I beg to move,
That this House believes that the Universal Service Obligation as set out in the Postal Services Act 2011 is under threat from unfair competition from organisations which are rapidly expanding end-to-end delivery services in low-cost, high-density urban areas while leaving high-cost, low-density rural areas to be covered by Royal Mail, the universal service provider; and calls on the Government to instruct Ofcom to bring forward proposals to protect the Universal Service Obligation and the commercial viability of Royal Mail against this threat.
I am very grateful to the Backbench Business Committee for allowing us to have this important, timely, and indeed urgent, debate, given the threat to the universal service obligation. I refer to my entries in the Register of Members’ Financial Interests and advise the House that I have worked with Royal Mail, the Communication Workers Union and Unite the union on the issue in the run-up to the debate.
The London assembly yesterday passed a similar motion expressing concern at the expansion of end-to-end postal services by TNT Post and the ability of such organisations to cherry-pick services that provide the most lucrative work. The assembly was particularly interested in that, as TNT started off providing end-to-end services in London. The motion it passed went further than the one we are considering today, as it called on Royal Mail to be brought back into public ownership.
Royal Mail is the UK’s universal service provider. It is required under the Postal Services Act 2011 to deliver to 29 million UK addresses six days a week, and five days a week for other packets, all being delivered at an affordable, geographically uniform price.
Ofcom became the official regulator of postal services on 1 October 2011. Its primary duty is to secure the provision of the universal service obligation for postal services. It also has a duty, under the Communications Act 2003, to further the interests of citizens and consumers, where appropriate, to promote competition, but its duty to secure the universal service obligation always takes precedence.
There are two types of competition in postal services. The first is downstream access, which allows providers other than Royal Mail to collect and sort mail and then give it to Royal Mail to deliver over the so-called final mile. Obviously, it is not always only a mile, and sometimes it can be less than a mile, but that final part of the process is the part that Royal Mail has a legal obligation to carry out. The other type is the end-to-end service, which is the direct delivery of mail to the customer without any need for Royal Mail to get involved in the process. That is what I will focus on today.
TNT Post is currently Royal Mail’s main competitor in the end-to-end market. In 2012, it launched a direct delivery trial providing a full end-to-end service in west London. Since then, it has rapidly expanded into other parts of London and into Manchester and Liverpool. It plans, by the end of 2017, to cover over 42% of households in the UK, although only about 8.5% of the UK’s geographical area.
Is my hon. Friend aware of the many complaints about TNT’s service in London because of its use of agency staff, with letters being dumped and put through the wrong letterboxes? It does not just create unfair competition; it provides a poor service.
Indeed, we are aware of the concerns about the inferior terms and conditions of TNT’s staff compared with those of Royal Mail, and about the service that customers are receiving. Of course, organisations other than Royal Mail are not required to meet the standards of service that it has a legal obligation to provide.
I apologise for missing the first part of my hon. Friend’s remarks. Further to the point made by my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott), when the then Conservative-run council in Harrow decided to use TNT for the delivery of council tax letters, there was a whole series of reports of bad distribution processes—so much so that in the end Royal Mail had to be used to get the letters out in their entirety.
I congratulate the hon. Lady on securing this debate. It is important for people to realise that one of the problems is that while the customer is the person posting the letter, it is the recipient who does not get their bank statement, bill or cheque, and they have no say in that. That is why conditions are an important part of what Ofcom needs to look at.
Given the hon. Gentleman’s constituency, I suspect that he shares many of my concerns. I hope that we will explore all these issues in the debate.
I do not think the House necessarily fully appreciated that the expansion of TNT would take place quite so rapidly, and that is why this debate is so urgent. This expansion is a direct threat to the universal service because Royal Mail needs the universal service in order to be able to use revenues that it generates in areas where it is easier to deliver mail. In the areas I mentioned—London, Manchester and Liverpool—it is easier to deliver mail and therefore easier to generate profits. It is necessary for Royal Mail to use that work to generate profits to help to cover the rest of the national network.
I represent a large rural constituency in Scotland with islands and many small communities. In many parts of it, the costs of providing a mail delivery service will be quite considerable, no matter how we organise postal services.
Surely that is the whole point. Royal Mail needs the cross-subsidy to be able to deliver to the sparsely populated areas that my hon. Friend and I represent. That is key, and the ombudsman has to take it into account in relation to fair competition.
Indeed—he is both a friend and a comrade. I am delighted that he is here today. He represents a very similar constituency to mine.
Members in all parts of the House represent constituencies where we know it will never be profitable to deliver mail. That is why the universal service is so important. It is also important that we ensure that stamp prices are kept at a level that is affordable in all parts of the country.
Does my hon. Friend agree that we have seen this unfair competition before when the Conservatives were last in power and they privatised British Telecom? The other companies wanted the cities but not the rural areas, and now we see that again with Royal Mail.
My hon. Friend makes an important point. Perhaps we can enter into that debate on another occasion.
The Government are allowing TNT to cherry-pick the services in more profitable city areas, where its presence has already led to reductions of 14% to 15% in the use of Royal Mail.
I apologise for missing the first two minutes of my hon. Friend’s speech in this very important debate. Does she accept that, although Labour Members voted to maintain the public ownership of Royal Mail, it is now notionally a private company? The USO is about providing a service, irrespective of the company that does it, across the country. There has to be an understanding from the Government, which was missing in Committee when Labour Members argued vociferously that this type of situation would occur, that we need to use a levy on TNT and other private sector companies or look at the structure of how mail is distributed across this country, on a regional basis or otherwise, to make sure that provision is universal.
My hon. Friend is absolutely right. Many predicted that we would face this problem. Indeed, we are here to give a warning that it is already beginning to happen and that action is necessary now—we do not have time to wait. He is absolutely correct that that action is required whether Royal Mail is in the public sector or the private sector—given that most of it is not held by the Government or the work force.
I very much support my hon. Friend’s argument. I wonder whether, early in the morning a couple of weeks ago, she heard the interview on Radio 4’s “Today” programme with a business analyst who predicted the end of the universal door-to-door service because, he said, it will be impossible for Royal Mail, faced with this unfair competition, to sustain it. The universal service exists in statute, but does she agree that it is not specified what that means? It could mean collection from a central collection point, not delivery door to door.
My right hon. Friend is absolutely right. Of course, he has a very long track record and great expertise on these issues. If we do not take action now, then when the House considers this matter in a number of years’ time, there will be serious proposals for a reduction in the kind of service that people receive. We hope that the Government will take action now to make sure that we are not faced with that problem.
At the moment, Royal Mail still delivers 99% of mail in the UK. Our concern is that that situation could change very quickly given the current expansion plans of TNT, in particular, and perhaps other providers as well. Royal Mail itself estimates that TNT’s expansion strategy could result in a reduction of more than £200 million in Royal Mail revenue by 2017-18. The reality is that much of the most profitable section of the market, namely the business mail, is already handled by companies other than Royal Mail. Indeed, that has been the case for a considerable period. There has also been a significant reduction in the volume of letters over the past decade, which also continues to put pressure on the universal service obligation.
Royal Mail is subject to vigorous and rigorous performance standards. Its competitors are not subject to the same standards. There is also no requirement on competitors to report on service standards, as Ofcom says that service standards are driven by market forces. However, as my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott) has pointed out, there are many concerns about the poor quality of service that customers receive from TNT in areas where it operates. There are also many concerns about the terms and conditions of the work force, which are considerably worse than those of the Royal Mail work force.
I believe that the motion is moderate. It calls on Ofcom to carry out a full review and to make proposals for regulation to create a level playing field in the postal services market. In particular, I ask Ofcom to consider whether a compensation fund could be established to support the provision of the universal service, which could be used to collect contributions from those that benefit from providing en-to-end service without the requirements of meeting the universal service. I also ask Ofcom to consider whether the general service conditions that currently apply specifically to Royal Mail alone should be extended to apply also to other operators.
We should also consider removing the requirement on Royal Mail to allow other operators to access its network. Hon. Members who visit the postal depots in their constituencies at Christmas will know that the work force have been raising concerns about that issue for many years. There is no doubt that that requirement to deliver mail for others has been a burden on Royal Mail.
My hon. Friend and his family have a great deal of experience in these matters, as do I. He is absolutely correct. I think that the situation is slightly less frustrating for the work force now, because the work used to be even more of a drain on Royal Mail and it made a considerable loss as a result. The financial arrangements have improved slightly, but this is very much an area that Ofcom needs to look at.
My hon. Friend has come up with concrete proposals and a recommendation for Ofcom, but is not the problem that Ofcom has no sense of urgency at the moment? It says that it will not institute a review until the end of 2015 and that the 2011 legislation statutorily barred it from establishing a fund for five years, which means that it will not be able to do so until 2016, unless the Secretary of State acts. There is, therefore, a twin responsibility; on the Secretary of State to act in order to enable a discussion about the fund; and on Ofcom to institute the review now.
There is a great deal of complacency on this issue from not only Ofcom, but the Government. We are seeing the warning signs now and we need the Government to make it very clear that we believe there is a real threat to the universal service. Ofcom needs to look at the matter urgently, carry out a full review and come up with proposals to ensure a level playing field in the postal services market and to protect the universal service.
I again congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on addressing this important subject and welcome the decision of the Backbench Business Committee to choose it for debate. It takes up the issue raised by early-day motion 151 and the importance of the universal service.
The hon. Lady has outlined just how important that universal service is, given the diverse nature of postal deliveries. The service ensures that, almost wherever people live—one or two lighthouses are exempt—they can expect post to be delivered at the same price and in the same time frame as anywhere else. As the hon. Lady recognised, that is extremely important in my large and rural constituency, where there is great respect for the knowledge of the posties. I think that the posties’ commitment to public service is sometimes damaging to the institution they work for, because when the white vans are lost and cannot find where to deliver the parcels, it is often the postie who gives them directions and helps them get to their destination. The service is very valuable and important, and it is currently funded by the cross-subsidy from the easier business in the urban areas. That cross-subsidy is crucial to the universal service.
Competition was introduced by the previous Government under the European Union directives, but that competition went further, faster and deeper than it should have and Postcomm saw its role as driving competition rather than protecting the universal service. I remember warning it at the outset that the lost opportunity of going too slow was far less damaging than going deeper and faster and doing permanent damage. The regulator was so worried about not getting the most efficient market that it erred on the other side, which did too much damage. As the hon. Lady has said, that led to the downstream access being set at the wrong price, doing considerable damage to Royal Mail. Competition coming in faster did not give Royal Mail the time to adapt, which it needed to do, because it had inefficient machinery and had invested in the wrong kind of machinery. As a result of the UK going faster than the rest of the EU, EU operators could cherry-pick the upstream business in the UK, but Royal Mail could not do the reverse in other markets, because EU competition was not being driven as fast as that in the UK.
It was important that this Government enshrined the universal service in law, abolished Postcomm and brought in Ofcom to regulate. At least that did something to sort out that upstream competition and level the playing field. Now, however, we have the same concern that, when it comes to the final mile, the cherry-picking is going to go faster than expected by the markets. It is important for the regulator to review that risk, to make sure that we do not again get into a situation where competition goes too far and too fast for Royal Mail to be able to adapt.
The important suggestion from this debate is to consider putting burdens and regulations on rival delivery companies to require them to meet the same standards as Royal Mail, because, if they do not have to meet those standards, they will obviously be able to undercut costs. That goes back to what I said in my earlier intervention: it was very much Postcomm’s philosophy that the customer was not the person having the letter delivered to them, but the person making the decision where to post it. A big commercial organisation may well look at the bottom line when it comes to deciding who to contract its delivery services to, and it is the poor bank customer who never gets their letter who is the victim. The feedback loop means that they have to complain to their bank, which then has to consider whether to change the contract for delivery services. Ofcom should take on board the important suggestion that it should set standards of delivery and quality so that rival companies cannot unfairly undercut Royal Mail.
I will say to Ofcom what I said to Postcomm: if it goes a bit too slowly in introducing competition, we will not get the full benefit of competition as quickly as possible, but if it goes too fast, it will be far more difficult for it to unravel the situation in the end. I urge Ofcom to review the situation and look at the conditions that would protect such a vital service that has served our rural communities so well.
It is an honour to follow the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), a fellow member of the Energy and Climate Change Committee, who spoke in a very measured way. He is right that competition started some time ago, but we are now in a very difficult position.
I want to pay tribute to postal workers for their excellent work in providing services throughout the year in very difficult circumstances and weather. There has been great modernisation in postal services—within the Post Office or Royal Mail—and things have got better, but we now need to deal with the issue of unfair competition.
You would rule me out of order, Madam Deputy Speaker, if I went on about the privatisation of Royal Mail, but that privatisation has set a very dangerous precedent, and issues have arisen from other privatisations. Market forces have served rural Britain badly and, for areas such as mine on the periphery, there is the double whammy of being rural and peripheral. We must do something about that, and I will come on to talk about a model that would fit and would improve the situation: the introduction of a not-for-profit model, stopping short of full nationalisation, is the way forward.
When privatisation went through, concerns were expressed in this House about the universal obligation, and such issues have been raised in the past. Let us be honest, however, that companies will never come to north-west Wales and say that they will deliver the service for the same price as they would in Chester, Liverpool or Manchester. That just does not happen. Our current delivery service on five days a week for parcels and six days a week for letters will not exist in the future. That is the reality when services are opened up to the market.
We have seen that in other privatised utilities, such as British Telecom. The hon. Member for West Aberdeenshire and Kincardine said that lighthouses are exempt, but under the old Post Office those in my constituency had a telephone line, just like buildings in the towns and cities of England, Wales, Scotland and Northern Ireland. They had the same service, with the same infrastructure and pricing, as the rest of the country.
That was when the Post Office was an iconic brand, as Royal Mail is today, and provided a universal service. Following privatisation, however, such areas do not get the same full broadband, or the services and maintenance, but they pay the same price. Mobile phone coverage is patchy across rural areas of the United Kingdom. In my area, we are lucky to get 3G or even 2G, let alone 4G. That is the reality in many parts of the United Kingdom when services are opened up to the market. The pricing is the same— I pay the same for my mobile phone contract as somebody in central London—but people do not get the same service and back-up, which is the danger in such a free market.
There is a way forward. Water was privatised, and Welsh Water has become a not-for-profit organisation, with the profits being ploughed back into the company to improve the service. The service, including the quality of water, is the same across the whole of rural and urban Wales, because the profits are reinvested. There is competition within the system—the company has to comply with European directives on liberalisation—on tendering, and that might work in the postal service. I must say that when my party was in government and intended to make such a change, it did not consider these models. It should have analysed not-for-profit models, because they provide not only a universal service, but a mechanism for competition. Tendering for contracts has to be done under EU regulations so that many people can benefit from such competition. At the end of the day, the customer pays the company and gets a service that is universal across the whole of Wales.
We should look at the iconic brand of the Royal Mail in the same way as water, which has a proven model that will work for the future. I want my constituents and people across rural Britain to enjoy the same standard of service and the same costs, because that is very important in this day and age. Yes, Royal Mail needs to modernise, as it has, but it also needs to keep what I think is the best of British, which is the universal service it provides under the service obligation.
I thank my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) for securing this debate. It is worth putting on the record that there is a way forward. Competition is not the answer: the market has failed in many areas, and it will not serve people on the periphery or in rural areas of the United Kingdom to continue down the road of opening to competition areas that will be cherry-picked by companies only for profits. We want a universal service across the United Kingdom. We will have to fight for that, and we must put in place a model that will deliver it.
I congratulate the Backbench Business Committee on giving us time to debate this important issue, and my constituency neighbour, the hon. Member for North Ayrshire and Arran (Katy Clark), on introducing it in a very measured and sensible way. It is a pleasure to follow the hon. Member for Ynys Môn (Albert Owen), although I must correct him on one point. Before Postcomm introduced licence conditions for Royal Mail, it had refused to deliver to the lighthouse he mentioned, so not everything was perfect in the past.
The universal postal service is obviously extremely important to my constituency, with its scattered population and its many islands, and to all rural constituencies in the country. Royal Mail has an extremely dedicated work force, who go out in all weathers to deliver the mail, often up muddy tracks and in very difficult conditions, and they have a detailed local knowledge that private rivals simply do not have, as in the example given by my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith).
I supported the Postal Services Act 2011 because it enshrined the universal service obligation into law. That means that Royal Mail is legally obliged to deliver to every home and business in the country, as well as to collect from every post box in the country six days a week, at the same price throughout the country. To back up the legal requirement, the Act imposed on the regulator, Ofcom, the legal responsibility to ensure the sustainability of the USO.
We must remember that competition is not new—it did not just start with the 2011 Act—because it was introduced more than 10 years ago by the previous Government, who, in an all-too-familiar story, gold-plated a European directive. Competition means that delivery companies can cherry-pick cheap-to-deliver urban areas, and leave Royal Mail the more expensive job of delivering to sparsely populated rural areas, such as my constituency. As has frequently been pointed out, Royal Mail relies on its cross-subsidy from profitable urban routes to sparsely populated rural routes.
TNT Post has made most use of the ability to cherry-pick the areas to which it is cheapest to deliver. Its end-to-end business has expanded rapidly since it started trials for the service in west London in April 2012. According to Royal Mail, TNT aims to cover about 42% of UK addresses by 2017. As well as cherry-picking areas, companies such as TNT can also cut costs by delivering only on certain days of the week.
My hon. Friend makes an important point. Some forms of high-volume business mail incur lower costs than for people sending Christmas cards or postcards. Obviously, if a company has high-volume mail from a big organisation coming into its system, that is much easier for it to deliver.
In fairness, it should be pointed out that Royal Mail has some advantages. For example, it has a nationwide infrastructure and benefits from economies of scale.
Royal Mail is very concerned about TNT’s plans and sees them as a threat to its ability to deliver the USO. We must always remember that Royal Mail is a private company with a duty to maximise the revenue for its shareholders. Therefore, it may or may not be crying wolf. It is Ofcom’s responsibility to decide whether Royal Mail is crying wolf.
Ofcom has many tools at its disposal to protect the USO. It could impose regulatory conditions on other operators to level the playing field. For example, it could require other providers to deliver over a larger geographical area than just a small urban area or to deliver on more days in the week. Ofcom also has the power to introduce a universal service fund. It can review whether delivering the universal service places a financial burden on Royal Mail and determine whether it is fair for Royal Mail alone to carry that burden. However, that cannot be done before October 2016 without Government direction.
The hon. Gentleman has mentioned the possibility of a compensation fund, which organisations such as TNT could pay into. Does he agree that organisations that deliver business mail, which they have been able to do for many years, might also be required to pay into such a fund, given the amount of money they make from the lucrative work that they do?
I agree with the hon. Lady that it is not just TNT and companies like it that would have to pay into the fund, but a wider range of companies. That would be a decision for Ofcom.
If Ofcom finds that there is a net burden on Royal Mail, there is a provision in the 2011 Act that allows the Government to direct Ofcom to establish the universal service fund. That would require other operators to contribute financially to support the universal service. I do not think that we are at that stage yet, but the Government and Ofcom might have to use that power at some time in the future.
Royal Mail has pointed out that it has to meet all the targets that are set by Ofcom and publish its performance against those targets quarterly and annually.
My hon. Friend spoke earlier about whether Ofcom recognises that there are extra costs. Of course, Ofcom did recognise that there were extra costs, but its answer to Royal Mail was that it should change its charging structure and charge other organisations more on a zonal basis. Royal Mail immediately did so, but TNT complained and we are now in a year-long re-examination under the Competition Act 1998. Ofcom tried to provide a way out, but it has not worked. Surely it now needs to come up with something else.
I certainly agree with my hon. Friend. The universal service is so important for the country that I hope that any reviews or inquiries will be given a high priority and be conducted as quickly as possible, whether they are being carried out by Ofcom or the Competition and Markets Authority.
As I was saying, Royal Mail has pointed out that it has to meet all the targets that are set by Ofcom and publish its performance against those targets quarterly and annually. However, its competitors do not have to meet or publish any targets, other than the figures on complaints. Ofcom should use its powers to set targets for all operators and compel them to meet them. That would provide transparency and allow consumers to make an informed choice between operators.
I fully accept what the hon. Gentleman says about the need for a level playing field. Does he accept that companies might want to produce information on targets to show that they have a process of continuous improvement and that they are providing a good-quality service?
The hon. Gentleman is perfectly correct. A company that has any ethos at all will want to demonstrate that it is doing a good job. I therefore do not see how rival operators could possibly object to such a proposal.
In an e-mail that it sent me, Royal Mail alleged that TNT has dumped and misdelivered mail. We heard interventions from two London Members earlier who said that they had evidence of that happening in their constituencies. That backs up the need for the publication of performance statistics. Such statistics would show if mail is not being delivered and is disappearing from the system.
Ofcom has stated that before the end of next year, it will commence a review of the impact of end-to-end competition to assess any potential threat to the provision of the universal service. I do not think that it should wait until the end of next year. It should commence the review now because this is such an important service. That would be in the interests not just of Royal Mail and the consumer, but of rival operators. It is in everybody’s interests to know as soon as possible what conditions Ofcom will impose on mail delivery companies. I can see an operator such as TNT complaining if, in two years’ time, conditions are imposed on it that it was not told about before it made the investment. I see no advantage in waiting another 17 months before beginning the review.
My hon. Friend the Member for West Aberdeenshire and Kincardine pointed out that we have been here before with Postcomm, which seemed to prioritise competition over protecting the USO. Ofcom’s most important legal duty is to preserve the USO. That was written into the 2011 Act by a Liberal Democrat Minister. I expect Ofcom to do everything possible to protect the USO. I believe that that means holding a review now. I see no purpose that will be served by waiting another 17 months. If Royal Mail is crying wolf, there is no harm in having the review now, because it will show that. However, if Royal Mail is correct in its concerns, having a review now is essential.
The universal service is essential to rural communities such as Argyll and Bute. Thanks to a Liberal Democrat Minister, the law protects the universal service. Ofcom has a duty to ensure that that legal protection is delivered. As long as Ofcom carries out its duties properly, the USO will be sustainable. However, I believe that Ofcom must carry out the review now.
I fully support the motion. From what the hon. Member for North Ayrshire and Arran (Katy Clark) said, the Greater London authority’s motion also sounds interesting and worthy of support.
The universal service obligation is vital to rural areas of Scotland. It is crucial not only for those who receive mail, but for the many small businesses that rely on the service to get their products to customers. The internet is a two-way street, but only if there is a reliable and cost-effective postal service. We are now told that that service is in imminent danger.
We should not be in this position. The danger to the universal service following the extension of competition, the privatisation of Royal Mail and the Postal Services Act 2011 was entirely predictable and, indeed, predicted. The only surprise is that it is happening so soon. Royal Mail cannot escape all blame because, when the Act was going through this House, we were told repeatedly by the Government and Royal Mail that it would not endanger the universal service. They were adamant that the modernisation project would keep prices down and protect the USO. They said that the existence of the USO was a huge plus for the business.
Less than a year after the flotation, Royal Mail is finding that the brave new world of private enterprise is full of difficulties. The company wants Ofcom to undertake an urgent review of the USO because it cannot guarantee that it will remain sustainable due to the impact of privatisation and, in particular, the expansion of TNT, which the hon. Member for North Ayrshire and Arran described in great detail that I will not repeat. Other competitors are cherry-picking the most profitable routes, which is putting pressure on Royal Mail and on its rural routes. That is a far cry from the claim when it was privatised that the universal service was a huge plus for Royal Mail, as it was the only company that guaranteed that it would deliver to every address.
Ofcom’s role, as set out in the 2011 Act, is bound by conditions that mean that, even if it takes on board Royal Mail’s request to look at the operation of the USO, there is no guarantee that it will take urgent action to tackle the problem. Royal Mail is seeking a review by Ofcom under section 45 of the Act, which is headed, “Fairness of bearing burden of universal service obligations”. I remind Members that the options that Ofcom has under those provisions are very limited. The first limitation is that it will inevitably take time for Ofcom to undertake the necessarily detailed review of the universal service. If Royal Mail is correct about the impact that TNT is having, do we have time to wait for Ofcom to decide whether to undertake the review, come to a conclusion and bring in its changes?
I do not disagree with that; in fact, I am very keen for it to start, but even with the best will in the world, given previous investigations of this nature, it will take time, and time may be what we do not have. Does anyone really believe that it will be done in a few months? What will be the state of the USO if it takes 18 months or even two years to undertake such a review? What will Ofcom do? Does anyone in the Chamber really believe that the Government would go to competitor companies and say, “You cannot continue to expand” or “You must contract”? I very much doubt that.
It seems to me that its options under the 2011 Act are constrained. Under section 8—no one has mentioned this point so far—the Government could review the minimum requirements in terms of section 33, and therefore reduce the minimum requirements of the service. We should remember that under section 29 of the Act, at all times when securing the universal service Ofcom must also take into account
“the need for the provision of a universal postal service to be financially sustainable,”.
Does that not also open the door, for example, to raising the price of the universal service? I have previously made the point that with the abandonment of price controls over all other services, second-class post is now the only truly universal service, and even that could be at risk under the proposals. Many small businesses have already seen a rise in costs since privatisation, with an increase in first-class costs and small package rates.
The hon. Member for Ealing North (Stephen Pound) recently sponsored a meeting in this House at which Royal Mail presented its case for a review of the USO. I asked it directly whether it was seeking a diminution of the USO, but it denied that. I cannot say that I entirely believed that, but we must be aware that it is one possible outcome of a review, whether or not that is the company’s intention.
I am not sure that the present Government are sane political parties, but I will let that one go.
The Government will rightly point out that the 2011 Act enshrines the USO in law for the first time. That is true, but during the passage of the Act many of us asked specifically what will happen if the company comes back and says that it can no longer sustain the service. Royal Mail has been privatised, investors have made their profits, and we may well be about to explore the answer to that question.
The hon. Gentleman is right, and as another Member said at that time—I think it was the Minister—such a measure could be rushed through in a wee room upstairs very quickly. That is true, and that is the danger we are now in with the whole process. Will the Minister make it abundantly clear today that protection of the USO was an essential condition of that privatisation, and that whatever the outcome of the review she will not agree to any diminution of the USO? As I said, that could be an outcome of this process, and sometimes we should beware of what we wish for.
The hon. Gentleman is making an incredibly powerful case about the potential consequences on the USO that Ofcom may bring forward. Will he confirm that a statutory instrument upstairs would not necessarily be a full vote of both Houses? It would be a statutory instrument that goes through both Houses.
The hon. Gentleman is correct, and it is interesting that he has taken the trouble to inform the House of that fact this afternoon. I thank him for that, but I point out that the hon. Member for Angus (Mr Weir) has the Floor and will continue his speech.
Thank you, Madam Deputy Speaker. What else could Ofcom do? It could look at section 46 of the 2011 Act, “Contributions for meeting burden”, which we have already discussed, and recommend that all competitors contribute to the cost of running the universal service. As Ofcom has pointed out, however, it is debarred from doing that for a period of five years unless the Minister specifically directs it. Even if the Minister were to direct it, how long would it take to set up such a system, set out the level of contribution, and get it up and running? If the universal service is now in such a condition that Royal Mail is worried about its continuation, do we have time to implement such proposals?
Under the Act, the Government might try to find a company other than Royal Mail that is willing to take on the universal service, but how many of us think that is likely given what we already know about the operation of other companies in the postal market? They are cherry-picking the profitable services, not building a system to compete with Royal Mail throughout the country.
Royal Mail suggests that the way forward is to introduce general universal service conditions that would impose conditions on its competitors to prevent them from cherry-picking urban routes, but also mean that they have to deliver to a much wider geographical area. Again, I leave it to Members to decide whether that is likely, but, even if it is, how long will it take to do that when we are told that we are facing an imminent crisis?
Does the hon. Gentleman acknowledge that the biggest threat to the universal service obligation for Scotland is independence, and will he tell the House exactly what a universal service obligation would mean in an independent Scotland? What would it cost to post something from Carlisle to Dumfries?
The right hon. Gentleman is being typically ridiculous. The universal service is under threat not because of Scottish independence but because of what is happening in this House. It is under threat now—that is what Royal Mail is saying to us—and it is privatisation, supported by him and his colleagues, that is leading to that. Under independence we have committed to bring Royal Mail operations in Scotland back under public ownership, where they should have stayed, and ensure that there is a Royal Mail service in Scotland. If we stay in the Union, we are told not only that we may not have a universal service, but that prices may go up and things may disappear. The right hon. Gentleman should consider a bit more before making such daft interventions.
I have already taken many interventions from the Liberal Democrat Benches.
Before any of those options can be taken, Ofcom has to make recommendations to the Secretary of State, who then decides whether action is necessary and what action should be taken. Only at that point will any part be played in the whole process by Parliament, perhaps many months if not years after the process has begun. Nothing is likely to happen before the general election, and all that time TNT and others will continue to expand, making it ever more difficult to construct a solution. As Ofcom points out in its briefing for this debate, the competitors have also made complaints about Royal Mail and some of its practices that they claim are unfair, so if this is opened up we run the risk that of all sorts of other things creeping in.
There seems to me to be a contradiction at the heart of the Postal Services Act. We have a private company that has to undertake the delivery of a vital public service, and the only way of enforcing that is through a regulator, about which I have an uneasy feeling given the way the railway industry operates. I believe we need to look further than that and consider wholesale changes to the Act to allow much faster action to protect the USO. I opposed the privatisation of Royal Mail; I still think it was a drastic error, but as the right hon. Member for Gordon (Sir Malcolm Bruce) has pointed out, in September the people of Scotland have a chance to do something about that and ensure that Royal Mail becomes a public service.
I bring the quiet voice of the other party of the coalition.
I congratulate the hon. Member, and my friend, for North Ayrshire and Arran (Katy Clark), on securing the debate. I also thank the Backbench Business Committee. This is a timely debate, one that those on the Front Bench would do very well to listen to. There were some deep concerns when we supported this measure and I am sad to say that some of them have reared their heads earlier than we might have thought. I therefore agree wholeheartedly that we need action and a review very quickly indeed. I hope this debate will prompt the regulator to pursue that review.
The starting point of this debate is my belief in fair competition. That was one of the reasons I decided, in the first place, to support the original move to privatise the Post Office. However, fair competition does of course have parameters.
I thank my hon. Friend for giving way. I think it might be helpful to correct that point. The Post Office has absolutely not been privatised. Royal Mail has been privatised. They are two quite separate companies.
I thank the Front Bench spokesman for that rather pernickety interjection. I will now continue. Of course it has not been privatised—only 70% of its shares have been sold off. We all recognise that point. We know where we are, so there are more serious questions that I would wish the Front Bench spokesman to address, quite frankly. Let us hope we can move on to them.
Fair competition has parameters that need to be well understood. Fair competition needs to take place with a focus on the public interest first of all. That is a consideration we need to hold very closely to our hearts. It is about making sure that the predatory exploitation of a dominant market position does not harm consumers or undermine others who seek to participate in a competitive environment. There are dangers that cherry-picking does, in truth, undermine that. The context of this debate is making sure that the end-to-end postal services in an urban and suburban setting do not undermine the financial sustainability of the universal service obligation, where in my view the overwhelming public interest can be found.
The truth of the matter, and this is a pretty heavy warning that I hope those on the Front Bench will take note of, is that if we are not careful and if action is not taken, we will be driven to the point where the universal service becomes a much more limited service, or is driven to the point where prices are so high it puts itself into a state of extinction. I believe there is enough evidence in the marketplace to suggest that those fears need to be taken seriously.
I believe in the decency of people and especially the decency of the great majority of Royal Mail workers who serve households in every part of the United Kingdom very well. I would like especially to pay tribute to those Royal Mail workers who work, live and provide service in my own constituency of Northampton South. I talk with them very often. I visited them during the passing of the Bill and had sizeable discussions with them—even with Mr Billy Hayes. I pay tribute to him for the way he undertook those discussions. I believe in the basic decency of Royal Mail workers. They are a much-valued part of our national infrastructure. We should give no thought to being anti-union in any way at all, bearing in mind that they have acted in a proper manner and have in many respects taken some pretty heavy knocks from their own specific political point of view. We should pay tribute to them and I am perfectly happy to do so. I repeat that they are a much-valued part of our national infrastructure, especially in the most remote areas.
It is not just in the rural and remote areas where we should be grateful for Royal Mail. There are many outlying areas in places other than the wilds of Dartmoor and the highlands of Scotland. In fact, near to my town of Northampton, many outlying and very small communities rely totally on the postal service. Very often, the postie fulfils a much more important role in terms of social connection than many of us really understand. I am not sure that the companies that are cherry-picking at the moment understand that point of view. Some of the reports we have had back show that the sorts of workers they are beginning to employ perhaps do not fulfil the criteria that most of us would want our postal service workers to fulfil.
I have a firm belief in the universal service obligation, underpinned as it is by statute in the Postal Services Act 2011. Indeed, I sponsored an amendment in the Committee stage to secure the obligation for 10 years, rather than the Government’s original proposal of 18 months. I am very proud of having helped to secure that amendment. However, it seems probable that other players in the postal market will, as they have so far, cherry-pick the operations that offer soft opportunities for profit, leaving the Royal Mail with the relatively less attractive deliveries. The question for the Government is the extent to which the goal of competition in the postal services market should be allowed to undermine the viability of the Royal Mail’s balance sheet. If that viability is allowed to be undermined, that would bring the whole question of the USO into serious danger.
We need to respect the spirit of what was enshrined in the Postal Services Act, as well as the letter of the law. Ofcom needs to ensure that competition in the postal services market does not in any way undermine the USO. That is its task—it is the regulator. I call on it to carry out its duty as we originally intended, both in law and in spirit. The two are not always coincidental. This House is clear that, where a conflict between competition and the USO arises, it is the obligation that should take priority. I hope we will impress that on Ofcom as a result of this debate and in other ways as time passes.
Royal Mail workers, like our constituents, were clear in what was given to them as a clear undertaking in the 2011 Act. An unequivocal restatement of that commitment from the Dispatch Box would be a very welcome response to this debate. I have a number of questions to put that I hope the Front Bench spokesman will answer in her summing up. First, will the Minister confirm that the USO is enshrined in statute in the 2011 Act? On that basis, would it not require a further Act of Parliament to repeal the obligation?
Secondly, the market in which Royal Mail operates is subject to cherry-picking from other operators not bound by the USO. The Government have stated that their policy is that competition should not undermine the USO. What discussions has the Minister had with Ofcom on that and on the precedence of the USO contained in the 2011 Act?
Thirdly, does the Minister accept that the USO rests on the principle of cross-subsidy from the cheaper urban areas towards the greater cost of delivery to rural areas? What change has taken place in the market in the last few years that could alter the balance of competition between Royal Mail and its competitors?
Fourthly, one factor affecting the distribution of power in the postal market is the price of stamps relative to the prices charged by other deliverers. What assurances can consumers expect in future years that Royal Mail’s pricing will reflect the response of postal service users, so as to protect the universal service obligation?
Fifthly, Ofcom has promised to produce a full assessment of the impact of the universal service obligation and competition in the market for the end of 2015. As it is now four years since the passing of the Act, what assessment has the Minister made of any changes that might compromise the universal service obligation, and what impact does she anticipate Scottish independence would have on the economics of the postal services market? Does the Minister recognise that we need a review sooner rather than later? The whole question of competition has moved on much more quickly than we might have thought when we passed the 2011 Act.
In conclusion, let me repeat that I supported the 2011 Act, and I still do. However, I also support the need of the regulator to do its job according to law and the spirit of what the Act was trying to do. I therefore call on the Government to ensure that a proper review takes place much sooner rather than later, and to give us an undertaking that the universal service obligation will remain at the forefront of postal services in this country, even though that might mean laying conditions on those who operate competitor services and even, to a certain extent, an understanding that those services need to provide a levy to subsidise the universal service, if that is necessary to retain it.
I commend the hon. Member for Northampton South (Mr Binley) for the excellent points he made, notwithstanding his support for the privatisation Bill. I hope the Minister listened carefully to them, because they illustrate that this is a cross-party matter. There is a genuine fear about what will happen to Royal Mail. In making those points, I must apologise to you, Madam Deputy Speaker, and to the House that I will not be here for the wind-ups. As a former Secretary of State for Northern Ireland, I need to go and answer questions in interviews, following the Northern Ireland statement.
I was privileged to work for the Union of Post Office Workers—as it was called in the 1970s—for 14 years, into its new incarnation, before I was elected to this House. What has always worried me greatly about the competition regime around Royal Mail is that it is not a level playing field. Royal Mail’s competitors are not treated in the same way as Royal Mail. I believe that poses a great danger to the universal service obligation. It does not pose a danger to its existence, which has been provided for in statute under this Government, as has been pointed out—I am not arguing that—although the universal service obligation is not defined.
I should say that my criticisms of the competition regime, which has basically stayed the same with the transfer to Ofcom from its predecessor, apply to our previous Labour Government as well and are not simply against this Government. There has been a failure to understand the fundamental problem in this whole matter, which is that Royal Mail has to deliver not just to Swansea or Cardiff from London, which is easy and cheap to do—straight down the M4. Rather, Royal Mail has to deliver up to valley communities in my constituency such as Cwmllynfell or Rhiwfawr, which is expensive to do, let alone making deliveries in constituencies represented by hon. Members from Scotland or other parts of Wales, for example, or indeed rural parts of England. That is where the cost comes in. The expensive part of the delivery network is getting things not between city centres, which TNT and other competitors love to do—
I will in a moment—by the way, this applies to Northern Ireland as well, if the hon. Lady was going to correct me.
The easy part, which competitor companies such as TNT obviously seize on, is getting pre-sorted business mail, which is provided to them by the businesses themselves, along with large-scale deliveries from banks, credit card companies and so on. They bring it in pre-sorted cassettes and containers, and then TNT or whoever rushes it down the M4 or whatever distribution network they use. That is cheap to do—indeed, often they dump it back into Royal Mail, so that it has to do the expensive part of delivering to remote areas. That is the problem. I believe it is a matter of urgency—a point made earlier in the debate—that the Government and Ofcom grasp the problem and sort it out. It cannot wait until late next year; that will be too late for the Royal Mail.
If the delay continues, what I predict will happen to the universal service is this. Yes, it will be there in name, but it will not necessarily apply for six days, because that is not in statute. It will not necessarily apply door to door either, because that is not required on a six-day basis. The universal service is required to apply to every address, but “address” is not defined, as far as I know, over six days, and so on. It is therefore no good sheltering behind the commitment in the 2011 Act to honour the universal service obligation. It is not defined, and when we look at the experience elsewhere—in New Zealand, for example, where a similar process was followed—we find a steady erosion of it.
I am most grateful to the right hon. Gentleman for giving way and for mentioning the remote areas of Northern Ireland, as well as the remote areas of Wales and Scotland. As he has already mentioned that he is a former Secretary of State for Northern Ireland, will he take this opportunity to put on record the enormous sacrifice and courage of postal workers—Royal Mail workers—throughout the worst of the troubles in Northern Ireland? Many paid with their lives, while others were held hostage or very badly injured in bomb explosions. I would just like him to mention that for the record.
I am grateful to the hon. Lady for making that point. She is absolutely right: postal workers—postmen and women—were extremely vulnerable in the terror and the troubles. In some instances they paid with their lives and in others suffered terrible deprivation.
That brings us back to the value of the posties we all depend on, especially if we do not live in city centres—we depend on them here as well, but they might be posties from organisations other than Royal Mail. However, we will not find TNT staff delivering up Snowdonia, up in the highlands or in some of the remote areas of Northern Ireland, which Royal Mail had to do during the troubles prior to the new regime—a point the hon. Lady rightly draws our attention to.
Let me emphasise that the problem with this competition regime is that it allows Royal Mail’s competitors to cherry-pick and cream-skim the most profitable mail. The access charges paid by those competitors to dump their mail back into the Royal Mail, to make sure it gets delivered to the final address when it is in a remote area, are pitifully low. Unless we urgently increase those access charges and unless Ofcom gets out of its sleeping trance on this matter, which the Government might have to instruct it to do, if that is required—I ask the Minister to respond to this point in my absence, for which I again apologise—I fear for the future of the universal service, the quality of that service and Royal Mail’s ability to provide it, as it is required to do, but which none of its competitors is so required to do.
I am glad to have the opportunity to speak about the threat to the universal postal service posed by this defective competition regime and companies such as TNT.
I must begin by thanking my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) for bringing this subject for debate on the Floor of the House. I should also say that I am probably the only Member of the House—certainly the only one here today—who has actually been a postman, although it was a holiday job and it was a few years ago now.
The point I want to make is about how defective the competition regime is. The competition is unfair and where TNT has taken over provision in London, it offers a very poor service. That goes to the heart of a competition regime that is not about a genuine level playing field. TNT does not have the obligations of the Royal Mail; its staff do not have the same qualities or the commitment of Royal Mail staff.
In London, mail has been dumped under bushes and TNT workers have delivered all the letters to people living in a close through one door, expecting that person to hand them out to their neighbours. As has been mentioned, TNT workers rely on Royal Mail workers to tell them where to go. All that is not only a threat to the universal postal service, but a poor service.
Something needs to be done about the competition regime so that companies such as TNT are obliged to live up to the obligations that rest on Royal Mail. Otherwise, the consequence will be not just a threat to the universal postal service in remote areas of Scotland, Northern Ireland and Wales, but a threat to the quality of the postal service that we all enjoy.
The uniform penny post was established in the British isles in 1840. That was a tremendous innovation and the basis of the historic universal postal service. We all know that letter and parcel deliveries are part of a golden thread that ties the British isles together. Even though so many people use e-mail and texts nowadays, we can all think of an important time in our lives when we opened a letter.
The importance of the postal service in all our lives, and the commitment and professionalism of postmen and postwomen, should not be understated. I had the privilege of visiting my local sorting office in Stamford Hill, Hackney, just before Christmas; many Members visit theirs at that time. I saw how hard postmen work and how much we rely on a stable work force with a commitment to their work and an ongoing knowledge of their areas to provide the service that all our constituents deserve.
I heartily endorse everything that the hon. Lady has said. I visited the sorting office in my area just before Christmas; the operation at Mallusk is fantastic. The issue comes down to trust. People everywhere in the UK trust the Royal Mail. There is not that trust in any other kind of operation. We interfere with that at our peril.
I entirely agree. The issue is about people in Government—not just this Government, but any Government—sometimes knowing the cost of everything but the value of nothing. The commitment, professionalism and decades of service of individual postmen in our sorting offices cannot be valued enough. Although the changes may bear down on costs in the short term, in the long term we undermine the quality of the service and, specifically—this is the point of this debate—we put the universal postal service in danger.
We should really value the unquantifiable aspects of the service that Royal Mail workers provide. We need to stop them being exposed to wholly unfair competition, and the Government and the regulator need to get together as a matter of urgency to do something about the looming threat to the universal postal service.
These debates are not good for my health. My doctor advises me to stop being so angry about these issues, but I cannot help but be angry about this. The hon. Member for Angus (Mr Weir) said that what we are discussing was predicted and therefore predictable. I was in the House 10 years ago when the European directive was debated. There were three Labour Members: me, my hon. Friend the Member for Islington North (Jeremy Corbyn) and, I believe, Tony Benn. The new Labour Government were then implementing the European directive with zeal, in advance of virtually every other country in Europe. They were putting our postal service out to privatisation in a way that, as was demonstrated even then in that debate, would eventually lead to the threat to the delivery service. It was inevitable.
Thank goodness that we now have my hon. Friend the Member for North Ayrshire and Arran (Katy Clark). The irony 10 years ago was that the former general secretary of the union was then a Minister pushing the legislation through. The Communication Workers Union-associated Members had disappeared that evening; only a limited number of us were here, fighting and arguing in favour of amendments. It was late at night and I remember it well.
We said that the changes would inevitably result in, first, a threat to the postal service and, secondly, in the full privatisation of the Royal Mail. That has happened. It has been done in such a way that we have lost billions as well. This is why I get so angry—what we have done to the postal service in this country is absolute insanity. I remember well the argument put up then: that we could no longer subsidise Royal Mail. But I am subsidising—we are all subsidising—TNT and others now. They do not pay a living wage, so we are subsiding most of their workers through working tax credits and other benefits. That is the irony.
What worries me now is that I believe we are at the tipping point. I repeat what the hon. Member for Angus said: if we do not do something soon, it might well be too late. That is why if we do not act very quickly, we might go past the tipping point and lose it, given the time scales and how slowly Ofcom works. My worry is that Ofcom says it monitors what is happening at the moment and does not feel it needs to act at this time, yet it never defines publicly what the tipping point is. Ofcom does not share information that would demonstrate whether the service is under threat or not.
I listen to the real experts—those whom everyone has cited today and praised to high heaven. They are the people who deliver the mail. They know what is happening on the ground, how they are being undercut by TNT and others and what their prospects are—in the near future, not just the long term. They are saying through their trade union and in direct dialogue that, if we do not act soon, we will lose the universal service.
There is now an onus on the Government to bring Ofcom in and start immediately on two processes. First, there should be an immediate public review. I would welcome it if the Minister went back to the Secretary of State to say that we need to bring Ofcom in now. I would welcome a public meeting involving Ofcom, us and the Minister so that we had full openness and transparency about the monitoring it is undertaking and how it defines where the tipping point will be. What time scale is it working to?
The second issue, raised by my hon. Friend the Member for North Ayrshire and Arran, is about the support fund. As has been said, the legislation barred any action for five years unless the Secretary of State intervened. We have all said it now: we know that the five-year period is too long because we may well miss the boat if the Secretary of State does not intervene now. Government action is a matter of urgency. I think there would be cross-party support on these two measures. First of all, we should bring in Ofcom to define where it is at in the analysis of the tipping point of the threat; and secondly, we should start the work on the support fund now. I say that because, as other Members have said, it will take a while to put in place, so we should at least start the work now so that if it is needed, it is readily available. If it is not, fair enough; it does not have to be enacted in its final form, but let us at least get the work undertaken now. Otherwise, we will all regret that we did not act sooner.
The onus, I am afraid, is on the Government. I say that not in a partisan or critical way because I believe I reflect the views of the whole House across the parties in saying that the Government must feel a sense of urgency. Otherwise, we will lose the service that every Member has praised. If that happens, we will be not only letting down the work force of the Royal Mail, but betraying our own constituents as well.
I am pleased to follow my hon. Friend the Member for Hayes and Harlington (John McDonnell). This is the fifth debate in a row in which I have answered for the Opposition on this subject, and my hon. Friend has always been the last to speak and has been curtailed in his contribution. I hope that he will not listen to his doctor, because we would certainly miss the passion and anger he brings to the Chamber and the good sense that he always talks. I would like to thank, too, the Backbench Business Committee for bringing forward timeously before the summer recess this really important debate. I pay a huge tribute to my hon. Friend the Member for North Ayrshire and Arran (Katy Clark) who, beyond anyone else in this place, has kept this issue of Royal Mail and postal services on the agenda. Without her passion and energy, we would not be able to take forward some of the significant contributions that we all want to see on a cross-party basis. The hon. Member for Northampton South (Mr Binley) was quite right to say that this is indeed a cross-party issue.
It is worth putting the issue into context. It is a six-day, one-price-goes-anywhere service that Royal Mail provides, and its posties deliver to 29 million addresses each day of the week. It is a particularly important service for small businesses as consumers, although we have not spoken much about small businesses in that context today.
The botched privatisation of Royal Mail, mentioned a number of times this afternoon, cost the taxpayer £1 billion and we have seen the architect of it promoted to Defence Secretary. We have lost a national asset that the public did not want to see privatised. The hon. Member for Angus (Mr Weir) was absolutely right to refer to the process in this place. Time and again the Business Secretary has said that “the overarching objective” of privatisation was “to secure” the “universal postal service”. Yet just a few months after that privatisation, we are back here debating the dangers to the universal service obligation. That is why we are calling on the Secretary of State to use any powers he has under section 44 of the Postal Services Act 2011 to try to put pressure on Ofcom to bring this forward, so we can make sure that the USO remains viable.
We know that the volume of letters is in decline. Last year alone, the volume fell between 4% and 6%. The wonderful work of all Royal Mail’s staff to try to cope with that decline is to be commended, but this does underpin the fragility of the universal service obligation. Its sustainability depends on Royal Mail being able to use the revenues from easier-to-serve urban areas to cover the cost of the nationwide network. It does not require a postal economist to see that the geography of the UK means that delivery to the Scottish islands or to rural Wales is an expensive business and can be sustained only by cross-subsidy from more profitable areas. The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), my hon. Friends the Members for Ynys Môn (Albert Owen) and for North Ayrshire and Arran, the hon. Members for Argyll and Bute (Mr Reid) and for Angus and my right hon. Friend the Member for Neath (Mr Hain), who all represent rural constituencies, mentioned that in their contributions.
The genesis of this debate is the need to consider the impact that direct end-to-end competition is having on Royal Mail’s ability to sustain the USO. Royal Mail has submitted a quite extensive report to Ofcom on the effect of end-to-end competition and the threats to the USO, encouraging Ofcom to bring forward the review promised for 2015. The report says in great detail that the alternative providers, especially TNT, have grown quickly and have plans to expand to over 40% of mail delivery by 2017. This expansion will cover only 8.5% of the geography of the UK. It is this “cherry-picking” of low-cost, profitable inner city postcodes that threatens the economics of the USO.
These plans have been calculated by Royal Mail to represent an approximate revenue loss of around £200 million, but it is not simply about profitability; it is about the viability of fulfilling its USO. The end-to-end competition issues are magnified by the lack of a level playing field with rival operators. That was mentioned by both my right hon. Friend the Member for Neath and my hon. Friend the Member for Hackney North and Stoke Newington (Ms Abbott).
Royal Mail is—rightly, I think—subject to a complicated matrix of delivery standards, reporting and service levels, but the competition is not. For example, rival operators are able to cherry-pick when they deliver. TNT Post UK provides an every-other-day service, which reduces its costs. Rival operators are able to cherry-pick the type of mail they deliver—business mail is the easiest to handle and the most profitable—and they are also able to put mail they do not want to deliver back into the Royal Mail system. As right hon. and hon. Members have said, where they cannot deliver, they need to put it back into the system. That highlights the importance of the universal service to rival operators. They require a viable USO to make their own business models work so it is really important for Ofcom to take that into account in any analysis.
Royal Mail’s ability to compete on price is constrained, as we have heard this afternoon, and it is unable to alter downstream access prices that now make up almost 50% of all mail volumes. There is an ongoing Ofcom investigation into access pricing, which the hon. Member for Edinburgh West (Mike Crockart) mentioned in one of his interventions. Rival operators use a plethora of alternative employment contracts which mean that their staff are lower paid and more insecure than those of Royal Mail. That has the potential to create a race to the bottom in postal services which, in turn, has the potential to undermine the universal service obligation.
Many Members have referred to TNT Post, because many of the issues that we are discussing are relevant to its business model. I realise that TNT has become a lightning conductor for concern about the liberation of the postal market and the impact that it could have on the USO, but it should be borne in mind that it is operating according to the regulations that currently apply to it. That is why it is important for Ofcom to look at everything in the round. Major issues involving TNT are well documented, but I know that members of its union, Community, are working closely with the company to eradicate zero-hours contracts and introduce the living wage and better conditions for its work force. It is worth emphasising that it would be very much in TNT’s interest as well for Ofcom to conduct its review now.
We are calling on the Government to pull all the levers that they can possibly pull to encourage Ofcom to bring forward its review. Even if Royal Mail’s arguments, contained in the dusty tome that it has submitted to Ofcom, are found not to be wholly valid, or not as compelling as it has suggested—and the hon. Member for Angus implied that they should be tested—that will be known only once they have been fully investigated. Ofcom’s current programme for the review means that we shall have to wait until the end of 2015, and that could be far too late. Those issues were also raised by my favourite Conservative Member of Parliament, the hon. Member for Northampton South. I am sure that there is a keen socialist hiding somewhere in that Conservative body of his.
If Ofcom began its review now, any recommendations for changes in the regulatory environment could be implemented very quickly to ensure that we do not lose sight of the universal service obligation. There is a danger that the door could be closed after the horse had bolted. Every Member who has spoken today has raised that issue. If Royal Mail is right, the planned 2015 review could be brought forward. Remedial action will be severely limited if that does not happen. Surely it is best for all concerned—Royal Mail, rival providers and, crucially, customers—for the future of the USO to be secured and for what lies on the horizon to be made clear as soon as possible.
Let me list Labour’s proposals for the future of Royal Mail as we approach the 2015 election. We would secure the USO well beyond 2015; we would prioritise the continuation of the inter-service agreement with the Post Office beyond 2022; we would ensure that there was an appropriate degree of price certainty for Royal Mail and its customers; and we would ensure that regulations provided a level playing field for all operators.
I am sure that, given the badge that the hon. Gentleman is wearing, he will also point out that by voting “no thanks” in the forthcoming referendum we will maintain the universal service for the whole United Kingdom, ensuring that subsidies continue to go to those difficult areas in Scotland.
I did not want to go into the independence referendum arguments, for two simple reasons: first, they are incredibly complex, and secondly, the issue is not entirely relevant to the debate. I think that we are all slightly sick of the independence referendum. I hoped that we could be “independence free” today, but perhaps that is not possible after all. However, the hon. Gentleman is absolutely right. Whichever way we view the issue, it is clear from the geography of Scotland that it would be much more difficult and expensive to deliver postal services there following independence. Scotland’s postal services are cross-subsidised because of that geography. That is one very simple argument about what would happen to postal services in an independent Scotland.
The hon. Gentleman talks of the geography of Scotland, but what we are debating is whether the universal service obligation will continue within the Union. It is the Union that is a danger to the universal service throughout the United Kingdom, not Scottish independence. Scotland, like any other country, can run a postal service to suit Scottish needs.
I think the hon. Gentleman should go to see the doctor that my hon. Friend the Member for Hayes and Harlington (John McDonnell) sees and perhaps get some advice on how to calm down a little about the independence referendum.
I am looking at the time, so I will conclude now by paying tribute to our posties up and down the country. I went on a round last year with Michael Lunn, one of my local posties from the Strathearn road delivery office, in the most tenemental part of my constituency. I can assure hon. Members that it was quite a hard round without lifts in those tenements. Not only did he deliver the mail efficiently, but he knew where people lived, which buzzers to press to get in when people were at work, whether people were on holiday and whether people were expecting parcels. He knew everything about anybody in his round. When we put it in that context, we see that it is not just a postal service; it is a service to all our communities. It is a valuable social service that we should make sure we do not jeopardise, because if we do, that will be detrimental to everyone in the country.
It is a pleasure to respond to today’s constructive debate. I very much congratulate the hon. Member for North Ayrshire and Arran (Katy Clark) on securing it. As a fellow proud Scot, I am pleased that so many Scottish Members have contributed to it, but I am also pleased that all four nations of the United Kingdom have been represented.
The issues I wish to touch on in my summing up are: the importance of the USO; the concerns raised by various hon. Members about competition; and the Ofcom review, which is the main subject of the motion. We have heard from Members from all parts of the House about how vital the universal service is for rural areas. The hon. Member for Ynys Môn (Albert Owen), my hon. Friend the Member for Argyll and Bute (Mr Reid), and the hon. Members for North Ayrshire and Arran and for Angus (Mr Weir) all made points about that eloquently. We were reminded by my hon. Friend the Member for Northampton South (Mr Binley) that this is not purely a rural issue, as the universal service is vital to many towns and suburban areas. It is right that postal workers are held in great esteem in many communities, as the service is hugely important not only to our local economies, but more widely, in society and in communities. That is why, as my hon. Friend the Member for Argyll and Bute pointed out, we have set out the USO in primary legislation—my predecessor, my right hon. Friend the Member for Kingston and Surbiton (Mr Davey), made sure it was written into the Postal Services Act 2011.
I appreciate that the right hon. Member for Neath (Mr Hain) is no longer able to be in his place, but I am sure he will read my remarks in Hansard in order to follow the reassurances I can give about his concerns on the definition of the delivery of a six-day-a-week service to every address. He seemed to take the view that that was not a significantly well-defined definition. Section 31 sets out what must, as a minimum, be included in the USO. On the delivery of letters and other postal packets it states:
“At least one delivery of letters every Monday to Saturday—
(a) to the home or premises of every individual or other person in the United Kingdom, or
(b) to such identifiable points for the delivery of postal packets as OFCOM may approve.”
Clearly there are very few addresses that are, for whatever reason, inaccessible and for which Ofcom can, in those extreme cases, approve a collection point. That definition is very clear, we should be reassured by it, and it is right that this House and the other place have prioritised it by making sure it is in primary legislation.
I understand what the Minister is saying and I acknowledged that this was the first time the USO was in legislation. Let us consider one thing that Ofcom can do in a review. I believe that section 43(8) states that its
“recommended action may consist of one or more of the following—
(a) the carrying out of a review under section 33 (review of minimum requirements)”.
So if Ofcom does carry out a review under the Act, it could recommend a reduction in the minimum requirements. Will she assure us that she will not accept any such reduction?
I am delighted to do so. I have given such assurances from this Dispatch Box, as colleagues have done. Speaking for my party going into the next general election campaign, I can say that that will be our position, and I am sure that other parties can also give their assurances on that. I think that there is absolute consensus across the House that that is vital and should be protected. So it is not something that would be changed. In addition, as we have discussed in the debate, to do so would require a vote in both Houses of Parliament, and that is a significant protection. I hope that that reassures the House on the importance the Government attach to the USO.
Members also raised concerns about cherry-picking and end-to-end competition. Of course competition is not new in postal delivery. It has been more than 10 years now since the EU postal services directive opened up the market. At the beginning, the effect was felt much more significantly in the collection and sorting of mail, with Royal Mail still being responsible for the final mile. That is the area in which there has been more competition.
The right hon. Member for Neath was right to highlight the fact that the expensive parts of postal delivery are to the address not in central London, central Swansea or central Glasgow but in those much more inaccessible, remote locations, where the costs are significant. Of course the principle of cross-subsidy, which was mentioned by my hon. Friend the Member for Northampton South, is a crucial part of how the universal service can be delivered. One of the ways in which the structure is created so that that cross subsidy can continue is for Royal Mail to have a lot of flexibility—much more than it used to have—to charge different prices to different operators. It can also use zonal pricing so that it can charge more for delivery to remote rural areas when it is being used for that final mail delivery, which accounts for the vast majority of competition that exists within the mail delivery market. That enables it to recoup the costs that it incurs from providing that universal service.
Competition can clearly help to drive efficiency, which I am sure people would agree is a positive thing, but it stands to reason that if that competition took a significant portion of the market, especially in terms of end-to-end competition, it could have an impact on the universal service. That is because zonal pricing is particularly related to the competition that exists when Royal Mail is still delivering the final mile. That is why we have put in place a regime in which Ofcom monitors both the situation and what is happening in the postal market. If necessary, it has further powers to act to level the playing field.
I just want to touch briefly on the quantum that we are talking about today. Members have mentioned TNT delivery, but in the last full year, in 2013, 14.6 billion items were delivered—that is the size of the mail market. Of those 14.6 billion items, 14.544 billion of them were delivered by Royal Mail. I am not saying that Members are wrong to be concerned, but I want to put the matter in context. We are talking about a very small portion, 0.38%, of the overall mail market. Members were right to say that it has grown quickly. In 2012, it was 0.11% of the market. Within the space of a year, the volume of items delivered in end-to-end competition more than tripled. It is important that this issue is looked at closely by Ofcom and that it is kept under review.
My hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) pointed out that perhaps Royal Mail needs to have time to adapt to changes. It is clear that we need to keep our eye on the rate of growth, but we are not yet talking about a level or a volume that would cause concern about the impact on the profitability of Royal Mail. Even Royal Mail accepts that the concern is more to do with the potential for that to happen rather than the situation as it is at the moment.
I just want to clarify which review we are talking about today. Two different reviews are being talked about. Some Members have mentioned section 44. I think that the hon. Member for Angus was looking at a copy of the Bill, because by the time that Bill became an Act, it was section 44 rather than 43. That is the review of the financial burden of the universal service on the provider that Ofcom can be directed to undertake by the Secretary of State. That is not the same as the review that Royal Mail is currently asking for, which is about end-to-end competition. That review is something that Ofcom has said that, as part of its wider monitoring regime, it will do in any event by the end of next year, but it is happy to bring it forward if necessary. This is an area in which there is no specific Government power to direct. I hope to reassure the House on this point.
There is a clear desire for Ofcom to keep a close eye on the impact of competition on the universal service. It seems that there is almost an assumption that that is not currently being considered, but I can tell the House that that is absolutely not the case. I have spoken to Ed Richards, who is in charge of Ofcom, and, as it happens, I will be meeting him later today, which is good timing. Ofcom is clear that it is monitoring the situation in the mail market carefully and intensely. It is not waiting until the end of next year; it is doing so on a monthly basis and is very much on the case, ensuring that it has the information. It also has the power to get access to much more detail than any individual player in the market, having access not only to the details of Royal Mail’s financial position, but also to the business plans of TNT and any other providers, so its visibility is excellent. The review will be started by the end of next year at the latest, but Ofcom has said that it is happy to start earlier if it sees any reason for market changes or any financial impact on the universal service that would mean that it needs to be started earlier.
I am conscious of the time, so I will not stray into the Scottish independence issues, tempted though I am to do so. The exchange between the hon. Members for Edinburgh South (Ian Murray) and for Angus set out that the matter is relevant and that there would be consequences in an independent Scotland for deliverability and the price of the postal service.
I want to finish by picking up on the point made by the hon. Member for Hayes and Harlington (John McDonnell), because he made a sensible and constructive suggestion that, given the level of interest in the House, which is clear from the debate’s attendance and from the correspondence that I receive as a Minister, it would be helpful for Ofcom to be able to meet MPs to discuss the issue. It is clear that the appetite is there and it would be useful for the regulator to hear MPs’ concerns directly and not just through Hansard. It would also be useful for hon. Members to be able to have a frank discussion with Ofcom about its approach, which I believe would lead to a great deal of reassurance. As I said, I will be meeting Ofcom later this afternoon and so will have the perfect opportunity to put that request. I look forward to hearing the response of the hon. Member for North Ayrshire and Arran to the debate.
The debate has been extremely useful. I hope that what the Minister says in private is slightly different from what she has said in public today, because she has shown a level of complacency that was not seen in the contributions of Back-Bench Members on both sides of the House. There is a huge amount of concern about the speed at which TNT is expanding its service in the UK and about the impact that that could have on the universal service. I am interested that the Minister is meeting Ofcom later today and welcome the suggestion that Ofcom meet hon. Members, which would be useful. It would also be helpful if Ministers attended the meeting, so I would be grateful if she undertook to do so.
The Minister says that only a small proportion of work is currently undertaken by operators other than Royal Mail, which I made clear in my opening contribution. However, the concern is that TNT’s proposals, which are publicly available and which most hon. Members here have already seen, make clear the speed at which it will expand in this country. As a result, it will be covering a huge number—over 40%—of households, which is different from anything that the House discussed in the various debates that took place—
I am not sure whether I am able to take interventions when making a closing speech, but if I could allow anybody, it would be the hon. Gentleman given his track record on this issue.
Yes, we have had 10 years of competition, but the lesson that we have learned is that the market does not respond well to competition. The current regime is not protecting the services that we receive. The reality is that we have fewer services now than we did when competition came in. We all remember Sunday collections and twice-a-day deliveries. The road that we are on is extremely dangerous and is a threat to postal services in all parts of the UK. I hope that the Government will take on board the emotion and passion of hon. Members’ contributions today and insist that Ofcom urgently carry out a speedy review.
Question put and agreed to.
That this House believes that the Universal Service Obligation as set out in the Postal Services Act 2011 is under threat from unfair competition from organisations which are rapidly expanding end-to-end delivery services in low-cost, high-density urban areas while leaving high-cost, low-density rural areas to be covered by Royal Mail, the universal service provider; and calls on the Government to instruct Ofcom to bring forward proposals to protect the Universal Service Obligation and the commercial viability of Royal Mail against this threat.