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Royal Mail

Volume 485: debated on Tuesday 16 December 2008

I wish to repeat a statement made a little earlier by my noble Friend the Secretary of State for Business, Enterprise and Regulatory Reform about the Royal Mail. The Government are firmly committed to a universal postal service—that is, the ability of the 28 million homes and businesses across the country to receive mail six days a week with the promise that one price goes everywhere. The universal service helps to bind us together as a country. As well as having social importance, it is the means by which many companies build and operate their businesses. However, it does not come free.

Last December, my right hon. Friend the Member for Barrow and Furness (Mr. Hutton), the then Secretary of State for Business, Enterprise and Regulatory Reform, invited Richard Hooper to lead a full independent review of the postal services market. Its purpose was to look ahead to the future and recommend the steps needed to sustain the universal service in a world where technology, consumer behaviour and the communications market are all rapidly changing. The review did not cover the post office network. We have now received Richard Hooper’s final report. It is a serious, wide-ranging study and makes sober reading. We are publishing it this afternoon, and I am grateful to Richard Hooper, Dame Deidre Hutton and Ian Smith for their work on it.

Let me set out Hooper’s analysis of the challenges facing the Royal Mail. First, there has been a revolution in communications technology in the past decade as consumers have turned to e-mail, the internet and text messages. In this country, 60 billion text messages were sent last year, and we now send 5 million fewer letters per day than two years ago. Hooper is absolutely clear that the main challenge to the Royal Mail comes from the impact of changes in technology and consumer choices. His estimate is that last year the shift from mail to those new technologies cost the company £500 million in lost profits—that is five times the impact of business lost to other postal companies in our liberalised market. The message is therefore clear: making those other companies go away is not the answer to make the Royal Mail succeed. Royal Mail’s success matters because it is the only company capable of delivering mail to every address in the UK, six days a week. As Hooper makes clear, that will be the case for the foreseeable future, so a healthy Royal Mail is vital to sustaining the universal service.

The second challenge that Hooper describes is that of efficiency. Hooper reports that Royal Mail is less automated and less efficient than its western European counterparts. In modern European postal companies, 85 per cent. of mail is put in walk order by machine for delivery to the individual home or business. By contrast, in British local delivery offices, that is still done entirely by hand. The Royal Mail urgently needs to catch up and modernise.

The third challenge is the pension fund. Hooper warns that Royal Mail has a large, growing and volatile pension fund deficit. That is near impossible for the business to manage, and it is a huge demand on its revenues. Each year, on top of its regular £500 million contribution to the pension fund, the company is having to find an extra top-up of £280 million to plug the deficit. These payments look set to rise substantially when the fund is re-valued next year.

Fourthly, Hooper says that labour relations in the company need to improve. We know that levels of trust and co-operation are low and that industrial action takes place too often, and a fresh start in industrial relations is badly needed. Fifthly, there is regulation. Hooper reports a lack of trust in the relationship between the company and the regulator. There are disagreements about even basic information and those tensions divert energy from the chief challenge of modernising the business.

Overall, Hooper’s conclusions are crystal clear: the status quo is untenable, the universal service is under threat, and we face the choice of either downgrading the universal service as we manage decline, or acting now to turn things around and secure Royal Mail’s future.

At the heart of the Hooper report are three linked recommendations. First, Hooper recognises that the pension fund deficit represents a significant challenge for the company. The report recommends that as part of a package of changes, the Government should take over responsibility for substantially reducing the pension deficit. I stress that Hooper says that that would be justified only as part of a coherent package to secure Royal Mail’s long-term viability. Secondly—and closely related to that—to improve its performance, Royal Mail should forge a strategic minority partnership with a postal operator with a proven record in transforming its business, working closely with the work force. Hooper believes that that would give Royal Mail the confidence, the experience and the capital to make the changes needed to improve performance and to face the future—in other words, save the Royal Mail by investing in its future.

Finally, on regulation, Hooper proposes that Ofcom should take over responsibility from Postcomm for regulating the postal market. Its primary responsibility would be to maintain the universal service in the wider context of other changes taking place in the communication markets. My Department will study the report in detail and we intend to respond with a full statement of policy in the early part of next year. With backing from the Government, Royal Mail has been improving performance in recent years, but progress has been too slow, and Hooper makes it clear that, in the face of the challenges confronting the company, transformation must be faster and more far reaching.

The Government agree with Hooper’s analysis and recommendations. As he does, we reject cutting back the universal service; indeed, we share his ambition for a strong universal service and a strong Royal Mail. We intend to take forward the recommendations as a coherent package of measures. We will fulfil our manifesto commitment to

“a publicly owned Royal Mail fully restored to good health, providing customers with an excellent service and its employees with rewarding employment”.

Bringing in a partner through a minority stake in Royal Mail’s postal business will help us to deliver that goal. It will bring Royal Mail fresh investment and new opportunities to grow in Europe, and enable it to offer new services. It will provide a fresh new impetus to modernising the Royal Mail and to securing the universal service.

We and the Royal Mail have already received one expression of interest from the Dutch postal company, TNT, to build such a partnership. I very much welcome that approach from an experienced postal company, just as I will welcome other expressions of interest from credible partners should they come forward. My Department will pursue that in the coming weeks.

Finally, I should comment on the Post Office, which was not part of the review’s terms of reference. The network of local post offices combines a unique set of commercial, public and social roles. In recognition of that, a partnership would not include the post office network. However, a healthier Royal Mail letters business will be good for the Post Office, and today’s announcement will help underpin our existing commitment to the post office network. We are providing £1.7 billion until 2011 to support a network of around 11,500 branches. We will continue to support the non-commercial network beyond that time. The House will recall the recent announcement that the Post Office card account will stay with the Post Office. We will now build on that decision, to ensure a stable and sustainable network for the future. We are determined to have a post office network offering a broad range of services throughout the country, supporting both social and financial inclusion. I am delighted that the Select Committee on Business and Enterprise has agreed to undertake an inquiry into what further services the Post Office could offer.

I believe that Royal Mail and the postal market can thrive in the future, provided that decisive action is taken now. Without far-reaching change, the opportunities brought about by technology will become overwhelming threats. That need not be the case. I believe that there are benefits for everybody in the package of measures that we intend to take forward. It will protect the universal service for consumers and give Royal Mail new opportunities to modernise and develop; it offers Royal Mail’s staff a future in a modern, efficient postal operator, with more secure pension arrangements; and it offers the whole country a Royal Mail that we can be proud of. I commend this statement to the House.

May I thank the Minister for sight of his statement?

We welcome Richard Hooper’s report, which confirms what everyone has known for a long time. Royal Mail’s working practices are inefficient, competition is intensifying, industrial relations are poor and sorting machinery is outdated. The fixed price of a stamp and Royal Mail’s huge pension deficit seriously limit its room for manoeuvre. All that has been clear for a decade, but the Government have done little to curtail a precipitous decline in Royal Mail’s fortunes. Today we learn that the Government are trying to strike a deal to see them through the next election. They are trying to look like the saviour of Royal Mail, but are doing so in flagrant breach of their election manifesto and by raiding the pension fund to bail out Government borrowing.

Even though the Minister’s own party does not seem prepared to do so, we on the Conservative Benches broadly welcome his intention to introduce a new commercial partner. It is a step in the right direction, but the details remain unclear. Will the Minister confirm the status and details of the plans? What will private partners be offered in exchange for their investment? Will he demand a commitment from them to invest in new sorting technology? Can he confirm whether the opportunity to buy a stake in Royal Mail will be put out for competitive tender? By what commercial method might he sell a stake, believed to be about 30 per cent., and can he guarantee that all the revenues from any sale will go directly to Royal Mail and not to the Government?

The Government have had more than 10 years to deal with the problems that Hooper identifies, but they have completely failed to do so. In his first attempt as Business Secretary, Lord Mandelson said that the Government’s policies would

“lead to greater investment in and strengthening of the local post office network, resulting in improved services to ordinary people in every part of the country,”

adding:

“Everyone stands to be a winner”.—[Official Report, 7 December 1998; Vol. 322, c. 24-36.]

Since then, almost 40 per cent. of all post offices have closed. Rather than creating innovative solutions to the problems facing the business, the Government have concentrated on managing its decline.

During those 10 years, the Government could have cut costs, done deals, forged partnerships or even, as they are now doing, part-privatised the business. However, until now, they have done none of these things. They have not driven through efficiencies in Royal Mail management; they have not invested in new technology; and they have not dealt conclusively with the pensions deficit. So just as the Government have wasted 10 years mismanaging the country, they have also wasted 10 years mismanaging Royal Mail.

Now, disguised in today’s statement, is the truth. The Government intend to raid the pension fund in order to plug the black hole in the public finances, dumping the cost of a multi-billion pound liability on future generations. The seizure of £22 billion from Royal Mail’s pension fund would make the Government’s woeful borrowing figures look a little better, but it would saddle future generations with an almost open-ended bill. The whole process has been engineered to make a quick buck for the Prime Minister, kill the issue until after the next election and pass the biggest financial problem not only to the next Government, but probably to those who follow them. In order to asset-strip, the Government have decided that if there is not quite enough in the pot, they might as well swipe the whole pot.

Can the Minister tell us what he estimates the long-term annual pensions liability to the taxpayer to be? Will Royal Mail’s pensions liability be included in the Government’s borrowing figures? What exactly will happen to the £22 billion that is currently in the pension fund? Will the Minister keep the fund intact and top it up, or not? Has he been assured that such action would comply with European Union state aid rules?

The other issue is the unions. Royal Mail workers are already planning strikes. What does the Minister expect will be their reaction to today’s proposals? We believe that any restructured ownership package must include the full involvement and incentivisation of the staff. What will the pension terms and conditions be for future joiners and for agency workers? Thousands of post offices have already closed; large-scale sorting office closures would be a further blow. What is the Minister’s estimate of future job losses, and what is his assessment of the effect of a reconstituted Royal Mail on the income of post office branches?

Proposals for the serious reform of Royal Mail are welcome. Private capital to fund improvements in its services is welcome. We welcome, too, Mr. Hooper’s focus on preserving the universal service obligation, and the proposed amalgamation of Postcomm and Ofcom into a sensible, tidied-up single structure. But after a decade of missed opportunities, the Government’s last-ditch attempt to dangle the prospect of part-privatisation must not distract us from the real story: a bit of Enron accounting that will impose a huge bill on every family in the country for generations to come.

The Government are taking the funds that would have paid most of the pensions, and placing a new obligation on future generations to pay the bills that those funds would have covered. Yet again, the Government are stealing everyone’s tomorrow for their today. For future generations, the bill is in the post—and it has the Prime Minister’s stamp all over it.

As ever, the hyperbole of the hon. Member for Rutland and Melton (Alan Duncan) disguises the lack of any credible policy in his party.

The hon. Gentleman implied that nothing had been done about Royal Mail for the last 10 years. I remind the House that, in 2007, the Government made available £850 million in reserves on the balance sheet to support the pension fund, that they made available loan finance to help Royal Mail to modernise, and that, back in 2001, they made available £500 million in loans to purchase the companies comprising GLS, which is Royal Mail’s European logistics and parcels arm. Action has been taken and change has happened, but, as Hooper reports, that change has been too slow to meet the challenges confronted by the company in the face of changes in consumer habits and the burden presented by the pension fund deficit. I did not follow the hon. Gentleman’s logic in that regard. The pension fund does have assets, but it also has liabilities. The problem is that the liabilities are greater than the assets, and that represents a significant burden for the company when it comes to meeting the costs.

The hon. Gentleman asked about figures. As I said in my statement, last year the company had to find an extra £280 million—on top of the normal £500 million contribution to the pension fund—because of the pension fund deficit. To help the company to deal with the deficit, we released funds that could be spent on modernisation and meeting the challenges.

We have received one approach from a potential partner, and we invite other approaches from interested potential partners. We will try to reach an agreement that is in the best interests of Royal Mail and the British public.

The hon. Gentleman mentioned state aid. Of course we are aware that other companies in Europe have undergone similar transformations. We are certainly aware of the critical importance to post office branches of Royal Mail’s business. Having made the announcement on the Post Office card account just a month ago, we are looking forward to a more secure and sustainable future for those branches. There is nothing in the statement that I have announced today that will pose a threat to that.

Is the Minister aware that, in the real world, over the past nine months, the idea of privatisation and the halcyon days of 10 to 15 years ago have now disappeared? This Government have had to take steps to bail out some of the privatised companies so that they can carry on. The energy companies that were privatised are now ripping off the consumer, and the banking fraternity has had to be bailed out by the Government. Is it not strange to be talking about privatisation these days, when it has patently failed in so many areas? May I suggest that my right hon. Friend has a word with the Secretary of State and with this Mr. Hooper, whoever he is, and points out to them that things have changed in the past nine months? We are on a different set of rails now, and the sooner Mr. Hooper is told that—and that we should not invite in people like the Dutch TNT—the better this Labour Government will be.

I have the greatest respect for my hon. Friend, and I can assure him that this company will remain publicly owned in line with the manifesto on which we fought and won the last general election. Bringing in a partner on a minority basis will give three advantages. It will give the advantage of the experience of having gone through change in a major postal company, which Royal Mail has not yet gone through; it will bring the confidence to carry through the decisions necessary for such change; and it will bring access to the capital needed to fund the modernisation. That is why it is an important part of the package that we have proposed today.

I thank the Minister for giving me an advance copy of the statement and notice of the salient points. It is clear from a rapid reading of Mr. Hooper’s report that it is a serious body of work that sets out in clear terms the challenges facing Royal Mail, and that it offers significant and major proposals. Mr. Hooper and his team should be congratulated on their work; in broad terms, the report deserves a cautious welcome.

For our constituents who value their postal service and their postmen and women, the key issue was always the maintenance of the universal service obligation, involving collection and delivery six days a week. I welcome the fact that it was clearly stated in the report and in the Minister’s statement that the universal service obligation is to be maintained. However, as the statement makes clear, that objective requires a profitable Royal Mail, and that poses formidable challenges. I should like to ask the Minister some questions on these points.

Dealing with the pension deficit will clearly be critical. That burden must be dealt with and, unlike the Conservative spokesman, I believe that that proposal should, in broad terms, be welcomed. However, it raises two clear questions. First, will the Minister tell us which of the assets are to be transferred? Will it be all of them, or will some be left with the Post Office? Secondly, can he confirm that Royal Mail will continue to operate a pension scheme in the way that it has in the past, and that it will continue to be funded out of profits, as it has been in the past?

The report proposes a partnership, but leaves the detail to the Government. The statement, however, said that a private company would take a minority stake in the postal business. The former does not necessarily mean privatisation because it could be a joint venture into which both companies enter with no transfer of assets; the latter, however, requires a stake to be sold, which is part-privatisation, and requires a valuation. How will the Minister set about valuing that stake if that route is indeed chosen?

There is much in the statement that will need very careful scrutiny—for example, the regulatory changes look sensible broadly, but the manner in which they are conducted will have considerable impact on the future of the Royal Mail. Another example is the arrangements for the Post Office—arrangements that closely mirror the policies set out by the Liberal Democrats three years ago when we began to look at this problem. On the arrangements for postal competitors, it seems to me—I hope the Minister will accept this—that there is a requirement for a level playing field, and that we should look again into how to achieve that and into whether competitors should be required to pay in any way.

Those are details that must be gone into. The report is serious and needs to be taken seriously. As the Minister said and as the report makes clear, however, the status quo is no longer an option, as we recognised in our paper on the subject of three years ago. The devil will almost certainly be in the detail, as it is always so I end by asking the Minister for a clear commitment to a full debate on this subject at an early opportunity.

I thank the hon. Gentleman for his broad welcome of our proposed changes. He mentioned the maintenance of the universal service obligation and it remains at the heart of the statement I made today and at the heart of our policy intention. We legislated to enshrine the USO in law and we are pleased to see that Hooper rejected the downgrading of the USO as an answer to the company’s problems.

I also welcome the hon. Gentleman’s broad support for our pension changes. He is right, of course, that there is more detail to be worked through and more to be announced on this matter, but the principle is clear—that, as part of a wider package involving partnership and a change in regulation, we seek to lift the enormous burden that funding the current pension deficit poses to the company.

On the issue of the partner, I say to the hon. Gentleman the same as I said to my hon. Friend the Member for Bolsover (Mr. Skinner)—that the company will remain publicly owned in line with our manifesto commitments. Our objective will be to get the best deal for the company and for the public in respect of those three key factors that a partner can bring: experience, confidence and capital.

On the issue of competitors, Hooper considered and rejected the idea of a levy on them in order to fund the USO. He was also clear—this is important—that of the challenges facing the company, the shift from mail to other forms of technology is much more significant than other challenges and will have a much greater impact than in respect of other postal companies operating in the market.

Will my right hon. Friend confirm that legislation is needed to allow a private competitor to come in and take a stake? Does that not open the door to full-scale privatisation, which is against the wishes of our party and our Government? Will he also confirm that taking the pension fund on to the Government’s balance sheet effectively lifts a burden of perhaps £700 million off the Royal Mail’s balance sheet, so it either fattens the calf for a future privatisation or leaves the Royal Mail without that liability in a much more effective position to compete as a fully owned public sector organisation? Is not the real villain of the piece, notwithstanding the threat of electronic communication, the problem of unfair competition rigged against the Royal Mail in favour of private competitors, which undermines the universal service obligation and the ability of the Royal Mail to deliver it? Is not that the real problem that needs to be reformed?

My right hon. Friend is correct to say that legislation would be needed to take these changes forward, but he is not correct to say that that opens the door to privatisation of the company, because as I have said our manifesto commitment is clear and the company will remain publicly owned under the proposals I have outlined today.

My right hon. Friend talks of pension changes. Hooper is quite clear that those could be justified only in the context of wider reform of the company and wider change in it. That is why this should be viewed as a coherent package, not as a menu of items to be picked one by one.

I am afraid that I have to disagree with my right hon. Friend when he says that the main issue is other postal companies, not technology. Hooper concludes precisely the opposite and quantifies the effect of those two things on the company’s balance sheet. He concludes that the impact of technological change is five times greater than that of any competition with other postal companies. I am afraid that the main challenge is not other postal companies; it is the change in lifestyle that the technological revolution has brought about.

I am not sure how much I will help the Minister when I say that I think that the review team has done an excellent job and that the Government’s indication that they intend to accept the broad thrust of the recommendations is a sensible decision indeed. Post Office Ltd and Royal Mail Group both face huge challenges and the report recognises the scale of those challenges, but huge numbers of questions on the details remain to be answered. For example, what will be the relationship between Post Office Ltd and Royal Mail Group in this new world, with a part-owned subsidiary run by a current competitor of Royal Mail Group? The regulatory changes needed to bring Postcomm into Ofcom are clearly important as far as Richard Hooper is concerned, but again legislation will be required. Over what time scale can we expect that legislation?

The hon. Gentleman asks two questions. The first relates to Post Office Ltd. As I said, we are acutely aware of the importance of the relationship between Post Office Ltd and Royal Mail, and acutely aware that those arrangements enable the delivery of the universal service. It is our priority to keep the universal service, not to downgrade it. Therefore, we will be mindful of the importance of that to Post Office Ltd going forward.

On regulation and other details, as I said, we will make a fuller statement in the new year, but Hooper’s essential recommendation on this is clear: it is time for a change from the regulatory regime governed by Postcomm to a wider regulatory framework placing the Post Office in the context of the wider communications market and also ensuring that Ofcom’s primary responsibility in this field will be the maintenance of the universal service.

Does the Minister not recognise that most of the current financial difficulties facing Royal Mail stem from the postal regulator exposing it to unfair competition, allowing the vultures to pick clean the most profitable parts of the business? Does he not accept that the many years of contributions holidays taken by Royal Mail have played a major part in the build up of the pensions deficit that it now faces?

I know that my hon. Friend is a passionate campaigner for post offices and Royal Mail, but I have to point her to Hooper’s conclusion on the very point that she raises, which is that the principal challenge facing the company is not that from other postal companies, but the far greater challenge and the far greater impact on the company’s balance sheet caused by the shift from mail to other forms of technology. Making the other postal companies go away is not an answer to the challenges facing Royal Mail.

On the pension fund, regardless of what has happened in the past, we recognise that that is a major problem for the company. Therefore, as part of a package of wider changes, we are prepared to address the pension fund deficit.

While I welcome the Minister’s assurance on the universal service, will he give a further assurance that it will mean what it says and will not lead to variations in charges on a regional basis or in delivery times? Many people living in rural parts of the country do not have access to competitors and depend on Royal Mail. They are already finding a diminution of service. Does a universal service mean what it says?

Universal service means a one-price-goes-everywhere delivery, six days a week. That is enshrined in law, we are committed to it and it is at the heart of the reforms we have proposed today.

I look forward to reading the Hooper report, which should have come out last week, just before I visited my local delivery offices where people wanted to know about their future. This is a massive industry in which 30,000 to 40,000 people have already lost their jobs. I have some questions. What does it mean to say that the pension fund would be reduced substantially? If a burden is left that chokes up the new arrangement, the problem will not be solved. From my information as secretary of the Communication Workers Union in this House, I understand that TNT runs on a part-time basis. It brought in technology and paid off all its full-time workers, so that people get 22-hour contracts. Is that the future for post office workers?

The Minister says that it is a package. It is a curate’s egg, and the question is whether people will swallow it—

Order. I understand the hon. Gentleman’s deep concern, but Members have one supplementary question in these sessions because other hon. Members want to get in.

As I have said to other right hon. and hon. Members in response to questions on the pension fund, our concern is to reduce the liability posed for the company, but only in the context of the wider change that Hooper set out in his report. The company that my hon. Friend mentions has made an approach to the Government. There may be other approaches in the coming weeks and months, but our intention will be to find a partner who can provide the three key qualities that Hooper mentioned in his report: the experience of having gone through major change in a postal network, the confidence to carry through such change and access to the capital necessary to finance it.

When exactly do the Government expect to introduce legislation on their proposals, and will it be within a Bill additional to the Bills recently announced in the Queen’s Speech?

Legislation to carry these proposals forward would be in an additional Bill. I cannot say exactly when it would be introduced, but we will be working out detailed proposals on these matters in the weeks and months ahead.

I welcome the debate that will now ensue after my right hon. Friend’s statement, and I say to him that without radical reform and a substantial change to senior management, Royal Mail does not have a future at all. Can he tell the House whether the Government will engage directly with those who work for the Royal Mail? I have no confidence whatsoever that the present management will discuss the matter with them.

I am grateful to my right hon. Friend for acknowledging the urgency of change. He asks whether we will speak to the work force about the changes. Of course we will speak to them. As I said in my statement, it is time for a fresh start in industrial relations in the Royal Mail, and that fresh start is essential in the carrying forward of proper reform.

May I ask the Minister about access headroom? Many in the Royal Mail feel that that issue has constrained its competitiveness for a long time. Now that it is to be part-privatised, will the Government still be able to dictate matters such as access headroom to the Royal Mail?

I repeat that the company will remain publicly owned in line with the Government’s manifesto. The hon. Lady is right to say that access headroom has been controversial, and that people have raised a number of issues about it. It is a matter for the regulator, and in the context of the regulation change proposed by Hooper, it would be a matter for Ofcom in the future. It is important to remind the House that Hooper concludes firmly that the key challenge facing the company is not from other postal companies, but from other technologies. That is what lies behind a drop in the volume of mail of some 5 million items a day, and that drop is not just taking place in the UK, but in many other countries for precisely the same reason.

I recognise that my right hon. Friend has made this statement, but I am not convinced by Hooper’s recommendations. New technologies may have reduced letters by 5 million over two years, but the number of packages and parcels have substantially increased. Therefore, we ought to be getting into that business. Let me explain where we are really missing the point, however. It is not about selling off the silverware and looking for partners. We must charge private companies sufficiently high sums to ensure that Royal Mail makes a profit and is not subsidised by the taxpayer, because bulk mail is having a free ride at the expense of taxpayers. If we put that right, Royal Mail will begin to make a profit. Let us do it that way, not the privatisation way.

My hon. Friend is correct to point to a growth in packet volumes as a result of people ordering over the internet, but that is not enough to counteract the falling volumes of mail. Overall, mail has fallen by 5 million items a day. My hon. Friend takes us back to the issue that the hon. Member for Solihull (Lorely Burt) and other Members raised by contending that the principal problem facing the company is competition from other postal companies and the terms by which that competition is conducted. Hooper concludes that that is not the case, and that the impact of that is just one fifth of the impact of the shift from mail to other technologies. Therefore, changing the regime for upstream access or headroom pricing will not deal with the Royal Mail’s problems. That demands wider change and wider reform.

I bet the Minister is looking forward to taking this through the House!

On what date was the pension fund last valued, by how much has the stock exchange declined since, and will the Minister have another shot at defining “substantial”, as used in the statement he has just given?

The valuation takes place every three years. I think I am right in saying that the last valuation was in 2006, so we expect the next triennial valuation to take place early next year. We expect it to have grown substantially from the valuation in 2006 of a £3.4 billion deficit. That starkly shows the size of the burden imposed on the company, which is why, in the context of a package of wider reform, it makes absolute sense to relieve the company of that burden, so it can concentrate on the investment that is required to finance the transformation that the Royal Mail sorely needs.

How will the Minister—and, indeed, his Secretary of State—convince the public and many Members on the Labour Benches, and perhaps in all parts of the House, that this is not just the slippery slope to privatisation? We have seen this happen in the past: is it going to happen in the future? Will the Minister also tell us why on earth the Government feel they have to invite a foreign country’s private postal operator to come in, when they could in fact fully support this highly valued public service?

My hon. Friend asks how we can convince the public. The public want a strong USO, secure for the future. We do not have that at present, because the challenges I have outlined today—the transfer to different technologies, the pension deficit, the lack of efficiency in changing the company—mean the USO is now loss-making. We want to address that, put the company on a stronger footing, and make sure the USO is secure for the future.

On the slippery slope issue, I again remind my hon. Friend of our manifesto commitment for a publicly owned Royal Mail. We will have a publicly owned Royal Mail, and any partnership would be only on a minority basis.

The devil may very well be in the detail, but we are being offered very little detail today to find out where that devil lurks. The Hooper report states:

“Experience from other countries suggests that the company could provide the universal service with around half its current mail centres.”

Does the Minister accept that, and what is his estimate of the number of job losses as a result of this announcement?

The company is already going through a process of reducing the number of mail centres. Automation will mean fewer mail centres in future, as, I believe, both the company and the work force are aware. It is not for me to say exactly how many jobs would be involved, but automation will mean fewer mail centres. Many other western European postal organisations have gone through precisely that process.

May I quote from the statement? It mentions, “Bringing in a partner through a minority stake in the Royal Mail’s postal business”. That will be interpreted by almost every postal worker as privatisation, no matter how the Minister dresses it up, and it conflicts with a commitment to a wholly publicly owned service that we gave that work force. What role will the Government play in offering the work force a sense of security in respect of the threat of job losses and the security of long-term employment, because those workers have served this country well over generations of commitment to this public service?

I acknowledge the work force’s contribution. This package offers them a more secure future for their pensions than would otherwise be the case. The Government established the Hooper review to examine how the Royal Mail can succeed in a world in which electronic and other forms of communication provide increasingly attractive alternatives to the mail and in which there is more competition in postal markets. That is precisely what Hooper has done in his report, which has been published today. Its recommendations are a consequence of our fulfilling a manifesto commitment to carry out this review.

The importance of postal workers to the communities they serve cannot be underestimated, so under the new capital structure, which the Minister has outlined to the House today, will postal workers be able to acquire an equity stake in the new business? Do his proposals for the pension fund restructuring breach the state aid rules?

The intention in the Hooper report is for Royal Mail to partner another postal firm that has experience of going through this kind of change. It is not a share floatation that might be talked about in another context; this is a partnership with another postal firm. Of course, we will be mindful of the state aid rules in any reform package that we take forward.

We are not going to sub-contract our judgment to Richard Hooper, who is a former vice-chair of Ofcom. We want a wholly publicly owned Royal Mail, and I will not support any legislation that privatises it. Is it not the case that over a very long period Government policies have been designed to weaken the Royal Mail in order to encourage competition into the market? Is it not scandalous that new entrants have been allowed to undercut the Royal Mail? There has never been a level playing field in the provision of postal services, and it is completely disingenuous for the Minister to advance this argument—

I cannot accept that the Government have weakened the Royal Mail. We have lent the company money to make new acquisitions, and put up money to support the pension fund and to finance modernisation. But that process has not proceeded quickly enough in the face of the challenges that the company is facing. Today’s report concludes that new entrants are not the primary problem for the Royal Mail—new technology is.

One of my many failures in this place occurred 15 years ago, when, as Post Office Minister, I tried to privatise the Post Office. In the light of the Government’s acceptance of the importance of private capital, may I welcome new Labour to the Thatcherite wing of the Conservative party?

As I have made clear a number of times, we will maintain the Royal Mail as a publicly owned company, in line with our manifesto commitment to have a publicly owned Royal Mail.

The fact that the Hooper report has now been published is welcome, as it allows decisions to be taken and discussed in the context of the whole picture instead of the piecemeal way in which they have been announced thus far. The mail processing centre in my constituency is one of those under threat. Would the Minister agree to meet a delegation from that mail processing centre so that he can understand the context of the decisions that are being made for my constituents, including both those served by and those working in the centre?

I am always happy to meet hon. Members and any delegations they wish to bring, but Hooper is clear in his report that what the company needs is less political interference in its day-to-day decision making, not more. The future of mail centres must be for the company and the union to negotiate: it is not for Ministers to dictate operational matters such as where mail centres should be situated.

I welcome the commitment to the universal service obligation, but if Royal Mail is to be in a position to continue to deliver it, it must be adequately funded and have fair competition. Will the Minister consider a levy on companies that are not implementing the universal service obligation and are using the money to pay Royal Mail to do so? At present, too many private companies are cherry-picking the easy side of the business.

Hooper considered and rejected the idea of a levy, because the real challenge is to make the changes necessary in Royal Mail to enable it to deliver the USO while not running at a loss, as it is at the moment. That requires changes in automation, the changes that have been mentioned to the pension fund, and other regulatory changes that we have outlined today.

The Minister will be aware of the existing very low morale in Royal Mail, partly because the work force has to deliver for private sector competitors at a loss. He will also be aware of press reports today that up to 50,000 job losses could result from the proposals. Will he tell the House what implications the proposals have for jobs? Surely he must agree that the proposals go against the spirit of the manifesto commitment given by the Labour party?

I do not accept that the proposals are not consistent with our manifesto, as I have said several times, because the company will remain publicly owned. My hon. Friend talks of low morale, and it is true that there has been a history of industrial relations problems in Royal Mail. Ascribing blame serves no good purpose, and a fresh start in industrial relations is needed if change is to proceed at the pace and in the spirit necessary to get the company into the shape necessary for the future. We need a fresh start in industrial relations, and there is a lot in these proposals for the work force, not least security for the pension fund as part of a wider programme of change.

I congratulate the Minister on his courageous decision to part-privatise Royal Mail and assure him that when he introduces the legislation we will vote for it, so that—despite the clear number of Labour rebels that there will be—he will get it through.

I believe that the legislation to implement these proposals is in line with our manifesto and offers a good future for Royal Mail, its work force and the public.

May I offer the Minister an opportunity to deny specifically the allegation that the Opposition spokesman yelled from a sedentary position—that the Government are intent on stealing the assets of the pension fund? Will he confirm that what we will be discussing is the pension fund and its assets remaining in existence, and the terms on which taxpayers may contribute further to overcoming the deficit?

As I say, the hon. Member for Rutland and Melton (Alan Duncan) has a weird concept of stealing if he thinks that our proposals amount to stealing. The proposals take into account the fact that there are assets and liabilities in the pension fund. The problem for the company is that the liabilities are far greater than the assets. The Government will therefore try to address that problem to relieve the company of the burden of the additional payment that that deficit poses for it at the moment.

Let us be clear: decent, hard-working Royal Mail staff and their families are approaching this Christmas deeply worried. Can the Minister guarantee that there will be no forced redundancies as a result of his statement, and will he make it his policy to start to return public business to the Post Office?

As I said in my statement, the Hooper review did not cover the network of post office branches. Our intent was illustrated several weeks ago when we announced that the Post Office card account would go to the post office network. I am glad to say that the Select Committee on Business and Enterprise has agreed to undertake a further inquiry into what further work might go to the post office network. I know that that is valued on both sides of the House.

On the question of the staff, I return to what I said to my hon. Friend the Member for North Ayrshire and Arran (Ms Clark) when she said that morale was low. I accept that there has been a history of industrial relations problems in the Royal Mail. I believe that there is a need for a fresh start, and I do not believe that much can be gained by blaming anyone for the history of industrial relations problems. There is a lot in the statement for the staff at Royal Mail, who have worked hard and made a hugely important contribution. There is a lot in this for the staff, particularly when it comes to the pension fund proposals.

I thank my right hon. Friend for the commitment that he has given to the universal service obligation, which means so much to a rural constituency such as mine. I and a number of Labour colleagues met the regulator before he took up post and officially started to liberalise the service. We warned the then Secretary of State and Ministers with the relevant responsibilities that we were about to see a butchering of the service. What happened in such a short space of time should never have happened to the extent to which it did. It is not beyond the wit of the work force or the Royal Mail management team to deliver for this country what we require without the interference—I shall put it no more strongly at this point—of a third party to partner the business.

Hooper is clear that his recommendations are a package and that they stand or fall together. That is the view that the Government take. My hon. Friend mentioned the regulator and, as I have said, under the proposals the regulator will change from Postcomm to Ofcom. However, on the effect of the liberalised market on Royal Mail, I repeat that Hooper makes it very clear that the main impact on the company’s balance sheet comes not from other postal companies or the terms of that competition but from the shift from mail to other technologies. That is having by far the most major impact on the company’s balance sheet.

Many of us predicted the impact of what Hooper refers to as “asymmetric competition” at the time of liberalisation. I observe that paragraph 193 of the report states:

“Competition reduces Royal Mail’s revenue available to support the universal service. And some forms of competition may be inefficient if they simply exploit the constraint placed on Royal Mail to provide the universal service.”

Notwithstanding what he told my hon. Friend the Member for Argyll and Bute (Mr. Reid), will the Minister keep the door open on the possibility of a compensation fund at some future point? My constituents can tell him from their experience of the parcel post market that if liberalisation takes place without proper protection, a universal service might exist but it will exist in name only.

We are determined to ensure that the universal service does not exist in name only. We understand its value socially and in terms of the one price goes anywhere service, which I suspect is valued in the hon. Gentleman’s constituency. Let us be clear about Hooper and competition. He says that competition has had benefits. He does not accept the analysis that the Royal Mail’s problems were caused by opening the market to liberalisation. Instead, he paints a picture of much more deep-seated problems of a failure to modernise, a growing pension fund deficit and a transfer in consumer habits from mail to other technologies. That is why he proposes a far-reaching package of extensive reform.