Universal Postal Service

Ian Murray Excerpts

Thursday 17th July 2014 Commons Chamber

[Ian Murray (Edinburgh South) (Lab)]

The hon. Gentleman is making an incredibly powerful case about the potential consequences on the USO that Ofcom may bring forward. Will he confirm that a statutory instrument upstairs would not necessarily be a full vote of both Houses? It would be a statutory instrument that goes through both Houses.

[Mr Weir]

Indeed, that is my understanding.

--- Later in debate ---

[Ian Murray (Edinburgh South) (Lab)]

I am pleased to follow my hon. Friend the Member for Hayes and Harlington (John McDonnell). This is the fifth debate in a row in which I have answered for the Opposition on this subject, and my hon. Friend has always been the last to speak and has been curtailed in his contribution. I hope that he will not listen to his doctor, because we would certainly miss the passion and anger he brings to the Chamber and the good sense that he always talks. I would like to thank, too, the Backbench Business Committee for bringing forward timeously before the summer recess this really important debate. I pay a huge tribute to my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) who, beyond anyone else in this place, has kept this issue of Royal Mail and postal services on the agenda. Without her passion and energy, we would not be able to take forward some of the significant contributions that we all want to see on a cross-party basis. The hon. Member for Northampton South (Mr Binley) was quite right to say that this is indeed a cross-party issue.

It is worth putting the issue into context. It is a six-day, one-price-goes-anywhere service that Royal Mail provides, and its posties deliver to 29 million addresses each day of the week. It is a particularly important service for small businesses as consumers, although we have not spoken much about small businesses in that context today.

The botched privatisation of Royal Mail, mentioned a number of times this afternoon, cost the taxpayer £1 billion and we have seen the architect of it promoted to Defence Secretary. We have lost a national asset that the public did not want to see privatised. The hon. Member for Angus (Mr Weir) was absolutely right to refer to the process in this place. Time and again the Business Secretary has said that “the overarching objective” of privatisation was “to secure” the “universal postal service”. Yet just a few months after that privatisation, we are back here debating the dangers to the universal service obligation. That is why we are calling on the Secretary of State to use any powers he has under section 44 of the Postal Services Act 2011 to try to put pressure on Ofcom to bring this forward, so we can make sure that the USO remains viable.

We know that the volume of letters is in decline. Last year alone, the volume fell between 4% and 6%. The wonderful work of all Royal Mail’s staff to try to cope with that decline is to be commended, but this does underpin the fragility of the universal service obligation. Its sustainability depends on Royal Mail being able to use the revenues from easier-to-serve urban areas to cover the cost of the nationwide network. It does not require a postal economist to see that the geography of the UK means that delivery to the Scottish islands or to rural Wales is an expensive business and can be sustained only by cross-subsidy from more profitable areas. The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), my hon. Friends the Members for Ynys Môn (Albert Owen) and for North Ayrshire and Arran, the hon. Members for Argyll and Bute (Mr Reid) and for Angus and my right hon. Friend the Member for Neath (Mr Hain), who all represent rural constituencies, mentioned that in their contributions.

The genesis of this debate is the need to consider the impact that direct end-to-end competition is having on Royal Mail’s ability to sustain the USO. Royal Mail has submitted a quite extensive report to Ofcom on the effect of end-to-end competition and the threats to the USO, encouraging Ofcom to bring forward the review promised for 2015. The report says in great detail that the alternative providers, especially TNT, have grown quickly and have plans to expand to over 40% of mail delivery by 2017. This expansion will cover only 8.5% of the geography of the UK. It is this “cherry-picking” of low-cost, profitable inner city postcodes that threatens the economics of the USO.

These plans have been calculated by Royal Mail to represent an approximate revenue loss of around £200 million, but it is not simply about profitability; it is about the viability of fulfilling its USO. The end-to-end competition issues are magnified by the lack of a level playing field with rival operators. That was mentioned by both my right hon. Friend the Member for Neath and my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott).

Royal Mail is—rightly, I think—subject to a complicated matrix of delivery standards, reporting and service levels, but the competition is not. For example, rival operators are able to cherry-pick when they deliver. TNT Post UK provides an every-other-day service, which reduces its costs. Rival operators are able to cherry-pick the type of mail they deliver—business mail is the easiest to handle and the most profitable—and they are also able to put mail they do not want to deliver back into the Royal Mail system. As right hon. and hon. Members have said, where they cannot deliver, they need to put it back into the system. That highlights the importance of the universal service to rival operators. They require a viable USO to make their own business models work so it is really important for Ofcom to take that into account in any analysis.

Royal Mail’s ability to compete on price is constrained, as we have heard this afternoon, and it is unable to alter downstream access prices that now make up almost 50% of all mail volumes. There is an ongoing Ofcom investigation into access pricing, which the hon. Member for Edinburgh West (Mike Crockart) mentioned in one of his interventions. Rival operators use a plethora of alternative employment contracts which mean that their staff are lower paid and more insecure than those of Royal Mail. That has the potential to create a race to the bottom in postal services which, in turn, has the potential to undermine the universal service obligation.

Many Members have referred to TNT Post, because many of the issues that we are discussing are relevant to its business model. I realise that TNT has become a lightning conductor for concern about the liberation of the postal market and the impact that it could have on the USO, but it should be borne in mind that it is operating according to the regulations that currently apply to it. That is why it is important for Ofcom to look at everything in the round. Major issues involving TNT are well documented, but I know that members of its union, Community, are working closely with the company to eradicate zero-hours contracts and introduce the living wage and better conditions for its work force. It is worth emphasising that it would be very much in TNT’s interest as well for Ofcom to conduct its review now.

We are calling on the Government to pull all the levers that they can possibly pull to encourage Ofcom to bring forward its review. Even if Royal Mail’s arguments, contained in the dusty tome that it has submitted to Ofcom, are found not to be wholly valid, or not as compelling as it has suggested—and the hon. Member for Angus implied that they should be tested—that will be known only once they have been fully investigated. Ofcom’s current programme for the review means that we shall have to wait until the end of 2015, and that could be far too late. Those issues were also raised by my favourite Conservative Member of Parliament, the hon. Member for Northampton South. I am sure that there is a keen socialist hiding somewhere in that Conservative body of his.

If Ofcom began its review now, any recommendations for changes in the regulatory environment could be implemented very quickly to ensure that we do not lose sight of the universal service obligation. There is a danger that the door could be closed after the horse had bolted. Every Member who has spoken today has raised that issue. If Royal Mail is right, the planned 2015 review could be brought forward. Remedial action will be severely limited if that does not happen. Surely it is best for all concerned—Royal Mail, rival providers and, crucially, customers—for the future of the USO to be secured and for what lies on the horizon to be made clear as soon as possible.

Let me list Labour’s proposals for the future of Royal Mail as we approach the 2015 election. We would secure the USO well beyond 2015; we would prioritise the continuation of the inter-service agreement with the Post Office beyond 2022; we would ensure that there was an appropriate degree of price certainty for Royal Mail and its customers; and we would ensure that regulations provided a level playing field for all operators.

[Sir Robert Smith]

I am sure that, given the badge that the hon. Gentleman is wearing, he will also point out that by voting “no thanks” in the forthcoming referendum we will maintain the universal service for the whole United Kingdom, ensuring that subsidies continue to go to those difficult areas in Scotland.

[Ian Murray]

I did not want to go into the independence referendum arguments, for two simple reasons: first, they are incredibly complex, and secondly, the issue is not entirely relevant to the debate. I think that we are all slightly sick of the independence referendum. I hoped that we could be “independence free” today, but perhaps that is not possible after all. However, the hon. Gentleman is absolutely right. Whichever way we view the issue, it is clear from the geography of Scotland that it would be much more difficult and expensive to deliver postal services there following independence. Scotland’s postal services are cross-subsidised because of that geography. That is one very simple argument about what would happen to postal services in an independent Scotland.

[Mr Weir]

rose—

[Ian Murray]

I have awoken the beast of Angus. If he will excuse me, I will not give way because of the time constraints—or perhaps I will, just for the sheer fun of it.

[Mr Weir]

The hon. Gentleman talks of the geography of Scotland, but what we are debating is whether the universal service obligation will continue within the Union. It is the Union that is a danger to the universal service throughout the United Kingdom, not Scottish independence. Scotland, like any other country, can run a postal service to suit Scottish needs.

[Ian Murray]

I think the hon. Gentleman should go to see the doctor that my hon. Friend the Member for Hayes and Harlington (John McDonnell) sees and perhaps get some advice on how to calm down a little about the independence referendum.

I am looking at the time, so I will conclude now by paying tribute to our posties up and down the country. I went on a round last year with Michael Lunn, one of my local posties from the Strathearn road delivery office, in the most tenemental part of my constituency. I can assure hon. Members that it was quite a hard round without lifts in those tenements. Not only did he deliver the mail efficiently, but he knew where people lived, which buzzers to press to get in when people were at work, whether people were on holiday and whether people were expecting parcels. He knew everything about anybody in his round. When we put it in that context, we see that it is not just a postal service; it is a service to all our communities. It is a valuable social service that we should make sure we do not jeopardise, because if we do, that will be detrimental to everyone in the country.