My Lords, I would like to begin by paying tribute to the late Lord Dearing. He was widely respected in this House and, as a former chair of the Post Office Corporation, he would have been amongst the first to speak in this debate, as indeed he told me he would be. In the conversations that I had with him, I was struck by his extensive knowledge of the postal industry and by his infectious enthusiasm. He will be deeply missed both within and beyond this House.
We live in a digital age. As we send more texts and emails, we send fewer letters. The Mobile Data Association estimates that we sent around 216 million text messages per day in 2008. That same year, we sent five million fewer letters per day than just two years previously.
The fall in mail volumes is happening across many modern economies, but I do not accept that postal services are locked into an inevitable decline. I believe that mail is still a critical part of our social fabric, our communication infrastructure and our economy. For those reasons, I want to see Royal Mail modernised and made fit for the future. The Government are fully committed to maintaining the universal service. Royal Mail is at the heart of that service. Only Royal Mail has the ability to collect and deliver letters anywhere in the country, six days a week, for a single, affordable price. That is why the Royal Mail’s service requires sustaining, not abandoning—and sustaining with a vision that will ensure its commercial success.
It was for this reason, with the strong support of the Communication Workers Union, that, in 2007, my predecessor, John Hutton, asked Richard Hooper to lead a review of the Royal Mail. When Hooper’s report was published late last year, I informed the House that the Government agreed with his analysis and had accepted his recommendations. We are committed to a publicly owned Royal Mail, fully restored to good health. That is what we said in our last manifesto, and that is what our policy, if implemented in full through this Bill, will achieve.
The Postal Services Bill establishes a fair and modern regulatory framework that ensures that Royal Mail remains in public ownership, while supporting modernisation through a strategic partnership. It enables the Government to tackle Royal Mail’s pension deficit, which is already larger than that of any FTSE 100 company.
Before I talk in more detail about the substance of this Bill, I must address some of the points raised during the debate that has followed publication of Richard Hooper’s report. First, some have suggested that we should allow more time for reflection. When it comes to making changes, there is always an argument not to act but, in this case, there has been extensive debate about the future of the postal sector, and Royal Mail in particular. Many will remember that the noble Lord, Lord Heseltine, published a Green Paper over 15 years ago. Our plans are very different from his but, since then, in addition to the Government’s own 1999 White Paper and subsequent legislative reform, my noble friend Lord Sawyer spent a number of years considering industrial relations at Royal Mail and Sir George Bain advised us on relationships within the sector—and now Richard Hooper has done so, too.
Sir Richard conducted a thorough review of postal services, lasting 12 months. He and his panel had extensive discussions with the stakeholders and received their submissions. His recommendations were based on clear evidence. I pay tribute to the quality of their work.
Some may ask why we have not acted sooner. That is a fair question. Successive Governments and past Secretaries of State have wrestled with the challenge of change in Royal Mail. I am only the newest. When this Government first came into office, we established Royal Mail as a commercial organisation with increased freedom to modernise and to respond to market opportunities. We have provided over £3.5 billion in funding to support the business, but the fact is that, while the marketplace in which the company operates has changed significantly, modernisation has not happened on the scale required, despite the money available.
The second point that I want to address is that many are confused about the distinction between Royal Mail and the Post Office. They see these services as seamless—and so, in a sense, they should. But these are different organisations, playing different roles and facing different challenges. It is important that our policy should reflect those differences. Royal Mail collects, sorts, transports and delivers post. Our post offices provide access to Royal Mail’s services—letters, parcels and stamps—but they also deliver a much wider range of government and financial services, playing a vital social and economic role in the communities that they serve. Around two-thirds of post offices depend on a government subsidy to survive. The Post Office network is not, therefore, purely a commercial concern.
The Communication Workers Union’s publicity campaign calls on us to “Keep the Post Public”. I could not agree more. The Bill makes it clear that Post Office Limited will remain entirely owned by the Government. Indeed, the Bill repeals powers in the current Postal Services Act that would let the Government sell part of the Post Office business. The Bill specifies that Royal Mail, too, will remain in public ownership. There is no question that either the Post Office or Royal Mail will be under the control of “foreigners” or anyone else other than the Government, as the CWU’s propaganda claims.
I now turn to the substance of the Bill. In the political debate on these issues to date we have heard a lot about union policy and party policy, much of it misleading, but almost nothing about customers—what they want from their postal service and where their interests lie in this debate. Above all else, I believe that customers want a universal service, which is reliable, offers good value for money, is innovative and responds to their needs.
Our proposals seek to deliver that. Part 3 of the Bill sets the standard for the universal service. It requires Ofcom to ensure that the universal service is maintained. If Ofcom finds that there is tension between its functions in relation to post, the Bill is explicit in requiring the regulator to give precedence to the universal service. Competition can bring benefits for customers, but it must not be promoted in ways that threaten the universal service.
Abolishing Postcomm and appointing Ofcom as the new regulator reflects the reality that Royal Mail faces tough competition from digital media. Ofcom is better placed to carry out a full market assessment and, in light of its findings, to remove regulatory burdens where appropriate. Ofcom will have competition law powers so that it can act swiftly and effectively on evidence of anti-competitive behaviour. Ofcom will also be given information-gathering powers to help establish Royal Mail’s costs and ensure that other companies’ access to Royal Mail’s infrastructure is regulated on a fair basis.
The Bill enables Ofcom, if at any point in the future it finds the universal service places an unfair burden on Royal Mail, to ask other postal companies to contribute towards the costs. Together, these elements create a stronger, more objective evidence base and set clearer regulatory criteria to enable Ofcom to make sure that prices are fair for postal companies and affordable for consumers.
Important though it is, clear and fair regulation alone will not be sufficient to secure Royal Mail’s future. For that, the company will need to transform its business so it can deliver the universal service, and do so quickly in a highly competitive communications market. As Hooper made clear, the company faces many constraints. It has relatively little room for manoeuvre on pricing since any sharp increase in prices will simply drive customers away to digital communications and media, accelerating the decline of letters.
Royal Mail has a large and volatile pension deficit. Further, the company’s industrial relations are characterised by a lack of trust and engagement. In 2007, the embarrassing truth is that it accounted for 60 per cent of all the days lost to industrial action across our whole economy. It is not uncommon for agreements reached at national level to be obstructed at local level, an issue identified by my noble friend Lord Sawyer in his work in Royal Mail.
Looking at the performance of the company as a whole, the Royal Mail lags behind the best performing postal companies in Europe. For example, these companies use machines to put 85 per cent of mail—and I mean 85 per cent—in the right sequence for delivery. This process is done entirely by hand in the UK and takes each postal worker between two to three hours every morning.
Royal Mail does not make the profits required to modernise its business and, crucially, to diversify. Having posted a loss last year, the letters business has a profit margin so far this year of just 1 per cent. Its already massive pension deficit is projected to increase significantly at the next triennial valuation. The company will not be able to afford any extra deficit recovery payments required. The size of payment would more than swallow any projected profits. The company is already balance-sheet insolvent. If we do not act to improve its financial position, it will continue to face severe and mounting financial difficulties in the future. To the extent that there will be any surplus cash in the business, this would continue to be required to cover pension contributions. There would be no money for modernisation.
The Hooper review’s judgment is that the introduction of a strategic partner will bring the capital, experience and confidence to help to tackle these challenges, based on a track record of transforming a similar postal business. We will assess potential partners against strict criteria. These criteria include a partner’s ability to help transform the letters business, modernise Royal Mail’s network and manage stakeholders successfully, including relations with the workforce and trade unions. A further criterion will be the financial terms that they offer and their ability to finance it.
A partnership will provide the springboard on which Royal Mail can generate new revenue streams—by developing its parcels business, for example—drawing on the resources and size of both partners. Contrary to what many recent commentators would have you believe, the introduction of a partner cannot and will not threaten the level of the universal service. This will be set by Parliament and the regulator. It will be for Royal Mail and its strategic partner, then, to decide how best to deliver the prescribed level of service.
To make this possible, Part 1 of the Bill deals with restructuring Royal Mail Group. It ensures that Post Office Ltd must be owned in its entirety by the Crown, and that Royal Mail, the company providing the universal postal service, must be publicly owned. “Publicly owned” means that the Crown must own more than half of the company at all times. This restriction could only be changed by primary legislation. The Bill makes it clear that public ownership carries with it the voting rights and economic benefits appropriate to a majority shareholder in such a company.
One further protection could be to vest the Crown’s shareholding in a public interest trust. Our view, however, is that this could raise significant issues of accountability and control. The Government of the day may be unable to ensure entirely and directly that the universal service was being maintained as its customers expect, but I will listen to others’ views on this.
The Bill does not specify the size of a minority shareholding in Royal Mail before any commercial negotiation has taken place. Assuming that a partner was to make a direct equity investment in Royal Mail, however, we expect that the partner would need to take around a 30 per cent interest. Some may also consider it desirable for Royal Mail employees to own part of the shareholding. This is something to be discussed.
We should be under no illusion that attracting the right partner, or any partner, will be easy. Richard Hooper has painted a stark picture of the challenges facing Royal Mail. While we believe that the company has a profitable long-term future if the correct decisions are taken, the shrill nature of some of the current debate is making it harder to make this case to potential partners. The tone and content of the opposition levelled at our policy is a clear indication, if one were needed, of the depth and severity of the industrial relations challenge at Royal Mail, and the risks it generates. All this will make negotiating an investment on the right terms difficult.
There are points, of course, on which we will not compromise. The taxpayer must receive fair value for any stake we sell. Any partner must be genuinely committed to transforming Royal Mail. We need to strike the right balance between giving a partner enough influence in running the company successfully and making it clear that Royal Mail remains a public asset. The company must have the capacity to compete on the international stage. All this needs to be reflected in the terms of agreement negotiated with a potential partner in parallel with the passage of the Bill through this House. The interest indicated so far suggests this may be possible, but there are no hidden or surprise elements that will make it easy to achieve.
Part 2 enables government to tackle head-on the Royal Mail’s ballooning pension deficit. The pension scheme represents a major burden for Royal Mail in spite of recent changes made to address it. In my view, it is inconceivable that the public will accept such a “bail-out” without the Government taking steps to ensure that the company has a transformed future. The fact is that it has not modernised sufficiently under present policies. There needs to be a step change, and the public need to see this. The new arrangements will also require the approval of the European Commission.
Part 2 also provides government with the power to transfer the accrued rights of Royal Mail pension plan members to a new public service pension scheme. The legislation protects past entitlements in full so that no member’s historic rights are adversely affected by the transfer. At the point the historic liabilities are transferred to the new public scheme, we will leave the Royal Mail pension plan with sufficient assets to meet its liabilities. We expect the new public service scheme to have 450,000 members. This includes 175,000 pensioners and 275,000 people yet to reach retirement age. We estimate the total liabilities of the new scheme—as at 31 March 2010, the likely date of implementation—to be £29.5 billion. Assets transferred to government are forecast to be £23.5 billion. That means government will absorb an expected deficit of £6 billion. The assets will be sold over a number of years to protect value for money for the taxpayer. Our proposals represent the best balance between protecting the universal postal service, protecting the members of the pension scheme and protecting the interests of taxpayers.
Government will not take on the historic liabilities relating to pensions for Royal Mail’s management. Royal Mail’s 150 most senior managers are in a separate scheme. This will continue to be underwritten by the performance of the business. We believe it is right that the entitlements of those entrusted with the management of the business should be dependent on its performance.
In the past few weeks fact has had to fight with fiction in the national debate over the Government’s policies and the Royal Mail’s future. If we are to secure and protect the universal postal service, there is no time, or justification, for further delay. We cannot ask the taxpayer to take responsibility for the pension deficit without assurance that Royal Mail will modernise. An unreformed service is a drag on public resources at a time when every pound matters more than ever. To transform as it must, Royal Mail and its people need support from a regulatory framework that is clear and fair. They need the fresh investment, experience and confidence that only an experienced strategic partnership can bring. They need the full package of measures we are proposing.
My noble friend Lord Clarke of Hampstead will speak next. I have known him—he may not realise it—on and off for nearly 40 years, and I respect him. I accept that he has very strong reservations about this Bill. With a wealth of personal experience from his years as a postal worker, then pension fund trustee, he is passionate about the Royal Mail. I can claim no such personal experience. But through this Bill, we are implementing the recommendations of an independently appointed panel, a panel which drew on the objective evidence, knowledge and experience of stakeholders and experts in postal services.
I am with Hooper. We cannot hark back to a golden time of postal services—be it in Camden or Candleford—that no longer exists. Royal Mail is no longer the only way to communicate. The digital revolution has happened. We cannot simply ignore these facts, or put our plans in a bottom drawer, to wait for an even rainier day, while things deteriorate further; that is not what Governments are elected to do.
This Bill enables the clear, strategic action that is necessary for Royal Mail to respond to market changes, deliver the universal service and secure a successful future. It may not be easy for some to accept the necessary change, but this Bill represents the fairest deal possible. That is why I commend it to the House. I beg to move.
Amendment to the Motion
As an amendment to the Motion that the Bill be now read a second time, to leave out all the words after “that” and insert “this House declines to give the Bill a Second Reading”.
My Lords, it appears that the Secretary of State has already declared my interest in the Post Office. As a former Post Office worker, I say for the record that in this debate my thoughts are with another former Post Office worker who was mentioned by the Secretary of State—Lord Dearing. I shall miss Lord Dearing, although he would not have agreed with some of the things that I am going to say this afternoon. I expect that I have about 20 minutes, after the Secretary of State’s 23 minutes. Ron Dearing was a great and effective chairman of the Post Office. At his funeral yesterday, I met another former chairman of the Post Office, Sir William Barlow. He is getting old, as I am. He touched my arm and said, “All power to your elbow”. That was enough for me to know that I am on the right track in asking that this Bill not be given a Second Reading. Lord Dearing would not have agreed with some of the points that I will make, but I know that he shared the view that our great postal service should be defended, protected, expanded and nurtured until it gets back to the state that it was in when it was a world-beater for so many generations.
In moving this amendment, which seeks to deny the Bill a Second Reading, I shall explain why the Bill as it stands is unnecessary and should not be proceeded with. What is being proposed is certainly not in the best interests of the Royal Mail or the British public. If the Bill ever became an Act of Parliament, it would certainly benefit those who can see how the postal system would bring them great rewards in the future. Why else do they want to buy into the Post Office and the Royal Mail? Having rewards for shareholders is not a bad principle if you are dealing with a company, but we are dealing with a valuable public service. Our country would not get the rewards and the economy would suffer even more. There would be more reductions in the quality of service. Just look at some of the competitors that have been quoted in this debate and the service that they provide.
It seems that time is always a problem in this House whenever you get up to speak and I would need about a week to tell noble Lords about some of the things that should be done. I have been saying them in this House for almost 10 years; some noble Lords will remember those debates. It is no good now to say that there has been delay; I asked for some of these changes years ago, on the position of the regulator and the downstream access that has cost Royal Mail so much.
It would be a daunting prospect to deal with the size of the Bill if it were not for the fact that my desire is effectively—I make no bones about it—to kill the Bill in its tracks now. It should not go any further. The Post Office, in particular Royal Mail, demonstrated success and does not deserve to be treated as it has been over the past couple of months since the sale of shares in Royal Mail was suggested by the Government. The misinformation about management that has been bandied around over the past few weeks requires me to try to allay some of the fears that have been generated by those who should know better. I shall try to be as brief and as clear as possible.
There are many facets to the Bill, some of which, in different circumstances, could and would be welcome. Unfortunately, the camouflage and smokescreen that have sought to scare and frighten Post Office workers make it impossible for anyone who believes in the public service to do anything except to stop the Bill in its tracks. This House should decide today that the Bill should go no further.
It is my firm belief that much of the Bill is simply embroidery. I say that deliberately. Much of the Bill—its clauses, sections and parts—is there as embroidery on the core issue, which is, to start with, to sell off part of the Post Office. We know where that will lead, because some of us have been there before with the sale of Girobank and the sale of BT. We know what happens. It is no good putting at the end of a piece of paper from the Whips’ Office that if the Conservatives were to get in they would fully privatise. Of course they would; that is their policy. It is not Labour policy. I shall return to the manifesto commitment later.
Much has been said and written about protecting the universal service obligation. The security of the USO is already there. The noble Lord, Lord Sainsbury, said at the Dispatch Box to me, deliberately and on more than one occasion, that the 2000 Act gives comfort, support and reinforcement that the USO will be maintained by Royal Mail. Some may recall those debates. Dear Lord Sainsbury, who had the job of pushing that legislation through this House, replied on more than one occasion that the USO was sacrosanct and that the Bill that became an Act would protect the universal service, which we all know gives equal treatment under the Roland Hill principle to every household and every citizen of this country.
Ill informed comments about modernisation are grossly unfair to the management and workforce. At present, all four sections of the Post Office—Royal Mail Letters, GLS, Parcelforce and Post Office Limited—are in profit. Royal Mail is making a profit of £1 million a day. These are facts—no fiction and no embroidery. It is making £1 million a day as opposed to the £1 million a day that it was losing at the time of the turnaround. I did not agree with much of the 2000 Act. However, confession is good for the soul: I think that Post Office’s management has done a wonderful job in turning around the business from a deficit on operations to a profit. Instead of talking about how the management is inadequate and about bringing in people from another country, this House should be saying, “Thank you very much”. The Government should be saying, “You’ve done a great job and we don’t need people from a failing post office”—if we were talking about the Dutch, because they lost money, or Deutsche Post, because it lost money. Our Post Office is making money.
I shall have to cut out a lot of my speech, because time rushes on. In the first nine months of the current financial year, Royal Mail made a profit of £255 million. It confidently estimates that this year it will make double the profits of last year. That should be recognised, even when Royal Mail has been faced with a biased regulator, which, eight years after it was set up, has been found wanting. With great respect to this House, I advised on what would happen. There is nothing clever in being right after the event; I was right at the time. The regulatory framework was designed to give our competitors the right to cherry pick by taking the profitable parts of the Post Office business and then insisting by law that the Post Office had to deliver downstream access at a loss. Every letter delivered by its competitors costs Royal Mail at least 2p.
I want to speak a little about the Post Office pension scheme, in which there is a deficit. Much has been said—we have heard it again this afternoon—about the enormous sums of money. The figures fluctuate; some say that the figure is £3.4 billion, from when the scheme was last valued in 2006, or that it is the £5.9 billion mentioned in the Hooper review. The next actuarial valuation later this year will in all probability add to that figure. Whatever the correct figure, everyone must agree that the scheme’s deficit is serious and has to be addressed. Deficits in pension schemes are not new and nor are surpluses, on which I should like to comment in a few moments.
The Post Office first had a contributory pension scheme in 1969. Hitherto, its scheme had been part of the Principal Civil Service Pension Scheme and was non-contributory, whereby the employer paid, as happens down the other end of this building and in the European Parliament. However, in 1969 it moved to being a contributory scheme. In 1973, the first actuarial review of the scheme took place, from which I shall quote accurately: the deficit after four years was £1.092 billion. How much would that be today? I do not have the means to uprate that figure to present-day values but it would be a hell of a lot of money.
In those days, we did not run away, throwing up our pennies, but that is how it is going to end up, with our giving away our business to a foreign competitor. However, back then, that was not on the cards, and there is no doubt that we did not run away. The answer was found by the employer, the employees as represented by their trustees and the Government sitting down under the pension scheme rules and finding a resolution. It was such a good resolution that it did not take long before there was a great surplus. I do not have time to go into the detail but, if anyone has any doubts about what I am saying, I recommend GP Olver’s book about the Post Office’s finances and, in particular, chapter 3, which is headed “The Historic Deficit”. Mr Olver makes it very clear that the deficit was recovered through a sensible arrangement that led to the years when the scheme was in surplus.
I am getting a bit excited about pensions because I went to see a group of Post Office pensioners last Thursday. I was always known as Nobby Clarke. A chap came up to me and said, “Nobby, can they take away my pension?”, and he showed me a lurid headline which read, “Posties pensions in peril”. Where did that come from? I want to spend a minute examining the origins of that rumour about the hard-earned pensions of hard-working people, who did not deserve to be given that fright. In the final analysis, under the trust deed the Government are responsible for the deficit. Whether we like it or not, that is part of the trust deed, which allowed the Post Office to take almost a 13-year contribution holiday. It is not generally known but I was the negotiating officer at the time. I took it as far as I could with the lawyers but was told, “Tony, you cannot do anything about this because the employer has the responsibility for deficits and therefore it has the responsibility for surpluses”.
Today, I want the Secretary of State to say clearly and unequivocally that Post Office pensions, which for years were described as deferred pay, earned by hard-working decent men and women, are safe. We know that they are safe. Anyone who knows what is going on knows that they are safe. This is terribly wrong. At a group meeting of the Labour Peers last week, the Secretary of State was able to tell us certain things, and I asked about the letter. The Post Office pension trustees had no knowledge of the letter that was sent to the Secretary of State saying that all the recommendations in the Hooper review had been accepted. Noble Lords may ask what an independent trustee group is doing commenting on other matters in the Hooper review. The letter to the Secretary of State, written on 19 February, was published on 23 February and led to the headlines. The Secretary of State told me last week that he did not leak it and of course I believe him.
At the same meeting, the piece in the Sunday Mirror about the pension provision and the funding of the senior officials’ pension scheme was mentioned. Again, the Secretary of State was able to say that that was entirely inaccurate. I hope that someone is now telling the Sunday Mirror that it should not have published what it did. Again, it was not down to anyone in the Secretary of State’s department.
As a lifelong member of the Labour Party, I was troubled by another point that was made at that meeting. I was told that not one voice in Cabinet was raised against these proposals. Many noble Lords will have read that there have been some reservations but, again, I believe that the Secretary of State said that no one in our Government was prepared to say that what was going on was wrong. There was unanimity in the Cabinet.
I would like to say a few words about modernisation. We are talking about the introduction of intelligent optical character-recognition sorting machines. Those sorting machines, together with what are known as walk sequencing machines, are not readily available. Someone may have the impression that you can just go to whoever sells them and take a machine off the shelf. There is a lead time for buying them. There is no need for us to rush, in indecent haste, as I said when we rushed into the liberalisation of our postal services in advance of everyone else in Europe. To date, some countries have not even started liberalisation.
If someone comes along with a big chunk of money, will they sit passively in a boardroom? A very senior man in the Post Office wrote to me, in retirement, saying, “It would be like putting Tesco board members on to Sainsbury’s board”. I do not understand boardrooms—I am a postman—so I do not know what goes on in the world of high finance. However, it makes you worry when you are told that there are all these wonderful whizz-kids who will take on jobs, some of which are deliberately being kept empty in the Royal Mail for them. I hope that I am wrong and I hope that the Secretary of State says, “You’ve got it all wrong; there is no blocking of posts for these people”. We shall wait and see.
The House should also know that, at the time of the 2000 Act, I prophesied a loss of jobs. That was nothing clever; it was obvious. When you take away deliveries and collections, such as the Sunday collections, and when you contract what you are giving to the public, that is bound to happen. Recently, I found out from a senior person in the Post Office that 50,000 jobs disappeared in that period. That might have been inevitable, but the Post Office and particularly the Royal Mail say that it has been managed by agreement. There have been hiccups, as there would be with job losses of that size, but the Post Office has done it—those 50,000 jobs have gone. What do we give the public in return? We give them less service, as was confidently published. The Deutsche Post’s figures show that it is losing money.
On tariffs, a lot has been said about TNT. We will be told that it has not got the job, that it is not really the main runner and that no decision has been made. Have a look at today’s Guardian to see how the company is run, the allegations of bullying in that company and how casualisation has taken place. In Holland, a letter of 100 grams costs twice as much to send as a letter of 100 grams in the United Kingdom. Is it any wonder that we have fallen behind until this recent recovery? We have never been allowed to charge the right price in all the years of political interference. When we got the 2000 Act, I welcomed the commercial freedom. We are right to go to the market to get money for investment, if that is possible.
We should send this Bill back to whoever dreamed it up with a simple message: stick to the manifesto commitment, carry on with the abolition of the biased regulator and allow sensible periodic increases in tariffs. One thing that we can perhaps learn from the Dutch is pricing policy. I have talked about the basic rate. Will the Minister please explain why an efficient Holland is so much more costly than an inefficient UK? That needs answering. People say that these people are so clever, but they are not as clever as the wonderful people who run the British Post Office. I am not just talking about postmen, postwomen, counter clerks and the people who ride their bikes around the villages; I am talking about the whole family of Post Office people from the chairman of the board down. They run a good service. It should be allowed to continue and to have increased borrowing powers. We want some imagination to overcome the present problems. We want to be able to raise money to do the job, as Welsh Water has done, and we want to be able to do it without looking over our shoulders thinking that someone is going to come along and say, “We’re going to take your jobs and your business and suck up the profits later on”.
Remember National Giro. If I had time, I would quote from Hansard what I told this House, which was that the sell-off was a great rip-off and that the golden shares in BT melted away. You would not think that they were gold; they melted like snow in summer. I am told by experts in the field of finance that there are alternative ways of raising money without selling such a valuable asset. This nation has proved for over 300 years that we can provide a decent postal service, run by decent people. I have pleasure in commending the amendment to the House.
My Lords, I join the Secretary of State and the noble Lord, Lord Clarke of Hampstead, in paying tribute to the late Lord Dearing. Ron Dearing was a very great and close friend of mine and gave me a lot of wise advice. I agree with the noble Lords that we will miss him very much indeed.
I declare my interests as listed in the Register of Members’ Interests. Let me make it clear straight away that we on these Benches welcome the Bill and support in principle the conclusions and recommendations contained in the excellent report produced by Richard Hooper and his colleagues. In a sense, the title of the report, Modernise or Decline, says it all. I have always believed that a universal postal service at a uniform and affordable tariff is an essential requirement. As the Hooper report rightly observes:
“The universal service has a strong social and economic rationale ... Customers place a high value on the affordability of the service, on a uniform tariff, and deliveries on six days a week”.
However, as the report also demonstrated in stark terms, the viability of the concept of the universal service obligation is increasingly in jeopardy and cannot be sustained under present policies. Page 60 of the report states:
“The universal service is under threat and the status quo untenable”.
Let me be clear: the preservation of the universal service obligation must be at the heart of any reform. Our strong desire to underpin the USO is why we on these Benches accept the urgent need for modernisation as outlined in that excellent report.
The previous Conservative Government consulted on and explored the right way forward. The sad fact was that we did not have the necessary numbers in another place to drive through the necessary reforms in good time in the face of what I recall was strenuous and often opportunistic opposition from the Labour Party. I remember one Division in another place when the now Prime Minister and the Secretary of State himself supported a Motion that rejected,
“whole privatisation or part privatisation of Royal Mail”.—[Official Report, 12/7/94; col. 835.].
Of course, after the general election of 1997, the Secretary of State took over responsibility for the future of the Royal Mail and the Post Office and, as he rapidly discovered, things often look different from a ministerial vantage point. In a Statement on 7 December 1998, he accepted the need for urgent change and, indeed, singled out the possibility of a minority private shareholding.
Since then, sadly, we have endured a decade of decay, drift and decline—10 wasted years, as a result of which we now find ourselves in the pretty pass outlined so convincingly by the noble Lord. Surely, that is the essence of bad government: Ministers sit on their hands for 10 years and then produce a rushed job of a Bill that raises more questions than it answers. The Government's lack of leadership and inaction has caused great problems for the Royal Mail. Now the internal strife of the Labour Party, as evidenced by the first two speeches in this debate, is adding to that uncertainty.
In another place, Ministers have attempted to paper over the cracks by playing at semantics. When is privatisation not privatisation? I must tell the noble Lord that I am reminded of Through the Looking-Glass by Lewis Carroll.
“‘When I use a word’, Humpty Dumpty said, in a rather scornful tone, ‘it means just what I choose it to mean, neither more nor less’”.
I suppose that the Secretary of State has fallen off the ministerial wall twice before and succeeded in putting all the pieces back together again. If he gets this Bill wrong, all the King's horses and all the King's men may strive in vain to reconstruct his ministerial career once again.
What matters is not the label we attach to any system of ownership, management or governance; what matters is whether it delivers the necessary reforms and safeguards. If the universal service is to survive, Royal Mail needs to be radically transformed. The strategic partnership between Royal Mail and a private sector company with experience of transforming a major business is, I believe, necessary to provide the commercial confidence and the access to capital and corporate experience that will ensure the future both of Royal Mail and of the universal service itself.
Unfortunately, Richard Hooper’s clarity on the necessary reorganisation has not yet found its way into the Bill, nor even into government policy as laid down in press releases and Command Papers—nor, no doubt, into what happened at the private meeting referred to by the noble Lord a few moments ago—that have been appearing at intervals on the departmental website and elsewhere. Although we would not want to limit unduly the sort of partnership that a private sector company might consider appropriate, I must say that the Government do not have a reassuring record in negotiating difficult deals with private sector companies. There is a great deal of concern about the sort of package to which they might accede in their haste to improve the dire public finance figures.
Even the final percentage to be sold off is unclear. The Bill seeks only to ensure that a majority shareholding remains in public hands, but the Government’s Command Paper 7560, published alongside the Bill, states at paragraph 4.8 that,
“we expect the partner would take around a 30 per cent interest”.
It will be interesting to learn from the Minister how he arrives at that rather arbitrary-sounding figure. Does it have an economic justification, or is it merely the product of desperate arbitrage within a viscerally divided Labour movement? Perhaps the Secretary of State will explain in his winding-up speech.
We on these Benches will ensure that the Bill receives the line-by-line scrutiny in which, I believe, this House excels, in order to clear some of the fog, counter some of the rumours and answer all the questions. The speed with which the Secretary of State has produced this Bill has left a number of stakeholders out in the cold. After hearing the Minister—I pay tribute to his experience and the contribution he has made—I feel particular empathy with the current employees of Royal Mail, who effectively are being excluded from this key debate about their future.
As the two wings of the Labour Party in Parliament become evermore entrenched in their views, as we have heard today, the employees seem to find themselves in no man’s land nervously watching the shells explode overhead and waiting for one to fall directly on them. Their jobs and pensions are being drastically amended by decree from on high, with little or no discussion or consultation. That is no way to conduct such an important process. This Bill contains no provision to allow employees to participate in the part privatisation of Royal Mail. We shall certainly be seeking to insert a scheme for some form of employee share ownership.
Nothing underlines the failure of Labour’s management of Royal Mail for the past 12 years more clearly than the provisions in Part 2. Here, we are talking about burdening the taxpayer with billions of pounds of unfunded liabilities. It is only because the Government have already drawn us into trillions of pounds of debt through their mismanagement of the wider economy that their failure here has not been more widely recognised and condemned. Unfortunately, this Government’s refusal to address the problems of the Royal Mail in a timely manner has led us to a place where there seems to be no other honourable, acceptable or equitable way out. We therefore regretfully agree with the Hooper review that, when a successful private partnership is found for the Royal Mail, the Government should step in to prevent the pension scheme going under.
However, this Bill fails to meet the standards for which one might reasonably hope. Some critically important questions are left unanswered and, once again, important provisions are missing. The situation is not helped by the imminent revaluation, which is expected to change the figures dramatically and drastically in the wrong direction. Clarity also needs to be established about what will be left behind in the Royal Mail and Post Office pension pots. We certainly shall look to insert proper transparency to ensure that the public and Parliament are, and remain, fully aware of what they are taking on.
As with the first two parts, Hooper’s conclusions on Part 3 are very clear, especially with regard to,
“the depth and range of disagreements between Royal Mail and Postcomm”,
at paragraph 83. When, as Hooper highlights, even basic facts are disputed, it is clear that there needs to be a proper market analysis and consequential adjustment of the regulatory process. We support the transfer of regulatory responsibility from Postcomm to Ofcom, not only because of the breakdown in the current relationship, but also because of recent developments in the communications sector. We hope that Ofcom, with its greater experience of sectors where there is rapid technological change, will be able to develop a proportionate and appropriate regime that weighs competition objectives against the overriding necessity of maintaining and supporting the universal service obligation.
However, again, this Bill falls short. It certainly transfers responsibilities to Ofcom and establishes the duty to secure provision of the UPS, but the abrupt and enormous extension of powers and the incorporation of an entire sector into a regulatory regime are being proposed with an almost total disregard for the concerns of firms that are going to be drawn into the regulatory net. We need to look carefully at the regulatory objectives. We are told that these provisions are the very model of modern drafting for a modern regulatory regime, but the proposal seems to be that the establishment and maintenance of a fair and balanced regime are to be left entirely in the hands of Ofcom. It will possess newly minted nuclear options such as the imposition of a levy, with little or no clarification about the possible circumstances in which such draconian powers might be implemented.
Ofcom of course needs some flexibility to respond effectively to the market review, but we should not accept the extension of regulation into an entirely new sector without a full debate about this market and the supposed consumer detriment that regulation is supposed to address. These provisions will not ensure proportionate regulation, nor do they provide for a properly transparent and independent assessment of the decisions that Ofcom will make in response to any developments the sector might undergo in the future. Of course the Hooper report made a categorical recommendation that Parliament should have a significant role in ensuring that the regulator acts appropriately, and to help achieve that objective the adoption of a risk-based approach should also be made explicit in the Bill. Unregulated cherry-picking would obviously undermine the ability of Royal Mail to satisfy the USO, but oppressive, expensive and burdensome regulation must also be avoided at all costs, especially in the current economic climate. Proper transparency and scrutiny by Parliament and the wider public are necessary to ensure that an appropriate balance is struck.
This Bill is welcome so far as it goes. The noble Lord, Lord Clarke of Hampstead, has just indicated his intention to take the very unusual step of dividing the House at Second Reading. It seems fair for me to make the House aware that, if it does come to that, personally I shall be very comfortable walking through the voting Lobby shoulder to shoulder with the Secretary of State. However, our support in principle at this stage should not in any way be interpreted as a carte blanche for Ministers. This may be a necessary Bill, but it is far from being a perfect Bill. This House is at its best when it undertakes detailed legislative scrutiny, and, without seeking to pre-empt your Lordships’ intentions, I believe that the future stages of this Bill should see substantial changes made. I hope that this legislation will be in better shape, particularly on the detail, when it leaves this House, and I look forward to working with the Secretary of State and his colleagues in the coming weeks, and possibly months, to help bring about that desirable outcome.
I am sad to say that I believe this Government have sold the Royal Mail short and sold the country short. We deserve a better Government and a better Bill, and it is our firm and avowed intention to help deliver that.
My Lords, I join other noble Lords in commiseration for the sad death of Lord Dearing. By modern standards, and certainly by the standards of your Lordships’ House, he died at a very early age. His death is a tragedy that we should all mourn.
As the noble Lords, Lord Mandelson and Lord Hunt of Wirral, indicated, the Post Office and the Royal Mail undoubtedly have a long-term problem that requires action. I thought that the Minister’s gentle admonition of the noble Lord, Lord Clarke of Hampstead—with his nostalgia for a Post Office and Royal Mail service from Camden to Candleford, which I do not think anyone picked up at the time—was entirely appropriate, because I do not think that even the noble Lord, Lord Clarke of Hampstead, would think that Dorcas Lane would be an appropriate choice to run the modern Royal Mail and Post Office.
Both the other parties in this House—not the individuals concerned but the parties—have contributed to the problems facing the Post Office and the Royal Mail. As the noble Lord, Lord Clarke of Hampstead, indicated, it was the previous Tory Government who for many years took the pension holiday that largely led to the pension deficit. He did not attribute blame for that, perhaps because he is looking for the votes of Conservative Members for his amendment. Had the holiday not been taken, the Post Office’s pension problems would be significantly smaller. He also did not refer to the fact that the Treasury clawed back much of the profit that especially the Royal Mail made during those Tory years and did not permit that money to be spent on the modernisation which is now being proposed and is now so essential. So the mistakes of the previous Tory Government were certainly a contributory factor in creating the current situation.
Labour’s hands are not entirely clean either. Who knows whether this Bill and these solutions would have been brought forward had the Minister, in his earlier incarnation, remained responsible for the Royal Mail and the Post Office? However, more than 4,000 post offices have closed in the period since he left that position and, notwithstanding the subsidy that the Government are putting into the Post Office network, without the stabilisation that the network requires, that process is continuing. The noble Lord, Lord Clarke, is also correct that the Government failed to provide a regulatory system that protected the Royal Mail from unfair competition after removing its monopoly on delivering letters and parcels.
We have now, eventually, got a Bill. The noble Lord, Lord Hunt of Wirral, is correct to ask why it has appeared so late in the day, but we are where we are, and this is a once-in-a-lifetime opportunity to get the structure of the Royal Mail and the Post Office correct. The Bill provides the forum to do that. I agree with the noble Lord, Lord Hunt of Wirral, that this House is at its best when it is dealing with detailed proposals and amendments and trying to get legislation right.
The approach of these Benches to the Bill, and our ultimate decision on whether to support it, will not be “shrill”, which is a potential admonition from the noble Lord, Lord Mandelson. We will not be shrill, but we do have five tests on which the Government will have to deliver if the Bill is to pass.
I think the Secretary of State agrees with the first test—although the devil, as always, will be in the detail. The Bill must guarantee the Post Office’s future as a public sector, public service organisation. It must be separate from the Royal Mail and have its own board of directors and direct access to finance. I think that the Government also agree that the Post Office must remain a wholly public, government-owned enterprise. The Post Office must be given the power to enter into business agreements with other businesses in the mail sector, and I shall give one example. There is no reason why, in the new incarnation, the Post Office could not act as a mini depot for the collection of parcels.
The second test from our Benches is that the Bill must deliver the substantial investment which the Post Office network desperately needs to give it a sustainable future. At the moment, the Bill deals only with what will happen to the Royal Mail, but this is an opportunity for the Post Office to be put on a proper financial basis. As I said, although the Minister is correct that significant funding has gone into the Post Office lately, I do not think anyone believes that that has solved the problem. The Government need to set up for the Post Office network an investment fund that will fund branch modernisation, open new branches where gaps exist, provide start-up and investment capital to sub-postmasters and promote the provision of local and central government services by sub-post offices.
When the Minister made the Statement before Christmas a number of us on these Benches got the impression that he was going to be innovative in trying to secure the future of the Post Office. We look forward, in the course of the Bill, to proposals from the Government on how to exploit this huge, unexploited retail network throughout the country. One obvious opportunity would be to create a post bank to deliver financial services for all, particularly the financially excluded.
The third test, with which I think the Minister agrees—
My Lords, the noble Lord is making some extremely interesting points. Can he be sure whether such investments would be regarded as some form of public subsidy and have to be cleared by the Commission in Brussels, or would we be able to do that without reference to the Minister’s former masters?
My Lords, I suspect that in the current climate, with the question of subsidies into the financial sector, doing that for the Post Office would be the least of our problems, bearing in mind the subsidies that are going into the banks.
The third test that we will be looking for, and I think the Minister agrees with this, is that the Bill must guarantee a full six-day-a-week universal service obligation. I disagree with the remarks of the noble Lord, Lord Clarke of Hampstead; if the Bill goes through in this form, it will be the first time that that has been enshrined in statute. I am not aware that the noble Lord, Lord Sainsbury, whatever his skill and influence, actually got such an obligation enshrined in statute for both letters and parcels.
The fourth point, on which we have general agreement in this House but which is not yet enshrined properly in the Bill, is that the Bill must ensure a competitive future for the Royal Mail and not leave the company at a disadvantage to its rivals. The point that the noble Lord, Lord Clarke, has made was correct, and the noble Lord, Lord Hunt of Wirral, touched on that. The existing framework does not provide a level playing field for the Royal Mail, and we need a structure under which competition for the Royal Mail must either pay a proper price for final mail delivery or be made to pay a levy. That levy should be placed by the regulator on other mail operators that do not undertake the universal service obligation, to pay towards its cost.
The other point under that heading is that we believe the Royal Mail should have the ability to borrow on capital markets, a point alluded to by the noble Lord, Lord Clarke, but not with the detail that he intended.
The Minister touched on the next point, and I welcome the remarks made by him and by the noble Lord, Lord Hunt. We feel that a major way to transform the poor industrial relations that have dogged the Royal Mail would be to provide a fair ownership structure properly reflecting the interests of all the shareholders. This is a one-off opportunity to give the employees of the Royal Mail a big stake in the management and ownership of the business, which will enable them to buy into the essential changes that the Royal Mail clearly requires. We will be seeking to ensure that amendments to that effect go into the Bill, because there is no doubt that the employee/management relations that have bedevilled the Royal Mail would be significantly improved if we could get a structure of which the John Lewis Group and the Co-operative Group are the best examples. As we see the bastions of capitalism crashing around us, surely this is a moment for the Government to give the lead in the creation of a new model of ownership of a business, and the Royal Mail is the best example of where that could happen.
As the noble Lord, Lord Hunt of Wirral, and I have said, we wish to bring forward significant amendments in Committee to reflect the principles that we have both articulated. I fear that whatever sympathy we might have with the noble Lord, Lord Clarke of Hampstead, we cannot possibly support him; were his amendment to be put to a vote and carried, we would not have a Committee stage at which we could bring forward the amendments that we wish. It is not for me to make the intellectual argument against him; I am sure that the noble Lord, Lord Mandelson—his noble friend—will do it better than I could. We cannot support the amendment for that reason.
The noble Lord, Lord Clarke, spoke with worthy nostalgia of the past of the Post Office and Royal Mail. If there really is no problem with the Royal Mail, can he explain why the extensive lobbying which we have all received from the CWU and related organisations came in the form not of letters but of e-mails? I should have thought that that fact demonstrates a problem with the Royal Mail which the Government need to address.
I look forward to Committee, where we will endeavour to enshrine in legislation the five principles that I have articulated. In that way, we will get a Bill which can preserve the future of the Post Office and Royal Mail.
My Lords, I intend to focus exclusively on Part 1 of the Bill. I shall be making a point with which the Minister is already familiar; he heard me expound it very briefly in another forum the other day.
Essentially, I want to direct attention to the nature of the relationship between the incomer—the third party, which will bring in expertise and other things I shall mention—and the existing Royal Mail Group Ltd and its board. I want to make one point which will perhaps be novel in the context of this debate. I am not particularly concerned with questions of ownership. My point would arise even if the strategic partnership took a form which did not involve any transfer of shares. I make this point because, by chance, as counsel, I was involved in a case called Bermuda CableVision Ltd and Colica Trust which came out of Bermuda to the Privy Council in London in 1998; the appeal case is at page 198.
The issue was whether the Bermuda television operators could show that they controlled the company because they complied with the statutory obligation of having 60 per cent Bermudian ownership and 60 per cent Bermudian directors, as the local companies Act required. The contention on the other side, which I put forward, was to forget about the shareholding, because if you looked at the other arrangements, you would find that in fact the Americans controlled the company. They did it in various ways such as altering the by-laws and having a separate side agreement. In other words, we want to focus on, or at least include in our discussions, who will control the operation.
What do we know about the new third party? What have we heard? The Hooper report says on page 14:
“We recommend a strategic partnership between Royal Mail and one or more private sector companies with demonstrable experience of transforming a major business, ideally a major network business”.
Per Hooper, the incomer does not necessarily have to be someone who has been in the network business. That was the ideal.
Hooper makes it quite clear that the existing company is simply not coping. The previous page, page 13, states:
“The company urgently needs commercial confidence, capital and corporate experience”.
Hooper gives details of that. Incidentally, in relation to capital, he makes the following remark, which may nowadays seem slightly out of the true Bill:
with public finance,
“private capital is generally more flexible and more tolerant of necessary risk”.
Hooper says that the Government already have enough financial commitments, so there must be a newcomer who will bring in some money and access to corporate experience. He continues:
“Royal Mail needs access to the corporate experience of one or more private-sector companies which have successfully managed complex change on a similar scale”.
So the “whizz-kids” to whom the noble Lord, Lord Clarke of Hampstead, referred are the people who will have to be brought in to get the show on the road.
That is a rather broader description of who the third party will be. The White Paper of the noble Lord, Lord Mandelson, accepts the recommendation for a strategic partnership and cuts the possible “partners” down to a single “partner”. It is not until we get to the Explanatory Notes that we read anything about this partner. Paragraph 11 states:
“Strategic partnership: Royal Mail should enter into a strategic partnership with a private sector firm that has demonstrable expertise in transforming a major network business”.
Not a word of that is in the Bill; it is in the Explanatory Notes—it is a gloss on the Bill. There is no definition of who it is we are looking for. How many firms in the world have this expertise? We do not know; we are not told; we do not have the evidence.
What problems will arise? Let us look at this simply from a commercial point of view without beginning to get excited about public ownership and private ownership. What issues will arise when the newcomer is introduced? For example, of whom will the board of directors consist? What will be the balance between the newcomer and the old guard—I call it that without any disrespect? What about the adoption of new technologies and techniques? Let us suppose that the new company and its experts come in and say, “Look, you’re running a complete shambles. You want to do what they’re doing in Holland or Singapore. They’ve got the machinery. It’ll take a couple of years to buy, or the lead time might be longer, but that is what is absolutely essential. But we must get our running costs down”. What if those proposals fall on deaf ears or are controversial and do not immediately capture the imagination of the old guard? What about the top staff who run the show daily? I have already said that the underlying intention is for a whole lot of new people to come in with new ideas. They will have run a company previously and they are going to run this one.
What about money? First of all, there will be a sale of 30 per cent of the shares, which is the figure that has been mentioned today. Some money will come in from that. But what about new capital for the expensive machinery and so on that will have to be acquired? As I read his report, Hooper is looking to the new company to bring in that money itself or with its colleagues or companies. How will that money be provided? Will it be in the shape of loans? What about repayment? Will there be guaranteed repayments to the third party? Let us suppose that it goes straight into the business and is used forthwith. Then, the newcomer will look for a kick-back. He is putting his money in and not getting any interest, but he is hoping to get something out of it. One can therefore see all sorts of problems arising.
My complaint is as follows. I can guess exactly what the Minister will say. He will say, “You’re asking for the moon. You’re asking me to talk about some of the difficulties in the negotiations which will arise when we talk to A, B, C, D and E”. I appreciate that point, but we must be able by Committee stage to know something more about the Government’s intentions on some of these points and how they are going to resolve these commercial difficulties. They could at least open them up for future discussion; it would not preclude the path of any negotiations. If you read Part 1, you find absolutely nothing, not even a definition of the type of person who is to be brought in or even the 30 per cent. My plea is for more information.
My Lords, I, too, pay tribute to Lord Dearing. He was a good friend.
I thank the Minister for explaining this Bill, but I am not sure whether I should congratulate or commiserate with him. This is a difficult time to introduce a Bill to reorganise the Royal Mail. The noble Lord, Lord Hunt, spoke of uncertainty in the Labour Party, but he is wrong; the uncertainty is everywhere, even on the noble Lord’s Benches. These are difficult times. All our principles are being tested—economic, social and political—but this is no reason why we should not get on with reorganising the Royal Mail. The Hooper review is right, and I agree with the Minister that, in accepting it, the Government can get on with the job in spite of all the turmoil. But the turmoil cannot be ignored, and neither must the lessons learnt from it be ignored.
One thing that precipitated my decision to speak in this debate is the amendment of my noble friend Lord Clarke. I listened to him with a great deal of care and respect, because his long experience in the industry demands that. We are all products of our experience; I probably started work at about the same time as my noble friend. I started in the textile industry, which is another industry with a history of traditions and pride. When I started work there, we did not have a monopoly like the Royal Mail, but we had import quotas and a lot of energy went into keeping them. Inevitably, some of the new blood thought that their energy would be better directed towards style and design, new technology and good management, clever marketing and slick service—towards providing what the customers wanted. Of course, you know who survived and you know who disappeared. It is because of that experience that the Hooper report rings true to me; it chimes with my experience.
Let us look at what is proposed—a universal service in the public sector, enshrined in law and regulated by Ofcom, and a public service with a private sector company to provide modernising management, with the owner taking a back seat. That is the kind of mixed economy solution that we used to discuss in the 1980s, but important lessons have been learnt since then.
One political lesson coming loud and clear is the need for good governance—the noble Lord, Lord O’Neill, touched on this. Good governance is hard to pin down; in the recent past, we have favoured self-regulation in business because the alternative has been box-ticking and because too much regulation puts a brake on enterprise and initiative. The answer lies in transparency. The Bill will need to insist on ways of offering even greater transparency—better information, broader knowledge and more and deeper explanation—to avoid the secrecy made acceptable in recent years by hedge funds and other financial operators. With transparency, agreement on accounting standards is also important.
The current banking crisis is teaching us other lessons. If an organisation is not to be allowed to fail, regarding it as a commercial operation may be politically right but commercially wrong. You have to deal with what others have referred to as the ambiguity of authority. It seems to me that the way to do this in the Postal Services Bill is to lay down that the first objective is not to maximise shareholder value—a concept that is probably now discredited—but to operate entirely without government support. Until that happens, the interests of the shareholders must be secondary and employee shareholding would have to be delayed. In that way you also remove the Royal Mail from the casino of share trading while it is renewed and reformed.
Next, you have to insist on good behaviour in the environment. That is becoming an important part of public trust. For the Royal Mail, this will be tricky. Greener ways of distributing packages and mail are being introduced. To save carbon and delivery charges, customers are collecting goods ordered over the internet at local depots. Local contractors are billing and invoicing to avoid long journeys for the mail. The environmental challenge will reduce the need for some Royal Mail services. I am sure that the Government will have to insist on other community values, which may affect the Royal Mail business.
On the other hand, I would be a little sceptical of the dire warnings about the disappearance of paper mail. The Minister spoke about this. He will remember a time when the big question was what we were going to do with all our leisure when the new technology did all the work. The belief that all our shopping, reading, communication and leisure would take place over the internet led to the dotcom bubble. In reality, the internet has enabled a lot of these things to grow as well as to change.
Fairly soon my noble friend will have to react politically to some fairly tricky economic decisions. You cannot legislate for the energy and the creativity that economic renewal demands. However, it seems to me that we can and should deal with these governance and political matters now while we are preparing the Bill. If we do not, they will cause only ambiguity and difficulty when the reorganisation of the Royal Mail is taking place. Many of the old orthodoxies are now being questioned and nobody is sure where we are going. When there is more certainty, these matters of corporate governance will be clearly laid down. Meanwhile, they should be in the Bill as an indication of the kind of economy that we want when this crisis is behind us.
I turn to the pension scheme. The chairman of the pension fund trustees points out that Royal Mail is unlikely to be able to afford the deficit to provide full value benefits. As my noble friend reminded us, sadly many pension fund trustees fail to take account of the fact that we are living longer and that managers can and do perform badly.
The Minister says that if the taxpayer is going to pay for the pension fund deficit, in return the taxpayer has to get an improved letters service. I am afraid that I find this interrelationship less than convincing. If the Government are going to fund the pension scheme deficit, they should do so because it is morally right because of responsibility and because of undertakings given in the past. I should like to see a clear line drawn to show that instead of funding the mistakes of the past, we are a party that invests in the future and we keep our promises.
Generally, therefore, I support my noble friend’s Bill. There is certainly a need for it and the Minister deserves our support for tackling it at this testing time. I have tried to point out some of the lessons that these testing times are teaching us, lessons that should be incorporated into the Bill and debated when we get to Committee stage.
My Lords, the Second Reading debate gives me the opportunity of sharing some of my experience in working with the Royal Mail and the CWU over several years. There is no doubt that this is a difficult business with some huge challenges, but also some significant achievements that, because of the rhetoric and political posturing that has taken place around the Hooper report and the Bill, are often not fully appreciated and sometimes overlooked altogether.
The Hooper report could have been a bit more generous to the existing management. In the past five years, Alan Leighton and Alan Crozier have achieved things on behalf of the customer, as have Billy Hayes and David Ward of the CWU achieved things on behalf of their members. Of course, there is always an absolute need for constant change and improvement, but there is also recognition of the need to accept and give proper credit for what has been achieved.
In 2001-02, the business was bedevilled by unofficial strike action, losing more than £1 million a day and failing every single quality standard. In six years, that loss has turned into a profit of £255 million in the first nine months of this year. The business is on track, as the noble Lord, Lord Clarke, has already said, to stay in profit. Customer quality of service is the highest in a decade. Negotiated agreements between the business and the union have improved efficiency remarkably. It is almost impossible to comprehend 50,000 people having left the business through voluntary redundancy and natural wastage; that is an alarming figure. Parcelforce itself went from having 11,500 employees to 5,000 in one year; that is one hell of an achievement.
The pay and technology modernisation procedures, always arising from the union agreements, have also been implemented—not completely, but in the main. There is now another £2 billion of investment in new technology by 2011, and another £1.2 billion, a government loan, will be invested by 2011. This all serves to balance the impression given by commentators and newspapers that nothing has been achieved. That is not true. The present regime has made considerable achievements that would be explained further if time permitted. They could have been enhanced if industrial relations had been conducted through channels of greater co-operation and involvement instead of the general command-and-control and confrontation that have existed for such a long time in the business.
I understand that the CWU is sometimes difficult to deal with; I know that it is. However, the problem was essentially that Adam Leighton failed to see the union as a potential partner. From the beginning, he did not use his considerable talent and energy to forge a strong and productive relationship with it. He believed that he could do it all himself: he had a flagship programme to change the culture of the business called “A Great Place to Work”. He did not talk to the unions about it; he did it himself. He implemented all the strategy’s strands and the union, right from the beginning, felt sidelined. That does not exonerate the union and say that it was blameless, or that it was not difficult to work with; sometimes it is. However, the lead must come strongly from the top. If the chief executive and the chairman will not hold a hand out to the trade unions, then you cannot really expect to get to where you want to be.
Going forward, there needs to be a change. The new leadership of the business needs to genuinely reach out to the CWU, and the union must respond in a positive way. It needs to come into line with established trade union practices, particularly moving away from annual executive elections to a term of office that gives more stability to the national executive and, consequently, more comfort to the business in dealing with it on an ongoing basis. Also going forward, the legislation’s proposal to move the pension deficit from the company to government is a significant benefit for both the business and the union, and should be recognised as such—although, as has already been pointed out in the debate, the details and further questions need to be worked out.
On the crucial and controversial issue of part-privatisation, I would have preferred the Government to say, “Yes, we made the Warwick agreement on a wholly owned public service in good faith, but in our opinion circumstances have changed and we now feel that a private stake is essential”. That is a credible position. People have to say that they have changed their mind and explain why they have done so.
I have friends in the business who think that a private stake would be beneficial, but I have, understandably, more friends in the union and PLP who are strongly opposed to that. Obviously, in a democracy both positions are legitimate. I am interested in the Hooper report’s concept of access to corporate experience. However, the weakness of the report’s arguments, and possibly of the concept, lies in the fact that—noble Lords have indicated this—if it is to be taken forward, we need to know a lot more about it and we need to be convinced that it could make a difference. The risk in that respect is quite high.
In recent times Royal Mail appointed a New Zealander, Mr Elmer Toime, to lead the letters business—that is the business we are all talking about—who was said to have an outstanding track record in industrial relations. I think that Mr Toime lasted about 12 months. I do not think that he really wanted to understand the existing culture of the business; he just wanted to change it, and that is not good enough. By its culture, I mean essentially the way in which the management, unions and the workforce interact and work together, or do not work together, as is sometimes the case. That cultural change is massively important and must take place from the top down. The command-and-control culture that is locked in 50 years of history has produced conflict and adversity. The business needs to move on from that to a culture where the management and unions work together and do things jointly and openly, and, above all, build trust with each other. The word “trust” is so simple to say but so difficult, and important, to achieve. Sadly, it is often lacking. The chairman or chief executive officer who really believes in making the union a partner and working with it and the workforce, and who believes in building trust, will be the person—from whatever sector he or she may come—who will finally succeed. Will this change come about through access to corporate experience? I do not know. I have worked on this culture aspect for some time. The leaders of Royal Mail’s HR department understood pretty much what needed to be done, but, sadly, it was not always understood or supported by those at the top of the business. That needs to change.
The Prime Minister has put his authority behind the Bill. My noble friend the Secretary of State is a genuine believer in the need for change. These things need to be heavily weighed when people make their final decisions. This is a critical time in our history, when the previous seemingly unassailable role of the private sector, with its profit-driven shareholder culture and overpaid managers, is under very serious threat. I do not know whether this is the time to promote that culture in a public business. Perhaps it is; perhaps it is not. I hope that our debates on the further stages of the Bill will reflect people’s concerns about the shape and direction of the wider economy. In particular, we need to work out the best position for this business to be in within that wider mix.
My Lords, I agree with what the noble Lord has just said about the recent improvement in the Royal Mail business. That needs to be underlined. One thing is certain about this debate: had John Major proposed the solution in this Bill in the 1990s, he would have met with total opposition from the Labour Party in the House of Commons. Frankly, no one would have argued the case against these proposals more smoothly or more persuasively than the noble Lord, Lord Mandelson. He would have enthusiastically put many of the points now being put against him, such as back-door privatisation, the indignity of having a foreign operator sort out the Royal Mail and the clashing evidence regarding the efficiency of the Royal Mail. Frankly, the Government have only got themselves to blame if they have stirred up a hornets’ nest of protest on their own Back Benches. If you had read the past speeches and heard the language, you would not have come to the conclusion that a Labour Government were going to sell 30 per cent of the Royal Mail.
It is tempting for an opposition politician such as me to congratulate the Government on their change of heart, thus increasing their embarrassment, and simply leave it at that. My reaction to these proposals is rather different. Above all, it is a feeling that over the past 20 years we have lost an enormous opportunity for the Royal Mail. When it could have been developing new markets at home and overseas and when it could have been seeking new opportunities that other companies have taken, it has remained far too confined to the traditional but declining letters market, while its so-called supporters have been far more interested in fighting a defensive battle on the public sector status of the Royal Mail. Privatisation is set out as if it were some enormous threat to the business and all who work there.
A few years ago, when I was transport Minister, the 1979 Conservative manifesto had only two pledges on privatisation, both of which were mine, on the National Freight Corporation and the British Transport Docks Board. The NFC has most lessons to be learnt from it. The NFC had a range of interests, the most important of which was what would now be called logistics. When we announced our intention to privatise it, the senior management were alarmed. Why? They thought that it meant we were going to sell the company to TNT. That was their concern at the time. It was then an Australian company, not Dutch. The management proposed a staff buy-out; not a management buy-out but a staff buy-out. I was very interested, in parentheses, to hear what the Secretary of State said about staff shareholding. Obviously, we shall want to pursue that.
Perhaps predictably, the staff buy-out measure was opposed by the unions, particularly the T&G, which advised its members not to buy shares. That must rank as one of the worst pieces of investment advice ever given by anyone, rather like the Foreign Office when it resisted the BBC World Service proposal for investment in the internet on the grounds that it would never catch on. I am glad to say that the advice was very widely ignored. When the NFC had its AGMs, they were not hidden away in some secret city hall but were attended by some 2,000 or 3,000 shareholders. The chairman was quizzed not just on the prospects of the business but on the intricacy of drivers’ hours.
My point is this: that form of privatisation was supported by the staff. It transformed the business. Middle management started to manage. New brands such as Exel developed. There was an obvious way forward for the NFC in an age when businesses and the public wanted organisations of a size that could look after all their needs: to come together with the Royal Mail and to put together a British company that could compete with the world. I agree with the noble Lord, Lord Clarke, on this; I do not buy the theory that Britain cannot manage to deliver letters and parcels efficiently without the aid of an outside group. The skills are there, and in the past few years that has been shown to be the case. Incidentally, I also do not buy the claim that companies such as TNT are a consistent byword for efficiency. A couple of weeks ago, a package addressed to me sent from Zurich by TNT special express took three and a half days to arrive at my home here. I do not buy all these claims.
Before the Minister writes off the NFC as a trip down memory lane, let me come to the final irony of the story. For in the end, the NFC, and Exel with it, did get together with a postal service. The only trouble was that it was with the German postal service—with Deutsche Post—with DHL. Although we had taken the lead, it was the Germans who capitalised on the advance. How similar that is to so many other things that have taken place in our business life.
Obviously, there were other opportunities for the Royal Mail, opportunities for diversification and for much greater international expansion; but for that, you needed private capital—privatisation similar to what happened in Germany and Holland. Why did that not happen? My noble friend Lord Hunt has given, in his excellent speech, the answer that, with a wafer-thin majority it was impossible to get any measure of privatisation in this area through, because we were met by the opposition of the Labour Party and the Liberal Democrats, and I have to say one or two Members on our Benches confused the Royal Mail with sub-post offices and, therefore, opposed the measure. It was simply “mission totally impossible”.
In this Bill we are presented with a not very attractive sales prospectus. It is neither one thing nor another. It leaves a range of questions unanswered. There are questions about where effective control resides. Of course, the Bill states that it resides in the public sector with the Royal Mail; but industrial partnerships of this kind are not problem-free. The noble Lord, Lord Neill, made this important point. The whole point of bringing in an outside operator is that its skill and experience should be implemented; otherwise the exercise is totally pointless and worthless. The idea that by definition this will be smooth is, frankly, nonsense.
There are questions about future ownership. I agree with what the noble Lord, Lord Clarke, said about that. I do not believe for a moment that the 30 per cent limit will stay for ever, or that the bar of a new Bill will prevent change. It is clear that in the years ahead public spending will be under unprecedented pressure. The Treasury will be looking for receipts and it will not matter which Government are in power. If they can sell the remaining 70 per cent to the company that already has 30 per cent, they will certainly push for that. Make no mistake, the company that has 30 per cent is in the £1 seats when it comes to future ownership. That is a long way from the kind of privatisation of NFC that I advocated. It is basically the straightforward sale of a company.
There are questions about the new regulator, Ofcom. When we said that Ofcom should take over the whole regulation role in broadcasting, including the BBC, one of the defences put by Ministers was that there was a lack of capacity in Ofcom. However, it already had substantial broadcasting experience, and now we are suggesting that it should take over responsibility for all postal services, of which, to my knowledge, it has no experience whatsoever.
I am lukewarm about the Bill. Indeed, it is difficult to find any genuine enthusiasts for it, although it is easy to find many passionate opponents. On balance, I am persuaded by one measure—the plan to tackle the £6 billion pensions deficit. It is obviously massive, and it is difficult to see how the business can truly prosper and modernise with such a financial weight around its neck. On that basis, I shall support the Bill. I am not sure that I shall go arm-in-arm or shoulder-to-shoulder with the noble Lord, Lord Mandelson, through the Lobby, but I will, at any rate, support the Bill.
However, this will not be the end of the process. It is not a panacea for all the problems of the Royal Mail and, above all, it is not ideally what should have been done. Sadly, the Bill represents another lost opportunity for business in this country.
My Lords, I support the Bill. I spent a sizeable number of the past 10 years in the House of Commons chairing the DTI Select Committee. We spent God knows how many hours taking evidence on the various forms of this logistics company. It started as the Post Office; it became Consignia and ended up as the Royal Mail. Always the story was the same. It seemed that there was a problem: it could be the management; it could be the unions; there was never enough money; if there was enough money, it was used for the wrong purpose; if we had to find partners among the international competition, we seemed to arrive too late to buy the good companies and ended up with ones that were perhaps not as good; and we regretted the fact that Royal Mail, or whatever it was called at a particular time, never became an internet service provider or had the kind of specialist delivery services that other companies had.
Equally, more pertinent questions could be asked. Why, for example, did it take so long for Royal Mail to get machines capable of sorting A4 envelopes? Obviously, A4 envelopes were not a standard size and therefore should not be considered. The fact that so much of the mail we now receive comes in that format suggests that somehow the management was always behind the curve and that this was a logistics company still run as a government department. Despite the fact that it had been incorporated in the late 1960s, it was very much run at the top by civil servants or by those who had what was largely a Civil Service attitude towards business. Certainly, we had a succession of Secretaries of State and Ministers who, for the 25 minutes they were allowed to look at this operation, came up with a couple of bright ideas but, before they had a chance to articulate them, were moved on somewhere else. Therefore, we did not have the kind of political accountability and investment programmes that we wanted.
It was clear that everyone associated with the Post Office believed that it was the finest service in the world, but there was a lack of what I might call disloyalty towards the management. Indeed, my good friend Lord Clarke of Hampstead is the exemplification of that. Somehow, as a trade union officer whose hand should never have been far from the throat of his employers, he seemed to spend most of his time agreeing with them about how the business was run. Even today, an organisation such as the CWU, which has a sad record in industrial relations, never seems to want to question to any great extent the status quo, which has served the industry and the workers extremely poorly over a long period. Today, after pay rises of 36 per cent over the past seven years, we are still talking about a basic rate of £347 a week for men and women who are expected to go out five days a week in all kinds of weather delivering our letters, having spent an unconscionable amount of time doing the boring and needless job of sorting the letters when there is equipment available to do it.
I happen to believe that it is not the purpose of the Labour Party or the trade union movement to defend low-paid drudgery and call it the best postal service in the world. If there are means to change the efficiency of a business, it is incumbent on the owners of that business to do what is necessary. If that is to happen, it has to be done against a background of a collapse in the postal service as we know it. We usually talk about improving investment and enhancing business services against a background of increasing demand, yet we know that 8 per cent of the letters business will disappear this year, and that will probably account for in excess of £5 billion worth of revenue. We know that that cannot be afforded by this company, which is beset with problems relating to the pension fund.
I do not doubt that in Committee we will have debates on the nature of the pension fund deficit. Certainly, the very helpful document produced by the Library suggests deficits of a frightening order, the simple servicing of which would deny Royal Mail the means of investing in anything. If we had a means of pump-priming the Royal Mail, it is no longer open to us without European scrutiny, the application of state subsidy, regulation and criteria of a kind which make the whole business of borrowing far beyond the easy, neat solution you thought it was.
The combination of the decline in the revenue stream represented by letters, the inability to borrow and the size of the pension deficit therefore requires us to take action. That is not action that we could have taken or would have needed to take 10 years ago, or that was even part of the Tory list of ambitions when they were in power without a majority. This has come upon us very quickly. To those who have come down from the mountain of Warwick with the tablets of stone, I say what Keynes is repeatedly quoted as having said: when the facts change our conclusions have to change as well. In the past three years, the facts have changed so dramatically that we need to look at the alternatives.
The alternative is not increasing the price of letters and promising we will deliver them more quickly. At the moment, most of the service targets are being met and we are making profits, but nothing like the order required to meet the deficit, investment or whatever. However, it is interesting that we are making profits in the Royal Mail in all four areas. GSL, on the Continent, was regarded as one of the dubious options when it was first acquired; and Parcelforce, which for years was a basket case, was regarded as an exemplar of inefficiency. Now, because of the digital revolution, the opportunities afforded by Amazon-type businesses means that they are getting the lion’s share of the distribution of parcels across the country. To make that fully efficient we need investment.
Over the years, I have looked at contractorisation in varying forms. Twenty-five years ago, the Prime Minister and I spent a year of our lives trying to stop the contractorisation of the dockyards. It has now been shown to be a very effective way of running individual businesses, whether dockyards or, I hope, Sellafield. Unfortunately that model does not apply when one is dealing with a multi-centred logistics business which needs a web of support under it. I do not think that is appropriate. Therefore, the point made about the Government by the noble Lord, Lord Neill, is of value. We must discuss that in Committee.
It is abundantly clear that we will need not just financial investment but cultural and business investment. The Civil Service culture, which pervades a great deal of the management structures of the Royal Mail, lacks not only money but what the economists used to call entrepreneurial acumen; it lacks the business discipline of the bottom line. My contention is that if we can get the investment which should come from private participation—we do not know the scale or the personalities but there are models and the contractorisation model is not irrelevant—we will see management changing and the replacement of the celebrity-style management that we have had, with big names coming in, being partially successful, picking the low hanging fruit and doing remarkable things as regards efficiencies, to which my colleagues have already referred.
Not only do we need money for the first tranche of investment, but we must ensure that we have the management to enable that money to give us far greater resource, liberating the forces within this great business to achieve what has so far been beyond its grasp. If we can do that, we will provide a future not just for the pensioners who deserve it—over the years, they have been badly paid and need some degree of security in their retirement—but also for the young people who will need to come into the business. The business may not remain 100,000 strong, but it will be a major player in this country and the kind of player which, before too long, young people can be pointed towards and told, “This is a business which could be a job for life”. That is what we want. It was a job for life for some of our colleagues here and they have a nostalgic affection for it. I think that some of the nostalgia is misplaced and that the affection is somewhat exaggerated, but nevertheless we have an opportunity now to have a British logistics company in public ownership which will be a credit to all who work in it and a credit to us who support it today.
My Lords, I find myself in agreement with a lot of what my noble friend has just said, but I want to take us back to the opening speech by the Minister. He drew attention to the history of this subject. The noble Lord, Lord Hunt, said that there has been a long history of being uncertain about how we approach the reform of postal services in the United Kingdom. I have great respect for my noble friend Lord Clarke, who is intensely passionate about this, but we did not do him, the workers in the industry or the union any favours when we tried so hard in around 1999 to meet the concerns of employees about the reform that we were talking about bringing in. It was not really about delay and uncertainty but about trying to meet those concerns. We created a structure that helped things forward, as my noble friend Lord Clarke said, but crucially did not enable us to have postal services that confronted the new means of communication and operated on an equal playing field with continental Europe. This particularly worried me at the time and I made my views known. At that time, continental Europe was investing massively in modern postal services. We were not. We created a situation that met many of the concerns of the workforce—not just of the CWU, but of management as well—but in doing that with the best intentions we did not free the service sufficiently to allow it to take the actions that it needed to take to stay ahead.
Enough has been said already about the internet and so on for me not to have to repeat it, but there is a plus side as well. The Post Office could operate some services in electronic form and it has gained immeasurably from the parcel service. Many people now buy online and the deliveries come as parcels. My kids order online and a day or two later along comes a vehicle to deliver a packet. We can expect the parcel service to go on doing well and it is important that we enable it to do so. With the changes that we have seen in communication in the past decade or so, we have not given ourselves a postal service that is allowed to make the maximum of that potential. My concerns of some 10 years ago that we were not going to place the Post Office on a level playing field with European competitors have come true. That is rather sad. We need to make improvements.
My next point goes back to what the Minister said in his opening speech. It is impossible to portray the Bill as a privatisation issue. Private sector money goes into the Royal Mail but, if we look at Clause 4 and the associated clauses, we cannot say that that is privatisation. It is clearly not. The Bill enshrines in statute that the Royal Mail stays in public hands. Attempts to describe it in any other way are mistaken. I know where the CWU comes from on this; it is saying that, by allowing a percentage of private money to come in, the Bill opens the door for a future Conservative Government—which may or may not happen—to go all the way down the road of privatisation. However, the danger of privatisation does not come from the possibility of another Government bringing in another Act; it comes from not having a service that is good enough to win the support of the public. If a service wins the support of the public, Governments will tend to leave it alone. If it does not, Governments will interfere and intervene, sometimes well and sometimes badly, but they will do so because that is what Governments have to do.
Concerns over a universal service at an affordable price are answered in Clauses 28 to 30. Indeed, what my noble friend has done very well with the additional clauses, Clauses 27 to 40, is to enable powers to be brought in to ensure that anyone else who comes in as a provider is expected to operate on a fair basis. The powers are there if needed to ensure that they must pay part of the cost if there is an additional cost to the universal provider to carry that service through. That is long overdue but very good.
Then there is the pensions issue. To some extent, that takes me back to my opening comments. If we had had this Bill back in 1999 or 2000, we would not have the pensions problem that we have and Post Office workers would not be faced, as they have been for some years, with acute concern for their pensions, as my noble friend Lord Clarke described with such passion. We should have introduced the Bill many years ago. That was not because of delay for the sake of it. It was one of those things that happen often in politics where you try to meet the concerns of people who will feel the effects of legislation and, in making the compromises necessary to achieve that, you end up with something that is less effective than it could have been.
I noticed that my noble friend said that he was warm to the idea of having a people’s bank. I would like him to raise the temperature and become a bit hotter about it. The people’s bank approach has something very strong going for it. Again, for some years, I have wondered whether we could not have done more. It would have done a lot to help post offices around the country if they had been able to provide banking services, in a way that they are more than capable of doing. If you link that with the online services available, there is real potential. I speak as a supporter in the sense that, when I go to draw some cash from the post office in the House of Commons, I use my card and the Post Office benefits. There are many ways in which that service is already available but could be expanded.
The key to the Bill, as was commented on by my noble friend Lord O’Neill, whose remarks I agree with to a large extent, is that it brings in new capital and additional ideas and management, which can really place the postal services where they can compete with what is happening in continental Europe. If they cannot compete and if we leave them in their present situation, in the long run we will lose the service about which my noble friend Lord Clarke feels so passionately. We will not do anyone any favours if we do that.
The Bill is necessary. Yes, we should look at some of the detail, as I am sure my noble friend would agree, but the Bill is right. We need to do this; in many ways, we should have done it many years ago. If we had, the postal services in the UK would be in a far better position vis-à-vis their European and other competitors both here and overseas.
My Lords, first, I thank my noble friend for the detailed explanation that he has given us of what is a very complex piece of legislation. I have read much of the material that has been issued about it by the Government, which has been helpful, and from the union, the CWU. I am a former union official and my sympathies are with the union in this matter because I am really unhappy about the core proposals in the Bill.
I agree with the objectives: the desire to maintain the universal postal service and to ensure that Royal Mail finances are on a stable foundation for the future. I gather that those objectives are fully supported by the union. Its paper makes clear that it is willing to enter into negotiations to ensure that modernisation takes place. Its objection is to the proposed sell-off of 30 per cent of the Royal Mail, to a private, probably foreign-owned company. As we have heard today, that is presented as a partnership arrangement but, to the union and to many others, it looks like privatisation. I must say that it looks like that to me—perhaps privatisation by instalment. It is said that this will have the effect of introducing managerial expertise into the Royal Mail. How is it intended that it will do this? Will it provide any measure of control for this new partner? Will it have a day-to-day role in management? None of that is clear from the Bill.
Until recently, when the current economic crisis is producing a bit of a rethink, successive Governments have been under the impression that private means competence and that public is the reverse of competence. I now speak as a consumer since I am retired, and that is not my experience. Almost the first thing that a private organisation does is to try to cut costs. Its shareholders, after all, have to be satisfied. So they reduce staff. If one phones up to complain, an automatic voice always tells you if you want one thing, press 1; if you want another, press 2; and if you want something else, press 3. Then the voice says, “All our advisers are busy, but you are in the queue”.
Contracted-out services in hospitals are often awful. Again, I have had cause to complain. As for the railways, once, there were staff such as porters on platforms to help people like me, but not any more. And that is not to mention the problems of PFI, which will involve future generations in substantial sums of money. There are many other issues which privatisation should cause future Governments to be wary of. These companies do not always offer a better service to the people they are supposed to serve. In any event, the union maintains that there was a government commitment not to privatise Royal Mail, which is not disputed by the Government. It is simply held that the minority partnership is not privatisation.
The other major problem is the pension fund, which is dealt with in Part 2. This certainly looks even more complicated. But why is the deficit so huge? It seems that the Government were well aware of the decision to take a pension contribution holiday, which went on for 16 years. This must have contributed to the deficit. It is not the only pension fund where former employees have been living longer or where the stock market has collapsed. The Government have proposed a new scheme, which is set out in the paper available in the Library. But it is made clear that the changes proposed, including taking over the deficit by the Government, will take effect only,
“once there was a ‘partnership agreement’ in place … to place the company ‘on a sustainable basis going forward’”.
Obviously, the new private partner will not accept responsibility for the pension scheme deficit, so the taxpayer will pick up responsibility for that and the new partner will get the profit accruing from its new shareholding. Is that such a marvellous deal for the taxpayer?
The Government should accept responsibility for the deficit and there should be discussions with the unions on the new pension proposals. There is a strong case for the Royal Mail remaining 100 per cent publicly owned. Everyone has said that it needs more investment, although more recently it has been making a profit. Modernisation does not depend on securing private partner support. The unions have already agreed to participate in modernisation arrangements and have suggested a number of ways in which a new financial package can be secured for the Royal Mail. A new Post Office people’s bank has often been talked about, as it has in the debate today. A full range of financial services which people could trust and rely on could be established. In the present crisis, such a move would be highly popular.
It is clear that the core proposal, the private partnership, is not popular either with the staff employed or many of its customers. I know and approve of the Minister’s objectives. He wants an improved, stable and modernised Royal Mail, as do we all. But the support of the workforce is also important. I urge him to come to terms with the union’s position. It is essential that the staff and their unions are on board, and I do not think that they are at the moment.
My Lords, I begin by joining other noble Lords in paying tribute to the memory of Lord Dearing, of whom it was said by a colleague in an obituary that he was the man least changed by high office of anyone he had met. That was certainly my experience of him. As someone who has spent his life working in universities, I remember Lord Dearing for his massive contribution to the restructuring of higher education—in which, I might say, many of the issues are quite similar to those under discussion today.
The Hooper review on the future of the Royal Mail has been commented on, criticised and in some quarters even vilified, but by and large it is an exemplary document. It is thorough, written in an impartial way and includes detailed comparisons with other countries. In drawing up the Bill, the Government have accepted the Hooper review more or less in its entirety, and at least from my point of view they are right to do so. Most noble Lords have skipped across the backdrop to all this as though it is obvious. In a way it is obvious, but it is important to emphasise it. There has been an absolute sea change in our modes of communication. They extend to everyone in our society and have been brought about by the marriage between computerisation and satellite technology, which has given rise not only to the internet but also to a proliferation of new ways to communicate. While I hate to disagree with my noble friend Lord Haskel, his assertion that the paperless office never materialised is not true. That is to neglect the fantastic revolution we have seen in how offices work, so although we still use paper—I am reading from a somewhat scruffy piece of paper now—its relationship to the technologies of communication we now use is vastly more complicated and quite different from what it was even 10 years ago.
As someone who spends some of his time studying broadband, I have to say that this revolution is still only in its early stages, with implications that we cannot yet fully spell out. The consequence I draw from this is that in our postal service we need an organisation that is well capitalised, innovative, highly adaptable and quick on its feet, because this is the milieu in which it will have to function in the future. Over the past few weeks I have spent quite a bit of time poring over the detail of these comparisons. It is true to say that the Royal Mail lags behind postal networks in other countries, and that this can be fairly readily demonstrated. It is true of some comparisons that can be drawn between the Royal Mail and the networks in Germany, France and the Netherlands, for example, and that is in spite of the very considerable progress made in recent years, a point made by several other noble Lords.
The organisation Compass has produced a pamphlet entitled Case Not Made, which no doubt many noble Lords have received either through the post or via computer, because I believe that it was sent to us in both forms. However, my conclusion is that the comparisons made in the Hooper review are indeed robust. You can never make exact comparisons between the services in different countries, but the comparisons that have been made are quite revealing. I think that one can say “case not made” of that pamphlet.
Hooper describes the Royal Mail as a commercial service with strong public obligations, and that is surely an accurate description. The report and the Bill rightly stress the key importance of the Royal Mail to national solidarity and the crucial importance of a universal service with a standard tariff. But the main question we must ask when considering the Bill is whether a wholly state-based organisation is the best way to reconcile these features with the prime need to cope with the radical changes that I mentioned earlier. In commenting on this question and relying on a certain movie title, I want to offer two criticisms and a conclusion.
My criticisms concern some fairly general assumptions that are being made in the debate on the Hooper review. The first mistake I identify is similar to the one alluded to by my noble friend Lord Soley: that it is simply fallacious to equate the public sphere with that of the state. It is clearly false to suppose that a wholly state-owned and state-run organisation functions by definition in the public interest. Most public institutions are a mixture, but that does not make them any less public institutions. For example, the National Health Service is run and organised largely by the state but depends wholly on its interaction with the large, privately-run pharmaceuticals industry. Most public institutions are of this kind. I do not propose to invoke the wisdom of Humpty Dumpty, but the somewhat hysterical discussion of privatisation that you see in some parts of the press misses the point; it is entirely possible for the Royal Mail to stay a public institution while having a private sector partner if the organisation of this relationship is well executed and well thought through.
The second mistake is to suppose that bringing in private capital is somehow a reversion to a now discredited past, a kind of new Labour thing that has suddenly become obsolete. After all, it is said that everyone is now turning to the state. But this is an absurd argument. What is at issue in all spheres is more effective regulation and partnership between the Government and the private sector. This will be true of the future of financial systems and the financial markets in general, and it is true of the legislation before us. The important thing is to produce an effective system of partnership and regulation.
My overall conclusion is that the case for why the Royal Mail cannot modernise quickly and radically enough within its existing structure is very compelling. The Hooper report stresses very strongly, as do the Government in the Bill, that these proposals are part of a package and have to be judged as such. I hope therefore that the Government will not back down on the major clauses incorporated in the Bill.
My Lords, I declare an interest as the chairman and main shareholder of a company that is the second largest customer of the Royal Mail.
I greatly appreciate the relationship my company has had with the Royal Mail over the past 100 years, although I have not been in charge for all that time. I very much wish this relationship to continue, as the Royal Mail has done a very good job but, in order for it to continue, the time has come when the Royal Mail must change, and it should do so broadly as recommended in the Hooper report.
I agree with the noble Lord, Lord Hunt, and my noble friend Lord Razzall that it is important that the management and the workforce should have the opportunity to participate as shareholders. Unless the Government know more than the House has been told, there is no agreement yet on the table for the purchase of the minority shareholding, and therefore we do not know when it might happen—in a month, six months, a year, two years or whenever. In the mean time, we should not let the Royal Mail continue to decline, as will surely happen if uncertainty about its future continues. So if there is a deal, it should happen as soon as possible.
While waiting for a suitable partner, the Royal Mail should allow more discretion to its management at a local level so that it can operate like a normal business. For example, a sharper decline is likely if, as Postcomm has suggested, a 5.5 per cent increase is implemented in April on Mailsort 3, which has an annual turnover of £700 million. This increase is to help competitors to develop their business entry into the market against the interests of Royal Mail and its customers. Have you ever heard such a nonsense? It is pushing up prices in order to let competitors in. This 5.5 per cent increase is a mistake. My company has done some research and has found that if Royal Mail were to reduce its price by 5.5 per cent rather than increase it, it would increase its turnover by £100 million a year very profitably.
There has been a lot of trade union bashing, indicating that, but for the trade unions, everything in the garden would be rosy. For more than 50 years, I have employed tens of thousands of people and I have worked with the trade unions. I have had hardly any unrest or strikes. The secret is simple; I always took them into my confidence and told them exactly what I was doing and why I was doing it. I have never been let down and I have always had their support. The workforce in the United Kingdom is the salt of the earth, and this great asset should be appreciated.
My Lords, I welcome some aspects of the Bill, notably what it does to protect pensions and to reform the regulations to make the universal service obligations the objective rather than competition, which would leave, as it does at the moment, Royal Mail carrying high-cost items and the competitors having no such obligation.
Considerable progress has been made by Royal Mail recently according to what I have read in advance of this debate, but the central question that I wish to raise is whether the 30 per cent equity route will work better than other possible routes in achieving the same objective. I do not wish to be misunderstood: I think that innovation to raise capital and innovation in ideas from around the world are important, but I have some questions about how this will work in practice and whether there is a different way of doing it.
How is it intended that a company such as TNT—I mention TNT because it is the only company mentioned by Hooper, although I could mention hypothetically DHL or anyone else—will be able to, as it were, ignore a conflict of interests if it was reorganising Royal Mail at the same time as competing with it? How does it avoid a restraint of trade in some sense? In asking these questions, I am not trying to be clever and think that I know the answers. It is also obvious that there can be a situation where there is no love lost between Royal Mail and TNT—just look at yesterday’s Financial Times.
Under this 30 per cent arrangement there are one or two things that have to be looked at, if we can avoid for one moment saying that the Hooper report is sacrosanct in every detail. In fact I would ask why that should be so; after all, it is not a normal process of government to buy an independent report lock, stock and barrel. I do not know whether my noble friend the Secretary of State is aware that a Minister in the House of Commons said that not only was it a package but it was a package that you could not pick and choose from at all. That is slightly pre-emptive; I still want to see how the partnership agreement would work.
For example—I shall think aloud—how many people are we talking about TNT bringing into the employment of Royal Mail? You cannot very well transform management without being part of the employment set-up, unless I have misunderstood company law. Are five, 50 or 500 people needed to deal with a workforce of 200,000? We have always agreed that just one man at the top cannot transform a culture. No doubt we have some geniuses at the top in British industry, but they cannot do it on their own.
If TNT took over the Royal Mail, it would bring a swathe of people with it and go through the Royal Mail like a dose of salts—or not, as the case might be. However, I would like to think about the injection of capital, the transformation of management and relations with the workforce, all of which are elided in several sentences in the Hooper report and the White Paper as if they all flow naturally together. My noble friend might want to comment on one or two elements of the following logic. Hooper refers to the way in which the equity injection would help to transform industrial relations. It is interesting that today’s note from the Royal Mail says that the benefit of a strategic partnership will be access to timely and flexible capital and added value in the longer term through combining their strength to develop new commercial opportunities and revenue streams that will support the universal service obligation in the UK. There is not a word in that rationale about the benefit somehow arising from the capability of TNT or anyone else to transform industrial relations or efficiency, and not because the Royal Mail has somehow overlooked an important point. A lot hangs on this assumption, though. I would like to spend a couple of minutes thinking about what hangs on what, and what does not necessarily hang on what, in the elision between these various functions.
It is important to compare apples with apples. I know a little about DHL; I was recently in Leipzig on a rail freight visit, and there was the DHL European hub, in a totally transformed old airport. Wilmington, Delaware and Hong Kong are the other two world hubs. All the planes are in around Europe by midnight. Totally automated machinery gets all the parcels into 50 aeroplanes that are ready to leave by four o’clock in the morning and there is a dedicated rail freight line to Frankfurt airport. That is all wonderful and I hope that Royal Mail International can do more of it. But what has that got to do with Bristol, Bradford and Much-Binding-in-the-Marsh? There is an apples-and-apples problem in what we are talking about. The relevant expertise is in greenfield sites. Capital injection has to be thought through, relative to how management would work.
I have a point about industrial relations and how that aspect of the partnership agreement would work. When we write memoranda, it is easy unwittingly to use the word “partnership” in two totally different, though not incompatible, ways. One is a partnership such as Star Alliance—that is, between an international airline and some airline in Australia, South America or something. That is a commercial alliance. There certainly could be a partnership in that sense between Royal Mail and all sorts of people.
If it is an equity stake, however, people sometimes say, “This could help partnership in industrial relations”. I shall say a word about that and about whether companies such as TNT are best able to achieve it. It would be pushing it a bit to say that TNT was the obvious first choice as the organisation to bring in smooth but radical change for the better in industrial relations. In that connection, will the Minister look seriously at a number of different ways in which worker participation could be linked in with this modernisation? The CWU and Unite—that is, the management grades—have not turned their face against this; after all, they are used to bodies in the public sector, albeit smaller ones, such as NATS, which my noble friend Lord Brooke of Alverthorpe knows about, and defence procurement agencies being scaled up.
I see no reason why you cannot have three stakeholders including workers’ representatives in the collective bargaining structure. I am old enough to remember the Bullock report; I was on it, and my noble friend the Secretary of State remembers it well as he worked at the TUC at the time. I am not advocating that he says, “Oh yes, that’s the answer—Bullock!”, but there is a union member on the board of these public sector bodies, working with private companies and the state. What has that got to do with the price of tomatoes? What has it got to do with TNT and so on? I simply say that, if you began from that end, you would probably say that if TNT was the answer it must have been a pretty silly question. You just would not begin from there.
I shall leave these thoughts and hope that in Committee my noble friend can think about some government amendments that would ensure that alternatives to the private equity stake were not ruled out by the Bill, even if the alternative that might tick more of the boxes is not yet ready to be ruled in.
My Lords, I join in with the tributes that have been paid to the late Lord Dearing. I have no doubt that if he were still with us he would be entering into this debate and I know that he would have been making a positive and useful contribution. We all miss him in that respect.
I had better declare an interest: I am a member of Unite, which represents the management in the Royal Mail. Having said that, it is not often that my noble friend and I disagree but we do on this aspect, particularly in relation to the 30 per cent stake. My noble friend Lord Lea asked a lot of the questions that I might have asked with regard to how this is supposed to work or increase efficiency.
The point has been made that all sections of the Royal Mail are now in profit; it made £255 million in the last eight months of last year, as has been remarked, and it is hoping to double that in the coming financial year, so it is moving into profit. I notice that all the debates so far have been about efficiency, not about cost. When people talk about a letter or parcel, they want it to be delivered efficiently but at the same time they want to pay a reasonable price for that service. We ought to compare costs. My noble friend Lord Clarke touched on this. As I understand it, having a first-class letter delivered by TNT costs nearly three times as much as it costs for a letter to be delivered here. For letters weighing 50 grams, where it has a complete monopoly of service, it still costs twice as much.
The point has been made that we liberalised the service far too early. TNT does not face liberalisation until next month; we ought to bear that in mind when comparing costs. For Deutsche Post to deliver a 100 gram first-class letter costs more than three times as much as it does here, while delivering a second-class letter costs more than twice as much. We should bear these costs in mind when we are comparing so-called efficiency. It has been argued that the Hooper report does not compare like with like in examining the services provided. We must bear that in mind.
It is amazing that we are talking about an outdated privatisation of this sector when we are nationalising banks. It seems crazy to me that we are going from one to the other, while still saying that if it is private it is good and if it is public it is bad. I do not think that that is the case. The French privatisation of postal services has been put on hold, while Denmark is already taking back the section—roughly 30 per cent—which was privatised. So other countries are seeing the reverse of what will happen here.
There has been a transformation with the Post Office and Royal Mail. There has been a turnaround. It is not quite true that no investment has been made in modernisation. Investment is taking place—the orders have already been pledged. The machinery does not come as quickly as all that; nevertheless, it is there. It is estimated that by 2012 or 2013 we will have completely reorganised the way in which we deliver the post in this country. The 80 per cent to 90 per cent that my noble friend mentioned that applies in Holland—the way in which post is delivered and the walking route taken by postmen—will be implemented in this country. Money has already been spent on modernisation, and some of it is coming in. There has been a reduction in the number of sorting centres, which will continue as new machinery is introduced, and there have been changes in the way in which postmen go about their job. To say that nothing has been done is not completely true.
The noble Lord, Lord Fowler, was right that, if you go for 30 per cent part-privatisation, you will end up, at some time, with full privatisation. That will follow. One of the dangers is that we are opening the door to that. It does not necessarily need to happen in the way that is being proposed here. There are other means of bringing in people; there are other means of doing these things. Co-operation has been mentioned. These are things that we need to examine when we debate the Bill. In addition, a new generation of intelligent sorting machines will be introduced by Royal Mail.
Why do we say that British management is bad but bringing in imported management is bound to be good? I disagree with that. We should tell the full story, not half the story: modernisation is now taking place.
Let us look at another aspect. Why, in the access agreement under the old Postcomm arrangements, does Royal Mail lose 2p on every item that it delivers? It loses £100 million a year, and that must be wrong. There are proposals in the Bill to look at this. If Royal Mail put up the price by 4p or 5p, instead of losing £100 million a year, it would make something like £300 million, £400 million or even £500 million a year. The Post Office would be very profitable.
We are a leader in one of the developing areas that comes from the use of e-mails and the rest. We are at the forefront of parcel organisation. There have already been rumours in the press about disagreements. TNT has been accused of poaching. It has been said that TNT has stated that it will take over the parcel side of the postal service, run by General Logistics Systems, one of the service’s most profitable aspects. Is that true or not? As I understand the Bill, the parcel side would remain with Royal Mail. We need clear answers to the questions that are being raised on these matters.
We must get away from thinking that everything is bad—a lot of the story is very good indeed. We ought to be building on that service rather than taking part of it away. I hope that my noble friend will put my fears to rest on some of the matters that I have raised, particularly regarding the parcel service.
My noble friend Lord Lea asked how a competitor can come in and still compete while at the same time trying to co-operate with the Royal Mail. We need an answer. Does it mean that the two companies will be merged if it is TNT? Will it remain a competitor, receiving a subsidy from the public sector? All these issues need to be examined and answers need to be given. If TNT comes in as a partner, will it favour its own existing company or Royal Mail?
We need to examine the Bill carefully. I am extremely concerned about the 30 per cent part-privatisation and ask my noble friend, even at this stage, to reconsider that proposal. We will certainly return to this when we discuss the Bill in Committee and beyond. What the Royal Mail needs is confidence; it needs our support to become one of the best services in the world. I believe that we can achieve that but not by giving up 30 per cent.
My Lords, I welcome the Bill. That will come as no surprise to colleagues on these Benches as I have previously advocated a public/private partnership as the way forward for Royal Mail—preferably one which extends some element of ownership and greater involvement to its staff. The last time we had a major debate on this there was no prospect of a PPP in sight. So I am pleasantly surprised that we now have the opportunity and prospect of the injection of some more much needed capital and potentially a different management structure which will be able to deal with these dogged problems that have been around for decades.
I congratulate the Minister on his guts in embracing change and his frankness in acknowledging that we should have done this earlier. I regret that there are still no proposals for the greater involvement and participation of the staff in the ownership of the venture, but, like others, I hope that there may still be some opportunity, before the Bill finishes its proceedings, to explore this aspect more fully.
A measure of employee ownership in Royal Mail could help transform the company’s employee relations for the better. A co-owned Royal Mail would be anything but unique. The co-owned business sector—companies where staff own anything from a significant to a majority stake in the business they work for—now accounts for more than £25 billion in a combined annual turnover, and is growing. The sector includes not merely highly successful national enterprises such as John Lewis and Waitrose but equally formidable companies competing in truly global markets, such as Arup, Unipart, Mott MacDonald and PA Consulting. Happily, it is reported that the management of Royal Mail has favoured the creation of a 20 per cent staff stake in the company. The BERR paper, as I read it, has produced no argument against that or a similar option. I hear from the contributions of other colleagues today that there may even be a prospect of the two unions changing their attitude to staff involvement and share ownership.
My interest in Royal Mail goes back many years, but I first got involved in 2000, when I chaired a House of Lords EU sub-committee which examined the Royal Mail’s preparedness for coping with EU postal liberalisation proposals. We found that it was ill prepared then. Services were in decline, which it freely acknowledged, and it was bedevilled with old-fashioned practices, machinery and structures. I remind the noble Lord, Lord Hunt, as he is so keen on embracing change, and he was a little critical of what we have done since we came to power, that John Roberts, the CEO of Royal Mail, said in his evidence to us that the Royal Mail had faced a lost decade during the 1990s under the then Conservative Government. Not only did it have to deal with the pension contribution holiday that had been insisted on by the then Government; it had also been required to deliver £350 million a year to the Treasury for four consecutive years during which time there was no money whatever left over for investment. Let us therefore not start blaming each other. If any blame is to be apportioned, it should go both to us for being slow and to the previous Administration for the problems that were left over.
As the noble Lord, Lord Clarke, said, in 2000, with the advent of the Postal Services Act 2000, there were hopes that there would be opportunities not only for creating the limit of public corporation status for the Royal Mail, in 2001, but for greater freedom from government control, and perhaps to introduce different services for the public and to bring in the additional capital needed to facilitate those changes. Incidentally, a PPP was created for NATS that year. I shall—as the noble Lord, Lord Lea, mentioned—say something about that, because I was fortunate enough to be a government partnership director of NATS for five years. So I am one of the few people in the Chamber to have worked alongside the private sector, the unions and the staff representatives to see how we could make a PPP work. As paragraph 4.11 on page 12 of BERR’s document of February 2009 states, NATS has been an outstanding success. It has raised its efficiency; it has high levels of investment; it has improved its safety record; it has long-term modernisation programmes, to which it adheres; and, importantly, staff have been better rewarded than they were when NATS was entirely publicly funded.
If we look at what has happened in the Royal Mail over the same period, we find quite different results on the fundamentals. It is true that some quite different factors are at work within the Royal Mail. NATS had the prospect of growth in the airline industry; unfortunately, there has been annual contraction, particularly in letters, within the Royal Mail’s activities. Regrettably, if we look to the future, that loss of mail will increase in many respects. My own post comes primarily from other public service operations such as Her Majesty's Revenue and Customs, the NHS, the Department for Work and Pensions, local authorities and the utilities. When those organisations are shaken up, as most certainly they will be with the economic difficulties that we face, they will have to improve substantially in many public service operations. Many of those letters and communications will disappear as they shift to different and more modern methods of communicating with us. Those difficulties are on the horizon and we cannot ignore them.
However, some factors are common between NATS and the Royal Mail and, indeed, any other operation, including the one mentioned by the noble Lord, Lord Alliance. There are industrial relations in all workplaces. We must be frank and say that the Royal Mail has performed badly in this area—we should not dodge that issue. Industrial relations in the Royal Mail continue to be poor. Even though substantial investment has been made available for modernisation programmes, they have been painfully slow. I declare an interest as an adviser to Accenture, because people keep saying, “Well, let’s have the facts”. I have not worked with Accenture on the Royal Mail for a good many years, but I know that it did some work on it five years ago with a lot of other consultants who had been going there constantly. It went into a sorting centre and without any problem identified 36 per cent savings, which is what it recommended. Nothing happened. It was bumped backwards and forwards between local and national officials and between central and local management. That is what has been going on for all these years.
I have not heard anyone argue convincingly yet that that is all in the past and unlikely to be repeated. I say to my noble friend Lord Hoyle that we cannot run away. We have before us the Hooper report, which points to quite frightening consequences not just for the Royal Mail and its employees but for the public at large if action is not taken to stop the decline that we have witnessed. The universal service will be undermined. No one has the right to put that at risk. It must be avoided. I am sure that all the parties involved, including the unions and the Royal Mail management, do not want that. However, it is likely to happen unless there is change. In the light of the experience that we have had, how many people honestly believe that it will be delivered by the status quo in the timescale needed?
Among all the propaganda that I have received against the proposals and in everything that I have heard today, I am struggling to find any evidence that anything will change without radical change along the lines suggested in the Bill. I ask my noble friend the Minister: how much longer will the last stage of the mail sorting process be done by hand? When did the Royal Mail set about modernising the process? How many sorting centres have been modernised? How many remain to be tackled. Finally—I return to my first question—when will the last be done?
I have had a briefing session with the Royal Mail in which I was given quite different figures from those which have just been quoted by my noble friend Lord Hoyle. Where are we going on that? If the Government find a suitable strategic partner, it should similarly be required to sign up to deliver this kind of modernisation programme with an exacting timetable. Of equal, if not greater, importance, I ask the Minister to give an assurance of the Government’s commitment to back such measures as are needed for a modernisation programme, which in turn should safeguard the universal service for the people of this country.
My Lords, in preparation for this debate—this goes back to the point raised by the noble Lord, Lord Neill of Bladen—I referred to Herbert Morrison’s book of 1933, Socialisation and Transport, in which he addressed the subject of how to run big corporations. He said that the boards of such bodies should be composed of people of competence, ability and public spirit. Public spirit is in some short supply today and, like society, is rather denigrated as a concept—and has been by successive Governments—having been replaced by self-interest. However, these qualities were represented by people whom I knew and worked with, such as my noble friend Lord Ezra, the late Sir Peter Parker and the late Lord Dearing, to whom several noble Lords have referred. Why did the system not work properly, with good people operating in the public interest? I think that it was because there was a lack of clear, consistent and financable objectives, which should direct a board and guide the actions of a regulator. I am not convinced that the description in Part 3 of the actions of the regulator is adequate; it should be much clearer about what his job should be.
Most Governments bring a lot of political pressures on boards, from the so-called lunchtime directive, with the constant interference in matters such as industrial relations, fares and charging. That swiftly turns into a bureaucracy and procrastination, along with a growth of econometrics, modelling as a substitute for common sense and decision-making. Then there is the cynical attitude of the press and the ever-present problem of how you provide loss-making services. Once appointed—and I believe that the Government should address the issues raised by the noble Lord, Lord Neill of Bladen—a board should not be subject to constant political pressure. It should be overseen by an independent regulator.
To paraphrase Herbert Morrison again, if Ministers are immersed in a large amount of detail, they will depart from their wider ranges of responsibility. We all recognise the fact that there is nothing better than getting your hands on the detail so that you do not have to take the hard decisions that you are paid to take. Nor should such a board be subjected to the unreasonable pressures of the trade union movement—the noble Lord, Lord Sawyer, spoke about that. A reorganised Royal Mail along public interest lines should include in its terms of reference that trade unions should go to arbitration before they subject consumers to disputes. This is not the 19th century, and I really do not believe that very many workers are subject to the levels of exploitation they were subject to 150 years ago.
Salaries of board members should not be fixed by the Treasury, shareholders or non-executive directors, but should be chiefly determined by such things as,
“exceptional efficiency, great initiative and plenty of ideas”.
However, I do not believe that they should include within their number representatives of any special interest group—and they should be free from the modern curse of the bonus culture. I still see it reflected in organisations, such as Network Rail, which have been set up by the present Government but are largely driven at the top by that dreadful culture.
I refuse to believe that such public-spirited people do not exist. When thinking of the post office, my experience teaches me that it should be the epitome of public service—particularly, as many noble Lords have mentioned, the universal service obligation. Experience tells us that people want a local post office. A regulator must recognise the costs of maintaining the universal service obligation and the final delivery of bulk-posted mail. Efficiency must continue to improve, as has been said by very many people, particularly in the previous speech.
The historic pension deficits remain a problem but, interestingly, in today’s Times, I read that the Royal Bank of Scotland is to use £800 million of taxpayers’ money to shore up its gold-plated staff pension scheme, including the £703,000 payout pledged to Sir Fred Goodwin. That I find thoroughly objectionable—that taxpayers’ money can be poured into the top pension scheme of an organisation that has failed, whereas postmen, who have given years and years of service, should have their pensions put into jeopardy.
I turn to items raised in the debate. I was very interested in the fact that the noble Lord, Lord Fowler, raised the question of the National Freight Corporation. I should have liked to ask him what happened to all those shares, and the people who held them. Are they all raking in the dividends from the German company that has taken them over? Any employee shareholding should be invested in some sort of public interest trust so that, if people leave the industry, they must sell the shares back to the trust and there is no scope for those shares to get out into the market, where they will be used to lever up the percentage owned privately, and possibly by somebody who becomes the majority stakeholder. The evidence from Welsh Water, for example, tells us that public interest boards can work. It appears to be working well and is as much in the interests of consumers of water and water services in Wales as it is in those of the various companies that are running our water services here, many of which are foreign companies.
I noted that the noble Lord, Lord Hunt of Wirral, talked about the rushed choice that Government were making, having taken seven years to reach a decision about the Post Office. If he were in his place, I would remind him of what was done when he was part of a Government who nationalised the railways, and what a terrible, expensive mess they made of it. I received a letter this morning—and this is quite genuine—from someone who was a bridge engineer who used to work for me in Bristol. He says:
“With privatisation practically all experienced engineers were sold to contractors or consultants and many others retired. Railtrack was left seeking advice from a procession of consultants who were generally inexperienced in railway work, were not part of a network of railway professionals and did not have the ‘good of the railway’ as part of their ethos. Railtrack lacked people who could assess what was best for the railway and had to depend on hiring consultants (or contractors) who needed to ensure their ‘professional indemnity’ was not at risk when giving advice and had little interest in achieving the most economic design solution, even if they had the information (eg possession and disruption costs) to do so. Unnecessary work was carried out, inappropriate designs adopted, additional unplanned disruption caused and huge extra costs incurred”.
Whatever the Government are planning to do with the Post Office, it should not allow the person who holds whatever is the minority stake to move away from the ethos of an efficient public service, because that is what we want.
My Lords, first, I declare an interest as chair of Consumer Focus, which has inherited the responsibilities of Postwatch in looking after the interests of consumers in the postal markets.
I welcome very much a lot of the process through the Hooper report, the Government’s statements and the production of this Bill, along with the various statements made by my noble friend the Secretary of State. Most of the attention in this debate has focused on the issue of ownership—whether we like to call it privatisation or strategic partnership. There are other aspects of this package which I should like to draw out too, however. I hope that the issue of ownership, which is political dynamite, does not overshadow some of the other measures here.
The Royal Mail faces a critical situation. It has falling volumes of physical mail, increasing competition from the electronic sector, technological backwardness, a history of failure of investment from successive Governments, whether it is the lost decade of the pensions holiday and slices off to the Treasury or the recent failure of this Government to turn their promise of a big investment into reality in a modernisation programme, with half of it being stuck in state aid activity in Brussels. In some respects, it has had poor industrial relations and poor management. As my noble friend Lord Sawyer said, it is not as bad as all that. Some progress has been made; it is now making a profit.
I take the point made by my noble friend Lord Hoyle. Comparisons with international equivalents or near-equivalents are somewhat misleading. You have to look at the revenue and the costs as well as the profit. In terms of the revenue, the price of postage is relatively low in this country, certainly on higher value packages and letters. That is of huge consumer benefit. It is a significant benefit to the people the Royal Mail rather disparagingly refer to as social consumers—you and me—and to business. I hope that in all this transformation we do not lose that benefit, which is positively thought of throughout society.
We need a serious change in structure. I believe that although it has had its problems, the unbundling of the Post Office Ltd from the Royal Mail structure, while keeping the holding company, will be beneficial. It needs spelling out and it needs to be made clear. I have yet to see a nice diagram from the department explaining the relationship between all the bodies, where they all fit together, quite how the governance will work and whether there are Chinese walls at various points in the organisation. In general, it is sensible to unbundle, but only if equal attention is given to the Post Office network that we are now giving to Royal Mail.
We have been through two swathes of post office closures. Postwatch has diligently tried to improve the local outcome of that, but it has been faced with a decision by the Post Office board and the department that a certain number of closures will take place. It is in an impossible position for a consumer organisation.
We want to turn that around and look at a creative solution for the use of post offices. They are the outposts of the state, both national and local, and many services, public and private, could operate through our post offices and sub-post offices. I welcome very much the initiatives made by my noble friend’s colleague Pat McFadden in getting other government departments together to look at their services, and the other ways in which the post office network could be a more positive representation of service to consumers, particularly in rural areas and the outer suburbs where they lack services of all kinds. That side of the structure of Royal Mail needs to be addressed in parallel with its logistics.
We need regulatory change. I welcome the transfer of the oversight of Royal Mail out of Postcomm into Ofcom. We in Consumer Focus have recently written a report on rating regulators. Postcomm did not come out very well in it. Ofcom came out reasonably well. Postcomm of course was in an impossible position. It was virtually a single company regulator in a market where the temptation for the regulator to micromanage was far too great, with the resulting strange mixture of incestuous relationship and serious fraction. The move into Ofcom will be beneficial.
The Bill is silent on Ofcom’s duties on the other side. Postcomm had a duty to look at the level and adequacy of the number of post offices. The Bill does not seem to mention that. Perhaps my noble friend the Secretary of State could address it.
We also need to clarify whether Postcomm’s whole range of responsibilities will be transferred to Ofcom with the mandate to improve and modernise the system of regulation, or whether it is left too vaguely, as the noble Lord, Lord Bradshaw, implied. I think that Ofcom needs to be left substantial elbow-room but not everything.
The Bill is also silent on consumer representation, relative to the regulator and to the industry. My organisation and I will need assurance that arrangements set up under the consumer Act 2006 will continue as well as strengthen the internal communications panel within Ofcom itself.
The provisions on the pensions burden are a good move. The Government in any case would probably have to take ultimate responsibility, but this is a clean break and a clear drawing of a line in the historic situation. Of course, I have to mention that the prospect of a reasonably decent pension was often used for the post office workers as an excuse for their relatively poor pay and other conditions. The Government should not lose sight of that.
We need a change in technology. As others have said, the level of automation is pathetic within Royal Mail. We need drastically to change that. That will mean changes in working patterns, some loss of jobs and a serious rationalisation of the whole logistical structure of Royal Mail. That leads into the whole HR situation and management competence. It is absolutely clear to me that the level of management in Royal Mail, although there are some very creative and dedicated people within it, requires a step-change improvement. Therefore, we need an injection of management expertise, particularly in modern logistics and the wider communications market.
We also need money. The crucial and controversial bit of how we get that money is where we are now going to focus, but these wider issues need to be addressed as well. It is not clear to me that the injection of capital and the injection of money need to come from the same place. Consumer Focus is pretty neutral on the question of ownership. Clearly, we have to judge the propositions in the light of what benefits they will bring to consumers, both business and individual, and we need to see more clearly what is proposed and how it will operate.
I have to say, and I now speak personally as against wearing my Consumer Focus hat, that I am currently on the sceptical side of neutral. I accept that some of my arguments are irrational and nostalgic. The noble Lord, Lord Bradshaw, mentioned the Secretary of State’s grandfather twice. I will mention my grandfather. He was a postman and a strong trade unionist. Because of the tradition he came from, he was also an ardent royalist. Therefore, on both counts any idea of privatising Royal Mail would make him turn in his grave.
However, I have slightly more rational reasons for querying whether this is the only way in which we can mobilise the degree of capital that is there. I appreciate, and the Secretary of State will tell me, that we are in a new area. There are some novel arrangements of public/private relationships whereby we privatise the Post Office and nationalise the banks, and we have to be into that era. Is this the only way in which the capital could be mobilised? In particular, thinking about the number of partners under the strict criteria that the Secretary of State has referred to and under the Hooper report who are conceivably likely to provide this injection of capital and the management expertise, there are really only two of them. The Government’s negotiating position is fairly weak if you limit it to two. There is the problem also that if part of the improvement in Royal Mail has resulted from real competition in part of its trade, we are actually absorbing or handing over, whichever way you look at it, part of the activities of Royal Mail to one of the competitors. Therefore, competition is reduced rather than increased by this relationship.
I tell my noble friend the Secretary of State that I am not unpersuadable that this is the best way to proceed. I utterly accept that we need better management and an injection of capital. Do we need to close all other options in order to raise the money? After all, we could normally raise money on the market. We could issue bonds. We could get private money in that way. I think that the reputation of TNT and, to some extent, DHL in the industrial relations area will not help my noble friend in his discussion with the employees of the Post Office and Royal Mail, or with arguments that we will have in another place within our own political party.
Therefore, I agree with the general approach to this legislation. I agree with the needs identified by Hooper, the department and my noble friend, but I remain to be persuaded that in the final detail we have yet reached the ideal solution of how we provide that money.
My Lords, I support the Bill quite enthusiastically. I spoke on the topic seven years ago in a debate initiated by the noble Baroness, Lady O’Cathain, when the company was called Consignia and Postcomm had just put forward its first proposals for liberalising the trade. Similar sorts of statements were made at that time: “Yes, it was bad but it will get better”; “Just have patience”; “We should not change a 350 year-old industry”; “The postman is a noble person”—no doubt—“who works very hard”. All that is entirely accepted.
Such change as has happened did so because of the introduction of competition; without competition, it would not have happened. Although change has happened, it is by no means enough. Incidentally, I am sorry that, as bad as “Consignia” was, the company is called “Royal Mail”; it just brings royalty into disrepute, as my noble friend Lord Whitty said. People have criticised the Hooper report quite a bit, in a variety of aspects. They have said, “You know, the losses were in the past. Suddenly Royal Mail has made a profit”. Page 59 of the Hooper report shows a projection of profits for the next five years. Except for this year, they are all in negative territory.
That is not a comparison with foreign post offices. Of course, whenever you make comparisons, you encounter people who believe that foreigners know nothing about our business, that we are the only people who can do it and that all foreigners are irrelevant. However, as of now, the prediction is that Royal Mail will go into negative territory every subsequent year because, as people have said, the letters business is collapsing. Last Christmas, I received an all-singing, all-dancing Christmas card online, something that Royal Mail could not deliver because such cards are not available for sale. If Christmas cards are the bulk of the business, people will very soon be sending Christmas cards online. Soon, they will not write many letters. As the example of British Steel shows, if you want to manage an industry in decline, privatise it. That will manage the decline much better than keeping it in the public domain. I know that this is not what all people say.
I was persuaded by what my noble friend Lord O’Neill said. We are very sentimental in tolerating a low-wage industry. It is a low-wage industry because it is unmechanised—that is a universal truth in economics. On page 52 of the Hooper report we have the comparative share of labour costs across different countries. The higher the labour cost, the lower the productivity of workers. It is a universal law; I can say that because I have taught economics for 45 years. The reason is that low wages result from a lack of courage to modernise, automate and use the latest equipment. Of course, the worker fears that if machinery is introduced, he will lose out. He therefore resists and consigns himself to a low-wage industry.
You have to work hard in an unmechanised industry. It is a job of drudgery. We are now asking ourselves whether to keep the postal workers in this glorious, low-paid, unmechanised job. Obviously, like St Augustine, we want to improve, but not yet. We basically go on praying that life will improve.
Frankly, it is not enough to say, as my noble friend Lord Whitty did, that we can get capital here, and management. That is not good enough. I doubt that anybody will give capital to the Royal Mail in the current market conditions, and any they did would be at an extremely heavy price anyway. Even with that, however, new management is needed, embodied with the incoming capital. Whether it is TNT or somebody else, I do not much mind. It is clear that internal, endogenous improvement in the Royal Mail, such as has taken place, has not been enough. Unless we recognise that simple fact, we will further consign the industry to backwardness.
A number of noble Lords have shown that this is a story of failure of Governments of that party and this party, trade unions and management. Yet we still believe that this circus should somehow go on and on, because we are sentimentally attached to what we have. We are a conservative country. We do not like change; we fear change. Despite that, every time that we have changed in the past 20 years, things have improved. Does anybody remember what the telephone service was like when you had to apply on a form for a telephone? You were not treated like a customer; of course not. You were treated like a citizen: very badly. Does anybody remember British Airways? Does anybody remember how bad the steel industry was? Did we not celebrate 25 years of the great, sentimental fight for the coal industry, which has now shut down? Why? Because the coal industry was then fighting not for worker ownership, but for the right of miners’ children to have miners’ jobs, thank you very much.
That has gone, and the economy is better for it. Who remembers when Ravenscraig was going to be shut down? The Scottish economy was going to come to a halt. I remember speaking at that time, saying “Let Ravenscraig go”. No wonder my career has not advanced.
We must go firmly down this path without reservation, open up to competition and ask for bids from anybody, up to 30, 35 or 45 per cent; I do not care. We must get this business on the road again, so that whoever is employed in the post office in the future has a wage that is comparable to some better industries in the country, and the consumer gets a better service than he or she now does. The consumer does not get a very good service. Small businesses lose a lot of money from the inefficiency of the postal services. I have not looked at it lately, but when I last spoke about it, only 92 per cent of letters were delivered; I do not know where the other 8 per cent went.
There are few 350 year-old things worth keeping on. We have an opportunity now. Do not say, “Why now? Why can’t we delay?”. We have delayed for 20 years. We have had 20 years of waiting to improve the postal services in this country. It is about time we grasped the nettle. I congratulate my noble friend the Secretary of State on at last having had the courage to do so, and to fight the good fight.
My Lords, I agree with the noble Lord, Lord Fowler. If the Bill had been brought forward by the last Tory Government or any other Tory Government, the Labour Party would be jumping up and down in rage. It would be organising marches up and down the country and there would be a huge lobby of Parliament against the Bill.
I do not agree with the Bill. It is unnecessary and should not have been brought forward. However, I suppose that, because it is not a Tory Bill but a Labour Bill, it must be all right. But I do not think so. I shall tell your Lordships in the time available why it is not the sort of thing that should be brought forward by a Labour Government.
I remind the House, and noble Lords who have already spoken, that the noble Lord, Lord Hunt, said from the Tory Front Bench that he will march shoulder to shoulder with the Secretary of State for the Bill in the Lobbies this evening. However, he also warned that the Conservatives will table amendments in Committee and on Report. I warn Labour Lords that this is a House of Lords Bill. Any amendments made here can be altered in the House of Commons but cannot be overturned by the Parliament Act because this is a House of Lords Bill. Therefore, noble Lords should be careful about supporting the Bill and consider supporting the amendment so admirably moved by the noble Lord, Lord Clarke.
The Bill has something to do with the European Union. The Amsterdam treaty lays down that any state aid provided to a commercial organisation must be approved by the EU Commission. Therefore, a decision to subsidise the Post Office and the Royal Mail is not entirely in our hands. Postal services directive 97/67/EC, agreed in 1997, and subsequent directives are creating a single internal market for postal services in the EU, and all services must be opened up to competition. That is part of the basis of this Bill. I do not wish to dwell on the EU aspect at the moment, but we have the Bill largely because of EU directives.
One of my major reasons for opposing the Bill is the proposal to sell off 30 per cent of the business. I do not see why that is necessary, as I shall explain later. I want to know how much the Secretary of State thinks that he will get. How much money will the 30 per cent bring in? What will happen to it when it is brought in? Will it be put into the postal services, or into Royal Mail, or will it bail out bankers? We want to know where that money will go.
As regards introducing new management to bring about change and modernisation, was that not the reason for employing Allan Leighton and Adam Crozier as chairman and chief executive? Were they not supposed to have put things right? It does not seem to have worked because we have the Bill. I do not think that their backgrounds in grocery, chocolate, football, pet foods, newspaper sales and Saatchi & Saatchi equipped them for the job. In my view, other people with much better experience could have run the service a lot better. Who will run the service next? We know that TNT is the favourite foreign firm to come in. Will it run the service? Who will run the service?
Usually, the Government want to bring in people with financial or banking experience. Surely, they will not allow those people to run the Post Office, bearing in mind that they have brought the world almost to financial and economic destruction. Who will they bring in to run the Royal Mail? The Royal Mail should be led by people who know the industry, have worked in it and have leadership skills. Those are the best people to run the industry. I should have thought that Labour Lords in particular would agree with that. However, I guess that is not going to happen. I really cannot believe that these people do not already exist in the Royal Mail. I think that they are there, and I hope that they will be the next people to run the service. There should be no need to bring in people from a foreign mail carrier.
The sell-off of 30 per cent of the business is the thin end of the wedge. The Secretary of State will not be able to give the assurance that that will not eventually lead to full nationalisation.
Privatisation, my Lords; I have nationalisation on my mind. Furthermore, on finance, when we are spending hundreds of billions of pounds to shore up the banks, why on earth can we not spare some money, to add to the £600 million which already exists, to modernise and diversify the Royal Mail and the postal services? As I said, I understand that the favourite for private partner is TNT. It is hardly a suitable candidate to run the Royal Mail if press reports are to be believed. I read this headline in Sunday Telegraph:
“Royal Mail bid: tax scam”.
I shall not quote the whole article, but it states:
“Employees of TNT were involved in a financial scam in which documents were falsified and backdated”.
Surely, those are hardly the sort of people whom we want to run the Royal Mail. What concerns me most of all is that such legislation should be brought forward by a Labour Government. I have to keep making that point because I am so angry about it. Have they forgotten that the Royal Mail and the Post Office services ran successfully as a government department for 150 years? You could post a letter in London at 10 o’clock in the morning and get it at four o’clock in the afternoon. Yet now you cannot get your post until about five o’clock at night in some places. The service does not have to be privatised, and the tinkering over the past two decades has not brought about the improvements that were promised. There is no reason to believe that this Bill will be any different.
What about the other privatisations? Have they been a great success? Ask the people. Do they think that the railways are better? Are they cheaper and more reliable? The answer from the people will be no. When I was the chairman of the land and works committee of the Thames Valley water board, I used to boast about selling water at sixpence a tonne. Now it is getting on for £2 a tonne. I assure noble Lords that water consumers do not believe that privatisation is necessarily the good thing that the noble Lord, Lord Desai, seems to think it is. As regards the energy industry, ask the people who are paying enormous prices whether they think that privatisation was a good thing. My bill went up from £133 a month to £197 a month only a couple of months ago. That must be happening to other people up and down the country as well. Privatisation does not necessarily bring the promised land.
I am opposed to the Bill. I say to my noble friend—not a political friend, just a friend—that if he decides to put his amendment to a vote tonight, I shall certainly stand shoulder to shoulder with him in the Lobby.
My Lords, the easy thing to do today, particularly if we think of the hours and days ahead of us going through the Bill, would be to drop it now, but that would be a real dereliction of duty if we want to secure a strong future for a universal service in the UK. We do not have the Bill because of the EU, as the noble Lord, Lord Stoddart, says. We have the Bill because the Royal Mail is in serial decline and needs a fundamental shake-up. It is not about tinkering at the edges; it needs a fundamental change.
Changes in high-profile public services, especially those to which the public have a strong emotional attachment, are always difficult. Just think of the arguments that there have been at every stage of health service reform. At each and every stage, variously, we have had strongly felt and passionately held views, real fears, protectionism dressed up in other clothing, accusations of privatisation, prophets of doom about the demise of the NHS in all but name—I remember most of them personally. There are those who doubtless still believe that some of that is true, but most people see a massively improved service, which has had investment and the necessary reform and which commissions the private sector intelligently to drive up standards. Above all, patient experience and treatment have improved, but still within a universal service.
Look at air traffic control. When the Government announced the plans for a public-private partnership of NATS in 1998, there was a concerted campaign of opposition. Attempts to change NATS, including full privatisation, had been mooted by earlier Governments and dropped. Before the 1997 general election, Labour’s transport strategy had argued that,
“it is the role of government to set the framework, then enable much of the provision to be privately funded. We must construct genuine public-private partnerships in which clearly stated policy aims have the central place. It would then be the role of the private sector to participate in projects to which they can bring the expertise and investment within a stable and strategically planned environment”.
It is always instructive to look back at what you have promised, and this strategy holds true today and is relevant in this debate. Genuine public-private partnerships should involve a sharing of responsibility, not a shifting of the Government’s strategic responsibility wholly on to the private sector. There has to be a sharing of risk and the creation of a stable environment for the private partners. Above all, of course, there has to be good value for taxpayers and a good service for consumers.
In the case of NATS, as my noble friend Lord Brooke said, after the consultation it was announced that we would move ahead with the PPP, with 49 per cent government control and 51 per cent in the private sector, including employees in this case. Safety regulation was left with the CAA and safeguards were introduced for employees’ pension rights. I remember, as many of us probably do, the highly charged arguments at that time and some pretty major scare stories around these proposals but, as with other reforms, the rows are now a distant memory and the outcome has been improved performance, effective regulation and a stable workforce that has decent conditions.
We cannot avoid facing up to the challenges that face Royal Mail. The public may feel a level of emotional attachment, but that attachment goes only so far; it is not strong enough to make us go back to letters from e-mails or to be sympathetic when the post is less efficient than we expect and deserve. We must face up to the facts. The status quo is not a tenable option. It will lead only to a larger crisis in the near future. The need for change is compelling. The volume of mail being sent is falling, as people and businesses switch to digital communication. All of us here know that. We posted 5 million fewer letters per day last year than two years ago.
Royal Mail’s performance does not match the best European postal operators. By its own estimation, it is 40 per cent less efficient. Its distribution network and mail centres remain largely unchanged. Despite the launch of the renewal plan in 2002, it is not automated to the same extent as other leading operators. Performance is linked to industrial relations, and industrial relations in the Royal Mail need to improve. In 2007, 60 per cent of all days lost in the whole economy through industrial action were accounted for by Royal Mail. In total, more than 600,000 days of work were lost. Agreements that may be made nationally at the moment have to be made again—or often not—locally.
We have heard about the pension deficit. Royal Mail’s historic pension deficit is one of the largest in the UK, larger than any FTSE 100 company. Sometimes we hear that pricing is the answer, but pricing is not going to solve the problem. Increasing postal prices would not generate sufficient revenue to counteract falling volumes; previous price increases have demonstrated that very clearly. Consumers have either used electronic media or reverted to second-class postage. Companies have given their business to competing operators. Relationships with the regulator are notoriously bad. Postcomm has been notoriously difficult, preventing management from focusing time, energy and skills on the consumer and the challenges of the business; too often, management has spent time and resources responding to the regulator.
There will be those who say that competition is the problem, but competition has brought price benefits to consumers and fundamentally is something of a sideshow. Last year, Royal Mail lost £100 million in generating profit to postal competitors but £500 million to digital media. Royal Mail is already expecting a significant further decline. There are those who will argue that this is the back door to full privatisation, but the Hooper report and the Bill absolutely do not do that, nor does the proposal that the company would be broken up into separately owned companies. Indeed, the business will remain in the public sector. The Bill enshrines the universal service in primary legislation. Any further changes would need primary legislation.
We have heard a more recent argument this evening: the Government can pour money into banks, so why not into the Post Office? Apart from that being somewhat trite, the Government are not walking away from the Post Office; they are proposing to tackle the significant pension deficit. This will not be a fair deal for the taxpayer unless there is a strategic partnership to deliver the necessary modernisation alongside it. Remember, too, that the Government have made available funds of £3.5 billion in the seven years since Royal Mail became a public limited company. The tough reality is that, since the Postal Services Act 2000, there has been progress, but not nearly enough, while the challenge from the changing postal market has escalated and will do so year on year. I agree with my noble friend Lord Soley and others that the Act did not go far enough.
There is now a package in front of us that we should support—not the bits that we most like, but all of it in its entirety. It is something of a deal. That does not preclude intelligent amendments from being made. Indeed, we have heard tonight that there is likely to be a move on employee ownership. I certainly would be interested to hear the Minister’s response to that. The proposals before us enshrine the commitment to a universal service and make it clear that this takes precedence over competition. The issue of regulation is seized by including the Post Office in Ofcom’s arena. The access regime will be considerably fairer and much more transparent than is the case for Royal Mail now. As part of the package, the pensions mess will be sorted, which will be a huge benefit to company and employees alike. The proposals for partnership with an experienced operator will lead to faster change, new skills and new capital. The Royal Mail will stay in the public sector.
Let us be clear that this is not just about capital; it is not about how we get some money into the Royal Mail. It is about the new management skills that are so obviously and fundamentally needed. We need a massive step change if the Post Office is to succeed and if the Royal Mail is to continue as a universal service supported by all. I see this package as a pretty strong and balanced deal, which offers not only protection to the universal service but the opportunities to make that service fit for purpose going forward. It would be short-sighted indeed to reject it.
My Lords, I declare an interest as a member of Unite. As has already been illustrated, parts of this Bill are extremely difficult for many of us on this side of the Chamber. The Bill is about businesses that are very dear to our hearts—the Royal Mail Group and Post Office Limited. Understandably, feelings are running high about the Bill, especially between those who feel that it is wrong to bring any private investment into postal services, such as my noble friends Lord Hoyle and Lady Turner, and those who, like me, feel that there is no option on this occasion.
It is made more difficult because we are discussing the future of dedicated men and women who, in many parts of the country, are more than just workers. They are friends and helpers of those to whom they deliver the mail, especially in rural areas. They know the families and their friends; they keep their eyes on the elderly, the disabled and the new people who have moved into the local community who may need assistance. In many ways, they are in part social workers, as well as postmen and postwomen.
Like others who have spoken, I want to keep our postal service at the highest level possible and, at the same time, to maintain the jobs of postmen and postwomen and provide a proper pension for the many former employees of Royal Mail. I do not agree with some of the criticisms of our current postal service. Perhaps I can put in a word of caution: anyone who has lived abroad realises what an amazing service we have in this country. Letters are delivered wherever we live throughout the UK six days a week.
We have heard about Europe. I want to give noble Lords a flavour of my experiences in France. I have lived in France for part of each year for the past 20 years. No letter has ever been delivered to my house there; instead, we walk to collect our mail from the central point on the village green where the post van delivers five, not six, days a week. We never meet the van driver and there is a different van driver each day. That is the French system. Do we want that here? I think not.
I read this Bill very carefully and I have no hesitation in supporting many parts of it. I welcome the transfer of the functions of the regulator of the postal service sector from Postcomm to Ofcom, whose first duty will be to protect the universal postal service, something with which I totally agree. I also support the transfer of the horrendous pension deficit away from Royal Mail’s responsibility to that of the Government. I cannot see how the pension fund can be sustained otherwise. If it is not, there will be no security for the pensions of all those hard-working men and women who have worked for Royal Mail over the years. Royal Mail cannot pass on the pension deficit to its customers without risking losing them. It cannot afford to continue with the current deficit, which is rising year on year.
We have heard about the 2005 Labour manifesto commitment, but that was four years ago and life, particularly our economy, has changed dramatically since that time, far more than any of us could have predicted. We must not forget that the manifesto also committed us to carrying out a thorough review of postal services. In December of last year, the Hooper report was presented to the Government. It outlined starkly what has happened over recent years and its overall conclusion was that without change the universal postal system would be under threat.
The amount of mail that we post has decreased dramatically while the use of the internet, e-mailing and text messaging has increased equally dramatically. These trends will inevitably continue. Like most of us in this Chamber, I am one of those who are guilty of depriving Royal Mail of its business. In 2005, I always used what a noble friend described as “snail mail”. Now I e-mail whenever I can to answer phone messages, invitations, letters and, of course, the many e-mails that I receive each day. It was because of these dramatic changes in the way in which we use the communication systems that are available, coupled with the pensions deficit, that the most controversial proposal in the Hooper report was made. Hooper introduced the concept of a strategic partner that would have a minority stake in Royal Mail. The Government have decided to adopt this proposal, in my opinion to give Royal Mail a chance to play on a level playing field.
It is quite natural for the CWU to be opposed to the philosophy of any form of privatisation. Many trade unions are opposed because we recognise that the private sector does not hold all the answers. However, we also recognise that Royal Mail needs capital and that the Government have provided safeguards in the Bill. The proposed partnership must be with a company that has a,
“demonstrable expertise in transforming a major network business”.
This is key to any partnership agreement, which should provide the flexible capital that Royal Mail needs so badly.
As we have heard, the Government are committed to keeping Royal Mail in public ownership and this will be enshrined in law. Additionally, the universal service—letters collected and delivered anywhere in the UK, six days a week, at a single affordable price—will be written into legislation. These safeguards satisfy me that the Bill should be read a second time.
Perhaps the proposals made by Hooper, and accepted by the Government in this Bill, are not perfect, but they provide us with what may be the last chance to get it right. It will be far too late if Royal Mail is allowed to slide into bankruptcy and I am afraid that other proposals voiced recently do not appear to offer a viable alternative. As always, the Bill will be improved as it passes through the House and I am sure that all noble Lords who are taking part in this debate will be involved in that process.
My Lords, Richard Hooper, not for the first time, has done this nation a service. He and his colleagues have set out for us all, with lucidity and force, the grim realities that confront Royal Mail. Whatever wholly understandable sentiment we all bring to this issue—in my case, fond memories over many years of hauling the Christmas post as a strapping lad—the cold, hard facts set out in the Hooper report about Royal Mail’s relative performance are stark and unavoidable.
The postal services are not alone, however, in facing the onslaught of the digital media. Newspapers, broadcasters, music companies and retailers are but some of the many sectors wrestling with the challenges and opportunities that this technological revolution presents. Now, in cruel addition, there is an overlay of intense financial and economic crisis.
If it is to survive, Royal Mail, quite simply, must reinvent itself; it needs to rationalise and to modernise. It must harness the power of new technology to drive a step change in the efficiency and effectiveness of its operations. It must adjust its cost base, particularly its labour costs, to deal with the unavoidable loss of business to e-mail and other electronic communications, as many noble Lords have mentioned. It must focus on the needs of its customers, particularly its heartland business customers who provide the overwhelming bulk of its business. As the noble Lord, Lord Soley, observed, Royal Mail must show real enterprise in grasping the enormous opportunity offered by e-commerce—the distribution of physical products ordered online. It must, in due course, diversify and acquire.
However, Royal Mail at this minute is ill-prepared for these tasks; the whole framework in which it operates is unfit for purpose. It has a single-sector union, unversed in the wider world, and a management and workforce who fail to engage fruitfully. It is an organisation constrained by restrictive practices and resistant to innovation—a hangover from a bygone and unlamented era. Negative cash flows are projected in each of the next five years—it is by far less efficient than the European average. It has a small, solitary regulator, which was well described by the noble Lord, Lord Whitty, which is locked in a loveless embrace with a single, large client organisation. There is sluggish action on investment that is typically associated with state aid. There is insufficient distance between politicians and the entity. It is not a pretty picture. Successive Governments have little cause to pat themselves on the back, and none have today. The noble Lord, Lord Fowler, is surely right when he suggests how different the past 20 years could have been. The noble Lords, Lord Brooke and Lord Whitty, reinforced that point.
We should, however, support this Bill with relief, if not with celebration, because it offers the prospect of a new beginning. It offers the introduction to Royal Mail of expertise and enterprise, speedy access to capital, and empowered and muscular regulation. The noble Lord, Lord Desai, and the noble Baroness, Lady Morgan, reminded us eloquently that there is a better way; we need not be fearful. The Bill, however, will take us only so far. The next 12 months for the Secretary of State will be exceedingly testing. A new partner for Royal Mail will be demanding, and rightly so, and will surely require binding assurances from government and unions before it will participate and risk its capital. The noble Lord, Lord Neill, who is not in his place, asked some very pertinent questions on that score. The Government, for their part, will need to be crystal clear and steadfast in their intentions if we are to see Royal Mail’s necessary transformation through to a successful conclusion and to a public interest outcome.
My Lords, first, I join others in paying tribute to the late Lord Dearing. He was a wonderful man and of great help to me when I first came to the House. I always remember the joy of reading about him in Gerald Kaufman’s book, How to be a Minister. It is absolutely magic to read how he came across “Mr Dearing” and the memos that he used to get.
I wish to make a couple of preliminary points. First, I say to my noble friend that it is pretty crucial that the questions asked by the noble Lord, Lord Neill of Bladen, receive an answer before Committee. Secondly, could a note on the separate pension arrangements for Ministers be placed in the Library? I asked about them but the only ones that I have been able to discover are the A, B and C schemes. I know that there was another one but I have no details. I should like to be able to read about this special scheme for 150 people.
The parameters of any of our old industries are old-fashioned attitudes, a monopoly service, a cosy—perhaps I could say “sweetheart”—relationship between the employer and the unions, and a lack of automation. The history of other industries tells us what will happen: a lack of investment and high labour costs. As the noble Lord, Lord Desai, said, and as is set out on page 52 of the report, underfunded pension schemes is a theme that runs throughout other industries. Restrictive working practices take place to defend the lack of investment. I shall not turn to the list on page 51 but the items there put some of Fleet Street’s practices to shame, and they are still happening in 2009. All these factors come together and you end up with a lack of profit in a monopoly. You then get strike losses and wonder why you are losing business when people say they are going somewhere else. That is exactly what happened a few years ago, and it happened in the big strike many, many years ago. All those old attitudes in our old industries lead to all those factors. You can see them in industries that have long since gone or have been modified following great shocks.
We have tried the supermarket way of running the Post Office and it has clearly failed. I just question, as others have done, something that I saw for myself as a Member of the other place. Why do posties spend two to three hours every day putting their round together? Ours is the only country in modern Europe where that happens. The argument that we hear is, “We don’t have the machinery. It is on order”, but others have had the equipment for years. It is a joke.
The other thing, which only one person—my noble friend Lady Gibson—mentioned, is that postmen spend two to three hours putting the mail together in the sorting office, but where do they spend the majority of the day? I will tell noble Lords. They spend it walking up and down the paths of private properties. They are not walking between properties but up and down the paths. I reckon that in my former constituency the front doors of about 20 per cent of my constituents are on the pavement, but for everyone else the postie has to walk to the letterbox. Why should the postal system waste time and money delivering to the Fairmile estate, the Little Aston private estate or the semis in Middle England? In other countries, residents have to put a receptacle at the entrance to their property and that is where the post is delivered. I think that in Spain post is delivered at the end of the road, and that also happens in parts of France. I am not proposing that; I am saying that we are looking for ways of reducing costs but others have already done it. We do not have to do things in the same way as we have always done them.
Therefore, posties spend most of their day either putting the round together or walking up and down gardens, but that is not a very effective use of more than 130,000 people’s time. Then we wonder why we have problems. I am an experienced leaflet deliverer, as are many in this House, and I can tell noble Lords that it is a lot quicker delivering to properties, as opposed to letter boxes, so I do not need any lessons on cutting costs. I say to my friends in the trade unions that it is no good looking back to a bygone age with romantic views. I am sorry; the people of this country need a really useful delivery postal service and not the romance of the chocolate box lid, which is not relevant any more.
I think that the pension trustees should all be removed lock, stock and barrel. They have let down all the postal workers, as have the trade unions and, indeed, the management. The fact is that the pension deficit built up over the years and it has almost nothing to do with the pension holiday. The scheme was overfunded, and if a pension scheme is overfunded by more than 105 per cent, the trustees are required to use that money to pay higher benefits—which in a downturn such as today’s would make matters even worse—or to use it elsewhere in the business. It is tax-free money, and the Treasury is not going to allow any company to do what they like, willy-nilly, with tax-free expenditure. Of course, during those years it was wrong for the Treasury to take back the money that should have been used for investment. The trustees did not ensure that they switched on payments quickly enough; they waited until they knew that the scheme was in deficit again before starting negotiations.
Furthermore, you cannot run a final salary scheme, or indeed an average salary scheme, with employee contributions of 6 per cent. What is more, if you say that you can, you are being absolutely dishonest. You cannot say, “I’ll get you low payments and keep your pension high”. That cannot be done today, and it has not been possible to do it for years. Contrary to what was said by one Member of this House, Members of the other place do pay for their pension, although I do not think that they pay enough. I paid 10 per cent, which I know was not 6 per cent; nevertheless, they are paying, although the implication was that they are not.
I turn to the letter from the chair of the trustees. We have to get this out of the way. I defend my noble friend the Secretary of State because I was present when he said that he did not leak it. He published it, and I do not see a problem with that.
From what I have read—I do not talk to too many people these days because you do not have the contact that you had when you were in the other place—and as my noble friend said, a lot of the work and many of the recommendations have been ignored where it really counts: on the shop floor. There is no question about that. If they had not been ignored, we would not be in the mess that we are in now. I have not read any briefings, although I have read good briefings on the pension scheme and what has arisen there, but having read the reports I am left with the impression that it is almost too late to save Royal Mail as it is. We have a combination of 100 per cent public ownership, a letter monopoly and the universal service obligation, which means that the public will virtually always be held to ransom. That is why I very much agree with one of the points made by, I think, the noble Lord, Lord Bradshaw. At some point, we are going to have to look at compulsory arbitration, because the sanction of lifting the letter monopoly has never been used. I want to keep the universal service. That, to me, is the number one priority. I do not care who owns the service or delivers it but letters have to get to every dwelling in this country every day at a price that can be afforded. That, to me, is the number one priority above all others. The other factors can be changed, which is why I have no problem about the 100 per cent ownership, but you cannot keep all three because they are contradictory.
There have to be some brutal changes which we had better not gloss over; sugar-coating this would mislead people. The postal workers are the champions; over the years, they have been misled by the management and by their trade union leadership into believing that they can have their cake and eat it. That has caused part of the problem. We need brutal management changes at the headquarters of the Post Office. It is clear that we will have such changes at the regulator, where there have been serious difficulties. There must also be major management changes at the local level. I am told that some of the promotion rules are quite outrageous; “merit” is almost an obscene word. The key to reducing costs and achieving greater efficiency is at that level. If we have duff management, we need brutal changes at that level. We need everyone to come to the table and walk away with some successes. This is not victory or defeat. The workers, the management and the public have to feel they are getting something out of this. If that is the case, it is important particularly with partial ownership by the workers.
I have already said that the pension trustees should go. The Whitehall attitude, which took the profits during the pension holiday and stopped investment in automation, has to change. The same management culture was left in place; there was, for example, a lack of automation and a defence of restrictive practices by the union and the management because they knew there was no money to do anything else.
I have not heard of a plan B, which is why I have no problem whatever in supporting the Bill. My noble friend will be under greater scrutiny on this Bill than he ever would have been in the other place. We have a good chance to send to the Commons a Bill that we have scrutinised, based on experience of life, which is much wider here than in the other place, although they are the elected representatives of their constituents. With the Bill starting in this House, we can do a much better job and we can send a Bill to the other place which will make people think about what we have done and why. That is crucial. We need to stop the knee-jerk reaction from the Members of Parliament and the trade unions and we need to make it clear that a radical change is needed throughout the system. As there is no plan B, I think everyone should get behind the Bill.
My Lords, I declare an interest as a non-executive director of the Royal Mail Holdings board and as a member of the union Unite. Like others, I want to say how sad I am that a previous member of the board, the late Lord Dearing, is no longer with us. He would have wanted to be a central player in this debate.
I am not the only one on these Benches to say that I wish we did not have to start from here but, frankly, I do not know what else can be done. The Hooper review, Modernise or Decline, identified not just the problems arising from the many years of lack of investment but also the consequent inability to modernise, the poor industrial relations problems between Royal Mail and Postcomm and the massive pension fund deficit. Of themselves those are huge issues, and any one of them is enough to knock a less sturdy and established organisation sideways.
More seriously, Hooper identified structural and systemic problems within the mail business generally and globally. I repeat that something has to be done. I would like to give some background to the current situation and I hope to scotch a few myths which appear to be gaining in credence and which, if we are not careful, will become indelible truths.
First, let us look at management, which, as I know from my years as a trade union official, comes in many guises: senior, middling and junior, good, bad and just plain mediocre. The current most senior management of the Royal Mail, the chair and the chief executive officer, turned the company from a loss of £1 million per working day in 2002 to a profit of £255 million by period 3 of this financial year. That point has already been made. Each of the businesses which comes under the Royal Mail Holdings board—the letters business, Parcelforce Worldwide, GLS, which is the European parcels business, and even Post Office Ltd—made money. I remind the House that those two people pressed for colleagues’ shares, a system which operates as phantom shares. That system had to be adopted because of a lack of primary legislation, but it gives employees a stake in the business. So a big tick goes to the most senior management.
That is not to say that all in the garden is rosy. Many managers at all levels are capable, committed and conscientious, but far too many are still not up to the jobs they hold. In answer to the point made by the noble Lord, Lord Rooker, some are there based on the old system of seniority, which the CWU used to insist on and which management went weakly along with. Management at lower and intermediary levels is hugely important to the success of the business. Organising shifts and making the best use of the workforce available is key to delivering increased productivity in the face of fluctuating volume demands. That sort of responsibility should be bread and butter to a manager. Sadly, it does not always work as well as it should and it is not helped by union representatives, paid or otherwise, the vast majority of whom have never worked anywhere but the Royal Mail and who, therefore, bring no new or different ideas to the negotiating table.
Secondly, let us look at the nature of the work. In the past five years, the volume of letters handled daily has reduced by 7 per cent from 84 million to 78 million items. The Royal Mail projects a further 8 per cent fall in this coming year. That is a very serious projection which will impact in a big way on likely profitability. Globally, volumes are predicted to decline by between 6 and 8 per cent per annum. The Hooper report makes it clear that the major reason for this decline is e-substitution. Of course, the liberalisation of the market has had an effect. The cherry-picking by competitors of major customers whose bulk mail collections bear no resemblance to the time and effort required to collect and sort social mail has, to say the least, posed a challenge. However, the fact is that fewer and fewer people use the mail for paying bills, ordering goods or just general communication and that trend is set to continue and to increase.
Changes in communications behaviour bring opportunities as well as threats. There has been a significant increase in the volume of packets, largely as a result of internet ordering. In the current difficult economic climate, the parcels business faces very serious competition. Modernisation and new technologies will help the business to adapt to these changes and to be on the front line when the economy picks up, ready to provide an improved letters business integrated with parcels and packets.
So where are we with modernisation? From some of the comments I have heard, one would think nothing had been done. Some advances have been made. Pathetic it may be, as described by my noble friend Lord Whitty, but it is not non-existent. The £1.2 billion commercial loan from the Government in 2007 was granted on the basis of a well thought out and agreed business plan. Approximately £700 million has been spent in line with the business case timetable and plans are in hand to make the most of this opportunity to spend every penny. To my noble friend Lord Brooke I say that there is a timetable, partly in relation to the business plan but also in respect of further modernisation. For example, many walk sequencing machines have been installed, as have intelligent letter sorting machines. Mail centre rationalisation is taking place, but much more needs to be done. Track and trace technology providing a much more reliable service needs to be rolled out. Further investment is needed to establish successfully the company's new document production and management business. Not only would any Government find it politically difficult to provide the investment required, but it is common knowledge that we would run into big trouble with the European Commission over the rules for state aid.
Under the plan and the proposed legislation, the Government have agreed to take responsibility for the pension fund deficit. I would have thought that that offer represents a decent deal. The pension fund, as we all know, is in dire straits, and as the market goes down, so the deficit goes up. Securing its safety should bring a sigh of relief to postmen and postwomen up and down the country who have paid in over many years and who will now be able to rest easy in the knowledge that their retirement income is safe.
I think that most people can now see the sense of the changes to the regulatory regime. It surely will be beneficial for the Royal Mail to be part of the family of regulatory considerations across the whole communications sector.
Finally, I shall say a word about Post Office Ltd. The recognition by Government—albeit relatively recent—of the value of post office services is welcome indeed. Within the company, much work has taken place to improve and broaden the standards and variety of services available. The retention of the Post Office card account has been well received, bringing, as it does, the required footfall to sustain the viability of many post offices up and down the country. We urge the Government to encourage their various departments to put opportunities for work and services through the Post Office.
Your Lordships’ House will not be surprised to hear that the Government's network change programme has been a very difficult time for postmasters, postmistresses and the staff generally. Morale has been very low. Partly in response, managers have organised a nationwide competition asking the public to nominate their best Crown office, best town and city post office and best community post office. Some Members in the other place, for reasons best known to themselves, decided that this opportunity should be used to protest against the closure programme and nominated only post offices that have already closed. Whatever one thinks about the Government's requirement to reduce the Post Office subsidy or the subsequent handling of the closure programme by Post Office Ltd, that strikes me as gesture politics at its most infantile. If more of those Members in another place had seen fit to attend the many opportunities offered to them by the Royal Mail to discuss the post office closure programme and hear about the challenges facing the Royal Mail generally, maybe they would have greater appreciation of the issues at stake, which affect people's jobs, the content of their jobs and the security of their jobs.
I close by declaring my support for the Bill. Many details need to be agreed. Discussions have taken place within the company and within BERR and the Treasury. This House will discuss the Bill line by line. We owe it to all the people involved—employees, customers and, indeed, the taxpayer—to grasp this opportunity to secure the future of the Royal Mail.
My Lords, today we face a situation in which we are not short of ideas about what to do about the Royal Mail and the Post Office network. We have had a very good debate in that direction with varied suggestions. The Government have their view and ideas, as set out in the Bill, but there is no certainty about the end-game. There may not be unanimity on the solution, but there is general agreement that the postal services have problems that need to be addressed. The Government are vulnerable on this issue. They do not carry the body of the people in this country with them, although there are signs from the Government today in what the Secretary of State said that there are possible changes that could at least make the Bill more acceptable. We on these Benches welcome that. There is a lot in the Bill that we welcome, but we will have points to make in Committee.
What do we have to do? We have to ensure that we have a continual obligation to a six-day universal service. We have to protect the service, which is vital for the public and the business community. We have to provide a good management structure so that the workforce is engaged and motivated and ensure that at the end of this process investment will be provided for post offices as well as for the postal services to ensure that our local offices remain and, indeed, expand rather than contract, as we saw recently. As part of what we are undertaking through the Bill, we need to address that sector at the same time. We all know that there is concern to ensure that local communities and the business sector have a Post Office network to serve their needs. When we come to talk about the Bill, it is crucial that we do not confine ourselves to the postal service and business but address the local community and what it needs.
There were quite a lot of contributions. Just a moment ago, the noble Lord, Lord Rooker, and the noble Baroness, Lady Prosser, spoke about the concern about the management of postal services. For quite some time, there have been problems between the workforce and the management. I may have got it wrong, but I was slightly surprised when the noble Lord, Lord Clarke, said that he did not think there were problems with management. Many speakers would disagree about that, and many have spoken in that refrain.
One gets the impression that there is no confidence in local and higher management in the postal services or between the two. Whatever happens, the issue of management must be addressed. I made the point in the skills debate last week that too often in this country we talk about the workforce being trained to do its job and in skills of various sorts, but in the postal services and in many other businesses in this country the management also needs to be trained. It needs to look at business in a way that motivates the workforce rather than puts it off. Management should work with the workforce, not separately. That is as much the case with the Post Office as anywhere else. Part of what we talk about in the next few weeks and months must be management.
We on these Benches propose share ownership. It would make a big contribution to how the workforce and management work together. I welcome the talk from the Secretary of State and the Conservative Benches about possible worker participation, share ownership or whatever it may be. That is one of a number of crucial points that we wish to raise.
I do not want to say much more than we have had a good debate. This is just the start of what we have to do. There are many issues to be addressed. Many noble Lords have great experience and knowledge. I hope that we will be able to achieve consensus. We on these Benches want to see a proper workforce arrangement and investment in the postal service and in the Post Office as a whole. I look forward to engaging with my colleagues in the debates we shall have in Committee.
My Lords, it would be an understatement to say that this has been an interesting debate. It is very clear that there are many important issues to be discussed in Committee. I join other noble Lords who have paid tribute today to Lord Dearing. I knew him for a much shorter time than most of your Lordships here this evening, but he made a kind speech immediately following my maiden speech nearly four years ago and was enormously encouraging to me, as I know that he has been to many noble Lords.
As my noble friend Lord Hunt of Wirral said in his opening speech, although we support the Bill in general, a great deal in it is unclear. Some of the Government's press releases have, I am afraid to say, added to rather than reduced that confusion. We feel that there needs to be absolute certainty about many things. The Secretary of State has tried in a few of those areas, such as the continuation of the universal service obligation, to ensure that. However, essentially, the successful future of Royal Mail as the universal service provider depends, as the very helpful Hooper report states, on its revitalisation.
The detail of what a deal with a private sector partner and the relationship with it will eventually look like needs, as my noble friend Lord Fowler and the noble Lords, Lord Neill of Blayden, Lord Lea of Crondall and Lord Whitty, among others, explained so helpfully, to be properly explored. The Government’s deliberate opaqueness is doing little to reassure stakeholders who are deeply concerned that the partnership will be effective.
In Part 1, we agree with the noble Lord, Lord Neill, that the Government need to be much clearer about their intentions. Why have they not put their stated 30 per cent target for investment in the Bill? My noble friend Lord Fowler expressed concern about that. What criteria will be used to assess potential partners? What due diligence will be carried out on them? As several noble Lords have said, recent press coverage suggests that there may be controversy over the selection of a preferred partner. Any opaqueness about that process will only make matters worse. Any deal should be fully transparent—a word that the noble Lord, Lord Haskel, used in the context of the operations of the business going forward, but which equally applies here. A murky deal will only raise questions about whether Royal Mail is being thrown to the sharks in a desperate attempt by the Government to improve their short-term balance sheet.
The noble Lord, Lord Stoddart, asked not only how much the Government expected to generate from the sale but what was to be done with the proceeds. Several noble Lords have asked whether employees will have the opportunity to have the benefit of share ownership.
How confident can we be in the Government's ability to negotiate a good deal with a partner? The noble Lord, Lord Sawyer, referred to the current economic circumstances, which will of course have a bearing on the Government's ability to negotiate that deal. Parliament needs to be allowed a role to scrutinise any deal and to assess its continuing future success.
Transparency is also much needed in Part 2, not just for pensioners, who are quite understandably, as the noble Lord, Lord Clarke, said most eloquently, deeply worried about their accrued rights, but also for the taxpayer, who will have to pay for it all, and for Parliament. Once again, the Government have chosen to make reassuring statements in press releases but not to place those same reassurances in the Bill.
There is also a great deal of concern at the possibility that such assets as the pension fund still has will be thrown into the black hole of the Treasury, leaving the liability for future generations to pay. There needs to be much tighter provision for an accurate understanding of just what is being absorbed by the Government and what is being left behind.
Similarly, in Part 3, although I understand the hope that Ofcom will be able to establish a regulatory regime that improves on the licensing system currently in place, there is very little in the Bill that would ensure that that is what would happen. My noble friend Lord Fowler was concerned about that. With such extensive powers being given to Ofcom, we feel that the Bill could be improved by providing for more stringent parliamentary scrutiny of Ofcom’s future decisions.
There certainly needs to be much more detail about when the nuclear option of a levy can be invoked. Private companies already operating in this sector are of course concerned about their sudden inclusion in the regulatory regime. My noble friend Lord Hunt referred to that. What consultation was undertaken on these clauses? Noble Lords can be forgiven for thinking that the Government are riding roughshod not only over one or two of their own Back Benchers to introduce the Bill but over a number of stakeholders as well.
My Lords, this has been a very instructive and informed debate, as I would expect from this House, and I am very grateful to noble Lords for their contributions. However, I must say at the outset that it is striking that the only contribution that we had from a customer, a client, of the Royal Mail came from the noble Lord, Lord Alliance. In a short but incisive and insightful contribution to the debate, he made it clear as a grateful customer—a large and substantial customer—of the Royal Mail, that his businesses and the prospects of countless other businesses across our country required Royal Mail to change with the times. That struck an important note that will find an echo not only in our successive debates and discussion of many matters as part of Committee but—at least, I hope—in the other House as well.
The debate after my introduction began with my noble friend Lord Clarke of Hampstead offering a peon of praise to the chairman, the chief executive and the management of Royal Mail. They will have been pleasantly surprised to hear the compliments and praise offered to them. I must say that, offline, the union’s language about the management, past and present, is very different. I share my noble friend’s desire and vision for the Royal Mail to become once again, as he called it, a world-beater.
I am only sorry that in his contribution and, I have to say, those of noble Lords who supported him, although everyone was very willing to set out the vision, the objectives and the need for change, when it came to the crunch and support was needed for the means to bring about that change, that support was absent. I just have to say that it is all very well my noble friends urging the Government to take the necessary action to turn around the Royal Mail and to couple those urgings in the same breath with the remark that the status quo is not an option, without willing any means, plans or proposals other than what the Government are setting out in the Bill on the basis of Richard Hooper's report. I have to say that I have not heard a single plan B or alternative proposal that would enable us to turn around the finances of the Royal Mail, transform the business, and sustain the universal service organisation from anyone who has opposed the Bill. The truth is that it is not only the present Government’s plans, but also—I am bound with some humility to acknowledge what the noble Lord, Lord Fowler, said in his contribution—the proposals of previous Governments that have fallen on very barren earth. I did not agree with all the proposals, but they were at least a conscientious effort to turn around the finances, the business and the fortunes of this organisation.
Every action, every policy and every piece of legislation brought forward not just by this Government but also by previous Governments has been consistently opposed by the union representing the workforce in Royal Mail. I speak for all the Government and the overwhelming majority of my noble friends. Those of us who want to see this situation transformed now have to put our actions and our money where our words have previously been. We have to see through this legislation and this change. We owe it to the Royal Mail, its workforce and, above all, its customers to do so.
My noble friend Lord Clarke referred to the fact that each of the Royal Mail’s companies is currently in profit, which was an important point in his argument against the need for further change. The Royal Mail group’s reported profits to date this year do not provide the full story. Much of the profit referred to by my noble friend came thanks to Royal Mail’s European subsidiary. Post Office Limited’s share of the profit came only after the Government’s subsidy of £112 million. That is not quite the honest penny or honest profit that my noble friend seemed to describe in his remarks. Without subsidy, Post Office Limited is still loss making. The business which delivers the universal service has made only a 1 per cent margin. The universal service remains loss making. To pray in aid the Royal Mail group’s reported profits, as circulated recently, does not tell the whole story and does not bear out the arguments made by those who wish to oppose the Government’s legislation.
In respect of the changes that the Bill proposes on regulation, I do not believe that this Bill is simply, as my noble friend Lord Clarke suggested, embroidery. It establishes a fair and modern regulatory framework, which ensures that the universal service is at the heart of the new regulator Ofcom’s duties. It is true that the universal service is outlined in the existing Postal Services Act, but this legislation goes much further. It ensures that if Ofcom finds any tension between its functions in relation to post, the regulator must give precedence to the universal service. That is a very important step forward, which some noble Lords have acknowledged, but not all.
My noble friend Lord Clarke also suggested that it would be possible and desirable to delay modernisation of the Royal Mail and its delivery service as it will take many years for new equipment to arrive. I have to tell him that quite a lot of equipment has already arrived on the premises of Royal Mail across the country. It is still incarcerated in plastic wrapping waiting to be unwrapped and put into service in order to turn around the very business and its service about which we are talking today. However, I would acknowledge—it is not all a negative picture or a sad story—that Royal Mail placed orders for walk sequencing machinery in 2008. More than 500 machines will be needed, with the first tranche arriving later this year. Pilots of the new technology will begin then. By the end of this month the company will have spent £700 million on modernisation. But the company is running to stand still. It has left this so late, which goes to the kernel of the company’s problems.
My noble friend Lord O’Neill of Clackmannan made a speech that I can only describe as a tour de force based on his considerable experience as the former chairman of the relevant Select Committee in the other place. This company for too long and in too many ways is a modern logistics company that has been run like a government department. Royal Mail has been bedevilled by a constant churn of Ministers, one after another. I am sorry to say that I unwittingly and involuntarily played my own part in that churn when I was Secretary of State for Trade and Industry 10 years ago. My noble friend is right: people with a couple of good ideas have moved on only too frequently before they could follow through those ideas and see them take effect.
As my noble friend Lord Brooke of Alverthorpe said—I hope he will not mind if I paraphrase him—every plan for modernisation has been batted back and forth from pillar to post with matters being settled in the Royal Mail but never resolved, which is at the heart of why the company is in the situation that it is. Of course, I would be the first to agree with my noble friend Lord Soley when he suggests that this Bill should have been introduced way back in 1999. I agree with him that we would not have the pension fund crisis now if this had been done in the first place. As each tide of reform has been launched, but has failed, over and over again we have found—we must now come to the conclusion—that the Royal Mail, as my noble friend Lord Giddens observed, is simply not capable of changing and reforming within its present structure. For that reason, its structure has to change to bring about the transformative effect that a new structure, a new strategic partner holding a minority stake in the company, would enable us to introduce.
The noble Lords, Lord Hunt and Lord Neill, asked why the Government in their command paper mentioned selling a 30 per cent stake. The level of any equity stake will be a matter for commercial negotiation, which will take place alongside and in parallel to the passage of this Bill through this House. The figure of 30 per cent that I have again quoted today reflects the level which we believe would give a partner sufficient influence to transform the business while maximising the value of the taxpayer’s ongoing investment and retaining control over a public sector company. But I have to say to the noble Lords, Lord Hunt, Lord Neill and Lord Birt, that I have no illusions about the tightrope that the Government will walk in trying to attract and persuade those who have already given indications of interest to engage more seriously in this process. Indeed, I should say at this point that TNT is not the only postal operator in Europe which has expressed an interest in forming a strategic partnership with Royal Mail.
As we go through the process of attracting, engaging and then entering serious negotiations, as I say, I am well aware of the tightrope we will be walking along—that of ensuring that the offer we make is sufficiently attractive to the would-be strategic partner and convincing that strategic partner that it really will be able to play a meaningful, effective and influential role in transforming Royal Mail, while making it absolutely clear that majority ownership and ultimate control will remain in the hands of the majority shareholder, the Government. This is not easy, but we will walk the tightrope, and I am reasonably confident that we will succeed in landing a strategic partner who can provide the expertise, experience and confidence needed from such a postal operator, with a track record not only of turning around a business of this sort, but also, importantly, bringing along the workforce and its union in the process, and I attach considerable importance to that.
Related to those remarks, perhaps I may say to all noble Lords who have raised the issue of what share Royal Mail’s workforce may have in the ownership of the company going forward, I certainly do not exclude this possibility. In principle it is the right idea both to debate and, if possible, to pursue. I have to say that when I floated the idea before Christmas to the national leadership of the Communication Workers Union, I was not exactly overwhelmed by the enthusiasm of the response, but none the less I shall continue to hold discussions with them, as I shall with others. Perhaps I may say in parentheses to the noble Lord, Lord De Mauley, that I do not think it is possible, while commercial negotiations are ongoing, to provide more details on the form of the partnership we think it would be possible to create. However, I will ensure that the House is informed of any important developments on this as our discussions continue and as the Bill goes through all its stages.
When I find the relevant notes, which tragically I cannot, I want to respond to the important issues raised by the noble Lord, Lord Razzall, on the Post Office. We absolutely guarantee the future independence of the Post Office and its network within the Royal Mail group. We absolutely guarantee in this Bill that the Post Office will remain 100 per cent owned on behalf of the public sector. As he knows, I am open to discussions about how the Post Office might extend its business relationships, connections and its role both within the Royal Mail group and in the provision of further services both government and financial. Moreover, while it should go without saying, nonetheless I will say it: the Government will sustain their very considerable subsidy to Post Office Limited. It has been suggested that some of the proceeds from a minority sale might also benefit the Post Office. I can imagine the discussion I will be having with the Chancellor of the Exchequer, who will say “Fine, you can give it some of the proceeds from the sale, but you should realise that some of the subsidy we already give will therefore have to be docked from the account”. That is a discussion we have not yet reached, but it is necessary to bear it in mind. I believe that the points I have just made also answer the issues raised by the noble Lord, Lord Cotter.
A whole variety of other issues were raised. I am glad that most if not all noble Lords who spoke in the debate have welcomed the Government’s proposal on pensions. The chair of the trustees has outlined a very serious funding situation facing the Royal Mail scheme, so I wonder how those who oppose this Bill and are trying to obstruct its progress think the Government can somehow magic out of a hat a sort of white rabbit to liberate Royal Mail’s pension fund from its current deficit and crisis. That miracle working is not available to me or to the Government without this Bill being taken through all its stages and ultimately being enacted. But let me reassure my noble friend Lord Clarke on one point: the Government are protecting the benefits which have been earned by members of the scheme. This is clearly set out in Part 2 of the Bill.
Perhaps I may also respond to points raised by my noble friends Lord Hoyle and Lord Lea about restraint of trade if Royal Mail enters into partnership with a competitor. I can assure them that, were Royal Mail to seek to enter into a strategic partnership with a significant competitor, the structure and terms of the arrangement would need to be approved by the relevant competition authorities. My noble friend Lord Haskel rightly suggested that as a Government we are morally obliged to fund this pensions deficit, but I have to underline a point in conclusion about pensions. In my view, which I offer as my own political judgment, it is inconceivable that the public would simply go along with a bail-out of this fund in this part of the public sector when so many other funds are under similar, but not as critical, pressure. They will wonder why we are doing this for the members of Royal Mail’s pension fund but not for the members of pension funds in other parts of the public sector. The truth is that the public would accept such a bail-out only, I believe, if the Government take steps to ensure that the company as a whole has a future and is engaged in transforming the service it provides.
Perhaps I can say in conclusion that today’s debate has reminded me that perhaps rarely in life, and even more rarely in politics, one gets an opportunity to return to an issue and do what needs to be done. One is given the chance to correct previous errors in public policy and regulation and is afforded the opportunity to make changes that can both protect what we should value and provide for the changes in practice and performance that every single one of us, in our heart of hearts, now knows is absolutely needed in the case of Royal Mail. For my part, I can reassure this House and the other place that the Postal Services Bill is a product neither of theology nor ideology but of independent and thorough analysis and advice, coupled with extensive consultation and debate that has been taking place now for a considerable period. The noble Lord, Lord Hunt, suggested that we were rushing into the Bill. The opposite is the case: we have waited too long to bring these proposals before Parliament.
Like the noble Lord, I welcome the quality of tonight’s debate and look forward to what I know will be a high quality, gruelling, line-by-line scrutiny of the Bill. We have been given a chance to lead the parliamentary debate on this legislation, which will lead to a new, modern, relevant and, above all, successful framework for the future of postal services in this country. I, for one, relish the opportunity and the challenge.
My Lords, other noble Lords have said that today’s debate has been interesting; I have found it both interesting and revealing about some people who I thought had a little more experience in dealing with the internal matters of the Labour Party. But I shall put that to one side.
Several noble Lords have referred to romantic and nostalgic visions of the past and of a Post Office that once was. Anticipating such remarks, I took the trouble to write to every Labour Peer explaining that I was not looking at this subject through tinted glasses—that I have a genuine desire to save what I think is a very important part of the British social structure.
I also reminded my colleagues of the manifesto which, believe it or not, was introduced four years ago, as someone mentioned today. Warwick 2 has been described as the Warwick tablets, which I find fairly offensive when one considers the democratic process that we fought to get within the Labour Party to do away with conference decisions by block votes and to go through a policy forum, strata by strata, until it reached the National Policy Forum. We were talking about having a wholly publicly owned, integrated, public service Post Office in July 2008 and it is revealing to discover how some people approach these matters.
I cannot possibly deal with every noble Lord who has spoken in the debate. To those I do not mention, I offer my sincere thanks for having taken part in the debate and for showing an interest in the Post Office and its problem.
I thank the noble Lord, Lord Hunt, for his kind remarks. He posed a very good question which every Labour Party Peer, MP, activist and member should ask: when is privatisation not privatisation? I am grateful to the noble Lord for posing that question. I understand why he said that he would go shoulder to shoulder through the Lobbies with the Secretary of State. Of course he will: this is Conservative Party policy. In the final sentence of the notes of a meeting last week, Labour Peers were told that they should be clear that the Tories see this measure as an interim measure on the road to privatising Royal Mail. When is privatisation not privatisation?
I am grateful to the noble Lord, Lord Razzall, for reminding me of something I left out of my opening speech. He and I have discussed Post Office matters before over the past few years. When I mentioned the Post Office pension holiday, I omitted to say, as the noble Lord, Lord Razzall, reminded us, that the Treasury clawed back over £1 billion during that period. There are two schemes in the Post Office: scheme A is an old style contributory scheme and scheme B is a shared costs scheme. If anyone wants to know what the benefit to the Post Office was based on scheme A during the holiday that the Post Office was allowed to take from 1 April 1990 to 31 March 2003—13 years—expert estimates show that it averaged out at £100 million a year. I was a negotiating officer and I remember asking the Post Office if it had put some away for a rainy day. I thank the noble Lord, Lord Razzall, for waking me up to some of the views of my past.
As I said, I am not going to go through the whole debate because it will not be fair. I was very touched by the contribution of the noble Lord, Lord Neill, and I hope that we will at some stage receive answers to the questions he put.
My noble friend Lord Haskel referred to uncertainty in the future. He said there was no monopoly in the textile industry. Of course there was not; it was protected by other means at the time. The textile industry was always sheltered by other Acts of Parliament, and good luck to the workers in that industry because they needed them. Circumstances have changed.
I agree with my noble friend Lord Sawyer. I pay tribute to the way in which he tried, very nobly—that is a good word in this place—to get understandings between the trade unions and management. His report was a model for other industries faced with similar situations so when he says that we have to work together and build trust, I say amen to that because that has been missing. When someone takes me to task for praising Royal Mail’s management as though I am some latter day convert to a sycophantic approach to management, I know where I stand. But when management turns the business round in the past few years from losing £1 million a day to making £1 million a day, it deserves credit. It should not be rubbished as though it has no idea of how to run a fish shop; it does a very good job. We cannot say that we have not got people in this country of ours who are able to do the job of managing the Post Office.
The noble Lord, Lord Fowler, was kind enough to suggest that, had John Major suggested this to the Labour Party in years gone by, we would have been out in the streets. We were already on the streets opposing privatisation; a current member of the Cabinet led the fight to “protect the post”, although some noble Lords might have forgotten that. We fought against privatisation and won, mainly on the basis of our experience with Girobank and BT. I say “we” in the context that I used to be a union official. I do not speak here for my union; in fact, I will probably have some problems with it for some of the things I say.
Twenty years too late, an honest approach is likely to appear, said the noble Lord, Lord Fowler. I thank him for that. We want an honest approach; we do not want any more of this smoke and mirrors. Let us have it out in the open, sit around a table, work out the modernisation programme and get the sequencing machines in. If people here, especially on this side, question my integrity regarding modernisation, I have made a few notes: I was in post when the Post Office Research Station pioneered and developed optical character recognition, first in Dollis Hill, NW2, and later in Martlesham. It was a Post Office development, and the new machines are an enhancement of that called intelligent character recognition.
Do not tell me about modernisation. I was one of those who got the modified postal services in. I supported the concentration of mechanised sorting offices and the concentration of sub-district offices in London when I was London secretary. I saw the automatic letter facing and cancelling tables brought in. I saw the postal sorting machines brought in. Please do not question my integrity about modernisation. The union of which I was a part, and am still a retired member, has done its fair share.
Some of the management in the past did not like the idea of worker participation. In fact, it was a Conservative Government who abolished the industrial democracy experiment that was running very well, where we had people on the board at national, regional and local level involved in decision-making. In those days we used to talk about the wonderful German model of worker participation, the workers’ councils. They all went. This war of attrition that people talk about—they have not used that word but it has been going on, head-to-head—could have been stopped at any time if there had been some sensible sitting around a table. In 1969 the Post Office pension scheme was created. By 1973 it was already around £1 billion in deficit but that was resolved by discussion, planning and getting investment into that scheme. It was so good that it led to 13 years of pension holiday. I am sorry if I go on too long.
My noble friend Lord Stoddart is my noble friend in the same sense that he said I was his. He thought the Bill unnecessary; that makes two of us. I do not know how many more there are in this House, but I think it is unnecessary for the reasons I gave when I moved the amendment. All these things we have heard about could be achieved if we took one element out of the Bill—the sale of the shares in the Post Office to private capital. That could be done. As I said earlier, we should look at ways of raising money and give the Post Office the chance to do so in other ways.
If only we could have a scheme like the one put forward by my dear friend, my noble friend Lord Rooker, where you put a letterbox at the end of your garden. Unlike in America, though, in this country it would not last five minutes. If you put a letterbox at the end of someone’s drive, someone would be stealing the mail before you can say “Jack Robinson”. And what would we do? We would probably give them two hours’ community service looking after someone else’s problems. That is what is going on. We cannot talk about using those methods until we have a society that can defend people’s mail, such as America, where it is a federal offence to interfere with it.
The noble Lord, Lord Birt, talked about the restrictive practices of a bygone age. He did not say what those restrictive practices were. That is something else that could get bandied around. We are not talking about Jack Dash and the dockers; we are talking about decent people who get up at half-past four in the morning and go to work. It is not a restrictive practice to sign the book at about quarter to six and then go out into the snow and the rain. The men and women who do that job should not be accused of restrictive practices; they should be commended for the job that they do.
I turn to this business about profitability. If Royal Mail has issued false information about the four legs of its organisation, someone had better tell it because it is saying that all four of those businesses are in profit. Who do you believe? I am tempted to believe that the people running the Post Office have a better idea of its accounts.
I am accused of saying that the Bill is full of embroidery. It is. It is embroidered to supply a little comfort around the central thought that someone has had that we must sell off 30 per cent of Royal Mail. The public do not want it, the staff do not want it, 140-odd Labour MPs down the other end do not want it, but we are going to make them have it. Well, here is one person who will fight to the last to see that we keep faith with our manifesto commitment, because that is what Labour people are supposed to do. We are not here to kick over the traces; we are here to support Labour Party policy as far as we can. I understand that some people have a problem with that.
I am pleased that the Secretary of State has been able to say that the USO is covered in the 2000 Act, because it is. There is a section—I do not know the number—protecting the universal service.
I am tempted to get excited. I will try very hard to deal with one or two points that were raised. My noble friend Lord Giddens compared Royal Mail with the National Health Service. With respect, how can you compare sticking private money into Royal Mail with the link between the pharmaceutical companies and the NHS? There are no shareholders on the boards of pharmaceutical companies. He argued that the Bill will produce a service that the public will approve of. I want the best service possible within the financial constraints that we have. I am ashamed when people deliver mail at half-past three in the afternoon. I do not believe that that is what a modern postal service should be providing for its people. All right, they cannot all get the post delivered by half-past nine in the morning in London—that is a romantic gloss from the past. We cannot do that, but we can improve the service so it is a damn sight better than it is at the moment. We can do that only when we have a method of operation that allows us to get the mail in, get it sorted—there is no question that that will be done by sequential machines; they will come—and then get it out. If I am right, some people will be like the postmen in Washington—letter carriers who walk around all day with their bags, getting topped up from time to time with their feeder system.
I thank my noble friends Lady Turner, Lord Hoyle, and others who might have supported me if I had pushed this amendment to a vote. But I have been in politics too long to think that I can possibly win a vote in this House tonight. However, I intend to go down to the other end whenever I can, attend every public meeting I can and give every public pronouncement I can. People who know me know that I have never dealt with the media, but I will from now on. The British public need to know the truth. We have to defend our postal service, but in the mean time I beg leave to withdraw the amendment.
Bill read a second time and committed to a Committee of the Whole House.