Postal Services Bill

Lord Jenkin of Roding Excerpts

Wednesday 16th February 2011 Lords Chamber

[Lord Jenkin of Roding]

My Lords, I can tell the House and my noble friend on the Front Bench that I very much welcome this Bill. I welcome the decision to separate Post Office Ltd from the Royal Mail; I welcome the prospect of Post Office Ltd becoming a mutual; I welcome the decision to privatise the Royal Mail; and I welcome the decision to transfer the regulation from Postcomm to Ofcom. However, as will become apparent, I am a bit concerned about the future of the competition which currently operates in the handling and sorting of letter mail. It seems to me that the Bill risks converting the Royal Mail from a state-owned business into a legislatively protected privatised monopoly and, if that is right, I cannot believe that that is in the full interests of users.

I speak with the experience behind me of having been the Minister who launched the process that led to the privatisation of British Telecom nearly 30 years ago. We had British Telecom as a nationalised monopoly and it became apparent that there was no way that it was going to raise the capital that it needed to finance its expansion and research, and all the rest. Therefore, we eventually privatised it. That was met with almost foreseeable opposition, particularly from the staff, who thought that it was almost the end of the world. The fact of the matter is that when it was privatised the staff happily not only took their free shares—of which there was a large tranche—but went into the market and bought the shares. I therefore take with some circumspection the opposition of the unions to the privatisation of the Post Office. I will return to the parallels in a moment, if I may.

Competition in the mail market was introduced in 2004. There is little doubt that that has led to more customer choice and to prices being lower than they otherwise would have been. It has certainly led to a slowing down of the reduction in volumes. As a number of speakers have mentioned, one of the really key issues here is the growth of e-commerce and e-communication. The introduction of competition has also led, particularly for businesses, to reduced postal bills. That has been to the advantage of customers. Above all, it has led to a considerable spur for Royal Mail to come to grips with a long legacy of inefficiency and the refusal to modernise systems to improve its service to customers.

It is also right to say—this has been established by independent research—that it has led to a significant boost to the UK economy. We have heard echoes of that in the debate. Royal Mail has argued and continues to argue that competition is a major cause of its woes. It is not competition from competitors that is reducing Royal Mail volumes; overwhelmingly, it is competition from e-commerce. As a user of e-mail with now limited outgoing mail, I entirely understand that. The figures that I have been shown suggest that for every £10 of reduction in the volume handled by Royal Mail, £9 is due to e-commerce—e-mail and so on—and only £1 to competitors. Furthermore, contrary to the arguments that one hears from Royal Mail, it does not subsidise its commercial competitors. This argument was also voiced by the noble Lord, Lord Low, and there were hints of it in the speech of the noble Lord, Lord Tunnicliffe. On the contrary, commercial competitors have to negotiate a price for the last mile of delivery so that their products can be handled by Royal Mail. It is a negotiated price, which is backed up by the legislative provision in the earlier Act for the right to access.

Therefore, the House may ask why I am concerned. I start from my firm belief that there needs to be a robust competitive framework in this as in other businesses and that it needs to be firmly at the heart of the Bill. I should have thought that the great majority of people would accept that. However, when one looks at the Bill itself and some of its details, to which we will want to come back at a later stage, there seems to be a marked shift away from the principle of competitive access to the Royal Mail that was inherent in the 2000 Act.

At this point I return to my experience of the privatisation of BT. BT was a natural monopoly—an almost total monopoly in line telecommunications. Therefore, regulation of prices was essential to protect the public. The formula of RPI minus X was developed and formed a central feature of that regulation. However, the second requirement was that there had to be access to the market for competitors, and that it had to be guaranteed. I stress that one cannot draw parallels too closely between Royal Mail and British Telecom but one result was the huge growth in telecommunications, including the growth of the mobile telephony system.

I was the Minister who refused to allow BT to become an operator of a mobile system, simply to make sure that there was competition. I heard the former chairman of Vodafone tell a meeting that his company was worth around £80 billion at that time. Someone asked him what he ascribed that to. He said, “It was the refusal of the Government to allow BT to become a mobile operator”. When I asked him when I would get my share I am afraid there was not a very happy answer.

However, that process was so effective in ensuring competition that in the end it was possible to dispense with the price controls on BT. There you have the example of a nationalised monopoly that turned initially into a privatised monopoly, subject to regulation but with free access to competitors, and then into a very viable system. No one wants to return to the previous monopoly. Very few people argue that Royal Mail should stay a state monopoly. We have not really heard that argument as we had the previous Bill introduced by the noble Lord, Lord Mandelson. I look forward to his speech.

However, far from encouraging more competition, this Bill seems to be dealing with the matter the other way round. There appears to be a good deal of pressure on the Government to limit and hamper the competition, as I am sure there was on the previous Government. Indeed, it may have led to the previous Bill being abandoned in another place. The CWU and Royal Mail have certainly tried to hamper the competition. I think that this has been partly driven by the recognition that the Royal Mail has found it extremely difficult to secure agreement to the necessary modernisation. One thinks particularly of the final stage of electronic sorting which happens in every other country but is still not happening in this country. I suspect also—I hope that my noble friend can reassure me on this—that there is a very natural desire on the part of the shareholder executive in BIS to maximise the price that it will get for the sale of Royal Mail by restricting the competition. That is what it looks like but perhaps my noble friend can reassure me that that plays no part whatever in the Government’s modernisation.

Nevertheless, the fact remains that some of the provisions in the Bill, especially Clause 37, which gives Ofcom, the new regulator, power to impose conditions on access to Royal Mail as the universal service provider, seem to be aimed more at restricting the access rights of competitors than protecting the consumer. I shall explain very simply how that works. Under the 2000 Act, Ofcom—it was then Postcomm—could not impose a USP access condition unless it appeared to it that the condition was appropriate for one or more of three purposes: promoting efficiency; promoting competition; and conferring benefits on the users. However, this Bill says that all three purposes have to apply, not just one of three. To gain access to the Post Office network, a competitor has to satisfy each of the purposes relating to efficiency, competition and benefits. In my noble friend’s speech from the Front Bench, I caught a hint that that was intentional. I therefore ask: can the Bill be said at the same time to be promoting competition; and if not, why not?

Clause 43 deals with the proposed universal service compensation fund. Perhaps it will be necessary to use that in the last resort but it most certainly must not be used simply to shield Royal Mail from the necessity of getting rid of its inefficiencies. Those are details to be discussed in Committee but I make a strong plea that the Bill should not risk losing the gains which have come since 2000 from the introduction of a competitive regime. It should not give the regulator powers that could materially prejudice the position of competitors.

With many others, I warmly welcome the prospect that Royal Mail should be able to operate in the private sector as a successful and profitable business, but it must be competing strongly and fairly. It must be right, from the point of view of mail users and the industry as a whole, not to risk the advances that have been made over the past 10 years.