Lord Young of Norwood Green
Main Page: Lord Young of Norwood Green (Labour - Life peer)Postal Services Bill
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Lord Young of Norwood Green
My Lords, this amendment seeks to strengthen Clause 32 by tightening the definition of when the universal service does not apply from exceptional to highly exceptional circumstances. I fully recognise that there will always be extreme circumstances under which the universal service need not apply for practical or safety reasons. However, in the context of a privatised Royal Mail and a new regulator, Clause 32(2)(b) is an avenue that could be exploited.
The Scottish Affairs Committee has had serious concerns about the potential for this loophole to be exploited. Tim Brown, chief executive of Postcomm, gave assurances to the committee that the current rate of exceptions is very low. He stated:
“There are about 1,400 exceptions for delivery in Scotland and a total in the UK of just under 3,000”.
The Minister for Postal Affairs sought to reassure the committee that the clause replicates the current situation and that the way in which it would be applied would not change. He stated:
“This subsection in clause 32 reflects that. It uses language that comes directly from the postal services directive and is identical to what was in the Postal Services Bill 2009. It also reflects the current situation. It is not some sort of get-out clause; it is for exceptions only for health and safety, geography and weather”.
The Scottish Affairs Committee reached the following conclusion in its December 2010 report, Postal Services in Scotland:
“We recommend that clarification be included on the face of the Bill that this clause should only ever be applied to a very small number of addresses, similar in order to the current number”.
In its response to the report, the Government gave the following assurances:
“The Government reiterates the assurances given by the Minister for Postal Affairs in his oral evidence to the Committee and agrees that the number of exceptions should be kept to a minimum—but this system is only workable if we give Ofcom, as the expert independent regulator, the necessary discretion. The Government is not aware of any concerns with the way Postcomm have set up and run the existing system for exceptions and Ofcom have indicated that they have every intention of continuing with the Postcomm system”.
We do not think that this goes far enough. Greater assurances that the application of Clause 32(2) will not be extended would give peace of mind to those who fear the erosion of postal services in rural areas. I recognise that, in highly exceptional circumstances, exemptions from the universal service are necessary and that the current level is acceptable. I invite the Minister to give the stronger reassurance that was sought by the Scottish Affairs Committee.
I will now deal with Amendment 66 before turning to Amendments 65 and 65A. Amendment 66 seeks to make it clear that in any review of the universal postal service that may take place, the principle of “one price goes anywhere” in the UK is maintained. As we know, Clause 33(5) permits the Secretary of State by order to change the minimum requirements of the universal service. In Clause 30, requirement 3 demands,
“affordable prices …. in accordance with”
the uniform public tariff, but that can be amended by the Secretary of State under Clause 33. Clause 33(6) states:
“The provision that may be made by an order under subsection (5) does not include the making of different provision in relation to different places in the United Kingdom”.
I am sure Ministers intend that to require a uniform tariff, but a tariff is not mentioned. The European standard does not require a uniform tariff in each country, nor does Clause 35 specify that the prices imposed as part of a universal service provision condition should be universal. A uniform tariff is an essential part of the universal service. It is important to business and to the general public. Amendment 66 seeks only to confirm that a USP condition must maintain the universal service at a uniform tariff and I hope that the Minister can be reassuring on this matter.
I turn to Amendment 65 and its supporting Amendment 65A, in the name of the noble Lord, Lord Low. The noble Baroness, Lady Wilcox, told the House at Second Reading:
“We have no intention of downgrading the minimum requirements of the universal service”.—[Official Report, 16/2/11; col. 776.]
The question remains: why does Clause 33 set out the means for the Secretary of State to do just that? Ministers have clarified the scope of the Ofcom market review under Clause 29. Again, the Minister told the House that,
“the review cannot recommend a downgrade of the minimum requirements after 18 months”.—[Official Report, 16/2/11; col. 777.]
Yet it is perfectly clear that Clause 33 allows just that, without any time constraint. It could happen after six, 12 or 18 months.
The Delegated Powers and Regulatory Reform Committee of this House expressed concern at the way that Clause 33(5) contains, as it said,
“a significant power which would allow the Secretary of State to alter the minimum requirements for a universal postal service set out in clause 30”.
Ofcom can carry out a review of the minimum requirements at any time, at its own initiative or under the direction of the Secretary of State and, the committee said,
“the Secretary of State may then, by order subject to affirmative procedure, amend clause 30. The Secretary of State is not constrained necessarily to follow any conclusions of the review”.
Ministers will tell us that this clause provides three locks against change to the universal service requirements, but those could equally be seen as three steps to changing the universal service obligation. Use of this power in Clause 33 could see a reduction of the universal letter service from six to five days a week or remove certain requirements for services to be provided, including a reduced service for the blind and partially sighted.
A recent report for Postcomm estimated that Royal Mail’s net cost of delivering on a Saturday, compared with a five-day universal service, is £256 million. TNT in the Netherlands has labelled the universal service as a kind of Jurassic Park that it should get rid of. Without this amendment, the Government will be inviting upon themselves an intense lobbying campaign from Royal Mail’s new owners aimed at both Ofcom and themselves to downgrade the universal service requirements.
In Amendment 65 we do not seek to reverse the powers provided for in Clause 33. All we ask for is a five-year transitional period of restraint: restraint to set an atmosphere of confidence for customers at a time of difficult change; and restraint that the Government have already said that they intend to observe. Ministers have, to their credit, listened to representations and tabled amendments to provide similar transitional periods.
Under Amendment 69, Ofcom could not choose to review the cost of providing the universal service, as provided for under Clause 42, for five years rather than three. How surprising that similar restraint would not be shown in the centrepiece of the Bill, the universal service. Amendment 65A in the name of the noble Lord, Lord Low, also seeks no diminution in the minimum standards of the universal service for at least five years.
This is a test of the Government’s commitment to the current requirements of the universal postal service. All we ask is for five years. After all, five years under the Fixed-term Parliaments Bill is only the duration of a Parliament. If the Government really mean what they say about protecting the universal service, I hope that they will look favourably on these amendments. I beg to move.
Baroness Wilcox
My Lords, I can confirm that the very purpose of the Bill is to protect the universal service. I should like to put the mind of the noble Lord, Lord Young, at rest on that before I go any further. I hope, too, that I can satisfy my noble friend Lady Kramer in my response. I know that the noble Lord, Lord Low, has spoken to the Minister in another place, Edward Davey. I hope I can reassure the noble Lord on the points he was most worried about.
The Bill requires Ofcom to secure the provision of the universal service and to ensure that it meets the reasonable needs of users. That latter point is a requirement not just of the Bill but of the European postal services directive. On Amendment 64, Clause 32(2)(b) retains the ability for the regulator to make exceptions where the minimum requirements for delivery and collection in Clause 30 need not apply. These are for exceptional circumstances or geographical conditions. Amendment 64 seeks to change the wording to “highly exceptional”. The wording of the clause directly replicates Section 4(1)(a) of the Postal Services Act 2000. It also exactly replicates a provision from the Opposition’s 2009 Bill. It flows from Article 3(3) of the European directive, which states that member states must take steps to ensure the universal service,
“save in circumstances or geographical conditions deemed exceptional”.
The kind of situation that constitutes an exception would be an address on a remote island, where there is a single ferry service a week. It would be unreasonable to expect Royal Mail to deliver every day to such an address, as it would require it to charter its own boat. Another example would be where dangerous dogs at an address pose a genuine threat to postmen or postwomen. Currently this allows Postcomm to permit Royal Mail not to make daily deliveries to some addresses in extreme circumstances. Present exceptions apply to only 0.01 per cent of the approximately 28 million United Kingdom addresses. We agree with the intention behind this amendment—that the number of exceptions must be kept a minimum. However, I must confess to your Lordships that I am not sure precisely what effect saying “highly exceptional”, as opposed to “exceptional”, would have. It would appear to raise the bar, although to what height is unclear. We must recognise that raising the bar is likely to have two effects. First, it will probably result in more risks for hard-working postmen and postwomen, who will be asked to go to a large number of unsafe addresses. Secondly, it will probably put a greater burden on the universal service provider. I have to say to your Lordships that on both counts I am uneasy.
The question I ask your Lordships is whether the current situation is unacceptable. My view is that there is no evidence of a need to move away from what we now have. Indeed, that was the view of the Opposition two years ago. Unless noble Lords opposite can provide us with a rationale for this change, the Government cannot support it. I therefore ask them to consider withdrawing this amendment.
Amendment 65, in the names of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, seeks to prevent a review of the minimum requirements for a period of five years from when this part of the Bill comes into force. Similarly, Amendment 65A, in the name of the noble Lord, Lord Low, seeks to prevent the Secretary of State reducing the minimum requirements—again for a period of five years from when this part of the Bill comes into force. The whole issue of the minimum requirements is something we considered during our deliberations in Committee, and I am sorry that noble Lords were not convinced by my contribution to that debate. As I have said, the power in Clause 33 enhances the safeguards against changes to the universal service minimum requirements. Clause 30 enshrines the current minimum requirements for the universal service, with the important addition of free services for the blind or partially sighted. These requirements gold-plate our European obligations, but it is gold-plating of which we are rightly proud.
As I said during Committee, and as my colleague the Minister for Postal Affairs has said in the other place, the Government have no intention of reducing the minimum requirements of the universal service during this Parliament. As things stand now, and as they would have stood under the 2009 Bill, a future Government could reduce those minimum requirements to the level required by the European directive through a negative resolution procedure using powers under the European Communities Act 1972. This means that, until this legislation is passed, Saturday deliveries could be dropped, and different prices could be charged for sending letters to different parts of the country. We do not believe that that is acceptable, and that is why we have introduced Clause 33. Clause 33 puts in place a clear procedure to be followed before the minimum requirements could be altered. Through this procedure, it offers vital new protections for us all. The protections are threefold, and I think it is important that I set this out again for your Lordships. First, there can be no changes to the minimum requirements unless Ofcom has conducted a review of the needs of users, which would, of course, inform any subsequent Secretary of State’s decision. Secondly, the clause guarantees that no change can result in a different minimum level of service to different parts of the country, so we could never have a five-day-a-week letter delivery requirement in Cornwall, but a six-day-a-week requirement in Birmingham, and services must always be priced uniformly. Thirdly, any proposal for change would be subject to the affirmative procedure in both Houses.
Given these enhanced protections, I am afraid that I do not believe it would be helpful to tie the hands of the regulator or the Secretary of State in the way proposed by these amendments, as mentioned by my noble friend Lord Eccles. Ofcom will be responsible for regulating the postal services market and should be able to review the market and user needs where it feels it is appropriate. Let us not forget that Ofcom’s primary duty will be to secure the universal service. It will need to be able to gather information on customer and market needs if it is to fulfil this obligation. That would include vital information about the needs of vulnerable consumers. This is an important point as one of the general duties of Ofcom under Section 3 of the Communications Act 2003 is a requirement to have regard to the needs of persons with disabilities, the elderly and those on low incomes.
Furthermore, it has been made absolutely clear by both myself and the Minister for Postal Affairs that the Government have no intention of reducing the minimum requirements of the universal service. Even if a future Government believed that changes should be made, the Bill guarantees that no change can result in a different minimum level of service to different parts of the country, and guarantees that services must always be priced uniformly. Critically, any proposal to change the minimum requirements would have to come before this House and the other place and be subject to the affirmative procedure in both Houses.
It has been put to me that the first thing an investor in Royal Mail would do is lobby the Government, Ofcom and Parliament to reduce the minimum requirements of the universal service. Let me be clear to this House: any investor in Royal Mail will know our position on the minimum requirements. They will be fully aware of the strong protections that we have built around them, and they will therefore invest in the full knowledge of these protections. Of course, we cannot stop them lobbying, but I can reassure this House that they will not find it straightforward.
Finally, while I hope I have made clear that this Government have no intention of changing the minimum requirements, I am happy to put on the record again, as the noble Lord, Lord Low, has requested, that that assurance applies for the rest of this Parliament, which is almost four years. However, I should also point out that the European Union directive requires that the universal service must respond to the needs of its users. A five-year legislative ban on any changes could therefore amount to non-compliance with our European Union obligations.
Given the reassurances I have made on the protections for the minimum requirements, I would hope that the noble Lords, Lord Young and Lord Low, will feel able not to press their amendments.
Lord Young of Norwood Green
My Lords, before I respond to what the Minister has said, I reassure the noble Viscount, Lord Eccles, that I do not subscribe to conspiracy theories—
Baroness Wilcox
My Lords, I apologise as I do not think that I have spoken to Amendment 66. I know that I have taken rather a long time to reply to this group of amendments, but it contains some very important points, particularly in relation to the matters raised by the noble Lord, Lord Low.
Amendment 66 is similar to an amendment tabled in Committee, although that was to Clause 35. As with that amendment, I agree wholeheartedly with the intention behind it. However, I am delighted to assure the noble Lord, Lord Young, that it is simply not needed. It is the Government’s intention to ensure that the one-price-goes-anywhere service is protected and that the minimum requirements of the universal service cannot vary across the United Kingdom. We are absolutely clear that the wording of the Bill as it stands—specifically requirement 3 in Clause 30—fulfils that intention. There is no cause for doubt. Furthermore, in Clause 33 we are putting in place new safeguards that explicitly prevent any changes to the minimum requirements that would result in non-uniform pricing, so the one-price-goes-anywhere service is protected now and in the future.
In Committee, the noble Lord, Lord Stevenson, asked about the interplay between uniformity and the requirement in Clause 35 that if a designated universal service condition makes provisions for the tariffs to be used for determining prices for universal services, Ofcom must take into account the costs of providing the service or part of the service. There is no contradiction between this and the need for uniform pricing. It simply means that the uniform price should take account of the total costs. Uniformity is a defining feature of our universal service and the Government are committed to maintaining it as such. I do not think that I can be any clearer than this. The provisions in Clause 30 and Clause 33 already guarantee a one-price-goes-anywhere service. I hope that the noble Lord will, at the appropriate time, not press the amendment.
Lord Young of Norwood Green
I thank the Minister for those comments. There were references in her previous contribution to a uniform tariff, so I was not going to be pedantic. I welcome the further words that she has put on the record.
I wanted to respond to the point made by the noble Viscount, Lord Eccles, on the conspiracy theory. I do not subscribe to conspiracy theories as a rule, and I do not in this circumstance. We are perfectly right to express our concerns. That is what the Delegated Powers and Regulatory Reform Committee did, so I rest our case on that. It was a perfectly reasonable response and I listened carefully to the noble Lord, Lord Low of Dalston, in his—as usual—beautifully argued and rational contribution. I am reassured by the Minister in relation to Amendment 64. Why did we seek to introduce the word “highly”—a nuanced amendment, if you like? We saw in a fully privatised environment a different environment, and I welcome her comments on that. I also welcome the assurances that she gave in relation to Amendment 66 and will take them into account.
I listened carefully to the contribution on Amendment 65 and Amendment 65A, tabled by the noble Lord, Lord Low. The Minister kept us in suspense until the end of her contribution when she gave an assurance about extending the restriction to the end of this Parliament. Who am I to quibble over four years rather than five? I welcome the intent of that and the other words in that assurance. With those comments, I beg leave to withdraw the amendment.
“( ) OFCOM must designate a postal operator as universal service provider.”
Lord Young of Norwood Green
The point at issue in Amendment 66A is whether Royal Mail should be allowed to be hived off and broken up into pieces. We are proud of the fact that there are 115,000 post boxes around the country. Royal Mail has increasingly modern mail centres and the famous fleet of 30,000 red vehicles. The Royal Mail Group’s letters and packages business covers the whole of the UK with a one-price-goes-anywhere universal service, six days a week. That is something that Royal Mail is proud of, and something that we, as customers, want. It works only because it is part of an integrated system. Amendment 66A would ensure that we cannot have a situation where everything is shattered into smithereens, people pick up the bits that they want, cherry picking, and the bit that needs most help and support—the bit that is most threatened—is left. The consequence of such a situation may be to undermine our universal service, so we seek support for Amendment 66A.
I shall comment, if I may, on government Amendment 69. Clause 42 provides for Ofcom to review the extent to which the universal service provider is bearing a financial burden by providing the universal postal service. Clause 43 provides for the regulator to consider mechanisms to provide for a burden-sharing arrangement, if Ofcom finds that such a burden exists. This is both a necessary and welcome mechanism in the Bill. Government Amendment 69 would prevent Ofcom from making such a review for a period of five years rather than three years, as originally proposed. This could be seen as a concession to those who want to resist a levy to share the burden of the universal service. We are a bit concerned about that and would like to hear the Government’s reasons. However, we can see the argument for a five-year transitional period in this case, as we have sought for the USO minimum requirements under Clause 35.
Government Amendment 70 is exactly in line with the provisions that have been sought by the Opposition. It is welcomed by both management and staff in Royal Mail. With the potential turmoil and uncertainty of privatisation, it is important to provide some guarantee that Royal Mail will be able to make long-term investment decisions in the provision of the universal service. If it could lose all or part of the universal service, that would surely be a deterrent to major investment in the network that guarantees that the universal service is provided. By guaranteeing the universal service provision to Royal Mail for a 10-year period, this amendment gives Royal Mail the confidence to make necessary future investment. We are delighted that the Government have listened to the submission on this question from this side of the House, and from those inside the sector who have argued for such an amendment.
Amendment 70A goes on to seek that a reasonable period of notice be given before any other operator can begin providing postal services required under a universal service obligation. Under Clause 43, Ofcom can make a procurement determination—in other words, allow some or all of the universal service to be provided by a company other than Royal Mail. Royal Mail and the postal sector desperately need stability. Royal Mail is undertaking a major programme of modernisation involving more than £2 billion of investment. This process, combined with an aggressive regulatory regime, means that the company is facing a very restricted financial position. The business must be given sufficient notice of such a drastic change if it is to be able to plan effectively and to continue to provide the services expected of it. We are pleased that the Government have listened to representations and agreed that there should be no procurement determination for at least 10 years. However, if such a drastic move were to be made to remove Royal Mail as universal service provider, Amendment 70A would simply ensure that a reasonable period of notice would be required to allow everyone to make the transition. We hope to hear an assurance to this effect.
Lord Jenkin of Roding
My Lords, I listened to the noble Lord, Lord Young, but there are anxieties that the protection of the universal service and the amendments he has moved may, to some extent, weaken the determination of the management of Royal Mail to make the maximum effort to achieve the efficiencies that are now widely recognised as being an essential part of the whole programme. The Bill contains measures which would enable the Government, on the advice of Ofcom, to take other measures, for instance going for procurement, to which the noble Lord referred, if somebody else is prepared to offer the service at a lower cost because they are more efficient. It would be difficult to preclude that happening by legislation. Similarly, on the question of the fund, if other providers are to contribute to a fund, is there not a danger that they will find themselves contributing to reinforcing the inefficiencies of Royal Mail? I have said in previous debates that the chief executive of Royal Mail is making a tremendous, herculean effort as a manager to secure the efficiency savings that can be made. She is the first to admit that there is more to do. Royal Mail recognises that it has made a start and that she has the apparent support of the workforce. There needs to be greater efficiency.
I read these amendments, tabled by the Opposition, as removing some of the pressure on Royal Mail to get ahead with that. The noble Lord shakes his head but that is the fear. I therefore hope that that amendment will not be accepted. The amendments proposed by my noble friend on the Front Bench seem to be an admirable way of giving the appropriate protection to ensure that the services have the opportunity to become as efficient as possible, so perhaps not surprisingly, I find myself supporting the government amendments. I hope that they will not be used so that competitors, who could offer other services, find themselves subsidising the inefficiencies of Royal Mail. I know that that is not my noble friend’s intention but nevertheless there are fears among some of the competitors that that might be the unintended consequence. If my noble friend can reassure me on that I will be very grateful.
Lord Young of Norwood Green
My Lords, I listened very carefully to what the noble Lord, Lord De Mauley, said in referring to the government amendments and in responding to my amendments. I want to pick up a point made by the noble Lord, Lord Jenkin. I point out to him the competition pressures of the marketplace that already exist for Royal Mail from the digital environment. Those are pretty significant, but the Bill also refers to a duty to secure the provision of a universal postal service. I note that Clause 28(3) talks about,
“the need for the provision of a universal postal service to be efficient”.
However, there are more than enough other external pressures on Royal Mail, and I think that it well understands the importance of the modernisation programme, which is going ahead at a pace. I do not mean to dismiss the noble Lord’s concern; I am just trying to address it in a slightly different way.
We will look carefully at the question of the unfair burden and the specific circumstances in which it would apply, although I feel that our concerns were addressed.
I said in my previous contribution that we would support the government amendment. We had some concern about the need for a change in the period from three to five years, certainly in relation to Amendment 69, but I suppose that it is hard for us to argue against the five-year approach, given that we sought it in the USO minimum requirements. However, I understand the point that the noble Lord, Lord De Mauley, was making.
Taking into account the responses from the Minister, I beg leave to withdraw the amendment.
Amendment 66A withdrawn.
Amendment 67
Baroness Dean of Thornton-le-Fylde
My Lords, Amendment 67 deals with the potential indebtedness of a universal service provider. It is an issue that we aired in the latter stages of Committee at the beginning of April—a long time ago. In that debate, the Minister, the noble Lord, Lord De Mauley, very kindly said that he would go back and look at the matter. Subsequently, he kindly wrote to me to try to give me some assurances. Unfortunately, his letter did not give me the assurances that I was seeking because he referred to conditions under Clauses 38 and 53. He referred to the fact that Ofcom “could” indeed include conditions or that it “could impose” a similar condition. Later in his letter, he said that Ofcom would be “able to impose” any conditions.
On the previous amendment, the Minister referred to the importance of the universal service provision requiring modernisation, but clearly you are not going to be able to invest in modernisation if you do not have the capital to do it. This goes to the heart of my concerns. It is not my intention to press this amendment to a Division but, as the Bill stands, I am perplexed as to why the Government will not agree either to make a commitment or to put something in the Bill in this regard—there are government amendments before us this evening—requiring Ofcom either to monitor or perhaps to intervene, rather than leave it entirely up to Ofcom. That, in itself, raises the question: how do you trigger Ofcom carrying out work that will deal with this issue? Will the trigger be a complaint from a member of the public or from a government department? Who would pull the trigger that would make such a review take place? My concern is genuine and I wonder whether it can be dealt with in the Bill. There is so much else in the Bill. It deals with charges and costs and a whole range of financial issues but it does not appear to deal with financial help for the universal service provider.
We are now at a late stage of the Bill and it is not my intention to detain your Lordships. However, I do not think that the House would be carrying out its function of scrutinising and improving legislation if we let the Bill go from this Chamber without some kind of reference to this matter—if not in the Bill itself then perhaps in the form of an assurance from the Minister at the Dispatch Box that the chosen universal service provider would have the financial health and well-being to be able to carry out the modernisation programme that across the House we agree is absolutely essential.
Lord Young of Norwood Green
My Lords, I support Amendment 67. It would introduce a new clause after Clause 34 requiring Ofcom to monitor indebtedness and giving it the power to limit the indebtedness of the universal service provider in relation to the overall value of the company.
In an earlier debate, my noble friend Lord Brooke of Alverthorpe drew attention to the case of the air traffic control company, NATS, which, when it was privatised, was very highly geared. It was limited to 100 per cent, which was still an extraordinarily high gearing to bear for the airlines group that bought the major part of the company. One aim of the public/private partnership was to bring in capital. My noble friend pointed out that real difficulties would be caused if a company coming into ownership of a utility borrowed most of the money to make the purchase and then found that it was unable to provide the capital needed to effect the changes and necessary modernisation in the operation—a point made by my noble friend Lady Dean. In the same debate, the noble Baroness, Lady Wheatcroft, said:
“Overgearing is as bad for companies as it for Governments, and it is something we need to be aware of as we move towards selling Royal Mail”.—[Official Report, 6/4/11; col. 1758.]
I wholeheartedly endorse the analysis made by my noble friend Lady Dean. This is an important issue and we await with interest the Minister’s response.
Viscount Eccles
My Lords, perhaps I may make a very brief intervention. The noble Baroness, Lady Dean, and I have a small piece of shared past. In fact, we have shared more than one but this one is financial. We were both involved in a company which had an unhappy ending because it got its indebtedness entirely wrong. As far as I am concerned, I am sure that it is a small piece of burnt soul, and no doubt the noble Baroness, Lady Dean, feels the same. Therefore, being really concerned about the gearing of a balance sheet, which is what we are talking about, is absolutely right.