each already own the vast majority of the assets they require to carry out their own business. However, it is likely that some residual asset transfers will need to be carried out before any disposal of Royal Mail shares is completed. That is why the Bill contains the transfer scheme powers set out in Clause 8 and Schedule 1. These powers give the Secretary of State ultimate control over which assets sit with what company.
However, there is no set timetable for the transfer of these assets. That may be taken forward before a decision has been made to undertake a disposal of shares in Royal Mail, or it may happen after. If the latter is the case, the Secretary of State would clearly not be in a position to provide details in his report to Parliament as required by Clause 2. Relevant information relating to a transfer of assets will, however, be set out in the transfer scheme or schemes made under Schedule 1. Transfer schemes may impact on third-party contracts and agreements with Royal Mail and Post Office Ltd. I therefore assure the Committee that details of the schemes should and will be made publicly available.
On the ongoing commercial relationship between Royal Mail and the Post Office, there was significant debate in the other place about the inter-business agreement—the IBA—particularly about its duration. The Government’s view is that legislation is not the appropriate place for the commercially sensitive terms of a relationship between two independent businesses to be settled. Contractual negotiations between these businesses will involve a complex interaction of many different factors—such as pricing, volume, service levels and duration—and such negotiations would not be improved by government intervention.
The noble Baroness, Lady Drake, was concerned that the current board of the Royal Mail cannot bind the actions of a future, privately owned Royal Mail. I am afraid that I take a different view on that. Any legal agreement entered into by Royal Mail will remain legally enforceable for its duration whoever owns the company. The Government have been clear that we will ensure that the chairman of Royal Mail fulfils his commitment to Parliament to conclude the longest legally permissible agreement with the Post Office before the two companies are separated.
The noble Baroness, Lady Drake, also asked about the legal barriers to including an inter-business agreement of 10 years in the Bill. Legislation requiring an exclusive arrangement between Royal Mail and Post Office Ltd for, say, 10 years would face significant risk of legal challenge for being incompatible with competition law. Guaranteeing a revenue stream to the Post Office would also face the risk of a successful state aid challenge. It is important to note that a successful state aid or competition law challenge to the Post Office’s commercial relationship with Royal Mail that struck down the contract would present a serious threat to the Post Office network.
My noble friend Lord Skelmersdale asked whether the Post Office would be self-sustaining if the inter-business agreement ended. As I said, the chairman of Royal Mail has been clear that he has no intention of letting it end.
I am well aware that the House, like the other place, is in need of reassurance regarding the ongoing relationship between the two companies and the future of the post office network. I note the comments of my noble friend Lady Kramer, who voiced her concerns in that area. I hope that I will be able to provide further reassurance on those issues when we discuss Clauses 4 to 7, which relate to the future ownership of the Post Office. If the noble Lord is content, I therefore ask that he withdraw his amendment so that I can give the matter further consideration after all the issues have been discussed in full.
Lord Whitty
My Lords, I thank the noble Baroness, particularly for her last few sentences; clearly we may well come back to the matter on Clause 4. However, I did not find the rest of what she said very reassuring.
I am grateful to the noble Baroness for referring to the legal difficulties on the inter-business arrangement. However, there are different legal opinions on it. If it is primarily the Government’s view that an ongoing agreement would run up against both state aid and competition laws, before we complete consideration of the Bill it would be helpful to have an opinion that spells that out in writing. The question asked by the noble Lord, Lord Skelmersdale, is absolutely pertinent to this. If a legally defensible agreement between Royal Mail and Post Office Ltd could not be sustained in law, how can that be compatible with the Government’s very clear—and, frankly, very political and public—commitment to maintaining a post office network of roughly this size? I do not think it is possible to square that circle, which raises deeper alarms than I had when I tabled the amendment. I am certainly not arguing that the inter-business agreement in its present form should last for ever, but both Houses of Parliament will need to be reassured as to which principles of that agreement the Government will see sustained through the ongoing relationship between the two parts of what is currently the Royal Mail Group. I hope that we get greater clarification when we move further into the Bill but, if anything, this short debate has alarmed me more.
I have also been alarmed more on the assets; I am not sure that the Minister alarmed me, but the noble Baroness, Lady Kramer, definitely did. She effectively said, “We can’t set out in the report to Parliament”—the trigger for giving the go-ahead to the Secretary of State—“what assets we are and are not privatising”. In previous privatisations, on occasions there have been huge schedules about that. We do not have such a schedule attached to the Bill, and I do not propose that we do. There may be some obscurities attached to that schedule, in which case some footnotes may be needed.