Royal Mail Privatisation

David Mowat Excerpts

Tuesday 18th January 2011 Westminster Hall

[Mr Reid]

I agree with my hon. Friend; there is no problem with a post office being located in a supermarket and I was not saying that was a bad idea. My point is that a different type of outlet—PayPoint, for example—could be in a filling station but not in a dedicated post office that is part of a supermarket or filling station. In such situations, a person will not receive the same help and advice as they would in a post office located in a supermarket. I have no problem with a post office being located in another outlet—in my constituency, almost every post office is within a shop, filling station or supermarket. However, I would be concerned if the contract for benefit cheques was given to PayPoint, for example, because if an elderly person is in the same queue as people who are waiting to pay for their petrol, they might not receive the same quality of advice and help. A post office in another outlet is great, but if the facilities are simply part of that other outlet they will not offer the same social benefits to the customer.

The benefit cheque contract of the Department for Work and Pensions is for paying pensions and benefits to vulnerable people who are considered unable to use the Post Office card account. That contract was put out for renewal by the previous Government and I understand that the Post Office and PayPoint have bid for it. I hope that once the DWP has weighed up all the factors involved, including social factors and access criteria, it will keep the contract with the Post Office. PayPoint has a large number of outlets, including in my constituency, but nearly all those outlets are in towns and it does not have the same coverage throughout rural areas and islands as the Post Office.

If the contract were taken away from the Post Office and given to PayPoint, it would mean that on several of the islands in my constituency, there would be nowhere for people to cash the cheques. Also, in the rural areas of north Argyll, there would be nowhere for people to cash their cheques, because although there are plenty of PayPoint outlets in Oban, once people go outside Oban, they have to go all the way to Ballachulish or Inveraray to find another PayPoint outlet. It is therefore very important both for social reasons and for access reasons that the contract remains with the Post Office. I hope that the Minister will go away from today’s debate and knock on the door of the Secretary of State for Work and Pensions to tell him just that.

[David Mowat (Warrington South) (Con)]

Does my hon. Friend agree that it is extraordinary that the Government on the one hand are giving much-needed subsidies to the network—£1.3 billion over four years; £50,000 per location per year—yet on the other hand are taking away some of the contracts? No other shareholder or business would act in that way. It just is not joined up.

[Mr Reid]

I hope that the Government will not react in the way that my hon. Friend fears. I share his concerns, however. What worries me—I hope that these fears are ungrounded—is that there may be silo thinking within the Government. Clearly, in these very difficult financial times, with Departments having to make huge savings, it must be very tempting for Ministers to go for the cheapest contract, but I hope that they will resist that temptation, that there will be joined-up thinking in the Government and that the Post Office will be given work because of the good service that it provides. I hope that that will be the case for social reasons and because of the access provided by having a network that is unmatched throughout rural Britain and on many of the islands in my constituency.

Let us consider other Government work. When I tour my constituency, as I do every summer, one bone of contention that keeps cropping up in the rural parts of it is vehicle excise duty. Vehicle excise duty can be renewed only in certain post offices. I understand that that is because the Department for Transport decided the number of outlets that it wanted. However, it means that people living in rural areas must go into the town if they want to renew their car tax at a post office. Clearly, the temptation, then, is to use the internet, and if people do that, the work is lost to the Post Office completely.

My understanding is that the computer system is the same in all post offices, so there seems to be no reason why vehicle excise duty cannot be paid in any post office. Again, I hope that the Minister takes that point away from the debate and has a word with his ministerial colleagues in the Department for Transport, so that when that contract comes up for renewal, the restriction on the number of outlets can be removed.

I also want to refer to the BBC. As we all know, during the last Parliament, the contract for renewing TV licences was taken away from the Post Office and given to PayPoint. When Ministers are questioned on that, we just get indignant responses that the BBC is not part of the Government. However, it is a public body, and I hope that the Government are explaining to all public bodies the benefits of the Post Office and the Government policy of supporting the Post Office, and are encouraging the BBC and other public bodies to use the Post Office.

I was delighted with the commitment given during last week’s Report stage of the Postal Services Bill by the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), who is responsible for postal services, that Post Office Ltd and Royal Mail would sign an inter-business agreement for the longest legally permissible period before they become separate companies. That is important to give post offices time to adapt to being part of a separate company from Royal Mail.

I do not share the concerns of the hon. Member for North Ayrshire and Arran about Royal Mail in the long run taking business away from post offices. I do not believe that supermarkets or other shops could replicate what the post office does. Post office staff undergo a tremendous amount of training. There is also the computer system. One of the hon. Lady’s fears was that in urban areas, supermarkets would take over the contract, but in rural areas the post office would be responsible. That would mean two separate computer systems and training other staff. I simply do not see that happening. As I said in response to a point made by my hon. Friend the Member for Weaver Vale (Graham Evans), I see no problem with post offices being located in supermarkets, but I simply cannot see the benefits to a privatised Royal Mail of having a different arrangement in towns compared with rural areas. Many post offices are located in supermarkets. In the towns in my constituency, that is the norm and I see no problem with it, but I simply cannot see a situation in which there would be separate arrangements in towns and villages.

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[David Mowat (Warrington South) (Con)]

I want to add just a couple of quick points to what has been said.

To put these issues in context, there were 20,000 post offices a decade ago; now, there are fewer than 12,000. The Government have committed to keeping 11,500 of those open for the next four years. I do not share the confidence of my hon. Friend the Member for Argyll and Bute (Mr Reid) that the network will be stable for the next decade. Unless action is taken, it will be stable for only the next four years—that is, for the period of the subsidy that is currently going through. Although I welcome the £1.3 billion subsidy in terms of keeping the network open, 7,000 of the 11,500 post offices that remain are loss making. Unless that is fixed, the prognosis cannot be positive. We have 7,000 loss-making post offices, and that is with the inter-business agreement in place. It is worth telling Opposition Members that. The issue is not the IBA, but sustainability over the medium term.

Will the Minister answer two questions? I want to know more about the modernisation programme that will be put in place over the next four years, which involves something like £350 million. I also reiterate the point that Members on both sides have made about joined-up thinking in the Government. It is not sustainable that we are, on the one hand, investing millions of pounds in trying to make the network better, albeit in ways I am not sure I fully understand, while Departments are, on the other hand, tendering business in a way that no commercial organisation would. I have heard EU legislation being used as an excuse, but I do not accept that and think that the argument should be tested. I do not intend to reiterate the types of Government business that are being removed or that could be removed, but it is anomalous that so much work is potentially threatened, while on the other hand we are spending £50,000 per location, per year, to keep post offices open.

[Mr Philip Hollobone in the Chair]

I shall be particularly interested to hear from the Minister, in relation to the modernisation programme, about who is accountable for its success and what the measures of its success will be. In particular, what is his estimate of the number of post offices that will be in profit after the four-year period has elapsed? At the moment, the number is 4,000. We are to spend £300 million on modernisation. What number would he, at this stage when the money is being committed, expect to be viable after the modernisation programme? The corollary to the answer to that question is what level of subsidy the Government and the Minister expect to be payable after four years to maintain, for the purpose of argument, 11,500 post offices.

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[Nia Griffith]

The hon. Gentleman rightly mentions geographical spread, which is important. Provision should be made for it. Perhaps we should look to the Australian model. There it is guaranteed that 90% of the urban population will have a post office within 2.5 km; and almost unbelievably in such a large continent it is guaranteed that 85% of the rural population will have a post office within 7.5 km. If they can manage that in Australia, we could introduce a guarantee that is much more robust than what we now have. The irony is that, if Deutsche Post were to purchase Royal Mail, consumers here could have a reduced service, while they contributed to the profits of a company which must provide a specified number of outlets in its own country. In other words, we could have a poorer service here, while propping up a better service in Germany—a scenario we might associate more with 19th-century colonialism than modern Britain.

The Under-Secretary did not give convincing answers on Report about what exactly the legal obstacles are to the inclusion in the Bill of a guarantee of an inter-business agreement. He did not tell us about any legal precedents on which he was drawing, or what research his team has done on any relevant challenges in EU law.

The Under-Secretary has also failed to tell us about options outside the Bill itself. Currently both Royal Mail and the post office network are in public ownership. Both the chief executive and the chairman of Royal Mail speak favourably of the post office network. They recognise the respect it commands, the trust it enjoys in our communities and its value as a business partner. What, therefore, is preventing the signing of a new inter-business agreement now, while Royal Mail is still in public ownership? I am not now talking about a new clause in the Bill, but a new business agreement: an agreement that goes beyond the end of the current inter-business agreement, which could run out within a couple of years of privatisation, depending on the time scale, and that lasts for an additional 10 years. Has the Minister explored that possibility with Royal Mail? What would be the legal difference between an inter-business agreement with just a couple of years to run and one that was to last five or 10 years? Has he sought to capitalise on the warm words of Moya Greene and Donald Brydon about the post office network? Has he had any talks about an extended IBA between Royal Mail and the post office network?

I am sure that the Minister does not need to be reminded that Royal Mail is currently in public ownership. He must realise how serious the loss of business would be to the post office network. Even though any decision by Royal Mail to abandon the Post Office will be taken after privatisation, and therefore will technically not be a Government decision, he knows that the people of this country will not be slow to make the connection between the privatisation of Royal Mail and the demise of their local post offices.

The pity is that the Minister does not seem to want to take specific action. He seems to think that he can rely on warm words to guarantee Royal Mail business for the Post Office, but people are wary of warm words. There have been warm words about no rise in VAT and warm words about no increase in tuition fees—people are becoming very cynical about warm words. No shrewd business person would trust future business security to warm words. Surely, in his enthusiasm to privatise Royal Mail, the Minister has not overlooked the fact that it is currently in public ownership, and that he therefore has every opportunity to influence the way forward and to negotiate a longer IBA, here and now, before proceeding to privatisation.

Indeed, the Under-Secretary told us on Report that the Government

“as shareholders, will ensure that the commitment that Royal Mail made in its evidence to the Public Bill Committee—that it would conclude the longest legally permissible contract before separation—is fulfilled.”—[Official Report, 12 January 2011; Vol. 521, c. 357.]

I ask the Minister to enlighten us about what talks he or the Under-Secretary have had with Royal Mail about drawing up a longer IBA with the Post Office before privatisation. What was meant by the “longest legally permissible contract”? Is there a legal limit on such a contract? If so, what is it? As I said in last week’s debate, purchasers take over existing contracts and responsibilities in all sorts of takeovers, and such arrangements can be long-lasting.

The hon. Member for Warrington South (David Mowat) rightly questions what joined-up thinking has taken place on the subsidy. In our debate on the subsidy on 20 December, I said that the taxpayer is paying a large subsidy to the post office network, of which only 48% is necessary to continue the subsidy that Labour introduced to maintain the operation of the current post office network. We have been told that the remainder includes money to convert post offices to the post office local model, which involves paying the sub-postmaster by transaction, but that has been criticised by the Rural Shops Alliance, which questions why anyone would want to work longer hours for less income. It predicts difficulty in attracting new entrants to the post office local model; indeed, a similar pilot in Linlithgow ended with the shopkeeper saying that it simply was not worth his while to provide post office services.

Taxpayers will rightly ask what is the point of so much taxpayers’ money going into the post office network, particularly when they are seeing savage cuts in other services, and given that the Government are doing absolutely nothing to help secure the 37% of post office income that comes from the IBA with Royal Mail.

[David Mowat]

The Opposition continually talk about the IBA as if it were some kind of nirvana. Even with it in place, 7,500 post offices in the network are making a loss. At least the Minister has proposals on fixing that and on modernisation. Do the Opposition have any proposals other than the status quo?

[Nia Griffith]

Frankly, despite the Government’s fine words, the Post Office has no new Government contracts and no new streams of business, and it faces the possibility of losing all its Royal Mail business. Taxpayers will ask why they have to pay for that.

Taxpayers understand the idea of investment that brings returns and the value of business start-up funds, which can help to launch new businesses that subsequently stand on their own two feet, and they accept the need for some subsidy to make the network a truly nationwide service. However, if the post office network does not provide nationwide access to postal services or develop new business streams to improve its viability, the taxpayer may well ask what is the point of allocating £1.34 billion to the post office network. The taxpayer has every right to ask what steps the Minister is taking to ensure that the Post Office continues to do for Royal Mail business that provides 37% of its income.

In its recent report, the Scottish Affairs Committee stated that:

“we recommend the Government take a more proactive approach to facilitating a long and robust IBA, through removing any obstacles: practical, legal or otherwise that may exist. Ideally, a ten year agreement should be reached prior to any sale of Royal Mail. We understand that this may affect the marketability of Royal Mail, but it is essential to the sustainability of Postal Services in Scotland. It is in everyone’s interest”.

Members on both sides have stressed time and again the valuable social role of the post office, and the Government’s recent subsidy allocation suggests that it is a role worth paying for.

Will the Minister say whether concern about the marketability of Royal Mail is the reason for the Government’s reluctance to pursue a robust IBA? If so, does he consider potential diminished marketability to be a price worth paying when it comes to guaranteeing the future of 37% of the post office network’s business? What analysis have the Government made of the cost of a presumed lower price for Royal Mail with a robust IBA with the Post Office, and the cost of continued subsidy of the post office network? Once Royal Mail is privatised and possibly sold to a foreign owner without a long-term IBA in place, it will be too late to insist on one.

The Government will not be able to insist on Royal Mail using the Post Office. They will not be able to do what Lord Mandelson did. They have the chance here and now. I want to know whether they are going to take it.

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[Mr Hayes]

I was about to say that stamps will continue to bear the sovereign’s head, which is right and proper. I hear what my hon. Friend says, and I share her view; it is important that we retain the iconic pillar box with the Royal monogram on. That is something that the Government will consider. I can say no more at this stage, but I know that my hon. Friend will want to take up that point and see what can be done.

In evidence to the Postal Services Bill Committee over recent weeks, there has been strong backing for the separation of Royal Mail and Post Office Ltd. I noted that no one made a case against that today. As I said, it was, I think, accepted by most Members in this House. They are different businesses that will benefit from focusing on different challenges. In his evidence to the Committee, Richard Hooper of Consumer Focus and Postcomm supported the separation of the ownership of the businesses.

In her evidence to the Committee, Moya Greene, chief executive of Royal Mail, said that it would be unthinkable not always to have a strong relationship between the Post Office and Royal Mail. To underline that point, Donald Brydon, Royal Mail’s chairman, pledged in his evidence that before any privatisation of Royal Mail could take place, a continued long-term commercial contract will be in place between the two businesses for the longest duration that is legally permissible—a point that was picked up by the hon. Member for Argyll and Bute (Mr Reid). Such a pledge provides a reassurance about the marriage between the two, which is essential to maintaining the post office network that we all feel so strongly about. This is done not for sentimental reasons, but because it makes good commercial sense. The post office network has an unparalleled reach and a very strong brand. As my hon. Friend the Member for Newton Abbot (Anne Marie Morris) said, we can be optimistic about the relationship. A stronger Royal Mail is more likely to secure the future of many more post offices. If we do not take the necessary radical steps to support and invest in Royal Mail, post offices will be at risk. That is something that we can look to with confidence, based on the belief that post offices not only provide important services, but are at the hub of local communities. The post office in my own village of Moulton, which is run by Gary and Jane, does an excellent job not just providing postal services but as a centre for all kinds of activities in the village. It is a shop, too, and provides a valuable local service.

As a representative of a rural constituency, I understand some of the concerns expressed by other rural colleagues. We heard from the hon. Member for North Ayrshire and Arran that there are concerns about the spread of the network—the universality. Let me make it clear that in terms of universality, the Bill will create a fundamental duty at the heart of the legislation for a six-day per week collection and delivery of letters at uniform and affordable prices. To do that, we need a service that is spread across the whole nation and not a partial service; we are committed to that and I personally feel very strongly about it.

It is important to say that the future success of the post office network will depend on its providing a fuller and wider range of services. I hear what my hon. Friend the Member for Warrington South (David Mowat) says about cost and subsidy. We can deal with that by allowing post offices to do more, thus ensuring that they can be profitable businesses. We are looking at a range of additional services—both local government and national Government services—that post offices can provide. Post offices can act as a front line for those clients or users that need to do things in their community in a way that is accessible and convenient. We are piloting a range of services that post offices can provide and, as a result of this debate, we will look at other things that Government can do to make the post office network more viable, commercial and profitable. I know that my hon. Friend is anxious about that and I understand why.

However, there will always be small rural post offices, perhaps in more remote communities, that will find it very hard to operate without subsidy. I do not have a problem with that. Post offices are so culturally and socially important that we need to take that on board. Certainly, all those that can be profitable should be profitable.

[David Mowat]

After the modernisation programme, how many post offices does the Minister think will be self-sufficient?

[Mr Hayes]

As part of the recent £1.34 billion funding package, there is a legally binding commitment to a minimum number of post offices—the Post Office is required to provide a network of at least 11,500 branches. As I have said, there will be no closure programme under this Government. I am confident that many more post offices can be made profitable, but I will not speculate on which post offices will take up which services in which locations; my hon. Friend can hardly expect me to do that.

I have just time to say a word about demutualisation, which was raised by the hon. Member for Edinburgh East (Sheila Gilmore). Demutualisation is not something that we see happening; indeed it will be specifically prohibited.

A better future for Royal Mail means a brighter future for post offices. This Government seek that brighter future and will deliver it; nothing less will do.