Postal Services Bill

Lord Jenkin of Roding Excerpts

Wednesday 6th April 2011 Lords Chamber

[Lord Young of Norwood Green]

On reflection, I am happy to do that and shall conclude my comments at this point.

[Lord Jenkin of Roding]

My Lords, the noble Lord, Lord Young of Norwood Green, has said that this is a very large group of amendments. I considered whether it might be possible to disaggregate some of them and came to the conclusion that, as they all broadly address the same subject—access to the network—it is sensible for them all to be discussed together.

The amendments in the name of the noble Lord and his noble friends seek to make access more difficult, and those in my name and the names of my noble friends Lady Wheatcroft and Lord Skelmersdale take a different line. Before I speak to individual amendments, I thought it might be helpful to say something about what we are aiming at. I do not think it is all that different from what the noble Lord, Lord Young, has described to us, although I think the balance is different.

We want to provide a fair balance between protecting the universal service obligation and promoting competition in the postal sector. Therefore, our overall purpose is to try to find a way in which one can do that. I raised this point at Second Reading and since then my noble friends and I have had the opportunity to hold a number of meetings. We have met the chairman of Royal Mail, Ms Moya Greene, who is a very formidable and able lady—an excellent appointment. We have also had meetings with some of the major companies that entered the postal market under the existing legislation, which was introduced by the previous Government.

Turning first to what one learnt from the chairman, it is clear that Royal Mail is still facing an uphill struggle to become profitable, despite the prospective relief from the overhang of the huge pension liability, which we have just been discussing, and despite what seems to be a very welcome improvement in relations with the trade unions. Access to private capital for Royal Mail is seen as absolutely essential if it is to become profitable. That is why it fully supports the provisions in the Bill to remove the existing statutory restrictions on ownership. New capital will help not only to speed up the modernisation of the business, which all are agreed is very necessary, but to secure new sources of business, which it must have if it is to become profitable.

Ms Greene also pointed out to us—I quote her words, which I hope is not embarrassing—that there needs to be “a dramatically different regulatory approach”. I am not sure that we have that yet in this Bill. Ms Greene has described regulation by Postcomm as “intrusive, extensive interference with no freedom to Royal Mail to price their products or to introduce new products”. Moreover, she put the cost of dealing with regulatory impact at no less than £53 million a year. I find that an almost incredible figure, but she says that that is what it costs. We must return to this issue perhaps at a later stage. One has to ask why the competitors should not pay part of the cost of regulation. They are covered by it and they appeal to it, so why should not part of that cost be borne by them? That is the view from the chairman of Royal Mail, and I find it quite compelling.

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My noble friend Lord Jenkin asked why only Royal Mail pays towards the costs of Postcomm. I assure him that the figure is only £8.9 million and not the £53 million that was suggested. I reassure him that under the current regime—

[Lord Jenkin of Roding]

I was not referring to the cost of Postcomm. I was referring to the cost that fell on the Royal Mail from complying with the regulatory requirements of Postcomm. That is the point that was made to me. I was astonished at the size of the figure, but I accepted what was being said.

[Lord De Mauley]

My Lords, I am most grateful to my noble friend for his clarification. I hope that I can reassure him that under the current regime, under the Postal Services Act 2000, any operators providing services within the scope of the universal service that have significant turnover are obliged to contribute to the costs. That will be the case under this Bill as well.

The debate that we have heard today, for which I thank noble Lords on all sides for their helpful and knowledgeable contributions, demonstrates that a case can be made to move the access regime in either direction. However, I strongly believe that the provisions in the Bill set the right framework for access—one that supports competition but not at the expense of the universal service. I am of the firm view that Clauses 37 and 48 strike the right balance and, when combined with other powers in the Bill, give Ofcom the tools to ensure a better and more effective access regime. I hope, therefore, that after this rather lengthy explanation, the noble Lord will feel able to withdraw his amendment.

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In respect of Amendment 24AC—

[Lord Jenkin of Roding]

We tried to give notice to my noble friend’s office that this amendment would not be moved, but the message has obviously not got through.

[Baroness Wilcox]

I apologise. Scrap that. How about Amendment 24NZA? This amendment is tabled in the name of the noble Lord, Lord Young, and is concerned with removing the ability to designate, in extremely limited circumstances, more than one company as a universal service provider. The intention of Clause 34 is to give Ofcom the power to designate more than one universal service provider in two specific circumstances only in order to ensure the provision of the universal service. As with other elements of the Bill, Clause 34 has been drafted to ensure that the Bill is future-proofed. It enables the regulatory regime to adapt when it needs to in order to ensure the continued and long-term provision of the universal service. The measures that we are taking are designed to put Royal Mail on a sustainable footing so that it can continue to provide the universal service that we all value so highly. However, it makes sense to future-proof the legislation in this way to ensure that the universal service could continue to be provided in two specific and extreme circumstances.

Clause 34 will allow Ofcom to designate more than one provider in only two specific cases. The first case is where providing the universal service is found to represent an unfair financial burden on the universal service provider. The Secretary of State agreed with Ofcom’s advice that the best way of addressing that burden was through a procurement exercise provided for by Clause 43. This would assess whether another company could provide the relevant part of the universal service with less of a burden. In that event, that company could be designated the universal service provider for that part of the universal service.

The second circumstance is where Royal Mail has become insolvent and has entered special administration. Where a postal administration order has been made under Part 4 and it is not possible to rescue Royal Mail as a going concern, some of its activities could be transferred to another company. Ofcom could then designate that company as a universal service provider as well in order to secure the universal service.

As I said, the full package of measures in this Bill is designed to secure the future of Royal Mail and the universal service and therefore to ensure that we do not end up in either of these scenarios. Both the procurement process and the special administration provisions are backstops to be used only—I repeat, only—if the future of the universal service is at risk. However, as I mentioned, having the ability to make multiple designations in these specific cases is a sensible and pragmatic safeguard.

It is also important to make it clear that having more than one designated universal service provider in no way provides for or permits a varying level of minimum service across the country. Provisions elsewhere in Part 3 have the effect of guaranteeing that the minimum requirements of the universal service must remain uniform. Given these assurances, I hope that noble Lords who tabled these amendments will feel able not to press them.

Amendment 24AHA, in the name of the noble Lord, Lord Young, relates to the power that Ofcom has under Clause 49 to impose a consumer protection condition on either,

“every postal operator, or … every postal operator of a specified description”.

The amendment would replace these categories with a single category that allows for the imposition of consumer protection on,

“every operator appropriate to the postal service each provides”.

The intention of this amendment may be to ensure that regulation can be applied with greater precision or to ensure that all circumstances are captured by regulation and that none falls through a perceived loophole. However, I hope that I can reassure noble Lords that it is unnecessary and has the potential to create confusion for the regulator and postal operators.

Giving Ofcom the power to describe separate categories of operator enables it to direct the consumer protection conditions very precisely. This follows the model in Section 52 of the Communications Act in relation to Ofcom’s functions in other regulated sectors. This approach is consistent with other parts of the Bill and allows for the clear and effective targeting of regulation to where it is required. I can therefore assure noble Lords that there are no loopholes.

I do not believe that this amendment would help Ofcom to regulate, nor would it offer any greater protection to consumers than is already provided for by Clause 49. However, it might leave the regulatory system open to challenge and confusion, which I believe all involved will wish to avoid. With these reassurances, I hope that the noble Lord, Lord Stevenson, will feel free to withdraw the amendment.