Universal Postal Service

Jo Swinson Excerpts

Thursday 17th July 2014 Commons Chamber

[Mr Brian Binley (Northampton South) (Con)]

I bring the quiet voice of the other party of the coalition.

I congratulate the hon. Member, and my friend, for North Ayrshire and Arran (Katy Clark), on securing the debate. I also thank the Backbench Business Committee. This is a timely debate, one that those on the Front Bench would do very well to listen to. There were some deep concerns when we supported this measure and I am sad to say that some of them have reared their heads earlier than we might have thought. I therefore agree wholeheartedly that we need action and a review very quickly indeed. I hope this debate will prompt the regulator to pursue that review.

The starting point of this debate is my belief in fair competition. That was one of the reasons I decided, in the first place, to support the original move to privatise the Post Office. However, fair competition does of course have parameters.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I thank my hon. Friend for giving way. I think it might be helpful to correct that point. The Post Office has absolutely not been privatised. Royal Mail has been privatised. They are two quite separate companies.

[Mr Binley]

I thank the Front Bench spokesman for that rather pernickety interjection. I will now continue. Of course it has not been privatised—only 70% of its shares have been sold off. We all recognise that point. We know where we are, so there are more serious questions that I would wish the Front Bench spokesman to address, quite frankly. Let us hope we can move on to them.

Fair competition has parameters that need to be well understood. Fair competition needs to take place with a focus on the public interest first of all. That is a consideration we need to hold very closely to our hearts. It is about making sure that the predatory exploitation of a dominant market position does not harm consumers or undermine others who seek to participate in a competitive environment. There are dangers that cherry-picking does, in truth, undermine that. The context of this debate is making sure that the end-to-end postal services in an urban and suburban setting do not undermine the financial sustainability of the universal service obligation, where in my view the overwhelming public interest can be found.

The truth of the matter, and this is a pretty heavy warning that I hope those on the Front Bench will take note of, is that if we are not careful and if action is not taken, we will be driven to the point where the universal service becomes a much more limited service, or is driven to the point where prices are so high it puts itself into a state of extinction. I believe there is enough evidence in the marketplace to suggest that those fears need to be taken seriously.

I believe in the decency of people and especially the decency of the great majority of Royal Mail workers who serve households in every part of the United Kingdom very well. I would like especially to pay tribute to those Royal Mail workers who work, live and provide service in my own constituency of Northampton South. I talk with them very often. I visited them during the passing of the Bill and had sizeable discussions with them—even with Mr Billy Hayes. I pay tribute to him for the way he undertook those discussions. I believe in the basic decency of Royal Mail workers. They are a much-valued part of our national infrastructure. We should give no thought to being anti-union in any way at all, bearing in mind that they have acted in a proper manner and have in many respects taken some pretty heavy knocks from their own specific political point of view. We should pay tribute to them and I am perfectly happy to do so. I repeat that they are a much-valued part of our national infrastructure, especially in the most remote areas.

It is not just in the rural and remote areas where we should be grateful for Royal Mail. There are many outlying areas in places other than the wilds of Dartmoor and the highlands of Scotland. In fact, near to my town of Northampton, many outlying and very small communities rely totally on the postal service. Very often, the postie fulfils a much more important role in terms of social connection than many of us really understand. I am not sure that the companies that are cherry-picking at the moment understand that point of view. Some of the reports we have had back show that the sorts of workers they are beginning to employ perhaps do not fulfil the criteria that most of us would want our postal service workers to fulfil.

I have a firm belief in the universal service obligation, underpinned as it is by statute in the Postal Services Act 2011. Indeed, I sponsored an amendment in the Committee stage to secure the obligation for 10 years, rather than the Government’s original proposal of 18 months. I am very proud of having helped to secure that amendment. However, it seems probable that other players in the postal market will, as they have so far, cherry-pick the operations that offer soft opportunities for profit, leaving the Royal Mail with the relatively less attractive deliveries. The question for the Government is the extent to which the goal of competition in the postal services market should be allowed to undermine the viability of the Royal Mail’s balance sheet. If that viability is allowed to be undermined, that would bring the whole question of the USO into serious danger.

We need to respect the spirit of what was enshrined in the Postal Services Act, as well as the letter of the law. Ofcom needs to ensure that competition in the postal services market does not in any way undermine the USO. That is its task—it is the regulator. I call on it to carry out its duty as we originally intended, both in law and in spirit. The two are not always coincidental. This House is clear that, where a conflict between competition and the USO arises, it is the obligation that should take priority. I hope we will impress that on Ofcom as a result of this debate and in other ways as time passes.

Royal Mail workers, like our constituents, were clear in what was given to them as a clear undertaking in the 2011 Act. An unequivocal restatement of that commitment from the Dispatch Box would be a very welcome response to this debate. I have a number of questions to put that I hope the Front Bench spokesman will answer in her summing up. First, will the Minister confirm that the USO is enshrined in statute in the 2011 Act? On that basis, would it not require a further Act of Parliament to repeal the obligation?

Secondly, the market in which Royal Mail operates is subject to cherry-picking from other operators not bound by the USO. The Government have stated that their policy is that competition should not undermine the USO. What discussions has the Minister had with Ofcom on that and on the precedence of the USO contained in the 2011 Act?

Thirdly, does the Minister accept that the USO rests on the principle of cross-subsidy from the cheaper urban areas towards the greater cost of delivery to rural areas? What change has taken place in the market in the last few years that could alter the balance of competition between Royal Mail and its competitors?

Fourthly, one factor affecting the distribution of power in the postal market is the price of stamps relative to the prices charged by other deliverers. What assurances can consumers expect in future years that Royal Mail’s pricing will reflect the response of postal service users, so as to protect the universal service obligation?

Fifthly, Ofcom has promised to produce a full assessment of the impact of the universal service obligation and competition in the market for the end of 2015. As it is now four years since the passing of the Act, what assessment has the Minister made of any changes that might compromise the universal service obligation, and what impact does she anticipate Scottish independence would have on the economics of the postal services market? Does the Minister recognise that we need a review sooner rather than later? The whole question of competition has moved on much more quickly than we might have thought when we passed the 2011 Act.

In conclusion, let me repeat that I supported the 2011 Act, and I still do. However, I also support the need of the regulator to do its job according to law and the spirit of what the Act was trying to do. I therefore call on the Government to ensure that a proper review takes place much sooner rather than later, and to give us an undertaking that the universal service obligation will remain at the forefront of postal services in this country, even though that might mean laying conditions on those who operate competitor services and even, to a certain extent, an understanding that those services need to provide a levy to subsidise the universal service, if that is necessary to retain it.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is a pleasure to respond to today’s constructive debate. I very much congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing it. As a fellow proud Scot, I am pleased that so many Scottish Members have contributed to it, but I am also pleased that all four nations of the United Kingdom have been represented.

The issues I wish to touch on in my summing up are: the importance of the USO; the concerns raised by various hon. Members about competition; and the Ofcom review, which is the main subject of the motion. We have heard from Members from all parts of the House about how vital the universal service is for rural areas. The hon. Member for Ynys Môn (Albert Owen), my hon. Friend the Member for Argyll and Bute (Mr Reid), and the hon. Members for North Ayrshire and Arran and for Angus (Mr Weir) all made points about that eloquently. We were reminded by my hon. Friend the Member for Northampton South (Mr Binley) that this is not purely a rural issue, as the universal service is vital to many towns and suburban areas. It is right that postal workers are held in great esteem in many communities, as the service is hugely important not only to our local economies, but more widely, in society and in communities. That is why, as my hon. Friend the Member for Argyll and Bute pointed out, we have set out the USO in primary legislation—my predecessor, my right hon. Friend the Member for Kingston and Surbiton (Mr Davey), made sure it was written into the Postal Services Act 2011.

I appreciate that the right hon. Member for Neath (Mr Hain) is no longer able to be in his place, but I am sure he will read my remarks in Hansard in order to follow the reassurances I can give about his concerns on the definition of the delivery of a six-day-a-week service to every address. He seemed to take the view that that was not a significantly well-defined definition. Section 31 sets out what must, as a minimum, be included in the USO. On the delivery of letters and other postal packets it states:

“At least one delivery of letters every Monday to Saturday—

(a) to the home or premises of every individual or other person in the United Kingdom, or

(b) to such identifiable points for the delivery of postal packets as OFCOM may approve.”

Clearly there are very few addresses that are, for whatever reason, inaccessible and for which Ofcom can, in those extreme cases, approve a collection point. That definition is very clear, we should be reassured by it, and it is right that this House and the other place have prioritised it by making sure it is in primary legislation.

[Mr Weir]

I understand what the Minister is saying and I acknowledged that this was the first time the USO was in legislation. Let us consider one thing that Ofcom can do in a review. I believe that section 43(8) states that its

“recommended action may consist of one or more of the following—

(a) the carrying out of a review under section 33 (review of minimum requirements)”.

So if Ofcom does carry out a review under the Act, it could recommend a reduction in the minimum requirements. Will she assure us that she will not accept any such reduction?

[Jo Swinson]

I am delighted to do so. I have given such assurances from this Dispatch Box, as colleagues have done. Speaking for my party going into the next general election campaign, I can say that that will be our position, and I am sure that other parties can also give their assurances on that. I think that there is absolute consensus across the House that that is vital and should be protected. So it is not something that would be changed. In addition, as we have discussed in the debate, to do so would require a vote in both Houses of Parliament, and that is a significant protection. I hope that that reassures the House on the importance the Government attach to the USO.

Members also raised concerns about cherry-picking and end-to-end competition. Of course competition is not new in postal delivery. It has been more than 10 years now since the EU postal services directive opened up the market. At the beginning, the effect was felt much more significantly in the collection and sorting of mail, with Royal Mail still being responsible for the final mile. That is the area in which there has been more competition.

The right hon. Member for Neath was right to highlight the fact that the expensive parts of postal delivery are to the address not in central London, central Swansea or central Glasgow but in those much more inaccessible, remote locations, where the costs are significant. Of course the principle of cross-subsidy, which was mentioned by my hon. Friend the Member for Northampton South, is a crucial part of how the universal service can be delivered. One of the ways in which the structure is created so that that cross subsidy can continue is for Royal Mail to have a lot of flexibility—much more than it used to have—to charge different prices to different operators. It can also use zonal pricing so that it can charge more for delivery to remote rural areas when it is being used for that final mail delivery, which accounts for the vast majority of competition that exists within the mail delivery market. That enables it to recoup the costs that it incurs from providing that universal service.

Competition can clearly help to drive efficiency, which I am sure people would agree is a positive thing, but it stands to reason that if that competition took a significant portion of the market, especially in terms of end-to-end competition, it could have an impact on the universal service. That is because zonal pricing is particularly related to the competition that exists when Royal Mail is still delivering the final mile. That is why we have put in place a regime in which Ofcom monitors both the situation and what is happening in the postal market. If necessary, it has further powers to act to level the playing field.

I just want to touch briefly on the quantum that we are talking about today. Members have mentioned TNT delivery, but in the last full year, in 2013, 14.6 billion items were delivered—that is the size of the mail market. Of those 14.6 billion items, 14.544 billion of them were delivered by Royal Mail. I am not saying that Members are wrong to be concerned, but I want to put the matter in context. We are talking about a very small portion, 0.38%, of the overall mail market. Members were right to say that it has grown quickly. In 2012, it was 0.11% of the market. Within the space of a year, the volume of items delivered in end-to-end competition more than tripled. It is important that this issue is looked at closely by Ofcom and that it is kept under review.

My hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) pointed out that perhaps Royal Mail needs to have time to adapt to changes. It is clear that we need to keep our eye on the rate of growth, but we are not yet talking about a level or a volume that would cause concern about the impact on the profitability of Royal Mail. Even Royal Mail accepts that the concern is more to do with the potential for that to happen rather than the situation as it is at the moment.

I just want to clarify which review we are talking about today. Two different reviews are being talked about. Some Members have mentioned section 44. I think that the hon. Member for Angus was looking at a copy of the Bill, because by the time that Bill became an Act, it was section 44 rather than 43. That is the review of the financial burden of the universal service on the provider that Ofcom can be directed to undertake by the Secretary of State. That is not the same as the review that Royal Mail is currently asking for, which is about end-to-end competition. That review is something that Ofcom has said that, as part of its wider monitoring regime, it will do in any event by the end of next year, but it is happy to bring it forward if necessary. This is an area in which there is no specific Government power to direct. I hope to reassure the House on this point.

There is a clear desire for Ofcom to keep a close eye on the impact of competition on the universal service. It seems that there is almost an assumption that that is not currently being considered, but I can tell the House that that is absolutely not the case. I have spoken to Ed Richards, who is in charge of Ofcom, and, as it happens, I will be meeting him later today, which is good timing. Ofcom is clear that it is monitoring the situation in the mail market carefully and intensely. It is not waiting until the end of next year; it is doing so on a monthly basis and is very much on the case, ensuring that it has the information. It also has the power to get access to much more detail than any individual player in the market, having access not only to the details of Royal Mail’s financial position, but also to the business plans of TNT and any other providers, so its visibility is excellent. The review will be started by the end of next year at the latest, but Ofcom has said that it is happy to start earlier if it sees any reason for market changes or any financial impact on the universal service that would mean that it needs to be started earlier.

I am conscious of the time, so I will not stray into the Scottish independence issues, tempted though I am to do so. The exchange between the hon. Members for Edinburgh South (Ian Murray) and for Angus set out that the matter is relevant and that there would be consequences in an independent Scotland for deliverability and the price of the postal service.

I want to finish by picking up on the point made by the hon. Member for Hayes and Harlington (John McDonnell), because he made a sensible and constructive suggestion that, given the level of interest in the House, which is clear from the debate’s attendance and from the correspondence that I receive as a Minister, it would be helpful for Ofcom to be able to meet MPs to discuss the issue. It is clear that the appetite is there and it would be useful for the regulator to hear MPs’ concerns directly and not just through Hansard. It would also be useful for hon. Members to be able to have a frank discussion with Ofcom about its approach, which I believe would lead to a great deal of reassurance. As I said, I will be meeting Ofcom later this afternoon and so will have the perfect opportunity to put that request. I look forward to hearing the response of the hon. Member for North Ayrshire and Arran to the debate.