Committee (5th Day) (Continued)
Clause 39 : Review of costs of universal service obligation
89N: Clause 39, page 22, line 8, leave out “may from time to time” and insert “shall”
In moving Amendment 89N, I shall also speak to Amendments 89P and 93B. Amendment 89N is straightforward. It would delete the words,
“may from time to time”,
in line 8 on page 22. Amendment 89P would add, at the end of line 10, the words in the Marshalled List. I shall come to Amendment 93B later.
In May 2008, Richard Hooper’s team produced its interim report, The Challenges and Opportunities Facing UK Postal Services. I remember reading it for the first time and thinking that Richard Hooper, whom I had met only a couple of times, had produced a pretty good report. However, it is a pity that it was ignored, or not developed, in the final report, which was published in December. Somewhere between the interim report and the final report, something must have affected the thoughts of Richard Hooper’s team.
Most notable of these changes or omissions was the critique of the results of Postcomm’s botched introduction of competition, which was absent in the final report. Equally, the final report failed to add anything much on the universal service. The interim report noted of the universal service obligation:
“It helps social cohesion by linking rural communities with more densely populated areas of the country, and ensures that older people and those with disabilities have an accessible, reliable means of communication and the capacity to send and receive”,
mail. This was not developed in the final report or in the Bill. After all, the Bill removes the protection that these groups currently have under the Postal Services Act. Be that as it may, the failure of Hooper’s final report to develop the debate on the future of the universal service is notable because the inquiry took submissions specifically on this question. However, the final report did not come to a conclusion on whether the universal service represents a burden for Royal Mail.
Probably the biggest indicator that the universal service involves a burden is the failure of the competition to make any moves towards competing for the universal service obligation. The obligation involves the creation of a network of capital, as we discussed on previous amendments, and workers capable of delivering the service. The competition has drawn the conclusion that it is not worth while challenging for the obligation. The only explanation is that this is a burden that the competition will not shoulder and that Royal Mail is too efficient in the delivery of this service for the competition to defeat. Such a conclusion would obviously be against Hooper’s findings, but many of those findings are beginning to look faulty anyway, so perhaps the truth is both that the universal service is a burden and that it is delivered too effectively by Royal Mail for anyone else to consider shouldering that burden.
For the purposes of regulatory clarity and cost-efficiency, the amendments would direct Ofcom to analyse and come to a decision on the universal service costs. Postcomm failed to do this throughout its entire history, which was a pivotal point of its general failure. We must direct Ofcom towards a better policy. It may be argued that this would impose on Ofcom a very difficult task from the outset. Well, there is already a mass of material on methodologies that could be used. The most important issue, though, is that we have already suffered eight years of regulatory drift on this. It must be brought to a conclusion. If Ofcom is the body to do this, it should do so with some urgency. Amendment 93B proposes that examination be brought to a conclusion by the end of the financial year, with any necessary regulatory changes being implemented in the next financial year. I do not believe that this urgency is in any way inappropriate. The Government have suggested that defence of the universal service is at the heart of its concern in the Postal Services Bill. If that is so, it should not be too difficult to accept these amendments. I beg to move.
In speaking to the amendments, my noble friend has made clear what he is aiming to establish. It is certainly a fact that no competition can be provided to Royal Mail at present or in the foreseeable future. We know that some people hope that one of the competitors may at some time be able to take over the full service, including the extra mile, but the competition is not there at the moment. In the mean time, as my noble friend says, there is no doubt that the universal service provider is losing money in taking on what is being asked for; the service is a financial burden to it. My noble friend is quite right to say that this matter should be looked at quickly. He is right to set a date by which it should be done and to say that we ought to know the cost to the universal service supplier—Royal Mail—of undertaking these tasks. The service should not be a burden on it and we need a report as soon as possible. I am pleased to support the amendments that my noble friend has put forward.
I shall speak to various amendments in this group. I should assure the Committee that the reason for the state of my right eye is not that the debate on the Postal Services Bill has become aggressive behind the scenes. Nor is it anything to do with the noble Lord, Lord Mandelson, although I know that he gets blamed for a lot of things.
We propose that Clause 39 should not stand part of the Bill, and we have tabled Amendments 91 to 93, because our party has taken the view that one of the significant errors that has occurred in the operation of the services in question in the past few years is that the regulator was not tough enough to ensure that the Royal Mail’s competitors provided the appropriate payment for the universal service obligation. As we all know, many bulk mail producers have been using other contracts which have then required the Royal Mail to deliver through the post box. Many of those competitors have therefore been taking advantage of the universal service obligation and should compensate for it. Our amendments indicate that we do not think that there is any need for an Ofcom review, but that the Bill should state that those people should pay their appropriate proportion of the USO.
I was hoping that the noble Lord, Lord Razzall, would open up a little more on who was responsible for his current appearance, but I was disappointed. I am afraid that we have serious reservations about the amendments in this group. As later amendments that we have tabled suggest, we are deeply concerned about the possibility of a levy being imposed on the sector without further parliamentary involvement. To impose a levy without clear indication that it is necessary would be counterproductive. We all hope that this Bill will put Royal Mail on a sound financial and managerial footing for the future provision of the universal postal service. Surely that is its core purpose. In such circumstances, it is too early to conclude that the UPS cannot be provided at a profit. We were glad to see the Hooper review confirm that there was no indication that a levy would be necessary.
I, too, was rather hoping that the noble Lord, Lord Razzall, would reveal all, but that is perhaps something to look forward to later. I thank the noble Lord, Lord Clarke, for again so clearly making the case for why there is a need for a change in the regulatory regime, why there is a need for the underpinning and support of the universal service obligation, and why there is a need to ensure that it is done on transparent terms, all of which the Government agree with. The Government’s concern for the provision of a strong universal postal service is absolutely at the heart of the Bill. It was at the heart, too, of both the first and the second Hooper reports. Indeed, on page 32 of the final report, Hooper lays out clearly the importance of the universal service obligation and makes it clear that that is the fundamental rationale for the sum total of his recommendations.
The Government’s view is that in the first instance the most effective safeguard for the universal service is for Royal Mail to modernise and become efficient on open and transparent terms, thereby enabling it to meet the costs of its universal service on a fair basis, but from within its own resources, and to reap the benefits from being the sole provider of the universal service as well as the transparently allocated costs. To that end, I rather agree with the noble Lord opposite that establishing a universal service fund today would be counterproductive. It could have the perverse effect either of weakening the incentives on Royal Mail to adapt to changes in the market or removing the need for us to have an accurate and transparent in-first-instance cost structure for such a universal service. At a time when by the Royal Mail’s own admission there is an urgent need for modernisation to invest and compete in the modern communications market, it would also be unfair on other service providers and customers who at this stage should not be penalised or required to contribute to a universal service fund which may simply exist as a means of capturing inefficiency.
As I said, the Hooper report’s proposals, which we are implementing in the Bill, are the right way forward to enable Royal Mail to get the balance right between modernisation and a fair cost structure, thereby maintaining the universal postal service for the foreseeable future. However, the Government also recognise the risk that falling letter volumes and the other structural market changes outlined in Hooper may accelerate, thereby eroding the ability even of an efficient Royal Mail to maintain the universal service at its own cost, which is why we are giving Ofcom the power to set up a universal service fund should a future need arise.
The noble Lord, Lord Hunt, asked earlier—I think in relation to Amendment 89G—for more details on how a so-called “sharing scheme” for financing a universal service fund could be imposed. The possibility of a compensation fund is provided precisely to guard against those longer-term changes in the market which we cannot foresee now but which may come. In addition, the Bill gives assurance that such a sharing scheme will be imposed only in specific circumstances. First, it requires in Clauses 39 and 40 specific steps for Ofcom to follow: a review of the financial burden of universal service obligations, an audit of this review, the publication of its conclusions and an assessment of whether the financial burden is unfair. Only then can regulations to set up a fund be brought to bear. Secondly, the compensation scheme must work objectively, proportionately and transparently, must not be unduly discriminatory, and must avoid or minimise distortion of competition. Thirdly, the procedures and safeguards generally provided by the Bill apply: Section 403 of the Communications Act and paragraph 1 of Schedule 6 to this Bill.
Amendments 89N and 89P, proposed by my noble friend Lord Clarke, would place Ofcom under a duty to review the financial burden of the universal service conditions by 1 March 2010. Clause 39 currently gives Ofcom the discretion to review the financial burden of the universal service, but does not impose a time limit.
Ofcom will undertake a full strategic review of the postal services market as soon as it has the powers to do so. It will take longer to complete these tasks properly and to consult on them than I fear my noble friend is allowing. So there will be a full initial market review. Clause 39 provides discretion to undertake a specific review of the net cost of the universal service at a later date, should that be needed.
The Government believe that the discretion proposed in Clause 39 is both necessary and important for Ofcom to regulate effectively. By that stage, Ofcom will have become the body which will be expert in the postal market. It will have been required to gather a robust evidence base through market review, assessment and clearer accounting separation. It will have a duty to protect the universal postal service. Ofcom will therefore be best placed to decide when exactly is the right time to review whether providing the universal postal service may constitute an unfair burden on a single universal service provider.
In addition, requiring a review of the financial burden of the universal service by the end of the financial year is, in practice, unrealistic. There would simply not be enough time for Ofcom to undertake this review between autumn 2009 and March 2010 alongside its initial market review. As recommended by the Hooper report, Ofcom will start working with Royal Mail as soon as it has powers to develop a shared understanding of its costs and the benefits of providing a universal service.
Let me now address Amendment 93B before turning to the amendments tabled by the noble Lord, Lord Razzall. This will enable me to respond fully to each of the noble Lords, first my noble friend Lord Clarke and then the noble Lord, Lord Razzall. This amendment would require contributions to be made from 1 April 2010, provided Ofcom has determined after such a review that contributions should be made. This would happen even if the regulations for setting up the universal service fund scheme, required by Clause 40(6), are not made until a later date. I fear that this is unworkable. If a universal service fund were ever to be set up, it would be crucial that enough time was allowed for Ofcom to consult on and make regulations to ensure the proper operation of the universal service scheme, as I outlined earlier to the noble Lord, Lord Hunt. It is important that any such regulations are set up in an appropriate and considered manner, ensuring regulatory certainty and appropriate safeguards as provided for in subsection (6), which states that the scheme must be objective, proportionate, transparent, and non-discriminatory and avoid or minimise the impact on competition. I therefore invite my noble friend Lord Clarke, to withdraw his amendment.
The noble Lord, Lord Razzall, has given notice that he wishes to oppose Clause 39 standing part of the Bill. We have explained previously the Government’s intention behind Clauses 39 and 40. We want to put the universal postal service first. We want to make sure we consider every risk to it, and plan as best we can for the future. But the universal service fund should only be used as a last resort. In this context, if a universal service fund were to be set up, it is by definition necessary to retain Clause 39. Ofcom must be able to review the extent, if any, of the financial burden for the universal postal provider of complying with its universal service obligations. Without the facility to be able to review the financial burden, Ofcom cannot decide whether to establish a universal service fund, nor how large it needs to be, nor who the contributors could or should be. If there is no or little financial burden, why require contributions to meet this burden? In addition, under the postal services directive, only the net costs of the universal service can be shared through a universal service fund. Without the power to have a review of the financial burden, not merely the costs, Ofcom will not be able to determine what the net costs are of the universal service.
Amendment 90, in practice, removes the discretion of Ofcom to require contributions for sharing the burden of the universal obligation, and instead imposes a duty to set up a universal service fund. Like the noble Lord, the Government are concerned to secure the provision of a strong universal postal service. As I explained earlier, and as noted by both the initial and final Hooper report, a universal service fund would be counterproductive in the present situation. The fund is intended to insure against future market changes which might make it impossible for a modernised and efficient Royal Mail to support the universal service.
I turn to Amendments 91 and 92, which I shall address together as it is together that their meaning is clear. The proposal in Amendments 91 and 92 is to require both providers of services within the scope of the universal service, and users of such services, to contribute to any universal service fund. The intention appears to be to ensure maximum subsidy to Royal Mail via the universal service fund at this point in time. Amendments 91 and 92 remove Ofcom’s discretion to decide that only providers, or only charges paid by users, can be used as contributions to universal service obligations. The Bill provides this flexibility for Ofcom, however, so that Ofcom can determine the most appropriate way to ensure contributions to protect the universal postal service, while taking into account the needs of special interest groups of users, and the need to be proportionate. We would argue that Ofcom, after due analysis, and the imposition of a clear and transparent cost allocation regime, will be far better placed in future to determine if a universal service fund is required, how contributions should be made, and what is in the best interest of all users at that time. At this stage, we should not fetter Ofcom’s discretion and, perhaps more importantly, analysis, in this important area.
I will now briefly discuss Amendment 93. The noble Lord proposes in Amendment 93 to ensure that all providers and users who can be asked to contribute to the universal service fund are actually required to do so. Amendment 93 would remove the ability for Ofcom to decide that only certain subcategories of users and providers within the scope of the universal service must contribute to the fund. As I have just said, the Bill provides a necessary flexibility for Ofcom, which needs to be able to determine the most appropriate way to ensure contributions to protect the universal postal service, while taking into account the needs of special interest groups of users and the need to be proportionate.
In conclusion, Clauses 39 and 40 give Ofcom the power to create a soundly based and proportionate universal service fund, should it be required in future. Ofcom, as the guardian of the universal postal service, will be best placed in future to determine whether a universal service fund is required and, if so, how contributions should be made. I realise that this is an important debate but, for the reasons that I have set out at some length, Clause 39 should stand part of the Bill, and I invite the noble Lord, Lord Razzall, not to move his amendments.
I thank the noble Lord, Lord Hoyle, again for his continuing support in defence of our wonderful Post Office. I do not want to get into the origins of the injury to the noble Lord, Lord Razzall. All that I can offer is sympathy and hope that whatever it is clears up.
The noble Lord mentioned that perhaps in the past the regulator has not been tough enough and the Government seem to have gone along with the idea of letting it do exactly what it likes. Anything in this section of the Bill that talks about control of a regulator to see that it is not imposing unfair competition is something that we will have to look at very carefully. On bulk mail deliveries, the Committee has heard me speak many times about the unfairness of the cherry picking that went on and was clearly prophesied, and I shall not go into that today. The noble Lord, Lord De Mauley, asked who was responsible. If the Committee has not heard me so far, I shall say again: the Labour Government in the Postal Services Act 2000 are responsible for the whole mess that we are in at the moment. It was an ill founded Act that gave the wrong base for the Post Office finances and imposed an unfair advantage to the Royal Mail’s competitors.
I am delighted that the Minister can confirm, once again, that concern for public service is at the heart of the Bill. Good. He then went on to speak about the much needed modernisation, and I am delighted that he mentioned it because I had not talked about it earlier. Before we left last Wednesday, my final comment was to ask when someone would tell us what was meant by modernisation, such as how much it will cost, what the machines will cost and where they are. Those are questions that I have been asking since Second Reading—and most noble Lords know that I tried to stop the Bill ever having a Second Reading. But it did get one, and I have repeatedly asked those questions. Outside the Chamber, I have taken the opportunity to speak to the Minister, who tells me that it is in progress and we are going to get it.
For those people interested in the modernisation agreement, we are now three years into a five-year agreement agreed between the workforce as represented by the CWU and the Royal Mail. The modernisation programme has over 90 per cent penetration of achievement with two years still to run. When we are looking and talking about how quickly you could work things out, since that modernisation agreement started to take effect, instead of losing £1 million a day, as was the case at the beginning of that period, the Royal Mail is now showing a profit of £1 million. The signs are pretty good—and in response to Hooper’s proposal on modernisation we should stand back and say, “Well, it’s already working”. Agreements were made before pen was ever put to paper on the Hooper report. I listened very carefully to what the Minister said on the amendments tabled by the noble Lord, Lord Razzall, and they are deserving of very close attention before we come to Report. There are things that I could be attracted to if I have understood what the Minister said in his reply.
The noble Lord said that it was wrong to put a time limit as close as 2010. Would that not be a good test for Ofcom, to see whether it could do it? If it cannot do it in the time, it will have to admit failure and we will have to accept that, but we should have a target. I have been told so often by Ministers and the Government that it is imperative to get this right. Let us give Ofcom a test and tell it to get on with the review.
My noble friend has said a number of things that need a bit of study and understanding. We now know that we will be back here in a fortnight for Report, so there will be time for amendments, but for the moment, I beg leave to withdraw the amendment.
Amendment 89N withdrawn.
Amendment 89P not moved.
89Q: Clause 39, page 22, line 26, at end insert—
“( ) In applying the method of calculation specified in subsection (2) or in calculating the financial burden under subsection (3), OFCOM must conduct an independent efficiency benchmarking exercise and exclude from the costs any inefficiencies identified.”
This amendment returns to the question of the basis on which the levy is to be imposed. I very much welcome the noble Lord’s justification of Clause 39 and I am pleased to see the requirement for a separate, audited and transparent review of the financial burden, but this amendment would include a further safeguard on efficiency.
The imposition of a levy will obviously have a significant impact on the postal operators forced to subsidise Royal Mail under it. The Government have at least noted the potential for a levy actively to undermine competition in Clause 40, but I do not believe that they have satisfactorily addressed the possibility that it could also have the detrimental effect of subsidising inefficiency. If the costs used to calculate the financial burden are not adjusted to exclude ongoing inefficiencies the review will recommend a higher levy than is necessary, and one that would ensure that efficient private sector operators are forced to maintain the less than efficient practices of the universal service provider.
Ofcom has indicated its unwillingness to use unadjusted costs when calculating access costs under Clause 34. Instead, it envisages a glide path ensuring that incentives remain to encourage postal operators to move towards efficiency. Even greater stringency should apply in the case of a compulsory fee. I beg to move.
Amendment 89Q would require Ofcom to estimate from a benchmarking exercise the inefficiencies of the universal service provider and exclude it from the costs of complying with universal postal service obligations. The noble Lord understandably seeks to make sure that competitors are not unreasonably required to subsidise existing inefficiencies through the existence of a compensation fund. I tried to answer this question in part earlier, but let me restate that the Government fully agree with the noble Lord that the compensation fund should not subsidise inefficiencies. It is absolutely the Government’s intention that the fund should be used only as a last resort. It is there to protect the universal service if future market changes mean that an efficient and modernised Royal Mail is unable to do so fairly on its own.
In addition, Ofcom will be able to impose a compensation fund only if it determines that the burden sustained by Royal Mail is unfair—that is, if the costs of delivery outweigh the benefits. That is not a simple question of costs, as the costs are often, as we know, clearer—although not currently, it is sad to say—and the benefits are often more intangible. But it is clear that there are enormous benefits to being the universal service provider.
Finally, as I said in answer to the previous amendment, any compensation scheme will be required to be objective, proportionate and transparent, to avoid undue discrimination and to prevent or minimise any distortion of competition. Ofcom will also have to take into account the universal service cost calculation mechanism set out in annexe 1 to the postal services directive. That would require national regulatory authorities—Ofcom in this case—to consider all appropriate incentives for postal service providers to provide the universal service obligations cost-efficiently. I can reassure noble Lords that the amendment is genuinely not necessary. We agree with the noble Lord that the compensation fund should not act as a subsidy for inefficiency but we consider that the legislation and the directive already provide effective mechanisms to ensure that this will not happen. I therefore invite the noble Lord to withdraw his amendment.
While listening to the Minister, I was reminded of the need constantly to refer back to the excellent review by Richard Hooper and his team. Paragraph 103 states:
“We also believe that while Royal Mail’s competitors should be required to pay a fair price for the use of its delivery network, they should not be penalised for the company’s inefficiency”.
Richard Hooper’s recommendation was that an industry-based compensation fund should be rejected in current circumstances. I detected from what the Minister said that he agrees with the purpose behind the amendment but does not think that it needs to be in the Bill. I shall reflect carefully on the points that he has raised and in the mean time I beg leave to withdraw the amendment.
Amendment 89Q withdrawn.
Clause 39 agreed.
Clause 40 : Sharing of burden of universal service obligations
Amendments 90 to 93 not moved.
93A: Clause 40, page 23, line 34, at end insert—
“( ) Regulations under subsection (5) may only be made by affirmative resolution.”
It will be helpful to move to the more general proposition on the levy. I believe that this amendment is fairly self-explanatory. I am not sure that it is perfect drafting but I hope that the Minister will see the point behind it. In essence, it would ensure that no levy is imposed on postal operators without the approval of Parliament.
As the Bill is drafted, Ofcom, as the Minister has just explained, can decide that there is a financial burden in providing the universal postal service and then impose a levy completely independently of even the Secretary of State, let alone Parliament. I have just quoted an extract from Richard Hooper’s review, which confirmed that under present circumstances there is no justification for a levy. There certainly can be no case for imposing one before the market assessment has been completed, so we are not talking about a provision that needs to be implemented any time soon. Indeed, one would hope that such a levy need never be introduced.
The Bill defines the USO on the basis of what is generally desirable from a postal service rather than limiting itself to those aspects of a postal service that the market does not supply on its own account. With the proper application of regulation to ensure postal operators do not cherry pick the most profitable parts of the universal postal service, there is no reason to believe that Royal Mail will not be able to run the UPS profitably. Indeed, the main rationale behind the first two parts of this Bill is to ensure that it can do just that. The Secretary of State’s defence of part-privatisation and the absorption of the pension deficit is that, without them, Royal Mail cannot maintain the UPS. If it is later shown that Parts 1 and 2 were insufficient, and that even more money must be found, that would represent a significant failure of government policy. In all these circumstances Parliament should be involved, and a proper debate and discussion should take place in this Chamber before any such move. Against that background, I beg to move.
I do not feel that I can comment on the quality of the drafting of the amendment. As I understand it, it seeks to restrict Ofcom’s powers to protect the universal service as circumstances develop. The noble Lord is absolutely correct that Hooper makes it clear in his report that in current circumstances there is no requirement for a compensation fund. Hooper also makes it clear, based on what we know now, that there should be no cross-subsidisation of the universal service until we have a credible and accurate strategic market review. In this instance, the noble Lord’s proposal would require Parliament to approve formally any proposals put forward by Ofcom before it could create such a fund, were we to find ourselves in a situation where the regulator, based on analysis, had judged it to be appropriate.
The Government’s view is that the Bill provides adequate direction to Ofcom on the conditions and processes governing the creation of a compensation fund. To build in further checks would delay Ofcom’s ability to take action in what by definition would be different circumstances from today’s. We believe that this is unwise and unnecessary.
First, the Bill provides that, before any scheme can be established, Ofcom must undertake a review of the costs of providing the universal service. Such a review would have to be published and its calculations audited. Details of these requirements are in Clause 39.
Secondly, Clause 40 sets out a two-stage test that Ofcom must undertake to determine, first, whether the universal service represents a burden to Royal Mail and, secondly, whether such a burden is unfair. Thus the test is not merely the identification of a burden. These determinations will be made transparently, and in line with regulations made by Ofcom.
Thirdly, the Bill requires Ofcom to ensure that any compensation fund operates in an objective, proportionate and transparent manner that does not distort competition or discriminate against particular users or operators. These provisions are also in Clause 40.
Fourthly, Section 403 of the Communications Act 2003 sets out the procedure that Ofcom must adhere to in making regulations. Among other things, this requires the regulator to publish notice that it intends to regulate and to consider any representations that it receives.
Clause 40 is based on Section 71 of the Communications Act, which relates to the setting up of a compensation fund in the context of a universal telecommunications service. In common with Clause 40, Section 71, approved by your Lordships' House and another place, does not include parliamentary procedure for the making of those regulations. I remind noble Lords that the Bill’s delegated powers have also been scrutinised by the Delegated Powers Committee, which did not recommend any changes.
I hope that I have provided the noble Lord with reassurance that there are already strict tests that Ofcom will be required to pass before imposing regulations, and that to tie its hands now could put the universal service at risk in future, subject to market changes; and also that, in relation to the creation and allocation of any compensation fund, there are a number of hurdles that the regulator will rightly be required to jump before it can create one. I therefore ask the noble Lord to withdraw his amendment.
We are in complete agreement that nothing must put the USO at risk. That is agreed on all sides of the House. We are now debating whether to allow significant changes to be made without further debate in this place. That is the point of the amendment. Richard Hooper’s report is a good reminder that, at the moment, there is no case for the compensation fund. Paragraph 102 states:
“More importantly, we believe that compensation, from any source, would be counter-productive in the present situation. It would considerably weaken the incentive for Royal Mail to adapt to changes in the market. It would not address the fundamental issues undermining the financial health of Royal Mail”.
The report also points out, among other issues, that the amounts that could be recovered are tightly prescribed under European law. These issues ought to be considered if Ofcom decides to go down this route. However, at the moment, as far as one can tell from the Bill, there is no opportunity for the Government to have a view, let alone for Parliament to debate the pros and cons of such a situation. That is why I tabled the amendment, and why I still hope that the Minister and his colleagues will consider whether Parliament should not have the opportunity for a full debate on this, were the situation ever to arise. In the mean time, I beg leave to withdraw the amendment.
Amendment 93A withdrawn.
Amendment 93B not moved
Clause 40 agreed.
Clause 41 agreed.
94: After Clause 41, insert the following new Clause—
“Borrowing from capital markets
Nothing in this Act prevents the universal service provider from borrowing money from capital markets in order to comply with its universal service obligations.”
In view of the sympathy shown to me by several noble Lords, it is perhaps appropriate to disclose that my right eye is in this condition not because my noble friend Lady Bonham-Carter hit me during what might be termed a “domestic”, but because, while playing cricket with the Lords and Commons on Thursday, I was struck in the eye by the ball.
Amendment 94 is small, but raises a significant point. Obviously it is a probing amendment, and the purpose behind it is straightforward. If Her Majesty’s Government are going to introduce what the noble Lord, Lord Clarke of Hampstead, likes to call privatisation, but which clearly involves the Royal Mail not being owned 100 per cent by the taxpayer, is there any reason why the Royal Mail should not be entitled to borrow money from capital markets? Clearly there is liberalisation going on here, so why should that not include the ability to borrow from capital markets, to further whatever capital investment the Royal Mail or the universal service provider wishes to effect? That is the purpose of this amendment and I look forward to the Minister’s response.
I commend the noble Lord, Lord Razzall, for tabling the amendment. If the Secretary of State tells us that it is not needed in the Bill, I will be even more grateful. Not only would this give an option to the Royal Mail in the case of either continued public ownership or partial private ownership, it would also give the Government some negotiating strength in relation to potential partners and anybody else who has the future of the Royal Mail in their sights. The noble Lord, Lord Razzall, has a point: if it is not needed, it would be useful for the Secretary of State to put that on record.
I was tempted to keep quiet, but the noble Lord, Lord Razzall, has given an opening to people like myself who oppose the privatisation—I shall continue to use the word, whether it offends people or not—of the Royal Mail. One thing that the Royal Mail has needed for some time is flexibility in its financial dealings. This short amendment has a lot to commend it. If the Royal Mail were given the freedom to borrow from capital markets, we could perhaps do away with the element of privatisation that seems to obsess the Government.
As I mentioned earlier when we were discussing this matter, I could not agree more that Royal Mail should have the opportunity to borrow from the capital markets if it needs to do so. As my noble friend said, if it had that right, there would be no need at all for this partial privatisation. There is no need for it anyway, but this measure would certainly strengthen its hands. I, too, thank the noble Lord, Lord Razzall, for bringing this matter to the Committee’s notice.
I am sure that we all extend our sympathy to the noble Lord, Lord Razzall, for the terrible injury that he has incurred in pursuit of a very good cause. I am delighted to see that he remains ready to do anything to prevent being beaten by the other place.
Amendment 94 relates to Royal Mail Group Ltd, which we expect to be designated the universal service provider, borrowing from the private sector. There is absolutely nothing in legislation to prevent Royal Mail Group borrowing. Indeed, the Government have made available loan facilities of £3.5 billon over eight years. Royal Mail Group currently has borrowing facilities of £1.2 billion from the Government on commercial terms. It expects fully to utilise these facilities over the next two years.
The source of Royal Mail’s borrowing, whether private or public sector, makes no difference to its legal, accounting or financial treatment. Whatever the source, the borrowing must be at a commercial rate. It scores against the public sector debt and has the same impact on the public sector affordability. The only difference is that any borrowing from the Government, in particular from the National Loan Fund, is cheaper for the public sector as a whole, rather than the company, because it uses the cheapest source of funds for the public sector; that is, gilts. If Royal Mail borrowed directly from the private sector rather than through the Exchequer, it would be the same cost for itself but the marginal cost to the public sector would be higher. It is, of course, possible that in value rather than pure cost terms this could be worth while in certain situations because of the specific disciplines it could bring to the borrower. However, as I say, the cost would be higher.
As regards the Treasury’s role, as any borrowing by Royal Mail scores as public sector debt, it is important that Her Majesty’s Treasury retains some controls over that borrowing. This amendment would prevent the Treasury exercising any control over Royal Mail’s borrowing. The amendment does not set a limit on what could be borrowed or any other controls. This is not desirable and could be damaging to the public finances as a whole. However, the key fundamental message is that the ability to borrow is not, as I say, a constraint on Royal Mail Group; the source of its borrowing is not constrained in legislation at the moment but that source is actually irrelevant and the terms that it borrows at are always equivalent to commercial terms. That is the essence of the matter.
In the context of the legislation, I understand what lies behind the amendment but we must not forget that partnership and what we are seeking to introduce to Royal Mail is not solely about introducing money into Royal Mail Group. I take this opportunity to stress that again. As importantly, a partnership is required to bring in the expertise and experience of transforming a postal or network business that would come by introducing a minority stakeholder from the private sector into Royal Mail. This represents the best route to accelerate modernisation and to enable Royal Mail to diversify and expand its operations. In the light of what I have said, I ask the noble Lord to withdraw his amendment.
I thank the Minister for that response. I wish to make two points. First, the overall point I was making was that if Royal Mail had a minority shareholder going up to 49 per cent, such as TNT or Deutsche Post or all the other people who are forecast as possible minority partners, clearly that entity will become a different sort of company. It will become a different entity. In those circumstances, it seems to me and to other noble Lords, particularly on the Labour side, that it would be appropriate for it to be free to borrow without the Treasury’s approval. If TNT owned 49 per cent of Royal Mail—in the Government’s view, 51 per cent should be owned by the public sector and in our view, half should be owned by the employees and half by the Government—why should that new entity not be freed from Treasury restrictions in terms of giving consent?
Secondly, I completely take the point that Royal Mail management as presently constructed can borrow 100 per cent from the Government at cheaper rates than would apply in the capital markets today. But bearing in mind how much money Her Majesty’s Government will have to borrow, will that necessarily be true over the next few years? In the mean time, I beg leave to withdraw the amendment.
Amendment 94 withdrawn.
95: After Clause 41, insert the following new Clause—
“Investment fund for post office network
(1) This Act shall not come into effect until the Secretary of State has by order made provision to establish an investment fund for the post office network of at least £2 billion in order to achieve a post and sub-post office network that may enter business agreements with other businesses in the postal service and other sectors, and deliver a range of services, including—
(a) the opening of new post office branches where there is a defined need,(b) start up and investment capital and training in business opportunities to new and existing sub-postmasters,(c) the provision of local and central government information and services by post offices and sub-post offices, and(d) the creation of a postbank to deliver financial services for customers through the post office network.(2) An order under subsection (1) must provide for the Crown to have a statutory obligation to maintain the Post Office network on the basis of a framework with agreed outlets and service requirements set every five years and beginning in April 2011.
(3) An order under this section is subject to the affirmative resolution procedure.”
This is probably the most fundamental amendment that we have moved from these Benches. Those noble Lords who were present at Second Reading will appreciate that the major point is that if we are to go down the route of having some element of private investment in Royal Mail Group, and if we are to divest the Post Office, this is a one-off opportunity to secure not only the future of Royal Mail but that of the Post Office network. If the Government want to get their Bill through to bring external investment into Royal Mail and separate the post office network, this is the moment to ensure that that network is secure for the foreseeable future.
I was extremely pleased that, when discussing earlier amendments, the Minister gave a certain commitment, which was the first time that the Government have done so. I choose my words carefully because the commitment was not that no post office will in the future be closed but that Her Majesty’s Government have no programme to close post offices. That is an extremely important commitment on the part of Her Majesty’s Government, and those who have campaigned to secure post offices will undoubtedly be very grateful for it. However, it seems to us that we should endeavour to secure the future of the post office network in the Bill.
We have inserted the figure of £2 billion in the amendment. I have no knowledge or information regarding the exact amount of investment that the post office network will require. The important point is that it is not just a case of subsidising the existing post office and sub-post office network but of what the cost will be of doing the things that are necessary to ensure the long-term future of that network. We have tried to include some of them in the amendment. I have no idea what investment will be required in order to set up a post bank, which everybody is in favour of, as, I think, is the Minister. However, investment will clearly be required. Therefore, we feel that this measure should be included in the Bill. I am sure that if the Government agree with the principle of the measure, they will produce a much better amendment on it than I have done. We consider that this is an important moment for the future of the post office network. I beg to move.
Amendment 95ZA (to Amendment 95)
95ZA: After Clause 41, page 3, after “until” insert “the condition in subsection (1A) has been met and”
I shall speak also to Amendment 95ZB. I want then to speak to Amendment 95 generally. All I am doing is saying something that Members on all sides of the Committee will agree with. I was pleased when my noble friend said that he would not approve any future programme of post office closures and I want to tie that down in the Bill. I want to ensure that there will be no future programme of post office closures because that is important. Most of us will agree that the Government have already gone too far. It is therefore important to write into the Bill the fact that there will be no further closures.
Generally, I agree with what has been outlined in the new clause and accept that we do not know how much will be required to implement it. However, while we are talking about no more closures, we are talking in the Bill about opening post offices. We can think of many areas in which post offices have been closed and where there is a growing demand for them to be reopened. I welcome the proposal for a Post Office bank, and the Government’s commitments that that will go ahead; the sooner that happens the better.
My noble friend Lord Clarke will no doubt talk about Girobank. I have talked in the past about the possibility of a merger between the Co-op Bank and the Britannia as being a suitable vehicle for a post bank. I welcome the general spirit of what has been put in the clause and my amendment is designed to ensure that there are no further closures and that we get a firm commitment to that in the Bill.
I support my noble friend’s comments and I share his joy. There must be communities all over the country that are relieved that the Secretary of State has given an undertaking that there will be no more closures. I think of the people who protested in London, in Bristol and in almost every part of the country when their much-valued post office was closed as a result of pressures put on the Post Office by the Government. I hope that that commitment will appear in the Bill, as my noble friend Lord Hoyle proposes.
I will resist the temptation once again to rehearse what happened to Girobank. The history will one day be written. The Alliance and Leicester, now part of another bigger banking group, got the benefit of what I have said many times was a giveaway. I will not go over it all again today, but I want to speak about post banking, proposed in the amendment tabled by the noble Lords, Lord Razzall and Lord Cotter. It appears clearly in subsection 3(1) of their proposed new clause. I am sorry that I did not table such an amendment. I received a letter from the Public Bill Office after asking whether I could table an amendment proposing a post bank. I was told nicely and politely by the clerk in the Public Bill Office that this was not within the framework of the Bill as presented. I am therefore delighted that it has been proposed by the noble Lords.
However, Amendment 95 gives us the opportunity to talk about a post bank. I believe that it should be aimed at tackling financial exclusion and supporting small businesses and local economic activity. In turn, this will strengthen the financial position of the post office network. I believe that the post bank could be the vehicle to provide the universal banking obligation. Appropriate and trustworthy financial service should be available to all through the banking system. I was harking back there to the Girobank when people received chequebooks for the first time in their lives.
There is a substantial rising suspicion about the performance of banks. I do not understand high finance, as noble Lords have probably gathered by now, but I do understand that there is a little concern about the way banks are operating. Exclusion from the banking system remains a problem for the lower paid and poor. The universal banking obligation has been debated: most notably, it was examined by the House of Commons Treasury Select Committee in its report Banking the Unbanked, published on 19 November 2006. Among the comments of the committee was:
“Some evidence we received argued that the time is right to move beyond the current voluntary approach to enhance an access to banking services for the financially excluded by introducing a statutory requirement to provide banking services for all. The precise form that such a requirement might take remains unclear, as some of its advocates acknowledge.
The concept of a ‘Universal Service Obligation’ is generally associated with services that have been provided in the public sector or in sectors where licensing or high barriers to entry confer a particular market advantage. Banking could be seen as a more open and competitive market than some markets to which Universal Service Obligations apply, making comparisons with postal alternative communication services of limited value, although it is possible to envisage a situation in which statutory regulation undertaken by the FSA includes more stringent conditions on the activities of banks in relation to the financially excluded”.
Among its conclusions was that:
“The case for the imposition of statutory requirements relating to access to, or the provision of, banking services for the financially excluded is closely linked to analysis of current performance of the banking industry and of individual banks. This report makes a contribution to such an analysis. As matters stand, we do not consider that the case for such legislative action has been made. We agree with the Economic Secretary to the Treasury that more can be achieved at present by a voluntary partnership approach, and also with his important point that the willing participation of the banks will be essential in tackling the financial inclusion regardless of legislative action. However, we also note the statement by the Economic Secretary to the Treasury that a legislative approach is ‘not off the table’.”
The report then went on to say that,
“we recommend that the Government, the banks and the Financial Inclusion Taskforce work together to prepare and then publish measures of engagement by the individual banks with the socially excluded, provided on a standard basis no later than the middle of 2007”.
I assume that this was not acted upon. But I hope that we can resume this debate, for one of the results of the recession has been to deepen the problems of financial exclusion.
For many in the poorer communities, this means strengthening the hold of loan-sharks and usurious interests on small loans. If anyone has ever lived on a housing estate and seen the effect of loan-sharks they will realise how important a simple banking system is and how much it is needed by ordinary folk who are at the mercy of these people. The Government have introduced the Saving Gateway Accounts Bill, which aims to encourage savers of very modest means. I hope that they will examine the need to support loans and micro-credits to the poorer communities as a supplement to the gateway savings scheme.
The arguments for a post bank are very strong. At present, the Post Office is the fastest growing financial service provider in the United Kingdom. This trend is matched in many countries where postal banking is offered. In a recently published report, the Universal Postal Union found that Post Finance, the financial branch of Swiss Post, in 2008 increased its customer numbers by 55 per cent; increased its accounts by 71 per cent; and underwent a 12.8 per cent growth in total deposits. The French postal bank increased its total deposits by 7 per cent in the same period. The German postal bank showed a 58 per cent increase in new savings and increased its market share by 9.4 per cent in the same period. These are extraordinary figures during the middle of a recession, and they show how much scope there is for the development of a post bank in the United Kingdom.
It would be best if the Government took the bull by the horns and introduced a post bank. However, to date they have shown a degree of lukewarm encouragement rather than leadership on this question. During the first day in Committee, the Secretary of State said:
“I am looking with interest at the post bank proposals”.—[Official Report, 24/3/09; col. 565.]
It appears that that Government are concerned about whether the post bank proposals cut across the relationship that the Post Office has with the Bank of Ireland. Indeed, when the campaign coalition supporting the post bank launched its initial document, my right honourable friend Pat McFadden, responding for the Government at the launch, suggested that increasing bank services through the Post Office may best be done through strengthening the relationship with the Bank of Ireland, rather than through a distinct post bank. This would be a bad mistake for the Government to make.
Perhaps they are unaware that Bank of Ireland deposits are covered by a guarantee of the Irish Government; the market regards the Bank of Ireland as less than solid. As things stand, the partnership with the Bank of Ireland results in that bank receiving 50 per cent of the profits generated by these banking services. This limits the potential for growth of postal banking services, which clearly require substantial reinvestment. The Post Office bank could instead operate independently, rather than simply mimicking products on the high street. It would operate with a mandate to target its products at the financially excluded and those on lower incomes. Central to the services provided by a Post Office bank, there should be a basic bank account—a more functional version of the Post Office card account. Additional services provided by a Post Office bank could include current accounts, savings products, micro-credits, mortgages, credit for small businesses and financial advice.
I sincerely thank the noble Lords, Lord Razzall and Lord Cotter, for tabling this amendment. The suggestion that an investment fund of at least £2 billion may or may not be adequate has been readily accepted. However, I understand that the policy being pursued is to support the sale of all or part of the Royal Mail to raise funds to transfer to the post office network or a Post Office bank. I have made plain that I see no redeeming features in the privatisation of Royal Mail. There are plenty of other ways of raising money for the marginal amount of modernisation that is still required; there are plenty of other ways to fund the establishment of a post bank which do not involve the break-up and sale of Royal Mail. It is merely a matter of having the will and the wit to find them.
I support my noble friend and colleague Lord Razzall in his amendment. He rightly said that we see this as an extremely important key amendment as regards the Post Office and postal services. We are very pleased to have the support of the noble Lords, Lord Hoyle and Lord Clarke. My noble friend said that we are not excluding other ideas or proposals. As the noble Lord, Lord Clarke, said, the post bank is a very important ingredient for the future. He talked about the many different ways in which post offices can help their communities.
I am sure that the Secretary of State will recall that there have been trials of the provision of local and central government information centres. Unfortunately, I did not look up the detail before I came in, but I think that up north or somewhere there was a trial a year or two ago. The provision of these services is a viable and possibly important part of our amendment.
The Secretary of State will know that I am very keen to support small businesses. In subsection (1)(b) of the amendment we refer to “training in business opportunities”. It is extremely important to help post offices and small businesses, which is very often what post offices are, to look for business opportunities. Nowadays, we talk about increasing people’s skills, which is an important ingredient of what we are proposing.
I hope that the Secretary of State will seriously consider what we, with the support of colleagues, have put forward, and we are very open to the addition of different ideas. There are templates here of what could be part and parcel of such support. We very much look forward to hearing what the Secretary of State has to say.
I declare an interest as chair of Consumer Focus, which last year inherited the powers of Postwatch in relation not only to Royal Mail services but to the post office network. This is an important point in the Bill, because as far as consumers are concerned, yes the services of Royal Mail and the universal service obligation are very important, but of much higher salience is often the post office network itself—the local post office, the services it provides and the effectiveness with which it provides them. I am not talking just about those who Postcomm rather disparaging referred to as “social consumers”—that is, you and me—but a wide range of business consumers who use their local post office for various purposes.
Therefore, as I said at Second Reading, it is important that in parallel to any changes in the Royal Mail side of the Royal Mail Group, some assurances are given in relation to the post office network. Those assurances should be not only on the size of the network but on the services it provides. I am strongly in favour of a post bank, and I should say that I had interpreted the Government’s view on this slightly more positively than my noble friend Lord Clarke. I hope that I am right in thinking that they are strongly going down the road of considering a post bank and trying to bring back other services to the Post Office. I commend the work of Pat McFadden in this respect.
However, if this Bill is passed without there being reference in it to providing additional support for and defending the post office network, we will find ourselves in the same situation in which my predecessors in Postwatch found themselves during the previous closures, when the consumer organisation’s only job was to decide whether that post office or another should close. That is not a sensible position, except in a few limited circumstances. By and large, consumers and communities want an effective post office network.
We are in a happy position. It is not just the Secretary of State and the Government who have declared, “We do not want to see another swathe of closures in the post office network”, the two opposition parties have made similar declarations. I am afraid that out there is a certain degree of cynicism that says, “They would, wouldn’t they, at this stage before a general election”, but it would be helpful, if my noble friend the Secretary of State is to sell the total package that he is proposing, were there to be a reassurance on the Post Office side in statute, whereby it should not have been episodic declarations by all three political parties at this stage of the political cycle, but that it was written down in the law of the land that the post office network would be sustained and various supports built into it.
Whether or not I agree entirely with the formulation of the amendment or the amendments to the amendment, it would be useful for the Government to come forward with a version which gave that kind of assurance.
We feel strongly about this, but although we share the concerns of the noble Lord, Lord Razzall, and other noble Lords that the post office network be maintained and, as we have said, that some of the recent closures be reversed, we are as yet unconvinced that Amendment 95 is the best way to achieve that. I might hazard a guess that the Government will be similarly unconvinced.
It is clear from the Hooper review that the problems of Royal Mail and the post office network go deeper than just a shortage of funds. When considering Part 1, we had some useful debates about other ways that the Government could support the post office network, including sending more government business its way and looking at expanding the services that post offices can provide. The noble Lord, Lord Clarke, spoke eloquently about that.
In passing, on the new scheme with the Bank of Ireland referred to in the press over the weekend, is it true that it will not be covered by government-backed depositor protection? I should be interested to hear from the Secretary of State on that.
The amendment of the noble Lord, Lord Razzall, makes some reference to our earlier debates but sets an arbitrary figure on the amount of investment that he feels is needed to ensure that these services are provided. As I read it, it might also hold up the much needed reorganisation of Royal Mail until the post office network has been sorted out too. We do not agree that such a sum of money should be thrown at the problem without a proper assessment of the network, the problems that it is facing now and the potential opportunities that it could develop, and so on. Although we agree that something certainly needs to be done to help post offices, it is Royal Mail that needs our urgent attention. I am sure that we will return to this issue on Report.
Before I address the original amendment moved by the noble Lord, Lord Razzall, perhaps I may respond to one thing that he said. He suggested that we were divesting the Post Office but, just to be clear, the two businesses are not being separated. Post Office Ltd will remain in the same corporate group as Royal Mail Group Ltd. The Government’s stakes in Royal Mail Group Ltd and Post Office Ltd will be owned via their 100 per cent-ownership of Royal Mail Holdings plc.
The original amendment moved by the noble Lord, Lord Razzall, is grounded in an admirable sentiment: the wish to maintain, modernise and improve the nationwide post office network. As noble Lords know from previous sittings of this Committee, that is a wish that I share. The future of both Royal Mail and the post office network needs to be secured, and that is the purpose of the Bill.
Through Amendment 95, the noble Lords, Lord Razzall and Lord Cotter, call for a commitment to invest in the post office network. Over the past 10 years, this Government have provided unprecedented financial support to the network. Between 1999 and 2005, we provided some £2 billion, and we are now providing up to £1.7 billion to support the network to 2011. Without that funding, some 7,500 branches might not survive. That is a measure of our financial commitment, which is unwavering.
The National Federation of Sub-Postmasters set out in a recent report its views on how we could further improve the sustainability of the post office network. In many ways, the report echoes the Government’s own efforts, and I want to describe how. Before I do so, perhaps I may pick up the point that the noble Lord, Lord Cotter, made about Post Office-trialled local information centres, because this relates to the Post Office’s relationship to central and local government services. The Post Office has a vital role in our communities and, as I have said, there are significant opportunities for it to undertake new work for Her Majesty’s Government, to which I shall come in a moment. However, we must remember that, if a new service is to support the viability of the post office network, it must provide commercial income for Post Office Ltd and, vitally, for its essential sub-postmasters. We need to bear that in mind in the context of our discussion on the future of the network.
On central and local government services, I asked the Business and Enterprise Select Committee in another place to identify new business opportunities for the Post Office. I am also leading discussions within Whitehall to identify new services that Post Office Ltd can provide. The Department for Transport announced last month that the Post Office would provide the face-to-face service for the 10-year renewal of photo driving licences. This will allow Post Office Ltd to undertake a multi-million pound investment in ID verification technology and is a major step forward. As the new generation of passports is developed, there is, similarly, a large potential stream of work for the Post Office.
On financial services, I understand and agree with the idea that the Post Office should expand its range of banking services. It will be an important area of new custom. However, sometimes this debate ignores the fact that the Post Office has already been growing in this field considerably in recent years. Alan Cook, the managing director of the Post Office, told the Business and Enterprise Select Committee on 21 April that, in effect, a post bank already exists. Post Office Ltd offers a wide range of financial services and products: savings, insurance, mortgages and cash machines. Therefore, the Post Office already plays a vital role providing access to financial services through its network of 11,500 branches—a network still bigger than all the UK’s banks and building societies put together.
I know that interest has been expressed about the Post Office’s relationship to the Bank of Ireland—a point to which my noble friend Lord Clarke and the noble Lord, Lord De Mauley, referred. However, noble Lords will appreciate that the Government do not comment on the financial position of individual banking institutions; nor are we in the habit of commenting on entirely hypothetical situations. It is, however, worth noting that Post Office savers who have Bank of Ireland accounts benefit from the protection of the Irish deposit guarantee scheme and the Irish Government’s guarantee covering retail deposits until September 2010. The Post Office, as we know, has confirmed its complete confidence in the success of its financial services joint venture with the bank.
In that context, perhaps I may pick up the point made by my noble friend Lord Clarke about the need for the Post Office to do more in relation to financial inclusion. The Post Office already plays an important part in reducing financial exclusion, particularly in the current economic conditions. The Government subsidise the network of branches so that there is a branch within reasonable reach of everyone, providing access to cash and benefits throughout the UK. The Post Office provides almost 1,700 free-to-use cashpoints. Thanks to this Government, the Post Office will continue to operate the Post Office card account. The Chancellor also announced at the Pre-Budget Report last November that the saving gateway scheme would be available through the post office network. Post Office Ltd is also in discussion with the Association of British Credit Unions Ltd to see what opportunities there might be for the two organisations to work together more closely. I hope that that will go some way towards reassuring my noble friend about the concern of the Government and the Post Office to maximise financial inclusiveness through the operation of its services.
On mail services, I understand how critical the contract between the Post Office and Royal Mail is for the post office network. The existing commercial arrangements between Royal Mail and the Post Office will of course be maintained. We will ensure that the Post Office is not adversely affected in any way by the introduction of a strategic partner for Royal Mail. However, the Post Office is not simply standing still in the mails market. Last week, it announced a contract with DX Group which will allow DX Group’s customers to collect their mail from their local post office. This is the first time that a private mails company has offered access to its services via the post office network, and I am sure we can all welcome that.
On support for local retailers, the Government are about to consult on a range of measures to sustain town centres and on the provision of retail services in both urban and rural communities. Those include changes in planning policies to make them more flexible and to facilitate the future sustainability of local economies.
On government support for the network of post offices, as I have made clear, we shall continue to subsidise the network beyond 2011 and we shall not support any further programme of post office closures. The next funding deal for the Post Office will require discussions within government and with the company. I cannot at this stage pre-empt the detail of those funding discussions, but I expect to be able to make further announcements later in the year.
A great deal is being done to improve the sustainability of the post office network, particularly in the specific areas identified by the National Federation of Sub-Postmasters. The Government have been, are now and will continue to be committed to subsidy, to investment and to the expansion of post office services. I want to work constructively with the federation and the Post Office on a strong agenda for the future of the network. Although much of the federation’s agenda is not directly related to the Bill, there is clearly a link between a more secure future for Royal Mail and for the Post Office. I would go further and say that in many ways the one depends on the other. If Royal Mail is not transformed and fails to maintain its position in a competitive marketplace, that would be damaging to the Post Office as a company and to the viability of the post office network.
The success of the two businesses remains very much connected. If the Post Office required even further subsidy to make up for a decline in Royal Mail’s business and if we had not been successful in reversing that decline, that funding for the Post Office would clearly need to be balanced against other spending priorities, not least any extra funding required to support an untransformed Royal Mail. So it is certainly in the Post Office’s interests and its network’s future to see the finances of the Royal Mail turn round and the business transformed. That makes the implementation of this Bill and its impact on Royal Mail all the more important for the Post Office and its network.
Finally, through their amendments to Amendment 95, my noble friends Lord Clarke and Lord Hoyle seek to provide that the Bill will not come into effect until I have laid a Statement before Parliament that I will not support a further programme of post office closures. As noble Lords will have heard, I have given that commitment to the Committee tonight and at previous sittings, and I shall continue to make that commitment, so I have already fulfilled the requirement. I have made the statement and provided the assurance on the Government’s behalf that noble Lords seek through the amendments. In light of everything that I have said about the Government’s commitment to the post office network, the importance for the Post Office of Royal Mail being turned round and the commitment I have made to the future network, I hope that noble Lords will feel able to withdraw their amendments.
I thank the Minister for that lengthy reply. As I explained, this is a probing amendment and, as I indicated, I have no clue whether £2 billion is the right amount to secure the future investment in the Post Office. My objective is to ensure that before the Bill leaves your Lordships’ House we have sufficient undertakings from the Government that the future of the post office network is secure. The Minister has made some extremely interesting observations about what the Government intend to do. I shall read what he has said in Hansard and in the mean time I have pleasure in withdrawing the amendment.
First, may I be clear that Amendment 95ZA is to be withdrawn?
Amendment 95ZA (to Amendment 95) withdrawn.
Amendment 95ZB (to Amendment 95) not moved.
Amendment 95 withdrawn.
95A: Before Clause 42, insert the following new Clause—
“Charges made by national providers
(1) OFCOM must have a duty to set the minimum charges made by any national provider for the provision of courier or postal services.
(2) OFCOM must determine that any charges are applied on the basis of either—
(a) a price per mile, or(b) a fixed rate,throughout the whole of mainland Britain.
(3) “National provider” means any provider that offers a courier or postal service that crosses the border of any country within Britain.”
On the face of it, the amendment is rather general and is not dissimilar from what the noble Lord, Lord Tunnicliffe, would remember as the Argyll and Bute amendment. It relates to the impact on the universal pricing structure in northern Scotland. The Royal Mail is the only provider of a universal pricing structure; therefore, the cost of sending a parcel anywhere in the UK is the same. However, other providers of delivery services do not operate on that basis and, as a result of postcode districts, they draw an arbitrary line north of Perth which in effect makes it cheaper to send a parcel from Perth to Penzance than from Inverness to Kirkwood.
This amendment seeks to give Ofcom control over the setting of minimum charges for all national providers of delivery services as defined as servicing more than one country in the United Kingdom. Small businesses in northern Scotland are, in particular, discriminated against by this process. In many cases it is cheaper for them to get stock by buying up goods next time they physically cross the arbitrary line drawn by some companies, as opposed to utilising delivery services themselves. I am sure that the Minister is familiar with the detail of that problem. I beg to move.
Although the amendment draws an important distinction between courier services and postal services, a distinction which may be worth exploring further at a later stage, in the context of the proposal to widen the scope of regulation, we have reservations. The law already requires a registered and insured service to be provided at a uniform tariff, and that is provided by the Royal Mail special delivery service. That is a political decision and forms part of the USO. In recognition of that USO, Royal Mail has certain benefits such as the unique right not to charge VAT, as confirmed by the European Court of Justice on 23 April. We consider that it would be an unacceptable interference with normal business economics to extend that to other operators.
It costs more to deliver to areas where there is a low delivery point density and mileage is not the biggest cost driver. As the costs of delivery are broadly speaking unaffected by crossing a border within the UK, there is no logic to make a distinction between such services and other services, as that might have the perverse effect of dissuading operators from serving parts of the UK. Parcelforce offers non-fixed prices to its current customers for, for instance, non-universal services. Royal Mail actively seeks to be paid different amounts from large customers and other operators for deliveries in rural areas to help them fund the universal service through zonal pricing. The amendment would stop that important evolution of Royal Mail’s business.
I thank the noble Lord, Lord Razzall, for raising this point. As he may not be aware, I have parents who live in, for these purposes, the wrong part of Perthshire, so the reality of this point is not lost on me. However, Clause 42 is one of a series of clauses which allows Ofcom to impose requirements on all postal operators. This new clause proposed by the noble Lord, Lord Razzall, also seeks to impose requirements on all postal providers operating across the three nations of mainland Britain. I understand that the noble Lord’s intention is to prevent private operators charging different prices for using courier or postal services in different parts of the country. I suspect that he is trying to protect against unfair pricing in particular parts of the nations.
The amendment would also specify the minimum charges. These must be fixed through either a price-per-mile pricing structure or a fixed rate. I assume that the noble Lord would like to make the pricing structure of private providers slightly more transparent, as well as preventing excessive differences between the costs of courier or more traditional postal services.
We share the noble Lord’s concern that members of the public should have access to a universal, uniformly priced postal service. As the noble Lord, Lord De Mauley, has already pointed out, that is provided through the universal postal service, which is already secured by the Bill up to a certain size and particular shape. The uniform tariff—the “one price goes anywhere” tariff—is the assurance that wherever you send an individual letter in the United Kingdom you will be charged the same price. The Bill requires Ofcom to ensure that a “one price goes anywhere” service is provided as part of a universal service in the future.
The universal postal service protects first and foremost individual members of society, but also small and medium-sized enterprises. The Bill already requires Ofcom to consider what services are needed to meet the reasonable needs of users, and Ofcom has a duty to exercise its functions generally. Such consumers are currently, and will continue to be, able to post letters and other parcels up to a certain size at a uniform price across the United Kingdom and to use the registered service.
Beyond that, I am afraid to say to the noble Lord that the provision of courier and postal services is a competitive area of the market. Businesses can use many different postal providers to send packets to each other and their customers or, indeed, alternative forms of distribution. Competition and those alternative forms of distribution, not regulation, provide customers with alternative choices for their services and, we hope, provide an incentive for lowering prices and developing innovative products meeting customers’ needs, wherever they may live within the United Kingdom. Conversely, restricting the way charges are set restricts courier and parcel companies’ ability to compete with each other. We believe that that may be damaging to the postal market, rather than the opposite.
Importantly, the amendment would extend the ability of Ofcom to impose price controls. It might therefore radically and, we believe, disproportionately expand the scope of regulation. That, too, is not to the benefit of the postal market. Regulation should be targeted in an objectively justifiable and proportionate manner so as to allow companies to meet the needs of their customers without unnecessary regulation. The amendment would require regulatory intervention that is in our view neither justified nor proportionate.
In any event, Ofcom will have a power to investigate anti-competitive behaviour in specific circumstances—for instance, if it is suspected that postal providers abuse a position of dominance wherever that market dominance may appear, or enter into anti-competitive agreements to maintain artificial pricing levels.
In practice, the amendment also does not seem to have the effect intended. The noble Lord’s laudable intention is to protect customers in particular areas. Importantly, requiring Ofcom to set minimum charges does not prevent postal providers setting prices above those minimum charges.
On balance, I invite the noble Lord, Lord Razzall, to withdraw his amendment, safe in the recognition that there are those close to my home who recognise the points that he makes.
Amendment 95A withdrawn.
Clause 42 agreed.
Clause 43 : Essential conditions
Amendments 95B to 95D
95B: Clause 43, page 25, line 23, leave out “the purpose of” and insert “any one or more of the following purposes”
95C: Clause 43, page 25, line 26, leave out “or”
95D: Clause 43, page 25, line 27, at end insert—
“(d) guarding against the theft or loss of or damage to postal packets,(e) securing the delivery of postal packets to the intended addressees.”
Amendments 95B to 95D agreed.
Clause 43, as amended, agreed.
Clause 44 : General access conditions
95E: Clause 44, page 25, line 34, leave out “the operator’s postal infrastructure or”
Our amendment in this group again looks at the scope of Ofcom's powers. Clause 44 gives the regulator the power to impose a condition requiring the postal operator to give access to another operator not just to services within the scope, which is understandable, but also to an operator's infrastructure. As I read it, the clause as drafted would allow Ofcom to insist that an operator who provides absolutely no services within the scope must open up its infrastructure to another operator. Surely that cannot be the intention. Does not the Minister agree that any access condition should be imposed only on services within the scope? If it is necessary to enforce access to the infrastructure, it should similarly be only on infrastructure relevant to services within the scope. I beg to move.
As the noble Lord says, the amendment would reduce or limit Ofcom’s ability to impose access conditions on certain types of postal operators by removing the reference to postal operators’ infrastructure from the general access conditions. In the Government's view, the amendment is not necessary and could be contrary to our obligations under Article 11a of the postal services directive, which deals with access conditions to the infrastructure of the universal service provider.
Clause 44 sets out general access conditions that apply equally to all postal operators, including the Royal Mail. The amendment would allow Ofcom to impose access conditions on postal operators only for services that they are providing within the scope of the universal postal service. As the market develops, it is important that Ofcom, as the industry regulator, can intervene when it considers it appropriate, allowing access between other postal operators as well as Royal Mail. Confining the clause to services within the scope of the universal postal service risks limiting appropriate and sensible regulation and setting it in one particular moment.
Article 11a of the postal services directive requires that, whenever necessary to protect the interest of users and/or to promote effective competition, member states are required to ensure that access conditions are available to elements of postal infrastructure. Clause 44 gives effect to our obligations under that part of the article. Noble Lords may be reassured by the fact that the clause provides the power to Ofcom for appropriate general access regulation in future. Although the condition of necessity is a stringent test—far more stringent than it often appears on reading—it is one that I hope will provide comfort that the appropriate checks and balances are in place, however remote the possibility of it being used.
In the light of that clarification, I hope that the noble Lord will consider withdrawing his amendment.
Amendment 95E withdrawn.
House resumed. Committee to begin again not before 8.28 pm.