Postal Services Bill

David Anderson Excerpts

Wednesday 27th October 2010 Commons Chamber

[Vince Cable]

The hon. Gentleman is right to say that this is not an ideological question. I shall come to the share sale issue shortly, but I have no ideological stance on it. I see a role for public ownership in certain circumstances: I think I was ahead of most Opposition Members in pursuing public ownership of the banks during the crisis. There is a role for public ownership in certain circumstances, but this happens to be a case when it serves no useful purpose, and we are quite prepared to adopt a pragmatic approach to get the best provision for Royal Mail and the universal service, and the best value for the taxpayer. We have no ideological hang-ups, and I am glad that the hon. Gentleman does not either.

[Mr David Anderson (Blaydon) (Lab)]

May I point out to the right hon. Gentleman that for more than a century a number of Labour Members have believed in the nationalisation of the banks?

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[Vince Cable]

Yes, it is true, but the liabilities are much bigger. I shall explain in a moment how we will deal with the assets.

The pension deficit, which is the starting point, threatens the very existence of the company. It is draining cash from Royal Mail’s modernisation and preventing it from undertaking the reforms it needs to survive. That is why the Government have to take action today. As part of the sale, the Bill will allow the Government to take on responsibility for the pension deficit. We will not only address the deficit, but reduce the size of the Royal Mail pension plan to a more manageable level for the business. The liabilities of Royal Mail are more than 50 times annual profits. By comparison, the liabilities of the average FTSE 100 company are closer to one times profits—an enormous difference.

We intend to reduce the plan to about one tenth of its size today. We will do so by creating a new public sector pension scheme that will assume responsibility for paying out the past pension benefits of Royal Mail employees. In effect, all members of the Royal Mail pension plan will have their past service moved to a new Government scheme like that of the NHS or teachers. It is the same solution to Royal Mail’s pension problems as the previous Government proposed in their 2009 Bill.

I know that hon. Members will be concerned about the detail of the proposed pension arrangements, and we will provide a note to Parliament in order to explain the practical effects of those very complex changes, but I should like to reassure the House on two points in relation to pensions.

First, let me be clear that this solution is by far the best outcome for the employees of Royal Mail. The action that we are taking in the Bill will ensure that all the benefits that employees have earned will be safeguarded. The benefits that become the responsibility of the Government will be protected in the Bill, and all members of the Royal Mail pension plan will benefit from that support—Post Office and Royal Mail employees alike.

As a bottom line, the Bill places an obligation on the Government to ensure that our action leaves members in no worse a position than they were in before. This means that the amount of benefits that they receive will be at least as good as if the Government had not acted. There will also be a restriction on the Government’s ability to make any changes to the new public scheme in future that would adversely affect members. The Government intend to use that restriction to reflect as closely as possible the current protection that members of the pension plan are afforded under section 67 of the Pensions Act 1995.

Secondly, the measure is not a Government plan to massage the Government’s accounts, for the very simple reason that the Royal Mail pension plan has a deficit of £8 billion. That is the cost to the Government of implementing the solution on behalf of the company and its employees. Let me be clear: the Government are taking on liabilities that are much bigger than the assets. I have seen reports—perhaps this is what the hon. Member for Coventry South (Mr Cunningham) was referring to—that the Government will be selling off the Royal Mail pension plan’s £24 billion of assets. It is certainly true that the surplus assets above the level needed to leave the ongoing pension plan fully funded will be transferred to the Government. It is also true that these transferred assets will be sold because it makes no sense for Government to sit on a massive investment portfolio.

I, for one, do not wish to see central Government taking such a huge investment risk with taxpayers’ money. So yes, we will sell the portfolio of assets which transfer across to Government, and this is likely to involve over £20 billion of asset sales over time. But the important point—it is absolutely crucial to this argument—is that we will be making payments to members of the Royal Mail pension plan for at least the next 50 years.

[Mr Anderson]

Can the Secretary of State explain why the liabilities are so huge? Is part of the reason the fact that Royal Mail took a 13-year contributions holiday in the 1980s and 1990s?

[Vince Cable]

I understand that my hon. Friend the Under-Secretary is very familiar with this and has spent a lot of time talking to the pension trustees. There is a whole set of reasons behind this deficit, one of which is that employees are living longer; another is that the pension fund made some rather bad investment decisions. There are contributory factors. But we are where we are: there is a massive deficit and we have to deal with it; that is the centre of the problem.

Let me add that the Government’s support for the Royal Mail pension plan is subject to state aid approval by the European Commission. The House can rest assured that we will be going to Brussels to make this case in the strongest possible terms.

Let there be no doubt: this is a good deal for the employees of Royal Mail. In almost all important respects, it is exactly the same deal as that in my predecessor’s Bill—but coupled with the legal requirement for employee shares, it is a much better deal for employees.

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[Chris White]

No, I think that the offer as it stands is sensible and practical, although as I have said, it would be better if the level was greater than 10%. However, as it stands, that is the only way that we are going to move forward.

I recognise that the injection of private capital has been sought in order to protect the universal service obligation, although I would like to use this opportunity to state how damaging it would be for communities and small businesses if Royal Mail dropped the USO. I understand that there are considerable costs involved. However, for many communities—particularly rural communities—and a vast number of small enterprises, Royal Mail is an important lifeline, with nearly 60% of small businesses wanting to continue to receive mail deliveries six days a week. Given that the small and medium-sized enterprise sector will play a large part in our economic recovery, we should avoid any changes to the USO that might damage growth or hamper development in that part of our economy.

The future of Royal Mail is not the only concern for communities and businesses, however. People also want a strong future for our post offices. In the past few years, post offices have closed in many communities, including my own, and those vital local amenities must be protected. If they are to survive, they must become more than simply a place for posting or holding letters.

The Post Office already needs a subsidy of around £80 million in order to carry out its functions, and this will increase if other income streams are not found. I believe that a Post Office bank offers a real solution and could provide a strong future for our post offices. About 25% of small businesses bank with the Post Office’s financial services, and I am confident that more would do so if the limited number of transactions that they are able to make could be expanded. A survey by the Federation of Small Businesses showed that nearly 40% of its members were in favour of a Post Office bank and would bank with it. The present arrangements mean that 50% of the profits made on financial services provided by the Post Office leave the Post Office business, and that is simply not sustainable. Moreover, the joint venture with Bank of Ireland has not been able to deliver the basic, core banking products.

An independent Post Office bank would bring banking right back to the centre of our communities and help to revive trust between the public and the banking sector. A Post Office bank would help small business, and thus our economy, and it would provide those who have difficulty accessing the high street banks with an opportunity to get hold of basic financial services, helping the most vulnerable in our society. In many of the poorest areas, people have lost access to traditional forms of banking, and a Post Office bank would provide a trusted face and a chance for those communities to use the financial services that many of us take for granted.

Such a bank would not be unique to Britain. The French postal service launched its bank in January 2006, and, by 2007, it had 11 million postal banking accounts providing significant revenue. The Italian postal service, Poste Italiane, launched BancoPosta in 2000. By 2002, Poste Italiane had shown a net profit for the first time in 50 years. So it can be done; it is just a question of putting the framework in place to achieve it.

[Mr Anderson]

Will the hon. Gentleman give way?

[Chris White]

I am sorry, but I will continue if I may.

A good postal service and a strong network of post offices is not a luxury; it is a necessity, for economic and social reasons. We need to be innovative and bold, and we need to think about sustainability. I am confident that this legislation will move Royal Mail and our post offices in the right directions, and I look forward to supporting it in due course.

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[Mr Reid]

I am afraid that I do not know the details of what is happening to Royal Mail services in Belfast, so I shall have to pass on that, but the Minister has an hour and a half in which to find out the answer.

As I was saying, there simply is no alternative to private capital. Royal Mail is in a very difficult position. As other Members have pointed out, there is competition not just from other mail companies, but from other means of communication such as the internet and e-mail. As we heard from the right hon. Member for Wolverhampton South East (Mr McFadden), the former postal services Minister, the last Government concluded that private capital was required. There are clearly differences of opinion on whether there should still be a majority Government stake or whether the Government should have the power to sell off more than half the business, but I think that we should give the Government the power to sell off as much of the business as they consider necessary. We should bear in mind that the Bill does not mandate the full privatisation of Royal Mail, but merely gives the Government that power. I believe that we should give them the flexibility that they require in these difficult economic times.

[Mr Anderson]

Would the hon. Gentleman apply the same logic to other parts of the public sector such as the health service or defence? If the logic hangs together when applied to this service, why should it not do so when applied to those other services?

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[Tom Blenkinsop]

As a former trade union official, who often likes to stand and cannot normally sit down, I agree with my hon. Friend. Between 1996 and 2006, Germany’s Deutsche Post axed more than 21,000 full-time and 12,000 part-time jobs. In some cases, the employment situation has been transformed beyond recognition. In Holland, the 27,000 mail deliverers employed by the three major companies have service contracts rather than employment contracts, thus they are without employment protection, holiday pay, disability insurance and entitlement to unemployment benefits.

[Mr Anderson]

The rigours of the private sector.

[Tom Blenkinsop]

Exactly.

In Germany, only 18% of the jobs created by Deutsche Post’s competitors are full time. Deutsche Post cut average pay by 30%, but things are even worse in the new competitors, where delivery workers in western Germany earn 40% less than their Deutsche Post colleagues and delivery workers in eastern Germany earn 50% less than their Deutsche Post colleagues. The disparity is starker still in Holland, where the total payroll cost for a postal worker employed by the main operator is €23 an hour compared with just €7.60 an hour for someone who works for its competitors, which pay by the piece.

The Bill provides no real protection for service users, irrespective of definitions of a universal service obligation. Clause 50(1) states:

“A consumer protection condition may require postal operators to be members of an approved redress scheme.”

That is useless. Any future privatised service must be a member of such a scheme in order to give the consumer redress. The word “may” allows an opt-out and no consumer redress.

Clause 50(5) states:

“A consumer protection condition may require postal operators…to provide information to OFCOM.”

Again, the word is “may”. There is no requirement that the provisions are checked.

In conclusion, we are not looking at something new today. Other countries have gone down this road, and the result is a bad one for the staff, the business, other businesses and the general public. Put simply, if people live in a rural or far-flung area, are poor or are unable to pay for a promised premium service, they will suffer. What use to a postal worker is a market share in their own demise? What use to the general public and business, as service users, is a purely profit-driven postal business with no consumer redress, rather than a postal service that serves the public?

[Rebecca Harris (Castle Point) (Con)]

I am grateful for the opportunity to speak in this debate, as the future of the postal service is a long-standing interest of mine, not least as the director of a company that was reliant on a dependable, reliable and efficient postal service. I do not underestimate the public attachment to Royal Mail and the wide interest in the implications of its privatisation. Given its universal obligation, everyone—businesses and the public—has an interest in Royal Mail’s continued success.

An objective look at the situation is necessary. Richard Hooper made it clear to the previous Government, and has made it even clearer to this one, that Royal Mail urgently needs investment to improve its service to make it more efficient, competitive and effective in a more crowded and shrinking market. I do not want to underestimate the progress that Royal Mail and the unions have already made in that respect, as Hooper has also made clear.

The key question is how that progress can be accelerated. Investment is the key, and we need to ask ourselves how Royal Mail can bid for extra Government investment against the background of the economic inheritance that the previous Government left this Government, and other pressing claims on public funds such as defence, health and education. Royal Mail’s pension deficit is growing all the time, and the situation is becoming increasingly urgent, if Royal Mail is, in the Secretary of State’s words, to “survive and thrive”.

The key proposals in the Bill cannot come soon enough, if we are to secure the future of our national postal service. These include committing to protect the universal service obligation, clearly demerging Royal Mail, protecting the post office network, taking over the burgeoning pension liabilities and enabling Royal Mail’s 150,000 employees to have share rights. The share deal will give employees a leading role in the privatised new company. They will be able to bring their combined experience to bear in ensuring its success under new management. That deal is also important if an investor is to be attracted to Royal Mail to provide the fresh cash injection that we urgently need, because any investor will want reassurance that moves to improve the business will be strongly supported by employees. The generous share deal will give investors precisely that confidence, and it is one reason the Bill is far more attractive to potential investors and Royal Mail employees than the failed attempt by the previous Government to part-privatise.

I am extremely pleased that the Government are also protecting consumers by ensuring that the Post Office is not included in the privatisation and by categorically stating that there will be no repeat of the mass closures that almost everybody across the UK had to endure under the previous Government.

[Mr Anderson]

Does the hon. Lady accept that more post offices closed in the years before the Labour Government than during their 13 years in office?

[Rebecca Harris]

I thank the hon. Gentleman for that interesting observation.

[Mr Anderson]

Does she agree?

[Rebecca Harris]

I was not here at that time, but it is an interesting historical observation.

My constituents, like most others across Essex, suffered very badly from the epidemic of disappearing post offices in the past decade, which left many vulnerable constituents isolated and caused entire rows of traders to suffer. I am proud to support the Government in reforming the Royal Mail while ensuring that vital community resources are maintained. I also look forward to any plans that the Government might consider to give local communities and post office employees a chance to benefit from the success of their local branches.

[Mr David Anderson (Blaydon) (Lab)]

What we have seen today is the Liberal Democrats covering for the long-term view of the Conservative party, which has always wanted to privatise Royal Mail. As far back as 1992 Michael Heseltine was clear about wanting to do that, but the public and Parliament would not let him. He came back in 1994 with plans similar to those put forward by the Labour Government last time round, but the plans failed then, as they did last year. Thankfully, the people of the country did not want that.

We have heard more and more today about the rigours of privatisation. What that means is taking away the service, screwing the workers into the ground, giving public money to private companies and taking money out of the country. That is what happened with the gas, electricity and water services.

[Mr Robert Buckland (South Swindon) (Con)]

I cannot let that comment pass. This is not some ideological crusade; it is about trying to create a modern Royal Mail service for the future. That is in the interests of the work force: we want to protect jobs, not lose them.

[Mr Anderson]

I am pleased that the hon. Gentleman mentions the work force because I can now ask him, if he believes in the new politics, why not ballot the work force? If they say yes to privatisation, we will all shut up and go home. We will walk through the Aye Lobby if that is what the work force want—but I think he would be on a losser.

There are other examples. When we were telling Sid to privatise all the utilities, we were also creating the pensions mess that we are cleaning up today. The 13 years of pensions holidays under previous Tory Governments led to Royal Mail facing 38 years of paying back pensions. That is the main reason for today’s comments about the public having to pick up the bill. As someone said earlier, we will get all the bad parts and the private sector will get all the good parts. That is exactly what happened with the coal industry: we privatised it and now we are buying coal from Ukraine and China. We put 200,000 miners on the dole, but that does not matter: it is the rigours of privatisation. The rigours of privatisation mean that 6,000 in China will be killed in coal mines this year, but nobody on the Government side cares about that. And what happened with the rail services? What happened with Railtrack? It failed. What happened with GNER and the east coast main line? They failed. What happened with east coast railways? They failed. The public sector had to come in and pick up the mess, and that is what will happen here.

We have also seen the development of markets in the health service. We had compulsory competitive tendering in the early 1990s—ideologically driven part-privatisation that meant that ordinary workers who had given their lives to public service were sent out to work for the Joe Bloggs cleaning company. We have seen it with foundation trusts and market-led rigours. What are they doing? The hospital in my constituency closed its laundry. Now, 5 million pieces of laundry have to be taken 140 miles, from the north-east to Leicester and back again, because it is cheaper. Those are the rigours of privatisation—forgetting the fact that 90 laundry workers have been sacked.

We shall see exactly the same thing with Royal Mail. It is clear what we can do in this situation. As I said earlier to the hon. Member for South Swindon (Mr Buckland)—he and I worked together for the Gurkhas—if he really believes that people want privatisation, he should be honest. Go out and hold a referendum: ask the work force what they think. When Royal Mail is no longer allowed to be called Royal Mail, it will no longer be allowed to put the Queen’s head on stamps. The mail service will probably be subject to VAT.

It is clear that the public do not want the measure. The workers do not want it. The majority of people on the Opposition Benches do not want it, and the truth is that half the people on the Government Benches do not want it either, but they are being driven—

[Anna Soubry (Broxtowe) (Con)]

In my constituency there are 700 postal workers at the Beeston sorting office. To my knowledge, not one of them has written to urge me not to support the Bill. Two of them came to the Commons today to ask me not to support it—two in 700.

[Mr Anderson]

I thank the hon. Lady for her intervention. If she would like to meet me outside in the Lobby, I will take her name and address and pass it to the general secretary of the Communication Workers Union. I will ask him to write to his 700 members at Beeston to ask them to contact their MP and tell her that they are happy to work for TNT or Deutsche Bank, and that they will be happy to see their pensions, shift allowances and jobs go down the river. If that is what the workers want, that is what the rigours of privatisation will deliver. The track record cannot be denied. We can pretend it does not happen, but that is the truth.

It is clear that there is nothing new in the Bill—

[Robert Halfon]

It seems that clause IV is alive and well in the Labour party. According to the hon. Gentleman’s logic, should he not nationalise everything? Why not put Sainsbury’s and Tesco under state ownership?

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[Mr Anderson]

I welcome the hon. Gentleman’s view; perhaps he would like to join us. A number of us on the Labour Benches believe that doing away with vital public services has been a huge mistake. It cannot be denied. The truth is before our very eyes. The people of this country do not want their water, gas and electricity to be provided by the French and the Germans, and they certainly do not want their postal services to be delivered by the Dutch, the Germans or the French, which is where we shall end up if the Conservatives and the dupes who support them have their way.