Postal Services (Rural Areas)

Mike Weir Excerpts

Monday 2nd September 2013 Commons Chamber

[Mr Mike Weir (Angus) (SNP)]

Throughout the debates on Royal Mail, I have made it absolutely clear that I am totally opposed to the privatisation of the system. That is not for any particularly ideological motive, but because I am concerned about what will happen to postal services in rural areas such as those that I represent, which have already suffered a reduction in services.

The universal service obligation and the universal tariff are important to rural areas, but both are under threat, not only from privatisation, but because of other changes in the Postal Services Act 2011. The hon. Member for North Cornwall (Dan Rogerson) said, fairly, that we should not be too fearful of them, but those fears are well based. The problem is that if they come to pass, it will be difficult to put the genie back in the bottle, once we have privatised Royal Mail and lost those services in rural areas. In a previous debate, the Secretary of State made the point that the Royal Mail started as a letter service, but was now a package service that also delivered letters, which is very true. That is the key to the future of the Royal Mail service, but it is also why it is crucial that it remains in public ownership.

A reliable universal mail service is essential to businesses in rural areas and to efforts to encourage the growth of such businesses. If we are to re-energise small businesses in the rural economy, they must have access to a full, reliable and, above all, reasonably priced postal service that ensures that they can send and receive packages quickly and efficiently. Ministers have recently taken to justifying the privatisation on the grounds that, as a public service, the postal service has to compete with schools and hospitals for scarce public funds. That is emotive, but completely the wrong way to look at the service. The postal service must be recognised as an important economic driver to the local economy and one of the keys to building local businesses in the internet age.

The Government and local authorities are investing massive sums in bringing improved broadband to rural areas. That presents a huge opportunity for building up the mail system. For example, the Scottish Government have entered into a contract with BT that will ensure that 95% of the population have access to fibre-optic broadband by 2017. Obviously there is a long way to go, particularly in the more rural areas, but we are getting there. That is an important development. Similar moves are being made in other parts of the UK—I recognise that the Government have made money available for that. The extension of fibre-optic broadband will improve the ability of small and medium rural businesses to operate over the internet and give an important boost to the rural economy. However, that will happen only if they have access to a reliable and affordable postal service.

As I have said, it is not only privatisation that poses a threat to that service, particularly the “affordable” element. There is absolutely nothing to prevent Royal Mail or its new private owners from introducing zonal pricing in any service other than the universal service. There is also absolutely nothing to prevent Royal Mail from introducing, for example, a different first-class service—perhaps an inter-city first-class service serving the major urban areas at a lower cost than the universal service—in the face of the competition that will undoubtedly exist. That could lead to a situation in which urban businesses had access to a lower-cost service than rural businesses. Such a move would not breach the obligation under the Act. Indeed, it could be beneficial to large urban areas and larger users as competition developed, but it would, as so often happens, leave rural areas out in the cold with a reduced service. I remind Members that Richard Hooper’s original report made the point that large businesses, rather than small ones, had been the beneficiaries of the previous liberalisation of the postal service. That process could be intensified by the privatisation of the service, which would run against the very ethos of the postal services, which was to ensure that all areas of the country were served equally at the same cost.

Last year, Ofcom decided that price caps would be removed from all Royal Mail products except second-class mail. In my view, the result is that the only truly universal service is now second-class mail. First-class mail could be priced out of the reach of many people. With the price of a first-class stamp already 60p—one of the highest prices in Europe for such a service—how many people and, crucially, small businesses will continue to send first-class mail? There is nothing to prevent Royal Mail from raising the price of the service to such an extent that it ceases to be used.

I have raised the question of zonal pricing with Ofcom, and it has confirmed in a letter to me that it does not have any powers to prevent Royal Mail from introducing a pricing variation related to user location, as the Postal Services Act 2011 limits a regulator’s powers to universal services and access. That is the problem. Ofcom cannot prevent Royal Mail from introducing a price rise now, never mind if it were to fall into the hands of a private operator. Given its previous attitude to price capping, there is no guarantee that Ofcom would not allow unrestricted pricing for the first-class service.

Even if Ofcom decided to use its powers, they would be insufficient to protect the universal service. Under the Postal Services Act 2011, Royal Mail is obliged to continue the universal service provision, and it is the only organisation to fund it. The hon. Member for North Ayrshire and Arran (Katy Clark) spoke at length about the fact that the Communication Workers Union had raised the question of cherry-picking. What will happen if services provided by others start to eat into those provided by Royal Mail and damage the universal service? What powers does Ofcom have to deal with such a situation? Would the Government close down a competitor service? The answer is clearly no; they would not do that.

The Postal Services Act sets out what could be done in such circumstances, and it is worth noting that the decisions would be taken by Ofcom in the first instance. It would make a recommendation and a Minister would then decide whether to accept or reject it. If the service were in danger, Ofcom would have to consider the matter. It could decide to review the minimum requirements of the obligation, which could result in a reduced service that would be disastrous for rural areas. It could also decide on the establishment of a compensation fund. Importantly, however, such a fund would have to be paid for by all users of the services and not by the companies that deliver the mail. That could give rise to serious difficulties. It could also lead to substantial price increases for consumers.

Ofcom could also impose general service conditions on all or some other providers. However, that is highly unlikely to be effective if, as seems likely, the other competitors would be found only in relatively small geographical areas and Royal Mail were the only provider in rural areas. Does anyone really think that a future Government would legislate to ensure that TNT, for example, should set up a nationwide service in place of the service that it provides at present?

Ofcom could allow for the tendering of the universal service, but does anyone seriously believe that that would work, when the very reason for its being considered would be the fact that Royal Mail could not manage it? If such an exercise were to be carried out, what would be the cost? The Communications Workers Union has pointed out that an executive of TNT in the Netherlands has been reported as describing the universal service obligation as

“a kind of Jurassic Park and we should be rid of it”.

We do not yet know what form the sale of Royal Mail will take. It could go out to the public, or it could involve a sale to one of those companies. Either way, experience tells us that when industries are privatised, the chances are that they will fall under the control of one of the multinational companies. Let us look at what happened in our energy industry. The only consumer protection there is the regulator, and does anyone in this Chamber really feel that consumers have been protected by the energy regulators?

There are huge problems, and as I say, once Royal Mail has been sold, it will be potentially too late to go back. At present, however, Royal Mail is making a profit and there is huge potential for growing its services in conjunction with the roll-out of fibre-optic broadband. Instead of selling it off, we should be constantly ensuring that Royal Mail is treated as an integral part of our infrastructure, in the same way as roads for example, and ensuring that it blossoms in public ownership.

I had hoped to say more about the post office network, which is also very important in rural areas, but I am unfortunately running out of time. Post offices play a part in the delivery of mail, because they provide a pick-up and delivery point in many rural areas. No one in the Chamber will be unaware of the torrid time that the post office network has had over the past decade, when over 34% of post offices have closed. Although there is no closure programme at the moment, it does not mean that post offices are not still struggling and, in some cases, closing. Over the last couple of months in my constituency, two of the remaining sub-postmasters have decided to retire, and in the process the post offices have been transferred to other businesses. The service has been reduced to a post office local service, and that means a lesser service for consumers.

--- Later in debate ---

[Jo Swinson]

It is up to Parliament to defend that universal service. That lies in Parliament’s power. We have protections in place through the 2011 Act because the Government recognised that that is an important service. [Interruption.] Members heckle from a sedentary position, but I highlight that it was the coalition Government who enshrined the universal service in legislation, not the previous Government. I think that it is incumbent on all Members of Parliament to ensure that we protect that, because it can be changed only if Members of Parliament decide to do so. I can certainly give an undertaking that I have no desire to do so. Perhaps Opposition Members are worried that they might feel under too much pressure and cave in; that is all I can imagine must be the cause of the concerns they are raising.

[Mr Weir]

The Minister is ignoring the point that has been made consistently: the universal service might become endangered owing to privatisation and increased competition. She can stand there and say that it is enshrined in legislation, but if Royal Mail can no longer deliver, there is very little that Parliament can do to stop it collapsing; there are only Ofcom’s various processes, which, as I explained in my speech, are unlikely to work.

[Jo Swinson]

Of course, Ofcom, as the regulator, has a range of tools. The nub of the hon. Gentleman’s point—there is a sensible point that he is making—is that it is vital that Royal Mail can continue to deliver as a successful company, and one of the challenges it currently faces is its lack of ability to invest. The postal service market it changing rapidly—parcel delivery, in particular, is very much a growth area, as other hon. Member have outlined—and we need to ensure that the Post Office has the capacity to react to changing circumstances. That is why it needs to be able to access private capital and why that is a way of protecting the universal service obligation, rather than the contrary.

Time is short and I would like to ensure that I mention post office matters, but on the issue of profitability and Royal Mail, which various hon. Members raised, I will put into context the challenges it faces. Competitors are investing significantly in their postal service markets and in improving their technology to deal with that. For example, Deutsche Post has invested more than €700 million over the past two years alone in its mail facilities and infrastructure and is focusing on another €750 million of investment by 2014. That is the type of investment that Royal Mail, in its market, ought to be looking at and that others in similar markets are looking at. That is why accessing private capital will be so important.

The debate has also covered the post office network. I think it is important to point out clearly that Post Office Ltd is not for sale; as of 2012 it is formally separate from the Royal Mail Group and remains wholly owned by the Government. Issues of Government contracts have been raised. I point out to hon. Members that Post Office Ltd has won 10 of the 10 Government contracts it has bid for since 2010, and it has done so on merit.

The hon. Member for South Down (Ms Ritchie) talked about the important opportunity of high street banking being provided through post offices, and I absolutely agree. It is pleasing that 95% of high street bank accounts can now be accessed through local post offices. That network is very important, particularly in areas where many of the banks have closed their branches. I encourage hon. Members to bring that to the attention of constituents, as they might not be aware of it. Also, the Post Office is currently undertaking a current account pilot in the east of England, so current accounts can be available from the Post Office as a financial services provider across the rest of the country.