Postal Services (Scotland)

Margaret Curran Excerpts

Monday 11th October 2010 Commons Chamber

[Gregg McClymont]

My hon. Friend raises a very good point.

There is very little in statute and a limited number of criteria in the licence that Royal Mail is obliged to fulfil in terms of post office outlet numbers. That did not matter in the past because outside the formal rules the Government, as owner, could and did order Post Office Ltd to maintain the current number of post offices. However, it will matter in future. The statutory or licence conditions, if any, imposed on Royal Mail will determine the future of up to 4,000 of the existing 11,500 post offices.

[Margaret Curran (Glasgow East) (Lab)]

I, too, congratulate my hon. Friend on securing this debate. As has been evident so far, post offices are highly valued by the British public. Does he agree that instead of post offices facing a cuts strategy it would be much better if they were facing a growth strategy? Surely as part of that, the Government could, for example, insist that Royal Bank of Scotland, a state-owned bank, signed up to the post office universal banking counter service. In fact, in these days, we do have opportunities to grow post offices. What is his view on that?

[Gregg McClymont]

My hon. Friend makes a good point. I am sure that the Under-Secretary will want to address a future strategy for growing the Post Office, and not letting it fall into decline.

I said that 4,000 post offices in the UK are at risk. Individuals with industry experience suggest that between 2,500 and 4,000 post offices would be at risk if the existing licence criteria remain unchanged. Scotland is likely to be at greater risk given its disproportionately large number of rural post offices. That is why I say that maintaining the current level of public service means not only retaining existing conditions for Royal Mail’s licence, but adding new criteria. I would be grateful if the Under-Secretary clarified which obligations will be maintained, and to which body they will apply, if Royal Mail is to be privatised.

I also hope that the Under-Secretary will agree that the scope of the universal service obligation must be a decision for Parliament, and not delegated to the regulator or to an individual Minister, even one as capable as the Under-Secretary. I say that as a matter of both pragmatism and principle: pragmatism because a Minister or the regulator would be subject to enormous pressure from the privatised entity to reduce the required service; principle because, if there is a will to amend the universal service obligation, it must be done transparently and publicly by Parliament. My constituents and those of my hon. Friends care deeply about the service that Royal Mail and the Post Office provide. They demand no less.

Moving from the universal service obligation to the future of the inter-business agreement, what happens if the current exclusive agreement between Royal Mail and Post Office Ltd is ended? There is a danger that the Post Office will be undercut unfairly by competitors. For example, a supermarket chain could say to Royal Mail, “We can provide post offices more cheaply than Post Office Ltd. We will include no loss-making outlets.” To avoid such an outcome, there needs to be a level playing field. Fair competition would depend on a strictly written set of licence criteria. Any business that wished to compete for supplying post offices to Royal Mail must fulfil exactly the same objective licence criteria on a national basis as Post Office Ltd currently does. The contract for providing post offices must be set on just such an aggregated basis, otherwise bidders will cherry-pick the profitable post office locations.

The Government have given a welcome guarantee that Post Office Ltd will remain in public ownership when Royal Mail Group is broken up, but, without a guaranteed revenue stream from Royal Mail, many branches will be at risk from public spending cuts. I fear that some of the Under-Secretary’s colleagues perceive privatisation simply as a way to generate a commercial incentive for reducing the demand for post offices, to which the Government will then acquiesce. Can the Under-Secretary confirm whether the public subsidy to Post Office Ltd will be maintained? I am sure that we would all like an answer to that question.

I urge the Under-Secretary to adopt measures that protect current postal services to the public. For deliveries, that means maintaining the current number. For post offices, the Government have two choices. They could adopt an exclusive supply arrangement between a privatised Royal Mail and a publicly owned Post Office, or they could set the universal service obligation criteria at a level that provides for maintaining the current number of post offices. Long-term protection of Scotland’s postal services means giving Parliament the power to agree the level of service and any subsequent changes to it.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for giving me this opportunity to begin a debate that we will have over the next few weeks and months about Royal Mail and the Post Office. If I am not able to answer all his questions tonight, he will understand why, and I am sure that he knows that all his questions will be answered over the weeks and months to come. I hope that he will like many of the answers that he hears.

Let me start by saying that I am absolutely committed to the universal postal service. As Minister for both postal services and consumer affairs, nobody is more keenly aware than I am of the critical importance of postal services to our communities, small businesses and the country at large. That is why I will introduce a postal services Bill in this Session to ensure that the universal postal service remains one that we can rely on for the future and that will safeguard those two separate but highly valued businesses, Royal Mail and the Post Office.

The hon. Gentleman raised concerns about the post office network in Scotland. The Government fully recognise the important social and economic role played by post offices in communities throughout the UK and particularly in rural and deprived urban areas, whether in Scotland or elsewhere. More than 99% of the population live within 3 miles of a post office and 93% within 1 mile, and it serves 20 million customers per week. It is a fantastic network.

We remain wholly committed to maintaining this nationwide network of post offices. Let me be clear about what that means: we will not repeat the mass closure programmes of the previous Government, which saw around 5,000 post offices close across the UK, including 600 in Scotland and six in the hon. Gentleman’s constituency. Labour’s closure programmes tore the heart out of rural communities up and down the UK: I opposed them in opposition and I have no intention of repeating them in government. Instead, we have protected £180 million of Government funding for the Post Office in 2011-12—before the spending review has been announced—to maintain the network at around its current size, with further funding for future years to be finalised within the spending review and announced shortly.

The hon. Gentleman raised a point about the future relationship between Royal Mail and the Post Office. Our starting point must be to recognise that the Post Office and Royal Mail are different businesses facing different challenges. This Government are committed to safeguarding both, but our approach must reflect those differences. It is a commercial reality. I have already made it clear that the Post Office will not be for sale—as the hon. Gentleman recognised—so the two businesses will need to have a different relationship in the future. This should be seen as a real opportunity for the Post Office: separation will give its management greater freedom to focus on growing its revenue and getting the most out of its branch network.

There should be no doubt that Post Office Ltd and Royal Mail will continue to work closely together in the future. Post offices carried out more than 3 billion mail transactions for Royal Mail last year, and the two are closely entwined in the public mind. These companies need each other, and that will continue to be the case after separation.

Our reforms will not end there. We want to see a sustainable network offering a wider range of financial and Government services to boost revenues for local sub-postmasters and the network. We are working intensively across government to examine the scope for the Post Office to act as a “front office” for the Government, where local post offices are the natural place for citizens to access face-to-face Government services, and where the Post Office has an important role in supporting e-government, for example helping people to access online Government services through their local branches.

We are also considering the case for a Post Office bank. We must remember that the Post Office already offers a wide range of financial services and is increasingly taking on many features of a bank, but I want to go further and to see a situation in which 100% of current accounts are accessible at post offices and 100% of people know about that. Of course, those are ultimately commercial decisions for the banks involved. However, as a Government, we have a role to play in encouraging that process and explaining to the banks how important we think it is. Hon. Members can rest assured that we are doing that.

There are interesting opportunities, too, in the growing trend of community groups, charities and local people getting involved in the running of their local post offices. That is what the big society is all about: Government getting out of the way and letting the people who know best have a real say in running their services. We are fully behind this trend and are open to all ideas that can contribute to a vibrant and sustainable post office network on which communities can rely.

The hon. Gentleman also raised concerns about how the universal postal service must not be downgraded as a result of any Government action. Let me start by explaining why the Government are taking action. In 2008, the hon. Gentleman’s own party commissioned Richard Hooper to lead an independent review of the postal services sector, seeking recommendations to sustain the universal postal service, so that many of our small businesses and communities could continue to rely on them. However, those recommendations were never implemented, for reasons that I will not go into because I wish to spare the hon. Gentleman the embarrassment. However, for the past two years Royal Mail has continued to suffer under the perfect storm of a declining market in letters, a volatile and crippling pension deficit, and frankly outdated working practices, which continue to cause problems despite the welcome modernisation agreement.

In June this year, my right hon. Friend the Business Secretary asked Richard Hooper to update his report. His latest diagnosis, published in September, is stark, and I recommend that hon. and right hon. Members read the report. Royal Mail’s financial position is worse now than it was in 2008. The decline in the letters market has been faster and deeper than predicted. In the UK, we now send 13 million fewer items a day than we did just five years ago. The trend is set to continue, with worldwide volumes predicted to fall by 25% to 40% over the next five years alone. They dropped by 7% in the UK last year, and by over 12% in the United States. This is a serious issue that we have to tackle.

Fortunately, it is not all bad news. The online revolution has opened up a series of opportunities—we all know about parcels and packets—but as Richard Hooper has made clear, they do not offset the decline. If we are to seize those opportunities and make the best of them, Royal Mail urgently needs more modernisation and investment, yet modernisation takes capital and commercial disciplines that I am afraid Royal Mail simply does not have at the moment. Let us remember that the taxpayer has made £1.2 billion available to Royal Mail since 2007 to support the current modernisation programme.

Frankly, if we are serious about dealing with the problems, we will have to modernise and invest much more. So where will the money come from? I am afraid that economic times have changed. There is enormous pressure, as every Member must realise, on the public purse. We simply cannot expect taxpayers to continue to provide the ongoing investment that Royal Mail needs when it could be supplied by the private sector, as has been shown with Deutsche Post in Germany, which has seen massive investment since it was first floated in 2001. This is not just a question of cash: Royal Mail needs private sector disciplines and the freedom from Government intervention to innovate and take the right commercial decisions to secure its future.

I say to the hon. Gentleman that we have a choice: to do nothing and allow Royal Mail to slip into a slow decline, requiring ever-increasing handouts from the taxpayer; or to take action, which I will come to.

[Margaret Curran]

The Minister referred to working practices that he believes are causing difficulties. Will he outline what those practices are, and say how the Government intend to change them?

[Mr Davey]

I refer the hon. Lady to the agreement reached by the Communication Workers Union and Royal Mail recently, which looks at significant reforms to working practices. For example, I strongly support the fact that the CWU has agreed to a reduction in the number of sorting offices in order to reduce costs. That kind of change is very welcome.