House of Lords
Monday, 14 March 2011.
Prayers—read by the Lord Bishop of Newcastle.
Health: Visitor Service
To ask Her Majesty’s Government whether their proposed development of the Health Visitor service will be targeted at those families in greatest need.
My Lords, the health visitor implementation plan, published last month, confirms our intention to recruit an extra 4,200 health visitors and sets out the enhanced offer to families that the increased workforce will bring. The new model ensures a universal service for all, a rapid response from the health visitor team when parents need specific expert help and ongoing support to deal with more complex needs over time, including services from Sure Start children’s centres, other community services and, where appropriate, the Family Nurse Partnership.
I am most grateful to the Minister for that encouraging Answer; it sounds very good indeed. Is he aware, though, that some of the families in the greatest need are very hard to contact, sometimes simply because they are embarrassed by their inability to parent and sometimes because they are afraid that the local authorities, if they hear about it, will take their children away? Is he also aware that there is a strange geographical distribution of the supply of health visitors, which as it stands has nothing to do with need? Will he assure the House that these issues will be addressed in the new plan?
My Lords, the noble Lord is undoubtedly right that in many areas the current health visitor workforce is very stretched. They are there as a universal service but, at the same time, they try to target their efforts to families in the greatest need. Some struggle to do so, which is why we have set this ambitious programme of recruitment over three to four years. It is a very tough target—I do not disguise that from the noble Lord—but we think that it is necessary if we are to focus on the needs of the most disadvantaged families.
Is the Minister aware that many people apparently now view health visitors with suspicion as agents of the state? They are frightened, as the noble Lord has said, of the child being taken away. Does the Minister therefore think that one great answer is the system of adoption whereby children can be fostered by someone who could adopt them if, for example, the drug addict mother does not overcome her addiction, but which also leaves open the possibility of the child returning to the mother? That gives the mother an opportunity to recover. It is a very good scheme and it is in operation in some parts of the country. Would it not be a help in addiction cases?
My noble friend makes a good point. The kind of intensive interventions that she is referring to are very much the domain of the family nurse partnerships, which are there to assist and support those families with the greatest needs, particularly single mothers, families where there is addiction and so on, and try to keep the family together. With regard to the health visitors, however, I take her point that there is suspicion out there. It comes down to creating a relationship of trust with a named health visitor, and we have seen the success of that over the past few years. The results of the assessments have been very positive.
My Lords, when health visitors were attached to local authority services, co-operation between the different arms of local authorities was much easier. In many cases, health visitors are now attached to general practice services. Can the noble Earl assure me that there will be the widest possible consultation to make sure that health visitors can reach out to the community at large, which would be very valuable in terms of public health?
My Lords, the noble Lord makes an extremely good point. The health visitor initiative is very much part of our public health drive. Local authorities will have an important part to play in commissioning services in the future. However, at the start of this big programme of recruitment, it is very important to have a concerted national drive. That is why we have said that it will be the responsibility initially of the National Health Service Commissioning Board to push this agenda forward. Thereafter, we will see much more local commissioning as the programme moves on.
My Lords, given that the Department of Health accepts that the family nurse partnerships—to which the Minister has referred—have been shown through an international report to have a great effect in minimising the maltreatment of children, are there plans to introduce them across the board alongside the implementation plan for health visitors?
The right reverend Prelate draws attention to a very important area. Family Nurse Partnership is essentially a preventive programme for vulnerable young first-time mothers. It complements and supports the work of health visitors, providing intensive care. We are committed to expanding the Family Nurse Partnership Programme for those families and doubling the number of places on the programme by 2015.
My Lords, this is a really large programme. Will the noble Earl clarify whether, if these posts are filled from within the NHS, those posts will in turn be backfilled?
My Lords, we hope to recruit nurses and midwives for upskilling from a variety of sources. Some will come out of retirement, we hope, while others will, we trust, come from the acute sector. As my noble friend knows, the trend for a long time has been to try to get care increasingly out of acute settings and into the community. I think that we will see that transfer of skills taking place from a variety of sources.
My Lords, given the important and welcome drive to recruit health visitors, will the Minister consider hosting a meeting for health visitors and Members of the House of Lords so that we can understand this issue better and support this work as far as we can?
My Lords, I draw the noble Earl’s attention to the document which my department published last month, Health Visitor Implementation Plan 2011-15: A Call to Action, which sets out how we are going to work with partners to deliver our ambition, including, very significantly, the Sure Start children’s centres which play an important role in our agenda. However, I will take the noble Earl’s idea back with me and be in touch with him about it.
My Lords, what work is being done to improve the training of health visitors to enable them to identify the mental health needs of new mothers, which can impact very negatively on the emotional attachment between mother and child?
My noble friend identifies an extremely important area of the health visitors’ remit—to put their finger on where there are problems and therefore to alert members of the multidisciplinary team to address those problems where necessary. The issues to which she refers are very much a part of health visitors’ training.
Botswana: Bushmen of the Central Kalahari Game Reserve
To ask Her Majesty’s Government what representations they will make to the Government of Botswana about their complying with the 1966 constitution, the United Nations Declaration on the Rights of Indigenous Peoples, and recent court judgments in their dealings with Bushmen of the Central Kalahari Game Reserve.
My Lords, the UK follows closely the situation of the San communities in the Central Kalahari Game Reserve. We will continue to encourage dialogue between the San communities and the Government of Botswana, and we raise the issue at appropriate levels. We welcome the Government of Botswana’s announcement that they will respect and facilitate the implementation of the recent decision of the court of appeal granting San community members the right to access and sink boreholes within the reserve.
My Lords, that is, of course, good news. However, as the Government of Botswana have overridden court judgments in the past, do Her Majesty’s Government accept that we have perhaps a special responsibility in this matter, because we did, after all, give Botswana its constitution in 1966, and it has been consistently abused? Will the Government, as the noble Lord has indicated, pay particular attention to making sure that the Bushmen have free access to their reserve, to their water supply and, indeed, to new boreholes?
My Lords, I am not sure that the Government accept that the constitution has been consistently abused, but I welcome the noble Lord’s support for this ethnic minority and its culture, for his vigorous support for the international human rights regime and his insistence that human rights obligations limit state sovereignty. I also congratulate him on his support for the rule of law as a limiting factor on majoritarian democracy, and I am sure that he will hold true to all these principles in his approach to the EU Bill next week. I particularly welcome his reference to the ruling of the Botswana appeal court, which the Botswana Government have clearly accepted. As he will know, the court is, unusually, composed of foreign judges. The judgment is signed by two South African judges and one each from Ghana, Lesotho and Zimbabwe, the last of whom is called McNally. I am glad that the noble Lord recognises that foreign judges can reinforce domestic standards of human rights.
My Lords, can my noble friend confirm that the Government of Botswana have already sent a team into the CKGR in pursuance of their undertaking to facilitate the return of the Bushmen? Can he also say whether there is any prospect of employment for the Bushmen in enterprises being set up in the reserve, such as the $3.5 billion diamond mine at which, given suitable training, they might be employed?
My Lords, my noble friend will recognise how difficult it is to combine maintaining the traditional hunter-gatherer way of life with economic development. The report of the UN special rapporteur on human rights for minorities talks about,
“economic and other development activities that align with the culture of the targeted communities, including hunting and gathering activities”.
The problem here is that once you start talking about education, medical assistance et cetera, you are moving away from traditional culture.
Does the Minister feel able to make an evaluation of the role of the mining interests in this area? Does he think that their role is helpful or frustrating in terms of achieving the desires of the indigenous people there?
My Lords, as we all know, these are extremely difficult issues. Botswana has done extremely well economically, and its wealth lies above all in diamonds. That wealth has been put to use for the benefit of economic development in that country; and last year Transparency International ranked Botswana as number 1 in sub-Saharan Africa in terms of the transparency and non-corruption of its Government. I am assured that high commission officials from Britain regularly visit the Central Kalahari Game Reserve and that the current proposals from Gem Diamonds will not destroy the reserve.
Will the Minister comment on the fact that the real difficulty in enforcing the UN Declaration on the Rights of Indigenous Peoples is that it is not legally binding, and that this creates enormous difficulties? Can he therefore also confirm that the United Kingdom is supporting the recent call by the UN special rapporteur on the rights of indigenous peoples for urgent action to ensure that the rights and principles enshrined in the declaration are implemented?
My Lords, I read with great interest the very useful report on Botswana which the UN special rapporteur presented last year. The noble Baroness will know, and I now understand, how immensely difficult it is to maintain traditional cultures in the face of all the pressures of economic development. In a number of other countries there is a clear role for these minorities in protecting the rainforest. In Botswana, some of the issues are a little more difficult.
My Lords, are the Government aware that a number of Bushmen have actually been educated according to our western culture and still wish to return to their way of life? Secondly, does the Minister agree that a diamond mine occupies a very small area in the vast expanse of the Central Kalahari Game Reserve and there really should be plenty of room for both?
I thank the noble Lord for reinforcing my previous point. As he will be aware, however, there is no surface water in the game reserve; the Bushmen traditionally obtained their water from fruit. Once one talks about providing boreholes around the reserve, one is already beginning to change the traditional way of life. That is one of the tensions we are stuck with as we deal with these problems.
House of Lords: Membership
To ask Her Majesty’s Government whether under their plans for an elected House of Lords the Prime Minister could be a Member of the House of Lords.
My Lords, an important part of the plans for the reform of this House is the continued primacy of the House of Commons. The presence of the Prime Minister in the House of Commons therefore underlines that primacy.
Does my noble friend accept that in a number of bicameral systems in the world it is possible for a Prime Minister to be in either House? While it might not be acceptable to public opinion at the moment for a Prime Minister to sit in this House as it is presently constituted, if in, say, 10 years’ time this House is wholly elected, is deemed more legitimate and is demanding more powers, would it not be appropriate and necessary for there to be more senior Ministers in this House? Would it not be wrong for the Government’s legislation to exclude the possibility of a Prime Minister being in this House, as used to be the case right up to the early years of the 20th century?
My Lords, I am deeply impressed by my noble friend’s ambition—10 years to wait does not seem too long at all. The fact is that the Prime Minister is First Lord of the Treasury. It would a very strange thing, given the reduced powers of this House since 1911, for the Prime Minister to be a Member of this House. Therefore, we have no plan or proposal to make it so.
My Lords, if the programme of parliamentary reform led by the Deputy Prime Minister were to result in the other place continuing to be elected by first past the post, and the future Chamber here being elected through proportional representation as envisaged in the coalition agreement, who would have greater democratic legitimacy—MPs or elected Peers?
My Lords, it is of course an immensely good question, and it is one that we will return to many times over the next few months when the Deputy Prime Minister has published his White Paper and draft Bill. But I go back to the central point—which is that, under the terms of the 1911 Act, another place has primacy. We believe that that is where it should remain.
Can the Leader of the House reaffirm his frequently stated opinion to this House that, in the event of there being an elected second Chamber, which I understand he has not been that keen on in the past, he would be strongly opposed to it being elected on the basis of proportional representation and would stick to first past the post? Secondly, is it correct, as reported in the FT last Thursday, that he expects there to be Senators in this House by 2015? If that is not correct, perhaps he could say so. If it is correct, can he please observe the normal proprieties of making crucial statements about the future of this House or of government policy to this House and not to the Financial Times?
My Lords, the noble Lord, Lord Grocott, certainly has the power to embarrass me because it is certainly on the record that I am not one who favours proportional representation. However, it was in the coalition agreement that, in the event of there being an elected second Chamber, it would be under the system of proportional representation. So far as concerns the Financial Times, I am not sure that that is what I said. Of course, that will depend on the draft Bill being published soon and on the Joint Committee sitting in time for legislation to be passed so that an election can take place in 2015, and that will depend entirely on the will of Parliament.
My Lords, there is time. We have had a question from the Cross Benches. Perhaps we might hear from the Liberal Democrats first and then the Cross Benches.
Does my noble friend agree that it would not necessarily interfere with the primacy of the House of Commons if all Ministers were answerable to the second Chamber on matters for which they had ministerial responsibility and, in particular, for the legislation that came from their departments?
My Lords, that is an interesting proposition and it will no doubt be dealt with in the forthcoming White Paper.
My Lords, does the noble Lord the Leader of the House agree that it would not be possible for the right honourable gentleman the Prime Minister to sit in this House because he is already a Member of another place? Does he therefore accept that the noble Lord, Lord Lamont, should be allowed to amend his Question slightly proposing that a Prime Minister—I emphasise “a”—should be allowed to sit in this House? I say that even though I do not agree with the idea of an elected House of Lords.
My Lords, all things are possible but that is not part of the Government’s proposals.
My Lords, can the Leader tell the House whether the Government will continue to pursue the coalition agreement until 2015, which is the date when it is reported that he believes the changes will be in place? The agreement states:
“Lords appointments will be made with the objective of creating a second chamber that is reflective of the share of the vote secured by the political parties in the last general election”—
that is, 86 more Conservative Peers and 99 more Liberal Democrat Peers.
My Lords, over time, we shall certainly wish to produce what is in the coalition agreement.
My Lords, is it not the case that this House always gives way in the end to the other place, because its Members are elected and we are not? If we were elected, would we not deny such possibilities occurring? Surely we would be bound to hold to our rights as well.
My Lords, I accept that possibility, but there are well known processes for dealing with disagreements between both Houses. It is not without precedent. Over the past 40 years, the House of Lords and the House of Commons have come to disagreements that could only be resolved by turning to the Parliament Act.
Health: Sickle-Cell Disease
To ask Her Majesty’s Government what measures are in place to ensure that paramedics and ambulance crews across the country are adequately trained in the diagnosis and treatment of those with sickle-cell disease.
My Lords, addressing the training needs of health professionals working with patients with sickle-cell disease is the responsibility of the appropriate regulatory body. They set standards for the preregistration training, approve the education institutions that provide training and determine the curricula. Where a health profession is not regulated, it is the duty of the employer to make sure that the individual has the appropriate level of training to perform the duties required of them.
I thank my noble friend for that Answer. I am sure he is aware that sickle-cell disease is now the fastest growing genetic blood disorder in England. Some 300 babies are born with the condition every year and yet there are many misunderstandings about diagnosing a sickle-cell crisis. Is my noble friend aware of the recent tragic death of a young girl who died of a sickle-cell crisis? Apparently, during the crisis, she had soiled herself and, allegedly, the emergency crew who came to her home refused to treat her and to take her to hospital because of the messy state in which they found her. Does my noble friend agree with me that this underlines the urgent need for training, not just for paramedics but for all emergency crews, so that that never happens again? Will he assure the House that best practice standards and guidelines with regard to sickle-cell disease are enforced right across the NHS? I declare an interest as a patron of the Sickle Cell Society.
My Lords, I am aware of the tragic case to which my noble friend refers, which is of course the subject of an investigation at the moment. The facts, as I am aware of them, suggest that the failings that occurred in that case were more to do with poor practice than a lack of training, although we will see what emerges from the inquiry. However, I can tell her that there is national guidance on the symptoms and emergency treatment of people with sickle-cell disease, published by the Joint Royal Colleges Ambulance Liaison Committee. All ambulance crew staff receive training in the assessment and management of patients with sickle-cell conditions in line with those guidelines and further national guidance was issued to staff in 2009. It is regularly updated and it is taken very seriously.
Do both of the Minister’s replies apply also to Scotland?
I am in danger of giving the noble Lord the wrong answer and, if I do, I shall regret it. I had better write to him.
My Lords, I declare an interest as chairman of the All-Party Parliamentary Group on Emergency Ambulance and Paramedic Services. The College of Paramedics is very aware of the skills levels of ambulance staff. Will the Minister consider the use of badges to identify staff according to their registration status, so that all concerned parties are enabled to make reasonable assumptions about their abilities as regards treatment and overall incident management?
My Lords, I am aware of the suggestion to which my noble friend refers. The wearing of badges is very much a matter for local determination. Clearly, it is desirable that there should be consistency across the country. I understand that there is a regular meeting of the chief executives of ambulance trusts under the chairmanship of Peter Bradley, the London Ambulance Service chief executive. I suggest to my noble friend that the proposal is put to Mr Bradley as one that the joint chief executives could look at.
My Lords, does the Minister accept that it is not simply the health service that needs education about sickle cell but also vulnerable communities themselves that need a great deal of education and knowledge to help them?
The noble Lord is quite right. One of the successes in recent years has been the universal screening programme for sickle cell that has certainly raised awareness among all communities about this devastating condition. The screening programme alerts healthcare professionals to the needs of children with the disease and also enables them to provide the necessary support for families.
Do people who have sickle-cell disease carry any form of card or identification as people with various other conditions do? As a dentist, I know that the definitive test is a blood test. Patients told you they had it, but no one expected you to pick it out in some person coming in the door. I wonder whether there might be a case for having some kind of identification.
I am sure my noble friend’s suggestion is a very good one. I do not think that the practice of carrying identification is by any means universal, but is it perhaps one that could be commended to the relevant patient groups.
One in 10 children diagnosed with sickle-cell disease will suffer a stroke. Unfortunately, a number will die. Those who do not will go on to have further strokes leading to disabilities and cognitive loss. The Minister talked about a screening programme. Do the Government have in mind any plans to get greater public awareness of sickle-cell disease by a public education programme right across the board among all groups in society?
There are several initiatives in train that should raise public awareness. We have asked NICE to produce a short clinical guideline. The National Haemoglobinopathy Registry is being launched. It was a key recommendation of the NCEPOD report a couple of years ago. We are funding many more training posts for registrars, nurse consultants and clinical scientists, and we are developing a special competence framework for nurses. As for raising awareness generally among the public, patient groups have an important part to play there in conjunction with specialist clinicians.
National Insurance Contributions Bill
Clause 3 : Increased product of additional rates to be paid into National Insurance Fund
1: Clause 3, page 2, line 5, leave out ““50”” and insert ““50, or such greater percentage as is necessary to ensure that the National Health Service allocation will grow in real terms year on year””
My Lords, we return to the issue of the NHS allocation from the National Insurance Fund. The specifics of the amendment require the percentage of the product of the additional primary percentage rate to be either 50 per cent or such greater percentage as would ensure that the allocation increases in real terms. In essence, the purpose of the amendment is to stop the NHS being short-changed. It is a variation on the theme of the amendments in the other place that required the NAO to report on what sums would be required for this to be achieved. When this was debated in the other place, the Minister offered two arguments against this approach. The first was that the spending on health is set by the spending review and is not affected by the NHS allocation. The second was that the Government would anyway normally expect contributions to the fund to rise broadly in line with earnings. The Minister, Mr Gauke, said:
“In any case, the amount allocated to the health service from national insurance contributions would, other factors being equal, be expected to grow in line with earnings and therefore grow in real terms every year under the terms of the Bill”.—[Official Report, Commons, 13/1/11; col. 475.]
If that is what the Minister’s colleagues believe, perhaps he will say what part that judgment played in the spending review allocation.
However, it would seem that the Minister’s colleague is mistaken. In Committee, the noble Lord, Lord Sassoon, helpfully pointed out Appendix 6 to the GAD report on the 2011 benefits uprating order, which shows the NHS allocation reducing in 2011-12 in comparison to the current year. This outcome is based on assumptions that the number of jobs in the economy would remain the same over the two years and that earnings are expected to increase by 2.1 per cent. This would suggest that, as regards Mr Gauke’s premise, the NHS allocation should rise by some £400 million and not fall. Overall, therefore, it seems that the NHS allocation for 2011-12 has been short-changed by £600 million. Why?
As was pointed out in Committee, in keeping the NHS allocation of the additional national insurance to just 1 per cent, the Government appear to have overlooked the changes to the various thresholds, which were policy changes designed to mitigate, in part, the effect of the national insurance increases. We have debated some of these during our consideration of this Bill. Will the Minister confirm that the effect of the reduction in the UEL from April 2011 and a significant increase in the primary threshold means that, for primary contributions, the band of earnings for 2011-12 on which the 2.05 per cent NHS allocation could be made is cut by something like £2,800 a year, although the 2 per cent rate, just 1 per cent of which is allocated, starts £1,350 earlier? Subject to further adjustments to the thresholds, that will mean a recurring diminution in the amount of the NHS allocation and an equal and opposite benefit to the fund.
Perhaps in dealing with the point, the Minister will say what the coalition Government’s policy objective is in respect of this allocation. Is it to maintain the allocation in real terms or to let it drift? How, if at all, is the projected allocation taken into account in determining the overall resources for the NHS?
We persist in these matters not just as a narrow question of arithmetic but because of our concern for the NHS and what is happening to it. We are concerned that the BMA reports a gap between government rhetoric about protecting front-line staff and the reality on the ground and that the recent comprehensive survey of healthcare cuts found that more than 50,000 doctors, nurses, midwives and other NHS staff are due to lose their jobs. I do not propose to cite at length the improvement brought about to the NHS under the previous Labour Government, but we note the coalition agreement’s pledge:
“We will guarantee that health spending increases in real terms in each year of the Parliament”.
However, in a devastating analysis in Committee in another place, my right honourable friend John Healey MP blew apart the Government’s claims that their plans represented a real-terms increase, particularly because of updated inflation forecasts and the allocation of funding from the NHS budget to cover social care budget shortfalls of local authorities. Of course, there are other pressures from the VAT increase, which the King’s Fund has estimated will cost the NHS some £300 million a year.
We know that the Government have not rebutted this analysis and that they are on course to break the coalition pledge of a real-terms increase in funding. Instead, they are heading for a real-terms cut. Despite the fact that the Prime Minister promised to protect NHS capital investment, that, too, is being cut by 17.4 per cent over four years. In the circumstances, it is surprising to say the least that the NHS allocation from the National Insurance Fund is not being maintained, at least in real terms. This is what the amendment seeks and I beg to move.
My Lords, Amendment 1 returns to the allocation of national insurance contributions receipts between the National Insurance Fund and funding of the NHS, which was covered both at Second Reading and in Committee. This amendment, as the noble Lord, Lord McKenzie of Luton, has explained, is aimed at ensuring that the NHS allocation of the additional rate is subject to an adjustment to ensure that the funding of the NHS from national insurance contributions will grow in real terms year on year. The amendment would require comparisons to be made from one year to the next of the NHS allocation and adjustments to ensure that the allocation grows in real terms each year.
As I explained in Committee, the amount that is to be spent on the NHS, whatever the noble Lord says, was confirmed in the spending review in October last year and is unaffected by whether the funds come from national insurance contributions or elsewhere. The noble Lord says that he wants to ensure, through the amendment, that the health service is not short-changed. I can absolutely assure noble Lords that nothing in this Bill goes anywhere near short-changing the National Health Service. The amendment would ensure that the national insurance allocation to the NHS increases year on year, which is a bookkeeping matter, but nothing more.
It may help noble Lords if I put this matter into a bit of context, because I was beginning to lose some of the train of the noble Lord’s argument and I fear that others may have done so as well. Perhaps it would be helpful to the House to go back and explain the numbers very broadly.
I shall take the last full year for which the numbers are certain. In 2009-10, the total sum raised by national insurance contributions was £94 billion. Of that, just over £20 billion was allocated to the NHS and the balance, around £74 billion, was allocated to the National Insurance Fund. Total NHS expenditure in 2009-10 in England alone was exactly £100 billion, so it is important to understand that, whatever allocation of funds out of NICs proceeds to the National Health Service, it makes up only around 20 per cent of NHS expenditure.
I have also been looking at the numbers over the past few years. If we go back to 2004-05, for example, in that year the contribution made by NICs to NHS expenditure on the basis that I have described was 24.3 per cent, but by 2009-10 that contribution had fallen to 20.3 per cent. So I find it quite hard to accept noble Lords opposite casting all sorts of aspersions at the present Government about how they will safeguard expenditure on the NHS when their own record shows that over the last few years they contributed a significantly falling percentage of NICs to NHS expenditure. Nobody challenged them with the thought that they would renege on their commitment to NHS expenditure, so I do not expect noble Lords seriously to challenge the fact that this Government will stick to their commitment to increase National Health Service expenditure in real terms. The point is that NICs will only ever make a small but significant—20 per cent or thereabouts at the moment—contribution to NHS expenditure. The balance—the greater sum out of NICs—will go where it has to go, which is into the National Insurance Fund.
I do not want to belabour the point but, in big-picture terms, the amendment would make absolutely no difference. It would not affect the money that goes into the National Health Service. The negative effect of the amendment would be to create a degree of uncertainty in establishing the NHS allocation, as we would know the receipts from national insurance for sure only after the end of the tax year, because they are dependent on wage levels, economic conditions and the thresholds as they apply in a particular year. We would then have to compare those with the previous year’s allocation and make an adjustment if necessary to ensure a real-terms increase. That would add administrative complexity and create accounting and funding uncertainty, not least for the Government Actuary, who is required to report on the state of the National Insurance Fund each year. It would have, as I have explained at some length, no impact on the overall spending on the NHS, which is a rightful concern of noble Lords.
Government policy is to maintain the level of national insurance contributions allocated to the NHS and to allocate additional revenues from rate rises to the National Insurance Fund. That is what the Bill will achieve. That helps to ensure that plans for payment of pensions and other contributory benefits are sustainable in the long term. In that way, we can protect pensioners with the new triple lock, which guarantees each and every year a rise in the basic state pension in line with earnings, prices or a 2.5 per cent increase, whichever is the greatest.
I repeat that this amendment will not affect overall spending on the NHS because that figure has been set in the October spending review. Given that the figure has been fixed, the amendment would serve only to create a degree of additional bureaucracy and complexity. I have gone to some length to reassure, I hope, the noble Lord, Lord McKenzie of Luton, that the health service will in no way be short-changed because of the Bill. Therefore, I ask the noble Lord to withdraw the amendment.
My Lords, I thank the Minister for his response. He said that he did not believe that we could reasonably challenge the assertion that the coalition Government would increase funding for the NHS in real terms, but that is precisely what we are doing. If the noble Lord looks at the Red Book and the projections, the aggregate figure is a 0.4 per cent increase, but when you back out the fact that included in that is £1 billion reallocated for social care, because local authority budgets have been squeezed, you will see the opposite effect—a real-terms cut. That was part of the backdrop to the amendment.
The noble Lord said that the Government’s proposition was to “maintain” the allocation, but that is precisely what they are not doing this year. I raise what Mr Gauke said in the other place. He said on the record that, because earnings were increasing and were projected to increase next year, on the basis of the Government Actuary’s report, he would expect the NHS allocation to increase.
At the end of the day, the Government are clearly under pressure on spending, as any Government would be at the current time. If they are looking for resources outside of the National Insurance Fund to make good any shortfall in meeting their commitments, that will be more difficult if they cannot get a reasonable allocation from the National Insurance Fund—a reasonable allocation being an increase in real terms when earnings are increasing as well. That was exactly the premise of Mr Gauke in another place.
The Minister made much of what this would mean in terms of administration, but I reject that rather bureaucratic proposition of how you could deal with this, because I think that it could be dealt with quite easily on the basis of estimates, with adjustments at the end of the year. There is no great mystery about that. Having said that, our real concern is the fundamental issue of whether proper funding is going to the NHS and whether in real terms the Government are meeting their commitment. We do not believe that they are. This is just one facet of that. However, I think that we have probably got as far as we can on this. I beg leave to withdraw the amendment.
Amendment 1 withdrawn.
Clause 4 : Holiday for new businesses
2: Clause 4, page 2, line 8, at end insert—
“( ) This section applies to all regions and countries of the United Kingdom.”
My Lords, in moving Amendment 2, I shall speak to the other amendments in the group, which seek to remove the excluded regions from the Bill so that the national insurance contributions holiday will apply without geographical restriction. It will bring London, the eastern region and the south-east within the benefits of the provisions.
There are two fundamental reasons why we continue to advance this proposition. The first is fairness and the second is to do with simplicity. To deal with the latter first, it was clear from probing that having excluded regions is a complicating factor in the construction of the legislation and the operation of the scheme, and would discourage a clear understanding and therefore take-up of the scheme. We identified complexities for some types of businesses as to where the new business was principally carried on and, I think, established that some of the 10 employees by whom the national insurance holiday could be enjoyed could anyway be working in the excluded regions. I think that we left unresolved the issue of how, if at all, the holiday would work whereby new business might contribute to the shared services of a group.
I am sure that the Minister accepts that having the excluded regions as part of the scheme creates additional bureaucracy and administrative cost, but the real issue is fairness. Excluding three regions from the holiday scheme means that significant parts of the UK that are every bit as deprived as other parts and have equal if not higher unemployment and a heavy reliance on public sector employment are denied this incentive. If the national insurance contribution holiday is a meaningful incentive, while we do not think that it is perhaps the most effective means of stimulating growth, we can see that it will help and believe that it should be fairly available. Help, of course, is needed especially at the current time, with the unemployment figures looking continually grim. The unemployment rate for the three months to December 2010 was up to 7.9 per cent, and the total number of unemployed people increased by 44,000. For 16 to 24 year-olds, unemployment increased by 66,000 to reach 965,000—the highest figure since comparable records began in 1992.
The Minister has to date been a little coy about providing up-to-date figures for the take-up of the scheme, which has now been running with effect from June last year. Figures given in another place suggest take-up by January this year of some 1,500 businesses, which is obviously disappointingly short of what might have been expected, as the overall projection is that 400,000 businesses will participate over the three years and two months that the scheme will operate. If the Government are not to fall woefully short of their target and to miss an opportunity to deploy to the full the resources allocated to stimulate the growth of jobs, the scheme requires better take-up or an expanded application. We offer by way of a later amendment the requirement for an annual report to take more formal stock of progress. That could lead to changes in the scheme if the report showed that including the currently excluded regions was leading to overspending. Modifications could then be made.
It is worth putting this in the context of the most recent labour market statistics, which showed in the quarter to September last year a net increase of 9,000 jobs, including 63,000 additional jobs. Clearly, those additional jobs will not all come from start-ups and some will come from the currently excluded regions, but that illustrates the headway in the current budgetary provision. The holiday was projected to cost the Exchequer £50 million this year. At £2,000 per business, which I think is the estimate, that should mean 25,000 businesses at least having taken up the scheme by 31 March. Can the Minister give us any assurance on this point? It is difficult for him to argue that removing the exclusion of regions would cause the budget allocation to be exceeded if he cannot assure us that the scheme is currently on track.
The Government have targeted the holiday by reference to the reliance on public sector employment, the idea being that the holiday will promote the formation of new businesses in the areas most reliant on public sector employment. Estimates of job cuts arising from government spending cuts vary, but 500,000 could be in the pipeline, together with consequential effects on the private sector job market. The VAT rise simply adds pain to that. By targeting areas of existing public sector employment, the national insurance holiday seems to be focusing on what is to come, not on what exists, although there may be a correlation between the two.
Whether the focus is on the reliance on public sector employment, existing unemployment levels or deprivation, significant anomalies occur by taking a broad regional analysis. Nearly half of constituencies that are the lowest 15 for claimant count unemployment are in regions that can benefit from the national insurance contribution holiday, and 20 per cent of constituencies in the highest 30 for claimant count unemployment are in regions that are denied the benefit of the holiday. We know that of the top 12 most deprived local authorities on the economic deprivation index, seven will miss out on the contribution holiday.
The House of Commons Library produced a report that sought to analyse public sector employment by constituency. While caveating the complete accuracy, it set out figures for the relative importance of public sector employment. Again, we find that 25 constituencies in the top 100 for reliance on public sector employment are in regions that cannot benefit from the holiday, and that 43 constituencies in the bottom 100 for such reliance are in regions that can benefit. The ONS public sector employment statistics bulletin for quarter 1 2010 not only shows a generally relatively narrow spread across the English regions but shows London to have a higher public sector employment rate than the West Midlands and the east Midlands. London, of course, is excluded.
Even assuming that the Government are correct in targeting just by reference to the reliance on the public sector—in the current climate of savage job cuts in the public sector, that is not unreasonable—their regional approach is missing too much of the target. Each region and country of the UK has pockets of deprivation, high unemployment and a high reliance on public sector employment, as well as areas of prosperity and high employment. To limit the holiday on a regional basis is too crude. The Government need either considerably to fine tune the approach, with the bureaucracy that that would entail, or to lift the excluded region prohibitions. This is what fairness demands. I beg to move.
My Lords, I have made clear in the past my criticism of the Government’s cuts to regional expenditure. Therefore, I welcome the fact that this measure potentially puts back the best part of £1 billion into regional development. It is not the traditional way in which it has been done. Arguably, if it works, it will be more effective because it follows the market absolutely rather than the views of regional development agencies. Therefore, it could be an effective way of getting money back where it is needed.
I found the first of the arguments of the noble Lord, Lord McKenzie, about fairness quite perplexing. To argue that the measure is unfair because it excludes the more affluent parts of the country is to argue that regional policy is unfair because it excluded or did not give much preference to the wealthier parts of the country. It is true that there are wards and constituencies in London that are extremely poor and that have high levels of unemployment—that has been the case for a very long time and throughout the history of regional development—but it has not been seen in the past as a reason for not giving additional support to the north, where the problems are even greater. The difference between the problems of Newham and those of Sunderland, Liverpool and Barrow is that Newham is in a buoyant labour market within a travel-to-work area that is doing very well compared with the rest of the country. Many communities in the north are in labour markets and travel-to-work areas where there is simply no way to get a job very easily. That is the essential difference between the excluded regions in the south and those in the north.
The noble Lord spoke about simplicity. While he might have been right to castigate the Minister for using administrative arguments in dealing with the first amendment, he is doing exactly the same here. He cannot argue that a man or a company cannot be given a benefit in Newcastle just because, two and a half years down the line, they employ someone in London. That argument does not stand up.
New businesses have been set up in the past predominantly in excluded areas. Therefore, if his approach were adopted, one would expect a large number of new businesses to be established in London and the other excluded regions. What assessment have he and the Labour Party made of the cost of such an extension of the area? I know that he—and, indeed, I—are not absolutely convinced that £940 million is the cost of this programme, but no doubt he has a view as to what it is likely to be. I suspect that the cost of extending the provision will be double what is in the estimates already, which means a potential cost of another £940 million. Even if it is £500 million, has the noble Lord contemplated that? How does that extra expenditure fit into the Labour Party’s commitment, under the Fiscal Responsibility Act, to halve the deficit over the next four years?
I am very grateful to my noble friend Lord Newby; he has done my job admirably on these amendments. However, I start by returning to fairness. The reason for the Government introducing the holiday is their belief that it is fair that people and regions that have become overdependent on public sector jobs are given additional help as the economy has to rebalance. I therefore agree completely with my noble friend. It is clear that the noble Lord, Lord McKenzie, means to misconstrue the purpose of the Bill.
We in the Government are doing other things to lift the burden of national insurance contributions on businesses right across the country, notably by raising the threshold by £21 per week above indexation from 6 April 2011 and by reducing corporation tax rates. Those very considerable measures are benefiting businesses right across the country, reversing the damaging effect of the Labour Government’s jobs tax. This particular measure is not about fairness across the country in that sense but about fairness to those regions that, under the previous Government, became overdependent on government employment. This is a way of targeting resources to enable new businesses to grow in those regions.
My noble friend Lord Newby went on to ask the noble Lord, Lord McKenzie, about the additional cost of the scheme. The Government estimate that if the scheme were to go national it would increase the projected costs of the scheme by about 70 per cent, so my noble friend is completely right that this could be a significant additional expenditure. He has made the point that I was not going to make, although he is quite right; it is yet another example of Labour’s unfunded spending promises.
As for other issues on the excluded regions, the reason why Greater London, the eastern and the south-eastern regions are excluded is principally because the proportion of the population in public sector employment in those regions is lower than in any other parts of the UK. Also, in addition to my noble friend’s point, noble Lords might wish to be reminded that during the public evidence session on the Bill, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and that the formation of now businesses would not be harmed significantly if the holiday was not available in these regions. The Government agree with that assessment.
There is then the question of having pockets of deprivation with high claimant count in particular parts of the excluded region. The Government of course acknowledge that areas smaller than regions have particular concentrations of needs. That is reflected in our looking for more efficient mechanisms than this one for addressing those more local needs. For example, my right honourable friend the Chancellor of the Exchequer announced earlier this month that the Budget will introduce new enterprise zones across parts of Britain. Those zones have great potential but need that extra push from the Government and local communities working together. Such enterprise zones would be expected to be far, far smaller than regions. There are other, fairer and more appropriate ways of dealing with the issues which the noble Lord, Lord McKenzie, raises perfectly reasonably. They just do not happen to have anything to do with this holiday, which is about dealing with an unbalanced economy as far as dependence on public sector jobs is concerned.
In conclusion, the holiday is targeted specifically at regions and countries with the highest proportion of public sector dependence. It is there to encourage new businesses to start up and to take on employees in those areas. I will not be drawn into updating now on the take-up—there will be other occasions for that—but one would expect it to increase over time. We will no doubt discuss a little later today the form of reporting that is appropriate. Expanding the holiday to the whole country would undermine the very purpose and rationale of the policy. I ask the noble Lord to withdraw his amendment.
My Lords, I thank the Minister for his reply and the noble Lord, Lord Newby, for his contribution. We do not misconstrue the purposes of the Bill; we support projects that help to rebalance the economy, and we see that focusing in part on where there is high public sector employment in an area is one way of doing it. It is not the only way, but we have acknowledged that the Bill can make a contribution in that respect.
The noble Lord speaks as though there is almost a huge divide between the excluded regions and those that are included. From the ONS public sector employment statistics bulletin for quarter 1 of 2010, let me run through the list of percentage by region of identifiable public sector employment. The point that I reiterate is that the spread between the regions is relatively narrow, and that London misses out on this basis. The north-east is said to have 25.1 per cent, the north-west 22.3 per cent, Yorkshire and Humber 22.6 per cent, the east Midlands 18.5 per cent, the West Midlands 21 per cent, the east 16.6 per cent, London 21.1 per cent, the south-east 16.8 per cent and the south-west 21.3 per cent. To chop off three of those areas, as though they are a completely distinct part of the economy with in no way the same reliance on public sector employment, seems incredibly flawed as an argument. It is not just a question of looking at little pockets within regions, as the overall regional statistics show a close match across the regions.
The noble Lord, Lord Newby, said that we were talking about £1 billion for regional development—fine; no one is looking to take £1 billion away from the project. However, he again referred to “more affluent” regions. I am sure that parts of all regions are affluent, and parts of all regions are deprived and with high unemployment. One accepts that there are special challenges in some of the northern regions, and one would not want to detract the support available to those. Luton is in the east of England. It still has high levels of deprivation, but the spread across the region shows that parts to the east are distinct, with much lower wage economies, higher employment infrastructure deficits and real challenges. They are every bit as deserving of the benefit of schemes such as this as anyone else.
The noble Lord rightly challenged me on the costs. I refer to figures given by the Minister, but the purpose of the probing earlier—I note that the Minister remains coy on the point—was to question whether the allocation made will in any way be spent. I think that the proposition that underwrites the estimate is that this will support something like 800,000 jobs, and those jobs will have to be created outside the excluded regions by start-up businesses over a period that has about two and a half years to run. That is a tall order. If it can be achieved, great, but there is headway in the allocation to extend the scope of the scheme, and we support that.
I have tried to deal with the points raised. We think that the provision is unfair. All regions should have the opportunity to benefit from this. We shall get to an amendment tabled by one of my noble friends shortly, following which there would be scope, through monitoring, to dampen down the scheme if it proved to be overheating. However, there is no sign of that. It is a pity that the Minister was not even able to give us an update; we are almost at the end of the year. Some £50 million is meant to have been spent, which would mean that at the very least 25,000 businesses would have signed up. I suspect that we are nowhere near that on the basis of the figures of 1,500 that were discussed a couple of months ago in the other place. Having said all that, we have had a brief but, I hope, full encounter on the subject, and I wish to test the opinion of the House.
14 March 2011
Division on Amendment 2
Amendment 2 disagreed.View Details
Amendments 3 and 4 not moved.
Clause 5 : Starting a new business
5: Clause 5, page 3, line 35, at end insert “, or
( ) a non-trading charity
My Lords, we debated this issue in Committee and it was the subject of debate in the other place as well. However, we found the Government’s response to this amendment and the concept behind it somewhat unconvincing. Their view seems to be that this measure, in this Bill, revolves around what they define as the wealth-creating sector. That seems, by definition, to exclude charities from consideration. Why should the Bill be subject to this narrow definition, which seems to suggest that charities do not contribute to wealth in our society? That view is buttressed by the Government’s arguments that reflect the very narrow definition of what they regard as the nation’s wealth. In other words, it is to do with jobs but not public welfare—it is about people being employed but not what they are employed to do. In other words, it has nothing to do with quality of life.
I know that the Minister will regard my presentation of these arguments as indulging in a flight of fancy that is a little different from the day-to-day preoccupations of the Treasury. However, I ask noble Lords to consider the obvious point that in these difficult times we should give hope to our people, as this measure seeks to do. We should give help and support to those thousands of our fellow citizens who will lose their jobs in the public sector as the Government say that they cannot afford to employ them all. They rarely deploy the argument which they use regularly at party conferences and elsewhere, when rhetoric plays its part, that they wish to reduce the size of the state as they consider that that would benefit the nation. In reducing the size of the state they are, by definition, reducing the number of people in public employment not because they cannot be afforded but because, in the Government’s opinion, society is better when the Government play a smaller part. The House will not be surprised to hear that we take a somewhat different view about wealth and the virtues of public employment.
The previous amendment was directed at those parts of the country which the Minister indicated were more dependent on public sector employment which is to be subjected to such a serious assault from the government cutbacks. Why can we not help these areas by creating jobs in bodies such as non-trading charities? Of course, I appreciate that it will be a modest contribution and I subscribe to the view that the noble Lord will no doubt put forward in his reply that the Bill overwhelmingly concentrates on businesses which create wealth. I am not in any way, shape or form against that endeavour. In fact, my party has made clear that it supports the development of small businesses. However, I am against exclusion for no obvious good reason. I do not see why non-trading charities should not be included.
The Minister’s argument in Committee partly revolved round the fact that the matter is said to be outside the main purposes of this legislation and that we should not bring in something that is somewhat extraneous. However, the number of Bills which the Treasury can introduce over the year is fairly limited. The noble Lord will be all too well aware of the fact that apart from the Finance Bill, in which this feature is scarcely likely to be addressed, Treasury Bills, other than those which have a very specific operation, are few and far between as the Treasury competes with other departments for legislative time in both Houses. We therefore propose an amendment of a most modest but beneficial kind that—even if the Minister thinks it is not entirely appropriate to the main purposes of this modest measure—is not far distant from the objective of creating jobs on a very small scale in areas where public employment is being reduced. I maintain that non-trading charities can play a modest part in creating those jobs.
Given the government arguments thus far—and that is why we are continuing this debate beyond Committee—I see no reason why the amendment should not commend itself to the Government, and that is why I commend it to the House. I beg to move.
My Lords, the noble Lords who put their name to the amendment have again raised the issue of making non-trading charities eligible for the employers national insurance contribution holiday. This matter was debated at some length in Committee and I again suspect that what I am going to say will not come as a huge surprise to the noble Lords concerned. Nevertheless, I will do my best to persuade them to withdraw the amendment.
I thought that the noble Lord, Lord Davies of Oldham, was going to go off on some flight of fancy. I do not think that he went off on any flight of fancy, and he kept entirely to areas that the Treasury takes extremely seriously. I was therefore disappointed, because I expected the noble Lord to go down some exotic new avenue—but he did not.
However, in the first half of his remarks, he did not recognise that an important group of charities will get the benefit of this holiday. It is important for me to confirm that new charities in qualifying areas are eligible for the holiday if they are carrying on a business. I appreciate that the noble Lord later on in his remarks started to distinguish between trading and non-trading charities, but this is an important point. For example, were employees to be taken on for a charitable trade, such as providing education or healthcare services, the charity is potentially eligible for this generous relief. Amendment 5 would specifically extend eligibility to new non-trading charities in qualifying areas. As, to be fair, the noble Lord recognises, this would not support the Government’s objective of encouraging new entrepreneurs to set up businesses in areas with a high proportion of public sector employment. The noble Lord suggested that his amendment would be a nice-to-have add-on, if I may crudely paraphrase him. However, he recognised that it does not chime in with the core purpose of the Bill.
Just as we have other ways of supporting regions that are not covered by the holiday, the Government of course have other important ways in which they support the critical work of charities, not least in their contribution to the big society. We provide substantial support to charities and charitable giving with tax reliefs worth more than £3 billion each year. Gift aid and relief from non-domestic rates are each worth around £1 billion a year. I remind noble Lords that, across the UK, charities that are employers will also benefit from the increase in the employers national insurance contribution threshold by £21 a week, plus indexation, that comes into effect on 6 April.
Because I think it is important to deal with the technical details of amendments and give them their due, I also respectfully point out to the noble Lord that the amendment on its own is somewhat defective as it does not deal with the many difficult issues that would arise if the holiday were extended to non-trading charities. For example, it would be necessary to consider carefully the commencement date of such a change. The scheme has been live since September 2010 and the relevant period commenced in June 2010. We do not think that any such amendment could be made with retrospective effect as the amendment implies. The legislation would need to provide a start date for charities. Is this to be the date of establishment or some other date—for example, the date it is registered by a regulator such as the Charity Commission or the Office of the Scottish Charity Regulator? What about the existing holiday rules covering businesses that are taken over or transferred or where there is a change in activities? Would these rules need to be applied so that only genuinely new charities qualified or would they need to be modified to cater for cases where charitable status might be obtained at some point after the activity had commenced? Therefore, there are considerable technical problems with the amendment.
In any case, as the noble Lord, Lord Davies of Oldham, recognises, any benefit ensuing from such complicated changes is likely to be limited, as we estimate that relatively few non-trading charities employing staff are likely to be set up over the holiday period. By including non-trading charities, we would undermine the policy rationale for the holiday, which is to encourage new businesses to be set up and to take on employees. For example, if charities were included, employers of nannies and carers could claim that they should also be included in the holiday. We have drawn a line at trading because that is what supports the overarching policy.
In conclusion, the scheme specifically targets new businesses that create new employment in areas that require it most. If a new charity were carrying on a business, of course it would qualify, but extending the holiday to non-trading charities would greatly complicate the scheme. Rather than channel resources through this scheme and impose administrative burdens on new charities, the Government consider that it is more efficient to provide support through existing mechanisms to all charities, as well as significant benefits, in the ways that I have outlined. Therefore, I ask the noble Lord to withdraw the amendment.
My Lords, I am grateful to the noble Lord for his precise exposition of the Government’s case against the amendment in principle. I do not think that we need the overkill of the technical limitations of the amendment. It is rare for the Opposition to table amendments that do not have certain technical imperfections, but when a Government have the will, they certainly have the way to get past those imperfections. Of course, the Minister is really piling Pelion upon Ossa. He is saying that he is not having this amendment at any price on a fairly straightforward and clear principle; nevertheless, so far as the Opposition are concerned, the argument is made on unconvincing grounds. However, I beg leave to withdraw the amendment.
Amendment 5 withdrawn.
Clause 7 : The appropriate amount
Amendment 6 not moved.
7: After Clause 10, insert the following new Clause—
“Annual report by the Treasury
( ) The Treasury shall, following the day on which this Act is passed, review the operation of the regional holiday scheme under Part 2 of this Act, and provide an annual report to Parliament.
( ) Each annual report shall set out, by region—
(a) the number of businesses availing themselves of the secondary contributions holiday;(b) the number of employees designated as qualifying employees under the scheme;(c) the total expenditure saved by businesses under the scheme; and(d) an assessment of the demand to apply the regional holiday to different areas of the country.”
My Lords, this amendment again relates to an issue that we addressed in Committee. On that occasion, the Minister gave us the benefit of his perspective on this matter and indicated the ways in which the Government would be held properly accountable for their work in this area, as in all aspects of Treasury matters, and indeed wider than that.
The amendment relates to the specific nature of the holiday. We are seeking an annual report in the terms adumbrated by the amendment because this is a most interesting scheme. If not experimental, the scheme certainly has a significant dimension, which is, as we discussed when we debated the earlier amendments on the regional aspects of the scheme, the control factor attached to it. The scheme will operate in the majority of the country, although it will exclude the south-east, London and the eastern region. Therefore, after a year, we shall be able to see how much progress has been made on job creation for those who have lost their position and where there are fewer jobs in the public service and we shall have a control position as regards those regions that are not in the scheme. We may be able to see the benefit of this initiative by the Government.
To my noble friends on the Front Bench, that seems to be a good reason why we should have a precise annual report on this scheme and on how it has worked. Although I quite understand that the Minister’s defence is likely to be that the Treasury is always open and accountable and that it has measures whereby it makes matters explicit to the nation, I would not be the first noble Lord to have to confess, even with the experience of being on the Treasury Bench, that from time to time there has been a degree of obscurity that makes it extremely difficult to analyse just what has transpired in schemes and their effectiveness. This amendment would give the Treasury a golden opportunity, after one year, to make quite clear the success or otherwise of the scheme, which we wish success. I beg to move.
My Lords, Amendment 7 would insert a new clause into the Bill with the aim of requiring the Treasury, following the day on which the Act is passed, to review the operation of the regional employer NICs holiday under Part 2 of the Bill and to provide an annual report to Parliament. The amendment would require the annual report to contain information by region. At the risk of being accused of piling Pelion on Ossa, it is important to get the comparison between what is proposed by this amendment and what I shall go on to say the Government propose to do. It is important to get it straight. I hope that I am not going into any unnecessary detail but I will clarify what is going on in the proposed amendment and what the Government seek to do.
The amendment requires that the annual report should contain, by region,
“(a) the number of businesses availing themselves of the secondary contributions holiday;
(b) the number of employees designated as qualifying employees under the scheme;
(c) the total expenditure saved by businesses under the scheme; and
(d) an assessment of the demand to apply the regional holiday to different areas of the country”.
As I said in Committee when we discussed amendments of a similar nature, I think that this amendment is motivated by a wish to encourage transparency—the noble Lord, Lord Davies, has confirmed that—and to ensure that proper consideration is given to how the holiday operates in practice. I shall attempt to explain to noble Lords why the amendment is unnecessary.
First, as I said in Committee, my honourable friend the Exchequer Secretary explained in the Public Bill Committee in another place that there is no budget as such for the scheme. Anybody contemplating starting up a new business can be confident that there is no budgetary constraint on the scheme. The holiday will continue as proposed regardless of how many successful applications are made. If a large number of additional new businesses are formed as a result of the policy, this would help to increase Exchequer revenues. The expected costs of the scheme were set out in the policy costing document at Budget 2010.
Secondly, on the point on which the noble Lord, Lord Davies, focused his remarks, the Government are committed to increasing the transparency of tax policy-making and of the tax system more generally. To that end, I am happy to repeat the undertaking, which I have mentioned before at different stages of this Bill, made by my honourable friend the Exchequer Secretary in another place to provide to Parliament and the public updates before the end of the calendar year on the operation of the scheme, including information at regional level. As I said in Committee, we envisage a factual report regionally and nationally covering the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed.
The only significant difference between the commitment that the Government have made and the amendment that we are debating is that the latter would require,
“an assessment of the demand to apply the regional holiday to different areas of the country”.
I am not completely clear about the meaning of these words and how what is suggested would operate. The noble Lord, Lord Davies, did not address the detail. The substantive point is that the Government do not see the need to report annually on the demand to apply the holiday to different areas of the country. We can assess that now and I do not expect the assessment to change. There is, of course, strong demand from excluded regions to enjoy the benefit of a holiday that they would like to have, but we have debated that already and the House has this afternoon formed a view on excluded regions. The position remains as we have debated it, so I am not sure how that part of the amendment would achieve anything.
The Government’s objective remains to target resources at those regions most in need. The Government do not expect the objective to change. By tabling this amendment again, the noble Lord has given me the opportunity to restate for the avoidance of doubt that we will come forward with a transparent and comprehensive report on an annual basis. With those reassurances, I hope that the noble Lord will withdraw the amendment.
My Lords, I am once again grateful to the Minister for his identification of the way in which the Government are seeking to meet the clear objectives of transparency and effectiveness with regard to the scheme. Of course, I understand that because the scheme has no particular budget there is an aspect of parliamentary control that is clearly not possible in the measurement of the budget. My noble friends support this amendment because we see the value of transparency with regard to the scheme, particularly a scheme that is partial in its impact. Of course I understand that the Government have sustained their position about the limited geographical range of the scheme, but there is bound to be greater demand for transparency in a scheme that does not apply to areas where there are none the less pockets of deprivation, as we sought to identify in the past. Clearly, they would have benefited from the scheme had that been the case.
I accept what the noble Lord has said about the process by which the Government will be transparent on the operation of the scheme. I want to make it clear to him and the Government that we will continue to take a close interest in this scheme. It may be a modest measure, but it is highly significant and, in certain aspects, groundbreaking in the way in which it has been framed. That is why we will hold the Government to account on the extent to which they reflect accurately the operation of the scheme. With that, I beg leave to withdraw the amendment.
Amendment 7 withdrawn.
Clause 11 : Interpretation of Part 2
Amendments 8 and 9 not moved.
Japan and the Middle East
My Lords, this may be a convenient moment to repeat a Statement made by the Prime Minister in another place a few moments ago. The Statement is as follows:
“Mr Speaker, before turning to discussions at last week’s European Council, I am sure the whole House will want to join me in sending our deepest condolences to the Japanese people following the earthquake and tsunami that struck their country over the past few days. We are all deeply shocked and saddened by the devastation that we have seen and by the loss of life, the full scale of which will take many days to comprehend. As yet there are no confirmed British fatalities but we have severe concerns about a number of British nationals. I spoke to our ambassador in Japan who was one of the first to get to the affected region and his team are working around the clock to help British nationals.
Over the weekend, we have had three rapid deployment teams of 20 staff operating in the worst affected areas. They will be augmented by a further team of 17 arriving in Tokyo this afternoon and advancing to the affected area tomorrow. They are working together to help British nationals caught up in the tragedy and to help find out information for the families who are so worried about them. We have set up a helpline for these families. It has taken several thousand calls and we are following up each lead.
We have, of course, offered humanitarian assistance to the Japanese Government and we stand ready to assist in any way that we can. At their request, a 63-strong UK search and rescue team, which includes medical personnel and two dogs, has already been deployed and arrived in Japan yesterday morning.
The whole House will have been concerned at the worrying situation at the nuclear power station at Fukushima. The Japanese Government have said that the emergency cooling system at three reactors at the plant has failed because of the tsunami. There have been explosions due to the release of hydrogen gas at both the Fukushima 1 and Fukushima 3 reactors. This is clearly a fast moving and rapidly changing picture, and the Japanese Government are doing everything that they can to manage the situation they are facing. We are in close touch with the Japanese authorities and have offered our nuclear expertise to help manage this very serious incident.
The Energy Secretary has asked the chief nuclear inspector, Dr. Mike Weightman, for a thorough report on the implications of the situation in Japan. The UK does not have reactors of the design of those in Fukushima and neither does it plan any; nor are we in a seismically sensitive zone. But if there are lessons to learn, we will learn them.
COBRA has met several times over the weekend and again this morning, and we will keep our response to this tragedy and our support for Japan and the wider Pacific region under close and continuous review. The devastation we are witnessing in Japan is of truly colossal proportions. It has been heart-breaking to listen to people who have had all their relatives, friends and livelihoods simply washed away. Those who have survived will not recognise the place where their homes once stood. We do not yet know the full and dreadful toll, nor can anyone truly understand the impact these events will have. Japan and the Japanese people are a resilient and resourceful nation. We have no doubt that they will recover. We will do all we can to aid and assist those affected and our thoughts are with the Japanese people.
Let me turn to the substance of Friday’s special European Council. The reason for having this Council was twofold: first, to make sure that Europe seizes this moment of opportunity to support the Arab people in North Africa and across the Middle East in realising their aspirations for a more open and democratic form of government; and secondly, to address the difficult situation in Libya. The Council addressed both of these issues and I will be frank with the House about where progress has been made and what more needs to be done.
The first is supporting the building blocks of democracy in the Arab world. The aim should be a big, bold and comprehensive offer to those countries in our southern neighbourhood that want to move towards becoming more open societies. There was some real success. The Council declaration talks of a “new partnership” founded on,
“broader market access and political co-operation”,
and with an approach that gears support to those countries where progress is being made in meeting their citizens’ aspirations. This could be so much better than the failed approach of the past. But now Europe needs to follow through on its declaration with a real and credible offer to these countries based on the prospects of deeper economic and trade economic integration with the EU, and the free movement of goods, services and investment.
Turning to Libya, it was right for the EU to meet and discuss how we can work together to deal with this crisis. There has been considerable international co-operation on evacuation. We have now got over 600 British nationals out and have assisted over 30 other nationalities. Around 220 British nationals remain in Libya, the overwhelming majority of whom are long-term residents, and many are, of course, dual nationals or the spouses of Libyan nationals. Many of this group have told us they wish to remain in Libya, but a number of other British nationals are now contacting us for the first time. We will stay in contact with these people and continue to assist those who wish to leave.
We have also been at the forefront of the response to the humanitarian situation in Libya and on its borders, but we remain deeply concerned by the humanitarian situation for people inside Libya caught up in the fierce fighting, and the Development Secretary has repeatedly called for the protection of civilians and for unfettered humanitarian access to those in need.
On further isolating the Gaddafi regime, the Council made good progress. Two weeks ago, we put in place a tough UN Security Council resolution and agreed in record time asset freezes, travel bans and an arms embargo, as well as referral to the International Criminal Court. At this Council, all European leaders were united, categorical and crystal clear that Gaddafi must “relinquish power immediately”. We widened the restrictive measures against individuals close to Gaddafi and strengthened the financial sanctions on the regime, adding the Libyan central bank and the Libyan Investment Authority to the EU asset-freezing list. In doing so, the UK has increased the total of frozen Libyan assets in this country from £2 billion to £12 billion.
We now need to make clear the next measures in terms of putting further pressure on the regime and planning for what other steps may be necessary. Two weeks ago, I told this House that I believed contingency planning should be done, including plans for a no-fly zone. NATO is now carrying out that work. As we have said before, a no-fly zone would need international support based on three clear conditions: demonstrable need, regional support and a clear legal basis.
In recent days, first the Gulf Co-operation Council and now the Arab League have called for a no-fly zone. In terms of the European Council, of course, the EU is not a military alliance and there is always a hesitation in discussing military options, but the Council expressed its,
“deep concern about attacks against civilians, including from the air”,
and agreed that member states will “examine all necessary options” for protecting the civilian population, provided there is a demonstrable need, a clear legal basis and support from the region. There was some progress, especially compared with where Europe was in advance of Friday’s Council, but we need to continue to win the argument for a strong response in the international community, Europe included.
Along with others in the United Nations Security Council, the UK is following up urgently the lead given by the Arab League by drafting a resolution, which sets out the next measures that need to be taken, including the option of a no-fly zone. Included in the resolution in our view should be much tougher measures against mercenaries and the states from which they come, as well as others who are attempting to breach the sanctions and assist Gaddafi.
Every day Gaddafi is brutalising his own people. Time is of the essence. There should be no let-up in the pressure we put on this regime. I am clear where British national interest lies. It is in our interests to see the growth of open societies and the building blocks of democracy in north Africa and the Middle East, and when it comes to Libya we should be clear about what is happening. We have seen the uprising of a people against a brutal dictator and it will send a dreadful signal if their legitimate aspirations are crushed, not least to others striving for democracy across the region.
To those who say it is nothing to do with us, I simply respond: do we want a situation where a failed pariah state festers on Europe’s southern border, potentially threatening our security, pushing people across the Mediterranean and creating a more dangerous and uncertain world for Britain and for all our allies as well as for the people of Libya? My answer is clear: that is not in Britain’s interests. That is why Britain will remain at the forefront of Europe in leading the response to this crisis. I commend this Statement to the House”.
My Lords, I thank the Leader of the House for repeating the Statement by the Prime Minister in the other place. I start by associating myself and these Benches with the remarks in the Statement about the Japanese earthquake and tsunami. The tragedy that has hit Japan and the Japanese people is of an almost unimaginable horror and scale. All of us will have been shocked by the scenes of devastation that we have seen on our screens over the weekend. We fully support our Government in their efforts to help the Government and people of Japan in their hour of need.
This is clearly an anxious time for friends and family of UK nationals and I know that consular staff will be working around the clock to provide all help and assistance. Our thanks must go to the staff of the Foreign and Commonwealth Office who are doing a fine job at this very difficult and demanding time, when they must be focused on Japan, Libya, northern Africa and the wider Middle East. Can the Leader of the House assure us that, while clearly stretched, they have adequate resources?
The Statement mentioned the helpline for families for people who must be desperately worried and we welcome the extraordinary help that that line gives. Does the Leader of the House agree that it would be useful if members of the public whose loved ones are found could inform our officials? I well understand that finding someone who was lost must be overwhelming and making a phone call may be far from mind. However, it would ensure that resources could be targeted on finding those who are still lost. That was a lesson that we on these Benches learnt after 9/11. The circumstances are clearly different, but we are talking about lost people who we hope to God are found. I also associate myself with the remarks in the Statement about the work of British search and rescue teams.
On the understandable concern about the nuclear power issues following the earthquake and tsunami, we should clearly see whether there are lessons to be learnt but avoid a rush to judgment. The scale of what has happened in Japan is such that there is a long way to go on many if not all of these issues. I am pleased that the chief nuclear inspector, Dr Mike Weightman, has been asked for a report on the implications of the situation in Japan. Will the Minister confirm that the report will be published when the Government receive it in due course?
On last Friday's meeting of the European Council, I will focus on three issues: the military options available to the international community regarding Libya, the wider response and the need to re-energise the Middle East peace process. First, we welcome the clear and unequivocal statement in the Council declaration that the Libyan regime should relinquish power immediately. As the Statement repeated by the Leader made clear, the situation in Libya is grave and pressing. We said when the Prime Minister first publicly floated the idea two weeks ago that we welcomed the consideration of a no-fly zone. Can the Leader of the House give us a clearer picture of what the Government believe a no-fly zone would involve and whether it is contingent on the US Government participating, given that some parts of the Administration have expressed reservations?
I note the unanimous decision over the weekend of the Arab League in support of a no-fly zone, which was mentioned in the Statement. In view of the decision, does the Leader think that any no-fly zone would best be supported by the active engagement both in planning and in actions by countries that are members of the Arab League? It would be helpful if the Minister could arrange for the communiqué from the meeting of the Arab League to be placed in the Library of the House.
On timing, I note that the Statement repeats the statement made by the Prime Minister last week that the United Kingdom is now working on a new Security Council resolution. Given the urgency of the situation, what is the Government’s best judgment about when such a resolution will be tabled? Above all, we on these Benches emphasise to him the importance of matching what is said in public with the diplomatic spade-work needed to win international support for a practical and legal plan. Given the position this morning of the former Foreign Secretary, the right honourable Member for Kensington and Chelsea in the other place, on arming the rebels, what is the Government’s position on the legality and wisdom of this?
Secondly, can I ask about the other actions that we can take? I welcome what the Statement said about asset freezes and sanctions. To maximise pressure on the regime, have the Government made any formal communication to the International Criminal Court to impress on Libyan leaders and commanders individual accountability for commissioning and carrying out crimes against humanity? If the Government have not done so, I suggest to the Leader that they do. On the humanitarian crisis, is DfID planning to provide additional support to the other multilateral organisations, such as the World Food Programme and UNHCR? On these Benches, we have evidence that young men are being taken away from their homes and that Benghazi men living in Tripoli are specifically being targeted. I am sure that the Leader will also have such information, but if it would be helpful for us to share that information we will certainly do so.
Thirdly, we welcome the reference to the Middle East peace process. Can we reiterate to the Government the central importance of not losing sight of this issue? Last week, both the Prime Minister and the Leader of my party held separate talks with President Abbas during his visit to London. What discussions took place at the European Council on how the EU can help to get the peace process back on track? In particular, what representations have been made to the United States following its recent veto of the UN resolution on settlements?
I hope and think that we are united in a view that this must be a moment when the European Union and the international community show that they are more than a sum of their parts, whether on Libya specifically, north Africa more widely or the Middle East process more generally. We hope that the Prime Minister of our country and other leaders will do all that they can over the coming days and weeks to make that happen.
My Lords, I thank the Leader of the Opposition for her warm words. I very much welcome those words of support for the people of Japan, but they come as no surprise to me because one thing that this country is good at—and this Parliament in particular—is showing solidarity when in another part of the world an immense tragedy has befallen people.
I also thank the noble Baroness for her tribute to the FCO. She is right in pointing out that it has a lot on its plate at the moment. The FCO is using its resources effectively and has established crisis centres; it has learnt a lot over many years on how to deal with these emergencies and is able to focus its response not just on Japan but on Libya, preparing for potential crises as they come about. We are living in the most uncertain of uncertain times, and I believe that the FCO continues to do sterling work. In particular, the ambassador in Japan, David Warren, and his team are doing a remarkable job in providing support.
The noble Baroness’s suggestion of targeting resources on helping to reunite people who are lost is extremely wise and sensible. I am sure that officials have thought of that; I had not, and I thought that it was extremely useful. Likewise, I welcome the noble Baroness’s comments about the UK search and rescue teams. They are an important group of people with immense experience, knowledge and ability in finding people under the most difficult circumstances. They have moved quickly; they are on-site and working hard.
The noble Baroness asked me about the publication of the report of Her Majesty's Nuclear Installations Inspectorate. We do not yet know what form the report will take, but when a report is made, clearly, a decision will be taken on whether to publish it. I cannot imagine the circumstances under which it would not be published.
Turning to the situation in the Middle East and Libya in particular, the noble Baroness said that it was a grave and depressing situation; she is completely right in that. We have been very keen to see co-operation across alliances and countries for the no-fly zone concept. We have been much supported in that view by the Arab League. I shall look into why the Arab League's communiqué has not been published; if it is publishable, I shall ensure that she gets a copy and that a copy is placed in the Library of the House.
In the UN, we are working closely with our allies—in particular, France—to draft a resolution that will maximise support among all those whom we need to influence. I cannot give any update as to when the new resolution will be tabled, but I hope that it will be soon. The International Criminal Court is of course an independent body. It is not for the UK Government to make that referral; that has already been done by the United Nations. The United Nations has communicated with the ICC and has asked it to look into that. I am not sure what would be gained by the UK doing that separately, but I will certainly pass that question to officials. The noble Baroness produced some useful intelligence as to what is happening on the ground in Benghazi and Tobruk.
Finally, the noble Baroness rightly asked about progress on the Middle East peace process. As has been said many times at this Dispatch Box—under this Government and the previous one—there is an opportunity to start this work again, to seek to complete it. This weekend, the Council communiqué states at paragraph 17:
“The European Union is conscious of the wider political and economic impact of these events on the wider region and calls for reactivating the Middle East Peace Process”.
That was included specifically at the request of the United Kingdom Government. It is very important that we should start that up. There is an opportunity that should not be missed; if it is missed, it will be a failure on all our parts not to have done everything to ensure that it continues.
Perhaps I may press the noble Lord a little on the UN aspect. I know that drafting UN resolutions is quite complicated, but it does not take two weeks, which is what we have been saying is going on in New York. Has the time not now come to put down a resolution on the table? It is only when a resolution is on the table that people are forced to take a position on it. With the Arab League now supporting a no-fly zone, the tactical situation should have changed quite a lot.
Will the Leader confirm that, so far as legitimacy or a legal basis is concerned, this country flew sorties to enforce a no-fly zone in Iraq for 12 years without a specific authorisation from the UN? During that time, no one challenged the legality of that, although it was based on a Chapter 6 resolution that had no mandatory force. There is now a Chapter 7 resolution on Libya, which requires Colonel Gaddafi to stop repressing his people. The legitimacy or legality—whichever you like to call it—of acting even without a UN authorisation is therefore rather clear, as was the case also in Kosovo.
My Lords, the noble Lord, Lord Hannay, with his former experience, brings to the House a knowledge that is shared by few. I am sure that he is right that the sooner a resolution is tabled the better, but it will not be tabled until we, the French and our other allies feel that we have adequate support. I have no further news to give on that situation. I note what the noble Lord said about the legal basis or legitimacy. He made a useful comparison with Iraq and Kosovo. These issues are being actively discussed at the moment.
My Lords, does the UN arms embargo apply to both sides? The Arab League and the Gulf Cooperation Council have said very welcome words about a no-fly zone. Does that extend to an offer to supply military assets in support of a no-fly zone? The Statement referred to increased political co-operation with the countries of the Maghreb and the southern flank of the Mediterranean. Earlier efforts—for example, the Barcelona process of 1995 and the Union for the Mediterranean of President Sarkozy—have failed for clear political reasons, including the position of Israel, Morocco and Algeria over the Polisario. What indications are there that this effort will be any more successful than the past failed efforts?
My Lords, we are obviously operating under very different conditions. It is impossible to say at this stage whether what everybody is seeking will be successfully achieved. It is a fast-moving picture in Libya, as it is in the rest of the Middle East. My understanding is that the Arab League, while supporting the no-fly zone, has not made any offer of physical assets.
The Statement mentioned the freeze on Libyan assets, whose strengthening I welcome, but are the Government happy about the state of affairs as regards Libyan oil revenues? Can my noble friend give us any assurance that oil revenues will not trickle into the pockets of Colonel Gaddafi?
My Lords, not only have we taken a very firm line from the beginning of this process on freezing the assets of Colonel Gaddafi and his close associates and family, but that has been extended this weekend in the European Council. As a result of this cumulative effort, £12 billion of assets has now been frozen in the United Kingdom. On top of that, as my noble friend will know, we have removed Gaddafi’s head-of-state exemptions from UK controls and we have prohibited the export of uncirculated Libyan banknotes from the UK. There are of course other countries that will wish to undermine these sanctions, but we, with our allies—and there is a very united view about this—will do everything that we can to make sure that Gaddafi feels the pain of sanctions as quickly as possible.
My Lords, I welcome the support that Her Majesty’s Government are giving to the drafting of a Security Council resolution on the option of a no-fly zone. May I emphasise that in the search for legality a Security Council resolution is the only real, universally accepted basis, difficult as it may sometimes be to get? Any other basis is where there is an agreed international understanding that there is an overwhelming human disaster, such as with the Kurds, the Marsh Arabs or in Kosovo, where I was involved. Will the noble Lord give an indication that such a situation has not yet arrived, brutal as the regime in Libya is? Will he indicate the Government’s thinking on that? At the same time, will he perhaps encourage the Americans to join the International Criminal Court, which our Government set up?
My Lords, I will not be drawn on that final question, but the noble and learned Lord again raises some valuable and useful material about the legal basis, in particular the resolution at the United Nations. We want to get the widest possible support for action—in the EU, within NATO and among our wider allies, as well as in the United Nations. It is difficult to forecast at this stage exactly what kind of support that will be, but it is useful that we should try as hard as possible to get that unified view.
My Lords, serious concern has been expressed about the cooling system in the three nuclear reactors in Japan. When the nuclear inspector, Dr Mike Weightman, produces his report, will it be made available to the public and will full account be taken of it before we in the United Kingdom proceed with our nuclear power stations here? Also, the noble Baroness, Lady Royall, rightly asked about the position of the Obama Government on a no-fly zone. What discussions have taken place and where do the Government stand on this issue?
As the Statement pointed out, the types of nuclear installation affected in Japan are not ones that we have in Britain, nor are any of them planned. However, it was entirely right to invite the nuclear inspector to give us a report to see what lessons can be learnt. I told the noble Baroness that I did not know what form that report would take. I cannot imagine the circumstances under which it would not be published, but I cannot confirm that at this stage. Apart from anything else, if lessons are to be learnt, the more widely those views are propagated the better. Concerning discussions with the United Nations, those are obviously ongoing within NATO and President Obama has given his full support to NATO looking at the planning of such an operation.
My Lords, is it not the case that—
There are a lot of people trying to intervene. There is room provided that everyone is brief.
My Lords, while I welcome the statement from the Arab League and do not in any sense diminish its importance, does the Leader of the House think that there is any real prospect of countries which are part of the Arab League and which have the military capacity taking part in the no-fly zone operation? Does he think that seeking such support would be a help or a hindrance to getting a resolution through the Security Council?
My Lords, there are members of the Arab League that would have the capability to involve themselves in policing a no-fly zone, but I sense that we are a long way from that at this stage. There is still a diplomatic process to be completed of resolutions in the United Nations, but there is certainly no bar to making the co-operation across nations and alliances as wide and as deep as possible.
My Lords, is not the technical legal situation fairly straightforward and simple? Under Article 39 of the United Nations charter, where there has been a threat to peace or an act of aggression the Security Council is entitled to take that into account; it appears to have made a ruling on that basis. That triggers Article 42 of the charter, which allows—it is permissive, not mandatory—the Security Council to use any measure, including the use of force in the air, on land and at sea. However, prudence and practicality might well suggest that, for a no-fly zone to succeed, it would be necessary for there to be an elimination of the 20 or more surface-to-air missile sites that lace the coastal belt in Libya. Very great caution should be exercised before coming to such a decision.
My Lords, I agree that there should be caution. I am less with the noble Lord that these legal matters are clear and simple; so far as I can see they are immensely complicated. That is why we want the widest international support from Europe, the Arab League and beyond, and it is why we are working in the United Nations to draft a resolution with France. Things need to be taken step by step—we are not going to overreach ourselves—and we are working with our partners at the United Nations, in NATO and in the US to look at all the options. It is clear that a no-fly zone needs international support, a clear trigger and a legal basis; no country will go for it alone. The question of the surface-to-air missiles that the noble Lord raises, and of Libya’s whole defence resources, will no doubt be taken into account.
My Lords, I revert to the horrendous events that have so tragically overtaken Japan. Although it is clearly much too early to form any picture as to what happened at Fukushima’s nuclear power plants, is it not remarkable that those buildings, which were so close to the centre of the earthquake, seem to have withstood so successfully the onslaught to which they must have been subjected?
The second point that I want to make concerns the peace process in the Middle East. Given what has been happening throughout northern Africa and elsewhere, is there not evidence that the youth of those countries are desperate for greater freedom and a more secure economic basis for their existence? Would this not therefore be a wise and helpful time for Israel to show some indication that it understands what is going on inside Gaza and to take some humanitarian steps to assist the people suffering there?
My Lords, on my noble friend’s first point about the nuclear installations, I agree that lessons need to be learnt—I am sure that they will be—in terms of siting and design of nuclear plants and in terms of what went wrong in the earthquake that led to the problems, which I am sure were unforeseen when the plants were originally built. That will come in not only our internal review, but those of the Japanese Government and any other international organisations. On the second point raised by my noble friend, I agree that there is an opportunity for Israel to, in his words, show that it understands what is happening right across the Middle East and to show a determination to seek a long-term peaceful solution.
My Lords, are we learning lessons from the past in the use of no-fly zones? Have Ministers considered the comments of Mr John Nichol, an air navigator in Bosnia and Iraq, who described delays in securing legal authorisation for interception and delays in securing clarity over rules of engagement, with the result that there was a high incidence of failure by opposition aircraft—indeed, thousands of failures by opposition aircraft—to observe no-fly zones? Before we go down this route, can we get absolute clarity for pilots as to what the rules of engagement are and when they can act? Without it, the policy will fail.
Yes, my Lords, I agree with what the noble Lord just said, including his correct warning about the dangers of delay. I agree with him about the importance for pilots of clarity about the rules of engagement and that the legal basis should be as wide as possible, to cover all those who are flying within the area. That is, of course, a lesson that we have learnt from the past, which I hope is being put into effect, but the first step is to get international agreement so that we can move forward with unity.
I think that the noble Lord, Lord Hylton, was trying to get in earlier.
My Lords, I welcome the changes that are now under way in the EU neighbourhood plans and in the conditions attaching to them. Does the Leader of the House agree that it is probably unlikely that there will be sufficient agreement for mounting an effective military intervention, even for the limited task of protecting the people of Cyrenaica who have established their own freedom? If so, will warning be given in good time to the leaders of the uprising that they will, in effect, not be defended or protected? Will sufficient transport be available for those involved in the insurgency who wish to leave the country? Are plans being made for where these people might wish to go?
My Lords, that is a very wide question and it is difficult to answer. The noble Lord is right that we are seeking, through support for a no-fly zone, to protect the people of Libya who have been involved in the uprising. There are, of course, other options, such as the idea of a humanitarian corridor to allow people who wish to leave to do so. Nothing that I have seen leads me to believe that we are planning to put troops on the ground in any way. We believe that the best way of protecting these individuals is by supporting a no-fly zone.
My Lords, will the Minister inform the House as to the attitude of Libya’s two neighbour states, Tunisia and Egypt, to the intervention of other countries to assist the freedom fighters and protesters inside Libya? In particular, for example, in connection with the no-fly zone, have there been any discussions with the authorities in those two countries as to the availability of airfields, which would not involve our putting infantry on the ground but would be an enormous contribution to the operation of a no-fly zone?
My Lords, our discussions and negotiations about the possibility of a no-fly zone will include Libya’s neighbours but, given the support from the Arab League at the weekend, I am much more optimistic about having the co-operation of those neighbours in playing a greatly supportive role, including the possibility, at least, of providing airfields.
My Lords, I thank my noble friend the Leader of the House for the Statement that he has made. We have talked previously about the domino effect gripping the Middle East and I wondered whether he would like to make some statement on the situation that we see emerging in Yemen and on the news stories that are reaching us about the Saudi intervention in Bahrain. Have the Government made any representations in that regard?
My Lords, just as I left my room to come to the Chamber, I saw reported on the television that the Saudi military had been invited by the Bahraini Government to go into Bahrain in order to restore law and order and to protect government buildings. I have no other information to give and certainly no official response from the British Government. However, my noble friend is right to raise what he called the “domino effect”. Right across the Middle East we have seen enormous changes taking place, and these will continue. The role of the British Government is to be supportive of groups of people who wish to change their lives and to meet their aspirations and we have called on Governments across that region to allow those people to achieve those aspirations.
Postal Services Bill
Committee (2nd Day)
Relevant document: 9th Report from the Delegated Powers Committee.
Clause 2 : Report on decision to dispose of shares in a Royal Mail company etc
8: Clause 2, page 2, line 2, leave out paragraphs (a) and (b) and insert—
“( ) the principal objectives intended to be achieved by any disposal,( ) the extent to which the Secretary of State considers that the disposal will achieve those objectives, and( ) the expected time-scale for undertaking the disposal.”
My Lords, I shall also speak to Amendment 11. These amendments concern the report that the Secretary of State will be required to lay before Parliament after deciding to dispose of Royal Mail, whether through a trade sale or an IPO share sale. We have already put on record the Opposition’s disagreement with the principle of privatising 100 per cent of Royal Mail and that we believe that it should be kept in overall public control. However, in this Committee we are seeking to improve the Bill by casting a critical eye over the detail before us. The Bill might enable Ministers to conduct a sale of Royal Mail, but how they set about that task is important; it can be done well or badly.
We have pointed out some of the dangers that lie before Royal Mail and the country if the Government set about this disposal in the wrong way. So much can go wrong. It could be sold to an owner with short-term horizons who cherry-picks the most valuable parts and breaks up the company, perhaps, heaven forbid, on the road to administration—hence the need for Part 4 of the Bill. The Bill could create a Royal Mail that, against the wishes of Ministers and the current management of the company, decided to break the historic link with the post offices of this country. Either case would be catastrophic for our post office network, and there is nothing in the Bill to prevent them from happening. The company could be sold off cheaply, with a few individuals getting rich at the expense of the country’s taxpayers at a time of public austerity, with taxes going up, public services being curbed, wages being frozen, the retirement age receding and jobs being lost. I hope that Ministers are aware of the public anger that would be unleashed if that happened due to a lack of care and attention by Ministers and civil servants.
We know that in the past many privatisations have resulted in the sale price on the day of sale being dwarfed by the trading price on the first day of trading. The track record of trade sales is not much better. I well recall the Select Committee investigations that ensued when the Royal Ordnance factories in this country were sold, apparently over cocktails between the Minister and a businessman, for the princely sum of £1. The site of the old Enfield rifles establishment and the associated site on either side of the M25 must have been worth a pretty sum on their own. This sort of sale did not instil confidence that the long-term future of the company and its staff would be foremost in the mind of the new owner.
We want to avoid these disasters, as I am sure do the Ministers, and that is why we are bringing forward amendments that might help to make the process safer and more successful. These amendments therefore seek two simple improvements in the report to Parliament: first, to set out clear objectives for the disposal of Royal Mail, not just the process itself but the sort of Royal Mail that we want to emerge at the end of the sale and a clear timetable for action; and, secondly, clear criteria in deciding whether to undertake the disposal. Ministers have made it clear that they would sell to almost anyone. Well, I hope that they will not and that they will show some discretion. They say that they would not sell at any price but give the impression that they would not even obtain an independent valuation, so they will have no benchmark against which to judge whether any offer is too low to accept.
The wording of the amendments might have a familiar ring, but I hope that they will not send the noble Lord, Lord Hunt, racing off to his doctor complaining of another Groundhog Day moment. He need not worry; these are the self-same provisions which the noble Lords, Lord Hunt and Lord Razzall, sought to insert into the 2009 Bill—this is certainly déjà vu—and that were agreed on Third Reading. They were therefore incorporated into that Bill. Imagine our surprise to see them omitted from this Bill, no doubt through some oversight. We simply thought that we would ask why these measures have been omitted and, given their provenance, I am sure that the noble Baroness will have no trouble in accepting the amendment.
The Government have allocated £1.34 billion of funding for the post office network over the next four years of the comprehensive spending review. Fifty per cent is above the social network payments. That is welcome, but what happens in 2015? What happens if a privatised Royal Mail wants to reduce its use of the post office network? After all, we have already witnessed the awarding of one significant contract—the green giro contract—going not to the Post Office but to Citigroup. What happens if there is compulsory competitive tendering for a substantive contract which the Post Office fails to win?
Once again, there are so many unanswered questions. If the Government do not know what the assets of Royal Mail and the Post Office are before moving on to sell Royal Mail or to hand over the Post Office to mutual ownership, they might well sell the people of this country short. That will increase the risk of asset-stripping and of selling at too low a price. That could change the nature of who owns the company and how they run it. Amendment 12A, in the name of my noble friend Lord Whitty, at least seeks to establish a proper record of Royal Mail’s assets in the division between Royal Mail and the Post Office. It also draws attention to the vital inter-business agreement, a subject to which we will return later in the Committee’s deliberations.
My Lords, I thank the noble Lord, Lord Young, for his most helpful opening words. Telling me that his intention is to enable those on these Benches to make a better Bill is welcome.
The amendments seek to insert additional reporting requirements into the Bill on the Government’s objectives for a disposal and the principal criteria used for deciding to make a disposal. I believe that the Government have already been very clear about why we wish to dispose of shares and the objectives for such a sale. Like the previous Government, we believe that Royal Mail needs an injection of private capital and disciplines. In addition, we also wish to give the employees the opportunity to own shares in the company. We believe that this, along with the other measures in the Bill, is the best way to ensure that the universal postal service is maintained in the United Kingdom.
When making a disposal, we have already stated clear objectives. These are to secure the future of Royal Mail and to ensure that we achieve value for money for the taxpayer. Clause 2 requires the Secretary of State’s report to state the type of disposal that would be made. Quite broadly, this is likely to be either through a sale by auction or through a flotation. It also requires that the timescale for undertaking a disposal be included in the report.
The Secretary of State would not, especially for the first sale of shares, lay a report before Parliament that had two lines stating, for example, that there will be a trade sale and that it will take place in 2012. We know that Parliament would expect more than this. Indeed, we believe that on the occasion of the first significant sale of shares an Oral Statement is likely to be appropriate. As arrangements have to be made for an employee share scheme before any shares can be sold, the report would also include information on how and when the employee share scheme would be set up.
On the suggestion that criteria for deciding whether to sell Royal Mail should be included in the report, at one level we have already set out those criteria—that Royal Mail is poorly served by the Government as its sole shareholder and needs urgent access to private capital and disciplines to secure the future of the universal services. I have doubts, however, about the inclusion of detailed criteria for a sale in a report before a sale is made. The previous Government’s Postal Services Bill 2009 required information to be provided to Parliament on the criteria for a sale of Royal Mail. However, the report in the 2009 Bill would have been presented to Parliament after an agreement had been entered into to sell shares to a third party. Clause 2 of this Bill requires a report to Parliament before a sale. I hope that noble Lords on all sides of this House will welcome this earlier provision of information to Parliament.
As I have said in response to other amendments that we have debated, it would not make commercial sense for the Government to lay all their cards on the table when entering a commercial negotiation. We will have criteria for a sale, but I see no logic in revealing this before a transaction has taken place. Therefore, I ask the noble Lord to withdraw the amendment.
I cannot say that we are completely satisfied with the noble Baroness’s response. Nevertheless, we shall reflect on it between now and Report. In those circumstances, I beg leave to withdraw the amendment.
Amendment 8 withdrawn.
9: Clause 2, page 2, line 3, at end insert—
“( ) the means by which the name Royal Mail is to be protected and used by the universal postal service provider.”
My Lords, I hope that I will get a favourable response from the Minister as my amendment should cause the Government no problems whatever. It has no effect on the thrust of the Bill and its objectives should be welcomed by noble Lords on all sides of the Committee. In the Bill, the Secretary of State is required to lay before Parliament a report on the proposed disposal. Clause 2(3) sets out, on page 2 of the Bill, what the report must state. My amendment would add that the Secretary of State should detail in the report how the name “Royal Mail” is to be protected. Noble Lords might ask why we should do that. The Royal Mail is an institution that can trace its roots back to 1516. Parliament and government should be concerned to protect its name and not to leave that to chance. Royal Mail for me conjures up images of hardworking postmen and postwomen working in all weathers to deliver post to our homes. It is a great brand name.
I raised this issue at Second Reading. I hope that the Minister will not tell me not to worry about this as any new owner would be daft to change the name. However, organisations do daft things all the time. Just because something is right, proper, obvious, reasonable and sensible has never stopped people doing daft things. My amendment would give the Government the power to stop anything daft happening to the name “Royal Mail” and stop it being confined to the dustbin at some point in the future. It would stop another Consignia fiasco happening. No one had any idea what Consignia was. Some people thought that it was a relaunch of a 1980s deodorant called Insignia, not the universal service provider.
The Government have a real opportunity today to stand up for the brand name Royal Mail and protect it for the future. I hope that they will do so.
My Lords, I fully appreciate the sentiment behind the amendment. The name “Royal Mail” has been synonymous with the delivery of the postal service in the United Kingdom for hundreds of years. In fact, the noble Lord, Lord Kennedy, has told us the date on which it was established, and I can understand why he seeks reassurance that the name will be preserved. However, I have to say that the choice of the name of the company delivering the universal service provider should be a commercial decision for the company and its shareholders. I do not believe, however, that future owners of the company will rush to change its name, because this would not make commercial sense.
I say that because “Royal Mail” is, as the noble Lord said, one of the most recognised brands in the UK, perhaps in the world. There is no doubt that the name is a commercial asset to the company—an asset that potential investors will value; and so will we. It is the Government’s firm belief that any future owners of Royal Mail would recognise the power of the brand, and it would be folly on their part to seek to dismantle such a brand in any way.
Your Lordships will remember the previous attempt to change the name. Once again I repeat the noble Lord’s point; “Consignia” was not a success. It is not a name that you hear mentioned at Royal Mail headquarters these days. As my noble friend Lady Wheatcroft said at Second Reading, the BBC summed up the name change as,
“nine letters that spelled fiasco”.
It would take a brave, or perhaps foolish, owner to seek to change the name again.
Noble Lords will also wish to note that while there might be support for ensuring that Royal Mail continues to be associated with the universal postal service, there are those in the other place who are opposed to a privatised company using the name or the other royal associations currently used by the company. We do not agree and we believe that Royal Mail, as the universal service provider, should continue to be able to use the name and the royal association, provided that suitable safeguards are put in place to ensure that the associations are used respectfully and appropriately at all times. Discussions about these safeguards are ongoing.
I am therefore afraid that, although I greatly sympathise with the noble Lord’s request, I ask him to withdraw the amendment.
I would have spoken immediately after my noble friend Lord Kennedy, except that I imagined—wrongly—that there was no answer to his point and that the noble Baroness would give way. It is unsatisfactory that when a sale is to be made, there is no firm or unfirm indication in the Bill that the name will be kept. I suppose that the name “Royal Mail” is protected in one sense, because it is a trademark that no one else can use. Perhaps I was wrong to think that the noble Baroness would adhere to that and say, given the radical change in terms of privatisation, that the name should be protected in more than one sense, not only as a trademark but as a name that cannot readily be altered. We all remember the absurdity of “Consignia”, of which my noble friend Lord Kennedy reminded us. Goodness knows what name someone might think up in the future. People, even heads of business, do silly things in relation to their names. Some of us remember other names that have been changed and had to be changed back again because they turned out to be a complete failure. I ask the Minister to change her mind and at least agree to think further before Report.
Does the noble Lord, Lord Borrie, think it would be appropriate for the name “Royal Mail” to be owned by a foreign company that had bought the postal services—indeed, a foreign company from a republic?
My Lords, I say to the noble Lord, Lord Borrie, that we intend to put safeguards in place to ensure that the royal associations are used by Royal Mail respectfully and appropriately at all times. We have not yet finalised how these will be structured, but they could, for example, be set out in a legally binding agreement between the company and the Secretary of State. When drawing up such an agreement, we would seek to ensure that the use of the name “Royal Mail” was linked to the provision by the company of the universal postal service, and this would prevent it being used in other circumstances.
I wondered whether someone was going to ask whether there is not the potential for a foreign owner to misuse the royal associations. That was almost the thrust of the question. We appreciate that there might be concerns about the potential for misuse of these associations, and we propose to put safeguards in place to ensure that they are used respectfully at all times. However, this is a commercial transaction and we wish to stop at this point. I am sure that the noble Lord, Lord Borrie, who knows what brand names are all about from his time as director-general at the Office of Fair Trading, will know all the protections that are encompassed around that.
I thank the Minister for her response, which I am a little disappointed by but hope she will reflect on. I reserve the right to bring this matter back on Report. I beg leave to withdraw the amendment.
Amendment 9 withdrawn.
10: Clause 2, page 2, line 3, at end insert—
“( ) how the Secretary of State will ensure that the provision of universal postal services will be maintained following the disposal;( ) how much of the Royal Mail company’s modernisation budget—( ) has been spent, and( ) remains unspent,at the proposed time of transfer; and( ) what progress has been made towards existing modernisation goals by the proposed time of transfer.”
My Lords, I first declare the interest that I declared many times when my party was trying to push through the disposal of Royal Mail. I am a former postman, a former trade union official, a former trustee of the Post Office pension fund, and I have had a few jobs in the Post Office. I am sure that that declaration will suffice as we consider the Bill.
My amendment seeks to add new paragraphs to the part of the Bill that deals with the situation after the Secretary of State has made a decision on the disposal of shares in Royal Mail, and then makes a report to Parliament. My purpose is to require that any report that the Secretary of State may make on the disposal of shares includes the requirements listed in the amendment. It simply asks that in his report the Secretary of State recognises the need for clarity before Parliament is asked to agree to any of his proposals.
The first new paragraph calls for what should be a vital element in any proposal—that there should be a clear understanding of how the Secretary of State proposes to enshrine universal service provision in respect of the new legislation. We have just heard a little about that. The second new paragraph outlines that the necessary information be provided regarding the expenditure of Royal Mail’s modernisation budget and how much of the budget remains unspent at the time of the disposal of shares. Noble Lords who were here a couple of years ago will recall the repeated requests that I and others made for information on what was meant by “modernisation”, what the programme was, and what machines were being talked about. Unfortunately, the Secretary of State at that time did not answer any of those questions. The third new paragraph instructs the Secretary of State to report on how much progress has been made towards the existing goals at the time of the transfer.
Many people would agree that Royal Mail is part of our national infrastructure and cannot be looked at as just another company to be sold off on the Stock Exchange or otherwise. Such a view is shared by me. As the Bill progresses, I shall try very hard not to become too emotional. It hurts me deeply that we are contemplating the destruction of Royal Mail, and it saddens me to the point where I feel that I am witnessing an act of legislative vandalism. When the Minister spoke last week on the first day of the Committee she said:
“I have of course listened to what has been said, and it will of course go on the record. I know that there are Members of your Lordships’ House who would rather that Royal Mail was not sold at all, and I understand people who have been associated with Royal Mail for many years finding all discussions of this sort very difficult, especially having gone through all this a year ago with the previous Government—a Government of their own. Yet that Government, too, could not successfully find a way out”.—[Official Report, 8/3/11; col. 1549.]
I do not know whether the Minister had me in mind when she said that but she can certainly count me in as one of those who are very saddened at what is going on. I would rather Royal Mail was never sold off, and the alternatives should have been examined before rushing into what is happening today.
Before noble Lords opposite remind the House of the role played by the previous Government, perhaps I may say that I and a very few other noble Lords tried to point out the error of their ways at the time. I suppose that a redeeming feature of this Bill is that it is not a direct contradiction of a government manifesto commitment, as was the previous Bill under the Labour Government. It was like a dagger in my heart that the party for which I had worked for so many years proposed to sell off this valuable asset. I am sorry that that Bill ever saw the light of day, especially when my party had promised the British public that they would not make such a sale. I shall say no more on that at this stage.
I believe that this Bill is scant on information regarding the sale of Royal Mail. As the Secretary of State has only to report on his decision, Parliament would merely be noting the sale and would not be able to ensure that it was value for money or that it was in the appropriate format. Later amendments will deal with the need for a proper and thorough valuation of Royal Mail. There is a good argument for ensuring a stronger form of accountability to Parliament by the Secretary of State regarding the terms of the sale. This could be through a variety of methods, including further legislation, the super-affirmative resolution procedure, the affirmative resolution procedure and so on.
The Bill states that the Secretary of State needs only to lay before Parliament a report on the proposed disposal, but unfortunately the requirement to report comes into force only after a decision is made. This seems to close off the opportunity for Parliament to influence how the sale takes place. I hope that, when the Minister replies to this debate, the House will be told exactly what form the report will take. We should consider what the Minister for Postal Services said on the form of that report when he was challenged in the Public Bill Committee in another place. He said that,
“in clause 2, we are putting a requirement on ourselves to report back to Parliament. No doubt, when we debate clause 2, you will want us to do far more than that. I can just imagine the amendments that you will put forward”.
The clause states only that a report will be laid and not how it will be laid. At that time, the Minister was asked whether he intended just to pop it in the Vote Office. He would not be drawn but he did state that,
“there will be a Command Paper”.—[Official Report, Commons, Postal Services Bill Committee, 11/11/10; cols. 126-27.]
A Command Paper, as this House well knows, can cover a multitude of sins. It is a document issued by the British Government and presented to Parliament. It encompasses a wide range of forms, including White Papers, Green Papers, treaties and reports from royal commissions and various government bodies. Therefore, the House is no further forward in understanding the Government’s intention to allow parliamentarians to arrive at an informed decision on the future of Royal Mail.
I am confident that the House will also agree that any decision to sell off part of such an historic and valued organisation as Royal Mail must, at a minimum, be subject to a vote by the people’s representatives on the value of the deal on the table. A Bill would provide the most certain way of ensuring that objective. I stress to the Minister and the House the importance of bringing before Parliament for approval any proposal to sell Royal Mail. As the Bill stands, the only duty of the Secretary of State after deciding to sell is to lay a Command Paper in the Vote Office. Surely we need a little more detail from the Government, as well as a larger commitment from them to report adequately to Parliament on this vital issue. The people of our nation, in poll after poll, overwhelmingly support the Post Office—that is how they see Royal Mail, whether we like the term or not. The public see the Post Office and Royal Mail as the same thing. They deserve better than the cavalier way in which their Government are proceeding.
Would it not be better to accept the need for clarity now rather than face criticism in the future that not enough consultation has taken place and that the proposals have been rushed through Parliament with indecent haste? I said that a few times about the previous Bill that we discussed. The previous Government broke their neck to try to get these things through. I hope we can learn that lesson and not rush this Bill through. I hope that the Government will take the opportunity to ensure that Parliament is properly consulted on the decision to sell a part of the national institution that we all know as Royal Mail.
Until now, the Government have been extremely vague about how, where and when they intend to use the powers to privatise Royal Mail. Considering the importance of this institution and the public service that it provides, the House will want a number of assurances to satisfy its concerns. The amendment goes a little way towards making clear how the Government intend to deal with these matters.
Without too much sentiment, I have to say that, when Ministers make it clear that they have no objection to Royal Mail being sold to an overseas buyer, it fills me with anxiety. How many investors care about the universal service obligation or the standards of service, pitiful as they are from my time as a Post Office worker? If we rush into a sale and Royal Mail ends up in the hands of a particular private company, we shall know what to expect, because that company has already said that the universal service obligation belongs to Jurassic history. It even questioned whether there should be six deliveries a week. We have to be very careful. I urge the Government to set down clearly in the Bill a real protection for what we have left of the service. There must be conditions or attributes which allow the Government to disqualify a buyer whose track record is one of slash and burn—witness what has been said about Jurassic history. Would the Government sell Royal Mail to anyone at all? What conditions would apply? What plans do the Government have to restrict shareholdings by investors and market operators following any trade sale or initial offering? I believe that that needs to be specified, as the amendment would do.
I expect the Secretary of State to make clear exactly how he proposes to enshrine in law the universal service provision as laid out in Clause 28 of the Bill. Such provision is extremely important to the small business customers and other customers of Royal Mail across the country. Royal Mail is currently the only universal service deliverer and there is no likelihood of anyone else coming into the market to cover parts, or all, of our country when they can cherry-pick and take the best parts of the business. Almost a decade ago, I stood on the other side of the Chamber and warned this House what would happen with cherry-picking. Sadly, every word that I said has been borne out by people picking the biggest cherries they could get. I am talking about the pre-sort downstream access arrangements that Royal Mail has had to subsidise throughout that period. The tragedy is that, when downstream access arrangements were introduced, we knew that was going to happen. However, we were saddled with a regulator, which we shall come on to later in the Bill, that had the wrong idea about its responsibilities, and a decade of income was lost by Royal Mail because of the way in which those arrangements were rushed through.
Is not the crux of the matter the structure of the company after it is privatised? Will it be an independent entity? Can it have a separate operation with a separate board and a head office in the United Kingdom? If, for example, it is fully owned by Deutsche Post, it may be run merely as a subsidiary of that company, with any entity in the UK having very little power over the ultimate direction of the company. One difficulty that I have is in grasping the detail and discovering what information is in the Bill about whether there will be an initial public offering—an IPO—or a trade sale at auction, whether it will happen all at once or in tranches, whether it will lead to a sale to a proven communications business or a private equity group, or whether it will mean the break-up of the company into different geographical and functional units, with parts of the business being hived off and so on. The Government have not set a clear timetable. Before any sale takes place, surely this House will want to be assured about the future of the universal service, the exact regulatory regime and the future of the post office network.
What stage has been reached in obtaining state aid clearance from the Commission? Noble Lords who were present will remember hearing of the dead hand of the European Commission about state aid. The House needs much more detail and much more information. I believe that many noble Lords on all sides of the House are anxious and want to table amendments which will, in varying degrees, bring accountability back to Parliament by ensuring that we have more information about what exactly is proposed. Requiring a further specific Bill would ensure the maximum possible involvement of Parliament in the full scrutiny of the Bill.
In certain cases, previous privatisation legislation has provided more detail. The amendments I propose are not revolutionary. For example, the Railways Act 1993 imposed a series of general duties on the Secretary of State and the franchising director in respect of the award of franchises. There were detailed prescriptions concerning to what type of entities assets could be transferred. The Secretary of State was also subject to several franchising and licensing general duties to protect the interests. I expect that all noble Lords, regardless of affiliation or none, are concerned for the users of the Royal Mail service and the users of the post office network. By implication, they will be affected by what happens. Under the Railways Act, specific measures were mentioned in more detail as set out in the Bill. The Secretary of State was also subject to a number of general duties, such as promoting the use of the railway network, promoting efficiency, promoting competition, minimising the restrictions on operators and ensuring safety. He was further obliged to promote the award of franchise statements to companies where the employees had a substantial interest.
Many Members of this House are worried that there is not the same degree of detail in the Bill, which is why, ideally, I should like to see a new Bill introduced. Failing that, I would go for a super-affirmative resolution or an affirmative resolution procedure as such matters need considerable consideration. It would be a mistake to move forward too quickly. Remember, how Royal Mail or the Post Office suffered because of the indecent haste of the then Labour Government rushing into liberalisation long before any other European country did so. I am told on good authority that some of them have still not done it and for 10 years we have had to suffer. Parliament needs the opportunity for further scrutiny of exactly what the Government are proposing. Without any pleasure, I move the amendment. I just wish that we were not in the position of expediting the destruction of the Royal Mail, Post Office, call it what you will. As I said, it is a very sad day for me and for countless thousands of customers and workers who have the greatest respect for its history and exemplary record of service to the people of our nation. I beg to move.
My Lords, as the Committee knows, I look at the Bill from a totally different perspective from that of the noble Lord, Lord Clarke of Hampstead. I look at it from the perspective of a user of Royal Mail and of the universal postal service that is contained within that contract. Wrapped up in the Second Reading speech that we have just heard, the noble Lord, Lord Clarke, makes a very valuable point about the continuation of the universal postal service. I fail to find in the Bill sufficient words to give me confidence that, post the sale, that will continue.
On the other point raised by the noble Lord, Lord Clarke, about the Royal Mail company’s modernisation budget—the second provision in his amendment—the noble Lord caused me to pause and think. When you sell a business, any money that is contained within that business, such as in its bank account, is sold with the business and the price of the business reflects that. Therefore, to whom will the money that remains unspent in the modernisation budget belong? Will it belong to the Post Office or to the Government? Is it a draw-down facility or is it a cash amount? It would be helpful to know. However, if the modernisation goals had been achieved we would not be in this sorry situation, but I am afraid we are.
I pay tribute to my noble friend Lord Clarke of Hampstead. No one else has more knowledge of the Royal Mail and the postal service than him, as he displayed. He may have gone wide of the amendment—he was right to do so—in exposing the history that has led us to this sorry state of affairs. Indeed, he will recall that I was one who supported him and warned of the dangers of going down the road of selling up to 49 per cent—I asked why it would remain there.
Turning to the amendment, I agree that we need to know more about what will happen to the universal postal service. Will it be maintained and in what form will it be maintained? It would be quite easy to destroy the universal service by pricing it out of the market, which is one thing I am afraid could happen as a result of the Bill. Perhaps the Minister could reassure us both on whether the universal service will continue and on whether it will still remain attractive to users of the service, which is equally important. We have had two points of view: one from the person who has been in the service and the other from the person using the service. Perhaps the Minister could provide some clarity. What provision is being made, will the universal service be maintained and will it be prohibitive to use? If it is prohibitive, it will be destroyed.
My noble friend was also right to ask how far the modernisation programme will have gone and how much will have been spent on it. It is a pity that we are where we are because there is agreement between the Royal Mail and all the unions on the need to achieve modernisation; they want it carried forward and the money is available to do it. We need these kinds of assurances. We also need to know what progress has been made towards modernisation and what has developed in the relationship between the present Royal Mail and the unions in achieving that.
It is usual to ask such questions and I know that the Minister has tried to provide us with the answers. I hope she will be forthcoming in this regard. It is not only those who have been involved in the Royal Mail as currently constituted but those who use the service who are asking questions, and they need reassurance. I look forward to the Minister's reply.
My Lords, I was present on the previous occasion and listened with considerable sympathy to the noble Lord who spoke, certainly not in support of what the previous Government were doing but from his own immense loyalty and background in the postal service. I remember that well. We all have a duty to reassure ourselves on the point made by the noble Lord, Lord Skelmersdale, that there is nothing that he can see, in the Bill as it now stands, that will guarantee that the service will continue. We are due more clarity on this point and, as many noble Lords have said, we are in a worse situation in many ways than we were before on the financial side. I pay tribute to what the Government have done in their plans to open up the possibility of a better future but some form of reassurance would be welcome.
My Lords, the statements made by the noble Lord, Lord Clarke, expressed the distress that is widely felt and which we all understand. He got to the crux of the matter when he said that a previous Government had liberalised the market in mail without first putting Royal Mail on a secure basis. I agree totally with that analysis. Just as happened with Deutsche Post in effect, Royal Mail should have had private capital brought in in that period to put it on to a secure and thriving basis before the market was liberated. We can see that.
However, I ask the House to be careful that we do not repeat that mistake. Since Royal Mail is bleeding money daily, there is urgency in dealing with the problems facing it to make sure that it survives and that a universal service provider survives. Sometimes in these conversations we might occasionally overlook the reality that if there is no secure financial future for Royal Mail, which requires not just the current very important modernisation programme but steps beyond that requiring considerable additional outside money to establish it as a pre-eminent and effective organisation, the role of universal service provider is indeed in jeopardy. It is making sure there is a successful financial future for this organisation that makes the universal service provider concept viable. Rather than reading this legislation as some sort of attack or as a lack of faith in the universal service provider, I see it as attempting to put into place the structural underpinnings that make the USP a realistic ongoing proposition, because consumers and those who work in the Post Office wish to see that as part of our future.
I agree with the principal point that my noble friend Lord Clarke of Hampstead made about the universal service. As the House knows, I was one of those who recognised the problem that Royal Mail was facing and who was in favour of substantial capital investment to try to help with modernisation and moving forward, but I was not in favour of 100 per cent privatisation. There is a difference between those who are now expressing concerns in a way that they did not before. The major difference is that we are talking about 100 per cent privatisation as opposed to only a very substantial part of the shares being sold.
My worry is that we could find ourselves in a position where a foreign buyer might already be in the business in a country that no longer has a universal service and that might decide in due course that it will no longer maintain a universal service in this country. That would be very bad indeed for Britain. People are waking up to what is happening in the health service, with the threats and fears that they are starting to see, and I hope that they will start to recognise that while we need change in this area as quickly as we can have it, there have to be fundamental safeguards to meet the wishes of the British people. I hope that they will recognise that there is conceivably a threat at the end of the day to the universal service.
We are governed by European Union legislation in this area to a degree. Originally, the European Union was very much in favour of the retention of the universal service. Bit by bit over the years, the European Union has changed the legislation and has eased its position on it. A number of European countries have now moved from being totally state-owned to 100 per cent privatisation, and in some of them operatives are not required to deliver a universal service. It is quite conceivable that one of those could bid and be successful in purchasing the Royal Mail. I listened to the previous debate and the assurances given by the Minister. She hopes that there will be ways in which we would avoid any such difficulty arising. Ofcom would be involved. Will Ofcom have the right to stop a foreign bidder of the kind that I have just described proceeding with the purchase of 100 per cent, less the employees’ share, of Royal Mail? If so, how would it prevent the universal service disintegrating bit by bit if such a buyer were in possession of the Royal Mail?
Apart from Royal Mail, there are a number of other providers of postal services, none of which produces a universal postal service. They all rely on Royal Mail to deliver the last mile, particularly in remote areas. We need something in the Bill, and I would like the Minister to tell the House how a universal postal service will be ensured by someone taking over Royal Mail. If she cannot, she must bring something forward on Report to ensure that. Otherwise, this Bill is not satisfactory.
My Lords, unless I have read this Bill wrong, Clauses 28 and 29 leave no doubts about the universal postal service. I shall put the question to the Minister the other way round. We are not debating these clauses now, but because the point has been raised it is worth looking at them. Can we take it that they mean what they say?
My Lords, the Postal Services Act 2000 “liberalised” the postal service. There are now, I think, 49 licensed postal operators in addition to Royal Mail, which is also licensed. If that number of people were willing to become postal operators, they must have expected it to be possible to do that successfully. As the noble Lord, Lord Lea, said, the Bill quite clearly states that there has to be a universal service, so whoever buys Royal Mail in whole or in part, wherever they come from, would not be acting in accordance with the law if they did not maintain a universal postal service. That is not really the problem. The difficulty we are in is that we have had an inappropriate regulation system in which the regulator tended to believe that competition was more important than the universal service and acted accordingly.
The problem with the universal service is that it is a monopoly. As noble Lords will have seen from the lobbying that they have had, it has been said that it will become a privatised monopoly. However, it is not a natural monopoly but a completely artificial one. It is not like a railway line or a water pipe. In my part of England, the so-called final mile is absolutely nothing like a final mile but a final 10 miles. It is running about on the roads, which are a public asset and nothing to do with the assets of Royal Mail or the Post Office. There has been confused thinking about whether the so-called final mile is an advantage or a disadvantage. The private operators are trying to tell us in this House that it is an advantage, an asset that enables people to charge monopoly prices. In fact, that is not what has happened. It has been entirely the reverse. The final mile is a disadvantage to Royal Mail. Therefore, in the progress of this Bill, we should concentrate more on regulation and the prospective system of Ofcom than upon anything else.
My Lords, I apologise for not being in my place on the previous day or at the beginning of the Second Reading-style speech made by the noble Lord, Lord Clarke, which of course I would have missed at Second Reading because he did not deliver it. Am I not right that this issue should be dealt with under Clauses 42 and 43? I thought that we would talk about the Ofcom relationship to the universal service obligation in relation to those clauses. I am very puzzled that we are having this discussion now. As I have said, the noble Lord, Lord Clarke, made a Second Reading-style speech, and no doubt ranged very widely over the topic.
My Lords, I support this amendment. At this juncture, I am happy to share the same analysis, if not completely then certainly key parts of it, with my noble friends Lord Clarke and Lord Hoyle. Like the noble Lord, Lord Brooke, I confess that I was not on the side of the angels or the angels as defined by my noble friend Lord Clarke on the previous occasion, but on this occasion I share his analysis.
We and fellow Peers of several party affiliations and of no party affiliation, as we have seen in this interesting debate, have submitted amendments that seek to ensure that the sale of Royal Mail meets four main objectives if it goes ahead. First, it should be done in a timely fashion, which does not present the prospect of an endless cloud of doubt hanging over the future of the company. Secondly, proper measures should be taken to ensure that value for money is gained for the taxpayer and that the company is not sold at too low a price. Thirdly, there should be greater clarity and accountability than the Bill currently provides. Certainly, a number of speakers in this debate have expressed that concern. Fourthly, a privatised Royal Mail should be put on a secure footing and not be subject to the ravages of asset stripping or disintegration, or be doomed to failure because of the circumstances which this Bill creates.
The proposed 100 per cent privatisation is at the heart of our concerns about the future of the universal postal service. At Second Reading, I think that I declared my interests as a former employee of the GPO, albeit at the time when it reigned over telecom as well as postal, and a significant involvement in the union as the company changed from a nationalised company on the telecom side to a privatised company. We are concerned about the future of the universal postal service. I share the points made by the noble Lord, Lord Skelmersdale, on the future of the nation’s post office network.
Private shareholders are more likely to argue that it is unsustainable and too costly, which will undermine the universality of the service. Many rural, distant or sparsely populated areas are costly to reach. I did not agree with every part of the analysis given by the noble Viscount, Lord Eccles, but he rightly reminded us that the final mile is rather a metaphorical term, given that it can be sometimes 10 miles or more. The danger with a totally privatised Royal Mail is that a private company will not necessarily want to invest in a business burdened by a costly universal service. Such a company might lobby the regulator and the Secretary of State to reduce the level of such a service.
My noble friend Lord Clarke was absolutely right to remind us that one potential buyer has already commented in very blunt terms. Noble Lords might recall that the managing director of TNT, Pieter Kunz, said that the universal service obligation was,
“a kind of Jurassic Park and we should get rid of it”.
We are not indulging in a sort of fantasy or paranoia when we draw to the Minister’s attention the view that some potential buyers have of a universal service obligation. The noble Lord, Lord Swinfen, drew to our intention the importance of making this Bill absolutely clear and his concern that it is not clear in its current state.
I was interested in the point made by the noble Viscount, Lord Eccles, about the way in which the regulator functioned in the past in relation to competition being more important than the universal service obligation. He is right. I think that we got that wrong, although it is not fashionable to admit that. While I did not agree with the conclusion made by the noble Baroness, Lady Kramer, that it needed private capital first, I certainly could not help but acknowledge her point about regulation and the way in which it was introduced and functioned.
Clause 30 sets out the terms of the universal postal service obligation, which includes the requirement to collect and deliver mail six days a week at one price anywhere in the country. The universal service obligation also has other elements, including letter packet delivery, letter and packet collection, affordable and uniform tariffs, registered items, insured items, and legislative petitions and addresses. It includes, as we agreed during the previous Bill—it is unfortunate that the noble Lord, Lord Low, is not in the Chamber—services to the blind and partially sighted.
The Bill proceeds to provide for changes to the level of the USO in Clause 33 in particular. We will later in our scrutiny look at the ways in which this Bill might deliberately or inadvertently open the door to a diminution of the universal service. The Federation of Small Businesses stated that the universal service obligation,
“must be protected and services must not diminish. Any change to the scope of the USO could have a negative impact on small businesses”.
Again, that was referred to at Second Reading. The point about how reliant on that universal service delivery small businesses are is fundamental. There is an environment in which more and more of them require their products to be delivered to distant parts of the country as a result of people buying on the internet.
Ministers have helpfully—I think it was helpfully—pointed out that Ofcom would be obliged under Clause 29 to conduct within 18 months a market review rather than a review of the universal service itself. I am sure that the House would appreciate an elaboration of what limits would apply to that market review. However, it is very clear that, under Clause 33, Ofcom may initiate or be required by the Secretary of State to conduct a review of the universal service obligation that could begin at any time—18 months, 12 months or even six months—after the Bill becomes law. After that the Secretary of State could, by order subject to affirmative procedure, instigate a reduction in the universal service.
It is not just us who are expressing our concern here on the opposition Front Bench. After all, the Delegated Powers and Regulatory Reform Committee recently pointed out its concern in a very helpful and succinct comment on this Bill entitled: “Clause 33(5)—alteration of minimum requirements for universal postal service”. It states:
“Clause 29(1) requires OFCOM by order (subject to no Parliamentary procedure) to set out the services which a universal postal service should provide. Clause 29(2) requires the service to include, as a minimum, the services set out in clause 30 (minimum requirements such as daily delivery of letters Monday-Saturday, a uniform public tariff, etc). The order by OFCOM cannot alter the minimum requirements. However, clause 33 provides a power for OFCOM to review the extent to which the minimum requirements reflect the needs of users of postal services. If OFCOM carry out a review (and they may be directed by the Secretary of State to do so) the Secretary of State may then, by order subject to affirmative procedure, amend clause 30. The Secretary of State is not constrained necessarily to follow any conclusions of the review. The Committee makes no recommendation on clause 33(5), but draws it to the attention of the House as a significant power which would allow the Secretary of State to alter the minimum requirements for a universal postal service set out in clause 30”.
I trust that the Minister will respond to the committee’s genuine concern about the nature of this legislation and the fact that it is not good enough in its protection of the universal service.
Ministers might protest that they have no intention of reducing the universal service. I have no reason to doubt their good intentions, but if the Bill permits such a diminution, a future Minster might decide to use it to that effect. Indeed, we will propose amendments to give effect to the Minister’s wish to maintain a universal service at its current level, but my point here is that the move to 100 per cent privatisation magnifies these concerns for the future.
On page 81 of his December 2008 report, Modernise or Decline, Richard Hooper rejected the notion of 100 per cent privatisation, saying that,
“This option would only be appropriate and feasible if modernisation had been completed”.
Unfortunately, as we know, while good progress is being made on that front, we still have some way to go. It is only fair and right that we should have an assessment of how the Secretary of State will ensure that the provisions of the universal postal service will be maintained following disposals. This will also be a critical question for anyone thinking of buying into the business. It is fair and right that we should know what progress has been made with the modernisation programme, and how much of the budget has been spent. My noble friend Lord Clarke drew the modernisation programme to our attention. The noble Lord, Lord Skelmersdale, also expressed concern about what would happen to that money. Will the owner of the privatised Royal Mail be able to squirrel away the modernisation money for its own use? I trust that the Minister will deal with that in her reply.
The new owner will benefit from the fact that the Government are taking on the burden of the pension deficit. How will that be accounted for? I can well remember that when British Rail was privatised and Railtrack was formed as a private company to look after the infrastructure of the railways, track, signalling and so on, it had an enormous provision buried deep in its books, which was a payment from government for the so-called Thameslink 2000 project. The central point of it was a major realignment of the Underground tunnels and passenger access under Kings Cross station in London. The year 2000 came and went and the project had not been carried out. For all that time, the millions and millions of pounds provided for the project sat in the coffers of Railtrack. How can we be sure that nothing like that will happen in the case of Royal Mail? On one level, it could be said that this is quite a modest amendment.
Given the nature of the debate and the concerns that have been expressed across the Committee, I hope that the Minister will deal with these issues in her reply. We have asked for information and we need reassurances, if the Government intend to go ahead, to ensure that the sale is conducted in a proper and reasonable manner, if and when it takes place.
My Lords, before the Minister responds, could I make one point that I think is important? In the context of a number of comments by noble Lords, there is an assumption that the cost of the universal service obligation bears most heavily on remote areas. However, the figures for Royal Mail show that that is actually not true. The real problem does not lie in Orkney and Shetland; it lies in Hampstead and Norwood Green.
My Lords, we have had a great debate across the Committee, which has been provoked by the noble Lord, Lord Clarke, whose credentials are immaculate in this area. I missed hearing him in the debate on Second Reading because he was not able to be here for it, so we have been able to listen to him today, when he has had the opportunity to put his words on the record. It is a great occasion for us to listen to him. I may not agree with everything that he says, but I believe in the absolute sincerity of what he says, given the background from which he comes.
I share the noble Lord’s desire to ensure that the universal postal service is maintained throughout the United Kingdom and I suggest that that is what binds us all together today. Given that we all want to see the universal service maintained, I suggest that we have no time to waste in getting the finances that we need to ensure that that is possible. It is the overriding purpose of the package of measures set out in the Bill. We need to ensure that the universal service is maintained both for the deliverers of that service and, as we heard, for the customers who need to use it. My noble friend Lord Razzall quite rightly referred to Part 3 of the Bill, which we will discuss in detail in future Committee sessions. It confers on Ofcom a primary duty to protect the universal postal service and gives it the powers to deliver that duty. A disposal of shares in Royal Mail may mean a change in ownership from the public to the private sector, but the obligation on Ofcom to ensure the provision of a universal service will remain.
My Lords, perhaps I may briefly interrupt my noble friend. Does that mean that the original purchaser of Royal Mail will be bound by the UPS?
I think that the answer to that question is yes. In fact I am sure that the answer is yes. The universal postal service is protected by Parliament throughout this regulatory framework, not by the Government’s ownership of Royal Mail. I hope that that gives some comfort to my noble friend Lord Skelmersdale and, if he has the stamina to stay with this Bill through all its stages, I hope that by the end he will feel that he has a lot more comfort than obviously is the case now.
As part of its duties, Ofcom will ensure that the minimum requirements of the universal service as set out in the Bill are upheld. As we know, the minimum requirements are above those set out in the European postal services directive in terms of the requirement to deliver letters six days a week and for a uniform tariff and service to apply. Ofcom is required to report annually to the Secretary of State on its activities, which in future will include how it has performed against its primary duty to ensure the provision of the universal service. The Secretary of State is required to lay that report before each House of Parliament. Therefore, I do not believe that Parliament would be served by an additional report on the future of the universal service at the time of sale.
The noble Lord, Lord Brooke of Alverthorpe, asked what will happen if a privatised Royal Mail no longer wants to provide a universal service. Royal Mail is rightly proud of providing a universal postal service and there is no reason to expect that to change, but in the unlikely event that Royal Mail no longer wishes to provide it, the regulator, Ofcom, will have a primary statutory duty to secure the provision of the universal service and has been provided with the regulatory tools to ensure that the service is maintained. In the first instance, Ofcom would do this by imposing regulatory conditions on Royal Mail that would oblige it to deliver a universal service. Ofcom will also have the power to impose penalties on companies found in breach of the regulatory conditions.
The noble Lord was also concerned that foreign owners could run down Royal Mail. Whoever owns the Royal Mail, as the universal service provider, will still be required to provide that universal postal service. The regulatory regime set out in Part 3 will ensure that. Ofcom, the proposed new regulator, has confirmed that it is satisfied that the powers in Part 3 are sufficient to protect the universal service. We will not let nationalist criteria stand in the way of the right deal for Royal Mail and the taxpayer. Investment is a global business nowadays. For example, around a third of the listed shares in Deutsche Post are owned by UK investors.
The noble Lord, Lord Young, was concerned that a future owner of Royal Mail might lobby Ofcom to reduce the minimum requirements of the universal service. As he will be aware from Clause 33, there can be no such change without an affirmative resolution both in this House and in the other place. This Government have been clear that they have no intention of supporting any such resolution. As we will discuss in later sessions, Clause 33 is a vital new safeguard for Parliament.
Modernisation of Royal Mail is also not directly related to ownership. The company has to modernise whether it is in the public sector or in private ownership. Modernisation does not end with the current transformation plan. If Royal Mail is to succeed and provide our universal service, ongoing modernisation will need to be an integral part of its DNA, so while the current modernisation plan is fully funded, it is clear that Royal Mail will need to go further and faster. Royal Mail therefore requires ongoing capital investment over a long period. Despite the good progress that is being made on the current transformation plans—and here I praise the management and the CWU on that progress—Royal Mail needs upfront cash, which it simply cannot generate for itself at the moment. It needs access to flexible capital, which, given the EU state aid requirements, the Government cannot provide.
I quote from the evidence given to the Bill Committee in the other place by the chairman of Royal Mail, Donald Brydon. He said:
“The company cannot invest in innovative new services, it cannot modernise its fleet and it cannot modernise its equipment without capital and, as we all know, the Government do not have a lot of it”.—[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 13.]
I fully appreciate that the noble Lord wants to be kept informed of progress on the modernisation of Royal Mail. I do not, however, believe that it should be a requirement in the report that the Secretary of State is required to make in relation to the disposal of shares. That is more appropriate to the annual report of Royal Mail itself. The latest annual and half-year reports have included information on progress, including the costs. For example, the 2010 annual report stated that Royal Mail has continued to modernise its operations with a further £500 million invested in the past 12 months, largely in new technology and equipment for our postmen and postwomen, bringing the total to more than three-quarters of a £2 billion investment programme since 2006.
The noble Lord, Lord Clarke, asked whether Parliament should have approval rights over transactions to sell the Royal Mail. As I said last week, we do not believe it appropriate or in the best interests of Royal Mail to conduct commercial negotiations on the Floor of either this House or the other place. The noble Lord also made a number of general comments on the regulatory framework and how it has operated over the past 10 years. As he said, we will come to those more general points when we discuss Part 3 of the Bill.
My noble friend Lord Skelmersdale asked about the funding of the modernisation plan. Royal Mail’s current modernisation plan is funded by commercial loan facilities with the National Loans Fund and the Department for Business, Innovation and Skills.
The noble Baroness, Lady Kramer, is becoming a star in these discussions. She manages to put succinctly some of the things that I take a very long time to say, but that is because I mainly have to stick to my script. She has the ability to say things in a way that is clear and brings us to the nub of the issue. We have no time to waste. This is the moment for us to advance as fast as we can to protect the service that we need so badly and to make sure that Royal Mail’s employees have a real part to play in the future of the company. We hope to protect the jobs and the work that Royal Mail does in the future and to improve on it.
I hope that some of these answers have been helpful to the noble Lord, Lord Clarke. I expect that he will want to reflect on them and I therefore ask him to withdraw his amendment.
Before the Minister sits down, will she answer my point? I said that you could maintain a universal service but price it out of the market by making it unattractive to users because of the price.
On maintaining the universal service, as I said, Ofcom will be watching like a hawk to make sure that there is a fair balance between Royal Mail and the consumers of the products that Royal Mail produces. Ofcom has had a good reputation in the past and we feel confident that in the future it will do its very best to make sure that all is fair.
My Lords, I start by thanking all those who have taken part in what has been a useful exchange of views on a whole range of subjects. Two noble Lords considered that my earlier comments were more suited to a Second Reading debate. I carefully looked at the background to my amendment and tried to draw from my experience to explain how it would affect the clause in the Bill. If I have offended the noble Lords, Lord Razzall and Lord Skelmersdale, I can only apologise.
The noble Lord, Lord Clarke of Hampstead, could never offend me.
That is a bonus.
I will briefly try to answer some of the points. The noble Lord, Lord Skelmersdale, was the first person to speak in the debate. I recognise that he is a most important person to the people whom I worked with all my working life: he is a user of the Post Office and Royal Mail. Every decent Post Office worker—they are all decent—knows that we rely on customers for our livelihoods. I pay tribute to him because I know from one of my first exchanges some 11 or more years ago that he was in the goods-by-post business. I always respected anybody who did not give work to the cowboys who are trying to undermine the Post Office.
The noble Lord, Lord Skelmersdale, asked how far people have got towards achieving the goals. I think that they have done pretty well. On the first goal, modernisation, there has been a terrific move. The previous Government could never answer questions about walk-sequencing machines, but we have seen those come in. We have seen changes in attendance patterns. There have been reductions in staff. It hurts when a member of staff loses a job. I would never have dreamt that the modernisation programme could have happened in so short a time as the past year or so.
Industrial relations have never been better in all the years that I have known the Post Office. There is a genuine desire to lift the Post Office and the Royal Mail in particular from the reputation that they were getting that they could not do their job. It is much easier now because there is only one delivery and you might get that in the afternoon. The rules have been changed, so there is bound to be some progress.
One thing that came out of the Hooper report, as has been said many times in previous debates, was the need for expertise in management. Everyone in the Committee will recognise the tremendous influence that Moya Greene has brought from running a big post office network in Canada and using that expertise to help us. Some of us were arguing two years ago that expertise could be found not necessarily in the board members of TNT, Deutsche Post or Federal Express. We found somebody worthy of being the chief executive and I pay tribute to her for the way in which she has welded together various different views.
I thank my noble friend Lord Hoyle for his support. He was one of the two or three of us who sat here night after night trying to get the previous Government to understand where they were going wrong. The noble Baroness, Lady Howe, asked for clarity. That is really all that the amendments seek. What is the intent? Let us have some detail.
The noble Baroness, Lady Kramer, whom I have not had the pleasure of meeting personally, made an important point about the need for private capital. It has been required for more than 40 years. That is why in my maiden speech in this House I said that we needed access to funds so that we could have automatic letter facing machines and optical character recognition—things that we were desperately trying to get hold of but were stopped by political interference. The external finance limit was always there to prevent us from getting the money that was needed. She is right. This is urgent and it will not stop when this present programme is over. It must keep on going to be successful. I thank her for illustrating that point.
My noble friend Lord Brooke talked about the European Union, but the less I say about that the better. I have perhaps said too much before about the way in which the Government stampeded into liberalisation without thinking it through. They told the world that we would have a Post Office fit for the 21st century. That was Stephen Byers, but I will not abuse this House by going back. I say to my noble friend Lord Brooke that the sooner we start thinking about the British Post Office and the British Royal Mail, the better for all of us, instead of looking over our shoulders at what other people are doing.
The noble Lord, Lord Swinfen, also talked about clarity and the need to be clear about what we mean when we talk about the universal postal service.
The noble Viscount, Lord Eccles, talked about the inappropriate regulator and the 40-odd private people who are competing for Post Office work. I am surprised that there are not 140 when they have been subsidised by Royal Mail all these years. The noble Lord, Lord Razzall, mentioned the regulator, although I did not introduce it in this sense. The new regulator must start thinking about this issue. The question is not whether this is about Hampstead or Norwood Green. There are parts of Hampstead where you could talk about the final mile, such as North End or Spaniard’s End. You could talk about the places where it takes a lot of time to deliver, such as the 140 flats in South End Close with 1,400 steps to climb. This was not discussed in the Second Reading debate, but as it has been introduced here I have a chance to respond. Thank you very much. As for Tony Young—I mean my noble friend Lord Young—it is wonderful to be on the same side as my own Front Bench. I am pleased to find that he is giving support for these measures.
I am sure that I am leaving out a lot of people, but I address my final remarks to the Minister. I thank her sincerely for her kind words. I know that every endeavour will be made to find accommodation as we go through this Bill. I recognise that she has a bit of a job on her hands, as there are so many competing interests out there, as well as in here. I just wanted to say thank you very much, because it has been a good debate. I shall reflect, as the Minister asked me to do, and I beg leave to withdraw the amendment.
Amendment 10 withdrawn.
Amendment 11 not moved.
12: Clause 2, page 2, line 3, at end insert—
“( ) that the receipts of the sale will be used exclusively for the purpose of investment in the Post Office network of branches and future investment in the delivery of the universal postal service by a Royal Mail company in so far as permitted by applicable competition and state aid regulations.”
My Lords, the purpose of this amendment is to ensure that the proceeds of any sale of Royal Mail are invested in the post office network and the delivery of the universal postal service. In our debate in this House at Second Reading, the Minister explained what would happen to the assets of the pension scheme at transfer. She said:
“The cash transferred to Government will be transferred to the Consolidated Fund, gilts to the Debt Management Office and the remaining assets—stocks, property, et cetera—will be transferred to a newly created government fund. They will then be sold in a measured fashion, with cash proceeds from disposals going to the Consolidated Fund”.
Do you not love that “measured fashion”? It summons up an honourable Dickensian clerk selling fusty bills of exchange for gold coin. Measured fashion—what are they talking about? What century are they in? The Minister promised the Government,
“will be entirely transparent about the effect of these transfers throughout the government accounts”.—[Official Report, 16/2/11; col. 776.]
Despite the words and despite my rather wild fantasy, the proceeds are going back directly or indirectly to the Treasury. There is no doubt about that at all.
There is always a presumption that the Treasury will be the beneficiary of privatisations, but surely this should not happen to the proceeds of the sale of shares in Royal Mail. In 2009, the previous Secretary of State stated to this House that,
“the Government intend to use the money received from the minority share sale to benefit Royal Mail Group, including Post Office Ltd”.—[Official Report, 31/3/09; col. 970.]
In answer to the Business Select Committee, the previous Government also made it clear that the proceeds of any partial sale would be ploughed back into the postal business and used to fund modernisation. The Liberal Democrat manifesto was quite clear in proposing that the proceeds of the sale should be invested in the post office network. Royal Mail itself has stressed the need for investment in the post office network. Moya Greene has estimated the need to have £2 billion of investment over the next few years. As for the post office network, there is a great deal to be done to bring many post offices up to date and ready to survive in a fast-changing world.
We would all agree that the post office network is a suitable candidate for investment within the Royal Mail group. To the extent that they have provided £1.34 billion for the network, the Government seem to agree. However, if it emerges that the Government do not intend to reinvest the proceeds of the sale back into the business, that sheds a different light on the claims that they have made about the £1.34 billion. We know that half of this is fulfilling the programme of social network payments introduced by the last Government to support loss-making but socially valuable post offices such as those in rural areas. Surely we would all agree with this. The rest is set aside for investment in the post office network, including converting 2,000 sub-post offices into post office essentials or post office locals.
Noble Lords may be aware that such provision is itself becoming an area of controversy. There are certainly concerns among sub-postmasters, who have been drawing to our attention that some of this money is being set aside for temporary compensation payments to smooth the transition of sub-postmasters into either into the new model or out of the business altogether. This is associated with what they fear may mean a substantial fall in guaranteed or actual income, according to what we have heard from sub-postmasters. Be that as it may, if the receipts from the sale of Royal Mail are handed over to the Treasury rather than reinvested in the business, it will be a sad day for our post office network and all those working in them. We ask that the proceeds of any sale should be reinvested in the postal business. Insofar as this requires European state aid approval, it should be cleared in parallel with the pension fund deficit action.
The Minister has reminded us of the stark future facing postal services as letter writing declines and electronic communications grow. Royal Mail may be able to manage these changes under new ownership, presumably through economies of scale and what is called “managed decline” to match reducing turnover in the core business. But the issues facing the Post office in the future are of a different category altogether, and they will get worse if there is no long-term interbusiness agreement with Royal Mail and if the Government do not commit to use the Post Office for face-to-face transactions wherever possible in their business. We of course understand the pressure on Ministers in relation to this issue from the Treasury, but our point is that there is also a case for investment in our post office network. This probing amendment will allow the Minister to place on the record the Government's intentions regarding the proceeds of any sale of Royal Mail.
The post office network has been umbilically linked to Royal Mail for so long, that it is hard to envisage how it will transform itself when it is separated. Mutuality is mentioned in the Bill, but although we welcome that idea, mutuality of its own does not materially affect the question of how many thousand small businesses are to rethink and re-engineer their shops and businesses. How will they up their footfall, redesign their product lines, introduce efficiencies and harness the new technologies? All this will take money—far in excess of the £1.34 billion already provided—so the post offices need the proceeds from the sale of Royal Mail. I beg to move.
My Lords, Amendment 12 wishes to direct any proceeds received from a sale of shares to investment in the post office network and the universal postal service. I certainly agree that the both the Post Office and the universal service require long-term funding certainty if we are to secure both their futures, but I cannot agree at this stage that the proceeds of a sale should be used for either of these purposes. For a start, it is too early to estimate the potential proceeds from a sale, and too early to estimate where the proceeds should most sensibly be used. But the Government will, of course, look to use the proceeds that they receive to part-compensate the taxpayer for taking on the £8 billion deficit in the Royal Mail pension plan.
The Government absolutely recognise that investment is required in the post office network. That is why, as noble Lords will know, we announced last November a funding package of £1.34 billion for the post office network over the spending review period—a package that will be used to put the network on a sustainable footing, not to fund a programme of closures as the previous Government chose to do. We made this upfront commitment to fund the post office network precisely because we recognise its importance to communities across the UK. Funding for the network should not be dependent on the sale of shares in Royal Mail.
The primary purpose of the package of measures in this Bill is to secure the future of the universal postal service. This package will give Royal Mail access to the flexible capital that it needs to modernise and adapt to a changing postal market on a continuous basis. It will reform the regulatory regime with an increased emphasis on the protection of the universal service and remove the burden of Royal Mail’s historic pension fund deficit.
We will come on to discuss the detail of Part 3 in later sessions, but I draw the attention of noble Lords to Clause 28(3)(a), which requires Ofcom, in performing its duties under this Bill, to have regard to the need for the provision of the universal service to be financially sustainable. This is a vital new requirement on Ofcom, which was not in the 2009 Bill. The Government therefore believe that securing the future of Royal Mail by giving it access to private capital and establishing the right regulatory framework is the best way to support the universal postal service.
During the passage of the 2009 Bill, the previous Government resisted an amendment that would have required the Secretary of State to report on the Government’s intentions for the proceeds from a disposal of shares. In rejecting the amendment, the noble Lord, Lord Mandelson, undertook to inform both Houses how the payment for shares would be distributed. I am happy today to give the same undertaking for this Government. I therefore ask the noble Lord to withdraw his amendment.
I thank the Minister for her response, which is rather depressing in its rejection of our proposal.
My reference to the pension deficit fund dealt with the assets. Tagged on to the end of that discussion was a comment that, in return for obtaining the assets, the Government were also acquiring the liabilities. I am not sure that that is an exact parallel. As I understand it, the assets are real and, even if sold in a measured way, will generate cash for the country which will go to HM Treasury, but the liabilities are ongoing. If I am right, the main pension responsibilities will be met on a pay-as-you-go basis. We are comparing apples with pears. One is a substantial reduction in our deficit position; the other is admittedly a long-term commitment but does not need to be capitalised on the resource accounts. Although I accept that £8 billion is a substantial sum of money, it does not really come into the question of whether the funds from the sale of Royal Mail should go back into the Post Office.
Secondly, the £1.34 billion package—which, as I mentioned, is both a continuation of work started under the previous Government and a commitment on behalf of the present Government to ensure that the Post Office is retained on a sustainable footing—is also a mixture. As I tried to say, the evidence is that it seems to result in a reduction in the number of post offices and certainly a change in the nature of post office services very similar to that which was available before.
My third point is that, without a proper package of business activities, there is no way that the Post Office can survive, however it is organised. It is depressing to read that the latest contract for services which could have gone to the Post Office from government has been given to Citigroup to operate. I suspect that that is only the first of a number of difficulties facing the network in future.
However, this was a probing amendment. The Minister has been kind enough to share her answer with us. I beg leave to withdraw my amendment.
Amendment 12 withdrawn.
12A: Clause 2, page 2, line 3, at end insert—
“( ) a schedule of assets held by Royal Mail Holdings plc and used for the provision of directly managed Post Office branches which also details—(i) a schedule of those assets which will be transferred to the Royal Mail company;(ii) a schedule of those assets which will be transferred to the Post Office company; and( ) the terms and duration of the Inter-Business Agreement between the Royal Mail company and the Post Office company.”
My Lords, this is a fairly straightforward amendment, and I am sure that the Government will have no great difficulty in accepting it.
The noble Baroness will know that I have expressed some scepticism about the changes of ownership proposed by the Government. However, I have supported the proposals by both the previous Government and this one to unravel the status of Post Office Ltd from that of Royal Mail. It is important that we do that on a basis which is transparent and clear and which can therefore be the basis for future financial arrangements and effective and robust services to consumers of Post Office services, on the one hand, and Royal Mail logistics on the other.
Both new paragraphs to subsection (3) relate to the requirement on the Secretary of State to produce a report, as set out in subsection (2). The first, which would be new paragraph (c), requires transparency on the allocation of assets. My concern is that, because of the slightly blurred position between Post Office Ltd, Royal Mail Group and Royal Mail itself, the assets of Post Office Ltd are not as clearly recorded but must be at the point of transfer and unravelling the two parts of the business. I am particularly concerned because Post Office Ltd’s property portfolio consists mainly of Crown post offices, directly administered branches, mostly located in city centres and prime locations. That is the reason for my suspicion.
Before Parliament endorses any report from the Secretary of State, it must know that the full range of assets from Post Office Ltd is to pass across to the new sector—which, initially at least, will remain a publicly owned body. Therefore, that list of assets must be complete and where there is doubt—because some sorting offices are attached to Crown post offices; and there are other complications—the assets of Post Office Ltd must be clearly delineated and not by stealth handed over or promised to any potential investor in the Royal Mail side of the business. My suspicions may be entirely groundless, but there can surely be no argument that the schedule of assets should be clear to Parliament before it makes such a decision.
The second paragraph of my amendment is probably more substantial. If we are to unravel the two businesses, it is important that the relationship between them is understood by Parliament before it gives its decision in principle. That is complicated. The inter-business agreement between Royal Mail and the Post Office is long-standing and there are a lot of inferred obligations on both sides. It is important that the Government commit to the maintenance of an inter-business agreement. The Government have previously indicated that a renegotiated inter-business agreement will take effect prior to separation coming into force. Before that, Parliament must understand what the principles of that agreement will be and whether they will reflect the current relationship between Royal Mail and Post Office Ltd or whether they are to be modified.
Some within the Post Office would argue that Post Office Ltd has hitherto been a rather junior partner in that relationship and we want to ensure that both parties to this division, this partial divorce, are on a robust basis. It is therefore important that Parliament should understand that; that the principles should be set out in the report; and that the duration that the Government are requiring the parties to stick to is clear. There are different conclusions between a short IBA and one which lasts a number of years. Clearly, there needs to be some process for modification as times change, but we also need some certainty about the nature of the relationship.
Those are not unreasonable requirements to include in the report, and I therefore hope that the Government will at least accept the principle of the amendments. I beg to move.
The comments of the noble Lord, Lord Whitty, arouse some questions in my mind, and this seems the appropriate time to raise them with the Committee. In an earlier Committee debate, several Members of the House talked about how important it is that the Minister’s report comes as soon as reasonably possible after he has made his decision—which, of course, is well ahead of the disposal itself. I am concerned that the proposal of the noble Lord, Lord Whitty, today does exactly the opposite. It militates in the direction of forcing the report to be delayed until much later.
An asset register—so that we know which assets will go to the Post Office and which to Royal Mail—is obviously desirable, but we can be reasonably sure that for about 80 per cent or 90 per cent of the assets that will be obvious. There will be others where it is exceedingly complex and where it may take years to unravel who is the legal owner. There will have to be some sort of agreement between the parties on how that process is to be managed. I would expect that to come in the detailed negotiations between the various parties, not immediately after the Minister's decision. There could be a very long delay if we place that requirement on the report.
On the inter-business agreement, again, general terms have already been laid out in the Bill. The purpose of the Bill is to make sure that the inter-business agreement is for as long as is legally possible, but we work with the knowledge that the arrangements will have to be sorted out in detailed negotiations between the parties. That, too, would substantially delay the report to this House. I stress a point at which the noble Lord, Lord Whitty, perhaps hinted: this is not a simple matter of saying that we should keep the inter-business agreement in place for the next decade or so. I have heard many complaints, from various parts of the Post Office, at how restrictive is the current agreement and how it prohibits them entering into various kinds of business which are necessary to make them sustainable.
There are highly complex aspects to all this. While we can expect general principles to be discussed in any report, if we start putting into it great commercial and negotiating detail, we delay it and it becomes something that we see after, rather than before, the fact of the disposal. I believe that it is the preference of this Committee to see the report before the disposal and not after it.
My Lords, the Minister in the other place, the honourable Ed Davey, has tried on several occasions to reassure stakeholders by arguing that both Royal Mail and the Post Office want an extended inter-business agreement. In Committee, he said:
“I refer the Committee to what the chief executive of Royal Mail, Moya Greene, and Donald Brydon, the chairman, said. Moya Greene said it was unthinkable that there would not be a long-term relationship between Royal Mail and Post Office Ltd. Donald Brydon said that he wanted to have the longest possible legally permissible agreement”.—[Official Report, Commons, Postal Services Bill Committee; 11/11/10; cols. 121-22.]
Those are wonderful and fine sentiments. The only trouble is that the current board cannot bind a wholly privatised Royal Mail board. Noble friends have said that Moya Greene is a very impressive figure and a great asset to Royal Mail. Having met her, I wholly agree. However, she cannot speak for the board of a new owner whose identity we do not yet know. It is wonderfully reassuring that the existing CEO and the chairman have such positive sentiments, but they are not necessarily translatable into what will effectively be an agreement between the Post Office and any new owner.
If one looks at the Bill and the statements that the Government have made, one sees that, as things currently stand, a privatised Royal Mail has little obligation, nor is it required as part of any terms of sale, in principle or in detail, to be bound to any obligation towards the Post Office beyond the current inter-business agreement.
Many people are anxious to extend the agreement significantly beyond the current five years because there is no firm confirmation that it will be so extended. At the point of sale—because one has no idea how long it will take to negotiate and confirm the details of a purchase—there may be only two to three years left on the existing agreement. The situation could be even more insecure, therefore, because at the point of confirming the sale the Post Office may discover that its fortunes are not well favoured and have only a limited time to deal with that.
As far as I can see—I am sure that the Minister will correct me if I am wrong—the Government have to date refused any amendment that would guarantee a continued relationship between the two businesses. They have suggested that there are legal difficulties in legislating on an inter-business agreement, but they have neither detailed why such legislation would be illegal nor defined what is the longest legally permissible period for any inter-business agreement. More to the point of the noble Baroness, Lady Kramer, who said that we should not get into the detail but take command of principles, nor have the Government said anything about whether a renewed agreement or a sustained relationship with Post Office Counters beyond the five years of the current agreement would be a condition of sale, or whether there would be an expectation that any bidders would make submissions as to the relationship with the Post Office.
In reality, there are very few safeguards for keeping the Post Office contract for the long term. As things stand, it is entirely conceivable that, just a few years down the line, there will be a post office network where you cannot undertake mail transactions. That is simply a proposition of possibility under the terms of the Bill. A privatised Royal Mail will be free to cherry-pick, as my noble friend Lord Clarke said. It could select a supermarket chain to meet its requirement in urban areas, with the Post Office picking up, if it was able to, the slack in rural areas where no one else wanted to compete to deliver the service. That would have serious implications for the viability and integrity of the network.
I refer to the very appropriate comments of the noble Lord, Lord Dobbs, in his maiden speech at Second Reading, who captured the point far better than I could. He said:
“In many rural areas, far from the post office subsidising the shopkeeper, it is the shopkeeper who is now subsidising the post office”.—[Official Report, 16/2/11; col. 732.]
This is not careless speculation on my part, because I think that it is highly possible that a private owner would take such an approach. No access criteria are laid down to which a privatised Royal Mail would need to adhere specifically in relation to post offices. This is important for the small business community, which makes an important economic contribution in sustaining employment in key areas. Fifty-nine per cent of small businesses use post offices at least once a week and 77 per cent use them to send their parcels. Perhaps I may therefore put two questions to the Minister. First, what exactly are the legal constraints on extending the five-year inter-business agreement? I may be able to speculate on the legal restraints on an unlimited extension, but I am not at all sure what they are on extending it. Secondly, why are the Government not confirming that maintaining a business agreement with the Post Office for at least a further five years beyond the existing agreement is a defined provision within the terms-of-sale agreement or invitation to tender that potential bidders would have to address? It strikes me that if everyone is saying that they are so committed to Post Office Counters, one would welcome such a commitment to that being in any documentation prepared, or terms set, for potential bidders.
My noble friend Lord Whitty expressed concern about who owns the assets and how they will be allocated. If the Post Office has to compete in a world where the Royal Mail is privately owned, its ability to do so will be heavily influenced by the assets on its balance sheet at the point of separation of the businesses within the post offices.
I noted that in the Second Reading debate in the other place, the honourable Mr Ed Davey, the Parliamentary Under-Secretary of State in the Department for Business, Innovation and Skills, argued that,
“a privately owned Royal Mail will not act against its own commercial interests. It will not give up valued retail space in the heart of communities the length and breadth of Britain”.—[Official Report, Commons, 27/10/10; cols. 426-27.]
He is no doubt correct that a privatised Royal Mail will not act against its own commercial interests and that it will not give up valuable retail space, but he could be incorrect in supposing that its commercial interests will necessarily lie with the Post Office. When the honourable gentleman says,
“It will not give up valued retail space”,
one has to ask whether he has taken a view as to whose retail space it is to give up. If the Crown Office estate is to be with the Post Office, it is not the Royal Mail’s to give up but Post Office Counters Limited’s to sell. My noble friend Lord Whitty is quite right to be concerned that there should be visibility as to who owns which assets at the point of sale.
My Lords, I tend to agree with my noble friend Lady Kramer on this. Although what comes out of the discussion on this amendment will be valuable to our future discussions, as it is it rather puts the cart before the horse. As far as the noble Baroness, Lady Drake, is concerned, I will ask my noble friend one question, if she will deign to answer it. Quite clearly, from what she said in our last exchanges, she has as high an opinion of me as I do of her. The Government have a policy of supporting post offices and it is quite clear that this is what they intend. The inter-business agreement—currently lasting five years, as the noble Baroness, Lady Drake, has just said—is one of the ways in which post offices are supported. Should her worst fears be realised and there is no future inter-business agreement at the end of the five years, does my noble friend think that the policy of supporting the post offices will continue to be self-sustaining?
My Lords, I support the amendment in the name of my noble friend Lord Whitty. A couple of noble Lords have suggested that these discussions, particularly in relation to the assets, are putting carts before horses but I am not sure about that. We are really talking about the transfer schemes that are referred to in Clause 8 and Schedule 1. Those are clearly mammoth undertakings, which will take a lot of time, so while I understand the points being made that they should not be in a position to hold back the main purpose of this Bill, they really do underpin it.
The Post Office is a massive enterprise. The business has revenue of £838 million with a profit of £72 million and employs more than 8,000 staff. There are nearly 12,000 post offices, of which 500 are outreach services and 10,000 are sub-post offices. That network, taken together, is bigger than all the bank and building society branches put together so we know that its scale will require a lot of attention. It would be rather surprising if some work was not already being done in that way. First, it is necessary to identify the assets, then to get into the complicated task of disaggregating the parts of those assets which have to go to Royal Mail and the parts which have to go to Post Office Ltd.
It is, of course, not just a question of assets. I am sure that the Minister will want to refer to this; quite a lot of the Royal Mail’s outstanding loans, including the modernisation loan from the Government, are secured against the assets. What effect will the splitting of the assets have on that and how will that be moderated as we move forward? Then there are the normal activities that one would expect in this sort of process about headquarter costs and shared administrative functions, which will be hard to disentangle—particularly where premises and the supervision of Royal Mail activities take place on Post Office premises.
Part of my noble friend’s amendment deals with the inter-business agreement and we have had a good discussion on that. My noble friend Lady Drake made a number of points on that and I will not repeat them. However they, again, go towards the question: how are we are going to see the viability both of the assets and of the ongoing business put in a way that will put beyond doubt the questions that we will have in this House and in the other place about how this goes forward? This issue, again, contains many unanswered questions—a feature of this Bill.
If the Government do not know what the assets of Royal Mail and of the Post Office are before moving on to selling the Royal Mail or handing over the Post Office to mutual ownership, they may well end up selling the people of this country very short. That will certainly increase the risk of asset-stripping and of selling at too low a price. In the nature of price comes the nature of who will buy it and, by changing the parameters here, we may well end up with a different company—one that is, perhaps, less preferred. My noble friend Lord Whitty’s amendment seeks to get a proper record of Royal Mail’s assets in the division between it and the Post Office, and draws attention to the vital role that the IBA will play. I am sure that we will come back to these points later in the Committee’s deliberations but, at this stage, I support the amendment.
My Lords, Amendment 12A seeks to require the Secretary of State to include in his report to Parliament details of the assets held by Royal Mail Holdings plc and asset transfers between Royal Mail and Post Office Ltd. It also requires the Secretary of State to report on the terms and duration of the inter-business agreement between Royal Mail and Post Office Ltd. Currently, Royal Mail Group Ltd and Post Office Ltd each already own the vast majority of the assets they require to carry out their own business. However, it is likely that some residual asset transfers will need to be carried out before any disposal of Royal Mail shares is completed. That is why the Bill contains the transfer scheme powers set out in Clause 8 and Schedule 1. These powers give the Secretary of State ultimate control over which assets sit with what company.
However, there is no set timetable for the transfer of these assets. That may be taken forward before a decision has been made to undertake a disposal of shares in Royal Mail, or it may happen after. If the latter is the case, the Secretary of State would clearly not be in a position to provide details in his report to Parliament as required by Clause 2. Relevant information relating to a transfer of assets will, however, be set out in the transfer scheme or schemes made under Schedule 1. Transfer schemes may impact on third-party contracts and agreements with Royal Mail and Post Office Ltd. I therefore assure the Committee that details of the schemes should and will be made publicly available.
On the ongoing commercial relationship between Royal Mail and the Post Office, there was significant debate in the other place about the inter-business agreement—the IBA—particularly about its duration. The Government’s view is that legislation is not the appropriate place for the commercially sensitive terms of a relationship between two independent businesses to be settled. Contractual negotiations between these businesses will involve a complex interaction of many different factors—such as pricing, volume, service levels and duration—and such negotiations would not be improved by government intervention.
The noble Baroness, Lady Drake, was concerned that the current board of the Royal Mail cannot bind the actions of a future, privately owned Royal Mail. I am afraid that I take a different view on that. Any legal agreement entered into by Royal Mail will remain legally enforceable for its duration whoever owns the company. The Government have been clear that we will ensure that the chairman of Royal Mail fulfils his commitment to Parliament to conclude the longest legally permissible agreement with the Post Office before the two companies are separated.
The noble Baroness, Lady Drake, also asked about the legal barriers to including an inter-business agreement of 10 years in the Bill. Legislation requiring an exclusive arrangement between Royal Mail and Post Office Ltd for, say, 10 years would face significant risk of legal challenge for being incompatible with competition law. Guaranteeing a revenue stream to the Post Office would also face the risk of a successful state aid challenge. It is important to note that a successful state aid or competition law challenge to the Post Office’s commercial relationship with Royal Mail that struck down the contract would present a serious threat to the Post Office network.
My noble friend Lord Skelmersdale asked whether the Post Office would be self-sustaining if the inter-business agreement ended. As I said, the chairman of Royal Mail has been clear that he has no intention of letting it end.
I am well aware that the House, like the other place, is in need of reassurance regarding the ongoing relationship between the two companies and the future of the post office network. I note the comments of my noble friend Lady Kramer, who voiced her concerns in that area. I hope that I will be able to provide further reassurance on those issues when we discuss Clauses 4 to 7, which relate to the future ownership of the Post Office. If the noble Lord is content, I therefore ask that he withdraw his amendment so that I can give the matter further consideration after all the issues have been discussed in full.
My Lords, I thank the noble Baroness, particularly for her last few sentences; clearly we may well come back to the matter on Clause 4. However, I did not find the rest of what she said very reassuring.
I am grateful to the noble Baroness for referring to the legal difficulties on the inter-business arrangement. However, there are different legal opinions on it. If it is primarily the Government’s view that an ongoing agreement would run up against both state aid and competition laws, before we complete consideration of the Bill it would be helpful to have an opinion that spells that out in writing. The question asked by the noble Lord, Lord Skelmersdale, is absolutely pertinent to this. If a legally defensible agreement between Royal Mail and Post Office Ltd could not be sustained in law, how can that be compatible with the Government’s very clear—and, frankly, very political and public—commitment to maintaining a post office network of roughly this size? I do not think it is possible to square that circle, which raises deeper alarms than I had when I tabled the amendment. I am certainly not arguing that the inter-business agreement in its present form should last for ever, but both Houses of Parliament will need to be reassured as to which principles of that agreement the Government will see sustained through the ongoing relationship between the two parts of what is currently the Royal Mail Group. I hope that we get greater clarification when we move further into the Bill but, if anything, this short debate has alarmed me more.
I have also been alarmed more on the assets; I am not sure that the Minister alarmed me, but the noble Baroness, Lady Kramer, definitely did. She effectively said, “We can’t set out in the report to Parliament”—the trigger for giving the go-ahead to the Secretary of State—“what assets we are and are not privatising”. In previous privatisations, on occasions there have been huge schedules about that. We do not have such a schedule attached to the Bill, and I do not propose that we do. There may be some obscurities attached to that schedule, in which case some footnotes may be needed.
I fear that the noble Lord, Lord Whitty, may have misunderstood me; I obviously was not clear. If I remember correctly, the report comes after the Minister has taken the decision but before the actual disposal. After the fact of the disposal—that is what the noble Lord is now discussing—a clear schedule would be available. However, we are talking about a report to Parliament, which most of this House welcomes, coming at a far earlier stage than is normal.
But, my Lords, the report to Parliament provided for in Clause 2 is a necessary stage for the Secretary of State to go through before the disposal actually takes place. I agree about the decision in principle; I do not seek to delay that or take things out of sequence, but when Parliament discusses the report it needs to know what is and is not being privatised, at least in broad terms. The reasons for not saying so that the noble Baroness adduced—that we could not do so until we saw the final details of the negotiation—really alarmed me; as I said in my opening speech, there are some pretty good assets here. If a negotiation went on whereby the decision of the putative buyer was rather marginal as to whether it went ahead, and someone said to it, “Okay, we’ll throw in a couple of dozen prime-site Crown post offices in our major city centres. Does that make it any better?”, that would cause all parliamentarians a degree of alarm. Therefore, if the register of assets is dependent on the negotiations, we have something to worry about. I would have thought that the Government ought to know pretty clearly which assets go on one side of the line and which are on the other already, although they may have to sort out one or two things. If it is subject to negotiations, and if any premises that have a faint double usage by the two parts of the business could go into the bundle offered to the incoming investor taking over the Royal Mail side in whole or in part, the viability, the effectiveness and the asset base of the Post Office Ltd side of the business come into question again.
I hope that we return to those issues. I come out of the debate somewhat more alarmed than I went into it.
Amendment 12A withdrawn.
House resumed. Committee to begin again not before 8.26 pm.
Social Security Benefits Up-rating Order 2011
Motion to Approve
That the draft order laid before the House on 3 February be approved.
Relevant documents: 16th Report from the Joint Committee on Statutory Instruments.
My Lords, I also speak to the draft Guaranteed Minimum Pensions Increase Order 2011. I am satisfied that the orders are compatible with the European Convention on Human Rights.
The Guaranteed Minimum Pensions Increase Order provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3 per cent. Such increases are in line with the growth in prices or 3 per cent, whichever is the lower.
The uprating order embodies two notable changes this year. This is the first uprating after the restoration of the earnings link for the basic state pension, and the order introduces a clear and consistent approach to price measurement with the move to the consumer prices index, thereby putting the annual uprating of social security benefits on a sustainable footing for the future.
I know that noble Lords will welcome the coalition Government’s immediate fulfilment of the promise to restore the earnings link for the basic state pension. Not only that, but we have also given a triple guarantee which means that the basic state pension will be increased by the highest of earnings, prices or 2.5 per cent. As a result of those actions, it is estimated that the average person retiring on a full basic state pension in 2011 will receive £15,000 more in basic state pension income over their retirement than they would have done under the old prices link. Through these policies for the basic state pension, we will provide a solid financial foundation for people’s retirement income.
The basic state pension goes to more than 11 million pensioners in this country, and is the most efficient and equitable vehicle for distributing resources to pensioners. From this April, the standard rate for the basic state pension will increase by 4.6 per cent. That means an increase of £4.50 a week, taking the weekly rate from £97.65 to £102.15. This is in line with a promise made at the Budget to increase the basic state pension in line with the retail prices index in 2011. In subsequent years the triple guarantee, with the consumer prices index used to measure prices, will apply.
In the other place, there was an accusation that we have had to override the triple guarantee this year because the relevant CPI figure—3.1 per cent—would have resulted in too low an increase. This is not the case. We made a promise to increase the basic state pension in line with the RPI in April 2011 if it showed the highest growth. It did, so that is what we are doing. There is no override here; we are simply fulfilling a promise. We have also ensured that our poorer pensioners see the benefit of the increase in the basic state pension by ensuring that the standard minimum guarantee in pension credit rises by at least the cash increase for the basic state pension this year. Therefore, from April 2011 single people on pension credit will receive an above-earnings increase to their standard minimum guarantee of £4.75, which will take their weekly income to £137.35. For couples, the increase will be £7.30, taking their new total to £209.70 a week.
I will now turn to the second notable change I mentioned; namely, the switch to the consumer prices index as the measurement of prices for benefit and pension uprating. This is not the first occasion on which we have discussed the CPI and it will not be the last. Indeed, we will be returning to it tomorrow in our deliberations in Grand Committee on the Pensions Bill. Nonetheless, I hope noble Lords will permit me to take this opportunity to outline our thinking on the matter again. It has been said before but bears repeating that the purpose of the annual uprating exercise is to ensure that the purchasing power of social security benefits is protected against inflation. It is not to give the highest increase possible.
We believe that the CPI is the most appropriate measure of inflation and one that is fair to the taxpayer. As the Chancellor announced at the Budget, the move will save almost £6 billion a year by 2014-15. We do not claim that it is a perfect measure of inflation, but it is the most appropriate and is the measure used by the Bank of England to measure the general level of price inflation. The key difference between the RPI and the CPI is the so-called formula effect. Put simply, the CPI is calculated in a way that takes account of the choice available to consumers who can trade down to, or, in the jargon, substitute cheaper goods when prices rise. RPI is not and arguably overstates inflation as a result.
A basic principle of economics is the law of demand, which states that, all other factors being equal, a rise in the price of a good will cause consumption to fall and vice versa. A key driver of this is substitution: as prices rise, consumers will substitute away from higher-priced goods, choosing less costly alternatives. Substitution can occur in different forms. There can be substitution among brands or types of products, such as brands or types of ice cream; across different store outlets and across time. This is known as elementary or lower-level substitution. There can also be substitution among items in different product categories—such as between ice cream and cupcakes, or bus rides and train rides—referred to as substitution at higher levels of aggregation.
The geometric mean in the CPI is used only at the elementary aggregation, or lower level. There is no higher-level substitution assumed. A good way to think about substitution is to employ the concept of elasticity. Price elasticity is a measure of how responsive demand is to changes in price. Higher-price elasticity means that small changes in price lead to a large shifts in demand and vice versa. Where a good is described as having unit elasticity, a 1 per cent rise in price will lead to a 1 per cent fall in consumption and vice versa. This is a common way to represent demand behaviour in economic literature, in the form of the Cobb-Douglas utility function. For a given basket of goods, the Cobb-Douglas function assumes a unit elasticity of demand for all goods in the basket.
How does this relate to the geometric mean? Economists have shown that the geometric mean is an exact reflection of the cost of living if the elasticity of substitution is equal to one; that is to say, if a 1 per cent change in price leads to a 1 per cent change in consumption. The arithmetic mean is appropriate if the elasticity of substitution is equal to zero; in other words, if price change has no effect on consumption. Clearly, there are some goods for which price change will have little or no effect on consumption, because there is no recourse to a substitute good which has increased less in price. One example would be petrol. That is why the arithmetic mean is used in the CPI to combine petrol prices. In fact, the arithmetic mean is used in 30 per cent of the CPI’s basket of goods for precisely that reason. Other goods it covers include electricity, newspapers, transport and postal services.
What about the remainder of the index, the 70 per cent where substitution is implied by the use of the geometric mean? Do people really substitute away from goods which have risen sharply in price to those which have not? Is the geometric mean appropriate? Noble Lords will not be surprised to find that there is a body of empirical evidence that people do substitute and that the geometric mean is an appropriate reflection of that. In Australia in 2009 a study by Ivancic, Diewert and Fox found that, in the overwhelming majority of cases, elasticity of substitution was much closer to one than to zero and therefore that the geometric mean was a more appropriate reflection of consumer behaviour. One of their key findings was that consumers are very responsive to price changes at the elementary aggregate level, the level on which the geometric mean operates. However, the study went further, finding that even the geometric mean might not fully capture substitution, with some elasticities exceeding one. There is separate evidence, for example, that brand-level elasticity is often more in the one and a half to two range.
Closer to home, also in 2009, the Scottish Government published an overview of evidence on food prices. Within this, the use of TNS Worldpanel market data showed that consumers do respond to higher food prices by substituting within a general category of food. I hope that this reassures noble Lords that consumers do substitute when prices rise; not necessarily that they substitute all the time, for the geometric mean does not demand that; simply that some people will substitute when an item has risen sharply in price and there is a good substitute.
The CPI deals only with substitution on the elementary aggregate level, the lower level. In the United States a widespread view developed that their consumer prices index was overstating inflation by not taking account of substitution behaviour. The US Advisory Commission to Study the Consumer Prices Index, also known as the Boskin commission, was concerned about substitution bias—concerned that their CPI was overstating inflation by not taking into account consumer substitution. However, the commission’s report made the point that higher-level as well as lower-level substitution was an important part of consumer behaviour.
Suffice to say that the theory and evidence for consumer substitution is compelling, that the geometric mean is an appropriate method of capturing that behaviour and therefore that the CPI’s method of aggregation is superior. That is why the geometric mean is used in the consumer prices index of the United States, Canada, Australia, Denmark, Finland, Ireland, Italy, Luxembourg—I could go on; I will go on—France, Portugal, Spain, Sweden and Austria. You get the picture.
Once we accept that the use of the geometric mean, where appropriate, is superior, then we have accounted for most of the gap between the CPI and the RPI. In fact, it has accounted for an average 0.53 percentage points of the average 0.88 percentage point gap since 1997, or 60 per cent of the gap. Already it seems that the CPI is the more suitable index. People tend to gloss over the fact that most of the gap is contributed by methodology, which experts agree is superior, and concentrate on the basket of goods instead, so it is to that factor that I will now turn.
The CPI excludes mortgage interest payments, which are not relevant to the majority of pensioners and benefit recipients. Only 7 per cent of pensioners have a mortgage, and many working age benefit recipients can get help with their housing costs. As noble Lords will know, it was mortgage interest that caused the RPI to fall in 2009 and, consequently, many pensions to be frozen. Without mortgage interest, the RPI would have grown 1.3 per cent rather than fallen 1.4 per cent in the relevant period. The CPI grew by 1.1 per cent in that same period. This illustrates the significant effect that mortgage interest can have on RPI inflation, and it is not a cost relevant to most benefit and pension recipients. There are other housing costs, of course—rent, for example—but, since the CPI already includes rent, we need not concern ourselves with that.
What about owner-occupiers though? The ONS is working on incorporating owner-occupier housing costs in the CPI. It is not something that can simply be dropped in, and the work is currently at an early stage. We will monitor this work closely and look seriously at the new index when it is close to production.
In correspondence with the UK Statistics Authority, the Royal Statistical Society has made some suggestions with regard to the CPI. Naturally, we welcome the ONS’s continuing statistical development programme. However, let us not lose sight of the fact that the Royal Statistical Society has issues with the RPI, to which I shall return in a moment.
Increases in line with the growth in the CPI maintain benefit and pension value as well as putting the system on a more sustainable footing, allowing the Government to focus help where it is needed most. In short, it is fair to recipients and to the taxpayer. I mentioned the Royal Statistical Society. You will often see reports of its concerns with the CPI in correspondence to the UK Statistics Authority. Have any of those reports mentioned its repeated calls for the RPI’s methodology to be improved, given that it arguably overstates inflation? I suspect not. The Institute for Fiscal Studies’ report on the Budget said that the CPI’s methodology was,
“a sound rationale for the switch”.
For a final word on the CPI, let us look no further than that longstanding Chancellor, Mr Brown, who said:
“It is more reliable ... It is more precise”.—[Official Report, Commons, 10/12/03; col. 1063.]
That is the consumer prices index—not a perfect index, but more reliable, more precise and more appropriate. I commend these orders to the House. I beg to move.
My Lords, I thank the Minister for introducing these orders and for that journey through geometric means, elasticity of demand and Cobb-Douglas. I am certainly reassured to know that the geometric mean works only at the elementary aggregate level. He has certainly given us plenty to read this evening in time for tomorrow’s further debate on this issue when we get to pensions.
The Guaranteed Minimum Pensions Increase Order presents no problem to us. Although the general level of price increase has been based on the CPI, not the RPI, the limiting factor is the 3 per cent cap, and we can support this order. However, the more substantive benefits uprating order is an altogether different proposition. Of course, we are not supposed to vote against it as it is includes matters that we support, such as the uprating of the basic state pension by the RPI, but we will not vote for it since, as we have heard, it is the start and signals the continuance of the switch to uprating by reference to the CPI. When it comes to debating these things, the Minister is right that there is no perfect index; an index measures what it measures.
The Minister made great play of the triple lock and the re-linking of the basic state pension with earnings. This is something that we support, and why not? After all, we locked it in as a requirement into primary legislation. We should remember that it was a Conservative Government who broke that link at a stroke. It was a consequence of this that when we came to government in 1997, our priority was to target maximum resources on the poorest pensioners. This was helped through measures such as pension credit, which meant that by 2007-08 there were 900,000 fewer pensioners in relative poverty than in 1998-99, as measured by the 60 per cent contemporary median income. On average, pensioner households were £1,500 a year better off in 2009-10 as a result of the tax and benefit changes than if the 1997 policies had simply been rolled forward. The poorest one-third of pensioner households were over £2,000 a year better off.
I should say that we recognise that the order before us relates to the basic state pension and the S2P. Issues concerning occupational pensions and the revaluation of preserved pension rights were dealt with by an earlier order in December last year, when the Secretary of State again used the CPI as the basis for revaluation, and they presage the order for public sector pensions, which will similarly be laid before us before 18 March. Those issues might spill over into the debate that we have today.
On the basis of the GAD report that accompanies the order, assuming that uprating continues to be done on preceding-year increases, it will be 2013-14 before the earnings increase at 2.6 per cent will determine the basic state pension increase. For the period covered by the report to 2015-16, the 2.5 per cent underpin would never determine the uprating, and for two years—2012-13 and 2013-14—where the CPI and earnings respectively would under the Government’s proposals, the RPI on the old basis would produce a better result. Despite the triple lock, then, uprating by the RPI for 2012-13 and 2013-14 would have produced a better result.
The Minister has placed much reliance on the switch to the CPI as being the most appropriate measure of inflation for uprating pensions and benefits. It is somewhat surprising, notwithstanding the Minister’s comments, that the Government have abandoned the policy at the first opportunity and held on to uprating the basic state pension by the RPI and the minimum-guarantee element of pension credit by a mixed rate of 3.6 per cent that is designed to preserve the full basic state pension increase.
The Government announced last year the use of the CPI as a basis for determining the percentage increase in the general level of prices for a range of matters. It is widely acknowledged that the CPI as a measure of inflation will generally be below the RPI; I think that the Minister acknowledged that. That is reflected in the GAD report, which shows it to be below the RPI by 0.4 per cent to 1.6 per cent for the period to 2015-16. It is also reflected in the June 2010 Budget Red Book, which by 2014-15 expects the Exchequer to save some £6 billion a year because of the switch. The saving will come at the expense of those on benefits, tax credits and public sector pensions.
As we have heard, the Government’s arguments in favour of the CPI are that it is a headline measure of price inflation, that it uses a standard international classification system—we heard about the other countries that use it—that a single index across all upratings is best, and that the CPI is most suitable for use as a single index. For pensioners, it is argued that the CPI is preferable because it uses a methodology that implies that consumers will switch to cheaper goods when prices rise. On coverage, the challenge is that the RPI includes mortgage interest payments, which are not relevant to the majority of pensioners, although there is the recognition that the CPI, while excluding mortgage interest, also excludes certain other indirect housing costs. How does that argument run for benefit recipients as well as for pensioners? How does switching to cheaper goods operate for poorer households? If households are living at the margin, at the cheapest level that they can, at the moment because of their circumstances, what does switching in that index actually mean for them?
We have to look at other comments on the CPI/RPI indices. The Minister quoted the IFS research. The IFS notes that the CPI tends to give a lower rate of inflation for two reasons:
“Because of both the formula effect and the fact that items excluded from it tend to rise in price more quickly than average prices, the CPI tends to give a lower rate of inflation than either Rossi or the RPI … This means the decision to link benefits to the CPI is likely to save the government money”—
We know that. It continues:
“These savings will cumulate over time: in any given year, the differences between different measures of inflation may be small, but over many years the difference in the value of benefit payments will be substantial”.
The IFS analysed the government rationale for the switch. Part of its conclusions was as follows:
“Overall, then, we find that the move to CPI-uprating is not clearly justified by the coverage of the CPI being more appropriate for all benefit recipients, particularly for those of working age. Nor do our results suggest that the switch from RPI to CPI as part of the triple lock guarantee for the basic state pension was obviously justified on coverage grounds: whilst we find the majority of pensioners in receipt of other benefits are insulated from the costs excluded from the CPI, if we include state pension recipients as well, the proportion insulated falls to between 31.5% and 32.2% of pensioner households, similar to the proportions insulated for working age households”.
The Minister referred to the Royal Statistical Society and the UK Statistics Authority. A letter from the Royal Statistical Society said:
“As we all know, the CPI was originally the Harmonised Index for Consumer Prices … constructed in order to compare price movements between EU countries; its methodology and coverage are on agreed EU definitions. Lack of agreement over the treatment of owner occupier housing costs, of particular importance for the UK, means that these are still excluded; it is debatable whether its exclusions of items such as council, vehicle excise duty, trade union subscriptions and television licences, and its inclusion of spending in the UK by foreign residents, are appropriate for all purposes. Its methodology, specifically the comprehensive use of the geometric mean at the lowest level of aggregation, has many supporters. It is approved by some other international bodies as well as the EU. However, some would argue that it is not the best approach for products where consumers are typically slow to substitute newly cheaper outlets, brands or varieties for existing more expensive ones”.
In October 2010, the UK Statistics Authority replied, saying that the CPI should become the primary measure of consumer price inflation once the inclusion in the index of owner-occupiers’ housing costs had been achieved. It said:
“We continue to regard both the Consumer Prices Index … and the Retail Prices Index … as important measures of consumer price inflation. We believe that the CPI should become the primary measure of consumer price inflation but only when the inclusion in the index of owner occupiers’ housing costs has been achieved”.
We consider that there is a persuasive case for making a change to CPI uprating for a period of time, provided that recipients of benefits did not lose out in growth and earnings. If that were the case, we could have a discussion on that as part of the deficit reduction plan, but the switch goes way beyond the period when the deficit should have been dealt with, which is why we are unable to support that long-term switch. A temporary expedient deal to help with deficit reduction is not on offer. It would be wrong to sign up for the long term, given the profound consequences that it would have for pension rights and for benefits.
We have had an interesting debate about the construct of indices, but we should not lose sight of what our deliberations mean for pensioners and for those on benefits. Most people struggling on income support or on the basic state pension with pension credit would be somewhat bemused by the abstract debate that we are having about what a proper measure of inflation is.
This order covers a multitude of changes to benefit upratings, and I would like to ask the noble Lord a couple of questions. I have ploughed through this but I cannot profess to have read every line. Does the order contain any changes to the capital limits—the savings limits—in calculating benefits? I think not. There are some changes to the non-dependant deductions in the calculation of benefit; these were presaged in earlier debates and government announcements. What assessment has been made of the impact of those changes, which are basically ramping up the loss for non-dependants in a household, on housing demand and the related impact on housing benefit?
Are there any fundamental changes in the order to income disregards? Is the full income disregard for child maintenance payments now fully in place?
I conclude with one further question on indexation and uprating. Before the last election, the CSPA—the Civil Service Pensioners’ Alliance—wrote to all three parties, particularly about the impact of index-linking on the future of pensions. All three parties responded. In a letter dated 27 April 2010, Philip Hammond, then shadow Chief Secretary to the Treasury, said:
“Indexation of pensions in payment is an established part of pensions legislation. The Conservative Party has no plans to change the current index-linking of public sector pensions in payment. We agree with the view that the right to indexation of pensions already accrued is part of the accrued pensions rights, and those rights will be protected”.
Does the noble Lord contend that what he has now proposed for index-linking is consistent with that assertion?
Similarly the Liberal Democrat shadow Pensions Minister at the time, now Pensions Minister, Steve Webb, said in a letter dated 12 April:
“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pensions rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected”.
Does the noble Lord think that that commitment is to be honoured?
Tonight’s debate has focused mostly on the two issues of the basic state pension and of CPI/RPI or any other form of index-linking. Contained within this order is a raft of changes to benefit levels that will have a significant effect on the lives of many. We are not able to support the order in its totality because of the long-term commitment that it presages to the switch to the CPI. On that, we must remain apart.
My Lords, I wish to speak particularly on the shift from the RPI to the CPI. The Minister in the other place acknowledged that no single index is perfect, and the noble Lord, Lord Freud, said something similar this evening. Given that, I argue that the criterion that we should use is which index best protects the living standards of some of the poorest members of our society. That is not the CPI. Typically, the CPI rises more slowly than the RPI—15 times in the past 20 years, according to the Minister in the other place—and, of course, that is why it represents a spending cut. We should not underestimate the significance of this shift, which is easy to do when we get caught up in technical jargon about geometric means and so forth. A 2008 Joseph Rowntree Foundation study concluded that uprating policies have big effects over time. This change will have a very damaging effect over time on the living standards of some of the poorest members of our society. As my noble friend Lord McKenzie has said, these are people for whom substitution is rather difficult because they have already substituted a lot in adapting to living on such low incomes.
I do not want to get involved in debates about geometric means and so forth with the Minister; I want to stand back a step. Over the years, I have read many uprating debates. That is a rather sad occupation and I can see that not many people share my interest. I might be wrong but I cannot remember one debate in which people have stepped back and asked what for me is a fundamental question: are the benefits that we are uprating adequate in the first place? Therefore, I would like noble Lords to reflect on the question of benefit adequacy when we are considering the uprating of benefits. I want to focus on the adult jobseeker’s allowance and income support rate, because that is the rate that has been most neglected and because the failure to improve it in real terms has blunted the impact of the very welcome improvement in children’s rates under the previous Government. I will spare the Minister the trouble of pointing out that my own party’s Government contributed to the neglect of this rate because I am on record as having been critical of that neglect despite achievements in children’s benefit rates.
A recent Joseph Rowntree Foundation paper said that a single person who is able to work and who has no dependent children will be living on £65.45 a week on current benefit rates. This money will have to cover all items of expenditure apart from housing costs, including food, clothing, water, heating, lighting and travel. The foundation says that it is therefore reasonable to ask how adequate this is as a basis on which to live. To help answer that question the foundation developed a minimum income standard—what ordinary people believe is needed not just to ensure food, warmth and shelter but sufficient resources to participate in society and to maintain human dignity, consuming the goods and services that are regarded as essential in Britain today.
According to my colleagues in the Centre for Research in Social Policy at Loughborough University, the single adult income support/JSA rate is only 41 per cent of the minimum income standard. The Joseph Rowntree Foundation comments that while there is no suggestion here that benefits ought to be at the level of the minimum income standard, the sheer scale of the shortfall is indicative of the fundamental inadequacy of current levels. My colleague Donald Hirsch of the CRSP has calculated that this shortfall will increase significantly as a result of the switch to the CPI. He projects that the minimum cost of living index, which he constructed to uprate the minimum income standard, could rise by 9 to 18 per cent more than the CPI over the next decade.
Another indicator is provided by the Marmot strategic review of health inequalities, to which I made a very minor contribution. This showed that the benefit rate of a single person is only 50 per cent of the poverty line and only 46 per cent for a childless couple. Marmot drew particular attention to the vulnerability of pregnant women living on benefit, and particularly of younger women under 25 who receive only £51.85 a week. The Marmot review called for a minimum income for healthy living to enable people to live a physically and mentally healthy life and as crucial to reducing health inequalities.
Yet another indicator that illustrates the impact that uprating policies have is how benefits relate to average earnings. I was sent a graph by Professor Jonathan Bradshaw of York University that shows that the ratio of JSA for a single person to average earnings was in 2009 roughly half the equivalent of 40 years ago. I cannot help but reflect on the comparison between what we expect an adult on benefit to live on and what we in this House can claim. We expect a single adult to live for a week on not much more than a fifth of what we can claim for a day. I could not live on £65.45 a week and I wonder whether the Minister could.
I draw attention to a benefit—child benefit—that will not be uprated in April because of the three-year freeze. I remind noble Lords that when child benefit was introduced in the late 1970s, it replaced child tax allowances as well as family allowances. At that time there was cross-party consensus that child benefit should be treated as akin to personal tax allowances in recognition of the impact of children on taxable capacity. That seems to have been forgotten by policy-makers. I cannot help but draw attention to it when the Government laud the fact that they are increasing personal tax allowances by more than the rate of inflation. Of course, that is no help to those who are too poor to pay tax, whereas increasing child benefit would help this group—families with children.
I express my regret at the switch to the CPI because it will mean a further deterioration in the living standards that are achievable on benefits that are already inadequate for healthy living and for ensuring human dignity.
My Lords, it is a pleasure to follow my noble friend Lady Lister, who has for many years been a leading advocate of improving living conditions for many people and who has made a distinguished contribution to national debate.
Like perhaps only a few noble Lords present, but like perhaps many more who are not present, I ought to declare an interest in the Guaranteed Minimum Pensions Increase Order, as I am entitled to claim a state pension although I have not yet done so; it is temporarily deferred. Having said that, I enjoyed the speech, or economics lecture, given by the Minister. I would have enjoyed it more if I had understood it more, but I suspect that, even so, I am slightly ahead of many of those who will be subjected to the effects of these orders. The Minister and the Government have claimed enormous credit for advancing the date by which earnings related payments will be made, but they have done so at a time when average earnings are not increasing. They have made a fairly safe bet because, had they relied on the earnings index, I suspect that there would have been no increase at all. They are therefore making the provision a little earlier, but its effect will be felt at probably about the time it would have been under the previous Government. We should remember that when the RPI fell, the previous Government ensured that a 2.5 per cent increase applied.
Mention has been made of a number of distinguished bodies that have commented on the RPI. We can all choose arguments from what they have said and written that advance our own side in the debate. I hope your Lordships will bear with me if I cite selectively, just as the Minister did. The Royal Statistical Society has said that the CPI fails to reflect the spending patterns of pensioners and the rising costs that they face. The Institute for Fiscal Studies has shown that most pensioner households are not shielded from many of the costs excluded from the CPI. The UK Statistics Authority has said that it does not believe that the CPI should become the primary measure of price inflation until housing costs are included. Other costs are not included, for example changes to council tax.
The Minister will no doubt point out that council tax is frozen and indeed it is—for three years in most cases. That freezing has been affected by top-slicing the grant to local government in the first place, but I leave that aside. There will be a temporary benefit in terms of council tax increases not bearing on the incomes of families, although the elasticity of their demand is extremely limited in any event, as both my noble friends have pointed out. However, while that is the case for the time being for council tax, it should be borne in mind that council tax benefit will be cut by 10 per cent in two years’ time. The Government, in an Answer by the Minister to my Written Question of some time ago, made it clear that they had no intention of promoting the take-up of council tax benefit, despite the fact that £1.8 billion of council tax benefit is unclaimed, largely, although not exclusively, by the very pensioners to whom this measure applies and by other low-income families. In fact, under the new index, the changes and reductions to council tax benefit, the failure to promote take-up, and the apparent reinvention of the 19th century Poor Law—because council tax will eventually be determined not on a national basis but by individual local authorities—it seems that pensioners and others in low-income groups face an onslaught on their living standards.
As both my noble friends have pointed out, the geometric mean will not signify very much to people living on very limited incomes. They feel that they will fall behind many in their communities, and that will certainly be the case nationally. It is particularly disturbing, as my noble friend Lord McKenzie pointed out, that this is not just a temporary measure designed to help tackle the deficit but a permanent change at the expense of many of the poorest in this country that will also affect those on modest fixed incomes in their later years.
I very much regret that the Government have seen fit to bring forward these proposals. As my noble friend said, we shall not oppose them tonight, but their impact will be serious and will certainly reduce the quality of life of far too many people in this country.
My Lords, perhaps I may follow that speech by the noble Lord, Lord Beecham, by also declaring an interest. I am in receipt of my basic state pension and I suppose that I should be thanking the Minister for his announcement that I will be earning, on average, £15,000 or more during my lifetime. However, I am particularly grateful that the measure increasing pensions restores the link with earnings. For many of us here who have campaigned on platforms at election time, the issue of re-linking pensions to earnings has been asked for on virtually every occasion when there has been an audience of prospective and actual pensioners who were concerned that the link had been broken and wanted it to be restored. I am therefore deeply grateful that the triple lock will replace the double lock.
I shall come to the issue of RPI and CPI in a moment, but I should first say that the orders demonstrate that we need a less complex system. Noble Lords on the other side have said on several occasions that this is a weighty document containing many changes. That reflects the complexity of the arrangements in our benefits structure and the calculations that flow from it. I welcome the simplification that will occur when the Welfare Reform Bill is enacted.
However, I agree that my noble friend will have to respond to the question of whether these measures will satisfactorily protect the worst-off in our society. That is the test we must put before him. Some measures that are not in the orders will support particularly the long-term employed—the Work Programme, more apprenticeships, and the more rigorous, enlarged and targeted work experience programme that will produce dynamic changes and have an impact upon the take-up of benefits overall.
I turn to the CPI/RPI debate. It is clearly difficult to produce a set of proposals that will be understood by people who are not in this Chamber and who want to hear a simple explanation. Geometric and arithmetic means are not words that roll off the tongue as you sit talking after watching the evening news on television. It is difficult to understand the complexity unless you can understand what lies behind it. What I take from this is what I call the old Tesco/Waitrose test regarding upper and lower shelves, whereby when you make a substitution, you might move shop or shelf when choosing products, in order to make savings in your weekly bill. There is something in that, given that the former Prime Minister, when he was Chancellor, said that CPI is a better measure of substitution. That is a matter which the mathematicians are beginning to grapple with.
However, it is clear that when compared with the UK no country in the western world has such a statistical difference between the two indices. The majority of other countries use the CPI index, but why is there such a difference here between the two indices? We need to understand why, and that was what the Royal Statistical Society was attempting to do. It is not just about whether there is something wrong with using the CPI, but about why there is a gap between the two indices that does not occur elsewhere. That again relates to the way that the formula is constructed. As we know, the formula includes a difference of between 0.5 per cent and 0.8 per cent, and we need to understand that better in future.
Therefore, it is not a question of which is the better index, but of which is the right index. It is not that one is a good index and one is a bad index; we are looking for the right index which measures inflation and how prices are rising. It may well be that we have not got that right in the past and that we are now looking for a change. However, I note that the opposition party in the shape of its leader, and reinforced here tonight by the noble Lord, Lord McKenzie, is prepared to accept CPI as an interim but not a permanent measure. That means that there is a sense that they generally agree with the former Prime Minister that there is a role for this index, although they may disagree about its long-term purpose.
What we do know, as international comparisons tell us, is that CPI is a much more stable measure. I was interested to hear the remarks of the noble Lord, Lord Beecham, concerning the pension. One effect of the methodology used by the previous Government was that the pension rose by 75 pence a week. Of course, it is not reasonable for people to be told that prices have not risen appropriately in that period. We need a stable measure which reflects people’s understanding of how prices have risen during the year.
As we heard from the Minister, housing is reflected in CPI in terms of rent but not mortgages. Work is now being done to improve the involvement of house prices and housing measures within CPI, although we know that only 7 per cent of pensioners have a mortgage. It is important to reflect on the value of the basic state pension, to note that in future the triple lock will work to the benefit of pensioners, and, if I read the newspapers correctly, that the basic state pension will be uplifted even further, which will give people a basic entitlement in tier 1. I hope that that will occur.
I hope that the noble Lord will forgive me for interrupting. I accept what he says about the triple lock on the basic state pension, but does he acknowledge that applying CPI to S2P on a long-term basis would reduce what would otherwise be payable?
The basic pension is bigger than the additional pension. In the long run, the earnings link is worth 2 per cent more than prices, and CPI is 0.8 per cent less than RPI. Therefore, the increase in the basic state pension can be set against the change which will occur with CPI for S2P. It is very important to see the connection between the two. Of course, as the noble Lord, Lord McKenzie, will know, there is much talk in the ether about an improved single-tier pension, and I think that that will be the test. Not only would it benefit people through the measure that I have just described but in the future it might improve matters even more.
I am sorry to interrupt the noble Lord again, but how would he factor into his assessment occupational pensions which, in terms of future indexation, could be subject to CPI rather than RPI?
I was very grateful that the Government did not put the override in place, because of course it should be up to occupational pension schemes to make up their own minds according to their rules. Clearly, if RPI were written into the contract that already existed, that would apply and the schemes would be able to stay with that. Most pension schemes will be able to make that choice, and I hope that there will be a debate among pension fund members about the way in which that might be put into place. It is also very important that pensioners with accrued benefits under RPI should have those benefits maintained and that, if the choice is made to change, CPI should occur only after the CPI regulation hits the deck.
Going slightly beyond this issue, I want look at the packages in the round and I also want to ask the Minister some questions. I am pleased that there was no override, and I wonder whether the Minister can confirm what I have just said regarding accruals for occupational pension schemes. Will the switch to CPI see the pressure on occupational pension funds reduced? I know that some figures have been produced regarding the reduction in pressure on some occupational pension funds. I should be grateful if the Minister could update us on the current thinking on that matter and on the current analysis of who is going to move and in which direction.
My final question relates to the much bigger world of the reforms proposed by the noble Lord, Lord Hutton. What are the Government’s thoughts about the direction of travel of the matters that we are discussing today, and how will that impact on the public sector pension funds? Will the Government be responding to the noble Lord, Lord Hutton, and in what timescale? People will want to understand the Government’s direction of travel, both on the basic pension and on public service pensions, which I imagine are a cause of concern to many people at present.
My Lords, I should like to make a few comments at the end of what is always a very important annual occasion. There have been occasions in the past when colleagues in the House have not considered it appropriate to look at social security benefit uprating orders, but these orders are extremely important for the people whom they affect and it is right that we should spend time looking carefully at the provisions. I am not surprised that more colleagues do not participate in these debates, as they are extremely complicated, particularly this year when we are contemplating wholesale changes in the benefit system. It is particularly difficult to foresee the impact that some of these announced changes will bring in future.
It would be helpful to receive some reassurance from my noble friend on the Front Bench on a couple of points. I agree with the comments that have been made about the pension provision. That is one area where substantial progress has been made, for which I am very grateful.
I want to pick up an important point made by the noble Baroness, Lady Lister, who is probably the only person in this Chamber who has been doing uprating orders for longer than I have—she advised me about them when I was elected to the other place in 1983, which was not yesterday. She has a huge amount of experience and knowledge and she will be a great asset to this House in considering these issues in the future. She raised the point about freezing child benefit until 2014. Of course, that is against the background of deficit reduction. I defer to no one on the necessity to attack the important financial circumstances that we all face, but how will that affect the child poverty strategy? In the legislation that we passed in the dying days of the previous Parliament, the Child Poverty Act 2010, we set out the requirement for a child poverty strategy. I anticipate that that will be unleashed on us quite soon. These changes will have a dramatic impact on the staging posts of 2015 and 2020 in the child poverty strategy.
Deficit reduction notwithstanding, I hope that the Government do not make these changes in a way that makes it impossible to get to a more comfortable place on child poverty by 2020. If that were the case, I would be very concerned. I think that redistribution is still necessary. The noble Baroness was absolutely right to say that this benefit was a tax allowance in the days before it was converted. It is extremely important that we keep the pressure up. People like me are uncomfortable about freezing child benefit. If the Government continue to freeze it, I shall be more than uncomfortable; I shall be very upset. A word of comfort about the fact that there is a child poverty strategy in gestation and about to be unleashed on us would send me home a happier bunny this evening.
We shall return to the CPI/RPI debate, and at great length. For me, there is some conflicting evidence. My noble friend dealt with the substitution effect. I think that he is right about substitution and I concede that he is right about geometry and not arithmetic. However, I do not necessarily concede that, therefore, CPI is an appropriate measure. I think that the IFS is on his side when it comes to substitution but, on whether this is an inflation experience that is adequate and appropriate for the client group, it is on a different side of the argument. The press release that I have in front of me, dated August 2010, suggests that it believes that,
“only 23 per cent of benefit claimants are unaffected by increases in mortgage interest payments and council tax”.
Therefore, the rest will be caught by the reduction. We cannot ignore that. I want to think about that more carefully and I shall study, with care, what my noble friend says about it, if not tonight then at another stage. I think that the jury is out. I think that he has won the argument about substitution but I do not think that that necessarily means that it is a safe measure in perpetuity. You only have to ask the Library not just about the short-term effects but also about the long-term effects to see that reductions in domestic household incomes are stark. Over a 20-year and a 30-year period, they are unconscionable. I hope that we in the coalition Government are not lashed to the mast on some of these things. If the CPI in the middle-to-longer term—five to 10 years—starts to pinch in a way that I think it may, I hope that we will be big enough to look again at whether it is an appropriate measure.
My third point was picked up by the noble Baroness, Lady Lister. The important work that the Joseph Rowntree Foundation has done on minimum income standards demonstrates what people require to live a modest but adequate lifestyle. Some of the benefits to which she referred, and there are others, have been losing out consistently year in, year out. For example, some of the capital thresholds have been in place for a long while and are beginning to pinch in a serious way. That deserves attention. No one is suggesting that any Government are going to offer benefits at these levels immediately, but the work that has been done on minimum income standards is a measure of how far benefit rates are slipping behind year after year. It is not fair to ignore that at a time when financial distress is being faced by a lot of people. For example—and I could go on at great length about the differential impact of inflation on low-income groups—the Joseph Rowntree Foundation recently produced some work that reminded us that bus fares were nearly 60 per cent higher in 2009 than they were in 2000. Low-income families depend on buses. Little things like that are an important part of looking at the totality of what we are agreeing. We ought to bear in mind in these debates how they affect, in particular, the two lowest deciles of the income distribution.
I shall make two other quick points. The first I have made every year for 23 years. The Government Actuary’s Department has certified the National Insurance Fund to be proof of the changes in these regulations. I remind colleagues that in 2010-11 the balance in the National Insurance Fund was £56 billion. We know that, in order to keep it safe from the requirement of a Treasury grant, the fund is required in law to have one-sixth of the expected spend safe in hand to look after emergencies, which is £13.8 billion. So we have £56.3 billion in the National Insurance Fund at a time of austerity when a lot of our families are suffering real, serious and continuing hardship. If you look at the GAD’s forecasts for the next five years, you see that by the time we get to 2015 there will still be £56.6 billion in the National Insurance Fund. I am not suggesting for a moment that we should be profligate and start raiding the National Insurance Fund, but there are occasions when we should be prepared to say that circumstances are so hard and there are households that are suffering such financial adversity that it may be time to look at making use of some of those funds to help some of those families through the difficult months and years ahead.
Finally—and I agree that this is a bit of a cheap shot—the Public Accounts Committee report of 10 March points out yet again that the DWP’s annual accounts have been qualified for 22 years because of the amount of error and fraud. Of course, the Government have a strategy, which I welcome. It was set out in October 2010 and has put some money—£400 million or so between now and 2015—into reducing the cost of overpayments. Although that is important work, so is the £1.3 billion underpayment identified by the Public Accounts Committee year after year. Of course, this is a measure of complexity. If we get the benefit that we hope for from the universal credit moves proposed in the Welfare Reform Bill, that will perhaps lead to simplicity, which, as my noble friend said, would be welcome. However, surely we must do something about the recognised £1.3 billion underpayment. I know that my noble friend is on the case and is deeply, personally concerned about fraud, but will he give us an assurance that he will use his best offices to get that underpayment down just as fast as he wants to get the overpayments down between now and 2015? If he does that, certainly I for one would rest happy in my bed at night.
Perhaps I may say how interesting I find the noble Lord’s analysis of the difference between the RPI and the CPI. Some 30 years ago, I was a member of the RPI advisory committee when it had a great row with the Treasury about mortgage interest payments. The philosophical argument was that you cannot have the cost of money as a factor in the national income. I respect that that was always the Treasury position. It might be slightly provocative to say this, but perhaps an organisation such as the Office for National Statistics or the new Office for Budget Responsibility could objectively set out the pros and cons for the different purposes. Whether one is dealing with national accounts or the cost of bus fares, one has to disaggregate the RPI. This issue arises all the time. Therefore, it would be useful if the Cabinet Office or somewhere else could produce a paper on the strengths and weaknesses for different purposes of the RPI and the CPI, including European standardised statistics and all the rest of it.
I certainly think that that is a good idea and I would support it.
My Lords, this has been an interesting debate, as one would hope and expect. I thank noble Lords for their valued contributions. I should probably declare an interest in that I am due a winter fuel payment this year, although I did not get it. The DWP says that it paid everyone and I find that I am the only person who did not get their winter fuel payment.
The uprating order and the GMP increase order both legislate for increases to benefits and pensions to be paid from April, thus protecting their value at a difficult time. My overview of what the noble Lord, Lord McKenzie, said is that the party opposite was perfectly happy with the CPI in the short term and would agree with the UK Office for National Statistics on the issue if the CPI was to include housing costs in the slightly longer term. On that basis, I suspect that there is rather less between us than might appear at first instance. We are very interested in the changes that will potentially be made to the CPI if housing costs are incorporated, which is being looked at. However, as the noble Lord, Lord Lea, hinted, it is likely that that would be done not by including the changes in mortgage interest rates but by the actual changes in house values.
A lot of points were raised in the debate and I will do my best to answer as many as I can. An important point about substitution was raised by the noble Lord, Lord McKenzie, the noble Baroness, Lady Lister, and my noble friend Lord German, who pointed out that people will buy everything at the bottom, which is what one expects them to do—that was the sentiment. However, that is not what happens with this index, which it is important to emphasise. If in a given range of the cheapest items—or best value goods, whatever they are called—and one of them goes up but the rest stay the same, people will substitute the one that has increased in price with the ones that remained stable. The relative movement in those goods, rather than their absolute value at any one time, is what counts. It is really important to understand that when looking at how the substitution effect actually works.
We could probably all bore each other by quoting lots of different experts—and I think we have, so I will not bother doing so—but the noble Lord, Lord McKenzie, made the point that we abandoned the policy of the CPI when it came to it. I repeat what I said in my opening remarks: we announced the RPI for the basic state pension for the year at the same time as we announced the move to the CPI, so there has been no reversal or change. That was what the policy was.
On the point raised by the noble Lord, Lord McKenzie, on the triple guarantee, in the current environment the earnings factor does not make much immediate difference, but over time it will make a substantial difference and pensioners will benefit from it. As I said in my opening remarks, the 1.5 per cent increase from the previous year was not reversed. Picking up on some of the noble Lord’s other points, I think that he knows almost better than I do that, when it comes to mortgage interest for people of working age, benefit recipients and working people on low incomes can also get support for mortgage interest payments.
The noble Lord asked what assessment had been made of the changes that we have introduced to non-dependent deductions. The equality impact assessment on those changes has been published on the DWP website. A question was also asked about indexation rights for public service pensions. Those have been index-linked on the same RPI basis up to this point, and in future the indexation will be made on the new basis, which is CPI.
The noble Lord, Lord McKenzie, and the noble Baroness, Lady Lister, also homed in on the effect on poorer households, which is the big question here. We now have 5.8 million adults of working age living in relative poverty. As I have argued, the idea is that using the CPI will ensure that typical changes remain in line with real experience. Where we need to go in this area—a much more important point—is in the structure of the benefits system so that we strike the right balance between the welfare system as a safety net and one that sends out a clear message that work is valuable and that, if you can work, you should work.
We are modelling the big impact that will be made by introducing the universal credit. We estimate that 350,000 fewer children and 600,000 fewer adults will be expected to live in poverty—on the normal definition of 60 per cent of median household income. Some two-thirds of that effect will be because of better take-up. My noble friend Lord Kirkwood asked whether we would chase underpayments as hard as overpayments, but that is exactly how that effect will happen in practice. A lot of the effect will come from take-up by people who simply do not take up what they are entitled to.
I think that comparing the minimum income standard with one particular benefit rate is dangerous; one has to take the whole package of benefits that people have in practice. However, I acknowledge, with the noble Baroness, Lady Lister, that there is a shortfall compared to the minimum income standard. There is then a fall against median earnings—60 per cent of median earnings is what we are targeting for poverty—and then there is a fall further to benefits. However, the least fall is for pensioners.
The noble Baroness, Lady Lister, made some points about child benefit. Some of the savings from withdrawing child benefit from families with a higher rate taxpayer will be used to fund above-indexation increases in child tax credit. That was designed to shift support to low-income families with children. In terms of the amounts recycled, £1.2 billion of welfare savings will go back into child tax credits in 2011-12 and £1.8 billion in the following year.
The noble Lord, Lord Beecham, asked about the exclusion of council tax changes from the CPI. Within the CPI, council tax is looked at as a tax, which is the fundamental reason that it is excluded from that basket. The main difference between CPI and RPI—60 per cent of the difference—is the formula effect. Staying with council tax benefits, I note that the cost of administering the system is just short of £1 billion—it was estimated to be £986 million in 2010. The changes that we are making include an element of discretionary housing payment, which is meant to give money to the people who need it most.
The noble Lord, Lord German, asked about the RPI. It is impossible to be ruder about the RPI than I have been in explaining why the difference between the RPI and the CPI is less here than elsewhere. The reason one could potentially be rude is that the RPI incorporates something called the “average of relatives” as its way of calculating the arithmetic mean—to the extent of 38 per cent of the total. That creates a bounce effect and that is why that particular index has been banned for international comparison. If you wanted to have a posse against the RPI, that is where the suspicions are likely to lie.
Can I just point out that that is by no means the whole argument about the merits of the RPI?
It is an attempt to find an explanation for why our RPI is so different from the CPI compared with other countries. I was just looking for a clue to answer the rather potent question asked by my noble friend. It was not a complete answer, but I tried to give a more complete answer earlier.
My noble friend Lord Kirkwood asked about the child poverty strategy, which we are aiming to publish shortly. The strategy will set out our plan to transform the lives of children in poverty now and in the future. It will be a step change from previous approaches, which focused solely on income poverty, to a more sustainable and effective approach that addresses the root causes of poverty rather than the symptoms.
On the National Insurance Fund, I am sure that my noble friend Lord Kirkwood, has had this answer back many times and I almost do not want to say it again. The formal answer is that there is no fund in the sense normally meant; there is no pot of money to hand out. But I shall not go into that.
There may be one or two other items that I have not covered, but if there are I shall write and clear up all other points—otherwise I shall be here all night.
I shall try to wrap this up. We are taking an approach that seeks to balance the interests of benefit and pension recipients and the interests of the taxpayer. The CPI is an appropriate measure of inflation and one that helps to put the welfare system on a sustainable footing. The CPI is a legitimate measure for price inflation; it increases in line with real world prices and protects purchasing power. As such, there are good reasons for concluding that it is more appropriate than the RPI for our purposes. Despite the fact the nation’s finances remain under severe pressure, this Government will spend an extra £4.3 billion in 2011-12 to ensure that people are protected against the cost of living increases. Through the restoration of the earnings link and the triple guarantee for the basic state pension, the increase to pension credit and the continued protection of benefit and pension value, we are fulfilling our commitment to ensure that no one is left behind. I commend the orders to the House.
Guaranteed Minimum Pensions Increase Order 2011
Motion to Approve
That the draft Order laid before the House on 3 February be approved.
Relevant documents: 16th Report from the Joint Committee on Statutory Instruments
Postal Services Bill
Committee (2nd Day) (Continued)
Relevant document: 9th Report from the Delegated Powers Committee.
13: Clause 2, page 2, line 3, at end insert—
“( ) The Secretary of State will ensure that any relevant disposal guarantees that the existing rights of recognition of employees are maintained.”
My Lords, this amendment directs the Secretary of State to ensure that in any relevant disposal there will be a guarantee that the existing rights of the workforce recognition are maintained. There are two themes at work here. The first is that the workforce by its own efforts has unionised the industry to such an extent that recognition of the union was achieved more than a century ago. Long before the existing recognition rights existed in legislation, postal workers had come to an agreement with the employers and behind them the Government on the existence of the workforce’s trade unions. This has shaped employment relations in the industry; both workforce and management have seen the value of organised bargaining and representation. We are looking at a mature attitude to industrial relations. Both parties know of each other’s interests and concerns and are usually able to accommodate them. Despite the media caricatures, the reality is that organised industrial relations have created ways of working that make the industry productive and safe; every day many thousands of hurdles small and large are overcome by the timely recourse to the recognised framework of industrial relations in the industry.
If you looked at the media, you would imagine that everything was in total conflict, whereas the reality is very much different. If one looks at some of the positive aspects, one may remember the severe winter that we have come through recently and how tributes flowed as workers in the Post Office and Royal Mail worked with might and main to ensure that whatever the conditions the mail got through. Then there is the role of union learning representatives in encouraging people to lifelong learning and to embark on training. That is another very positive aspect that is overlooked.
Both management and union representatives know that the job gets done better if the workforce is convinced that it is being done in the right way and in a fair way. As I remarked on Second Reading, if one wants a good example of that, go to Gatwick to see an example of world-class mail and how well it works when the workforce is involved positively. As I said, the media is interested only in the breakdown of those relations, turning a momentary conflict into a sensation that sells papers. The reality is that countless efforts by management and union reps ensure the everyday smooth running of the industry. It is interesting that the Hooper report apportioned blame when conflicts arise fairly between both management and unions. I am sure that the noble Baroness would agree that that is an impartial analysis.
The first theme of the amendment is to ensure that the hard-won legal recognition of union organisation is protected in any share disbursal. Recognition has not just been won as a legal right, it has been established by the efforts of generations of postal workers and managers. Any new owner must begin by recognising that they are buying in to an organised workforce. Being unionised does not mean being unproductive. On the contrary, many studies demonstrate that unionised workforces are productive. If any new owner is in doubt, the Secretary of State will be obliged to dispel that doubt, as the new owner must learn to work with the unionised workforce. Tributes have been paid to the new CEO, Moya Greene, and her ability to work well and productively with the unions.
The second theme on recognition is that bargaining is a natural part of such recognition. It may be argued that under TUPE transfer, the workforce carries across existing terms and conditions, although some comments in the press on TUPE recently give me cause for concern, so that may be true but insufficient. The workforce is an organised one which will address any new employer with the expectation that its bargaining rights remain intact. That is not just about what is currently earned or what is currently an entitlement—to paid holidays, for example—it is also about the right of the workforce to address its future conditions with confidence that it can resolve its problems through negotiations.
Any new employer who bought into Royal Mail on the assumption that it could simply impose its vision, priorities or methods on the workforce would break down what we see now, to which the noble Baroness paid tribute: what we have achieved in the current transformation and modernisation agreement; really constructive partnership working. The workforce has agreements which have been hard-won and painfully negotiated, and it would expect any changes to be negotiated.
That is not necessarily a conflict-ridden process—on the contrary, the only cost for the vast majority of agreements has been the time and patience of management and union reps—but such rights are valued greatly by the workforce. Postal workers know that the industry is constantly changing. They have had to accept losses of about 69,000 jobs over the past decade. It has been painful, but they have seen that as a part of improving productivity and accepting the modernisation programme. That also means that working arrangements and conditions change. That is on the understanding that postal workers will buy into those changes by helping to shape them. Those of us with experience of employment relations know that that is the best way forward.
We expect the Secretary of State to be entirely clear with the new owner of Royal Mail that recognition of the workforce and its union involve a negotiated bargaining framework for employment relations in the workplace. That fact of life will have to be addressed. It is best that we make that clear in the Bill to any potential investor in or buyer of the industry. Carrying the amendment would do exactly that. I beg to move.
My Lords, I speak as a former chair of ACAS. One of the joys of ACAS is that I probably know more about the employment relations of most industries in this country than anyone else; one of the frustrations is that I follow the ACAS tradition of not speaking about them in detail.
I want to speak in general terms about the importance of recognition. I am sure that noble Lords from all sides of the House recognise that whatever final shape the Postal Services Bill takes, this will be an unsettling time for employees and will increase their anxiety for their future.
Whenever ACAS became involved in labour relations in a particular industry, its key concerns were transparency, consultation and employee buy-in, and we would take both sides through the steps required to achieve success. Continued recognition of the appropriate trade unions would always be a key element in achieving employee buy-in. It would be enormously reassuring during these uncertain times if the Government were to agree to uphold in the Bill existing recognition rights. It would be much more than a gesture of good faith; it would be a statement that the worker’s voice will be heard, and their involvement assured, in negotiating both their own future and that of the industry to which they are committed.
Recognition rights do not mean that an employer has to accede to union demands or to weaken its position commercially. They represent an acceptance that employees are an asset and that their commitment is a commercial asset. I hope that the Government will accept the amendment of the noble Lord, Lord Young of Norwood Green.
My Lords, I am afraid that we now see week after week in some newspapers—I would include under that heading a magazine such as the Economist—thinly disguised attacks on collective bargaining. We cannot debate that topic in its totality this evening, but I refer the Committee to the central point. Across the OECD countries, there is a close statistical fit between the amount of collective bargaining in a society and its equality. It is therefore the grossest hypocrisy—it is not conscious, but perhaps subliminal—for people to say that they do not like the gap between rich and poor when they are attacking collective bargaining. Both at a point in time and over the decades, the weakening of collective bargaining means that the forces in society are no longer balanced. We now have a gross imbalance between the oligopoly of power in the City of London and the attempt to weaken the workforce.
I think that we will see in the demonstration to be organised by the TUC in London on 26 March that the workforce has woken up. It will demand that its rights be respected, which will have great resonance with the people of this country. I therefore fire a warning shot across the bows of people who think that they are now able to administer the coup de grace to people who have collective bargaining. When the postal services are in the private sector, they may be expected to fit the private sector model whereby workers are not covered by collective bargaining and it is much more difficult for them to be so. Therefore, it is fair to take the opportunity to point out, in the spirit of this amendment, that it would be very unwise for people to think, “The public sector has collective bargaining. In the private sector, we don’t have collective bargaining and we can just say goodbye to it”. Anybody who thinks that is deluding themselves.
My Lords, Amendment 13 seeks to place a duty on the Secretary of State to ensure that employees’ existing rights of recognition are maintained. I am not sure whether the amendment fits neatly into Clause 2, which is intended to place a duty on the Secretary of State to report to Parliament when a decision has been made to undertake a disposal of shares in the Royal Mail company. However, I am happy to debate the specific issue raised by the noble Lords.
Before I do that, I reiterate that the Government welcome the positive changes in the relationship between Royal Mail’s management and the CWU over the past 12 months. I say this because, notwithstanding the historic references made by the noble Lord, Lord Young, industrial relationships at Royal Mail have undoubtedly been poor in recent times. The national strikes in 2007 and 2009 were damaging for the company and for the postal market but the business transformation agreement, reached in March last year, has seen the implementation of a new approach to union-management relationships. It has enabled progress on the much needed modernisation of the company and I urge both sides to continue to work together in that improved way.
The noble Baroness, Lady Donaghy, was concerned about uncertainty for employees. Let me be clear that the worst thing for employees would be for us to do nothing and to let the Royal Mail decline through inaction and a lack of investment. People want to work for a stable company and to have a secure pension, and I believe that our proposals will help us on both those fronts.
On employee representation, employees at Royal Mail are mainly represented by the Communication Workers Union and by the Communication and Managers’ Association, which is a section of UNITE. This representation is recognised in voluntary agreements between these unions and the management. The Government do not play a role in these agreements. Such voluntary agreements occur across industries where there is a union presence and it is good practice for the employer to take full account of the views of employees when deciding whether a union should be recognised or continue to be recognised. Union membership remains relatively high within most grades at Royal Mail. That fact suggests that most staff support union recognition.
I have no reason to believe that any new owners would seek to change such agreements, provided, of course, that the employees wish to continue to be represented by those unions. Any new owner will fully appreciate the need to work with employees’ representatives to secure the future of the company in the changing postal market. Management most certainly cannot do this alone. However, as I have said, union recognition within Royal Mail—or any other business—is primarily a matter for the employer and the trade unions concerned. I do not therefore believe that it would be appropriate for there to be a specific duty on the Secretary of State to guarantee these arrangements in Royal Mail. I therefore hope that the noble Lords, Lord Young and Lord Lea, will take time to consider my response and that they will withdraw their amendment at this time.
I thank the Minister for her response, even if it did not go as far as I would have liked. I also thank my noble friend Lady Donaghy for contributing to this debate and for pointing out that at a time of great change—and moving to a privatised environment will be a great change—the role of unions will be absolutely vital. My noble friend Lord Lea warned about not taking trade unions for granted in the current environment.
While the Minister welcomed the new approach between management and unions and laid stress on the question of voluntary agreements, any new owner ought nevertheless to recognise the environment that they will be coming into. If they want the company to succeed, it will mean working with the unions, in our view. We will reflect on what has been said and consider whether we need to bring this back on Report. On that basis, I beg leave to withdraw the amendment.
Amendment 13 withdrawn.
13A: Clause 2, page 2, line 3, at end insert—
“(3A) In the event that a sale is made by an initial public offering, a relevant disposal may only take place if the conditions in subsections (3B) and (3C) are met.
(3B) Shares representing no more than 30% of the value of a Royal Mail company may be disposed of before 31 July 2012.
(3C) No other shares shall be disposed of before 31 July 2013.”
My Lords, Amendments 13A and 14 cover two complementary points; I shall deal with the first aspect and my noble friend Lord Young of Norwood Green will deal with the second. The key words in Amendment 13A are “initial public offering”. In the event that a sale is by means of an IPO, the relevant disposal should take place only in circumstances where different tranches are put forward one after the other. I shall relate that to the experience of the big wave of privatisations in the 1980s, which had some clear lessons.
The sale could be to a single entity but, if one reads the report by Mr Richard Hooper of 2010, one sees the presumption of some likelihood that an IPO will be the modus operandi—in other words, there will be a sale of shares to the public. Incidentally, in this case all the arguments that we have heard about concealing the price would evaporate, because for an IPO there is an offer price and share traders would decide whether to buy at that price and how much to buy. However, in the heyday of privatisation in the 1980s, privatised companies were consistently sold at too low a price. That was the experience for British Airways, British Gas and British Telecom, where the undervaluation on the first day of trading amounted to over £2 billion—£2 billion of our money went somewhere else. Indeed, it has been estimated that, for 1986 alone, the average share issue premium on major share issues was 7 per cent, but on privatisation issues the average premium on the first day of trading was 77 per cent. Tony Blair pointed out at the time that—to vary “The Importance of Being Earnest”—if something was negligent at 7 per cent, what is it if that suddenly becomes 77 per cent?
I am not suggesting that the circumstances for selling Royal Mail will be exactly analogous; the forecasts of offer price and outcome are hard to judge. However, the experience remains relevant. That is why I propose that a sale by an IPO should be phased in tranches, with no more than 30 per cent sold before 31 July 2012 and no other shares to be disposed of before 31 July 2013. I have already talked about the critique of revealing a price; I do not know whether the Minister will repeat that contention, but the notion that revealing a price is difficult does not apply to an IPO, where shares are at a set price.
I trust that the Minister will accept that to carry out the sale by tranches will be a more certain way to protect the public interest. If she has arguments against that, I will be interested to look at them and see what the rationale is; we will have to study them and think about it. It is incumbent on her to state the arguments explicitly and not just keep repeating them like Pavlov’s dog, so that we can consider what she has said carefully before we return on Report to what we believe—until convinced to the contrary—is a compelling case.
I beg to move the amendment standing in my name.
You are speaking to it.
My apologies, I shall speak to it.
Speak for England.
My Lords, the purpose of Amendment 14 is to provide for the disposal of shares to take place in tranches or batches rather than all at once. In keeping with our previous amendment, the batches are at 30 per cent and 19 per cent, to maintain Royal Mail in overall public ownership. Of course, the Government may wish to propose different figures, but the same principle would apply.
One of our difficulties with the Bill is in trying to grasp the detail and discover exactly what information is in it—whether there will be an initial public offering or a trade sale at auction. The Government have not set a clear timetable and they have not explained whether there will be a general sale of shares to the public—an IPO—a restricted sale to certain categories of buyer or a trade sale by auction to a single buyer, such as a private equity firm or a postal competitor, which may raise competition issues. They have not been clear about how valuable public assets will be allocated between Post Office Ltd, the pension funds and Royal Mail, thus finding their way into private hands. They have not indicated how the board might be constituted. They have not ruled out dismantling Royal Mail and selling off the most profitable parts, in particular GLS, its successful European parcels service, and Parcelforce. They have not indicated how they will guard against a buyer with short-term horizons seeking to squeeze costs and cherry pick the assets.
Before any sale takes place, this House will want to be assured about the future of the universal service, the exact regulatory regime and the future of the post office network. The Government have not explained any measures to ensure value for money for the taxpayer and—this is the subject that this amendment focuses on—they have not explained whether they would sell the whole company all at once, with the risks that that involves of selling cheaply, or whether they would be prepared to sell in tranches.
There is a huge amount of evidence that, when privatisations have taken place in the past, the value for which the businesses were sold was too low, as my noble friend Lord Lea has demonstrated. This is most clearly evidenced where a general sale of shares has taken place. When the shares are traded, it is easy to see what price they trade at and how this compares with the original sale price. If there is a big gap and the original sale price is much lower, it indicates that the shares should have been sold at a higher price—the taxpayer has lost out and someone has pocketed a pretty penny as a result. With Associated British Ports, which was 35 times oversubscribed, the share price rose 23 per cent in one day. With Amersham International, sold for £71 million, the share price rose 32 per cent on the first day of trading.
As early as 16 May 1984, the Public Accounts Committee in its 17th report expressed concern at stock in public corporations being sold, in the words of the committee, at an,
“immediate substantial premium creating windfall gains for the investor at public expense”.
It recommended considering selling in tranches, as was normal practice in the sale of large quantities of government bonds. Selling by tranches worked in a number of cases. For example, in the case of National Power, the share price rose 22 per cent a day after the first tranche sale but only 4 per cent after the second tranche was sold. Powergen’s first tranche of shares appreciated by 22 per cent within one day, but the second batch rose only 3 per cent the day after.
Of course, it is difficult to predict what the reaction of investors will be to the disposal of shares. It is undesirable for the shares to be offered, either in an IPO or a trade sale, in one single tranche, which would have the effect of transferring 100 per cent ownership in one go, albeit with 10 per cent or so employee shares, if that is to be the figure. There is a strong case that transfers should therefore be staged. Our amendment proposes this, such that shares representing no more than 30 per cent of the value of the business should be capable of being transferred in the first year following the Act coming into force and no more than a further 19 per cent in the following year.
The Secretary of State has complete discretion over the disposal of all Royal Mail shares. There are a number of issues to consider. The market may be glutted by a complete offering and so reduce the value. Privatisation of Royal Mail separate from the post office network is an innovation, so it will be best to proceed by degrees to ensure that the universal service is not jeopardised. If the value of the shares rises, the taxpayer would be a loser if the initial share sale were a complete sale.
There is a real prospect that Royal Mail may be undervalued or overvalued by the Government. Ministers have yet to put a value on the Royal Mail Group at this time—or, if they have, they are being exceedingly coy about it. Estimates of the value of Royal Mail have varied wildly. Many factors will impact on the value of the business. The prospective regulatory regime, the industrial relations climate, the onerous nature of the obligations placed on Royal Mail—all these factors and others will determine the value of the business and its share price on flotation.
There are, then, strong arguments for the sale to be implemented in tranches. That would allow for a wide variety of approaches to possible amendments. For example, tranches could be subject to various reporting procedures to Parliament to guarantee effective oversight. I stress that in our amendment we have been consistent with our wish that overall ownership of Royal Mail should remain in the public sector. However, the principle of selling by tranches to avoid underpricing would apply to any percentage of sale, including 90 per cent or 100 per cent. I hope that the Minister sees merit in the notion that disposals should be by way of tranches and that she will either accept the amendment or give assurances to the Committee about how the Government intend to proceed.
I cannot say how much I respect the views of the noble Lord, Lord Lea of Crondall, and the noble Lord, Lord Young of Norwood Green, but I have to say that from what they have just said they are living in fantasy land. We are faced with a situation where, unless the Royal Mail gets significant investment from a third party, it will be in serious financial difficulties. The idea that there will be an IPO or a sale with tranches is from a fantasy world. If people want to oppose the Bill, they should say so; they should say, “We don’t agree that it should all be sold off”. But, as those of us who deal with the markets every day know, to suggest that in some way we could have 30 per cent here, 30 per cent there and 19 per cent there is a fantasy world.
May I finish what I am saying? We are in Committee; the noble Lord does not have to interrupt me. The noble Lords are quite right: in the world under the Labour Government, they successfully sold off all sorts of things in tranches. However, we are not talking about the businesses that they sold off; we are talking about a business that is in serous financial difficulties. The idea that we can go to the market on an IPO and sell only 30 per cent, or sell 30 per cent now and trickle out the rest of the sales, simply will not happen. If noble Lords oppose the Bill and do not want Royal Mail to go into the private sector, they should say so, but they cannot pretend that we can do this in the way that they propose.
My Lords, the noble Lord has sat down. Did I hear him say that a sale through an IPO per se was unlikely? Clearly there is a difference between a sale through an IPO and a sale to an individual but, as my noble friend Lord Young and I have pointed out, it is perfectly straightforward to say that the public interest would have been served in the 1980s if there had been tranches. Presumably, the noble Lord is saying that the financial position of Royal Mail makes tranches impossible. In that case, it is up to him to prove that he would not be making a catastrophic mistake in an IPO about the initial sale price. Is that not correct?
It is not for me to respond to this; I am sure that the noble Baroness can do so more eloquently than me. But anybody who thinks, in the Royal Mail’s current circumstances, that there can be an IPO, is living in a total fantasy world. In the world in which we live, and the numbers we have from the Royal Mail—we know what they are—there is no way that suddenly an IPO will be forthcoming. I understand the noble Lord’s point—theoretically there could be an IPO—but we should not clutter the Bill with theoretical amendments. It simply will not happen. There might have been the possibility of an IPO under the noble Lord’s Government if they had got there quickly enough 10 years ago, but it is too late now. The pass has been sold, and this is fantasy.
If the noble Lord will allow me, it was the Hooper report that said that the most likely presumption of going forward was an IPO, and that was very recent.
Yes, it was in 2008, when Hooper gave an update—
Hooper said in 2010 that the situation had worsened, although he acknowledged that things were happening at Royal Mail which were a great improvement. The big snag with an IPO is that it does not bring Moya Greene’s £2 billion. The noble Lord, Lord Clarke of Hampstead, would certainly buy some shares, and I might if the price was low enough, but you would not get any part of the £2 billion from either of us.
My Lords, does not the dispute that has just taken place make it clear that this House and the other place are not the appropriate organisations for detailed discussions on how to do a disposal of shares? Obviously there are many different views, but this is not the kind of issue that can be put in the Bill. The financial circumstances of the Royal Mail have to be considered, as have the financial markets and the trade buyers that may be available. There will be a wide range of issues. I agree with those who have criticised past sales.
We are in Committee, you do not have to interrupt.
I am perfectly happy to sit down if that is helpful.
I do not normally intervene; indeed, I am impelled to do so only by the contribution of the noble Lord, Lord Razzall. The noble Baroness, Lady Kramer, compounded the situation by saying that this was not the place to discuss this. I reject that. This is absolutely the right place for us to test the water on this issue. We are entitled to put the argument about tranches; we are entitled to see the Minister’s response. On the point of the noble Lord, Lord Razzall, we have made it clear that we oppose the core of the Bill, which is to achieve 100 per cent privatisation, but we have not adopted a negative attitude in an attempt to undermine every stage. We have endeavoured to engage in constructive debate, and we have a legitimate right to do so on this issue.
The noble Lord, Lord Young, and I seem to have discovered a knack of talking past each other. I have no criticism of anyone raising the issues—in fact, I think it is good to have the warning that past sales of assets have not really achieved the maximum price that could have been achieved under more effective disposal mechanisms. The Government tend to be quite poor at procurement of almost anything, including a price for the sale of assets. However, I argue that putting down a set of rules such as 30 per cent, 90 per cent or whatever else does not belong in the Bill. I am not saying that the issue should not be raised or that the matter should not be debated but that one cannot define it in the Bill when it depends so much on market conditions, particular financial circumstances, the specific issues of the time and the deals that can be negotiated. The Bill is the wrong place in which to set down hard and fast and black and white rules on this matter. That does not mean that debate and reporting back on the whole process is not necessary, but I regard those as two different issues. I hope that the noble Lord, Lord Young, is aware of that.
My Lords, this has been a stimulating evening all round. Amendment 14 is a sister amendment to Amendment 2 which we debated last week. Amendment 13A provides a new twist on the disposal of shares in Royal Mail and seeks to place time constraints on the disposal of shares specifically in the case of an initial public offering—an IPO.
I will first respond to Amendment 14 which seeks to keep Royal Mail in public ownership and reflects the position set out in the previous Government’s Postal Services Bill which was considered by this House in 2009 but never found its way on to the statute book. As I said when we debated Amendment 2, the Government believe that limiting a sale to only a minority of Royal Mail’s shares will reduce our ability to attract the best future owners for the company and secure the best value for the taxpayer. Amendment 14 proposes a staggered approach to a sale of shares but with a limit on the disposal of 49 per cent of the value of the shares in Royal Mail. Given that the Government are also committed to establishing an employee share scheme—we will come later to amendments from noble Lords opposite to increase the size of the scheme—these amendments would in fact limit even further the amount that could go to private investors. However, the difference between this Government’s position and the previous Government’s position is that we do not believe that it is necessary for the Government to retain overall ownership of the Royal Mail.
The noble Lord, Lord Young, was concerned about maximising the value of Royal Mail. That concern is welcome although somewhat surprising given his earlier amendments which sought to limit how much could be sold, which would undoubtedly impact on the value. The Bill as drafted allows for the sale of shares in tranches, as set out in Amendment 14. However, we do not believe that there should be a rigid structure for how shares can be sold. There is nothing to stop the Government, in the first instance, selling a minority stake in Royal Mail or for Government to retain a stake in the company in future. However, we do not believe that there should be any barriers in legislation to prevent a disposal of a majority of the shares. As I have said before, our focus is simply on what is best for the Royal Mail and the taxpayer.
The noble Lord, Lord Lea, was concerned that Richard Hooper had steered the Government towards an IPO and that the Government would undervalue Royal Mail in such a flotation. I wish to make it clear that Richard Hooper did not express a preference for any form of sale. In his 2010 report he said that an IPO had become an option as Royal Mail now had less need for corporate experience from a partner thanks to its strengthened board. The Government are focusing on securing the best outcome for Royal Mail and the taxpayer. I hope I have already assured the noble Lord that we can sell in tranches, as he suggests, if that best meets our twin objectives.
As I said in my remarks on Amendment 14, and earlier amendments, the Government want to maintain maximum flexibility in the method and timing of any disposal of shares. This will give the Government the opportunity to make the right decision at the right time and to ensure that we can get the best result for Royal Mail and the taxpayer. Placing statutory arbitrary deadlines in legislation will not help to achieve the Government’s objectives. If we choose to dispose of shares through an IPO, I believe that it would be impractical to be faced with a deadline of 31 July 2012 and to have to rush the process through by then. We heard last week from the noble Lord, Lord Jones, and the noble Baroness, Lady Kramer, about the damage caused by imposing statutory deadlines on commercial transactions. What if we were not ready to launch a flotation until August 2012? We would then have to wait until July the following year to make the disposal and give Royal Mail the access to the capital that it so badly needs. That would be in the interests of neither the company nor the taxpayer.
As I said on Amendment 14, nothing in the Bill would prevent the Government staging a disposal in the way that the noble Lord, Lord Lea, suggests, but Amendment 13A would reduce the flexibility to make the right decision and I do not believe that that would be in the best interests of Royal Mail or the taxpayer. I hope that the noble Lord is persuaded by my argument and I therefore ask him to withdraw the amendment.
My Lords, it will not surprise the House that I will in due course withdraw the amendment pro tem, but that in no way assumes that our arguments have been overwhelmed by the firepower of the noble Lord, Lord Razzall, or the Minister.
The Liberal Democrats must have been reading too much Machiavelli recently. I am not surprised at that, given the extraordinary arrangements that they have been making with the Conservative Party, and I am sure that they are being kept awake at night wondering who is going to stab them in the front instead of in the back. As to the idea that the amendment is aimed at killing the Bill, we have experience of killing Bills but this would be a peculiar way of going about it. This is about helping the Government and society to avoid a fiasco by feeling our way on how this disposal will be carried out.
Is the noble Baroness prepared to respond on whether it is her view—along the lines of the view of noble Lord, Lord Razzall, for whom he knows I have the greatest respect—that we are living in fantasy land if we think that this sale can be carried out by way of an IPO. The alternative, presumably, is the Sheikh of Kuwait. It may be that Colonel Gaddafi is no longer the likeliest candidate. The alternative is an IPO. We will all avidly read Hansard tomorrow—which means that we will not—but I do not think I said that Hooper advocated an IPO. I said that the most likely presumption to be made after reading Hooper is that an IPO would be a strong candidate as the means of sale. If that is the case, the amendment is the exemplar and states that if the scenario is an IPO, some of the experiences of the IPOs in the 1980s should be borne in mind.
I must intervene before the noble Lord withdraws the amendment. I am a student of Machiavelli and I have always regarded the noble Lord, Lord Lea of Crondall, as the model of The Prince.
I take compliments of that type. I do not receive many compliments and I shall take that as a compliment and have it framed. In conclusion, a point of analytical disagreement has come out in the past 20 minutes such that I am pretty sure that my colleagues and I will return to this matter on Report. In the mean time, I beg leave to withdraw the amendment.
Amendment 13A withdrawn.
Amendment 14 not moved.
This might be a convenient moment to remind the House that we are in Committee, we can speak as many times as we like, we are having a great debate and we accept interruptions, but that we tend to avoid them because we are in Committee and do not need to interrupt each other. I hope that that is helpful to noble Lords.
15: Clause 2, page 2, line 12, leave out subsection (5) and insert—
“( ) In order to ensure that it remains a single company, for the purpose of this Part “Royal Mail company” means the company that provides the universal postal service.”
My Lords, I thought that, following that interruption, we should have a few seconds of silence to gather our thoughts in case we are interrupted.
This amendment restricts the issue or transfer of shares in Royal Mail to the whole company by defining a “Royal Mail company” as the company that provides the universal service. Clause 2 allows for the issue or transfer of shares in a Royal Mail company. The Bill defines a Royal Mail company as one that,
“provides a universal postal service and … is or has at any time been in the same group as … the original holding company, or … another company that … has at any time been a Royal Mail company”.
That, I think, means that, as the Bill stands, the Secretary of State can dispose separately of the various companies that can make up the Royal Mail Group.
The Royal Mail Group provides the universal service. It currently consists of a number of business units, the largest of which is Royal Mail, or Royal Mail Letters. This is the part of the business that deals with the collection, sorting and delivery of letters, packets and parcels, and it accounts for more than 70 per cent of the Royal Mail Group’s revenue.
Royal Mail Letters is a huge operation, delivering some 70 million items every day to more than 28 million addresses. It is at the core of the Royal Mail Group, ensuring the maintenance of the universal postal service. However, it works only because it is an integrated whole. Large volumes allow the business to achieve sufficient economies of scale to make the universal service affordable and to pay for the countrywide labour-intensive network on which the postal service depends.
We believe that Royal Mail must remain an integrated whole if the universal service is to survive and if postal services are to thrive in the United Kingdom. The financing of the universal service has already been put under strain by the operation of upstream competition in the mail market and by the way in which the market for access mail has developed.
Royal Mail has lost over 60 per cent of the pre-sorted bulk mail market. This is mail which competitors collect and sort and give to Royal Mail to deliver. Royal Mail therefore handles far fewer items upstream than it used to and it has had to cut back its upstream operations as a consequence. Royal Mail must maintain a viable upstream business if it is to be able to provide the universal service at an affordable tariff. It is therefore important that an integrated business model is encouraged and supported through legislation and regulation.
We believe that it would be in the public interest if an integrated Royal Mail business model were established by legislation. The amendment would prevent the separation of Royal Mail through the sale of separate business units and through the break-up of Royal Mail Letters and its sale as a series of separate business units.
There will be an appetite among Royal Mail’s private competitors for the break-up and sale of Royal Mail. This might suit their business models. However, it would be short-sighted and would eventually damage the postal industry and the provision of postal services in the UK.
If anyone would like to see Royal Mail stripped down to only a core delivery network, with all other parts of the business separated and broken up, that would not help the provision of a robust universal service. Competitors might wish to collect and sort bulk mail but they do not generally wish to collect and sort individual items from domestic customers. Royal Mail must do this as part of its universal service. The universal service will become more expensive and less sustainable unless Royal Mail can continue as a viable, integrated end-to-end operator.
Along with Royal Mail Letters, the Royal Mail Group further consists of Parcelforce, Global Logistics Systems—GLS—and a number of other smaller businesses. It also consists of Post Office Ltd, whose sale is of course restricted by the Bill, and we welcome that.
Parcelforce and GLS, the third biggest parcels provider in Europe today, are both profitable businesses—GLS particularly so, with £122 million in operating profit in 2010 alone. That is almost the same level of operating profit as was seen in the whole of Royal Mail Letters, a company with four and a half times GLS’s revenue. That means that GLS is a target for Royal Mail’s competitors. Many would like to get their hands on it, but they are less keen to take on the difficult but important operations undertaken by Royal Mail Letters. The sale of GLS and Parcelforce separately from Royal Mail would be revenue-generating but would leave Royal Mail, the universal service provider, in a much weaker position.
Royal Mail needs to operate as an integrated business and it needs to be able to hold on to what valuable assets it has while it goes through its current difficult and costly transition. We do not want to see it asset-stripped. It is therefore important that restrictions are placed on the sale of Royal Mail that mean that it can be sold only as a single company, and that it cannot be asset-stripped or broken down in the interest of short-term gain to appease the company’s competitors or to consolidate a regulatory model that has damaged the business and is in desperate need of change. I beg to move.
My Lords, I believe that the intended effect of Amendment 15, in the names of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, is to seek to ensure that Royal Mail remains a single company providing the universal postal service and that it is the only universal service provider. We will, of course, come on to the protection of the universal postal service when we debate Part 3 of the Bill, but I should make it clear now that we expect Royal Mail to be the universal service provider in the UK for the foreseeable future. I hope that reassures noble Lords.
I now turn to the issue of whether Royal Mail should be a single company. I do not consider that we should be legislating on the future structure of a company that will no longer be in public ownership. A privatised Royal Mail should be free to organise its business and operations in such a way that enables it to provide the universal postal service efficiently and effectively. This could mean establishing subsidiaries to deliver part of the service or it might mean no change at all. We simply do not know, in 2011, what the best operational structure should be for Royal Mail. Through a disposal of shares, we are giving Royal Mail real commercial freedom, and I do not consider that it is appropriate for the operational structure of Royal Mail to be set in primary legislation.
I have two answers in the question and answer part of the brief on subjects that the noble Lord mentioned. On whether Parcelforce or GLS will be part of the package, no decision has been taken on the formal method of sale. Just as for the Royal Mail, we have no plans to retain either Parcelforce or GLS in public ownership in the long term. The noble Lord also asked about the risks of a new owner stripping the assets from Royal Mail. The Government simply would not sell to a bidder if they believed that they would not assist in securing the future of the universal postal service. Furthermore, any shareholder would want to see a successful business and a sustainable universal service, given that the cash generated by a successful Royal Mail will outweigh the asset value in a very small number of years. Investors would also face significant reputational damage if they allowed Royal Mail to become insolvent. We believe that there is ample protection against that, both in the Bill and more generally. With those answers and the answer I gave previously, I ask the noble Lord to withdraw his amendment.
I thank the Minister for that response. We seem to be placing a great deal of stress on hopes and aspirations about what will happen after the sale—other noble Lords picked up on this, I think—and very little on what many people in the country would regard as sensible and appropriate public interest measures, which are being taken on board by the Government or even considered in a serious way.
From what the Minister has said, there is a grave danger of cherry picking. That will still be a possibility. If the successful owner is robust and strong enough, they will be able to do what they wish once they have control of the assets. It is particularly important to register that the Government have not ruled out dismantling the Royal Mail and cherry picking the most popular parts, in particular GLS, which is the most successful European parcels service, as I said earlier. That must be a worry as we go forward.
The assets can be taken away; they do not have to be very large or prestigious to be capable of being sold. On the first day in Committee, the noble Lord, Lord Christopher, considered selling the Oxford sorting office at a profit. Heaven knows why. I have not visited it yet, but perhaps the Minister has. If that is his vision of it, then clearly the assets are valuable and they will go. There is also the possibility of the Royal Mail being split in a geographical way or by function, which would undermine the viability of the universal service provision, which in effect cross-subsidies rural and other diverse locations. We think this is an important issue, but on this occasion we shall not push the matter to a vote. I beg leave to withdraw the amendment.
Amendment 15 withdrawn.
16: Clause 2, page 2, line 17, at end insert—
“(6) Prior to any disposal of shares in Royal Mail, the Secretary of State shall consult service user groups including small businesses, pensioners, people with disabilities and people in rural and remote areas.
(7) Following the consultation in subsection (6) and prior to any disposal, the Secretary of State shall lay a report before Parliament which sets out how the universal service provider shall maintain the minimum requirements set out in section 30.”
My Lords, Amendment 16 is designed to strengthen the rights of users of postal services. As has been seen in the past, with privatisation and a greater focus on commercial imperatives, it is all too easy for the most vulnerable users of services to be put at the greatest disadvantage. Let us take the energy sector. The most expensive way to buy gas and electricity is with a prepayment meter, yet it is the poorest in society who are forced to buy them in this way as they do not have access to direct debit facilities. There is a real risk that certain groups of service users who rely on Royal Mail more than others will similarly be vulnerable to change. I believe it is important that Parliament sends a strong message that it expects the services provided to vulnerable groups to be maintained.
To take one example close to home—and I declare my own interest here—on the one hand, the Bill legislates to protect specialist services for blind people, but on the other, it requires the proposed postal services regulator, Ofcom, to review that service and all the other services contained within the universal postal service within 18 months of the Bill coming into force. The Minister was very clear at Second Reading that this review is not intended to lead to a reduction in the minimum requirements of the universal postal service. However, in discharging its primary duty to secure provision of the universal postal service, Ofcom must give specific consideration to the financial viability and efficiency of the service. The review will decide whether the current universal service obligations work in the interests of users. I believe they do, but I do not think a regulator with a remit to further competition in postal services necessarily would.
A similar concern applies to the concept of the single tariff: a single price for a stamp. At the moment, Royal Mail is obliged to offer customers the same letter service without discriminating on price, regardless of the distance between the point of posting and the point of delivery. This works in favour of people who live in rural areas, but once the accountants and management consultants are let loose, questions about why users in urban areas should go on subsidising an often loss-making postal service in rural areas are bound to arise. Why not reduce the cost of a stamp in the cities and make those in the countryside pay a price that better reflects the cost of providing the service?
Small businesses are equally vulnerable to changes in the price of letters and packets. The Federation of Small Businesses has expressed concern about the Bill. It is worried—and I can understand its fears—that a more aggressive pricing regime will harm small businesses. The collection and delivery of postal packets forms part of the universal postal service. Such a service is vital for small enterprises. With economists in charge, these businesses could well be charged a price for the service they receive based, at least in part, on their location. Small businesses in rural areas are perhaps the most vulnerable to the more commercial spirit that will inevitably come with privatisation.
Older people, pensioners, who are a growing section of the community, again rely on the postal service more than younger users. With the advent of electronic communications, there has been a seismic shift away from writing and sending letters in the conventional way, but many older people are marginalised when it comes to such technologies. They are more reliant on the traditional postal service as a means of communication. It is important that a privatised Royal Mail does not operate in such a way as to disadvantage older users of postal services.
I am not against this Bill. I simply want to strengthen it so as to protect the postal service for those who live in a rural area, who run a small business that is reliant on Royal Mail, who receive specialist services for blind people or who are elderly. The object of this amendment is to restrict the ability of Royal Mail and the postal services regulator to use their new-found commercial freedom and a more competitive environment slowly to chip away at those services, to raise their costs disproportionately or reduce their frequency.
The Minister will no doubt say that it is absolutely the intention of the Government to protect these services. I do not question her intention for a moment. But once the Bill receives Royal Assent, the Minister hands over responsibility for the maintenance of these services to the regulator. An obligation on the Secretary of State to consult in the way I have suggested with this amendment and to report to Parliament strengthens the hand of the consumer and helps to build into the legislation another safeguard for service users. I beg to move.
In supporting the amendment tabled by the noble Lord, Lord Low, I shall speak to my Amendment 16A. The Bill does little to ensure accountability to the devolved Administrations in the United Kingdom. Yet we must recognise the vital services provided by the Royal Mail to the whole of Great Britain and Northern Ireland. It is part of our country’s infrastructure, supporting economic and social interaction across all the nations and regions, and we should retain universality of service across the whole country.
The needs of service users varies depending on where they live, with those in rural and hard-to-reach areas particularly dependent on postal services and vulnerable to changes that may follow from the introduction of the Postal Services Bill. For that reason, I believe that the devolved Administrations must be kept informed about the developments in postal services. Specific analysis should be undertaken and the likely impact of changes to postal services in Scotland, Wales and Northern Ireland should be properly considered. Moreover, specific consideration should be given to those with particular needs, such as pensioners and people with disabilities, a point eloquently argued by the noble Lord, Lord Low of Dalston, a few minutes ago.
The devolved Administrations already take a keen interest in postal affairs and recognise their importance. Economic development has been important to the Welsh Assembly and the Scottish Executive. They support the needs of small business in rural areas and both Administrations have made significant investments in their post office networks over these past years. In my view, it is unlikely that any of the devolved Administrations would want to see the break-up of the universal service. Providing detailed reports to the devolved Administrations would give them the opportunity to comment on particular implications of changes and will be important to improving oversight and accountability.
The future of Post Office Ltd and the continued provision of the universal service are a particular concern. Scotland, Wales and Northern Ireland contain large rural communities that would be disproportionately affected by any further decline in the post office network. The post office network is struggling. More than 150 post offices were closed as long-term temporary closures in 2010 alone and more than 900 post offices are up for sale. Sub-postmasters are struggling to make a living from their post offices. I fear that this Bill will potentially make things more difficult for them if we do not seek to improve it.
Breaking the link between Post Office Ltd and Royal Mail puts one-third of the Post Office’s revenue at risk. If the two cease to be part of the same company, there will be no guarantee that Royal Mail continues to sell its products through the Post Office. The Government’s proposals for the redesign of the post office network will see 4,000 “main” post offices created and the remaining post offices becoming “essentials” and “locals”. Essentials and locals will not provide the full range of post office services and some 2,000 sub-post offices would be transferred into essential or local category by 2014. They will offer only a proportion of the widespread post office services now available. I think that all remaining non-main post offices are likely to follow soon after.