I beg to move, That the Bill be now read a Second time.
Let me begin by making it clear why we are here: Royal Mail and the Post Office are two cornerstones of our society. They are different businesses, but they are both essential to everyday life in the UK. Royal Mail is responsible for collecting and delivering letters. It provides a universal service that ensures the collection and delivery of letters and parcels from any postbox to any address in the country, and all at uniform, affordable prices. The Post Office is an unrivalled network of shops spread throughout the country. It allows people local access to essential services in the heart of their communities. The aim of this Bill is to secure the future of those two institutions and the services that they provide.
I look forward to support from Labour Members, because I know that they genuinely tried in recent years to secure the future of Royal Mail and the post office network. They no doubt agree with me that this must be the final, successful attempt to conclude that process.
We know that the previous Government tried unsuccessfully to privatise the Post Office. Does my right hon. Friend agree that the Opposition amendment would, if carried, prevent us from carrying out the reforms that he and I, as former Trade and Industry and Treasury spokesmen, understand require capital to invest in the Post Office, and the workers and mutual beneficiaries to take a degree of ownership and control, in order to get the Post Office out of the mess in which it has been struggling for the past 10 years?
The amendment to which my right hon. Friend refers was tabled by the nationalists rather than by the Labour Opposition. I think that it was drafted before the nationalists were aware of our proposals to strengthen the network. I hope that when they hear what we have to say they will rethink their amendment, because we will have done a great deal to meet their concerns.
It will be interesting to hear what the right hon. Gentleman has to say. The National Federation of SubPostmasters has raised its concern about the split between Royal Mail and Post Office Ltd. It has pointed out that it cannot find anywhere else in the world where there is such a split between the delivery network and the post office network. Can he give us such an example?
I will address the matters that the hon. Gentleman has described in detail. I remember him campaigning on this issue in the previous Parliament, when he lost nine sub-post offices in his constituency. We are implementing measures that will stop that happening in future. When he hears about them he will be considerably reassured.
Turning to the background to the legislation, there is, as I have said, a lot of common ground.
The right hon. Gentleman may be aware that my constituency includes the second largest sorting office in the world. The 2,000 employees there believe that they provide a universal service at a low price. The system is not broken, and they do not understand why it is being “fixed” by the attempt to privatise it. Why are we going ahead with this?
The hon. Lady’s colleagues in the previous Government would have answered that question for her, because they acknowledged, as we do, that the system is broken. I will take her step by step through the arguments in the original Hooper report and in the updated version, which are common to hon. Members on both sides of the House.
The country that pioneered postal services in the 19th century has been left behind in the 21st century. The rise of e-mail and the internet has led to a dramatic fall in the number of letters that we send. The previous Government were well aware of that problem, and they commissioned an independent review of the future of the universal postal service chaired by Richard Hooper, which found that letter volumes were in structural decline, that Royal Mail was in great financial difficulty and that the universal postal service was under threat. The report’s conclusion was encapsulated in its title, “Modernise or Decline”. All parts of this House accepted the conclusion that the current system was broken; that relates to the previous intervention.
The company, the union, businesses and commentators all agreed with the Hooper conclusion that the status quo then was “untenable”. What was the status quo then is still the status quo now, and Richard Hooper is clear that Royal Mail is now in a worse position. How has that happened? The previous Government endorsed Richard Hooper’s recommendations and acted on them. They brought forward a Bill that the Liberal Democrats and our coalition partners supported. Sadly, it never reached this House, so the future of Royal Mail was not secured. That Bill would have allowed private sector investment in Royal Mail. It would also have enabled the Government to tackle the pension deficit, and reformed the regulatory regime for postal services. Those are all measures with which we agree, and they form the basis of this Bill. We agree with those measures because, as Richard Hooper says, they are essential if the universal postal service is to survive.
I shall come to the argument for not restricting private investment access in a moment. The simple point is that without private investment we will not get the capital investment that the Royal Mail needs to modernise. That is a simple argument, but I will develop it at length.
If everything that the previous Government wanted to do was so good—and many Opposition Members opposed what they wanted to do—why are the coalition Government not simply taking up where they left off? Why are they going even further and totally privatising Royal Mail rather than leaving a majority share in the public sector?
I shall take the hon. Lady through the arguments step by step, but the situation has deteriorated badly. I think that she lost seven post offices in her constituency, so she will know that the situation is not satisfactory and that the status quo cannot be maintained.
I shall take further interventions later but I want to proceed with the next step of the argument.
Let me dwell a little on Royal Mail’s financial problems. When I came into government I was left in no doubt as to the real difficulties. I asked Richard Hooper to update his report from December 2008 because I wanted to ensure that the conclusions were still valid—and they are. Let no one in the House be under any illusion regarding Royal Mail’s predicament. I recognise that there has been some progress. Opposition Members who represent areas with sorting offices will know that unions and management are now working together better—we acknowledge that—but that the pension deficit has ballooned. It is now more than £8 billion and Royal Mail has, proportionately, the largest pension deficit of any major company in the United Kingdom. In addition, it loses almost £1 million a day on its trading activity. It is an inefficient business in a market that is declining faster than anyone predicted. Hooper now forecasts that letter volumes could fall by as much as 40% in the next five years if nothing is done. That is why we are moving further and faster.
I appreciate that the right hon. Gentleman now finds himself in coalition with the Conservatives. There is a pension fund with a substantial amount of money in it; I know there is a deficit, but will he give the House a guarantee that the coalition Government will not do what a previous Conservative Government did to the bus employees superannuation fund? Under Margaret Thatcher they took money from that pension fund, which the Labour Government later had to replace.
I shall address the pension proposals in some detail. They are virtually identical to what the previous Government were preparing to do. We are talking about taking on a massive liability from that fund. Let me remind the hon. Gentleman, who seems to be trying to defend the status quo, that he lost 13 post office branches under the previous Government. We are trying to deal with the problem that he and others have faced.
The hon. Gentleman might want to correct the official record if that is the case.
Let me explain why we need the Bill. We should ask what will happen if we do not act, and do not proceed with it. The Government believe that we still need a universal postal service, collecting from all post boxes and delivering to all 28 million postal addresses six days a week. We will still be required under EU law to fund the universal service if no one can provide it commercially, so the taxpayer could be left to pick up the pieces. We cannot predict how much that would cost, or when it would happen if no action were taken, but we know that it would not be cheap and we are not prepared to take that risk with taxpayers’ money—not with the public finances in the current state. That is why we are determined to press ahead with the Bill.
This is not simply about making sure that taxpayers do not have to cover the costs: it is about doing what is right for the future of the company and its employees. Richard Hooper is clear that if his recommendations are taken forward urgently, the Royal Mail has a potentially healthy future. As my predecessor, the right hon. Member for Wolverhampton South East (Mr McFadden), said almost two years ago,
“I believe that Royal Mail and the postal market can thrive in the future, provided that decisive action is taken now.”—[Official Report, 16 December 2008; Vol. 485, c. 966.]
We are taking that action.
The problems that Royal Mail faces can be addressed through the Bill. After all, it is the only company with the ability to visit all 28 million addresses on a daily basis. It has an unrivalled customer base, and it can build on its position as the leading provider of letters and parcels by providing a new range of digital products for its customers. The Bill is the only way that we can make that positive future a reality.
I shall save the right hon. Gentleman some trouble by telling him that I lost 11 post offices and gained a mobile van service. Many Opposition Members were not happy about partial privatisation. One reason given for it by the previous Government was that the commercial situation and market conditions were not right, so it would be difficult to get a decent buyer. What makes him think, in the current economic circumstances, that anyone else will be interested?
We are providing a framework in which a sale could take place and we are not setting timetables or limits. Those are the conditions in which we are most likely to get value for money. This is a framework piece of legislation. That is why we are likely to do better than before. I shall come to the details regarding Royal Mail shares in a moment.
The Secretary of State will be aware that people in west Cornwall and the Isles of Scilly are reassured that the universal service obligation will be retained. However, the access arrangements that were agreed, with regulatory intervention from Postcomm, have left Royal Mail in the very weak position of delivering letters for its competitors at a price that, frankly, undermines its commercial viability. I note that clause 48 addresses this issue, but can he reassure me that Royal Mail will have a far better crack of the whip when those terms are negotiated?
I assure my hon. Friend that will be the case. My colleague the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for Kingston and Surbiton (Mr Davey), who has responsibility for postal services, will spell out later today and in Committee exactly how the process will operate. My hon. Friend is right: at present the deregulation provisions do not give the Royal Mail sufficient protection against unfair competition. We want to make sure that there is more protection in the deregulation process.
I thank the right hon. Gentleman for giving way; I do not know why he was so reluctant to take my question earlier.
I do not have an ideological argument with the Secretary of State. My point is about the argument that he has failed to address. Why is full privatisation needed, rather than the proposal that we put on the table? He has not addressed that point. It is not Red Huw from Ogmore making this argument, but the large majority of Liberals. Conservative voters are saying the same thing: why full privatisation?
The hon. Gentleman is right to say that this is not an ideological question. I shall come to the share sale issue shortly, but I have no ideological stance on it. I see a role for public ownership in certain circumstances: I think I was ahead of most Opposition Members in pursuing public ownership of the banks during the crisis. There is a role for public ownership in certain circumstances, but this happens to be a case when it serves no useful purpose, and we are quite prepared to adopt a pragmatic approach to get the best provision for Royal Mail and the universal service, and the best value for the taxpayer. We have no ideological hang-ups, and I am glad that the hon. Gentleman does not either.
Is that the voice of heritage Labour—at last?
Let me summarise the substance of the Bill. As the discussion so far has revealed, Members will find much in the measure that is familiar. As I said, when drafting the Bill we drew on much the same evidence as the previous Government. The facts are not in dispute, and we have reached much the same conclusion: the company needs private sector investment, the pension deficit must be tackled and the regulatory regime must be reformed. However, this Bill is not identical to the previous Government’s Bill.
We have taken the opportunity to learn from what has gone before and to develop a new Bill that builds on this Government’s commitment to employee participation. The right hon. Member for Wolverhampton South East made a major contribution to advancing the debate on the modernisation of the Post Office. When he was Minister for postal services, he said:
“We need a longer-term plan, with a proper buy-in from the work force”.
—[Official Report, 11 February 2009; Vol. 487, c. 1449.]
That is exactly what the Bill hopes to deliver.
First, let me turn to specific issues relating to the Post Office. As I have said, the Post Office and Royal Mail are different businesses. They face different challenges, which means that our approach has to be different. The post office network is unique. There are about 11,500 branches across the country, and it operates in places where other retailers do not. It offers services that other retailers do not. Above all, the Post Office plays an essential social and economic role in our communities. For that reason, the Post Office is for sale. The Bill is absolutely clear on that point.
I am concerned, however, that the current structure of the company is holding the network back. It seems to me that the Post Office is ideally suited to a Co-operative Group style of structure, where employees, sub-postmasters and communities get a greater say in how the company is run. The Bill includes a provision that would allow for a possible future mutualisation of the Post Office. Let me be clear that no firm decision has been taken on mutualisation; there would be a full public consultation before we moved to a mutual structure. In the meantime, I have asked Co-operatives UK to explore options for how a mutualised Post Office would work best.
It could be either, or a combination of the two. That is why we have turned to the Co-operative Group to give us advice on the structure. However, I take it from the tone of the hon. Gentleman’s intervention that that broad approach would be welcome to him.
The right hon. Gentleman talks about a mutual for the Post Office, but has he looked at a mutual or other model for the Royal Mail, rather than pure privatisation? In Wales, as he knows, Welsh Water is run by a not-for-profit organisation. It is unique and gives universal service across Wales. Could that not be done for the Post Office across the United Kingdom?
The Secretary of State has made slightly contradictory statements. First, he said he was consulting Co-ops UK for advice on mutuality and then he said he was consulting the Co-op Group. They are distinct organisations—one is advisory and the other is a huge retail operation. Could he clarify which he means?
I am grateful to the Secretary of State. Do I assume that he is talking about mutualising the Crown offices, which the state already owns, and not mutualising the bulk of post offices, which are independent private sector retail businesses that it might be difficult to mutualise against their will?
Individual post offices are of course self-managed, but they operate within Post Office Ltd. It is the structure of Post Office Ltd that we are concerned about. The process clearly needs advice and further thought, which is why we are approaching it with the maximum degree of engagement and consultation, and the right hon. Gentleman will be one of the people whose advice I shall seek.
I have taken a substantial number of interventions and I want to proceed.
I know that these proposals mean setting out on a new course, and that before any changes can be made the network will have to be put on a secure financial footing. Subject to consultation, it is the right outcome for the network. I hope the Post Office can make the transition before the end of this Parliament.
Let me further reassure the House about how we shall put the Post Office on a more secure financial footing.
I will take interventions at the end of the next section of my speech. I have already given the hon. Gentleman answers to some of his questions.
Communities up and down the country have rightly been concerned about the shrinkage of the network over previous years, and despite the efforts of Opposition Members—notably the shadow Chancellor—there has been remorseless decline over the last three decades. The previous Government’s closure programmes shut 5,000 post offices. I commend Members on both sides of the House who fought against those closures. Those days are over. I echo the words of the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) from some years ago:
“We had a choice. One was to continue to watch decline turn to crisis and crisis turn to collapse, leaving it as someone else’s problem down the road.”—[Official Report, 15 February 2000; Vol. 344, c. 870.]
This Government do not believe in passing on the problem, so we shall fund the post office network, and when I say “fund” I do not mean setting aside millions to buy off sub-postmasters when we close their business.
The option of keeping the network on a care and maintenance basis and letting it decline is one we have rejected. I can today announce £1.34 billion of new funding for the Post Office over the spending review period. The funding will be used to reform the current network, to change the underlying economics, and so reverse the years of decline and secure its long-term future. I am grateful in particular to the Chief Secretary to the Treasury for his understanding, even in a tough spending round. I repeat, there will be no programme of closures under this Government and the Post Office will be able to invest, improve its offer and win new revenue streams.
Does my right hon. Friend share my sheer joy and satisfaction both about the money and about the idea that we will no longer have to campaign against Government closures of post offices? We can get on with supporting them in their work.
On that very point, I am grateful for the clarity of the right hon. Gentleman’s response, although the figure seems less than the support that the Labour Government put into the post office network. An individual in my constituency has just successfully kept a branch open with the investment of tens of thousands of pounds of his own money, as well as funds from the Welsh Assembly Government and some Post Office Ltd money. Will he be an independent trader under the umbrella of Post Office Ltd, or some sort of commercial, co-operative, mutual whatever? He has just put a lot of money in, and the Secretary of State does not seem to be clear.
I am surprised to hear Opposition Members speaking against mutualisation and co-operation. I thought that was at the heart of the Labour movement’s values. We will consult on how, in practical terms, the post office network becomes a mutual structure. I made that clear. By shifting us into the structural arguments again, the hon. Gentleman is taking away from the considerable importance of the announcement that has just been made, which is that the process of remorseless and endless closures—I think he has had seven in Ogmore—is going to come to an end.
Let us clear this up. We both know that that is not a point of order. Many hon. Members want to speak. Spurious points of order do not help the Chamber. We need to get on with the debate. We may have a chance for everybody to put their opinions afterwards.
On the issue of the individual, private, sub-contracted post offices, does my right hon. Friend find it surprising that Labour Members cannot understand that those post offices will remain open as independent sub-contractors with a mutual network?
Does my right hon. Friend believe that he has created enough scope for post offices such as the one in Beddington, which shut a number of years ago, to be reopened? In what circumstances does he see new post offices opening?
As I say, investment capital availability ultimately comes down to the individual decision of individual postmasters. As my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, these are individual investment decisions, but the network will in future be put on a structurally sound, properly funded basis. That is the essence of the reforms that we are introducing.
I will press on. The hon. Gentleman has had his say.
In addition to funding, we are injecting new ideas. We have been re-thinking the role of post offices in providing Government and banking services, and we will be coming back shortly with a fuller statement on that problem, setting out some new and positive ideas that I hope will command support on both sides of the House and in the country.
I would like to reassure the House with respect to the relationship between the Post Office and Royal Mail. The Post Office is currently a subsidiary of Royal Mail, but they are separate companies and they are very different businesses. As part of our plans for both companies, the Bill will allow for the separation of Royal Mail and the Post Office. Separation will give the Post Office management greater freedom to focus on the branch network and providing new services, but I want to make it clear that in this case at least, separation is not a first step towards divorce.
The Post Office and Royal Mail will continue to work closely together. Each company needs the other. Post offices carried out over 3 billion mail transactions for Royal Mail last year. The two companies are closely linked in the public mind, and are bound together by an overwhelming commercial imperative. There is currently a long-term contract in place between the two companies, and there will continue to be a long-term commercial contract in place. The chief executive of Royal Mail has said that it would be “unthinkable” that there will not always be a strong relationship between the Post Office and Royal Mail.
I shall move on to Royal Mail ownership and the processes involved in the sale of shares.
No. The relationship between Royal Mail and the Post Office rests on two things—first, on mutual interest. They have strong mutual interests and depend on each other. Secondly, there is a contractual relationship. This will not change as a result of the separation of the two. Public ownership did not secure the arrangement. It is secured by mutual interest and contractual obligation. That will continue.
Where the property is shared between the Post Office and Royal Mail, as it is in a number of important locations, is the intention to split the site, create separate title to different parts of the site and give each its own front door, or will they share the property?
Obviously, such detailed matters will need to be resolved as the process of separation continues. It is a practical issue and, as it is a commercial matter, Post Office and Royal Mail will look for the most sensible, practical, least cost arrangement.
For the foreseeable future, Royal Mail will be the only company capable of providing the universal postal service. That means that if we want to continue to benefit from a universal service with uniform and affordable prices, we have to equip Royal Mail to survive, and indeed thrive. There is no choice. That was the conclusion of the original Hooper review commissioned by the Opposition, and his recent update for the coalition Government.
I will finish this section, then I will take the intervention from the right hon. Gentleman, who I know was a Minister and had close involvement with this matter.
Some Members of the House will say that Royal Mail can modernise and survive while remaining in the public sector. They will say that Government can provide the funding that Royal Mail needs, and that the modernisation agreement in place between the union and the company is sufficient to stave off the decline in the market. That is not a view that I share. I did not share it in opposition and I do not share it now, nor is it shared by Richard Hooper or the company.
Let me be clear. The Government are the wrong shareholder for the company. Given the Government’s financial constraints, we cannot invest enough quickly enough, we cannot invest flexibly enough, and every investment that we make has to be cleared by the European Commission under state aid rules. Richard Hooper is also clear that Royal Mail cannot modernise properly, and cannot take the decisions that it needs to take, while it has the threat of political interference hanging over it.
Private sector capital will bring with it private sector disciplines, which will allow the company to modernise faster to keep pace with the changes in the market. As the last Minister with responsibility for postal services wisely said:
“Unless modernisation happens, the company will be ill equipped to deal with its challenges.”—[Official Report, 11 February 2009; Vol. 487, c. 1452.]
The Bill will therefore lift the restrictions that currently exist on the sale of shares in Royal Mail.
For a range of reasons, there is a widespread acceptance that Royal Mail has to modernise. That should not be a source of controversy. But given that, according to a recent YouGov poll, 60% of the public wished the service to remain a public service, including a clear majority of the Minister’s own party’s supporters—voters—and Conservative supporters, with only 15% opting for privatisation, why have the Government rejected the option of modernising a public service? We have modernised public services before. Modernisation and public service can go together.
That has been happening for 13 years and it has not solved the problem. The problem is deteriorating and the Government cannot provide the investment capital. The right hon. Gentleman is right about public opinion. The public are concerned about the universal service obligation. That is the essence of public service, and it will be protected. The protections will be strengthened under the Bill in a way that I will explain in a moment. When the public understand that it is the universal service obligation, rather than public ownership itself, that is being maintained, they will have considerable reassurance.
I shall support Second Reading because Royal Mail is broke. It has to be fixed, which will take a considerable amount of money, and the Bill is the only way forward. The Secretary of State may consider this a peripheral issue but, since Queen Victoria, Royal Mail has borne the royal imprimatur. My understanding is that under European regulations, it is not possible to restrict ownership of Royal Mail once it goes on to the open market, so it could well be sold to the Dutch or the Germans. Notwithstanding the provisions of clause 60, how will the royal charter be maintained?
We certainly do not have any doctrinal or other objections to foreign ownership. I spend a lot of my time trying to attract foreign investors to the country, but, as far as the royal charter is concerned, it is clear that the association with the monarchy is probably the most powerful brand that the company can possibly have, and there will be every interest in the new owners continuing to maintain it.
We need to be careful of specific issues. We need to be careful that the new owners do not abuse the royal association, and we are discussing with the palace how we build in those protections. The monarch will continue to have the right, which we are also building in, to ensure that any new stamp, for example, is cleared by the palace. So, the royal interests in the matter are fully protected. We are very sensitive to them and to their importance.
Let me return to the core of the argument, which is the sale of shares in Royal Mail. That is a departure from the previous Government’s Bill, but I should remind the House that the purpose of the Bill before us is not the sale of shares in Royal Mail for its own sake, but rather, as I pointed out to the right hon. Member for Croydon North (Malcolm Wicks) a few moments ago, the protection of the universal postal service and Royal Mail as the only company capable of providing it.
It is therefore right that we allow for the flexibility to seek the investment required to secure the future of Royal Mail and the universal postal service. So, we see no reason at this stage to set an arbitrary target for how much we must sell, by when and by which method. Those are critical decisions that need to be taken with proper advice and in the full knowledge of market conditions, assessing both value for money and the company’s needs.
Of course, Parliament will be kept informed of those decisions, and the Bill requires a report to Parliament once a decision has been taken to begin a sale process. I hope to be in a position to report to Parliament on the sale process in the first half of this Parliament. In the longer term, I do not believe that there is a need for the Government to keep a stake in Royal Mail, but I will ensure that the Government have the flexibility to ensure the right outcome for taxpayers, for Royal Mail and for its employees.
Let me turn to the interests and concerns of the employees. The employees are critical to Royal Mail’s ability to modernise and thrive, and it will come as no surprise to Members when I say that Royal Mail has a history of poor industrial relations. Members may have noticed that Unite announced two days ago that it would ballot Royal Mail managers on industrial action. That recent development aside, I have been heartened by some of the positive steps that have been taken to improve industrial relations—in particular, the agreement with the Communication Workers Union on the modernisation of the business. The agreement accepted that, unfortunately, job losses would be associated with the modernisation. It accepted, too, that there would need to be changes to working practices, and that mail centres would close. The plan has already been agreed with the CWU, and the company is implementing it now.
One depot that has been suggested for closure is the very large one at Nine Elms in Vauxhall. There has certainly been no agreement in London that it should close, and everybody will fight its closure very hard, because it would be just crazy for everything—lorries and vans—to go in and out of London, adding to pollution.
I am not familiar with the details of the argument in that case. I was referring to the fact that there has been a constructive relationship between the union and management on modernisation, but such issues do exist, and they are essentially commercial ones that must be dealt with by management and their employees in the normal way. None the less, I would be interested to know whether there is a specific role in the matter for the Government, and I shall respond to the hon. Lady on that.
So, I acknowledge that there will be job losses. The company is losing money and the market is declining, and that is regrettable, but it is unavoidable. The question that we need to pose is, what happens if we do not take action? What happens if Royal Mail fails and the market collapses? That is the current trend. I know that the CWU has been in Parliament today, talking to many hon. Members about their views, and I and my hon. Friend the Under-Secretary, who has responsibility for postal affairs, met the CWU to discuss Royal Mail. We look forward to continuing to talk to its representatives as the Bill goes through Parliament.
However, I have one thing to say to the union directly today: the worst thing for its members, Royal Mail’s employees, would be to do nothing, because that is the real threat to jobs in Royal Mail. The employees of Royal Mail also deserve better than constant battles between the union and the management. They deserve to be properly engaged in the business that they work for, and to have a real stake in its future. That is the only way in which we will break for ever the cycle of antagonism and mistrust that has bedevilled the company. The Bill therefore requires the creation of an employee share scheme, which will hold at least 10% of the equity in Royal Mail in future. That is very far from being a token gesture; it is nothing less than the largest employee share scheme of any major privatisation.
The employees of Royal Mail will also be concerned about their pensions, and they have good reason to be, because Royal Mail’s pension deficit is huge, growing and volatile. Put simply, it is not sustainable. Even the recent agreement between the pension fund trustees and the company is fragile. It requires that Royal Mail pay off its deficit over 38 years, which is at least twice as long as any other UK company’s repayment plan, and the pensions regulator has already said that it has substantial concerns about the agreement.
Yes, it is true, but the liabilities are much bigger. I shall explain in a moment how we will deal with the assets.
The pension deficit, which is the starting point, threatens the very existence of the company. It is draining cash from Royal Mail’s modernisation and preventing it from undertaking the reforms it needs to survive. That is why the Government have to take action today. As part of the sale, the Bill will allow the Government to take on responsibility for the pension deficit. We will not only address the deficit, but reduce the size of the Royal Mail pension plan to a more manageable level for the business. The liabilities of Royal Mail are more than 50 times annual profits. By comparison, the liabilities of the average FTSE 100 company are closer to one times profits—an enormous difference.
We intend to reduce the plan to about one tenth of its size today. We will do so by creating a new public sector pension scheme that will assume responsibility for paying out the past pension benefits of Royal Mail employees. In effect, all members of the Royal Mail pension plan will have their past service moved to a new Government scheme like that of the NHS or teachers. It is the same solution to Royal Mail’s pension problems as the previous Government proposed in their 2009 Bill.
I know that hon. Members will be concerned about the detail of the proposed pension arrangements, and we will provide a note to Parliament in order to explain the practical effects of those very complex changes, but I should like to reassure the House on two points in relation to pensions.
First, let me be clear that this solution is by far the best outcome for the employees of Royal Mail. The action that we are taking in the Bill will ensure that all the benefits that employees have earned will be safeguarded. The benefits that become the responsibility of the Government will be protected in the Bill, and all members of the Royal Mail pension plan will benefit from that support—Post Office and Royal Mail employees alike.
As a bottom line, the Bill places an obligation on the Government to ensure that our action leaves members in no worse a position than they were in before. This means that the amount of benefits that they receive will be at least as good as if the Government had not acted. There will also be a restriction on the Government’s ability to make any changes to the new public scheme in future that would adversely affect members. The Government intend to use that restriction to reflect as closely as possible the current protection that members of the pension plan are afforded under section 67 of the Pensions Act 1995.
Secondly, the measure is not a Government plan to massage the Government’s accounts, for the very simple reason that the Royal Mail pension plan has a deficit of £8 billion. That is the cost to the Government of implementing the solution on behalf of the company and its employees. Let me be clear: the Government are taking on liabilities that are much bigger than the assets. I have seen reports—perhaps this is what the hon. Member for Coventry South (Mr Cunningham) was referring to—that the Government will be selling off the Royal Mail pension plan’s £24 billion of assets. It is certainly true that the surplus assets above the level needed to leave the ongoing pension plan fully funded will be transferred to the Government. It is also true that these transferred assets will be sold because it makes no sense for Government to sit on a massive investment portfolio.
I, for one, do not wish to see central Government taking such a huge investment risk with taxpayers’ money. So yes, we will sell the portfolio of assets which transfer across to Government, and this is likely to involve over £20 billion of asset sales over time. But the important point—it is absolutely crucial to this argument—is that we will be making payments to members of the Royal Mail pension plan for at least the next 50 years.
I understand that my hon. Friend the Under-Secretary is very familiar with this and has spent a lot of time talking to the pension trustees. There is a whole set of reasons behind this deficit, one of which is that employees are living longer; another is that the pension fund made some rather bad investment decisions. There are contributory factors. But we are where we are: there is a massive deficit and we have to deal with it; that is the centre of the problem.
Let me add that the Government’s support for the Royal Mail pension plan is subject to state aid approval by the European Commission. The House can rest assured that we will be going to Brussels to make this case in the strongest possible terms.
Let there be no doubt: this is a good deal for the employees of Royal Mail. In almost all important respects, it is exactly the same deal as that in my predecessor’s Bill—but coupled with the legal requirement for employee shares, it is a much better deal for employees.
On the pension issue, which is so crucial, Labour Members will want to scrutinise the plan and the idea of selling off the assets in return for guarantees. It seems to me, however, that that plan, whether it is the right one or not, could still be carried out if the service remained a public service. I do not see why it is intrinsically and inextricably linked with privatisation. Something like this needs to be done anyway, whether or not this is the right model.
Of course it does need to be done anyway, but as I explained a few moments ago, the key point about bringing in private capital is that it brings in investment as well as new and better methods of management. There are separate issues involved. However, the right hon. Gentleman is quite right: the pension fund deficit needs to be dealt with. If it were not dealt with—if the thing just continued—there would be a real danger that it would contribute to the collapse of the company: that is why we have had to intervene.
I apologise to the House for going on for such a long time, but a large part of that has been taken up with interventions, as I was anxious to ensure that Members who had concerns were able to raise them.
The last section of my speech relates to reform of the regulatory regime. At the heart of this Bill, just like the last Bill, is protection of the universal postal service. The Bill will maintain the universal postal service at its current levels—that means six-days-a-week delivery and collection at uniform, affordable prices. I would like to reassure the House that I have no intention of downgrading this service. I know that some Members have been concerned about their constituents receiving a reduced service, and I share that concern. I have therefore ensured that the Bill contains new and stronger protections around the service than is currently the case—stronger protections, too, than were in the Bill put forward by our predecessors.
Members may not be aware of this, but the Government already have the power to reduce the minimum requirements of the universal postal service without even requiring a debate in Parliament. Through the European Communities Act 1972, it can reduce them to the minimum requirements of the European postal directive—that means five- days-a-week delivery and no requirement for uniform pricing. I do not think that that is an acceptable situation. Another way of putting it is that we have European regulation to protect the universal service obligation. This is one occasion where we are arguing in favour of gold-plating; indeed, as my hon. Friend the Under-Secretary has pointed out, we are platinum-plating this particular set of protections.
We cannot do it in that way. Of course, other companies have access to the market, subject to strict conditions, but we envisage that Royal Mail will continue to be the universal service provider: that is the basis on which we are proceeding.
The Bill puts in place three new safeguards: the platinum-plating, so to speak. First, the Bill ensures that no proposal to reduce the minimum requirements of the universal postal service can be proposed until the new regulator, Ofcom, has conducted a review of user needs. Secondly, any proposal to reduce the requirements of the universal postal service must be subject to a majority vote in both Houses of Parliament. Thirdly, any reduction in the minimum requirements cannot change the uniform nature of the service. The Bill states that the service and the price must be the same across the whole of the UK. I hope that Members in all parts of the House will support these new protections for the universal postal service.
Earlier, the Secretary of State said that one of the central issues in the modernisation and advancement of Royal Mail and the Post Office was—I am paraphrasing—the removal of political intervention, but he is now talking about a contract that is surely still politically in the hands of politicians. How can he possibly stand there and guarantee that there will be no changes whatsoever to the universal service? I cannot, for the life of me, imagine any private company signing up for a contract that is immutable, which is surely what he is saying the changes will bring about.
I am not making these commitments as political commitments. They are enshrined in regulation—regulation that will be strengthened and has the force of law. Of course, that is political in the widest sense if one regards this Parliament as political. The protections are going to be legal and regulatory; this is not a matter of political discretion for individual politicians.
We will also be taking other measures to secure the universal postal service. The greatest threat to postal services comes from the decline in mail volumes and the rise of e-mail and the internet. It therefore makes sense for the postal sector to be regulated alongside the broader communications market. For that reason, the Bill will transfer responsibility for the regulation of the postal services sector from Postcomm to Ofcom. Ofcom has a deep understanding of the wider communications markets and will be well placed to take decisions as regulator of postal services. The Bill will also give Ofcom a primary duty to exercise its functions as regulator of postal services in a way that it considers will secure the universal postal service—and it will need to consider the financial viability and efficiency of the universal service in taking its decisions.
We want to ensure that the new regulatory framework is proportionate to the needs of the market. We want to allow for rapid deregulation where there is competition. All mail providers need to be able to operate in a fair and effective market as soon as possible. As an ultimate protection for the universal service, the Bill includes provisions for special arrangements should a universal service provider be at risk of entering into insolvency proceedings—a remote risk but one that we have to consider. The arrangements would allow the appointment of a postal administrator whose objective would be to ensure that the universal service is maintained. We do not expect ever to have to use these provisions, but they provide an additional safeguard for the universal service. These measures mirror those that have been taken in the energy and water sectors.
I am much reassured by what the Secretary of State is saying. Further to my earlier intervention, I am merely seeking reassurance that the access agreements between the new Royal Mail and its competitors will be set in a regulatory framework that gives it a fair crack of the whip when negotiating the terms and the price. Under the present arrangement, Royal Mail is clearly, in effect, subsidising its competitors because it is delivering their mail.
I believe I have given my hon. Friend that reassurance. Royal Mail will not subsidise its competitors, protections will be built in and there will be a genuine regulatory level playing field in a way that has not been quite true in the past.
Previous attempts at legislation on Royal Mail have not had a great history of success. I anticipate that there may be some opposition to the Bill both inside this House and elsewhere, although I believe that after 20 years of false starts, there is now a willingness to do what needs to be done. There is no easy way out, and the problems that Royal Mail faces will not go away. There will be no winners if we fail to act. Royal Mail’s employees will face continued uncertainty over their pensions and their jobs, customers will face a declining service and taxpayers will continue to bear the risks. Ultimately, Richard Hooper was clear that without this action, Royal Mail would fail.
Royal Mail needs this Bill. The company says so, Richard Hooper says so, the previous Government said so and I say so. I therefore strongly commend this Bill to the House.
For more than 350 years, the Royal Mail has delivered the post to homes and businesses across the United Kingdom. Created by the Crown, for all that time it has been to all intents and purposes a public service run in the public interest, and it has always been seen as a huge and valuable national asset, run in the national interest. Today’s Bill would change all that. It would lead to the total sale of the Royal Mail, and a huge sum of public money would be spent to enable a private sale to take place. I believe that that sum has just gone up again by a substantial amount.
The Bill may mean the Royal Mail, this national asset, passing into foreign ownership or to short-term investors interested only in the quickest possible profit. For the first time ever, it has to provide for a special procedure to deal with the insolvency of a private Royal Mail.
The right hon. Gentleman talks about Royal Mail being owned in the national interest and about profits in the private sector, but was not the great burden hanging over it when it was owned in the national interest that its profits were taken by the Treasury for other purposes, rather than being invested in modernising it to let it compete effectively in the market that his Government forced on it?
The hon. Gentleman may have a point about the use of those profits, but I would rather they went to the Treasury or to the Royal Mail, not to a private company whose owners lie overseas. The defence of the national interest lies with public ownership.
Today’s Bill provides, for the first time ever, for the breaking up of the Royal Mail, with different organisations providing the universal postal service in different parts of the country. It breaks the umbilical link between the Royal Mail and the network of local post offices prized by residents and communities up and down the country, and does so in a way that threatens the future of thousands of local post offices. It is a very serious Bill, and it must be considered seriously and in detail in the weeks and months ahead.
Of course, serious discussion of the Bill must acknowledge why the coalition Government have concluded, as the previous Labour Government did, that doing absolutely nothing is not an option. The competition for the services offered by Royal Mail, including from new ways of communicating, has changed more dramatically than anyone envisaged even 10 years ago. Last year, it reported a drop of 7% in letter volumes. Other operators have been taking business upstream faster than expected. Some 87% of all mail in the UK is sent by businesses to people at home or to other businesses, and competitors have already won more than 60% of the upstream, pre-sorted bulk mail market, delivering their customers’ mail into the Royal Mail system for final delivery.
Over the fast-approaching horizon will come the full impact of technological change—e-mail, web-based advertising, text messaging, mobile phones and all the other modern ways of communicating. The worldwide postal market is expected to decline by 25% to 40% over the next five years. The problems with the pension fund, which had their origin in the 13-year pension holiday until 2001, have mounted. There was, therefore, a consensus that action needed to be taken.
My right hon. Friend has mentioned a number of issues, but he has not drawn attention to the EU directive on postal services, which allowed companies such as TNT to cream off all the profitable parts of Royal Mail and leave the universal service within the public sector. That directive was agreed to. Does that not show that we should examine EU directives a little more carefully in future?
All EU directives should always be examined very carefully as a matter of principle. There is perhaps a debate to be had about whether a six-day service exceeds the strict requirements of the EU directive, but my hon. Friend raises an important point. If she will allow me, I will return a little later to how competition has developed in practice and whether we have a level playing field.
There was consensus about the nature of the action that needed to be taken. The Royal Mail needed to be transformed to become more efficient and competitive, and that transformation would need new management and vastly improved industrial relations. The taxpayer would need to take on the liabilities of the pension fund, and access to investment was needed.
However, the central question that the House must ask today and in the coming weeks is whether the Secretary of State’s way forward is the best. We will oppose the Bill, although we do not oppose every element in it. We believe that abandoning the commitment to keep Royal Mail as a publicly owned organisation is wrong. Clause 1 abandons that commitment, which was restated by the Labour Government. That will inevitably threaten the public interest, from the moment the sales process starts to the long-term future of both Royal Mail and the Post Office.
Public ownership of the Royal Mail provides the ultimate safeguard for the public interest. It ensures that even if other policy fails, it is not too late to defend the interests of the public, whether by protecting the delivery of letters six days a week to every home in the UK at a standard price, or by guaranteeing the business that can sustain a network of local post offices. Public ownership can ensure that public money is invested for public benefit, not private profit.
The front-line defence of the public interest lies, of course, in the legal framework in which Royal Mail and the Post Office operate. The Bill will transfer responsibility for regulation from Postcomm to Ofcom, as did Labour’s Bill. We will need to consider carefully in Committee whether a regulatory framework designed for a publicly owned company remains as well designed for the foreign-owned or private equity-backed company that might soon run Royal Mail.
The relationship between the public interest and Royal Mail is not governed by regulation alone. Local post offices need a continuing public subsidy, and that in turn depends on the commercial relationship between Royal Mail and the post offices. Both those issues have properly concerned Ministers and Parliament in the past. In some crucial areas, such as the relationship between Royal Mail and the Post Office, the Bill will weaken the ability of Ministers and Parliament to act in the public interest. In other areas in which Parliament might wish to defend the public interest, such as the universal service obligation, it leaves too much discretion for the regulators and Ministers to waive the public interest.
The Secretary of State made no case for why he had decided to go beyond the limited equity stake that was proposed, not without controversy, by the last Labour Government. I wait with interest to hear the remarks of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), if he catches your eye, Mr Deputy Speaker. The Secretary of State made no case for the full privatisation of Royal Mail.
As the Secretary of State said, we recognise parts of the Bill from our own legislation, and we broadly support parts of it, including employee share ownership. The possible mutualisation of the post office network deserves positive examination at the very least.
I have set out the changes that everyone agreed were needed, but in truth many people thought that Royal Mail could not change while it was a public company. However, change has happened. Considerable progress has been made, and more is under way. An important agreement was reached this March between the Communication Workers Union and Royal Mail supporting the £2 billion modernisation plan, £1.2 billion of which has now been spent. CWU members supported the agreement by a 2:1 majority.
Differences are being felt in operations. The opening hours of delivery offices have been extended and new generation letter-sorting machines have been installed. There are new machines so that mail is sorted for the exact route that postmen and women walk, and there is better equipment, including hand-held devices to track and record items of mail. Of course, the pace of change must be maintained, but in an industry dogged by difficult industrial relations, both the CWU and management should take credit for the start that has been made.
Our debates on Royal Mail have for some time been informed by the Richard Hooper reports of 2008 and 2010. Two years ago, Hooper’s report called for two changes: the injection of private capital and, closely related to that, the involvement of private sector management. However, he rejected full privatisation, saying that that
“option would only be appropriate and feasible if modernisation had been completed.”
His recent report also identified a need for private sector capital, but was markedly more confident about the quality of existing management and the capacity for change given the changes that had already taken place. The 2010 report states:
“The specific need for corporate experience is reduced today”.
It used to be said that Royal Mail could not change without an injection of private investment and management, but change has been possible. The argument now seems to be that change is needed so that Royal Mail can be sold, but that is simply not true.
The House needs to ask what the real costs could be. The public are making a heavy investment in preparing the postal services offered by Royal Mail for sale, including through a £2 billion loan to fund the modernisation process. In addition, the subsidy for the post office network was already set to increase from £150 million to £180 million next year, and we heard today of a further investment in sub-post offices, to which I will return. The Bill also leaves the taxpayer assuming the huge liabilities of the pension fund while Royal Mail benefits from a reduced contribution.
That is a huge public investment in preparing Royal Mail for sale, yet the returns look pretty low—according to media speculation, the sale price will be around £700 million, meaning a one-off income of less than £1 billion in return for costs of many billions. The Secretary of State did not make clear the timing of the changes. I simply point out that if he goes early, he will probably get the lowest possible price, but the later he goes, the more essential it will be to complete the transformation of Royal Mail, because as he said, Royal Mail cannot simply stand still and mark time. There is no relationship between the change that is necessary and his desire to sell the whole of Royal Mail.
As the Government’s own briefing makes clear, a fully efficient and competitive Royal Mail could generate a very significant return. Companies such as Deutsche Post in Germany achieve profit margins of 13% from their mail operations, even though they face greater end-to-end competition than Royal Mail does in the UK. There are similar profit margins in the postal services of Finland, Austria, France and other European countries. Some are private and some public. That shows what efficient companies can do. However, the Bill excludes the public from any gain from a transformed Royal Mail.
Richard Hooper’s point, which I do not fundamentally contest, is that additional access to capital is necessary, which may well need to be private capital, but that is not the same as making a case for the total privatisation of Royal Mail, which is what the Government are doing. Government Members need to defend that.
The previous Labour Government floated proposals for the sale of a minority stake. Given the changes that have taken place in Royal Mail, there may be ways of accessing private capital that do not depend on an equity stake. Some partnerships of that sort might well be highly desirable, but the question is whether anything the Secretary of State said made the case for a total sale of the company. I listened to him very carefully, but I did not hear a single sentence that made a case for clause 1, which is the basis on which we oppose the Bill.
I understand my hon. Friend’s point, but the Opposition should explore positively, including in discussions with the unions, how employee share ownership might work. Models of trust-based employee share ownership would avoid the risks he describes. It would clearly be nonsense to provide shares to employees that could be sold on within a few months, which happened in many previous privatisations, to everyone’s great regret. We should look at the conditions, but I agree that it would be a complete nonsense to create the conditions he describes.
Clearly, any measure that allowed that kind of swift onward sale, resulting essentially in 100% private ownership of Royal Mail, would explode the Government’s rhetoric on the Bill. I can assure my hon. Friend that we will look at the proposals in great detail in Committee.
If my hon. Friend will forgive me, I will happily take another intervention from him when I come to my point on protecting the public interest during the sale.
I said that the Bill excludes the public from any potential long-term gain from a transformed Royal Mail, but in addition the benefits could go entirely to overseas interests. Frankly, I am surprised how sanguine the Secretary of State is at that prospect, because faced with the sale of Cadbury to Kraft, he said:
“It is particularly galling…that state-owned RBS should part fund this takeover when it is clearly not in the interests of the UK economy.”
I must point out that the Secretary of State is today effectively using taxpayers’ money to transfer the ownership of Royal Mail overseas.
There are good reasons to worry about the public interest during the sales process. On one side will be potential buyers, who will have every interest in lobbying for the maximum commercial freedom for the operation and for the minimum of social obligation. The other side—we might like to think this means the Secretary of State, but it means the Treasury—has an interest in gaining the highest price. Both sides, therefore, will argue to cut social obligation to a minimum. It is not difficult to anticipate the outcome of that situation. I suspect that one reason the Secretary of State was able to say so little on the long-term interest of Royal Mail in the post office network is precisely that he is caught uncomfortably in the vice between the Treasury and potential buyers.
I am listening carefully to the right hon. Gentleman and agree with a lot of what he says. He mentioned the pressures of the sale. Has he seen the letter from the current chief executive officer of Royal Mail, who argues for loosening social obligations now? Is that an indication of how things will go?
Is my right hon. Friend aware that in previous discussions about possible privatisations, no interest was expressed by any of the companies, either in the UK or abroad, in running mail services? Are we not likely to have a situation in which, basically, some equity finance company will borrow large amounts of money to buy Royal Mail and then load it up with masses of debt? There is no operator challenging Royal Mail’s ability to deliver the services that it currently delivers.
That is certainly a real risk, and my hon. Friend is absolutely right. I return to the point that I made earlier. If the Government are serious about rejecting potential purchasers who they think are wrong or who offer a poor price, the Government will have to deal with the problem of transforming Royal Mail in the meantime. They cannot let it simply stand still, given all the commercial pressures. My fear is that the Government will go to the wrong place, with an inappropriate sale at an inappropriate price, because of the figure that has been pencilled in—although it is hard to find it in the detail—in the comprehensive spending review, and that this would happen irrespective of the long-term interests of the public in this country.
That pressure to reduce the social obligations brings me to one of the central concerns regarding the public interest: the relationship between a privatised Royal Mail and the network of local post offices. We oppose the Bill in part because of its central aim, which is the sale of Royal Mail and the breaking of the key contractual link between Royal Mail and the post offices. There are around 11,500 post offices. The Royal Mail Group is required by licence to support 4,000 post offices. The managing director of Post Office Ltd told a parliamentary Committee that a commercially viable network would have only 4,000 offices.
The previous Labour Government made provision to keep a further 7,500 branches open. They are supported by an annual public subsidy of £150 million, which is due to rise to £180 million next year, and by business that is guaranteed to Royal Mail through the inter-business agreement. The Royal Mail business that is guaranteed by the IBA is crucial to the current viability of the post office network. Leaving aside the public subsidy, Royal Mail business generates 37% of the income of local post offices. However, the IBA could end immediately under this Bill when Royal Mail is sold. A privatised Royal Mail could simply take the work elsewhere. As Consumer Focus—the organisation that the Secretary of State wishes to silence—says in its briefings,
“following privatisation of Royal Mail, subsequent contracts would require a competitive tender process with no guarantee that Post Office Ltd would retain this contract”.
The Bill provides no mechanism to ensure that the continued long-term use of the post office network is an integral part of Royal Mail. That would be a disaster for non-profitable post offices in rural and urban areas alike. The Bill could have defined post offices as access points for the universal postal service. Consumer Focus says that the Bill could have specified the number of post office branches to remain. However, the Bill does none of those things. That is a fatal flaw. The axe of uncertainty hangs over thousands of post offices, which puts a huge question mark over the interesting and attractive concept of a post office mutual, because mutuals can go out of business too if their income is taken away. Hooper concluded that the Post Office should remain publicly owned, saying:
“Given the social obligations of the Post Office, there is little prospect that the network will be sustained on a fully commercial basis.”
However, a mutual is a commercial organisation, subject to commercial logic, and without guarantees of income, it will fail.
The Secretary of State spoke about an additional investment of, I think he said, £1.34 billion. I acknowledge that, although it would perhaps have been useful to have more detail. We will need to explore that figure in greater detail than we can this afternoon, as we have no detail now, although it is clearly a large amount. We will need to know the answer to a few obvious questions. Does that money come from the Department for Business, Innovation and Skills budget that was set out in the comprehensive spending review last week, or can it be found elsewhere in the CSR? Does the Secretary of State intend to continue the annual subsidy beyond the CSR? Is the making available of that money linked in any way to the participation of sub-post offices in the formation of a mutual, or will it go to every sub-post office, whether or not it wishes to take part in a mutual? Will the beneficiaries be only current post offices, or could the money be made available to new entrants and companies that wish to enter the market for providing local post offices for the first time?
The Secretary of State talked about building up the business that is done through the Post Office, which I welcome. Doing so would build on work done by my right hon. Friend the Member for Wolverhampton South East on post banking and other areas, but we need more detail. I acknowledge that the figure that the Secretary of State cited would be a very large investment, but we need to know much more about it, and I hope that we will learn more before the Bill goes into Committee. However, I return to the same, fundamental point. Investment in the network without the guarantees of future business simply sets the network up to fail and puts a question mark over the public value for money of the investment now being made. I worry that the proposed mutual may ultimately be seen as a cynical attempt to shift responsibility for future closures of post offices on to the shoulders of the mutual owners of the post office network.
Let me make a few other points. Despite what I have set out, the Bill makes it clear that many risks still lie with the public, in addition to those that I have listed. The Bill results in the nationalisation of risk and the privatisation of profit—a phrase that the Secretary of State may well remember from the recent past. Part 4 sets out the provisions for taxpayers to step in through administration if a privatised Royal Mail becomes insolvent. That is a necessary part of the Bill, given the coalition’s intention to sell Royal Mail, but it should kill the idea that once Royal Mail is privatised, the taxpayer will no longer need to worry about or bear any expense for failure. Clauses 34, 35 and 43 create the possibility for the universal service obligation to be split between different operators and for there to be different levels of universal service obligation in different parts of the country. In turn, that makes it possible in practice for Royal Mail to be split up once in private ownership, creating the risk of a commercial dynamic that will make it difficult to maintain the same quality of postal services throughout the UK.
The other major issue of customer concern is the maintenance of the six-day universal service. The Bill gives Ofcom the power to make a universal service direction, and in principle this must include the current level of provision for collections and deliveries. However, the Secretary of State has given himself unilateral and unqualified discretion to remove services from Ofcom’s direction if he takes the view that Ofcom’s order is too extensive. Similarly, if Ofcom were minded to order a universal service provider to maintain the current post office network, the Secretary of State can overrule it. The Secretary of State has given himself the power to reduce services, but not to extend them. That tells us what he is thinking.
Finally, it is in all our interests to have a Post Office that operates as efficiently and cost-effectively as possible. We have recognised the need for private sector investment in the past, and it is likely that this will be needed in future. Now that there is less emphasis on changing the management, it seems that a wider range of approaches to engaging private capital can and should be explored, but I do not believe that the need for private capital justifies the privatisation that is proposed today.
It is also essential that the Government are clear about the future burden of regulation designed to allow competitors into the market. Many argue that that now imposes a real and unnecessary cost on Royal Mail. During its mandate, Postcomm chose to apply a challenging competitive regime to a near-monopoly organisation. Today, that regulatory regime applies to many parts of Royal Mail’s activities that are open to intense competition. In some areas, Royal Mail is forced to carry mail on behalf of its competitors at well below cost price, and the market share taken by new entrants is certainly much larger than predicted. I know that the figures are contested, but Royal Mail told Postcomm in August that it was subsidising new players in the upstream market at a cost of £100 million a year. Does that regulatory regime make commercial or competitive sense any more?
Crucially, what guidance will Ministers give to Ofcom? Potential buyers will want to know that now. Without a guarantee of more commercial freedom where competition is already strong, Royal Mail will be much harder to sell. By the same token, however, greater commercial freedom for a publicly owned Royal Mail would enable it to generate a higher income. I hope that all Members on both sides of the House will agree that it would be completely unacceptable for Ministers or regulators to offer greater freedom to a privatised Royal Mail than they are prepared to offer a publicly owned Royal Mail.
If the House is being asked to choose between a privatised, foreign-owned Royal Mail and a publicly owned Royal Mail, it must do so on a fair and level playing field involving a publicly owned Royal Mail enjoying the same level of regulatory freedom, and the same financial freedom and ability to reduce outgoings that comes with the taxpayer assuming pension obligations. The transformation of that publicly owned Royal Mail must also be well under way, and it must be able to explore a wider range of ways of raising the private capital that it might need. I invite the House to oppose the Bill.
It is absolutely bust! In fact, the previous Government recognised that and tried to enact a Bill, but they did not have the courage to carry it through. So we want no lessons from Labour Members. The Post Office is a bust flush. Its management needs rejuvenating, its work force are demoralised and its pension fund is in massive deficit. If that does not add up to a company that is totally off the rails, then I do not know what does. It would do the Opposition good to recognise that fact, rather than pontificating about a matter that they dared not deal with.
The Post Office faces a massive challenge. Volumes have declined enormously since 2005, and they are now down by 13 million units per day. Good God! If any other business faced that kind of decline, it would instantly recognise that it was bust; it would not need me to tell it. The Post Office is now 40% less efficient than its European competitors, and its modernisation programme is proceeding exceptionally slowly.
Does my hon. Friend agree that if I had been allowed to privatise the Post Office when I was the Minister with responsibility for it 17 years ago, we would now have a world-beating international company earning huge riches for this country? That was a wasted opportunity, and we must never fail again. We should privatise it as soon as possible.
My hon. Friend was a wise prophet in a House that failed to listen to him, and that is a great pity. I accept his point totally.
The truth is that something needs to be done, and that was accepted by the previous Government. I first came across this matter when it was presented to the then Business, Enterprise and Regulatory Reform Select Committee in 2008. That Committee’s report highlighted the importance of the organisation to our local communities. It recognised that the poor, the elderly and the disadvantaged relied heavily on the Post Office, but it was not only disadvantaged people who felt that way. Small and medium-sized businesses also felt that the Post Office played an important part in the way they ran their businesses. Research by Postcomm estimates that the social value of the post offices up and down the country runs to about £10 billion. The case for the network is clear, well made and, I believe, totally understood by the Opposition. Sadly, however, they ran away from the issue.
There is a great need to heighten, increase and force through technical development. Of course, that could not happen in the past. Hooper said that the Royal Mail needed to modernise, improve its management and expand its range of services. I believe that the Bill will achieve all those objectives.
The relationship between management and work force needs to be improved—and the problem is not all the fault of the unions by a long chalk. Previous management, I believe, acted in a bullying way that did nothing for good industrial relations—and I said so at the time, as did my colleagues on the Select Committee. This is one reason why I came to the conclusion that there was a massive need for a real injection of good-quality management into the Post Office.
I just wonder where the hon. Gentleman has been. I happen to be secretary of the communication workers group in this Parliament, although unlike my predecessor I have never been a communications worker. Massive changes to the agreement took place in March. Where else in Europe can we find a management that is willing to work with the trade unions? In all other places, they have banned trade unions from their premises. These firms are absolutely out of order in their treatment of their workers.
I understand the hon. Gentleman’s concerns. When I talked about senior management, I meant very senior management indeed. The lesson should go out to the whole House that bringing in from the private sector people who are sometimes seen as bully boys is not the best way to produce good industrial relations. That is, in fact, what happened. I see the hon. Gentleman nodding; I am glad he agrees with me.
I had the distinction—perhaps that is not the best word—of meeting the chief executive in question, and I read some of his letters to the work force. I have to say that if I had been a member of that work force, I would have been horrified to receive those letters. If they had been circulated in a company that I had anything to do with, I would have done my very best to bring the gentleman in question to book. I hope that my answer will enable the hon. Gentleman to understand that I too share his concerns.
We need a massive change in management. I believe that the Bill is designed to achieve that and might well succeed, but we still have not had the answers we need to provide any certitude in that direction. We are dealing with a pension deficit in the region of £10.4 billion. We have to find answers as to how best to deal with that, and I believe that the Bill finds those answers.
Finally—I know many Members wish to speak—I want to return to the question of management, which is central to the success of any measures put in place to save a broke and bust Post Office. I appeal to the Minister responsible for postal affairs to explain in more detail how his proposals will achieve that objective. The previous Government saw that as an important part of the process of rejuvenating the Post Office. That is why they introduced a Bill that would have meant a new injection of capital, with 30% ownership from the private sector. Sadly, that did not work. I do not believe that the previous Government worked hard enough to push it through. I understand why it did not work—because the Government did not have the courage to go further. No private company would seriously consider that small a holding for that big an investment. It was a very difficult proposition from the beginning.
The truth is that the success of the Post Office will revolve around better relationships with the workers, better modernisation and removing the great pension fund burden. I believe that all those things can happen under the Bill if—I say again, if—we get the correct level of quality management. Such management must recognise that the whole of the marketplace has moved so quickly that there are very many opportunities, but it will take creativity, courage and bravery on the part of that management to achieve the successes that the organisation can achieve. I ask the Minister to use a little of his time to explain to us how he will attract that quality management, which is so central to the success of the operation.
It is a pleasure to follow the hon. Member for Northampton South (Mr Binley), and I strongly agree with what he had to say about the bully-boy school of management. The hon. Gentleman is committed to privatisation, as he made clear in responding to the intervention from his hon. Friend the Member for Gainsborough (Mr Leigh). However, although I listened carefully to the Secretary of State, I do not think that he made a case for selling Royal Mail.
My problem with the Bill is that it does not seem to be directed at the individual problems faced by Royal Mail. Indeed, I believe that in some ways it would make matters worse. Specifically, privatisation does not of itself deal with the problems identified in the Hooper report.
At the time of the Bill proposed by the last Labour Government, two arguments were advanced in favour of a private sector minority stake in Royal Mail. It was argued that Royal Mail needed private sector drivers, incentives, commercialisation and benchmarking—all the disciplines associated with private enterprise. It was said that they were necessary to drive forward the modernisation programme. At the same time and in the same context, it was argued that there was a need for the managerial expertise that could be found in the private sector, which prompted a question: if that managerial expertise was really needed, why could it not simply be hired?
The Government—correctly, in my opinion—have asked Richard Hooper to review his work. He has reported progress on the crucial modernisation issue, and has had reassuring things to say about managerial expertise. The key necessity is surely to drive the modernisation through, but that will not be easy, because mechanisation brings with it job losses and reorganised work arrangements.
The challenges are well understood. My right hon. Friend the Member for Southampton, Itchen (Mr Denham) listed some of them. Modern communications such as text, e-mail and mobile phones have led to a remorseless decline in the use of traditional postal services. That has been offset to some extent by the use of direct mail marketing and the growth of the parcel business, which is partly dependent on internet shopping—but the trend is clear, and change is therefore essential. I accept that the background of poor industrial relations makes the process harder, but in the circumstances it is surely right to support the progress that has already been made—and identified by Richard Hooper—and to find ways of reinforcing the work on the modernisation programme.
In any event, why do we need legislation to bring about privatisation? The Government have the power to sell shares now, although they are handicapped by the need to report the precise arrangements to the House and obtain our consent. The then Business and Enterprise Committee was very forceful on that point when it examined the Labour Government’s proposals, and I am pretty certain that its members’ views will not have changed.
The Bill also separates Royal Mail from the post office network, even more explicitly than is currently the case. That will not solve the problems faced by individual post offices, and it will open up new dangers. In short, the problems are insufficient turnover and a small margin on individual transactions through the outlets. It is reasonable to consider what other business could be put through traditional sub-post offices—that is not an original idea—but it will be difficult to provide services requiring a volume of users in smaller population catchment areas. The problem is usually discussed in terms of rural communities, but it affects inner-city and other urban communities as well. The Government should focus on that, rather than on separating Royal Mail from the post office network.
The burden of the universal service guarantee still rests effectively with Royal Mail, to the extent that it is effectively forced to subsidise its competitors in the parcel business, apparently—although I understand that the figures are a matter of dispute—to the tune of some 6.5p per item. That cannot be fair, and it is evidence of poor regulation.
I urge caution, although I am not opposed to the idea of share ownership. However, as my hon. Friend the Member for Coventry South (Mr Cunningham) pointed out, when employee share ownership was introduced at Rolls-Royce and by the municipal bus companies, the employees took the shares and then sold them. What matters to employees is the wages, job security and pension arrangements; those are the crucial things for them.
Part 3 of the Bill deals with the regulator and reconfigures the existing arrangements. The relationship between Royal Mail and its regulator is poor. I have looked at the arrangements in the Bill, and this looks to me—I was wondering how I could explain this in summary to the House—like the Post Office version of the Independent Parliamentary Standards Authority, with the industry having to pay for the regulator, at costs set by the regulator.
Part 4 deals with what happens when everything goes wrong. I will urge the House to pass that part of the Bill if the rest of it is passed.
I welcome the Bill, which largely represents the policy that the Liberal Democrats went into the general election with. There are differences. Under our policy, the Government would have retained a stake, but we understand the problem of making this a very attractive sale, so that part of it has gone. Under our policy, share ownership for employees would have been larger, but the measure still represents the largest share ownership ever on record, so we can live with that. Another difference is the potential to mutualise the Post Office. That is right up our street as Liberal Democrats; it is Liberal Democrat-plus, so we welcome that.
We have strongly maintained that the Post Office should never be sold and we hope that, under the new proposals, it will become stronger, thrive and even grow. The £1.34 billion announced today is extremely welcome.
On that point, I echo the warm welcome that my hon. Friend has given to the Bill. In the remote rural part of the world that I represent, the postal network is the lifeblood of the community. Opposition Members’ response is really disappointing. They should be welcoming the commitment to no further network closures and the massive investment that will enable those post offices to come up with new services, such as financial service products for people on a low income who do not have ready access to banking—
I wholeheartedly endorse the comments of my hon. Friend.
We know that mutualisation of the Post Office cannot occur straightaway, so I wonder whether my right hon. Friend the Secretary of State could indicate what conditions need to be in place before mutualisation can take place. In his aptly titled report, “Modernise or decline”, Hooper strongly recommended private sector involvement in Royal Mail and that the Government should relieve Royal Mail of the burden of its pension scheme.
The hon. Lady is moving on from mutualisation of the post office network. I thought she might ask the Minister where the guarantees will be when the Post Office is mutualised or split off. I believe that we have to put in £270 million at the moment to keep the network alive. I can see no guarantee under the Bill that the Post Office will be supported. How could mutuals find that £270 million to keep the network intact?
I cannot take any more interventions. I am sorry.
The point is that 90% of Royal Mail will become a private company. That necessitates close scrutiny to ensure that Royal Mail employees and customers and the taxpayer are protected.
Consumer Focus wants changes that protect consumers to be added to the Bill. It believes that Ofcom “must” impose a consumer protection condition on every postal operator—rather than “may”, which is the term currently used in the Bill. Please can we have “must” instead of “may”? Can we also add the requirement that Ofcom must impose the essential condition that every postal operator must guarantee the confidentiality, safety and security of mail?
I know that Opposition Members are concerned that the Bill’s provisions may be detrimental to customers in rural areas. Can we therefore insert into the Bill a definition of the minimum number of access points to the mail system—post offices and post boxes—and the criteria for geographic distribution, together with criteria under which exceptions could be sought? Can we also add a requirement on Ofcom to consult representatives of residential and small and medium-sized enterprise customers, and other particularly vulnerable customers, when conducting any review of the universal postal services order? SMEs often get left off the list, but it is important that they are consulted as well.
Customers need proper protections when things go wrong. Can we build into the Bill a requirement for postal operators to be members of an approved redress scheme to ensure complaints-handling standards can be monitored and independently investigated? Finally on the consumer front, can we build in a requirement that postal operators continue to provide appropriate information to the regulator and an appropriate consumer watchdog in order to enable independent monitoring of performance, quality of service, complaint handling and services provided to vulnerable consumers?
I want to make a few comments about the separation of Royal Mail and the Post Office. Key provisions in the Bill allow for the privatisation of Royal Mail and the formal separation of Royal Mail and the Post Office. Formal separation offers considerable advantages for the Post Office. For example, it would be managed by a board that could be more closely aligned to its own strategic objectives, and would no longer be a junior partner in group decision making. However, the Government have announced that they will seek a refreshed inter-business agreement between Royal Mail and the Post Office. Will subsequent contracts be subjected to a competitive tender process given that, as Opposition Members have pointed out, there would be no guarantees that the Post Office would retain its mail contract thereafter? I fully accept that there may be arguments against seeking to maintain the contractual relationship between the Post Office and Royal Mail in perpetuity as we cannot reasonably assume that consumer need will necessitate upholding the current access arrangements indefinitely. I also understand why, in light of future uncertainties, the Bill must not be too prescriptive, but might it include provision for the Secretary of State to seek a review of the access criteria at a future date, subject to parliamentary approval?
On the division of assets between the Post Office and Royal Mail, the Bill allows for the transfer of property or other assets between parts of Royal Mail Holdings plc. These provisions allow property transfers to be made directly by the Secretary of State or the holdings company. My worry is that the Post Office has frequently taken a minor role compared to Royal Mail, so when negotiating the property transfers, we need to ensure that the greater weight of Royal Mail is not used unfairly. Therefore, can the Government take steps now, in advance of measures contained in the Bill and the separation of the holdings company taking effect, to maintain the Post Office’s current assets?
Finally, there is speculation about who might buy Royal Mail. All the protections I have mentioned must be in place, but I would like whoever the purchaser might be to be given the best possible chance to make Royal Mail a world-beating postal service.
Royal Mail is currently hamstrung by regulations that make it uncompetitive against outside competitors, so can we examine those seriously? We want to make Royal Mail a much more attractive proposition for a prospective purchaser and ensure that the staff and new management, together, can make it the full and profitable service that it deserves to be.
I feel like saying, “Here we go again”, because in my time in Parliament we have been through three different attempts to privatise Royal Mail in some form or other. All three attempts have failed, and I think that we will decide not to get this one through. I am convinced that the public, whatever their attitudes and their knowledge of what is going wrong on some of the issues relating to Royal Mail, do not want a fully privatised Royal Mail or, indeed, a partly privatised one. It is a pity that the previous Government’s approach—my Government—almost left it open, as many Labour Members said, for another Government to carry on and go much further. So I feel a kind of déjà vu here.
The bit of the Bill that I really welcome is the lifting of the pension fund burden, but that can be done anyway—it should have been done by the previous Government. We did not need to go through all this time, effort and waste of money on consultants to know that the Royal Mail was in a bad state. Part of that was because of the pension fund deficit. Whose problem was that? It was certainly not that of the men and women who deliver our post or the members of the Communication Workers Union; it was, purely and simply, that of Governments of all complexions, who allowed the pension holiday to be taken.
A lot has been said about modernising, but the thing that made such a difference to why the Royal Mail started to decline in many people’s view was that for some years it had shockingly bad management. All they seemed to want to do was pay themselves grotesque salaries at the top, while the limited investment that was being made was not put into the modernisation that should have taken place. The position is slightly changed now, because the new management at Royal Mail are a different kind of management. I am not saying that they are absolutely perfect; I was very disappointed in the letter that was sent out, to which reference has been made, concerning the question of wanting to free up some of the universal service points. That is worrying, but recently there has been a real improvement in relations between the management and the CWU.
A lot of the modernisation has gone ahead: new machinery and technology has been introduced, aligned with the new six-day standardised work plan; delivery methods have improved; and the equipment and the ways of working have changed. We have to examine mail and distribution centre rationalisation but, as I said in an intervention, closing the Vauxhall Nine Elms facility would be crazy, because it would involve huge additional costs of moving post out of London in lorries and vans. I hope that there is still room for discussion on that and that we will be able to prevent it from happening.
What I am trying to say is that change is taking place and there is a changed attitude. Therefore, there is now no reason why the new Government, with the right support from those on the Opposition Benches, could not create a Royal Mail, minus its pension deficit, that has the kind of support that will give it sustainability and allow it to compete with anyone else in the world. The Bill, as it stands, contains so few safeguards. How sad it is that we could end up with our famous, wonderful Royal Mail, which has had so many loyal workers over many years, is a lifeline to people in rural communities and is seen by many people living in isolated communities as the one bit of contact that they have—in the form of their postman or postwoman—end up in the hands of a foreign owner. It is not just that that ownership is foreign. They will hand our precious asset over, out of the public sector, and for what? I saw no argument for it. There is no argument.
The changes are already happening; we have a work force who realise that things need to change and they are changing. I cannot believe that some of the Liberal Democrats are going along with this, although I accept that they want to see the support for the post offices. I welcome again that support for those post offices, but it is a separate issue that should be happening anyway. I urge my party not only to oppose the Bill, which we are, but to say that we were wrong to move for semi-privatisation, because it has allowed us to go this way and has allowed the Government to pick up from where we left off.
The Communication Workers Union is signed up to all the modernisation, but we do not want to see a service that is stripped back to the minimum, getting rid of the second deliveries and a number of such issues, as well as posing an overall threat to the universal service obligation. The public do not want this and they will not let it happen. The coalition Government are taking on public opinion at their peril.
I had hoped to make my maiden speech last Friday on my private Member’s Bill, to pay homage in some small way to the great lady, the former Member for Finchley, who famously made her maiden speech on Second Reading of her successful private Member’s Bill. I am grateful to colleagues on both sides of the House for giving it its Second Reading without objection, and I am happy today to support the Second Reading of this Bill.
Let me begin by thanking my predecessor, Humfrey Malins, for his long record of service to his constituents and to this House. He was an extremely assiduous constituency MP for Croydon, North-West and then for Woking. He was listened to with great interest in this House, particularly on home affairs, on which he spoke with the legal experience of a solicitor, a district judge and a Crown recorder. He was a shadow Minister for immigration and asylum for five years, and I believe that it is typical of the man that when he lost his seat in Croydon in the general election of 1992, he immediately set about founding the Immigration Advisory Service, which to this day provides free legal advice on matters of asylum and immigration. In 1997, he was re-elected to Parliament as the MP for Woking and received a CBE for his services to immigration policy.
Humfrey was extremely well liked by his constituents and, I believe, by Members on both sides of the House. He remains a great lover of sport. Having played against the All Blacks in his youth, he went on to found and captain the parliamentary rugby union team and later captained the parliamentary golf society. There are many fine golf courses in the constituency of Woking, and I hope that Humfrey keeps up his many friendships in our town and in our villages by playing them as often as possible.
My constituency of Woking has an ancient past but a passion to succeed in the present. Although it boasts the ruins of Woking palace, which was one of Henry VIII’s favourite hunting lodges, it came into being as a modern town by Act of Parliament. In the 1840s, London’s churchyards were running out of burial space, so the Metropolitan Interments Act 1850 forbade any further burials in London and encouraged the building of cemeteries outside the city. A further Act of Parliament in 1852 set up the London Necropolis Company, which went on to purchase 2,000 acres of land at Brookwood in Woking.
Brookwood cemetery remains a beautiful and tranquil place, a place of truly national significance and importance. I believe that it is worthy of more support both locally and nationally. One of those interred there was Dr Gottlieb Wilhelm Leitner, an oriental scholar who was reputedly fluent in 50 languages. In 1889, he founded the Woking Shah Jahan mosque, which was the first purpose-built mosque in western Europe. For many years, it was the focus of the development of Islam in this country. I celebrate the fact that Woking has its first Asian mayor, Councillor Mohammed Iqbal. I pledged with him to serve the residents of our borough, and in particular our British Muslim population. It is worth noting that Dr Leitner, the founder of the first mosque in England, was Jewish. That is an interesting and wonderful thing that we should bear in mind as we seek peace and reconciliation in the world.
H. G. Wells was another famous citizen of Woking. On one of my first home surgery visits, I visited a modest, semi-detached villa in the heart of Woking, only to be told that it was the very house where H. G. Wells had penned “The War of the Worlds”, which envisaged Martians landing on beautiful Horsell common and laying waste to the whole of Woking and, indeed, vast swathes of southern England. We now celebrate H. G. Wells’s imagination with a large, modern, Martian tripod sculpture in the centre of our town.
While we are proud of our Victorian, literary and cultural heritage, we also look forward to the future. Woking borough council is innovative and has an acknowledged national reputation for leading on green issues and renewable energy. Our businesses strive to succeed—none more so than McLaren, which, building on its success in Formula 1, is now an even larger enterprise that is going to build a sports car for the road. I would very much like to own one of McLaren’s new sports cars, but unfortunately my parliamentary salary and my wife forbid it.
Woking has a vast panoply of charitable organisations, all of which are willing to make the big society a success. It is a great honour to represent Woking in Parliament, and I hope to do so for many years to come—
I congratulate the hon. Member for Woking (Jonathan Lord) on making his maiden speech. I have been to Woking only once, and he missed out its most famous citizen—the great Paul Weller.
Turning to the matter at hand, although our amendment was not selected, it sets out the feeling of the Scottish National party, Plaid Cymru and all the parties from Northern Ireland, including the Democratic Unionist party; although DUP Members did not sign the amendment, they support its aims. We fear for the future of the universal service obligation if the Post Office is privatised.
I contributed submissions to Richard Hooper’s original work. I agreed with much of what he said in the end, but I strongly opposed the part-privatisation proposed by the previous Government and absolutely oppose the full privatisation proposed by this Government. Today, the Business Secretary argued that regulation will protect the universal service guarantee and that there is therefore no need to maintain Royal Mail as a public company, but it is inevitable that the pressures from a fully private company will lead to a reduction in the universal service.
Over the summer, the Business Secretary appeared to recognise that the current six days a week pick up and delivery service may not survive and suggested that a five days a week service might be sufficient. That accords with the current definition of the universal service, which does not include Saturday deliveries, so the Government already envisage the service declining. That position was justified on the grounds that it would not discriminate against any area, since it would be the same service whether someone resides in Kensington or Kyleakin. However, that is not quite the case. If I reside or run a business in Kensington, I am sure that there are a number of different services to which I can turn, but it is somewhat different in rural areas of Scotland where Royal Mail is the only service that will pick up and deliver mail. That vital point must be borne in mind when we consider the Bill’s proposals.
We are dealing not only with residential customers but with business customers, many of whom, in more rural and remote areas, rely absolutely on Royal Mail, which is the only carrier that is obliged and able to deliver a service to them. Does anyone really believe that that will continue in a fully privatised environment? How long will it be before a private owner such as TNT or Deutsche Post argues that it is at a competitive disadvantage because it is the only company required to offer a universal service? How long will it be before it wants the agreement to be watered down or requires public subsidy to enable it to continue?
Such an outcome would be a disaster for rural business. Only this week, the Government talked about the need to increase broadband access in rural areas. All too often Royal Mail is considered old-fashioned—it is seen as Postman Pat and his black and white cat touring Greendale as opposed to the brave new world of broadband. Although broadband is important in rural areas, which would benefit enormously from faster access, one cannot send goods down a telephone line or a fibre optic cable. Unless some entrepreneur in this brave new world comes up with Star Trek transporters, we will still require a physical delivery service to go up and down dale and glen to pick up and deliver physical objects. At the moment, the only company that will guarantee to do that is Royal Mail. We have to take that on board and do nothing that will undermine the service if we are to encourage the regeneration of our rural areas and create jobs in the new green economy.
I appreciate that many Government Members firmly believe in the overriding primacy of private enterprise, but even private enterprise sometimes needs public help. I was intrigued by the Prime Minister’s speech to the CBI earlier this week in which he said that
“business confidence doesn’t just come from financial and human assets. It comes from physical assets too—from our infrastructure.”
I do not often agree with the Prime Minister, but I think that is absolutely correct. He recognises the need for substantial public investment in the infrastructure needed to help businesses develop. Infrastructure is not just roads, railways and broadband—it is also investment in existing systems that provide a backbone for many businesses. Infrastructure assets such as Royal Mail provide new entrepreneurial businesses in many of our rural areas with an essential service that enables them to operate, grow and create jobs. They do that in many areas that are about to be hit very hard by the reduction in public sector employment.
I am interested in the fascinating myth-busters leaflet published by the Department for Business, Innovation and Skills.
Indeed. Let me quote one of the myths in the leaflet:
“Growth in parcels from online shopping will outweigh falls in letter volumes”.
The response states:
“The parcels market is much smaller than the letters market and has been fully liberalised since 1981, making it highly competitive.”
It might be highly competitive, but many carriers will not deliver to remote and rural areas, particularly to Scottish islands, except at immense cost. There is a real danger in going down the route of privatising postal services.
The Bill mentions, in clause 30:
“At least one delivery of letters every Monday to Saturday…to the home or premises of every individual…in the United Kingdom”
at a uniform price. What better guarantee than that does the hon. Gentleman want?
I remind the hon. Gentleman that in the summer his Business Secretary said that the service might go down to five days a week, so he recognises that it might be reduced. He also said that European regulations rightly ask only for a five day a week service. Any privatised service will inevitably want to cut costs and there will be pressure on the Government to allow that.
I shall not give way again; time is getting on.
I pointed out in an intervention that the chief executive officer of Royal Mail is calling for an overhaul of the regulatory regime, including the ability to price products freely, to put limitations on the products covered by the universal service obligation and for the USO fully to cover its costs—the cost of delivering a letter to the islands of Scotland is about £30 not 30p—and for restrictions on access to the Royal Mail network by competitors. If a privately owned Royal Mail goes down that route, the pressure on the Government and regulators could be immense and could mean a substantial rise in postal costs to rural areas. It would be the ultimate irony if the Bill meant that a privatised Royal Mail was given an ability to compete against other privatised companies that it was denied when it was a public body.
I should like to say more about post offices—[Interruption.] I would take another intervention if it gave me two more minutes. The Business Secretary failed to explain how mutualisation would work. He failed to say how a post office that has moved into a branch of WH Smith, as many have, will form part of a mutual. How will individually owned—
Order. Time is up. [Interruption.] Will the hon. Gentleman resume his seat? I ask Members to stick to six minutes. Interventions with four seconds to go can give more time, as has just happened, and the hon. Gentleman benefited from that.
The powers that be in the Whips Office approached me last week to ask whether I would like to speak on the Bill, and then a few days afterwards they asked which side I intended to speak on. I reassure them that I shall speak largely for the Bill.
The Government are to be congratulated on introducing a Bill on postal reform. I accept that stagnation is not an option. The pension deficit is crippling. The regulatory environment is crazy, as many Members have established. The communications market is changing dramatically, and the work force are confused and demoralised.
The last time I spoke on postal services in this place, I did so on behalf of employees in my constituency who were locked in battle with the local management. I must admit that like other Members I did not find the Crozier-led management easy to deal with. Nor did I find the union especially helpful, although I have a generally high opinion of the Communication Workers Union and of Billy Hayes in particular. The battle was over an astonishingly high rate of dismissals and disciplinary actions taken against a work force who are neither work-shy nor particularly militant.
A pattern of petty penalisation and unreasonable demands had emerged, and it needed to be dealt with. Otherwise decent staff were being punished for not fulfilling unreasonable schedules, or for simple lapses of concentration, such as not wearing their cycle helmet at the right time in the right place, or for not following procedures with absolute accuracy. In some cases, that became the basis for dismissal, and bit by bit, long-term staff were replaced by casuals. I came to the conclusion that the management wept no tears at all about that, and that the dismissal of long-term, high-pension staff was in fact relatively welcome.
I came to the conclusion that unreasonable schedules were being set—almost wilfully—because Royal Mail believed that the only way it could compete was to ask staff not only to go the extra mile, but to go another and then another. I draw no comfort from the current agreement whereby Royal Mail is to beef up massively the junk mail element in every postbag. A business that plans to survive by giving its customers more of what they do not want does not seem to have much future. That is why something has to change, and there is a lot in the Bill we should welcome.
We need to do something about the insanity of postal regulation. For years, Postcomm has forced Royal Mail to upstream and downstream prices to subsidise its competitors. The line is, “Let the poor old Royal Mail struggle with the long paths, the dogs, the gates that fall off their hinges, the flats with no visible means of access and the long country roads.” While Royal Mail does that, the private market looks at what is actually profitable.
Payment for the final mile has been derisory, and as the hon. Member for Vauxhall (Kate Hoey) would point out, it is due to the bloodless application of EU law and directive that has done untold damage to the postal system of the UK. I do not want to go into the rationale for that; suffice it to say that as a consequence of the single market agreement that Mrs Thatcher introduced—or got Parliament to agree to—we are stuck with it. But as far as I can see from the Bill, we are not stuck with Postcomm. That is a significant improvement. I welcome, too, the emphasis on employee share ownership.
The hon. Gentleman is assuming that the Bill is totally finished business. If he has amendments that he feels ought to be tabled and that ought to impress the Minister, I am sure he will have the opportunity to do so.
Not only is employee ownership part of Lib Dem policy, but it is a long-standing part of Liberal policy before that, as many of my hon. Friends will recognise, and it was backed by candidates in the recent Labour leadership elections. It is good to see employee ownership in the Bill. It is 10%, but it is there.
I welcome the central place in the Bill given to retaining the universal service obligation and the measures taken to secure it. We all hope that they will be good enough.
I welcome the plans for the Post Office, but with some caveats. It is a huge franchise and it still has huge potential, but it remains the case that there is virtually nothing that it now does which cannot be done in some other way. Its viability depends on elderly customers preferring to do things in a traditional way, via paper transactions. It needs more than the good wishes of the House, the occasional subsidy and a more modern and diverse facade. It is a very distinctive type of franchise, unparalleled in any other European country, and it needs a distinctive role.
That can only be through an enduring link with the Government or with the community that post offices serve. It is not clear to me yet what long-term role the Government or the community wants the Post Office to discharge. My fear is that if central Government, local government and the community cannot identify that role, the franchise will lose its universal service provider status and part of its raison d’être. The Government need to work out what they want a sustainable post office network to do. We cannot have, as we have had in the past, some Departments promoting it and others, such as the Department for Work and Pensions, effectively sabotaging it.
I fear there is also an element of backdoor sabotage. I have had difficulty in my constituency, where sub-postmasters have tried to sell franchises to somebody else and have encountered untold difficulties in seeking to do that and prohibitive prices presented to buyers.
The fundamental issue that we are facing is privatisation. Some people approach the subject with a presumption against privatisation, and some have a presumption in favour of privatisation. I guess most of us are fairly pragmatic about it, but do we accept that the safeguards of the universal service obligation are robust? If we accept that there is an argument for the Government to absorb the pension deficit, and if we accept that the business will go better with sane regulation and employee involvement, the big question is why not retain the business in public ownership. That is the issue on which we will torture ourselves over the next few days. We hope that we will have from the Minister an exhibition of evidence-led policy where the balance of argument prevails, not the balance of numbers.
I start with a declaration of interest. I am a Labour and Co-operative Member of Parliament, with an 18-year involvement with the Co-operative movement prior to coming to the House. Since entering the House, I have at various times been chair of the employee share ownership group and the all-party building societies and financial mutuals group. Philosophically, there are considerable elements of the Bill that I instinctively support. The Government’s recognition of the potential role of employee share ownership and mutuality in delivering postal services in this country is welcome. My regret, which forces me to oppose this Second Reading, is that the Bill’s other parts will militate against the successful implementation of either employee share ownership or mutuality.
My experience within the movement has demonstrated a couple of things to me. We cannot legislate for mutuality. We can set up a framework of legislation in which mutuality can thrive, but we cannot look at a business and say, “We will make that a mutual.” Mutuality and co-operation have to stem from the desire of those who work within an organisation to work in a certain way, driven by a certain culture. That culture may exist in Royal Mail and in the post office service, but the issue has not yet been determined.
I welcome the consultation on the Bill with the co-operative movement, but I did not feel too confident when the Secretary of State seemed not to know whether it had taken place with Co-operatives UK or with the Co-operative Group. The fact that he fails to understand the difference between the two does not exactly reassure me of a heavy commitment to that line of organisation.
As the hon. Member for Northampton South (Mr Binley) said, the previous Business, Innovation and Skills Committee examined the Royal Mail and the Post Office and made a range of recommendations, many of which the Minister alluded to, but many of which have not been implemented. That prompts the question that if their implementation is necessary to make the privatised model work, why have they not been implemented while the company has been in public ownership? Indeed, if they had been implemented, it might have made the private offer more acceptable. The Secretary of State did not sufficiently explain that situation.
My fundamental objection to the whole privatisation programme is that it basically instils a contradictory philosophy to that in the mutual and co-operative elements of the Bill. I have not seen it fully explained how the drive for shareholder appreciation and profit will be mitigated to allow for the regulatory and social obligations of the privatised Royal Mail. There has been a long debate about the universal service obligation, the six-day delivery and so on, and the fact remains that whoever buys Royal Mail in the long term will have to satisfy shareholders, but the potentially irreversible drive to make profit must call into question the regulatory framework that we have been assured will contain the privatised industry. That situation will have serious consequences for the post office service.
If the Royal Mail withdraws its current contract at some stage, or under some ownership or model, it could sound the death knell for hundreds, if not thousands, of post offices. Only 4,000 of the current 11,000 post offices are profitable. My right hon. Friend the Member for Southampton, Itchen (Mr Denham) said that mutuals can fail, and in this context there is a high possibility of failure.
Exactly. That will be one of the determining factors in whether post office sub-postmasters and other employees want to work within a mutual framework. The fact remains that Royal Mail, driven by an imperative to make more profit, will be bound to re-examine some of its contracts with the Post Office, and there is no guarantee that they will be sustained. About a third of Post Office Ltd’s total income is dependent on those contracts with Royal Mail, and that creates a degree of uncertainty and risk that could well work against those involved in the Post Office being prepared to accept a mutual organisation.
Listening to the hon. Gentleman’s remarks, one might think that the post office network has gone through a halcyon period. What guarantees were there for the thousands of postmasters who saw their businesses close over the past few years?
I do not recall anybody saying that post offices had gone through a halcyon period, but under the last post office reorganisation many sub-postmasters applied for the compensation package that was agreed for them. I very much doubt that that would still be available under a revised and privatised process.
The hon. Gentleman says that it is impossible to create mutuals from a transfer, but did not John Spedan Lewis create the John Lewis Partnership by transferring a business into an employee-owned trust? Is not that a great example of an existing business being transformed into a highly successful mutual, if not a co-operative?
Certainly John Lewis did that, but he did not just hand it over—there was a process by which he ascertained the willingness of others within the business to accept it. That situation has to be created. I could equally point to the situation in the ’70s when co-operatives failed because they did not have that in place.
I oppose the Bill because it is fundamentally flawed. At the Lib Dem conference, the Secretary of State said, “Capitalism takes no prisoners,” but since then he seems to have been on a private journey. That is demonstrated by this Bill, in which he puts forward a solution based on a brand of capitalism that I would describe as cuddly capitalism, whereby shareholders will forgo their private profit in order to embrace a co-operative and mutual solution that mitigates the social impact of their drive for profits.
I welcome the Second Reading of the Bill and what the Secretary of State has said, which has helped to clear up a number of the points that I was going to raise.
I believe that now is the right time for a fresh debate about the future of Royal Mail, particularly the need for radical change in the way that postal services are regulated. There is an urgent need for a review of the regulations that are supposed to govern Royal Mail and the universal service but in reality prevent the company from operating in a truly competitive and open market. None of us doubts the immense service and commitment of the thousands of postmen and women and sub-postmasters across the country who work tirelessly to serve their community. I know of many in my own constituency who consistently go that extra mile not only to do their job but to serve their community in so many different ways. We owe it to these people to ensure that we get this Bill right and that that Royal Mail is given the opportunity to flourish in the future. That opportunity exists now, and we have the chance to do what the previous Government failed to do: to breathe fresh life into a national treasure that would otherwise be crushed by the weight of regulation, strangled by the noose of the historical pension deficit and starved by the absence of capital that is needed to continue the modernisation programme.
As a local MP, I know how important the universal service is; many other Members have touched on that. The one-price-goes-anywhere, six-days-a-week service to the UK’s 28 million homes and businesses has been in place since Royal Mail was established, and it is highly valued by the public and by businesses large and small across the country. However, many at Royal Mail would say that that is now threatened because of the way in which regulation is strangling Royal Mail’s ability to compete in the wider marketplace. It is also vital to note how important this service is to the men and women working in Royal Mail, who derive a great deal of job satisfaction from this part of their job.
As several hon. Members have pointed out, Royal Mail is in a precarious position: there is no hiding from the facts. Mail volumes are falling, the company has a multi-billion-pound pension deficit, and there is an urgent need for more capital to be injected into the company. I welcome the provisions in the Bill that will allow Royal Mail flexible and timely access to capital in future as it continues its modernisation to provide customers with the services they want.
That brings me to the major issue facing the Royal Mail, on which I wish to elaborate. The company is currently stifled by more regulation than its competitors, so the status quo is no longer an option. The biggest single threat to the universal service obligation, which is protected as part of the Bill, is the unfair regulatory framework in which the Royal Mail currently operates.
Deregulation of UK postal services is long overdue. I can think of no other market or industry in which a state-owned institution such as the Royal Mail is forced to offer its competitors a subsidised rate that does not even cover the cost of its business. As my hon. Friend the Member for Southport (Dr Pugh) pointed out, and as the right hon. Member for Southampton, Itchen (Mr Denham) said in his reply to the Secretary of State, Royal Mail’s rivals currently have an in-built price advantage because of the arbitrary and unfair margin that the regulator sets between the price that Royal Mail can charge its own business customers and the price that it charges competitors for the use of its network.
I am sure that the original intention of the regulations on that matter was to help encourage new providers into the market, but it seems somewhat perverse that they now mean taxpayers and Royal Mail customers are effectively subsidising foreign competitors. Those access headroom regulations allow rivals to undercut Royal Mail, no matter how efficient its business becomes. In the interest of fairness, and so that Royal Mail can operate freely and competitively, they must surely be reviewed.
I thank the hon. Lady for that point. I believe that we need to get the right balance in regulation between protecting consumers and ensuring that we create a stable company. I therefore welcome most of the Bill’s provisions, particularly on protecting the Royal Mail’s universal service obligation.
We need to get regulation right, and I should like to ask the Secretary of State for any further assurances that he can give the House that the Bill will deliver the open, transparent, fair and competitive postal service market that is needed to allow the Royal Mail to prosper in future. I also ask Ministers to ensure that the Bill allows Royal Mail to introduce new products without always having to consult its rivals publicly for three months, as the current regulations require. That severely limits the company’s ability to innovate and compete.
It seems to me that there should be regulation and price control only where there is little or no competition. Currently, 80% of the Royal Mail’s revenues are covered by regulation, although rivals handle at least 40% of the mail, and 60% of bulk mail. Personally, I should like competitors to be given access to its network on commercial terms and at a commercial price, rather than the Royal Mail being forced to deliver its competitors’ mail at a loss.
The Royal Mail and the Post Office are key national institutions, and we must ensure that they are both on a secure and stable footing. Securing the future of the post office network is absolutely vital to me. Pendle lost 17 sub-post offices under the last Government, including, most recently, six branches in 2008. Many parts of the country fared even worse than my constituency, with the number of post offices decreasing from 17,845 in 2000 to only 11,905 today. I welcome the fact that the Post Office is not for sale as part of the Bill, and that there will therefore be no further programme of closures. That will come as a huge reassurance to numerous elderly and disabled residents in Pendle who rely on the local post office on a daily basis.
I was encouraged by what the Secretary of State had to say about investing in the network and exploring future business opportunities, and particularly by the £1.34 billion extra that he announced today. I welcome the Bill and fully support the moves that will help the Royal Mail to flourish in an open and competitive marketplace in future. I look forward to supporting the passage of the Bill, with the aim of delivering a strong and stable company for customers, the 155,000 employees, and potential future shareholders.
Earlier today I passed a lobby outside the House, whose protagonists were carrying placards that bore two messages. The first was “Bash the bankers, not the pensioners”, and the other was “Save our services”. Indeed, there is a lobby of pensioners in the House even as we speak. The Secretary of State highlighted the fact that post offices are of particular importance to pensioners. However, I thought he rather narrowed the importance of post offices, certainly for my constituents, because post offices are vital not only to pensioners but to people with disabilities, the unemployed and young parents. One must give credit to the new coalition Government, because their record is 100% consistent: despite their pronouncements to the contrary, all their policies attack the most vulnerable and the poorest in our society.
There are no guarantees whatever in the Bill that post offices and sub-post offices will be maintained. It is easy to say that there will be no more post office closures—I am somewhat confused on whether that covers sub-post offices—but without cast-iron guarantees, my constituents will suffer inordinately. All of us who were here in the last Parliament and who are most grateful and humble for being returned remember our struggles to save our sub-post offices. That is certainly true of my constituency and throughout London. I lost four in the last round, and six in the two previous rounds. Such closures impact on more than the individual users of the sub-post office. London is essentially a sequence of small villages, and sub-post offices tend to be a major part of the smaller, local economies. People go to the post office and do a little bit of shopping in their local shops. Once the post office goes, those other shops lose out.
The Government are telling us that the retail sector will be the essential driving force of our growing economy, but if there are no guarantees that essential counter services will be maintained, the economic fallout could be greater.
With all due respect to the hon. Gentleman, his Secretary of State stood at the Dispatch Box and gave categorical assurances that his proposals will revitalise and re-energise our postal services. He assured us not only that our postal services will not be diminished, but that they will expand and grow, and become more inventive and entrepreneurial. There is an apparent guarantee that national delivery will be set in stone. I asked him how the Government could guarantee for perpetuity a privatisation of postal services without entrepreneurs, who apparently will come rushing in, but the hon. Member for Northampton South (Mr Binley) said that entrepreneurs would run a million miles away from putting money into the Post Office.
The Secretary of State made those guarantees and cast them in stone, so why can he not do that in respect of sub-post offices? I am perfectly prepared to accept changes to post offices up to a point, but all the sub-post offices I know are additions to retail outlets, not the primary source of business for the individuals running them.
The public still firmly believe, despite the vagaries—or worse than vagaries—of the changes to our postal service, that the Post Office is a public service. The people of this country take great pride in it and believe it to be central and essential to their way of life. It matters not how many times one points out to them the decline in the number of letters we write, as everybody would apparently sooner send an e-mail because that is easier. I can understand that, but I am certain that I am not the only Member of this House who despairs of the day when e-mails were invented, because of the time it takes to send and read them. And what do we get at the end of it? I shall not go down that road, but I can see by hon. Members’ smiles that my experience is shared universally.
None the less, the public value and treasure the public service provided by post offices, and not only because, as for many of my constituents, it frequently used to be the case—this has improved slightly lately—that the only other human face that some people saw was that of the postman. In many instances, the only people whom they had conversations with were those they met in our sub-post offices. I have come across more than one example of a sub-postmaster missing seeing a particular pensioner over a comparatively short time span and alerting social services and the police because he was concerned that she might have had an accident or that something else might be wrong, and being proven right. Post offices do not simply offer a commercial service, whereby we can communicate with each other via the post; they offer a public service through which the public value each other and, in essence, take care of each other.
This Bill is yet another brick in the wall of what the Government are attempting to convince us will be their big society, if all these policies go through. However, it seems to me that what these policies will produce is the big broken society. If we lose the capacity to care for each other, what will be the point if we do manage to close the national deficit? It is the human beings of this country who are of primary importance. They are the ones who are going to get us out of this mess. Their feelings about public services are not limited to what the Government tell us are their priorities—the NHS and education. Rather, it is the public service in our postal services that they value. As others have said, there are aspects of the Bill to which one can give comparative support, but the Bill as a whole is an unmitigated mess.
Even after listening to the previous speaker, I think that we all share the same view, which is that we have to create a sustainable future for our post service, so that it can both serve our economy and continue to serve as a public good. We should all accept that Royal Mail has been lagging behind its competitors, and, with a potential reduction in the volume of letters of between 25 to 40% over the next five years, despite the use of e-mail and modern technology, we need to find ways to make Royal Mail change with the times. The injection of private capital will help to fund the necessary modernisation, which has already begun, but which needs to continue apace.
However, a more innovative way of achieving rising productivity—one put forward by the Bill—is by providing employees with shares in Royal Mail. Evidence has consistently shown that employees who feel a sense of ownership of a company have higher morale, and are likely to be more successful as a consequence, than those who do not feel that sense of ownership. The employee share scheme will give staff at Royal Mail a real stake in the future of their company and give employees a financial incentive to see improvements in the company and an even larger turnover. Given the clear benefit of that approach, my only regret is that the Government have not made the employee share scheme greater than 10%. However, given the financial constraints and the need to attract fresh investment into Royal Mail, I appreciate that doing so may not be practical. That said, I have some other concerns.
No, I think that the offer as it stands is sensible and practical, although as I have said, it would be better if the level was greater than 10%. However, as it stands, that is the only way that we are going to move forward.
I recognise that the injection of private capital has been sought in order to protect the universal service obligation, although I would like to use this opportunity to state how damaging it would be for communities and small businesses if Royal Mail dropped the USO. I understand that there are considerable costs involved. However, for many communities—particularly rural communities—and a vast number of small enterprises, Royal Mail is an important lifeline, with nearly 60% of small businesses wanting to continue to receive mail deliveries six days a week. Given that the small and medium-sized enterprise sector will play a large part in our economic recovery, we should avoid any changes to the USO that might damage growth or hamper development in that part of our economy.
The future of Royal Mail is not the only concern for communities and businesses, however. People also want a strong future for our post offices. In the past few years, post offices have closed in many communities, including my own, and those vital local amenities must be protected. If they are to survive, they must become more than simply a place for posting or holding letters.
The Post Office already needs a subsidy of around £80 million in order to carry out its functions, and this will increase if other income streams are not found. I believe that a Post Office bank offers a real solution and could provide a strong future for our post offices. About 25% of small businesses bank with the Post Office’s financial services, and I am confident that more would do so if the limited number of transactions that they are able to make could be expanded. A survey by the Federation of Small Businesses showed that nearly 40% of its members were in favour of a Post Office bank and would bank with it. The present arrangements mean that 50% of the profits made on financial services provided by the Post Office leave the Post Office business, and that is simply not sustainable. Moreover, the joint venture with Bank of Ireland has not been able to deliver the basic, core banking products.
An independent Post Office bank would bring banking right back to the centre of our communities and help to revive trust between the public and the banking sector. A Post Office bank would help small business, and thus our economy, and it would provide those who have difficulty accessing the high street banks with an opportunity to get hold of basic financial services, helping the most vulnerable in our society. In many of the poorest areas, people have lost access to traditional forms of banking, and a Post Office bank would provide a trusted face and a chance for those communities to use the financial services that many of us take for granted.
Such a bank would not be unique to Britain. The French postal service launched its bank in January 2006, and, by 2007, it had 11 million postal banking accounts providing significant revenue. The Italian postal service, Poste Italiane, launched BancoPosta in 2000. By 2002, Poste Italiane had shown a net profit for the first time in 50 years. So it can be done; it is just a question of putting the framework in place to achieve it.
I am sorry, but I will continue if I may.
A good postal service and a strong network of post offices is not a luxury; it is a necessity, for economic and social reasons. We need to be innovative and bold, and we need to think about sustainability. I am confident that this legislation will move Royal Mail and our post offices in the right directions, and I look forward to supporting it in due course.
We have had many debates on post offices and Royal Mail in the House over the years, and we have often concentrated on the competition regime governing the different mail companies that are engaged in the delivery of mail. Less often, we have concentrated on the technological shift away from all mail companies to new technologies, including text messaging and the use of the internet and e-mail, to which my hon. Friend the Member for Hampstead and Kilburn (Glenda Jackson) has just referred. This is a fundamental shift, and it lies behind many of the problems that Royal Mail now faces. Perhaps it is natural to concentrate on the things that we believe we can change, but just because we cannot change that technological shift, it does not make it any less real or any less fundamental to the challenge being faced by our post offices and by Royal Mail itself.
All this is not necessarily bad news for Royal Mail, because there is a growth in fulfilment mail, as it is called, as well as in internet shopping and in selling things through eBay. However, Royal Mail’s business needs fundamental modernisation if we are to keep the universal service obligation and the six-day-a-week delivery service that lies at the foundation of our postal system.
There are some areas of the Bill with which I can agree. The Secretary of State attempted to say that it was much the same Bill as the one proposed by the previous Government, but it clearly is not. They have some areas in common, however. The Government taking on an historic pension deficit—and, indeed, the way in which they are taking it on—is something with which I can agree. The taking on of both the assets and the liabilities puts postal workers on the same basis as nurses, teachers and so forth. This method was attacked by the previous Conservative Opposition as a raid on the pension fund, but I am glad to say that, now they are in government, they have turned their backs on that position and adopted the method we proposed.
Similarly, when it comes to regulation, it is right to move from Postcomm to Ofcom and regulate mail services in the wider context of communications technologies. Regulation, however, is about more than the heading on the notepaper or the address of the building. It is also right to put at the heart of the regulatory system the maintenance of the universal service. This Bill, like Labour’s Bill, has a reserved power for a levy to support universal service. In his report, Richard Hooper was sceptical about the need for this, seeing it perhaps as an excuse for modernisation not to proceed. We felt it was right to take such a power to ensure the maintenance of the universal service in the future.
So much for areas of agreement. The fundamental area of difference is on ownership. Clause 3 of Labour’s Bill said:
“Each Royal Mail company must at all times be publicly owned.”
Anyone wanting to see the difference between our proposals and this Bill need only scan the present Bill to try to find such a clause—they will not find it. That clause meant that any private investment had to be on a minority basis. The idea of having a minority stake was not particularly new; it had been floated as far back as 1998. Why keep a majority public stake? It gives the taxpayer an ongoing interest in the maintenance of the universal service obligation and an ongoing interest in the inter-business agreement, which is so essential to the post office network. Even more important than those two elements, however, it also gives the taxpayer an ongoing interest in the transformation of what is, after all, a public service. The taxpayer is taking on the historic pension deficit and the liabilities therein, so why should not the taxpayer share the upside of the modernisation that the Bill is designed to achieve? That explains the logic behind keeping a majority stake in taxpayers’ hands.
All that has been cast aside by the Government. Our Bill was a proposal for partnership; this Bill is a proposal for privatisation. On employee shares, yes, we were in favour of that, too, but again, only in the context of a company that would remain majority-owned by the taxpayer. What guarantees are there for the universal service obligation, the inter-business agreement and the taxpayer sharing in the upswing envisaged by the Bill?
Finally, there is a lesson for Labour Members, too. My hon. Friend the Member for Vauxhall (Kate Hoey) said that we should not have introduced our Bill. I offer the opposite lesson, however, as the truth is that if we had managed to get our Bill through, we would have had a publicly owned Royal Mail and might not have had to face the measure before us. There is a fundamental difference between what we were proposing and what is before us today. That difference is a majority publicly owned Royal Mail—a difference, I suggest, that is worth having.
I represent a constituency with many small, remote communities, including many islands. Clearly, Royal Mail and the Post Office are vitally important to that constituency. I have to admit that when privatisation was first mooted, I certainly questioned it. However, I am now convinced that it is the only way forward because of the state of the finances of both Royal Mail and the Government more widely. Thus, private capital provides the only way of investing in the modern plant and machinery that Royal Mail so desperately needs. Given the huge mountain of debts that the previous Government left behind, there is simply no alternative.
One of the proposals involves the returned letter centre in Belfast, which employs 26 people. It is the most efficient returned letter centre in the United Kingdom, so the proposed changes cannot be to do with efficiency. As for savings, where are the savings in such a move?
I am afraid that I do not know the details of what is happening to Royal Mail services in Belfast, so I shall have to pass on that, but the Minister has an hour and a half in which to find out the answer.
As I was saying, there simply is no alternative to private capital. Royal Mail is in a very difficult position. As other Members have pointed out, there is competition not just from other mail companies, but from other means of communication such as the internet and e-mail. As we heard from the right hon. Member for Wolverhampton South East (Mr McFadden), the former postal services Minister, the last Government concluded that private capital was required. There are clearly differences of opinion on whether there should still be a majority Government stake or whether the Government should have the power to sell off more than half the business, but I think that we should give the Government the power to sell off as much of the business as they consider necessary. We should bear in mind that the Bill does not mandate the full privatisation of Royal Mail, but merely gives the Government that power. I believe that we should give them the flexibility that they require in these difficult economic times.
Those are completely different examples. If the question arose in the hon. Gentleman’s constituency of allocating public funds to a scanner for his local hospital, to the troops in Afghanistan or to a sorting machine for his local sorting office, I think a survey would establish that the scanner and better equipment for the troops in Afghanistan would rank high in the pecking order. Because Royal Mail is operating in a competitive market, it is important for it to secure private sector expertise. The health service is a national health service for the whole country, which is why it should be in the public sector.
It was the last Government who introduced competition to the mail business in their Postal Services Act 2000. However, the structure that they created allowed private companies to cherry-pick the most profitable parts of the business, while leaving Royal Mail to deal with the expensive part—delivering to remote parts of the country. Royal Mail is now suffering as a result of the unfair competition created by the last Government’s regime, and I am pleased that the Bill will allow Ofcom to remove much of that unfair competition.
Under the last Government, all that we saw was worsening service. Opposition Members seem to have forgotten that. It was not the fault of the postal workers, but the fault of the competition regime that the Government had created. Mail is now delivered much later in the day than it used to be, Sunday collections have been abolished, and stamp prices rise every year by far more than the rate of inflation. Worst of all, thousands of post offices have closed. I was delighted by the announcement today of a vital £1.3 billion of new funds for the Post Office.
No. I am afraid that I have already taken the two interventions that I am allowed.
The Post Office is extremely important, and it is also important for the whole Government to back it. Given that it has branches throughout the country, it is in an ideal position to deliver Government services. I hope that we shall not see from this Government some of the silo thinking that we saw from the last Government. I am thinking particularly of the Department for Work and Pensions. Owing to the way in which government is structured in Departments, there is often an incentive for silo thinking, and for looking only at an individual Department’s budget and not the wider budget. I can understand the pressures on the DWP to cut costs and therefore perhaps to allow services such as the payment of pensions and benefits to go to a competitor that does not have as wide a network as Royal Mail and the Post Office, but I hope that those pressures will be resisted, that the whole Government will back the Post Office, and that in particular when considering the contract for the payment of benefit cheques, the DWP will continue to give it to the Post Office. Any other private sector competitor does not have the same widespread network.
The key test of whether I would support the Bill was always going to be, “Does it protect the universal service obligation?” The Bill clearly passes that test. I intervened on the hon. Member for Angus (Mr Weir), because he clearly had not read the Bill. I draw his attention to clause 28(1), which states:
“OFCOM must carry out their functions in relation to postal services in a way that they consider will secure the provision of a universal postal service”,
and to subsection (2), which states:
“the power of OFCOM to impose access or other regulatory conditions is subject to the duty imposed by subsection (1).”
That is the USO.
The Bill requires
“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”.
The hon. Gentleman is getting confused between the Bill and the European directive. The directive guarantees only five days. What the Secretary of State has been saying is that he already has the power under the European Communities Act 1972 to reduce the service to five days, by order, but he has no intention of using it because the Bill guarantees six days. I encourage the hon. Gentleman to read clause 30.
I am also delighted that clause 44 allows Ofcom to impose a duty on other mail operators to make a contribution towards the cost of the USO if that is necessary. I have been campaigning on that for many years. The previous Government resisted it and I am delighted that this Government have put that in the Bill.
I support the Bill and congratulate the Secretary of State on bringing it forward. I believe that it covers all angles and that it will deliver sustainable postal services in all parts of the country.
Reform of the UK's postal services was in the manifesto of both the Conservative party and the Liberal Democrats, so it should come as no surprise to anyone in the Chamber that we are considering this Bill so early into the coalition's temporary tenure on the Government Benches. What will be a surprise to voters is that, rather than merely allowing for an injection of private investment, the Bill paves the way for a complete sell-off of that vital public service. That goes way beyond what the Liberal Democrats were elected on; they proposed selling 49% to private investors, which is too high for my personal tastes, but at least not a dominant stake.
I have had a look through the Tory manifesto, which is imaginatively named “Invitation to Join the Government of Britain”. I think that the public were led to believe that that was an invitation to them, but as it turned out it was just to a dozen or so Liberal Democrats. From glancing through that fascinating read, it appears that “the post” got lost in it. I see references to Ministers taking posts, to first past the post, and even to the “Post-Bureaucratic Age”, whatever that is. What I do not see is a commitment to postal services, or a pledge to allow the complete sell-off of Royal Mail. Indeed, the majority of voters for both branches of the current Conservative party on the Government Benches do not support the sell-off of Royal Mail. As both parties have already shown, however, pre-election promises and pledges are not worth the paper they are written on. Therefore, I am sure that their electorates will be getting used to being treated with contempt.
As the now Business Secretary once said about the last Labour Government's vital bail-out of the financial sector, this proposal looks like the Government are intending to privatise the profits of a public business and nationalise the losses. I know that many of his colleagues in the yellow branch of the Conservative Party agree with me on that. I am also concerned that once the Royal Mail is privatised it will be another institution that is deemed too big to fail. In the event of a potential investor running out of cash in what remains a fairly unstable worldwide economy, will the Government be forced to step back in and assume control of Royal Mail, thus soaking up a second tranche of liabilities? Of course, I am not saying that the Royal Mail should ever be allowed to fail, but the Government can guarantee that that never becomes an issue only by ensuring that a significant majority stake remains in public ownership.
On the separation of Royal Mail and the Post Office, there is no international precedent for separating a national main mail operator from its retail arm. Therefore, the Government are in effect taking a stab in the dark—the latest in what looks like a long line of gambles with the future of our country.
Clause 33 gives Ofcom the power to review the universal service obligation. In the event of complete privatisation, the large private company or consortium of companies would undoubtedly have a slick and well-funded lobbying operation, which they could deploy to press Ofcom to change the terms of the USO, potentially resulting in the loss of a delivery day.
Does the hon. Lady agree that our current six-day service, with the delivery tomorrow of first-class post that is posted today, might change under the new regime, meaning that on a cold, wet, windy day people in Kilmood, Cloughey or Buckna would not get their delivery?
I do agree. A lot of things that we now take for granted would be under threat, including that.
Several members of the new Government were fairly open prior to the election about their contempt for Ofcom. It is not for me to speculate as to why that might be, but it appeared to coincide with the acquisition by the Tories of a certain powerful new patron who shares that contempt. At any rate, the chances of No. 10 backing Ofcom on maintaining the six-day delivery week, or of even imploring Ofcom to maintain it, seem fairly slim. Can the Minister today give a guarantee to the House that Ofcom will not be leant on from any quarter—or, better still, will he undertake to remove the flexibility entirely at a later stage of the Bill’s proceedings?
I realise that many other Members wish to speak, so I will limit the length of my remarks. The majority of Members recognise that reform of postal services is needed to secure the long-term future of Royal Mail and to maintain the universal service obligation, but the Government have no mandate to introduce the Bill as currently drafted. Allowing the sell-off of Royal Mail is not wanted by my constituents and nor is it wanted by many Members on both sides of the House or the wider public. It is certainly not wanted by the employees, even with the promise of bunging them a few shares as a sweetener. The only people who do want it are the potential investors and their friends on the Treasury Bench. The interests of this narrow constituency do not justify the Government’s taking an ideological sledgehammer to a nut that does not necessarily need to be cracked.
I am conscious that we all come to this debate with our own scars of individual experience. Mine came in the ward of Kingsholm, a few hundred yards from where the Domesday Book was written, in my constituency of Gloucester. There, only two years ago, I watched my predecessor pose beside photographers while standing under a banner that proclaimed, “Save our post office”, but then vote in this Chamber against a motion to halt post office closures. The hon. Member for Hampstead and Kilburn (Glenda Jackson) said that she was concerned about the prospect of a big broken society. What I saw that day in Kingsholm was the very model of a big broken Government.
I did not take up the position of secretary of the all-party group on post offices to sit in the Chamber and watch another programme of 5,000 post office closures be passed. I have always believed that the best way forward is through a combination of much greater investment in Royal Mail, which handles the sorting, delivery and collection, and greater commercial freedom for post offices, which are independent small businesses; they are franchises and they need to be able to channel more services to our communities over their counters.
Is it not fair to say that the Government are making an attempt in very good faith to reshape the commercial conditions of the Post Office, which includes the removal of the pension obligation, the creation of greater employee ownership and a liberalisation in the market? Is it not that combination that will give the Post Office potential to grow and thrive?
My hon. Friend is absolutely right, and what he describes is precisely why he and I welcome what the Secretary of State said. I also pay tribute to the detailed work done by the Post Office Minister before this debate.
Interestingly, the right hon. Member for Southampton, Itchen (Mr Denham) called for a Postal Services Bill lite. It would be lite in every way when it comes to investment because by trying to insist on Government retention of a majority stake—precisely what the previous Labour Government proposed in their Bill, which they unfortunately failed to take forward—he is condemning Royal Mail to not being able to get that investment. No private investor would be able to match the sort of investment in Deutsche Post, to which I alluded, of £15 billion unless they had a controlling stake in the company.
As we have heard, the Bill makes it clear that the Hooper report’s essential demand for greater investment and modernisation, despite the progress made in the modernisation agreement between Royal Mail and the Communication Workers Union, is vital to the future of this great British asset. The Labour party has not left this Government the luxury of providing that investment themselves. We can provide it only by attracting it from the business sector.
My hon. Friend makes a very good point, and I think that he, like me, would support the new chief executive of Royal Mail, who is taking steps in precisely the direction he describes.
My second point relates to the expansion of opportunities for our post offices, which hon. Members on both sides of the House agree are such a vital feature of our communities. The Bill paves the way for a much greater opportunity for post offices to be Government front offices, offering them as outlets for services for those in our communities, especially people who do not use the internet. That could include the certification of documents, hard copy form applications and access to all our banks, which I shall discuss in a moment. I very much look forward to the newly formed Gloucestershire Credit Union’s services being available to the poorest and most vulnerable in Gloucester through our post offices.
There is still work to be done by all parties involved, and I wish to make several specific recommendations. First, the Government should be able to confirm as soon as possible that the Department for Work and Pensions will renew the green giro service or the access to benefits in our post offices for communities. Secondly, Ofcom should agree a significant increase in the current 12p to 14p pricing of the final mile of delivery, which has been under-charged for too long. Thirdly, Royal Mail should confirm its own support—I hope that this will also have Government support—for a new 10-year contract for the inter-business agreement with Post Office Ltd. Fourthly, Post Office Ltd should come up with detailed plans for its own mutualisation. Fifthly, large banks, especially those that are partly or significantly nationalised, should confirm that post offices will be able to access all their services over the counter. Lastly, it will be incumbent on all of us in our constituencies to ensure that we give maximum support to our post offices.
There is one last point to make. We know that only a third of post offices are profitable and that more than 6,000 are not making profits. Of course, the Government’s one-off injection of £1.34 billion will help enormously and we should all be very grateful for that, but none the less these are small businesses. If a sub-postmaster decides to retire or to give up the business, this Government and this Bill can offer no guarantee that the post office will stay open. What they can do is provide a guarantee that there will be no further Government-driven programme of post office closures. It will then be incumbent on us all to try to ensure that the post offices are attractive enough to have a wave of new applicants.
I hope that I have shown where I believe there is work still to be done by all parties involved and also that this Bill offers a real way forward to respond to the three things that we all support: a flourishing collection, sorting and delivery service by Royal Mail; the universal delivery; and thriving community post offices. That is what we want to achieve, that is what the Bill offers and that is why I shall support it. There should never again be the shambles of the Kingsholm post office scenario.
Order. May I gently remind hon. Members that there are still 16 Members who would like to speak in the debate and that interventions lengthen speeches? So that hon. Members can help each other out, I would be very grateful if they kept an eye on the clock. If they can speak for less than six minutes, that will help enormously.
I want to pose questions to the Government and to make some points, several of which have already been made, based not only on the general public’s fear of what postal privatisation might mean for Royal Mail, but on why previous privatisations show that this privatisation and its minimum of 10% shares offered to current employees are not great enough or dynamic enough an offer to revolutionise how such a business could go forward in restoring, as Lord Young puts it, a “sense of ownership” for public sector workers. I want to ask why mutualisation of the Post Office has not been offered to Royal Mail, too, and to draw on the broader point that the Post Office and Royal Mail are inextricably and obviously linked and that their division weakens the service. I also want to show how the mutualisation of the one and the privatisation of the other will only ensure that both fail.
Historically, if we consider examples of previous privatisations of companies in the UK with fewer than 50,000 employees, we recall that none had a percentage of shares going to employees above 10% of all shares. That precedent of 10% shares sales to workers was set in 1987 by Rolls-Royce. Today, in 2010, the Royal Mail has 150,000 employees, more than three times that amount, yet the share sale proposed for staff is 10%. Why?
Why cannot the Royal Mail be mutualised alongside its Post Office sister? Why has that option not been considered to allow evidence-led policy? That proposition would allow better interdependent models of co-operation between Royal Mail and the Post Office. I remind the House that the Post Office depends on Royal Mail to provide it with one third of its revenue.
The National Federation of SubPostmasters is seeking a 10-year deal with Royal Mail, a deal that the Con-Dem Government will not guarantee as they have still not clarified whether Deutsche Post or the Dutch-run TNT will take over, rather than have a proper stock market share float. Also, the findings of a recent UNI Post & Logistics study into postal services liberalisation throughout the world are not encouraging and should be considered to inform evidence-led policy.
Postal privatisation has already occurred in a number of countries. Normally, the national operator is transformed into a corporation and split into several companies. Privatisation then follows.
I would normally, but I am pressed for time.
Liberalisation is often introduced piecemeal, with the private sector being handed a slice of the pie at each stage. The report found that competition was often based on price-related targeting, as a result of which many new companies home in on niche targets and cherry-pick, concentrating on business-to-business, business-to-consumer, dense urban markets or bulk mail. Previously, Royal Mail was able to use profitable bulk mail business to cross-subsidise unprofitable but socially necessary deliveries to remote areas, but private competitors have snatched 40% of bulk mail in downstream contracts. As a result, Royal Mail’s £233 million profit in 2006-07 was transformed into a loss of £279 million the following year. Privatisation and liberalisation have resulted in huge job losses and exerted pressure on wages and conditions.
As a former trade union official, who often likes to stand and cannot normally sit down, I agree with my hon. Friend. Between 1996 and 2006, Germany’s Deutsche Post axed more than 21,000 full-time and 12,000 part-time jobs. In some cases, the employment situation has been transformed beyond recognition. In Holland, the 27,000 mail deliverers employed by the three major companies have service contracts rather than employment contracts, thus they are without employment protection, holiday pay, disability insurance and entitlement to unemployment benefits.
In Germany, only 18% of the jobs created by Deutsche Post’s competitors are full time. Deutsche Post cut average pay by 30%, but things are even worse in the new competitors, where delivery workers in western Germany earn 40% less than their Deutsche Post colleagues and delivery workers in eastern Germany earn 50% less than their Deutsche Post colleagues. The disparity is starker still in Holland, where the total payroll cost for a postal worker employed by the main operator is €23 an hour compared with just €7.60 an hour for someone who works for its competitors, which pay by the piece.
The Bill provides no real protection for service users, irrespective of definitions of a universal service obligation. Clause 50(1) states:
“A consumer protection condition may require postal operators to be members of an approved redress scheme.”
That is useless. Any future privatised service must be a member of such a scheme in order to give the consumer redress. The word “may” allows an opt-out and no consumer redress.
Clause 50(5) states:
“A consumer protection condition may require postal operators…to provide information to OFCOM.”
Again, the word is “may”. There is no requirement that the provisions are checked.
In conclusion, we are not looking at something new today. Other countries have gone down this road, and the result is a bad one for the staff, the business, other businesses and the general public. Put simply, if people live in a rural or far-flung area, are poor or are unable to pay for a promised premium service, they will suffer. What use to a postal worker is a market share in their own demise? What use to the general public and business, as service users, is a purely profit-driven postal business with no consumer redress, rather than a postal service that serves the public?
I am grateful for the opportunity to speak in this debate, as the future of the postal service is a long-standing interest of mine, not least as the director of a company that was reliant on a dependable, reliable and efficient postal service. I do not underestimate the public attachment to Royal Mail and the wide interest in the implications of its privatisation. Given its universal obligation, everyone—businesses and the public—has an interest in Royal Mail’s continued success.
An objective look at the situation is necessary. Richard Hooper made it clear to the previous Government, and has made it even clearer to this one, that Royal Mail urgently needs investment to improve its service to make it more efficient, competitive and effective in a more crowded and shrinking market. I do not want to underestimate the progress that Royal Mail and the unions have already made in that respect, as Hooper has also made clear.
The key question is how that progress can be accelerated. Investment is the key, and we need to ask ourselves how Royal Mail can bid for extra Government investment against the background of the economic inheritance that the previous Government left this Government, and other pressing claims on public funds such as defence, health and education. Royal Mail’s pension deficit is growing all the time, and the situation is becoming increasingly urgent, if Royal Mail is, in the Secretary of State’s words, to “survive and thrive”.
The key proposals in the Bill cannot come soon enough, if we are to secure the future of our national postal service. These include committing to protect the universal service obligation, clearly demerging Royal Mail, protecting the post office network, taking over the burgeoning pension liabilities and enabling Royal Mail’s 150,000 employees to have share rights. The share deal will give employees a leading role in the privatised new company. They will be able to bring their combined experience to bear in ensuring its success under new management. That deal is also important if an investor is to be attracted to Royal Mail to provide the fresh cash injection that we urgently need, because any investor will want reassurance that moves to improve the business will be strongly supported by employees. The generous share deal will give investors precisely that confidence, and it is one reason the Bill is far more attractive to potential investors and Royal Mail employees than the failed attempt by the previous Government to part-privatise.
I am extremely pleased that the Government are also protecting consumers by ensuring that the Post Office is not included in the privatisation and by categorically stating that there will be no repeat of the mass closures that almost everybody across the UK had to endure under the previous Government.