Royal Mail Takeover

Judith Cummins Excerpts

Monday 16th December 2024 Commons Chamber

[The Parliamentary Under-Secretary of State for Business and Trade (Justin Madders)]

With permission, Madam Deputy Speaker, I will make a statement on the ongoing takeover of Royal Mail Group’s parent company, International Distribution Services plc.

Royal Mail is an iconic national institution, and this Government are committed to ensuring that it remains one. Since taking office in July, the Secretary of State for Business and Trade and I have been clear that the Government will robustly scrutinise the proposed takeover of Royal Mail and ensure that there are safeguards for its future. While a takeover bid is still ongoing and subject to the relevant regulatory processes, the purpose of this statement is to update the House on the legally binding undertakings that have now been given to the Department for Business and Trade by the bidder, EP Group. I wish to be clear that this does not mark the conclusion of the takeover, and these undertakings will become effective only if the takeover goes through. Should the takeover complete, I am pleased to announce that the Department for Business and Trade has secured significant commitments to promote a long-term and financially sustainable future for Royal Mail in the United Kingdom.

It will be helpful if at the outset I set out where Royal Mail was at the time the takeover bid was announced. Before the bid, Royal Mail’s financial position was challenging. In its financial year 2023-24, Royal Mail recorded a loss of £348 million. That loss was in part due to a long-term decline in letters, and the significant fixed costs of the universal service delivery network. At the same time, Royal Mail has not met its quality of service targets set by the independent regulator, Ofcom. Royal Mail’s performance for the 2023-24 financial year resulted in Ofcom fining it £10.5 million. While the previous Government were happy to accept decline, this Government have worked closely with the buyer to secure significant commitments to deliver the transformation of Royal Mail into a sustainable service, and hard-wired in stronger protections for Royal Mail’s identity.

When the discussions with EP Group began, my Department’s objectives were: first, to strengthen the financial sustainability of this iconic and important British institution; and secondly, to protect the customers, workers and brand of Royal Mail. Today I can confirm that we have agreed a deed that customers and the workforce alike can welcome, with significant new commitments from the buyer to the Government. This deed is a clear example of the Government’s commitment to working hand-in-hand with business to generate reform and investment in public service. It is also yet another example of this Government fixing the foundations where the previous Government did not.

I am proud to announce to the House that we have agreed that the Government will have a golden share in Royal Mail. This golden share will ensure that the Department for Business and Trade now has an ability to prevent Royal Mail from moving its headquarters abroad or moving its tax residency without Government permission. I should make it clear that that is an entirely new measure that was not in place at the time of Royal Mail’s privatisation. Except in very limited circumstances, that measure will remain in place in perpetuity, including when there is a subsequent change in ownership of Royal Mail. I want to be clear that the agreement will not give the Government any role in the day-to-day running of the business—Royal Mail remains a private entity.

Not only have we agreed a golden share, but the EP Group has made a number of other commitments in addition, which I will set out at a high level. Those commitments include a commitment to prevent value extraction unless two tests are satisfied: first, a financial test that takes into account the debts of Royal Mail, so that value cannot be extracted if the company is heavily indebted; and secondly—this recognises a key concern of the public—a quality test to ensure that value is not extracted unless specific performance targets are met.

All businesses need to adapt and improve in order to respond to change, and Royal Mail is no different. Recognising that there is a need for Royal Mail to modernise, there is a commitment from EP Group to ensure that Royal Mail has the financial means to fund the transformation of its business in the three-year period following completion of the acquisition. In addition, EP Group has agreed to take an immediate step to strengthen Royal Mail’s balance sheet by removing a significant intra-group debt, which is currently due to the remainder of the International Distribution Services group. The agreed undertakings also include a commitment to ensure that Royal Mail retains ownership or access on fair terms to those assets necessary to meet the universal service obligation.

Next, EP Group has agreed to meet all the regulatory requirements that Royal Mail Group is subject to, including ensuring that it remains the universal service provider for as long as EP Group is in control. We all know—not just in this House, but across the UK—that Royal Mail is an iconic British brand, and that is why there is a commitment to the existing brand protections in place for Royal Mail. Royal Mail is a respected and revered operator, and not just in the UK—it has various international responsibilities at international fora and with the overseas territories. Those will be respected and continued, maintaining the UK’s prestigious international position.

EP has stated its long-term commitment to Royal Mail, and the discussions have demonstrated the wide range of areas of public interest in the work of the company, so I am also pleased to confirm that EP has committed to taking steps to facilitate discussions between any future owner of the business and the Government, be that in 10 or 20 years’ time. These commitments have been offered by EP Group to the Department on a voluntary basis; nothing has been offered in exchange.

I take this opportunity to thank EP Group. I am confident that we share the same objective of a reliable and financially sustainable universal service provider, while workers and consumers are placed at the heart of a sustainable Royal Mail. I am also pleased that, as well as reaching an agreement with the Department, EP Group has today announced that it has in-principle negotiated agreements with both unions representing the Royal Mail workforce. The Government welcome those agreements, and I am confident that the constructive and collegiate approach between the unions and the buyer can represent a restart for industrial relations in the Royal Mail Group.

I have set out some of the key commitments, but there are further commitments from EP Group that I do not have time to set out in full today. I am therefore placing copies of the deed in the Libraries of both Houses. I will keep the House informed as much as I can as the takeover progresses. I commend this statement to the House.

[Madam Deputy Speaker (Judith Cummins)]

I call the shadow Minister.

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[Justin Madders]

I thank the shadow Minister for her comments, and I start by joining her in thanking all those postal workers who throughout the year—not just at this time of year, when it is particular busy, but 12 months a year—come rain or shine, sleet or snow, deliver those much-needed communications from friends, family and loved ones. I was pleased to be able to go to my own depot in Ellesmere Port last Friday. I will go to another one in my constituency, in New Ferry, this Friday. All hon. Members should be encouraged to make those visits, because they really show how much we appreciate the work that our postmen and women do.

The hon. Lady is right that the Royal Mail is a service that we all depend on. I agree that performance has not been good enough in recent years. That is why we have had a number of discussions with the company and with Ofcom about how we will get things back on track. That is why the agreement is so important, because the deal will get in the investment needed to try to drive up that performance.

I turn to some of the hon. Lady’s specific questions. On guarantees of service provision, the legislative framework is already there for the universal service obligation, and I see the takeover having no impact on that. It has not been part of the discussions—it is an entirely separate issue—but Parliament will have its say on that if needed. Next year, Ofcom will have a consultation on the universal service obligation. I think it is recognised that an awful lot of work is needed to bring standards up to the level that we would like, and one of the protections in the agreement will hopefully deliver on that.

On jobs guarantees, the hon. Lady will be aware that the general secretary of the Communication Workers Union has spoken positively about the agreement reached. He believes that sufficient assurances have been given on jobs. On employee engagement, she asked whether the employees will own the company. That is not the case, but they will have a say in governance in future as a result of an agreement between the Communication Workers Union and EP Group. That is to be ratified by the Communication Workers Union executive, but that will be a groundbreaking arrangement that we did not have previously. She also asked about tax residency in perpetuity, which is what the golden share does indeed intend to deliver.

[Madam Deputy Speaker (Judith Cummins)]

I call the Chair of the Business and Trade Committee.

[Liam Byrne (Birmingham Hodge Hill and Solihull North) (Lab)]

I welcome the statement made by this hard-working Minister. I take it from the announcement that Mr Křetínský has cleared the investment screening tests that the Cabinet Office is responsible for. It would be useful to have that confirmed.

Let me press my hon. Friend about the universal service obligation. Is it his intention that beyond the initial five years he will seek six-day delivery and a universal service obligation in place for Royal Mail for as long as His Majesty’s Government retain the golden share?

[Justin Madders]

I thank the Chair of the Select Committee for his comments. The golden share is to deal with tax residency and headquarters being domiciled in the UK. Obviously, there will be discussions about the universal service obligation. We know that this is a fast-moving market, and that will be for determination by Ofcom some time next year.

[Madam Deputy Speaker]

I call the Liberal Democrat spokesperson.

[Sarah Gibson (Chippenham) (LD)]

The Royal Mail has been plagued by issues for years, and my constituents do deserve better. A reliable postal service is essential for all of us, but particularly for rural businesses and those waiting for important NHS appointments.

Naturally, in communities like those I represent in Wiltshire, there are some serious concerns about what the statement might mean for the quality of rural services. Last Friday, I met with the brilliant posties in my constituency of Chippenham, some of whom have been in the job for nearly 50 years, who were rushed off their feet delivering Christmas cards. Spending time with them reminded me how important they are—they can often be the first people to notice that someone has not been to their door in days. They are the unseen champions of our community, particularly in rural communities where other people are not walking past. They reminded me that a reliable postal service is essential for our local communities. I therefore join hon. Members in thanking them for their dedication, specifically at this time of year.

Businesses depend on timely deliveries, and many older residents rely on our postal services for banking, utilities and keeping connected. Any weakening of the universal service obligation would disproportionately harm the rural areas of Wiltshire where alternatives are limited. Therefore, the Government and EP must give us a commitment that they will not water down the Royal Mail’s service at the public’s expense. With the Royal Mail’s universal service under review, it is particularly important for the Government to be clear about the future of these services with this new owner. I would be grateful if the Minister made it clear to my constituents at home that the number of delivery days will not be reduced as a result of this sale to EP Group and that any changes on the horizon will not be charged to the public purse.

My questions about the delivery standards are particularly important, given that we are in the middle of Christmas, and many millions of people rely on the Royal Mail, not least for that. One thing that is particularly concerning for us at the moment might well be —[Interruption.] I am sorry, I have one last thing. With it moving abroad—

[Madam Deputy Speaker]

Order. I am sorry, but the Liberal Democrats get two minutes for their response and we are quite a while after that.

[Justin Madders]

I assure the hon. Lady that the universal service obligation is not contingent on this deal—that is an entirely separate matter for Ofcom to be considering—but a number of commitments that we have secured in this agreement will hopefully improve standards, which in any event have clearly not been as we would all want.

--- Later in debate ---

[Justin Madders]

A number of commitments have been made that were not previously in place, and there is no doubt that we are in a much better position than we were post privatisation. As I say, this groundbreaking deal between the unions and the company includes rights in terms of governance, a profit-sharing incentive and guarantees on job security. I am sure that Members will be pleased to hear that we really have made fantastic progress.

[Madam Deputy Speaker (Judith Cummins)]

For the final question from the Back Benches, I call Dave Robertson.

[Dave Robertson (Lichfield) (Lab)]

My hon. Friend the Member for Bracknell (Peter Swallow) is right to raise the issue of complaints, which I am sure all Members from across the House receive from constituents let down by failures to meet the universal service obligation. From speaking to posties, as I did today, it is clear that posties right across the country, just like my hon. Friend the Member for Corby and East Northamptonshire (Lee Barron), are proud of what they do. They are proud of the job that they do, proud of being part of the community, and proud of the identity that working for that iconic brand gives them. It is clear that they are not the ones who are letting the public down; that is down to the current board of the company, which is running the organisation into the ground. Today I spoke to a proud postie, who said that he feels the company is a national disgrace—that shows how far it has fallen under the current ownership. Can the Minister assure me that the new ownership will not be allowed to sink to the depths that the current ownership did under the guidance of the previous Conservative Government?