Postal Services Bill

Lord Stevenson of Balmacara Excerpts

Monday 14th March 2011 Lords Chamber

Moved by

[Lord Stevenson of Balmacara]

15: Clause 2, page 2, line 12, leave out subsection (5) and insert—
“( ) In order to ensure that it remains a single company, for the purpose of this Part “Royal Mail company” means the company that provides the universal postal service.”

[Lord Stevenson of Balmacara]

My Lords, I thought that, following that interruption, we should have a few seconds of silence to gather our thoughts in case we are interrupted.

This amendment restricts the issue or transfer of shares in Royal Mail to the whole company by defining a “Royal Mail company” as the company that provides the universal service. Clause 2 allows for the issue or transfer of shares in a Royal Mail company. The Bill defines a Royal Mail company as one that,

“provides a universal postal service and … is or has at any time been in the same group as … the original holding company, or … another company that … has at any time been a Royal Mail company”.

That, I think, means that, as the Bill stands, the Secretary of State can dispose separately of the various companies that can make up the Royal Mail Group.

The Royal Mail Group provides the universal service. It currently consists of a number of business units, the largest of which is Royal Mail, or Royal Mail Letters. This is the part of the business that deals with the collection, sorting and delivery of letters, packets and parcels, and it accounts for more than 70 per cent of the Royal Mail Group’s revenue.

Royal Mail Letters is a huge operation, delivering some 70 million items every day to more than 28 million addresses. It is at the core of the Royal Mail Group, ensuring the maintenance of the universal postal service. However, it works only because it is an integrated whole. Large volumes allow the business to achieve sufficient economies of scale to make the universal service affordable and to pay for the countrywide labour-intensive network on which the postal service depends.

We believe that Royal Mail must remain an integrated whole if the universal service is to survive and if postal services are to thrive in the United Kingdom. The financing of the universal service has already been put under strain by the operation of upstream competition in the mail market and by the way in which the market for access mail has developed.

Royal Mail has lost over 60 per cent of the pre-sorted bulk mail market. This is mail which competitors collect and sort and give to Royal Mail to deliver. Royal Mail therefore handles far fewer items upstream than it used to and it has had to cut back its upstream operations as a consequence. Royal Mail must maintain a viable upstream business if it is to be able to provide the universal service at an affordable tariff. It is therefore important that an integrated business model is encouraged and supported through legislation and regulation.

We believe that it would be in the public interest if an integrated Royal Mail business model were established by legislation. The amendment would prevent the separation of Royal Mail through the sale of separate business units and through the break-up of Royal Mail Letters and its sale as a series of separate business units.

There will be an appetite among Royal Mail’s private competitors for the break-up and sale of Royal Mail. This might suit their business models. However, it would be short-sighted and would eventually damage the postal industry and the provision of postal services in the UK.

If anyone would like to see Royal Mail stripped down to only a core delivery network, with all other parts of the business separated and broken up, that would not help the provision of a robust universal service. Competitors might wish to collect and sort bulk mail but they do not generally wish to collect and sort individual items from domestic customers. Royal Mail must do this as part of its universal service. The universal service will become more expensive and less sustainable unless Royal Mail can continue as a viable, integrated end-to-end operator.

Along with Royal Mail Letters, the Royal Mail Group further consists of Parcelforce, Global Logistics Systems—GLS—and a number of other smaller businesses. It also consists of Post Office Ltd, whose sale is of course restricted by the Bill, and we welcome that.

Parcelforce and GLS, the third biggest parcels provider in Europe today, are both profitable businesses—GLS particularly so, with £122 million in operating profit in 2010 alone. That is almost the same level of operating profit as was seen in the whole of Royal Mail Letters, a company with four and a half times GLS’s revenue. That means that GLS is a target for Royal Mail’s competitors. Many would like to get their hands on it, but they are less keen to take on the difficult but important operations undertaken by Royal Mail Letters. The sale of GLS and Parcelforce separately from Royal Mail would be revenue-generating but would leave Royal Mail, the universal service provider, in a much weaker position.

Royal Mail needs to operate as an integrated business and it needs to be able to hold on to what valuable assets it has while it goes through its current difficult and costly transition. We do not want to see it asset-stripped. It is therefore important that restrictions are placed on the sale of Royal Mail that mean that it can be sold only as a single company, and that it cannot be asset-stripped or broken down in the interest of short-term gain to appease the company’s competitors or to consolidate a regulatory model that has damaged the business and is in desperate need of change. I beg to move.

[Baroness Wilcox]

My Lords, I believe that the intended effect of Amendment 15, in the names of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, is to seek to ensure that Royal Mail remains a single company providing the universal postal service and that it is the only universal service provider. We will, of course, come on to the protection of the universal postal service when we debate Part 3 of the Bill, but I should make it clear now that we expect Royal Mail to be the universal service provider in the UK for the foreseeable future. I hope that reassures noble Lords.

I now turn to the issue of whether Royal Mail should be a single company. I do not consider that we should be legislating on the future structure of a company that will no longer be in public ownership. A privatised Royal Mail should be free to organise its business and operations in such a way that enables it to provide the universal postal service efficiently and effectively. This could mean establishing subsidiaries to deliver part of the service or it might mean no change at all. We simply do not know, in 2011, what the best operational structure should be for Royal Mail. Through a disposal of shares, we are giving Royal Mail real commercial freedom, and I do not consider that it is appropriate for the operational structure of Royal Mail to be set in primary legislation.

I have two answers in the question and answer part of the brief on subjects that the noble Lord mentioned. On whether Parcelforce or GLS will be part of the package, no decision has been taken on the formal method of sale. Just as for the Royal Mail, we have no plans to retain either Parcelforce or GLS in public ownership in the long term. The noble Lord also asked about the risks of a new owner stripping the assets from Royal Mail. The Government simply would not sell to a bidder if they believed that they would not assist in securing the future of the universal postal service. Furthermore, any shareholder would want to see a successful business and a sustainable universal service, given that the cash generated by a successful Royal Mail will outweigh the asset value in a very small number of years. Investors would also face significant reputational damage if they allowed Royal Mail to become insolvent. We believe that there is ample protection against that, both in the Bill and more generally. With those answers and the answer I gave previously, I ask the noble Lord to withdraw his amendment.

[Lord Stevenson of Balmacara]

I thank the Minister for that response. We seem to be placing a great deal of stress on hopes and aspirations about what will happen after the sale—other noble Lords picked up on this, I think—and very little on what many people in the country would regard as sensible and appropriate public interest measures, which are being taken on board by the Government or even considered in a serious way.

From what the Minister has said, there is a grave danger of cherry picking. That will still be a possibility. If the successful owner is robust and strong enough, they will be able to do what they wish once they have control of the assets. It is particularly important to register that the Government have not ruled out dismantling the Royal Mail and cherry picking the most popular parts, in particular GLS, which is the most successful European parcels service, as I said earlier. That must be a worry as we go forward.

The assets can be taken away; they do not have to be very large or prestigious to be capable of being sold. On the first day in Committee, the noble Lord, Lord Christopher, considered selling the Oxford sorting office at a profit. Heaven knows why. I have not visited it yet, but perhaps the Minister has. If that is his vision of it, then clearly the assets are valuable and they will go. There is also the possibility of the Royal Mail being split in a geographical way or by function, which would undermine the viability of the universal service provision, which in effect cross-subsidies rural and other diverse locations. We think this is an important issue, but on this occasion we shall not push the matter to a vote. I beg leave to withdraw the amendment.

Amendment 15 withdrawn.