Postal Services Bill

Damian Collins Excerpts

Wednesday 12th January 2011 Commons Chamber

[Bob Russell]

I cannot comment on the body language in Committee because I was not there. I tabled the new clause, which, if passed, will deal with the hon. Gentleman’s fears. It is as simple as that.

The new clause would protect the post office network from the IBA’s possible erosion by a privatised Royal Mail. Ministers might feel differently, but we must ask ourselves why Royal Mail is being privatised. Indeed, successive Governments have argued the same points over the past 30 years.

[Damian Collins (Folkestone and Hythe) (Con)]

Is the hon. Gentleman concerned that, given the nature of change, a 10-year restriction on the inter-business agreement might end up being bad for the Post Office? Under the Bill, new providers may come in, so it might welcome the flexibility to renegotiate the agreement.

[Bob Russell]

That is certainly a valid argument, although I do not agree with it. I understand what the hon. Gentleman is saying: 10 years could be too restrictive and a shorter period—or, indeed, no period at all—might be beneficial.

--- Later in debate ---

[Bob Russell]

Thank you, Mr Speaker. Which Government did what when will be in the history books, so the hon. Gentleman will have his moment of glory and can say, “It was the dastardly Conservatives and Liberal Democrats wot done it.” That is how he would wish to present it, but I am not sure how history would record the demise of Royal Mail and the Post Office if Lord Mandelson’s proposals had been introduced, whatever they may have been.

I want to gaze into the future and imagine the agenda of the first board meeting of the newly privatised Royal Mail plc. After a report from the remuneration committee, perhaps the main item of business will be listed as the sponsorship of Sunderland football club. Afterwards, the agenda will no doubt turn to the issue of cost savings to be achieved. Like any other dynamic FTSE 100 company, which Royal Mail, I understand, will become, the board will want to see how it can reduce the cost of its contracts with suppliers. It happens every day in the world of commerce, notwithstanding the helpful contribution from my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso). In that private world, the agreements that I propose in my new clause exist.

A principal supplier to Royal Mail is Post Office Ltd. The board will confer and I have no doubt it will quickly decide two things: first, the cost of the contractual relationship with Post Office Ltd is too expensive and, secondly, limiting the distribution of products and services to the post office network does not work in the best interests of Royal Mail. That is where the analogy with the supermarkets comes in, because the criticism is that they are all-powerful. They determine the contracts with suppliers, they set the price, and if suppliers do not like it, they know what they can do.

[Damian Collins]

In the scenario that the hon. Gentleman paints, might it not be possible for the Post Office to say to Royal Mail, “Well, if you are going to do this to us, we will look at taking postal services from providers from whom we do not currently accept them, and run them in competition with your service. Would you like us to do that?” It would be an honest negotiation.

[Bob Russell]

Again, that is a good argument, and the hon. Gentleman may be proved right as time moves on. I hope that that will not be the case, but he makes his point.

Why would it be any different with Royal Mail? It may operate an agreement with Post Office Ltd, but there would be nothing on this earth to stop Royal Mail renegotiating it. In fact, Royal Mail would be obliged to change the terms of the inter-business agreement. It would, under any commercial logic, seek a wider set of outlets for a broader range of its services, including supermarkets, petrol stations and retail outlets. That will take vital revenue away from those post offices that currently have exclusive rights. Royal Mail will seek to chip away at the transactional costs that it pays to Post Office Ltd. It will want to revisit the IBA, renegotiate terms, and demand changes. As they say, it is nothing personal, only business, but every little counts.

What can we do to protect the UK’s network of post offices from the predatory actions of a privatised Royal Mail? If we leave the whole issue to be resolved in the commercial arena, there will be only one winner and one big loser. Even more of our neighbourhood and community post offices, both urban and rural, would go.

--- Later in debate ---

[Mr Binley]

I accept the hon. Gentleman’s comment. The Post Office could have been much more imaginative in supporting sub-post-offices to increase their business. Over the past 10 or 12 years, the lack of that support has been one of the reasons why they are less viable as a business than they should be—even the good ones now are less viable. We must accept that steps have been taken recently and I welcome that. However, the general thrust of his intervention is absolutely right.

Let us consider the post office network. I have already made the point that 150 post offices are closed and will remain closed because there are not the buyers to buy them. Some 900 are up for sale, which supports that point totally. Let us not mess about with stupid phrases such as “temporarily closed.” They are pretty much finished and that is the end of it. We need to be honest.

[Damian Collins]

Does my hon. Friend agree that the problem he describes affects not just post offices, but businesses in neighbourhoods and rural communities in general, and that some of the provisions in the Government’s Localism Bill and in the White Paper, “Local Growth: Realising Every Place’s Potential,” might help to stimulate interest in communities and local government to support those businesses?

[Mr Binley]

I thank my hon. Friend for that intervention. He knows that I agree with that view—in fact, we have talked about it. We fought the 2005 election together. That was a very happy experience for me; I wish it had been slightly happier for him, but it is good to see him in the House now. As we fought that election together this was one of the issues we talked about at some length. I accept his point.

The very fact that more than 1,000 of our post offices are either closed or up for sale shows that there is concern about the viability of the network. It is not in doubt that we have some serious problems. I shall come to the impact that those closures might have on many of my colleagues in rural seats in two or three years’ time. We went through a process of fighting to save post offices and I will describe how I experienced that process and how difficult it was to deal with as a Member of Parliament, even though I was an Opposition Member. It will be much more difficult for many of my colleagues to deal with the matter as members of the Government. The Minister may well take that point into account. However, the separation of Royal Mail will create massively greater pressures on the commercial viability of many of our post offices, unless we give them more time to adjust. That is the point of all this.

[Mr Binley]

I share that sentiment—in fact, it is the thrust of my contribution. There is no doubt that urban and suburban post offices are as important to their communities as rural post offices. In the main, urban post offices have a bigger market to exploit if they are given the help to do so, but that is all the advantage they have. They are still in difficulty and they still face considerable danger. I totally accept the hon. Lady’s point.

[Damian Collins]

My hon. Friend talked about good and bad management in the past. Does he agree that we should not let Post Office management off the hook and that they should continue to innovate in terms of how they deliver their services, particularly in relation to the roll-out of the post office local service? That service could integrate well into existing businesses, both in villages and urban areas.

[Mr Binley]

I thank my hon. Friend again for his intervention which is, of course, quite supportive of my words; I am grateful.

I accept the point made by the hon. Member for Glasgow East (Margaret Curran). The truth is that our local post offices are more than just local small businesses. They are that at their very heart, but they serve a wider purpose in many respects. They are vital to our local community networks, as she said, and they are crucial in urban, suburban or rural areas where they are the only point of contact for perhaps a mile or more.

There is a social networking element to my local post office—I pay tribute to it and I shall name it, as I hope it benefits from my doing so—in my village of Hackleton. I know the quality of service that post offices give. Elderly, vulnerable people go in them and seek help on a range of subjects that are way outside the remit of the post office. That help is given willingly as part of the service that post offices provide. The community networking element of our post offices has a value that we have not priced into this whole exercise, and that needs to be taken into account.

--- Later in debate ---

[Mr Weir]

The hon. Lady makes a good point. I have read that report, which I found to be an excellent report, hitting on the main points as they affect Scotland.

I was talking about the management at Royal Mail. Ms Greene may have a considerable attachment to Post Office Ltd, but will a new owner of the business necessarily feel the same way? What happens when the commercial profit motive really kicks in? How much will sentimentality govern the actions of Royal Mail? That is especially important given that, as has been said on many occasions in previous debates, including in Committee, the ultimate owner of Royal Mail may turn out to be Deutsche Post or TNT, which I would suggest perhaps do not have the same sentimental attachment that we all have to our Royal Mail. As I understand it, the rationale behind the privatisation is to make the new company look for efficiency savings and cut costs. I agree with the hon. Member for Colchester that it is utterly inconceivable that the new company will not look at how it can do so in its relationship with Post Office Ltd, which will not be exempt from scrutiny under the new arrangement.

In her evidence, Ms Greene said:

“I do not see other retailers as a particularly serious threat, because Post Office has an enormous amount of expertise in this area”.––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 17, Q42.]

The hon. Member for Edinburgh South (Ian Murray) mentioned the situation in Germany, but as the National Federation of SubPostmasters has said, there is no precedent anywhere in the world for splitting the delivery service from the post office. I asked the Minister on Second Reading whether he could come up with one, but none has been forthcoming since.

I spoke at length in Committee about the situation that has developed in New Zealand. I will not go into that again at great length today—interested Members can read the report of the Committee’s proceedings, where it is explained at some length. Suffice it to say that a competitor has set up what amounts to an alternative post office network targeted purely at what it needs to sustain its postal delivery business. That is another point. When Royal Mail is split from the Post Office, it will be in a very different position. Royal Mail will be looking at what it needs to be able to deliver a postal business—not a Government business, a pro-Government business or all the other things that the Post Office might do.

In her evidence to the Committee, the chief executive of Royal Mail said that it would be “inconceivable” that anyone but Post Office Ltd would be used by the Royal Mail. The Minister, if I recall correctly, was very dismissive of the idea that an operator might want to go to, say, a major supermarket and use it for delivery of post office services. Then again, it was not so long ago that it was inconceivable that a supermarket would offer a mobile phone network, for example, be an internet service provider or perhaps offer legal services, which might happen shortly. Who would have bought a television or a hoover from a supermarket 15 years ago? Times change and that applies to the Post Office as well.

In New Zealand, as I say, that has already begun to happen. That does not mean that a provider in the UK would necessarily do the same, but it is certainly a possibility. It might look into it and that provides a danger sign for post offices in the UK. New Zealand Post, of course, fought back—one of its principal weapons being Kiwibank—but this Government have rejected the option of creating a post bank in the UK with which to anchor Post Office Ltd.

No two postal markets are the same and the UK Royal Mail and Post Office Ltd might be able to hold together and provide a seamless and mutually profitable business, but there are lessons from what has happened elsewhere and we simply cannot idly let the future of the post offices in our constituencies rest on the good amicable feelings that currently operate between the two companies, which might not survive the privatisation.

[Damian Collins]

Does the hon. Gentleman not accept that, as discussed in Committee, the Post Office remains the owner of the Post Office brand and the business with the largest retail footprint in the country, which gives it considerable power in negotiating with Royal Mail?

[Mr Weir]

I do not agree with that, as I think Post Office Ltd will be very much the junior partner in the negotiation. I would ask whether Royal Mail rather than the Post Office is the brand for letter delivery, and Royal Mail will focus on how it delivers its mail business through the Royal Mail brand. In an earlier intervention, the hon. Gentleman made the point that an alternative provider could go to Post Office Ltd, but I ask him to consider whether that is realistic, given that only Royal Mail as the statutory provider of the universal service obligation will be required to have a nationwide delivery service. Other companies do not go in for that, and most of the present business for alternative providers relates to bulk mail delivery, not individual delivery. That requires a different business model from the one currently operated by Royal Mail.

--- Later in debate ---

[Chris Evans]

Yes, I agree with the hon. Gentleman completely. As a Welsh MP, I know that this Government have certainly hit our country hard. I well remember the posturing of some Members during the Second Reading debate. Many Government Members were boasting, patting themselves on the back and telling us what they had done to keep their post offices open when they were up against the wicked Labour Government. What will they do next time if this Bill goes through? Before they go into the Lobby, they should think hard. If they are faced with a post office closure in five or 10 years’ time, what will they say to their constituents? Are they going to say, “I didn’t think it through,” or “I followed my Government Whips”? That is what they are faced with at the moment. The hon. Member for Northampton South (Mr Binley) talked about people’s legs being cut from under them, and that is what the Bill will do to these Members politically—I am saying that as an Opposition Member.

[Damian Collins]

The existence of business agreements between the Post Office and the Royal Mail has been no guarantee of keeping post offices open. Surely that is the lesson of the past 10 years.

[Chris Evans]

Yes, but my major argument in response to that is that if we are taking business away, we are condemning post offices to closure in any case. We have to give them every chance possible. As has been said, many people see the Royal Mail and the Post Office as the same thing. An elderly person who cannot go to their post office to post a letter yet sees the Royal Mail thriving will wonder what is going on. The Government may say that they are providing support to the Post Office, but if they defeat this new clause, they will be giving about as much support to the Post Office as a scaffold gives to a hanged man.

--- Later in debate ---

[Mr Davidson]

I rise to speak as the Chair of the Scottish Affairs Committee, rather than as a constituency Member. I will therefore not explain why the construction of two aircraft carriers is absolutely vital to the maintenance of Royal Mail and the postal service.

We decided as a Select Committee that it was not appropriate for us to consider ownership or pension issues, because they were not mainly Scottish issues, but we wanted to consider particularly the future of the universal service obligation and the future of post offices, as they are of greater importance to rural and deprived areas in Scotland than perhaps they are to many other areas of the country.

We took as a given the importance of the role that post offices and Royal Mail play in the community. A number of other Members have already referred to that. Normal procedure does not necessarily mean that we cannot repeat exactly what other Members have said, but I will not do so in these circumstances. I want to move on to our recommendations on these issues.

We met the Minister and had a hearing with him, and it was generally our view that he was not nearly as bad as people led us to believe. He was sincere in his view. We all thought that he wanted to support the maintenance of the post office network and the universal service obligation. There was no doubt in our view that his heart in all this was in the right place. Unfortunately, we did, however, think that his head was a bit muddled.

The Minister and ourselves had identified the fact that the inter-business agreement was absolutely essential for the future of post offices, but we were not convinced that he appreciated the necessity to make it as firm as possible. We took the view that his good intentions, which we accepted, were not sufficient, because events might occur that submerged a host of good intentions. We have already seen the Government use the economic crisis as an excuse to ditch all sorts of commitments that both coalition parties made before the election. We therefore took the view, as Ronald Reagan did with the Russians on missiles, “Trust, but verify.” We accepted his good intentions, but we wanted to ensure that things were pinned down as firmly as possible.

We welcomed the Minister’s statement that he did not intend to put anything in the way of such an agreement. We took the view that there was a hierarchy of ways in which it could be approached. Undertaking to remove obstacles—well, not objecting to doing so in the first place—we took as a given. He indicated that he was keen to see obstacles removed. One of our recommendations is that the Minister take positive steps to facilitate a long and robust IBA and to remove any obstacle, whether practical, legal or otherwise, that may exist. Clarifying whether there are obstacles to a 10-year IBA being signed now would remove a lot of the anxiety about whether the European Union is blocking this or any other agreement.

As the second line of pursuit, we wanted a voluntarily entered into 10-year IBA agreed before any such sale. There seemed no reason from what we heard from the Minister, given that he was willing to overcome any obstacle, why a voluntarily entered into IBA could not be signed before sale took place. We said:

“We understand that this may affect the marketability of Royal Mail, but it is essential to the sustainability of Postal Services in Scotland.”

We appreciated that Royal Mail signing an IBA might affect the price that it achieved, because it might be seen as a less attractive commercial operation than would otherwise be the case. We none the less agreed that we wanted to include that because the preservation of post offices through the construction of an IBA and its implementation before privatisation or a change of ownership was absolutely vital.

[Damian Collins]

Does the hon. Gentleman not think that the case might be argued the other way? In taking Royal Mail to sale, one has to demonstrate that one has a secure agreement with the post office network as a major retail outlet that provides a sound footing for services at the point of sale. It is in the network’s interest in getting the best possible deal for Royal Mail.

--- Later in debate ---

[Tom Blenkinsop]

As a member of the Labour and Co-operative party, I always have a sense of warmth towards mutuals and co-operatives. However, I do not yet know what we are being sold, and until I see the details I ain’t signing anything.

Post office and mail services are seen not as mere businesses but as an essential part of our way of life. These are not just romantic notions on my part. I cite the report issued last year by the Business, Innovation and Skills Committee, which says that local post offices provide a focal point for communities. It says that they are

“an instrument of social cohesion”

that

“preserve the fabric of our society”

and are places

“where vulnerable and non-vulnerable people alike share services”.

Every week 20 million people visit a post office. For every £1 transacted in the UK, 14p is handled through the post office network. Post offices are also a lifeline for many of the most vulnerable people in society, including older people, the disabled, people on low incomes and also—this is important to me in my constituency—those living in rural villages and small towns.

Small businesses are also extensive users of the post office network, particularly its mail services. I understand from the Federation of Small Businesses in my region that 20% of its member companies use post offices, while 59% use their local post office at least once a week. The growth of online business transactions has boosted this usage significantly, with Royal Mail parcel delivery posted from local post office branches being the preferred medium.

The inherent strength of the current post office network lies in its depth and its reach. The existence of 11,500 sub-post offices means that the network of post offices remains bigger than all the bank and building society branches put together. This becomes even more important when we note the continued closure of local bank branches.

[Damian Collins]

As we have discussed, that is the inherent attractiveness of the Post Office and one of its great bargaining tools. No retail outlet in this country can offer the breadth and number of locations of the Post Office.

[Tom Blenkinsop]

We have seen recently that Tesco could compete with the Post Office, and have heard in this debate that other commercial ventures could do so.

[Damian Collins]

Even the major supermarkets—and probably all the major bank branches—combined do not reach the scale of the Post Office. I am yet to be convinced that there is a realistic retail alternative whereby the Royal Mail could take its business wholesale out of the Post Office and give it to someone else. That is the picture painted by some Opposition Members.

[Tom Blenkinsop]

No, we are portraying a picture of the future in which that could happen. Royal Mail Group has admitted that nearly two thirds of existing post offices are economically unviable. That does not mean that they are not propped up by the inter-business agreement. That is the difference in how the Opposition and some Government Members view the IBA. Is it simply a system that keeps post offices alive, or is it a redistributive mechanism within Royal Mail Group, alongside other mechanisms, that ensures that there is a service provider across the UK?

--- Later in debate ---

[Mr Denham]

But the evidence remains, some 50 years later, that that did not happen. My point remains—public ownership, and the debates around it, protected that position.

Before Christmas, when the Minister was challenged on this issue, his response was, “Don’t worry. No sensible private buyer would dream of removing the monarch’s head.” He has now conceded that that response is not enough. Yet when Members asked him today about a private buyer’s relationship with the post office network, the same argument came into play: “Don’t worry. No sane private buyer would take the business away from the post office network.” If the guarantee is necessary for the sovereign’s head, it is necessary for the inter-business agreement with post offices. It will not do to ask the House to accept this on trust, because thousands of post offices are at risk. That is, and has been from the outset, the fundamental argument against a majority privatisation of the Post Office. Although Royal Mail must be run as a commercial enterprise, majority shareholding for the public gives an ultimate protection that privatisation will not provide. If the Bill is flawed, as it is, then that protection will not exist.

The case has not been made in other areas, because, in contrast with the situation just a few years ago, transformation and modernisation are under way. The challenge of bringing in capable, senior management has been met, as I am sure all Members who have met the chief executive will confirm. Investment funds are currently available, and there are mechanisms well short of majority privatisation or a minority shareholding that could be used to raise equity in future.

[Damian Collins]

Moya Greene, the chief executive of Royal Mail, said to the Bill Committee:

“I think that if the Bill does not go through, you will see a continuation of what have been chronic problems for Royal Mail.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 4, Q3.]

She was very clear with us that this is a path that Royal Mail has to go down.

[Mr Denham]

I understand those remarks, but I believe that it would be possible for a Government who wished to do so to resolve the need to bring in additional investment in future through measures that fall short of selling a majority shareholding in Royal Mail. Some of those measures have been proposed by my party in the past, while other mechanisms have been proposed from outside. The truth is that the Government are driven by the desire to raise the albeit relatively paltry funds that they will get from selling as quickly as possible. That is fundamentally why they have refused to provide the safeguards on future business that many Members have been seeking. The highest price will come from giving the buyer the greatest freedom to make money through eroding the quality of service by closing post offices and transferring functions elsewhere.

If the Bill goes through this House today, and if it succeeds in another place, that is not the end of the story, because uncertainties still exist. First, there are the state aid discussions that will have to take place with the European Union. That arises from the need to deal with the Post Office deficit, and it will arise, if not in exactly the same form, if Royal Mail remains in public hands. We do not yet know whether any restructuring of Royal Mail will be required or whether profitable subsidiaries will need to be sold off, as the press have speculated, so we do not know what would be available for sale.

Secondly, there is still uncertainty about the regulatory regime. There is agreement about the transfer to Ofcom, but there is a crucial question about whether it will review the regulatory relationship between Royal Mail and its private sector competitors. Royal Mail has argued, most recently in a letter from the chief executive this week, that the current arrangements are commercially unfair, and that many of the letters that we all saw being delivered on our Christmas visits to post offices were, in effect, costing Royal Mail money because of the terms of the agreement. The crucial question on the proposed privatisation is whether Ofcom will review that relationship and, if so, when. Clearly, any change, particularly if it conceded Royal Mail’s argument, would make a very big difference to the future financing of a publicly owned Royal Mail and a huge difference to the price that could be obtained from a privately owned Royal Mail. We must begin to say that a final decision on whether to sell can be made only once it is clear whether Ofcom will investigate this issue, what the time scale of such an investigation will be, and after there is an indication of the likely outcome. That is the second reason to say that there is great uncertainty.

The universal obligation has been debated this afternoon, and I will not take it further.

The final area of uncertainty is the future of the post office network. The major argument today has been about the inter-business agreement, but there are other questions about the amount of business that will go to local post offices. I welcome the Government’s promise of substantial investment in the network. In some ways, that is a bold decision, because if they are wrong about the future business that goes to local post offices, that will be public money not well spent. Capital investment cannot of itself secure revenue from the Royal Mail. Promises of other work are slim and not tied down. Our plans for a Post Office bank have been dropped, and the promises from other Departments are vague.

The National Federation of SubPostmasters has supported the principle of the Bill, but the briefing it has circulated to right hon. and hon. Members for today’s debate could not be more explicit. It states that

“ministers must recognise that their plans will only succeed if they deliver on access to government and Royal Mail work at post offices. If they fail on this, not only will plans to mutualise the Post Office be doomed to failure; there will be no way back for the network and our post offices will face even greater jeopardy.”

It goes further and states that if adequate levels of new Government work at post offices are not secured, it believes that the separation of Post Office Ltd and Royal Mail, and the sale of Royal Mail, must be “indefinitely delayed”.

The House has rejected the first thing that the federation asks for, which is a long term deal. The Government have failed, as yet, to deliver the second thing that it asks for, which is a clear commitment for future levels of other Government work. The argument over indefinite delay is, I think, the battleground on which the forthcoming campaign to save our postal services will be fought.