Ed Davey
Main Page: Ed Davey (Liberal Democrat - Kingston and Surbiton)
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
I beg to move, That this House agrees with Lords amendment 1.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to consider Lords amendments 2 to 11.
Mr Davey
I would like briefly to take hon. Members back to the Bill’s Third Reading in this House, when I marked the passing of the Bill into the capable hands of the other place by saying that the coalition Government’s decision to take on this difficult issue showed them at their strongest and most radical. As we welcome the Bill back, I would like to add to that and say that the Lords amendments before us today also show government at its most open-minded and collaborative, because they represent the constructive and collective efforts of both sides of the other place to improve and strengthen the Bill. The amendments in this group concern part 1 of the Bill and the provisions for the ownership of Royal Mail and the Post Office. I am clear that when it comes to undertaking a sale of shares in Royal Mail, the Government must have the flexibility to negotiate the right deal at the right time.
I know that hon. Members have been anxious to hear more about the next steps in our plans for Royal Mail, so with your indulgence, Madam Deputy Speaker, and in the interests of transparency, I would like to set out briefly the next two crucial steps that need to be taken to secure the future of Royal Mail. As my noble Friend Baroness Wilcox said on Third Reading in the other place, the Government intend to take on Royal Mail’s historical pension deficit with effect from March 2012 as part of the preparations for the sale of the company. I am sure that hon. Members will appreciate what a relief it will be to the 435,000 members of the Royal Mail pension plan to know that their accrued pension rights will be protected sooner rather than later.
The key concern of people up and down the country is that the universal service must be protected. To do that, Royal Mail needs to be on a sustainable commercial footing. The company currently has about £1.7 billion of debt facilities with the Government. We need to restructure the company’s balance sheet in due course, and in order to put Royal Mail on that sustainable commercial footing, we will need to reduce significantly that level of debt. Of course, we will need approval from the European Commission to provide this financial support, and we have already begun informal discussions with the Commission. The Government will submit a formal stated notification in the next few days, and I hope that the process will be completed by March 2012.
We will discuss amendments to part 3 of the Bill, which deal with the new regulatory regime, later on, but of course implementing that regime will be another crucial step towards securing the future of the universal service. I would like to assure hon. Members that the work to establish this is already under way. In particular, Ofcom, the new regulator, will launch a consultation in the autumn with a view to establishing the new regulatory framework in the spring of 2012. I hope that that update is helpful.
I begin my main remarks on this group of amendments by commending Opposition Members on pushing us on whether, given our commitment to transparent government, more could and should be done to offer more information to Parliament. Amendment 1 is a direct response to that. Clause 2 already commits the Government to report to Parliament when a decision to dispose of shares has been made. Amendment 1 adds three new requirements for that report: first, that it must include the objective for the sale; secondly, that it must include details of the expected commercial relationship between Royal Mail and Post Office Ltd following the disposal of shares; and thirdly, that where the proposed disposal would result in shares being placed into the employee share scheme for the first time, the report must include details of that scheme. As I previously said to the Public Bill Committee, I will ensure that shares are placed in the employee share scheme from the time of the very first sale of shares in Royal Mail.
The second of the new requirements—to provide information on the expected commercial relationship between Post Office Ltd and Royal Mail after the sale of shares—will work together with amendment 9 to address a key concern that I know is held by many in the House. After much debate in the House and elsewhere, I can still see no reason why the strong commercial relationship between Post Office Ltd and Royal Mail should weaken after the two companies have been separated. More importantly, the senior management at Royal Mail has been clear that this relationship will continue. That is why the chairman of Royal Mail, Donald Brydon, felt able to say to the Bill Committee that prior to a sale of shares in Royal Mail, the two companies would put in place a new contract for the longest time legally permissible. I have gone on the record—and I am happy to do so again today—as saying that the Government, as sole shareholder, will ensure that the two companies fulfil this commitment.
The negotiation of that contract is, rightly, a commercial matter for the two companies, and not for the Government or this legislation. However, Lords amendment 1 will ensure that, prior to a sale of shares in Royal Mail, Parliament has a snapshot of the expected commercial relationship following the sale, and Lords amendment 9 would make it clear that the annual report on the post office network must include information every year on the postal services provided as part of that relationship. Lords amendment 10 is a technical amendment to clarify the enforcement powers that apply to the annual report on the post office network.
There can be no doubt that the future of this iconic British institution is of enormous interest to Members of this House and in the other place. I believe that a mutual Post Office is a radical and exciting proposal, and one that is supported by all parties. However, I acknowledge that our position—that mutualisation must be a bottom-up process that engages sub-postmasters, customers and management—means that we cannot be as explicit now about what that mutual will look like. Co-operatives UK has now published its report on the options for a mutual, and that report will form the basis for the Government’s full public consultation in due course. Until the conclusion of that process, the Government remain open to all views. We will not dictate the form that mutualisation will take.
To give both Houses more oversight of what an eventual Post Office mutual might look like, we have tabled Lords amendments 2 to 8, which would introduce the affirmative procedure to the powers to mutualise Post Office Ltd. Furthermore, those amendments would ensure that the report on mutualisation provided for under clause 5 must be laid prior to the vote, so that hon. Members have full and detailed information on the mutualisation plans before they debate and vote on them. Let me be clear, however, that the plans, as I have said before, will be developed from the bottom up and in full consultation with all of the Post Office’s major stakeholders.
The last amendment in this group—Lords amendment 11 —addresses an issue that I know is close to the hearts of many hon. Members. When my right hon. Friend the Business Secretary opened the debate on the Bill on Second Reading, he talked of this country being a pioneer of postal services in the 19th century. It is that proud and rich postal history that Lords amendment 11 seeks to protect, by requiring Royal Mail to report annually on its activities in relation to the British postal museum and archive. Having visited the British postal museum and archive, I can say that it provides a wonderful and fascinating record of our postal heritage, and is absolutely deserving of the protection that Lords amendment 11 seeks to provide. I would be quite keen to share with the House the benefit of my visit and some of the lessons that I learnt—for example, that the first post boxes were green, before moving to chocolate brown and then ending up one of the shades of red that we see across our country—but I am sure that you would bring me to order if I did, Madam Deputy Speaker.
In conclusion, the amendments in this group respond to a number of concerns raised in both this House and the other place. They seek to offer more information on the implications of the sale of shares, more parliamentary control over Post Office mutualisation and greater transparency of Royal Mail’s heritage activities. I believe that the objectives that they seek to achieve are truly cross-party objectives, so I would urge the House to agree to them.
Nia Griffith (Llanelli) (Lab)
It is indeed our intention to be a constructive Opposition and to welcome amendments that improve the Bill. However, even though we welcome some of the amendments this afternoon—particularly where they reflect to some degree the position that we have taken on aspects of the Bill—we remain totally opposed to the main purpose of the Bill, which is to sell off Royal Mail 100% to private enterprise. That is completely different from our proposal, which was to keep Royal Mail in majority public ownership. Selling off Royal Mail into 100% private ownership means that only through the regulatory regime will the Government and the taxpayers of this country have any influence on the service provided.
Michael Connarty (Linlithgow and East Falkirk) (Lab)
Despite all these amendments, which have been won by clear arguments put by Labour Members in the House of Lords and the Cross Benchers who supported them, I am still concerned about having a Bill that is fit for purpose.
Lords amendment 1 provides a new requirement that the report made by the Secretary of State will make clear the
“objective intended to be achieved”
by the disposal of shares in Royal Mail. I have followed this issue very closely so I know that everything else falls on that. As you know, Madam Deputy Speaker, I am the secretary of the Communication Workers Union liaison group of MPs in this House and have been so for more than a decade. Despite all the Minister’s warm words, it is not clear what this is meant to achieve that can be achievable under this privatisation model as structured.
Does the “objective intended” include maintaining Royal Mail as an organisation able to deliver to all parts of the UK for a single charge or two varying charges? The Bill and the amendments provide no guarantees that that is the case. Will that be covered in the report given each year by the Secretary of State to the House in order to show just how far the failure has been progressed, and how far my concerns and those of other Opposition Members have been realised? If we were to fragment Royal Mail—it is entirely possible that that will happen as there is nothing to prevent it under the Government’s privatisation model—a Scottish regional mail delivery service could be given responsibility for meeting that objective under this model. That provider might then find that that particular part of the United Kingdom—the same could happen in places such as Cornwall and elsewhere in the south-west—the sparsity of the population and the diversity of the communities mean that it is not possible to make a profit. This process is about a privatisation and about giving organisations the right to run Royal Mail as an organisation that must make a profit. The Bill would allow them to come back to ask the Secretary of State to allow them to get rid of that universal service obligation.
Michael Connarty
I only wish that that were true. I assure the hon. Lady that although small shareholders can go along and make a protest and trumpet what they have to say, the bonuses, the sale of companies and the redundancies will still be voted through regardless of small the shareholders’ shouting. I am not in the business of standing on the fringe and shouting. I would much prefer the Bill to be rejected out of hand. I am against the privatisation of Royal Mail and I believe that the pension fund deficit was caused by the holidays taken by Royal Mail and Post Office Ltd, which were allowed by previous Governments of both hues. I would rather be standing here opposing what the Government are about to do to Royal Mail because I think that all the assurances we have been given, hard-won though they are, will not make a difference.
Capitalism will work as capitalism works and will do what is to the advantage of the people who hold the majority of the shares for the bottom line of their dividends. That will mean that people will lose their jobs and the Post Office will not be sustained using Royal Mail, which will not continue to provide a universal service at one price. The amendments will have to come with a lot more specific targets, which I do not see in the Bill or in any of the schedules to the Bill. Although I welcome the smaller amendments that have been made in this part of the Bill, I do not believe they will make a major difference to the outcome for Royal Mail or Post Office Ltd.
Mr Davey
The hon. Member for Linlithgow and East Falkirk (Michael Connarty) finished where the hon. Member for Llanelli (Nia Griffith) started—in total opposition to the Bill. I have to tell the Opposition that they are ignoring the economic and financial reality of Royal Mail. As a result of the reduction in letter volumes because of technology such as e-mail, the internet, text messaging and social networking, it is losing a huge amount of money. The reduction in letter volumes—its core business—is predicted to fall again and again, but it is not only Royal Mail that is affected. Every postal administration around the world is seeing letter volumes and revenues go down. That means that those administrations are leaching money and something has to be done. The previous Government failed to do anything, although I should pay tribute to Lord Mandelson, who had the decency, on Second Reading in the other place, to recognise that we were on the right track with this Bill. The fact that Labour Front Benchers are unable to recognise that today is testament to Labour’s unwillingness to face up to the reality of the challenges.
Nia Griffith
I am sorry to stray away from the amendment, Madam Deputy Speaker, but I think it needs to be put on the record that our Bill, as it stood as Lord Mandelson was taking it through the other place, would clearly have kept Royal Mail in majority public ownership. That was written into the Bill, but it is not in the current Bill. We are talking about a totally different Bill that goes for 100% privatisation. They are two completely different scenarios and the amendments in the Bill arise largely from some of the situations created by that difference.
Madam Deputy Speaker (Dawn Primarolo)
Perhaps we could return to the amendments. We are debating the Lords amendments to the Bill—this is not Third Reading. The Minister is experienced and knows that. He has made his opening remarks. Will he answer the debate please?
Mr Davey
I am looking forward to doing that, Madam Deputy Speaker. The hon. Member for Llanelli welcomed Lords amendment 1 but felt that it did not go far enough. Despite all the arguments we have had in this place, she still believes that an inter-business agreement should be in the Bill, as do a number of her party’s members.
I do not wish to rehearse the long speeches that were made on Report, when our debate on this particular point lasted for about three hours, but let me repeat that putting provisions in the Bill in the way in which the hon. Lady suggests would create a significant risk of legal challenge owing to incompatibility with competition law. In addition, such an approach would almost certainly face a state aid challenge. I would have thought that she would have realised that, because it has been accepted by many who have examined the situation in detail.
The hon. Lady says that the absence of such provisions means that there is no protection for post offices, but the whole point is that the detail set out in our policy statement will enable them to be more profitable. It is real business that will save the post office network, not legal provisions in the Bill, so I disagree with her point.
The hon. Lady spent some time talking about employee shares. The Lords amendments will require the Secretary of State’s report to Parliament at the time of first sale of shares to include details about the employee share scheme. I would have thought that she would have supported that welcome development.
We would certainly want to report on such things as the terms by which shares would transfer to the employee share scheme and the design of the scheme. Such detail might include questions of whether there would be a trust model or individual shares, or a mixture of the two. There would also be consideration of the percentages to be transferred and the governance arrangements.
The hon. Lady asked how the shares will be allocated, but clearly that is a point for later discussion. Such a point might be addressed in the report. We can imagine allocating shares to employees on many bases, such as length of service, grade and salary. The Government would certainly not object to a proposal that shares and their benefits should be allocated evenly across employees to ensure that there is equal entitlement regardless of grade, salary or length of service. We have been clear that the scheme is for all employees of Royal Mail, not just the management, so I hope that people will not run away with the wrong idea.
Several Opposition Members asked what would stop employees selling shares immediately. Again, we are not making premature decisions about the scheme’s design, but we have always said, as I have repeated several times, that we are designing the scheme with longevity in mind—there are many attractions to a trust model for that very reason. However, it is not true that individual employees’ shares are always sold off by those employees. People arguing that point try to pray in aid the BT example, but the Public Bill Committee heard evidence that 66% of BT employees held on to their shares after the share plan had matured, so there is longevity in share ownership, even with the individual model. A lot of myths are cited by those who oppose employee share ownership, which was no doubt why the Labour party did not include employee shares in its 2009 Bill.
Mr Davey
I listened carefully to that interesting point in the hon. Gentleman’s speech, and the way in which he eloquently described the situation and referred to the Companies Act 2006 showed that we need to ensure that we design the scheme carefully. We will do so, because we want to deliver on employee share ownership, which is an objective of the Liberal Democrats, the coalition Government and the Bill.
The hon. Member for Llanelli was generally supportive of the proposals on mutualisation, but she spent a lot of time—do tell me if I stray out of order, Madam Deputy Speaker—saying that Government front-office services had not been delivered. We are turning around the decline under which the previous Administration took away more than £300 million of Government services from post offices. Our policy statement and the things that we are delivering show that there is a real future for the front office of government.
Nia Griffith
We are talking about the mutualisation of the Post Office, but that can take place only if it is viable. Will the Minister tell us what new streams of Government business have been given to the Post Office in the past year?
Mr Davey
The hon. Lady is right—and we have been clear about this—that the network must be viable before going to mutualisation. The problem is that we inherited a post office network that was so badly managed that we had to turn it round. She asks for specific details, but she knows that several were set out in our November policy statement. She ought to know that the National Federation of SubPostmasters welcomed the start of the pilot scheme offering document verification for pension applications in 106 post offices in the north-east. She should also know that that is only the first of three planned pilots with the Department for Work and Pensions; the other two involve national insurance applications and testing the impact of requiring jobseekers who sign on by post to attend their local post office instead. I would have thought that she would have welcomed such pilots.
Fiona O'Donnell
I note that the Minister missed the green giro off that list. The position not only puts the post office network in my constituency at risk, but means that people who cannot access a PayPoint in their villages must travel to cash their cheques.
Mr Davey
I expressed my disappointment that Post Office Ltd did not win that contract from the Department for Work and Pensions, but I have described three pilots on which the DWP is working with Post Office Ltd. I could also have talked about the proposals on credit unions that we hope will go forward, or the fact that Post Office Ltd has won a contract with the London boroughs so that local authority staff can have an authentication service at the local post office. If that scheme develops, it might have applications throughout the country. Such developments have been welcomed by the National Federation of SubPostmasters, but of course we want to go further, which is why we are so pleased to have persuaded the Royal Bank of Scotland to enable its customers to access their bank accounts through the post office network, which we believe will start to happen from September. I would have thought that the hon. Lady would welcome such developments.
Mr Ian Davidson (Glasgow South West) (Lab/Co-op)
If such developments arrive in the future they will be welcome, but will the Minister return to the point about the green giro? Do we have joined-up government? This was an opportunity to boost the Post Office, so why did the Government not do something about it? Surely the Minister, as a Liberal, will not just blame European regulations.
Mr Davey
I certainly would not—but when Labour Members make such points they really have a cheek, because their Government removed more than £300 million of Government services from the post office network. We are working hard across the Government to ensure that we can position Post Office Ltd in a place from which it can win contracts from Government Departments in Whitehall and local authorities to deliver the front office of government. I can tell the hon. Gentleman that a huge amount of work is being done on this, and he needs to be a little patient.
The problem is that when we came into government and developed the strategy, the cupboard was bare because the previous Government had done almost nothing. They had allowed the post office network and the process for developing new business to wither on the vine because they were so busy closing 7,000 post offices. I have to tell Opposition Members that the tender for the green giro began under the previous Government, so they really ought to be careful. We have had to deal with the tender that Labour Ministers wrote.
Fiona O'Donnell
The Minister will no doubt want to read the piece of paper that has just arrived in front of him, but perhaps I should read him what the National Federation of SubPostmasters actually said:
“The government’s decision not to award the new contract for benefit cheques to the Post Office does not bode well.”
It seems to me that competence in the Government is not as high as he—
Mr Davey
I agree that we should focus on the long-term viability of the post office network. I recently attended the annual conference of the National Federation of SubPostmasters in Torbay, where we discussed the sorts of thing we are proposing and they were able to look at the new machines that Post Office Ltd is developing to position itself to win Government contracts, such as the application, enrolment and identity machine, which is already being used for contracts from the Driver and Vehicle Licensing Agency. They already have a portable one, which could be used across the network, and a number of other machines. The sub-postmasters were absolutely delighted. I wish that Opposition Members who have spoken today had been there, because the sub-postmasters showed greater confidence in the future of their post offices and their businesses than they do.
I will respond to some of the comments made by other hon. Members who have spoken. I thank my hon. Friend the Member for Solihull (Lorely Burt) for her comments. She mentioned the benefits to employees that will result from the proposals on employee shares set out in the amendments, and she mentioned pensions, which we will come to later. She specifically asked what discussions we have had with the Communication Workers Union on some of the amendments. It is interesting that on 13 April the CWU issued a press release in which it said that it welcomed the amendments to the Bill. Its general secretary, Mr Billy Hayes, said:
“We warmly welcome these amendments…We are pleased that Government has taken on board some of our concerns”.
I have met the CWU, and it has noticed the progress that we have made.
The hon. Member for Birmingham, Erdington (Jack Dromey) complained that post offices in his constituency would close as a result of the amendments, but I hope that he tells his constituents that four post offices closed in his constituency under the previous Government. All Members across the House will have discussed post office closures with many people in many communities. What we are offering in these amendments and in the Bill is hope that the Post Office will not see a repeat of those closure programmes, which have devastated so many people.
The hon. Gentleman asked what would happen after the spending review. The modernisation that the Bill and the amendments will enable us to undertake with the £1.34 billion will allow us to go further and continue the transformation. I believe that what we have with the funding package and the proposals is a radical change, but one that will lead to a sustainable network. He knows, because I wrote to him on 9 February, that the post office in Perry Common closed under the previous Government. Reopening it would lead to business migrating away from nearby offices at College road and Hawthorn road, which could jeopardise all three offices, which I am sure is not what he wants.
Jack Dromey
The Minister speaks of hope, and the same word was used when the Bill was launched. Seven post offices in Birmingham now face closure, one of which is in the Yardley constituency of a Liberal Democrat Member. Will the Minister agree to meet the community of Perry Common, which has signed a 1,000-strong petition asking for the reopening of a flexible post office in their locality? Earlier this week another Minister went to Perry Common and held it up as an excellent example of a community that has rebuilt its environment. It now wants to rebuild its high street, and it wants a sub-post office on it. Will the Minister meet the community and Mr Tarnjhit Dhesi, who is driving that proposal?
Mr Davey
I say to the hon. Gentleman and his constituents that they should look at the economics of the post office network in the area, because there are other post offices nearby, and talk with Post Office Ltd about the “locals” model that my hon. Friend the Member for Folkestone and Hythe (Damian Collins) mentioned.
The “locals” model holds real prospects for dealing with some of the post office network’s cost problems, and for helping to revive shops on our high streets by bringing them and post offices together. In our pilots, not only have postal operators liked the model that we are developing, but so have post office customers and local communities. Having seen the evidence, some communities that were sceptical have been delighted by the service quality that Post Office “locals” have delivered. That is the future, and my hon. Friend was quite right to turn to it.
Jack Dromey
I am sorry to press the point, but my local community has looked at the pilots, is inspired by the prospect of flexible provision and wants to engage, but it has had the door closed in its face. Ministers say that they are offering hope and are prepared to listen, so will the Minister meet a delegation from Perry Common and Mr Dhesi?
Mr Davey
The reason why I am not agreeing to the hon. Gentleman’s kind invitation is that, under legislation that has been on the statute books for many years, and based on the practice of the previous Government, Post Office Ltd decides where Post Office “locals” open, so if that is his request he needs to address it to Post Office Ltd managers.
Jim Shannon
Hon. Members have referred to the pilots, but has there been a UK-wide pilot, or any in Scotland or Northern Ireland? If there has, could we have some idea of the feedback from them?
Mr Davey
There have been Post Office “locals” pilots in all parts of the country. We are up to 80 local schemes, and Post Office Ltd has tried to pilot them in urban, rural, suburban and urban-deprived areas. It is trying to test them out over time, taking account of seasonality and cash flow, so we are learning an awful lot of lessons from them. The recent analysis of the “locals” project by Consumer Focus is publicly available, and although it has some concerns about privacy it was able to show that on issues such as access, longer opening hours and reduced queues, people have found the projects to be a beneficial step forward.
The hon. Member for Strangford (Jim Shannon) said that he was concerned about the universal service obligation and worried that the Bill would undermine it. Far from it: one of the Bill’s main objectives is to secure the universal service, and Opposition Members have failed to realise that clause 30 includes stronger protections for the universal service than was previously the case.
The hon. Member for Angus (Mr Weir) made a very informed speech. He was a distinguished member of the Public Bill Committee, who failed to attend only on the few occasions when the weather prevented him from flying down to London, but in looking at the amendments before us I have to say that he has made the mistake of calling for guaranteed business for the post office network and, almost, of wanting to keep things in aspic.
On the train down to the annual meeting of the National Federation of SubPostmasters, I read the federation’s account of its 100-year history, which mentions the concerns that existed when telegrams were being phased out, and when postal orders were used. In other words, the business and services that have gone through our post office network have changed hugely, and we have had to develop them and move on, so setting things in aspic—putting things in the Bill, as some Members want—would not help.
Mr Weir
With respect to the Minister, this is not about setting things in aspic. The problem is that there is a great deal of uncertainty, because Royal Mail is up for privatisation, the link between Royal Mail and Post Office Ltd now relies on the good will of whoever runs Royal Mail, and with no guarantee of business it is difficult for those trying to sell post offices to find people to take them on, as they are uncertain of what business there will be in one or two years’ time.
Mr Davey
We are in danger of going over old ground. The hon. Gentleman will know, because we have had this debate many times, that it is my view that post offices are in a very strong position in this negotiation, because the idea that Royal Mail is going to absent itself from the post office network and allow its competitors to go in there is, frankly, nonsense. As for the particular issue that he has been raising with Post Office Ltd—the closure of Ferryden post office—he will know that that closed not because of any action of the Government or Post Office Ltd but following the resignation of the sub-postmaster. Post Office Ltd is looking at all available options to keep that service in his constituency open.
Mr Weir
If the Minister reads my remarks, he will see that that is what I said. I understand that the closure at Ferryden is not the Government’s responsibility. I have been in touch with the Post Office and it is trying to get an alternative, but it looks as though it will be an outreach service rather than anything else. That is a reduction in service to that community.
Mr Davey
I am sure that the hon. Gentleman will be engaging in that debate with Post Office Ltd.
The hon. Member for Linlithgow and East Falkirk (Michael Connarty) asked, in the context of the report, what objectives we have for Royal Mail and the Post Office. We have made it very clear that securing the universal service obligation is our top objective. Getting a good deal for Royal Mail and for the taxpayer is essential. There is no objective of fragmenting Royal Mail as he described. When he suggested that employee shares were not a good thing for employees, I began to despair. The only correct thing that he said was that employee share ownership—ownership of the company in which one is working—needs to be combined with involvement in worker participation.
We should look at what is happening in Royal Mail at the moment. Someone who goes to sorting offices such as Gatwick, Greenford or Cardiff, as I have done, sees a world-class mail system and the rolling out of a programme of modernisation that involves the workers directly and has as one of its key objectives the health and safety of those workers. Sorting offices are being made not only more productive but safer. There is great employee involvement. If we link that with employee share ownership, this business will have a real future. I hope that the House will welcome this group of amendments from the other place, and give them its approval.
Lords amendment 1 agreed to.
Lords amendments 2 to 11 agreed to.
Clause 21
Restriction on power to transfer assets
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to take Lords amendments 13, 14, 23, 24 and 26 to 28.
Mr Davey
The amendments in this group are either minor or technical—or, indeed, both. However, they make some important improvements to the Bill that I hope all hon. Members will feel able to support.
Lords amendments 12 to 14 concern the pensions provisions. Lords amendment 12 is, I must confess, not the easiest technical amendment that hon. Members will have had the pleasure of scrutinising, but I will attempt to explain it as clearly as possible. The amendment concerns the transfer of assets from the Royal Mail pension plan—RMPP—to the Government and is designed to deal with the fact that we expect the assets to transfer in two tranches. An estimated amount of the assets will transfer when Government takes on the historical liabilities of the RMPP. However, there will be a time lag between this point and the point when the necessary actuarial valuations are finalised. We will need a second transfer to take place when the scheme valuation has been completed: a corrective, or “mop-up”, transfer. The amendment ensures that this two-stage transfer is possible and that any adjustments applied to the second transfer are disregarded so that the funding level test to protect RMPP funding levels works as intended. This funding level test, assessed at the effective date of the transfers, should not be affected by any market movement in the assets that transfer later.
In supporting Lords amendment 12, I would like to be clear on one broader point. The Bill provides a safeguard in clause 21 so that the ratio of assets to liabilities in the RMPP must be no worse after assets transfer to the Government than before. However, we intend to go beyond that minimum and leave the RMPP fully funded after transfer, subject to state aid approval.
Nia Griffith
This is a group of technical amendments. We all want legislation to be as clear, precise and effective as possible. We will therefore support them.
Lords amendments 12 to 14 will form an important part of the Bill. The transfer of the Royal Mail pension plan and the fact that the Government will take responsibility for it are aspects of the Bill with which all parties agree. Any amendments that offer further clarity and security in respect of the handling of workers’ hard-earned pensions are to be welcomed. We had a thorough discussion of the pensions issues in Committee, so I simply reiterate our support for those amendments. I also confirm our support for Lords amendments 24 and 26.
Lords amendments 23 and 27 give effect to recommendations of the House of Lords Delegated Powers and Regulatory Reform Committee. Lords amendment 27 strengthens parliamentary scrutiny by introducing the negative resolution procedure into the Secretary of State’s power to amend the universal service order in a special administration scenario. As it strengthens the opportunity for parliamentary scrutiny, we shall support it.
Lords amendment 28 is purely technical and has been made to reflect the new situation with regard to Wales, following the result of the referendum held on 3 March in which the people of Wales voted yes to additional powers for the Welsh Assembly Government. We campaigned for and welcomed that referendum result, as it will help to streamline procedures, cut out wasteful duplication and ensure that the Assembly has the appropriate legislative powers in the areas for which it already has spending responsibility. We accept the clear need for the amendment and will support it.
Madam Deputy Speaker (Dawn Primarolo)
With this it will be convenient to take Lords amendments 16 to 22 and 25.
Mr Davey
As has been made clear at every possible opportunity, the Government are absolutely committed to the long-term security of the universal postal service. As Royal Mail is the provider of that universal service, and the only possible provider of it for the foreseeable future, its viability is clearly of huge importance to achieving that goal. The Lords amendments to the regulatory provisions of the Bill respond to points raised in both Houses and by Members of all parties, and will help to ensure that the Bill meets our primary objective of securing the universal service.
Lords amendment 17, on Ofcom’s duties, will ensure that Royal Mail has the opportunity to earn a reasonable commercial rate of return on all expenditure incurred in providing the universal postal service, and on any regulated access services in so far as they make use of the universal postal service network. Although it is obviously not within the gift of the regulator to determine precisely what returns Royal Mail can make—that should depend on the market and the company’s performance—it is essential that the regulatory framework should provide incentives for Royal Mail to be successful and make the necessary efficiency improvements, and allow for good performance to be rewarded without regulation eroding the effect of increased efficiency. The amendment will ensure just that.
Lords amendments 16 and 18 further amend Ofcom’s duties, to specify that the requirement for efficiency should apply
“before the end of a reasonable period”,
to give Royal Mail time to continue its vital modernisation. That is an important change. Clearly, the delivery of the universal postal service needs to become more efficient, and neither those amendments nor the ones to which I have already spoken will undermine that. However, we do think that it is important to give Royal Mail a reasonable period of time in which to modernise and achieve efficiency.
As part of that ongoing modernisation, Royal Mail will need to invest in new machinery and technology. Before making long-term investments, boards and shareholders look for certainty. Lords amendment 22 will give Royal Mail certainty that for a significant length of time—10 years—it will be able to remain the universal service provider throughout the whole of the United Kingdom. As previously drafted, the Bill could have given rise to doubts about the certainty of Royal Mail’s designation as the universal service provider in the short to medium term, as it effectively provided for a three-year moratorium period before there could be a procurement determination. Although it was not the Government’s intention, the risk of Royal Mail losing part or all of its designation after three years via a procurement determination could clearly have discouraged the company from making otherwise rational and important long-term investments in its infrastructure. That is why Lords amendment 22 gives Royal Mail a 10-year period of certainty.
However, although we need Royal Mail to have that certainty, we also need to keep up the pressure on it to press ahead with modernisation. We must recognise that the threat of a compensation fund means increased uncertainty for its competitors. It is therefore not unreasonable to seek to delay the possible introduction of a compensation fund until necessary modernisation has taken place.
We have looked again at the moratorium period before Ofcom can initiate an unfair burden review and concluded that a period of five years is appropriate. Lords amendment 21 gives effect to that.
During the passage of the Bill, many hon. Members have raised concerns about the prospect of other operators cherry-picking profitable elements of Royal Mail’s delivery business and, as a result, putting the security of the universal service at risk. The Government have reflected on those concerns, and during the Bill’s passage through the other place engaged in constructive discussion with Opposition Front Benchers there, as well as with Royal Mail and the Communication Workers Union.
Although we are confident that Ofcom has the necessary tools to ensure fair and effective competition in the market, it is our belief that on occasion it will need to build in greater time to inform its use of those tools. Lords amendments 15, 20 and 25 address that by giving Ofcom the power to require operators to pre-notify them of the planned commencement or expansion of a letters business on a specified scale. We have left the precise scale for later definition—it will depend on the market at the time—but our clear intention is that that should apply only to a significant letter delivery operation that could have a damaging impact on the provision of the universal service. That notification mechanism will ensure that Ofcom has the necessary time to evaluate the potential impact on the universal service of such an operation before the operation has commenced and, critically, before any potential damage has been done to the security of the universal service.
I stress that the notification condition is aimed at avoiding damaging cherry-picking that would put in jeopardy the long-term security of the universal service. As such, our clear view is that the condition should apply only to those operators seeking to commence or expand a significant letter delivery service, but it will not impose any additional burden on, for example, current access competitors, courier services or parcel delivery businesses.
Finally, Lords amendment 19 addresses concerns, which were again raised in both Houses, about access to postal services. The central concern of hon. Members who have raised this issue is how we can ensure that people right across the country and from all walks of life continue to have access to the high standard of postal service on which they depend. The Bill already specifies that Ofcom’s duties include ensuring that there is provision of sufficient access points to meet the reasonable needs of users. In determining those, Ofcom will conduct thorough research and analysis, and consult users to take their views into account. Importantly—this was often misunderstood in our previous debates—Ofcom will also be bound by its broader duties, as set out in the Communications Act 2003, to have regard to, among other things, the needs of persons with disabilities, the elderly, those on low incomes and those living in rural areas.
I am confident that that will mean that Ofcom’s requirements on the distribution of access points across the country will ensure that all users can continue to post their letters, packets and parcels in a convenient way. However, although we are clear that the reasonable needs of users is the right test, it is conceivable that in some cases the Government will wish to apply different considerations. For example, the Government may have wider public policy objectives to consider, perhaps in relation to rural policy or small business support.
Such broader public policy goals are rightly a matter for the Government and not for an independent sector regulator. Therefore, amendment 19 allows the Secretary of State to step in and require Ofcom to ensure sufficient access points throughout the United Kingdom to meet the interests of the public. That is not a power that we would ever expect to use—its inclusion simply serves as a fail-safe to address the legitimate, albeit unlikely, concerns expressed by hon. Members on both sides of the House and by colleagues in the other place.
I hope that this package of regulatory amendments demonstrates that we have listened to the concerns of hon. Members and those in the other place. The amendments constitute a real strengthening of protection for the universal service—an objective that I believe all hon. Members share—and as such, I hope they are warmly welcomed.
Mr Davey
I am grateful to the hon. Member for Llanelli (Nia Griffith) for her general welcome for many of our amendments. I began my remarks by saying that a degree of consensus had emerged in the other place.
The hon. Lady spent most of her time talking about access points and amendment 19. We must be clear about what an access point is. It comes from the directive; the definition of an access point and the requirement to provide them flow from the universal postal service directive, and we then define it in this Bill. It would be wrong for us to state that it could only ever be post offices, and to enshrine that in the Bill, because, for instance, some rural communities might need access points in a form that the post office network is unable to provide. I hope that the hon. Lady recognises that it is therefore important to have some flexibility.
The hon. Lady was concerned about some post offices not being accessible, and gave the example that some of them might be upstairs. In addressing the access points issue, Ofcom will be required to look at the needs of users, and its obligations, under the Communications Act 2003, are much stronger than those of Postcomm, and they include taking account of the needs of disabled people. I hope, therefore, that the hon. Lady will understand that the accessibility requirements have been improved. On access points more generally, the hon. Lady did not give the Government credit for the fact that in the—signed and legally binding—agreement we have reached with Post Office Ltd providing the £1.34 billion, Post Office Ltd has to secure a network of at least 11,500 post offices. That is the clearest and strongest way to ensure that the network is delivered.
The hon. Lady had some concerns about amendment 21, and asked why the Secretary of State would intervene before the five years was up. It is sensible to maintain the Secretary of State’s ability to intervene and direct Ofcom to conduct an unfair burden review. That measure adds some flexibility to the Bill. If all the evidence pointed towards there being a need for an unfair burden review, a process to allow a review to be conducted would clearly be beneficial. We wanted that extra flexibility in the Bill.
Nia Griffith
I am not against the idea of Ministers intervening, because it is very important to have that opportunity for a review. I was just wondering whether there were any particular circumstances in which the Secretary of State might be proactive, because of the damage that could be caused if the review was left for five years rather than three. I am all for the Secretary of State having that additional power, but are there any circumstances that would precipitate an instant review?
Mr Davey
We need to have flexibility in the legislation to ensure that if the circumstances are so bad for Royal Mail because technology is having a worse effect than we had expected on its letter flows, we can still provide the universal service. That is what this Bill is about. This extra flexibility ensures that if an unforeseen circumstance arises requiring an unfair burden review before the five years is up, that flexibility is in place. I am glad that the hon. Lady welcomes that.
I was grateful for the comments made by my hon. Friend the Member for Solihull (Lorely Burt), who acknowledged that these amendments show that the Government have listened. She was concerned that amendment 19 would give the Secretary of State an override. May I assure her that we think it very unlikely that the power would be used? We need to make it clear that the first step is for Ofcom to assess the needs of users, and it will consult the public. We would not expect to use the power, and it is highly unlikely that we would interpret the “interests of the public” as being less important than the “needs of the public”. The words in the amendment should reassure her. The amendment is intended as a broader test to capture elements that the “needs of the public” do not, and that Ofcom is not allowed to consider. I hope that she will be reassured by that.
My hon. Friend also asked about the notification scheme. I assure her that it is designed to enable Ofcom to act to prevent harmful cherry-picking, which would damage the universal service. Again, this is another tightening up of part 3 and the regulations, to ensure that we can deliver the universal service through this Bill.
The hon. Member for Dunfermline and West Fife (Thomas Docherty) talked about what happened in his constituency following the bad weather just before Christmas, and asked me whether I talked to Royal Mail about it. Of course I regularly meet the management of Royal Mail, and they are committed to providing an excellent service. I think we all accept that the conditions last winter were exceptional and did create lots of problems. Royal Mail took exceptional measures to try to deal with them, including investing £20 million of extra resources to ensure that deliveries could be maintained. Although the details of Royal Mail’s operations are, of course, a matter for Royal Mail, it is worth pointing out that in areas of Scotland, including his constituency, the private companies had much greater problems in delivering. Royal Mail acted strongly, made the investment and was able to deliver. As the universal service provider, it showed its strength.
Mr Davidson
Does the Minister believe that that additional expenditure—that enormous cross-subsidy to the highlands and other isolated areas of Scotland—would have happened in an independent Scotland?
Mr Davey
Mr Deputy Speaker, I would love to speculate on such a matter, but Madam Deputy Speaker has made it very clear that she would not wish us to do so. All I can suggest to the hon. Gentleman is that he might wish to debate that later with the hon. Member for Angus (Mr Weir) in order to get an answer to his question. He should not believe everything he hears.
Thomas Docherty
Let me take the Minister back to the point about some of the other providers, such as City Link, which he is absolutely right to say did not provide any service at all. That affected quite a lot of packages; for example, Amazon uses a non-Royal Mail provider. Will he give a cast-iron guarantee that if one of those companies tried to become the USP, it would be expected to make the same provision as Royal Mail does, and that we would not get the kind of cowboy operations that handle some deliveries now?
Mr Davey
That is the whole point of the Bill’s ensuring that the universal provision is there for us. It will be maintained, because the regulator, Ofcom, will ensure that the universal service provider meets the minimum requirements, including on performance. If a company took over the management of Royal Mail and became the USP, it would be subject to that very tough regulatory regime.
My hon. Friend the Member for Bedford (Richard Fuller) rightly praised the management of Royal Mail, led by the chairman Donald Brydon and the chief executive Moya Greene, who have made a real difference in their time at the helm; the Government have huge confidence in them. My hon. Friend asked what the incentives for management were. Having met the chairman and chief executive and having attended a board meeting recently, I assure him that its management is really seized of the need to modernise Royal Mail. Look at the way in which we have set the regime up: the Bill makes it clear that Ofcom must, when regulating, have regard to the need for the USP to become, and to remain, efficient, so there will be a regulatory framework to bear down on management—but there also are other incentives for management. He was right to make that point.
My hon. Friend also asked about the role of the unions. Royal Mail’s management and I have engaged very constructively with the Communication Workers Union, and I have already welcomed its very strong support for the amendments we are discussing today, which it recognises as strengthening the protection of the universal service that its members provide. There are, however, some difficulties. I was disappointed by the CWU’s decision to ballot for strikes in London about modernisation and I hope that the ongoing talks will prevent a strike from going ahead, as industrial action would only damage the very universal service that we are all acting to protect.
The hon. Member for Linlithgow and East Falkirk (Michael Connarty) went very wide in his remarks on the regulation. I know that he is secretary of the CWU parliamentary liaison group, and I wish that he had been on the Bill Committee, as that would have spiced things up. We had a great time on the Committee. I remember fondly the days of Red Bull amendments, Gordian knot amendments and clause 3 amendments and all the rest that we heard from the Labour party. No doubt we would also have had the Linlithgow and East Falkirk amendment if the hon. Gentleman had been on the Committee. He is particularly concerned about Lords amendment 22, on which he spent a lot of time, about the procurement determination. As I said in my opening remarks, that change has been welcomed by Royal Mail and the CWU because it provides greater certainty. I also said that people had interpreted the option of procurement decision, if there were a decision that the USO represented an unfair burden on the USP, in ways that we had not expected. We believe it is a useful tool in the regulator’s armoury to make sure that the universal service will be provided throughout the country. It is not an attack on the USP, as some people had expected. The measure is designed to ensure that the legislation is future-proofed and to make sure that the regulator has all the necessary tools at its disposal.
Let me bring my remarks to a close—
Michael Connarty
The Minister has missed out Lords amendment 21, which came from the Government side and has not been discussed or pushed for by anyone else. That amendment changes from three years to five the time after which the issue of levy and burden-sharing will be set aside. That has been welcomed by the people who are making lots of money out of cherry-picking in relation to Royal Mail at the moment.
Mr Davey
I apologise to the hon. Gentleman. I thought that I had dealt with that when I responded to the remarks made by my hon. Friend the Member for Bedford, who also raised that point, albeit from a slightly different perspective. We need to ensure that Royal Mail management have incentives to deliver. On reflection, I was concerned that the three-year period before which an unfair burden review could result in compensation was too short. Five years is the right length of time, because we need to put pressure on Royal Mail management—I think that they willingly accept that—to drive forward modernisation, because that is the only way in which the company will survive in the context of a universal service provider, and we will deliver the universal service.
I put on record my thanks to the hon. Member for Llanelli for her sterling work in scrutinising the Bill, both as a member of the Public Bill Committee and in the Chamber. I also thank her former Front-Bench colleague, the hon. Member for Ochil and South Perthshire (Gordon Banks), who brought a great deal of wisdom to the Opposition Front-Bench team, which I am sure it will be sad to lose. I welcome the hon. Member for Streatham (Mr Umunna), although he is not in the Chamber, to his new role. I also thank all other members of the Public Bill Committee, especially the hon. Member for Angus, who was with us when he was able to beat the weather.
I am sure that all Members of this House and the other place would wish to join me in thanking Richard Hooper, whose two excellent and comprehensive reports formed the backdrop to the Bill. He has been incredibly generous with his time, and the Bill would not be as strong without his contribution.
It is worth pausing for a moment to reflect on what a historic occasion this is. For more than 20 years successive Governments have grappled with this problem, ranging from the work in the mid-90s by Lord Heseltine to the more recent attempt at legislation led by Lord Mandelson, right through to the present day. If Royal Mail’s problems were stark 20 years ago they are considerably worse today, because of the advent of e-mail, social networking and mobile communications. I am thankful that rather than having to face the problem with a blank sheet of paper, I have been able to draw on a large body of previous policy thinking and evidence.
The Bill is a culmination not just of the present Government’s efforts, but of more than 20 years’ work by successive Governments to tackle the problems faced by Royal Mail. By enacting it, we will finally be taking the action that successive Governments have recognised as necessary and, most importantly, giving Royal Mail the best chance of a successful future. Only with a successful Royal Mail can we all be confident that our constituents and businesses will continue to benefit from the universal postal service on which so many rely. This is a momentous achievement in which both sides of the House can share.
Lords amendment 15 agreed to.
Lords amendments 16 to 28 agreed to.