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Postal Services Bill

Volume 727: debated on Tuesday 17 May 2011

Report (2nd Day)

Clause 27 : General authorisation to provide postal services

Amendment 58

Moved by

58: Clause 27, page 15, line 34, at end insert—

“(ca) a notification condition (see section (Notification condition)),”

My Lords, I shall also speak to Amendments 68 and 72 standing in my name. During our discussions, many of your Lordships, who are leaving the House quietly, have raised concerns about the prospect of other operators cherry picking profitable parts of Royal Mail’s delivery business. We have listened to these concerns and, as indicated in Committee, we have looked again at the Bill to check that there is sufficient protection in place. While we are confident that Ofcom has the necessary tools to ensure fair and effective competition in the market, we have come to the conclusion that there may be occasions when Ofcom will need to build in greater time to inform its use of these tools. These amendments therefore give Ofcom the power to require operators to pre-notify it of a planned commencement or expansion of a letter delivery operation on a specified scale.

This notification mechanism will ensure that Ofcom has the necessary time to evaluate the potential impact on the universal service of such an operation before the operation has commenced and before any potential damage has been done to the universal service. The detail of exactly how Ofcom will calculate what constitutes a significant service will need to be determined, but the policy intention is for only significant letter delivery operations to be caught. As such it will not impose any additional burden on, for example, current access competitors, courier services or parcel delivery businesses.

This is a light-touch, narrowly focused regulatory safeguard that will help Ofcom address an issue that has concerned many of your Lordships. I hope therefore that your Lordships will be able to support Amendments 58, 68 and 72 and I beg to move.

My Lords, Amendments 58, 68 and 72 constitute a welcome and positive strengthening of regulation of the postal sector. By abolishing the licence system the Bill carries potential dangers of destabilising universal service provision by deregulating the provision of competition. The proposed new clause goes some way to averting this danger and will allow Ofcom, whether directed by the Secretary of State or not, to impose notice of condition on anyone intending to introduce a delivery of letters within the scope of the universal service beyond a specified level, so we welcome this set of amendments.

The objective of Amendment 67B is that in setting prices Ofcom should not exclusively focus on the cost of providing the network, which would satisfy the current requirement under Clause 37(6), but should take account of the true cost incurred by Royal Mail in providing the universal service itself. It is important to be clear—this amendment would not require Ofcom to ensure the cross-subsidy of the universal service from access products. It would ensure that Ofcom considers the true cost of the USO to Royal Mail in setting these prices. I look forward to a brief response from the Minister.

My Lords, Amendment 67B seeks to ensure that, when imposing prices to access the network of the universal service provider, Ofcom must have regard to the costs associated with meeting the universal service. I agree with the noble Lord on this issue and that is why we have tabled Amendment 61, which is in another group but is entirely relevant to this debate. Amendment 61 will ensure that when carrying out its functions, including when imposing access conditions, Ofcom must have regard to,

“the need for a reasonable commercial rate of return for any universal service provider on any expenditure incurred by it for the purpose of, or in connection with, the provision by it of a universal postal service”.

While I agree with the intention behind Amendment 67B, I hope that I have explained that government Amendment 61 in the next group and the government amendments in this group will fulfil the same objective. Therefore I hope that the noble Lord will consider withdrawing Amendment 67B and support government Amendments 58, 68 and 72.

The noble Lord has not moved his amendment and he cannot withdraw it. We are still on Amendment 58. I think the Question is whether Amendment 58 be agreed to.

Amendment 58 agreed.

Clause 28 : Duty to secure provision of universal postal service

Amendment 59

Moved by

59: Clause 28, page 16, line 10, at end insert “before the end of a reasonable period and for its provision to continue to be efficient at all subsequent times”

My Lords, I beg to move Amendment 59 and in doing so speak to Amendments 61 and 62 in my name.

We must strike the right balance between promoting competition and protecting the universal service, and I thank your Lordships for the many important contributions on this issue. However, the Bill by itself will not secure the future of the universal postal service or Royal Mail. To achieve that, Royal Mail needs to become financially self-sustaining. Therefore there needs to be certainty that, just as has been done in other sectors, Ofcom will have regard to the need for the provision of the universal service to be financially sustainable in establishing the regulatory framework.

Amendment 61 adds flesh to this requirement, specifically that “financially sustainable” should include,

“the need for a reasonable commercial rate of return for any universal service provider on any expenditure incurred by it for the purpose of, or in connection with, the provision by it of a universal postal service”.

The intention of this amendment is to allow the company the opportunity to earn a reasonable return on all expenditure incurred in providing the universal postal service and any regulated access services, in so far as they make use of the universal postal service network. The term “reasonable commercial return” in the amendment is intended to mean simply that in applying this duty Ofcom could, among other things, and when it deems it appropriate, take into account private sector international operators in the postal market, their respective levels of efficiency and the different markets they are operating in, as well as regulated commercial companies in other regulated sectors.

To be clear, it would be for Ofcom to determine exactly what to take into account when considering what constitutes a reasonable commercial return. This requirement is in the context of the need to ensure that provision of the universal service is, and remains, efficient after a reasonable period. Obviously, it is not within the gift of the regulator to determine precisely what returns Royal Mail can make; that should depend on the market and the company’s performance. However, it is essential that the regulatory framework should provide the space and incentives for Royal Mail to be successful, to make the necessary efficiency improvements and to allow for good performance to be rewarded, without regulation eroding the effect of increased efficiency.

The Government believe that, in the long term, the universal service should be both financially sustainable and efficient, and that this will be possible if Royal Mail continues with the good progress it has made in modernising. But of course this takes time. We have therefore tabled two other amendments to Clause 28 to specify that the requirement for efficiency should be,

“before the end of a reasonable period”,

to give Royal Mail time to continue its vital modernisation.

The amendments to Clause 28 constitute a major strengthening of the Bill. They provide even greater security for the universal service. I hope your Lordships will be able to support them.

My Lords, we welcome government Amendments 59 and 62, which would allow Ofcom to establish the timescale for the universal service provider to achieve the levels of efficiency which it is reasonable to expect. This is a recognition that Royal Mail is going through the difficult process of modernisation. The amendment acknowledges this process, which is entirely welcome. Government Amendment 61, which is also most welcome, recognises the universal service provider is entitled to achieve a reasonable commercial rate of return in the provision of the universal postal service, as indicated by the noble Baroness.

Amendment 60 seeks to prevent unnecessary regulatory intervention in areas of the market where effective competition exists. According to the regulator Postcomm, Royal Mail has complained of considerable overregulation since 2006, with approximately 80 per cent of Royal Mail letters revenue subject to price controls. A range of changes introduced in April this year has reduced this figure by just 5 percentage points. For example, Postcomm had previously proposed to remove regulation from pre-sorted bulk packets and parcels of more than 500 grams, but when Postcomm reached its final decision, it deregulated only for items above 1 kilogram. This was despite Royal Mail evidence suggesting that there was significant competition in the market for items weighing less than 1 kilogram. Preventing overregulation is seemingly a shared aspiration, and therefore I hope that Amendment 60 will find favour. The current regulator is clear that it would rather not regulate where Royal Mail faces competition; our Amendment 60 will make it imperative that Ofcom does not do so.

My Lords, I am a bit bothered about the amendment that the noble Lord, Lord Young, spoke to because of the great difficulty for anybody to define “effective competition” in a statutory way. The competitive market for communications is very complicated. Ofcom is a very big and well established regulator that no doubt understands that market better than Postcomm did, but Ofcom still has to determine the regulatory framework that it is to follow. Work is going on in the last days of Postcomm that will not be completed until next year.

That is not the only point. Effective competition includes digital competition. Many other means of communication have been developed that have superseded the forked stick, and I think that this amendment is a step too far. I cannot support it.

My Lords, Amendment 60 would place a new duty on Ofcom to have regard to the need to avoid regulation where market forces and effective competition allow. I understand the rationale behind this amendment. Indeed, the Government firmly believe that the regulatory regime going forward needs to be as light touch as possible. This was made clear by the Secretary of State for Business, Innovation and Skills who, in a recent letter on the subject to the chairs of Ofcom and Postcomm, stated:

“Given the seriousness of the problems facing Royal Mail, I believe that a comprehensive reassessment of the regulatory regime is required in the light of developments in the postal and communications sectors to … look again at where regulation is needed”,


“determine what form that regulation should take if required”.

While sharing the view that regulation must be as light touch as possible, we believe that a duty such as the one imposed by Amendment 60 goes too far and could have some very undesirable consequences. These undesirable consequences could come about because there may be real reasons why it might not always be possible for the universal service provider to be allowed to respond to market dynamics, as my noble friend Lord Eccles has said. For example, there is the requirement to provide the universal service at an affordable and uniform price. However competitive the market may be, it is by no means certain that market dynamics would force the universal service provider to meet those requirements. As such, Ofcom may need to regulate to some degree to ensure that these requirements are met even if there were a fully competitive market across the full range of postal services.

Finally, I would like to remind your Lordships that Ofcom is already under a duty to keep regulatory burdens to a minimum under Section 6 of the Communications Act 2003. I hope that this will reassure the noble Lord, Lord Young, and that he will feel able to withdraw this amendment at the appropriate time and to support the government amendment in this group. I beg to move.

I just want to ask my noble friend whether, in referring to the chair of Ofcom, she really meant the chairman of Ofcom.

Amendment 59 agreed.

Amendment 60 not moved.

Amendments 61 and 62

Moved by

61: Clause 28, page 16, line 10, at end insert—

“( ) The reference in subsection (3)(a) to the need for a provision of a universal postal service to be financially sustainable includes the need for a reasonable commercial rate of return for any universal service provider on any expenditure incurred by it for the purpose of, or in connection with, the provision by it of a universal postal service.”

62: Clause 28, page 16, line 10, at end insert—

“( ) In subsection (3)(b) “a reasonable period” means such period beginning with the day on which the provisions of this Part come generally into force as OFCOM consider, in all the circumstances, to be reasonable.”

Amendments 61 and 62 agreed.

Amendment 63

Moved by

63: Clause 28, page 16, line 14, at end insert—

“( ) The Secretary of State may direct OFCOM to take, or refrain from taking, specified action for the purpose of securing that, in the opinion of the Secretary of State, sufficient access points are provided throughout the United Kingdom to meet the interests of the public.

( ) The duty imposed on OFCOM as a result of subsection (4) is subject to any direction given under this section.

( ) The action that may be specified in a direction under this section includes the imposition of a regulatory condition consisting of or including provision specified in the direction.

( ) Before giving a direction under this section, the Secretary of State must consult OFCOM.”

My Lords, I shall also speak to Amendments 71 and 73, which stand in my name. I will also say a few words, if I may, on Amendment 63A in the name of the noble Lord, Lord Young, which seeks to amend my Amendment 63. I believe that these amendments will address concerns raised in this House about access to postal services in rural areas or by vulnerable groups. They also address questions raised in the other place about access by consumers to Royal Mail’s services.

The central concern of those who have raised such issues is: how can we ensure that people right across the country and from all walks of life continue to receive the high standard of postal service that they depend upon? It is with this in mind that we should look at Clause 28(4) of the Bill, which specifies that Ofcom’s duties include ensuring that there is,

“provision of sufficient access points to meet the reasonable needs of users”.

An access point here encompasses pillar boxes, post offices and,

“any … receptacle or other facility provided for the purpose of receiving postal packets, or any class of postal packets, for onward transmission by post”,

so Amendment 63A, in the name of the noble Lord, Lord Young, is not needed because “access points” in this instance includes post offices.

In determining the “reasonable needs of users”, Ofcom will conduct thorough research and analysis, and will naturally consult users in order to take their views into account. Ofcom will also be bound by its duties, which I have just set out. I am confident that this will mean that Ofcom’s requirements on the distribution of access points across the country will continue to ensure that all users can post their letters, packets and parcels in a convenient way. However, while we are clear that the reasonable needs of users is the right test—it flows from the EU directive and is the duty that we have placed upon Ofcom—it is conceivable that in some cases the Government may wish to apply different considerations. For example, we may have wider public policy objectives to consider, perhaps in relation to rural policy or small business support. Such broader public policy goals are quite rightly a matter for the Government, not for an independent sector regulator.

I therefore hope that your Lordships will welcome this amendment, which allows the Secretary of State to step in and require Ofcom to ensure sufficient access points throughout the United Kingdom to meet the interests of the public. The term “interests of the public” is not defined but would allow the Secretary of State to take a broad approach and ensure that the Government could intervene for a range of reasons, some of which I have just described. This is not an amendment that we would ever expect to use. Its inclusion simply serves as a failsafe to address the legitimate, albeit unlikely, concerns expressed by noble Lords. Given Ofcom’s wider duties under this Bill, for example on the financial sustainability of the universal postal service, this amendment also requires the Secretary of State to consult with Ofcom before making such a direction, in order to determine the consequences of such an action.

Amendments 71 and 73 clarify the procedure for making, varying or revoking this direction and any others that may be made by the Secretary of State under Part 3. Amendment 71 does not make a material change to Clause 60. The amendments to the general procedural provisions in Clause 63 simply mean that an express provision is no longer needed in Clause 60. I hope that your Lordships feel able to support these amendments. I beg to move Amendment 63.

Amendment 63A (to Amendment 63)

Moved by

63A: Clause 28, line 4, after “points” insert “and post office outlets”

My Lords, we welcome government Amendments 71 and 73, which are welcome improvements. Amendment 63 would empower the Secretary of State—not simply Ofcom, as currently set out in Clause 28—to direct Ofcom to take appropriate action for ensuring an adequate number of access points. That is a welcome improvement on accountability. I also welcome the Minister’s assurance about access points including post offices, which is the subject of our Amendment 63A.

My Lords, I have every sympathy with the intention of Amendment 63A, which seeks to refine Amendment 63, so I am grateful for the noble Lord’s comments. We want to ensure that there is a post office within reasonable access of everyone in the country. That is absolutely this Government’s policy. As I said earlier, I can reassure noble Lords that access points in this instance include post offices. The amendment is therefore not needed, as the noble Lord has acknowledged, so I hope that he feels that he has sufficient reassurances to withdraw the amendment.

Amendment 63A (to Amendment 63) withdrawn.

Amendment 63 agreed.