Universal Postal Service

Mike Weir Excerpts

Thursday 17th July 2014 Commons Chamber

[Mr Mike Weir (Angus) (SNP)]

I fully support the motion. From what the hon. Member for North Ayrshire and Arran (Katy Clark) said, the Greater London authority’s motion also sounds interesting and worthy of support.

The universal service obligation is vital to rural areas of Scotland. It is crucial not only for those who receive mail, but for the many small businesses that rely on the service to get their products to customers. The internet is a two-way street, but only if there is a reliable and cost-effective postal service. We are now told that that service is in imminent danger.

We should not be in this position. The danger to the universal service following the extension of competition, the privatisation of Royal Mail and the Postal Services Act 2011 was entirely predictable and, indeed, predicted. The only surprise is that it is happening so soon. Royal Mail cannot escape all blame because, when the Act was going through this House, we were told repeatedly by the Government and Royal Mail that it would not endanger the universal service. They were adamant that the modernisation project would keep prices down and protect the USO. They said that the existence of the USO was a huge plus for the business.

Less than a year after the flotation, Royal Mail is finding that the brave new world of private enterprise is full of difficulties. The company wants Ofcom to undertake an urgent review of the USO because it cannot guarantee that it will remain sustainable due to the impact of privatisation and, in particular, the expansion of TNT, which the hon. Member for North Ayrshire and Arran described in great detail that I will not repeat. Other competitors are cherry-picking the most profitable routes, which is putting pressure on Royal Mail and on its rural routes. That is a far cry from the claim when it was privatised that the universal service was a huge plus for Royal Mail, as it was the only company that guaranteed that it would deliver to every address.

Ofcom’s role, as set out in the 2011 Act, is bound by conditions that mean that, even if it takes on board Royal Mail’s request to look at the operation of the USO, there is no guarantee that it will take urgent action to tackle the problem. Royal Mail is seeking a review by Ofcom under section 45 of the Act, which is headed, “Fairness of bearing burden of universal service obligations”. I remind Members that the options that Ofcom has under those provisions are very limited. The first limitation is that it will inevitably take time for Ofcom to undertake the necessarily detailed review of the universal service. If Royal Mail is correct about the impact that TNT is having, do we have time to wait for Ofcom to decide whether to undertake the review, come to a conclusion and bring in its changes?

[Sir Robert Smith]

On that point, it would obviously make sense that the sooner it starts, the sooner it will be able to finish the review.

[Mr Weir]

I do not disagree with that; in fact, I am very keen for it to start, but even with the best will in the world, given previous investigations of this nature, it will take time, and time may be what we do not have. Does anyone really believe that it will be done in a few months? What will be the state of the USO if it takes 18 months or even two years to undertake such a review? What will Ofcom do? Does anyone in the Chamber really believe that the Government would go to competitor companies and say, “You cannot continue to expand” or “You must contract”? I very much doubt that.

It seems to me that its options under the 2011 Act are constrained. Under section 8—no one has mentioned this point so far—the Government could review the minimum requirements in terms of section 33, and therefore reduce the minimum requirements of the service. We should remember that under section 29 of the Act, at all times when securing the universal service Ofcom must also take into account

“the need for the provision of a universal postal service to be financially sustainable,”.

Does that not also open the door, for example, to raising the price of the universal service? I have previously made the point that with the abandonment of price controls over all other services, second-class post is now the only truly universal service, and even that could be at risk under the proposals. Many small businesses have already seen a rise in costs since privatisation, with an increase in first-class costs and small package rates.

The hon. Member for Ealing North (Stephen Pound) recently sponsored a meeting in this House at which Royal Mail presented its case for a review of the USO. I asked it directly whether it was seeking a diminution of the USO, but it denied that. I cannot say that I entirely believed that, but we must be aware that it is one possible outcome of a review, whether or not that is the company’s intention.

[Mr Reid]

The hon. Gentleman is well aware that the USO can be changed only if there is a vote in both Houses of Parliament, and I cannot believe that any sane political party would vote to reduce the USO.

[Mr Weir]

I am not sure that the present Government are sane political parties, but I will let that one go.

The Government will rightly point out that the 2011 Act enshrines the USO in law for the first time. That is true, but during the passage of the Act many of us asked specifically what will happen if the company comes back and says that it can no longer sustain the service. Royal Mail has been privatised, investors have made their profits, and we may well be about to explore the answer to that question.

[Tom Blenkinsop]

When I asked the current Defence Secretary whether the USO could be changed by statutory instrument, he said that was not the case. He later wrote to me saying that it was the case.

[Mr Weir]

The hon. Gentleman is right, and as another Member said at that time—I think it was the Minister—such a measure could be rushed through in a wee room upstairs very quickly. That is true, and that is the danger we are now in with the whole process. Will the Minister make it abundantly clear today that protection of the USO was an essential condition of that privatisation, and that whatever the outcome of the review she will not agree to any diminution of the USO? As I said, that could be an outcome of this process, and sometimes we should beware of what we wish for.

[Ian Murray (Edinburgh South) (Lab)]

The hon. Gentleman is making an incredibly powerful case about the potential consequences on the USO that Ofcom may bring forward. Will he confirm that a statutory instrument upstairs would not necessarily be a full vote of both Houses? It would be a statutory instrument that goes through both Houses.

[Mr Weir]

Indeed, that is my understanding.

[Mr Reid]

Will the hon. Gentleman give way?

[Mr Weir]

No, I have given way enough already.

[Mr Reid]

On a point of order, Madam Deputy Speaker. Am I right in saying that the procedures of the House are that an affirmative resolution requires a vote of the whole House, not just a vote in Committee?

[Madam Deputy Speaker (Mrs Eleanor Laing)]

The hon. Gentleman is correct, and it is interesting that he has taken the trouble to inform the House of that fact this afternoon. I thank him for that, but I point out that the hon. Member for Angus (Mr Weir) has the Floor and will continue his speech.

[Mr Weir]

Thank you, Madam Deputy Speaker. What else could Ofcom do? It could look at section 46 of the 2011 Act, “Contributions for meeting burden”, which we have already discussed, and recommend that all competitors contribute to the cost of running the universal service. As Ofcom has pointed out, however, it is debarred from doing that for a period of five years unless the Minister specifically directs it. Even if the Minister were to direct it, how long would it take to set up such a system, set out the level of contribution, and get it up and running? If the universal service is now in such a condition that Royal Mail is worried about its continuation, do we have time to implement such proposals?

Under the Act, the Government might try to find a company other than Royal Mail that is willing to take on the universal service, but how many of us think that is likely given what we already know about the operation of other companies in the postal market? They are cherry-picking the profitable services, not building a system to compete with Royal Mail throughout the country.

Royal Mail suggests that the way forward is to introduce general universal service conditions that would impose conditions on its competitors to prevent them from cherry-picking urban routes, but also mean that they have to deliver to a much wider geographical area. Again, I leave it to Members to decide whether that is likely, but, even if it is, how long will it take to do that when we are told that we are facing an imminent crisis?

[Sir Malcolm Bruce (Gordon) (LD)]

Does the hon. Gentleman acknowledge that the biggest threat to the universal service obligation for Scotland is independence, and will he tell the House exactly what a universal service obligation would mean in an independent Scotland? What would it cost to post something from Carlisle to Dumfries?

[Mr Weir]

The right hon. Gentleman is being typically ridiculous. The universal service is under threat not because of Scottish independence but because of what is happening in this House. It is under threat now—that is what Royal Mail is saying to us—and it is privatisation, supported by him and his colleagues, that is leading to that. Under independence we have committed to bring Royal Mail operations in Scotland back under public ownership, where they should have stayed, and ensure that there is a Royal Mail service in Scotland. If we stay in the Union, we are told not only that we may not have a universal service, but that prices may go up and things may disappear. The right hon. Gentleman should consider a bit more before making such daft interventions.

[Mike Crockart]

Will the hon. Gentleman give way?

[Mr Weir]

No, I have had enough from the Liberals—[Interruption.]

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order. The hon. Gentleman is not taking interventions. Hon. Members can ask once, perhaps twice, but three times is too many.

[Mr Weir]

I have already taken many interventions from the Liberal Democrat Benches.

Before any of those options can be taken, Ofcom has to make recommendations to the Secretary of State, who then decides whether action is necessary and what action should be taken. Only at that point will any part be played in the whole process by Parliament, perhaps many months if not years after the process has begun. Nothing is likely to happen before the general election, and all that time TNT and others will continue to expand, making it ever more difficult to construct a solution. As Ofcom points out in its briefing for this debate, the competitors have also made complaints about Royal Mail and some of its practices that they claim are unfair, so if this is opened up we run the risk that of all sorts of other things creeping in.

There seems to me to be a contradiction at the heart of the Postal Services Act. We have a private company that has to undertake the delivery of a vital public service, and the only way of enforcing that is through a regulator, about which I have an uneasy feeling given the way the railway industry operates. I believe we need to look further than that and consider wholesale changes to the Act to allow much faster action to protect the USO. I opposed the privatisation of Royal Mail; I still think it was a drastic error, but as the right hon. Member for Gordon (Sir Malcolm Bruce) has pointed out, in September the people of Scotland have a chance to do something about that and ensure that Royal Mail becomes a public service.

--- Later in debate ---

[Ian Murray]

I did not want to go into the independence referendum arguments, for two simple reasons: first, they are incredibly complex, and secondly, the issue is not entirely relevant to the debate. I think that we are all slightly sick of the independence referendum. I hoped that we could be “independence free” today, but perhaps that is not possible after all. However, the hon. Gentleman is absolutely right. Whichever way we view the issue, it is clear from the geography of Scotland that it would be much more difficult and expensive to deliver postal services there following independence. Scotland’s postal services are cross-subsidised because of that geography. That is one very simple argument about what would happen to postal services in an independent Scotland.

[Mr Weir]

rose—

[Ian Murray]

I have awoken the beast of Angus. If he will excuse me, I will not give way because of the time constraints—or perhaps I will, just for the sheer fun of it.

[Mr Weir]

The hon. Gentleman talks of the geography of Scotland, but what we are debating is whether the universal service obligation will continue within the Union. It is the Union that is a danger to the universal service throughout the United Kingdom, not Scottish independence. Scotland, like any other country, can run a postal service to suit Scottish needs.

[Ian Murray]

I think the hon. Gentleman should go to see the doctor that my hon. Friend the Member for Hayes and Harlington (John McDonnell) sees and perhaps get some advice on how to calm down a little about the independence referendum.

I am looking at the time, so I will conclude now by paying tribute to our posties up and down the country. I went on a round last year with Michael Lunn, one of my local posties from the Strathearn road delivery office, in the most tenemental part of my constituency. I can assure hon. Members that it was quite a hard round without lifts in those tenements. Not only did he deliver the mail efficiently, but he knew where people lived, which buzzers to press to get in when people were at work, whether people were on holiday and whether people were expecting parcels. He knew everything about anybody in his round. When we put it in that context, we see that it is not just a postal service; it is a service to all our communities. It is a valuable social service that we should make sure we do not jeopardise, because if we do, that will be detrimental to everyone in the country.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is a pleasure to respond to today’s constructive debate. I very much congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing it. As a fellow proud Scot, I am pleased that so many Scottish Members have contributed to it, but I am also pleased that all four nations of the United Kingdom have been represented.

The issues I wish to touch on in my summing up are: the importance of the USO; the concerns raised by various hon. Members about competition; and the Ofcom review, which is the main subject of the motion. We have heard from Members from all parts of the House about how vital the universal service is for rural areas. The hon. Member for Ynys Môn (Albert Owen), my hon. Friend the Member for Argyll and Bute (Mr Reid), and the hon. Members for North Ayrshire and Arran and for Angus (Mr Weir) all made points about that eloquently. We were reminded by my hon. Friend the Member for Northampton South (Mr Binley) that this is not purely a rural issue, as the universal service is vital to many towns and suburban areas. It is right that postal workers are held in great esteem in many communities, as the service is hugely important not only to our local economies, but more widely, in society and in communities. That is why, as my hon. Friend the Member for Argyll and Bute pointed out, we have set out the USO in primary legislation—my predecessor, my right hon. Friend the Member for Kingston and Surbiton (Mr Davey), made sure it was written into the Postal Services Act 2011.

I appreciate that the right hon. Member for Neath (Mr Hain) is no longer able to be in his place, but I am sure he will read my remarks in Hansard in order to follow the reassurances I can give about his concerns on the definition of the delivery of a six-day-a-week service to every address. He seemed to take the view that that was not a significantly well-defined definition. Section 31 sets out what must, as a minimum, be included in the USO. On the delivery of letters and other postal packets it states:

“At least one delivery of letters every Monday to Saturday—

(a) to the home or premises of every individual or other person in the United Kingdom, or

(b) to such identifiable points for the delivery of postal packets as OFCOM may approve.”

Clearly there are very few addresses that are, for whatever reason, inaccessible and for which Ofcom can, in those extreme cases, approve a collection point. That definition is very clear, we should be reassured by it, and it is right that this House and the other place have prioritised it by making sure it is in primary legislation.

[Mr Weir]

I understand what the Minister is saying and I acknowledged that this was the first time the USO was in legislation. Let us consider one thing that Ofcom can do in a review. I believe that section 43(8) states that its

“recommended action may consist of one or more of the following—

(a) the carrying out of a review under section 33 (review of minimum requirements)”.

So if Ofcom does carry out a review under the Act, it could recommend a reduction in the minimum requirements. Will she assure us that she will not accept any such reduction?

[Jo Swinson]

I am delighted to do so. I have given such assurances from this Dispatch Box, as colleagues have done. Speaking for my party going into the next general election campaign, I can say that that will be our position, and I am sure that other parties can also give their assurances on that. I think that there is absolute consensus across the House that that is vital and should be protected. So it is not something that would be changed. In addition, as we have discussed in the debate, to do so would require a vote in both Houses of Parliament, and that is a significant protection. I hope that that reassures the House on the importance the Government attach to the USO.

Members also raised concerns about cherry-picking and end-to-end competition. Of course competition is not new in postal delivery. It has been more than 10 years now since the EU postal services directive opened up the market. At the beginning, the effect was felt much more significantly in the collection and sorting of mail, with Royal Mail still being responsible for the final mile. That is the area in which there has been more competition.

The right hon. Member for Neath was right to highlight the fact that the expensive parts of postal delivery are to the address not in central London, central Swansea or central Glasgow but in those much more inaccessible, remote locations, where the costs are significant. Of course the principle of cross-subsidy, which was mentioned by my hon. Friend the Member for Northampton South, is a crucial part of how the universal service can be delivered. One of the ways in which the structure is created so that that cross subsidy can continue is for Royal Mail to have a lot of flexibility—much more than it used to have—to charge different prices to different operators. It can also use zonal pricing so that it can charge more for delivery to remote rural areas when it is being used for that final mail delivery, which accounts for the vast majority of competition that exists within the mail delivery market. That enables it to recoup the costs that it incurs from providing that universal service.

Competition can clearly help to drive efficiency, which I am sure people would agree is a positive thing, but it stands to reason that if that competition took a significant portion of the market, especially in terms of end-to-end competition, it could have an impact on the universal service. That is because zonal pricing is particularly related to the competition that exists when Royal Mail is still delivering the final mile. That is why we have put in place a regime in which Ofcom monitors both the situation and what is happening in the postal market. If necessary, it has further powers to act to level the playing field.

I just want to touch briefly on the quantum that we are talking about today. Members have mentioned TNT delivery, but in the last full year, in 2013, 14.6 billion items were delivered—that is the size of the mail market. Of those 14.6 billion items, 14.544 billion of them were delivered by Royal Mail. I am not saying that Members are wrong to be concerned, but I want to put the matter in context. We are talking about a very small portion, 0.38%, of the overall mail market. Members were right to say that it has grown quickly. In 2012, it was 0.11% of the market. Within the space of a year, the volume of items delivered in end-to-end competition more than tripled. It is important that this issue is looked at closely by Ofcom and that it is kept under review.

My hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) pointed out that perhaps Royal Mail needs to have time to adapt to changes. It is clear that we need to keep our eye on the rate of growth, but we are not yet talking about a level or a volume that would cause concern about the impact on the profitability of Royal Mail. Even Royal Mail accepts that the concern is more to do with the potential for that to happen rather than the situation as it is at the moment.

I just want to clarify which review we are talking about today. Two different reviews are being talked about. Some Members have mentioned section 44. I think that the hon. Member for Angus was looking at a copy of the Bill, because by the time that Bill became an Act, it was section 44 rather than 43. That is the review of the financial burden of the universal service on the provider that Ofcom can be directed to undertake by the Secretary of State. That is not the same as the review that Royal Mail is currently asking for, which is about end-to-end competition. That review is something that Ofcom has said that, as part of its wider monitoring regime, it will do in any event by the end of next year, but it is happy to bring it forward if necessary. This is an area in which there is no specific Government power to direct. I hope to reassure the House on this point.

There is a clear desire for Ofcom to keep a close eye on the impact of competition on the universal service. It seems that there is almost an assumption that that is not currently being considered, but I can tell the House that that is absolutely not the case. I have spoken to Ed Richards, who is in charge of Ofcom, and, as it happens, I will be meeting him later today, which is good timing. Ofcom is clear that it is monitoring the situation in the mail market carefully and intensely. It is not waiting until the end of next year; it is doing so on a monthly basis and is very much on the case, ensuring that it has the information. It also has the power to get access to much more detail than any individual player in the market, having access not only to the details of Royal Mail’s financial position, but also to the business plans of TNT and any other providers, so its visibility is excellent. The review will be started by the end of next year at the latest, but Ofcom has said that it is happy to start earlier if it sees any reason for market changes or any financial impact on the universal service that would mean that it needs to be started earlier.

I am conscious of the time, so I will not stray into the Scottish independence issues, tempted though I am to do so. The exchange between the hon. Members for Edinburgh South (Ian Murray) and for Angus set out that the matter is relevant and that there would be consequences in an independent Scotland for deliverability and the price of the postal service.

I want to finish by picking up on the point made by the hon. Member for Hayes and Harlington (John McDonnell), because he made a sensible and constructive suggestion that, given the level of interest in the House, which is clear from the debate’s attendance and from the correspondence that I receive as a Minister, it would be helpful for Ofcom to be able to meet MPs to discuss the issue. It is clear that the appetite is there and it would be useful for the regulator to hear MPs’ concerns directly and not just through Hansard. It would also be useful for hon. Members to be able to have a frank discussion with Ofcom about its approach, which I believe would lead to a great deal of reassurance. As I said, I will be meeting Ofcom later this afternoon and so will have the perfect opportunity to put that request. I look forward to hearing the response of the hon. Member for North Ayrshire and Arran to the debate.