Postal Services Bill

Lord Cotter Excerpts

Wednesday 16th March 2011 Lords Chamber

[Lord Tunnicliffe]

My Lords, we welcome the principle contained in this Bill which earmarks some of the shares for employees in the event that Royal Mail is sold. Introducing the Second Reading of the Bill, the Minister said:

“A commitment to employee shares was not a feature of the previous Postal Services Bill but it is an important addition to this legislation. I am pleased that it has support from all sides of the House”.—[Official Report, 16/2/11; col. 776.]

I am advised that during the debate on the 2009 Bill—I say I am advised because, although I sat through the many hours of the debate, it is now but a fading memory—we accepted representations from noble Lords, including the noble Lord, Lord Hunt of Wirral, to make provision for employee shares within the plans contained in that Bill. Of course, under the 2009 Bill, the Royal Mail would have been in public ownership, so when we said we would allow for employee shares, we were able to do so without a specific clause in the Bill at that time. Since we are all in favour of employee shareholdings in Royal Mail in principle, let me now turn to the amendment.

The benefits of employee share schemes have been widely recognised. They can include motivating employees to become more productive, helping to align the employees’ interests with those of shareholders, remunerating employees in a tax-efficient way, increasing loyalty and reducing staff turnover. Of course, employee share schemes cannot do all that on their own; they have to be part of a wider approach to good industrial relations. Employee shares will not be welcome if they are felt to be a sop, to come at the expense of pay or to be a substitute for the usual channels of interaction among management, unions and staff.

The government position is that at least 10 per cent of the shares of Royal Mail should be put into an employee share scheme. That is why our amendment proposes that 20 per cent of the company be made available for such a scheme. We know that any privatisation of Royal Mail will inevitably entail a lot of change and upheaval. Its success will rely heavily on the good will of the workforce and on improved industrial relations—and on those relations remaining improved. It would therefore be appropriate to give a greater proportion of the company’s shares to the workforce. Since this Bill is designed to achieve complete privatisation, with the Government having no direct say after the date of transfer, it is important to pin down in legislation how things are going to work. We accept the principle of employee shares, but employees need to know a lot more about exactly how the scheme would work.

First, we would like to clarify things by our suggestion that the proportion should be larger than 10 per cent. I will listen with interest to the proposal from my noble friend Lord Clarke about 25 per cent and to the Minister’s response to that—there may be complexities about 25 per cent that we will have to consider. However, we certainly urge the Government to provide for a 20 per cent share. We need to understand whether employees would really have to wait until the last Crown share is sold before being able to apply for any employee shares. We need to know what mechanism is going to be there to prevent shares going to employees one day and being sold within a year or two. If the purpose were to have employees feeling that they have a stake in the company, what long-term purpose would be served by passing shares swiftly through the hands of employees and back out to private institutions or hedge funds, even if the employees make a casual profit from the transactions?

We need to be clear that shares would be held on an equal basis with equal voting rights for each shareholder and an equal distribution of dividend. Would some shareholders be more equal than others? Will employees be able to act cohesively to influence the strategic direction of the company to some extent, albeit from a minority position? We would like to have greater certainty about eligibility criteria: who would be entitled to shares or share options and what would it mean in practice? Last, but not least, what proportion of costs would be borne by whom?

There is still much we would like to know about the scheme. Over the past 20 years in the industrialised world, there has been a significant increase in the proportion of employees who own shares in their own firms. This has happened in the UK, other European Union countries and the USA. By 2004, one-fifth of British workplaces had share ownership schemes, covering one-third of all private sector employees, encouraged by tax allowances. In evidence to the Public Bill Committee in another place, Carole Leslie, policy director of the Employee Ownership Association, said:

“I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company so that they do feel that it is theirs—they do feel that that ownership, if you like, is real and it is not a token”.—[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 71.]

George Thomson, general secretary of the National Federation of SubPostmasters, said to the same committee that,

“if Royal Mail Group is privatised, I think there is a case for the postmen and the staff to own 20% of Royal Mail Group; for that to be mutualised as a concept so you do not sell your shares when you leave the company but leave them behind; and for the CWU to be on the board of the new Royal Mail Group. So I see it not just for Post Office Ltd. I see it as let’s do it right within Royal Mail Group. If it is going to be privatised to bring in private capital, there is a case for making it 20% of the shares, which are not sold on”.—[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 29.]

An employee share scheme can take many different forms. We believe that it is best if we look at the possibilities now rather than leave it until the Bill becomes an Act, while there is time to design a scheme that will work best for Royal Mail.

The Bill implies some form of trust. However, it is unclear whether these shares would be held in trust, with a percentage of the dividend being paid out annually to each employee, or whether there would be a pot of shares to be handed out to individual employees as shareholders. If there is an offer of shares to employees of Royal Mail, how will this be made most attractive to employees? Will there be an offering along the lines of two or three for the price of one? Perhaps there should be multiple pots of shares for employee benefits, with one pot in the form of a share incentive programme or save-as-you-earn scheme to take advantage of the tax incentives. A further pot of shares could be set up for training, bursaries and so on, which could be held in trust. These rewards could also be linked to transformational targets.

It goes without saying that any structure proposed for the future Royal Mail must be stable, if it is to be genuinely for the good of its customers and its employees. Any change in the status of the ownership of Royal Mail should provide an ideal opportunity for setting up a scheme. I beg to move.

[Lord Cotter]

My Lords, in one sense I welcome the amendment. Speaking for these Benches and, I think, for the Government as well, I think there is no harm in the Postal Services Bill emphasising the importance of shared ownership. The issue has already been rehearsed, but I welcome the fact that it is being raised again. However, it is not necessary to say that 20 per cent or 25 per cent share ownership should be required. We on these Benches, and I think the Government as a whole, are determined to ensure that as many shares as possible are distributed.

Another issue that I feel strongly about, which I am glad is being rehearsed again—and on which I am sure the Minister will respond, as she has done previously—is that share ownership and the input of the employees into postal services are very important. I know that the Minister has accepted that already, and we on these Benches also think that it is very important.

There is no harm in having a discussion on these issues, but being specific about more than 10 per cent could be counterproductive. Much as we would hope that share ownership will be quite high, we want to ensure that a purchaser feels able to have a level of control of the company that the purchaser considers sufficient and appropriate. I would urge the Government to provide as many shares as possible for the postal services employees. In that sense I welcome the amendment, but we should not be prescriptive beyond the 10 per cent that we have said already. I look forward to the Minister’s response on the various questions when the time comes.

[Lord Clarke of Hampstead]

My Lords, I declare my usual interest as a former postman. As all Members of this House will know, I am bitterly opposed to the whole idea of selling off Royal Mail in part or whole. I have a dream; I live in hope that the Deputy Prime Minister will wake up one day, have a fit of conscience and resign from the Government, the coalition will fall and we will not have the Bill at all. However, being a realist, I suppose I have to accept that we have got past that stage and we now have to look at share ownership and the protection of employee shareholders. That is my interest.

If the Bill is to proceed, the shares have to be subject to a reasonable code of conduct that does not permit what happened to some members of my union when BT was privatised. I will come back to the vast quantities of shares and share options that were given to the people at the top of BT.

Issuing shares could be a beneficial move—notwithstanding my reservations about the whole thing—but it could have unintended consequences. Workers at Royal Mail will want to know that their shares are not allocated at the expense of their pay and conditions. Receiving shares does not constitute much of a choice if you cannot get a reasonable cost of living increase when circumstances allow. Employees will want to know that their shares will not cut across their other chosen and established means of engagement within the company. They will also want to know that the company is being put on a sound footing for the future. That depends on the regulatory and other frameworks that this Bill and the Government set for Royal Mail in the future. Employee shares would hold little attraction if they turned out to be merely an anvil around the neck of employees as the ship sinks slowly under the water. I hope that during these debates we will receive genuine assurances on these points.

In speaking in favour of Amendment 18, I put my noble friend’s mind at rest in that he will not hear me waxing on about the 25 per cent figure as I do not intend to move the relevant amendment. I will try very hard to convince the Committee that 20 per cent is the right figure. I support most of the points made by my noble friend who moved Amendment 18.

First, if there are to be employee shares, I support the case for employee shareholdings to be held in trust. That is very important. I hope that the Government will not dogmatically reject that idea. If the pattern of the past is followed, employee shares will disappear like ice in a Turkish bath—they will go. They will no longer be owned by employees but will be available on the market for people to buy up. If you have your basic pay and some shares and you are under pressure to pay a domestic bill, you are tempted to dispose of the shares. If that happens, I believe that they should be disposed of back into the employee shareholding trust. I hope that the Government will take that matter into account.

Secondly, I agree that it is quite wrong for the Bill to propose issuing the first employee share only when every single Crown share has been disposed of. That would be unfair and illogical. I understand that 10 per cent is not the maximum proportion of employee shares that have been permitted in a privatisation. A whole string of bus companies were sold 100 per cent to employees. I do not suggest that the 100 per cent figure should apply in this case, but why restrict it to 10 per cent? I believe that the noble Lord, Lord Cotter, talked about the widest possible issuing of shares to staff, or allowing them to purchase them. That is very important. Unfortunately, most of the companies to which I have referred went the same way as the other privatisations, with 10 per cent or fewer employee shares, and they tended to dwindle away over time. What is the case for a bigger share? I do not pretend to be an expert on anything, but we should listen to people such as Carole Leslie, policy director at the Employee Ownership Association, who told the Public Bill Committee in the other place:

“I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company”.—[Official Report, Commons, Postal Services Bill Committee, 9/11/2010; col. 71.]

We have not yet dealt with the representation of employee shareholders, although I am sure we will do so later in our consideration of the Bill.

The general secretary of the National Federation of Sub-Postmasters told the same committee that if Royal Mail Group was privatised, there was a case for its employees to own 20 per cent of the group. That assertion supports the amendment of my noble friend.

Peter Stocks, managing director of the Baxi Partnership, which grew out of a manufacturing company and now advises on employee ownership, also gave evidence to the same Committee. He stated:

“I think that 10% is quite low and I think that there is a danger that if it is just shares and there isn’t a participation culture that goes with it, it won’t change a lot. We see real results in companies where the whole of the company feel that they have a sense of ownership. They feel that they participate in decisions. They discuss decisions and when they make a decision they stick with it. It was interesting watching some of our members through the recession. Employee-owned companies are affected the same as everybody else. They would have gone through an awful lot of agony about how you manage through different times but, because those decisions were made in a very participative way”—

by staff and management looking at the issue together—

“once the decisions were made they were stuck to, and bought into, by everybody. Our members have gone through the recession in a very resilient way and I think that is down to the way you manage the company”.—[Official Report, Commons, Postal Services Bill Committee, 9/11/10; cols. 71-72.]

Let us hope that when the Government get their way with the sale there will be a company with a similar philosophy on these issues.

The staff of Royal Mail—who are mainly postmen and postwomen, but there are many others also—are dedicated people. That has been proved throughout its 350-year history. If those who remain, following the loss of 60,000 jobs in the past couple of years, are to experience the anxiety of a traumatic change of ownership of their company—I cannot get my mind around “company”, because the Post Office is the Post Office and Royal Mail is Royal Mail—and if they are to be invited to take a shareholding in their company, it should be done in a way that is fair and reasonable to them and that gives them the prospect of a real say in the success of their company.

Immediate employment is not the only issue at stake for Royal Mail staff; they also need a final guarantee that they will be able to pay their rent or mortgage. They have a big stake. Working for Royal Mail is the means whereby their children can be educated and have better prospects in life, and they use their hard-earned income for a better life. As I said on Monday, postal workers may not always see eye to eye with management, but they are always acutely aware that a viable and successful Royal Mail is in their own interests.

Employee shareholdings have been encouraged by tax allowances; £900 million a year is spent on tax relief for employee share schemes, according to the Employee Ownership Association. However, 50 per cent of that tax relief is on discretionary rather than all-employee schemes. Therefore, 50 per cent of the tax relief is going to 3 per cent of employee shareholders. The EOA says that this is poorly directed tax relief. I should add that it is grossly unfair.

When British Telecom was sold, and it was promised that a golden share would be retained by the Government, those at the top of BT held thousands of share options, although I do not know the exact figure. Any examination of BT’s annual accounts will show how many share options were given to them.

We should be very careful how we treat this exercise, and there is a good case for equality. A 20 per cent shareholding should be distributed on an equal basis to all employees. This would turn the Government’s plan from a progressive proposal to a truly radical one. It would give employees a real sense that they had a say in the direction of the company and a stake in its success. It would stand a better chance of realising the worthy aspirations that Ministers have expressed in stating the case for employee shares. I look forward to hearing the Minister’s reply. In the mean time, I support the amendment.