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Postal Services Bill

Volume 727: debated on Tuesday 24 May 2011

Third Reading

I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Postal Services Bill, has consented to place her interests, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Clause 2 : Report on decision to dispose of shares in a Royal Mail company etc

Amendment 1

Moved by

1: Clause 2, page 2, line 6, at end insert—

“( ) the strategy for achieving the objective of making post offices the principal location for the provision of government services over the next ten years”

My Lords, as we have scrutinised this Bill, many noble Lords have stressed the crucial importance of maintaining the link between Royal Mail and the post office network. We have urged the signing of a new 10-year interbusiness agreement of long enough duration to give a sense of security to the people who run our post offices and the many members of the public and businesses that rely on them. The Government have made helpful moves in providing the details for the IBA to be included in the report to Parliament. The Minister has said that she expects a new IBA in the spring and that she hopes that the agreement might extend to 10 years or more. That is good news. Royal Mail work accounts for the largest single stream of income for post offices, about a third, but government services are also very important. They account for more than 25 per cent of post office income; they used to account for more than 40 per cent.

I fully understand the difficulties facing the Government. It would have been wrong to prevent pensioners receiving their pension direct into their bank account if they so wished. It would be wrong to prevent the public from applying for licences by internet if they so wished. We understand the constraints of European competition law. So the Government should be realistic. They should not raise hopes only for them to be dashed and they should turn warm words into practical projections and plans. But when it comes to converting fine intentions into actual work, the results have been disappointing. The document produced by the Department for Business, Innovation and Skills in November 2010, Securing The Post Office Network In The Digital Age, contains welcome words. It boldly declares:

“We want to see the Post Office become a genuine Front Office for Government at both the national and local level … acting as a natural home for the delivery of face-to-face government services and helping citizens interact with Government online”.

Those are wonderful words, but the document is in truth a little thin on this particular subject. There are promises of pilots and one or two isolated examples. Indeed, Mr Billy Hayes of the Communication Workers Union described the Government as being as “joined up as spaghetti” in this respect, with different government departments each adopting a different approach.

The first practical test that came along was the DWP contract for so-called green giros, which are paid to an estimated 250,000 to 350,000 people on benefits or pensions who do not have a bank account or card account. In contrast to the record of my noble friend Lord Mandelson in suspending the bidding for the post office card account, the one actual decision that the Government made was to take away from post offices the multi-million pound contract to process so-called green giros. I suspect that that is a bigger blow to sub-post offices because of the added footfall that it brings than it is to Post Office Ltd as a whole, but it was a serious setback to the confidence of sub-postmasters. But the Minister for postal services was clear when he said that:

“BIS has no intention of subsidising DWP and I am sure DWP has no intention of subsidising BIS. I would simply say that if new services are put forward by any Government Department, unless there are issues that prevent a competitive procurement, those Whitehall Departments have to go through a proper procurement process and Post Office Ltd would have to compete with them”.—[Official Report, Commons, Postal Services Bill Committee, 23/11/10; col. 349.]

It is the usual stance of other departments and local councils, especially at a time of cuts of 20 per cent or more, to concentrate more on saving money, so there are practical steps that can be made. Injection of modern technology at post office counters, for example, could benefit from the comprehensive spending review funding; then there is the imaginative use of the post office as a central and trusted point in community life. There are deadlines for decisions on procurement and projections that need to be made. The views that I have expressed are views shared and supported perhaps even more strongly by the National Federation of SubPostmasters.

This amendment is intended to concentrate minds and encourage a strategic approach to the future of government services provided through post offices. It is an important addition to the call for a long-term interbusiness agreement, on which the futures of many of our post offices hang. The Government will be judged on this issue, to quote the words of the Suffragettes, through deeds not words. I beg to move.

My Lords, Amendments 1 and 2 seek to introduce new requirements into Clause 2. On Amendment 1, as we have discussed previously, Post Office Ltd has developed a clear strategy to deliver a commercially self-sustaining business while maintaining a network of at least 11,500 branches. This Government have allocated a funding package of £1.34 billion which will allow Post Office Ltd to deliver this strategy, as part of which Post Office Ltd has been clear in its ambition to become a front office for both local and central government. The Government fully support Post Office Ltd in this, as does the National Federation of SubPostmasters.

The National Federation of SubPostmasters realises that this strategy, along with the other elements of the Post Office’s plan, such as the introduction of Post Office Local outlets, must succeed in order for the Post Office to become the vibrant business we all believe it can be. Indeed, the National Federation of SubPostmasters stressed the importance of the front office for government strategy last week, when welcoming the publication of the Co-operatives UK report on options for a mutual Post Office. The front office for government strategy is already under way and the Post Office is working hard to develop competitive, innovative services targeted at both local and central government. It is also engaging with a number of departments, agencies and local authorities to develop the role it will play, particularly as all parts of the Government plan how to deliver their services in new and increasingly digital ways. This is beginning to yield results.

Only yesterday, the National Federation of SubPostmasters welcomed the beginning of a pilot scheme which offers document verification for pension applications across 106 post offices in the north-east. I welcome it too. The Post Office, the National Federation of SubPostmasters and the Government all agree that this is simply a good start and that more work should follow. It is therefore good news that the pilot is actually just the first of three planned pilots with the Department for Work and Pensions, which has set out that it will continue to work with the Post Office to explore opportunities for delivering welfare in the future, including universal credit. The Post Office has also been successful in its bid to provide registration services as part of an initiative to enrol local authority employees into a government employee authentication service.

The annual report on the Post Office network required under Clause 11 will provide ample information regarding its progress in delivering government and other services across its network, and that will be provided each and every year. I see no benefit in duplicating the information in the report to be delivered on a Royal Mail transaction. As such, and due to the reassurance I have given on the progress that Post Office Ltd is making in securing new government business, I hope the noble Lord will feel able to withdraw Amendment 1.

My Lords, I thank the Minister for her words. I will obviously study the detail of them. I found them helpful and I do feel able to withdraw Amendment 1. In my desire not to take up too much time, I did not speak to Amendment 2 which, with the House’s indulgence, I should like to address.

It might be to the assistance of the House if the noble Lord withdrew Amendment 1. He could then move Amendment 2 and get a response to it. That might be helpful.

Amendment 1 withdrawn.

Amendment 2

Moved by

2: Clause 2, page 2, line 6, at end insert—

“( ) the criteria and method by which the value of shares or overall sale value of the Royal Mail Group, or part thereof, which is to be disposed of, has been assessed”

My Lords, Amendment 2 addresses a concern that, in the pursuit of other no doubt laudable objectives, attention may be diverted from getting the right valuation of Royal Mail and ensuring that the taxpayer is not short-changed. The noble Baroness, Lady Kramer, drawing on considerable professional banking experience, reminded us of her wicked past, although I doubt it was enough for a super-injunction to be called for. She said that it was,

“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”.—[Official Report, 14/3/11; col. 103.]

Those are wise words, based on experience.

There is a compelling case to show that in the heyday of privatisation, the 1980s and 1990s, privatised companies were consistently sold at too low a price. The noble Lord, Lord Lea, on the basis of his thorough research, pointed out to the House that it has been estimated that for 1986 alone the average share issue premium on major share issues was 7 per cent. On privatisation issues the average premium on the first day of trading was 77 per cent. One of the reasons for this undervaluation is that it is extremely difficult to place an accurate valuation on a company in which no shares have been traded recently. That would certainly be the case with Royal Mail. It is not uncommon, when a public body has kept records for other purposes, for its inventory not to be perfectly up to date for the purposes of a sale.

Ministers have previously warned that they do not want to publish the valuation of the company for fear of affecting the sale price adversely. In other words, they think they might undervalue the assets, compared with what someone is willing to pay. They have also been unwilling to guarantee that there will be an independent valuation, or to share the valuation prior to the sale with the Public Accounts Committee in another place. They have indicated that there will be an internal confidential valuation and that the accounting officer of the Department for Business, Innovation and Skills will be obliged to ensure value for money overall. That might be reassuring were it not for the fact that similar obligations also applied in the palpable underselling of public corporations in the 1980s and 1990s.

This amendment does not seek the publication of any figure for valuation. It does not even ask for a figure to be shared with the Public Accounts Committee in advance. It simply provides for the Government, at the time of their report to Parliament—already promised in Clause 2—and prior to the sale of Royal Mail, to make clear the criteria for and method of their valuation. That does not mean the valuation itself but at least the criteria and method of valuation. I hope the Minister will be able to give some indication of a willingness to present this or similar information, if not to Parliament as a whole then to the Public Accounts Committee.

Could the Minister also address a question raised by the coalition review of its year in office? It made reference to the timescale for European state aid clearance, which seems to have been extended by six months to May 2012. That conflicts with previous statements that this might be achieved in the winter of this year. I would welcome some reassurance—clarification might be a better word—on that.

We are pleased overall to help improve the safeguards in the Bill; to safeguard the viability of Royal Mail; to strengthen regulation transparency and accountability to Parliament; to strengthen the safeguards to the universal service and the post office network; and to ensure that we get the best possible value for public money in the event of a sale. I beg to move.

My Lords, in my defence, although I continue to think that the Government do not have a very good track record in valuing companies that they put forward for sale, I did not think that the Floor of this House would be any more effective in coming to an appropriate valuation either. Therefore, I support the Government in this instance.

My Lords, I support this amendment. The Government have to recognise that despite the hours which this House and another place have spent on this Bill and the very protracted proceedings, to which the noble Baroness replied in a very courteous and often very helpful way, the central fact of this piece of legislation, which deals with one of our national institutions and an essential part of our national infrastructure, is that nobody—not the Government, employees, customers, competitors or potential investors —knows what Royal Mail will look like once this legislation is passed. We do not know who the prospective buyers are. We do not know what mechanism the Government are intending to use for the sale, and therefore we do not know who will call the shots in Royal Mail’s future decisions once the privatisation is complete.

In those circumstances it is not entirely surprising that the basis for valuation causes concern. This is what lies behind my noble friend’s amendment. He is right that, historically, assets were sold off at a price that proved to be less than their value. However, in the 1980s, at least it was clear how we were going to sell them, which were going to IPOs and which were to be sold directly to particular bidders. This is not the case here. It is therefore even more important that this great national institution is not passed to an unknown process of sell-off, or to an unknown buyer, without Parliament and the public as a whole being confident about the basis on which that valuation is carried out.

As my noble friend has said, the amendment does not say that we should publish a valuation and therefore undermine the Government’s negotiating position, but it does say that we ought to know the criteria in the Government’s mind on which the valuation is based. This is a fairly minimal requirement. I hope that the Government, who are determined on this course, will at least have the self-confidence to make the public feel confident that this great asset will not be seriously undervalued. I hope that my noble friend’s modest proposal would go some way to achieving that objective if at this late stage the Government were to concede that such a measure should be included in the Bill.

My Lords, I have some sympathy with what the noble Lord, Lord Whitty, describes as a modest proposal. However, I completely endorse the remarks of my noble friend Lady Kramer. What worries me about the amendment, were it to be carried, is that the most likely outcome would be a sentence in the report simply saying, “It was the best price we were offered”.

We have debated at length the issues around revealing the Government’s internal estimation of the value of Royal Mail shares prior to a disposal. Amendment 2 would not require the Government’s estimation of the value to be revealed, but would require us to publish the methods and criteria for making that valuation. Our expectation is that we will apply a range of valuation methodologies to our assessment of the business’s value.

I reiterate what I said on Report—that we would, of course, expect that both the National Audit Office and the Public Accounts Committee will wish to review the sale process, including the valuation methodologies that we have applied. They would both provide their own independent view to Parliament on whether the Government had achieved value for money for the taxpayer. This is consistent with the reporting requirements for previous sales of government assets. What should matter is not the technical valuation methodologies that we may apply, but whether we have the right objective for the sale. In that respect we have committed to report back to Parliament prior to a sale process beginning, and this report will confirm our objective for the proposed sale.

I reiterate a further point with regard to valuation. As your Lordships will fully understand, we cannot, and should not, reveal our estimation of the value of the company. Doing so would be giving the whip hand to the potential investor and would severely undermine our ability to negotiate the right deal for the taxpayer or for the company. Put simply, it does not make good business sense.

The noble Lord, Lord Young, raised a point about the taxpayer losing out through undervaluation at previous privatisations; noble Lords have a great deal of knowledge about them. That is one of the great assets of your Lordships’ House, but I am afraid that I cannot answer for why those privatisations were done in the way that they were or what their objectives were. What I am absolutely clear about is that our intention will be to secure the best deal for the company and the taxpayer, consistent with the objectives. We will ensure that, whatever form private sector investment takes in this instance, it will be done with those objectives in mind.

Finally, I remind your Lordships that the previous Government’s Postal Services Bill in 2009 did not include a requirement, as this Bill does, for the Secretary of State to report to Parliament before a disposal of shares. That Bill required a report after a sale and there was no requirement on the Secretary of State to report on the criteria or method used to assess the value of Royal Mail shares. The previous Government did not therefore believe that this was necessary or appropriate then, and I do not believe that the case has been made for it now. I therefore ask the noble Lord to withdraw his amendment.

With the indulgence of the House, I should like to make a few further remarks. Throughout the passage of this Bill, your Lordships have requested information about the Government’s timetable—for example, in relation to the state aid application. We have endeavoured to be transparent about our plans. In this spirit, I should like to set out briefly our plans for taking forward the provisions in the Bill, following Royal Assent.

On the specific question raised by the noble Lord, Lord Young, about the state aid timetable, I can provide the following reassurance. As he will know, the state aid approval process is highly complex; however, we intend to submit our notification shortly, and hope to conclude the process by March 2012. I will come forward with more details when we have notified. However, I can reassure the noble Lord that we remain on track.

The Bill provides for the regulatory responsibility for postal affairs to transfer from Postcomm to Ofcom. We intend for the transfer to take place in the autumn, at which point the bulk of the regulatory powers will also come into force. This will enable Ofcom to establish in spring 2012 a new regulatory framework that reflects the new regulatory regime, including the overarching objective of securing the provision of the universal postal service and having regard to its financial sustainability.

We will then need to implement the pension solution as the next step in the process towards a sale. I believe that all noble Lords will agree that the sooner the company is relieved of the crippling burden of its £8.4 billion pension deficit, the better it will be for the company and for the pension plan members. For this reason, it is the Government’s intention, subject to state aid approval, to relieve Royal Mail of its legacy pension deficit with effect from March 2012.

I know and respect the noble Lord, Lord Whitty, from the time when he was a Minister and I was in opposition, and from when he took over as the chairman of what was the National Consumer Council, which became Consumer Focus. I would always do my very best to reach an agreement with him. However, once all these changes have been implemented, we will be focused on that final, critical piece of the jigsaw—securing private capital for Royal Mail. As I have said throughout these proceedings, we are committed to doing the right sale at the right time, consistent with our objectives, to secure the future of the universal postal service. We have brought our talents to bear, including our knowledge of the City and business. We have been able to build on the previous Bill that the previous Government worked their way through. I hope that in the light of that the noble Lord, Lord Whitty, will have a little more confidence in our ability to fulfil what he would like to happen, without us telling him beforehand how we are going to do it. I hope that your Lordships will find this information helpful.

My Lords, I thank the Minister for her reply and for her clarification of the timescale; it was helpful to place that on the record. To respond briefly to a few points, I say to the noble Baroness, Lady Kramer, that I was not suggesting that this House should do the valuation. I agree with her assessment: valuation by committee—what a thought.

My noble friend is right: this is a modest proposal. It is true that it was not in the Bill presented by the previous Government, but as I have said on a number of occasions, we were not going for the full monty, 100 per cent privatisation. Perhaps in hindsight we did not get every aspect right anyway. I freely confess that. Although I welcome some of the points that the Minister made, the reassurances in relation to the National Audit Office and so on are all post-sale. We were trying to get a bit more transparency into the process that precedes the sale. I recognise that she has gone about as far as she can go, as the song said, and in the circumstances I will study carefully what she said but I am prepared to withdraw the amendment.

Amendment 2 withdrawn.

Clause 24: Information

Amendment 3

Moved by

3: Clause 24, page 14, line 20, at end insert—

“( ) In the event that a section of the RMPP is constituted as a separate pension scheme the members of which consist of or include persons who are qualifying members of the RMPP—

(a) any reference in subsection (2) to the RMPP includes that separate pension scheme, and(b) any reference in subsection (3) to the trustee of the RMPP includes the trustees or managers of that separate pension scheme.”

My Lords, Amendment 3 is designed to future-proof the information-sharing provisions in Clause 24 of Part 2. Clause 24 sets out a legal gateway to facilitate data sharing between the government scheme, the Royal Mail pension plan and the employer of the RMPP members. The framework will help to ensure that the administration of the two schemes is seamless so that, for example, members with rights in both schemes will need to notify a change in personal circumstances to only one point of contact rather than two. That is an important objective that we share with the trustees of the RMPP and, I believe, with all Members of the House.

The management of the ongoing Royal Mail pension plan will be a matter for the company and pension trustees. Amendment 3 simply ensures that if separate sections of the Royal Mail pension plan are split off into separate schemes at some point, the information-sharing framework provided under Clause 24 will extend to those separate schemes. That additional flexibility will help to ensure that we are in a position to meet our commitment to seamless administration, regardless of any changes that may be made to the RMPP by the trustees and company in future. I beg to move.

My Lords, government Amendment 3 to Clause 24 is in itself desirable. If the Royal Mail pension plan is to be divided into two or more pension schemes, as distinct from sections, it is better that all trustees co-operate with efficient administration and have the power so to do. What is most interesting about the amendment, however, is that it reveals for the first time during the Bill’s progress that the Government's intention may be to split the Royal Mail pension plan into two or more separate schemes, as distinct from sections.

It would be possible not to split the scheme and run the Royal Mail pension plan as a segregated scheme similar to the railway pension scheme. From the perspective of scheme members, that may well be a preferable outcome, because the governance structures would remain in place, but one can anticipate that that may not be the Government's preferred outcome. As the amendment now introduces separate schemes into the Bill, as distinct from separate sections, it raises questions that I put to the noble Baroness.

Is it now the Government’s decided intention to split the Royal Mail pension plan into separate schemes post-privatisation? If the Royal Mail pension plan is to be so divided, is the Post Office scheme to be hived off, leaving the reduced Royal Mail pension plan with the privatised Royal Mail, or vice versa? What is the Government's intention on consulting the trustees on such separation?

A fourth point that I know will be of concern to scheme members attracted some attention in the debate in the House of Commons. There is no power to wind up in the rules of the Royal Mail pension plan. That is a very important safeguard for the current members, which ought to be replicated.

During the House of Commons Committee debate on 30 November 2010 the Parliamentary Under-Secretary of State for Business, Innovation and Skills, Mr Edward Davey, commented to the effect that inserting a winding-up provision would be prevented by the then Clause 19 of the Bill, which is now Clause 20, dealing with the “no worsening of benefits” provision. He said—

I am sorry to interrupt the noble Baroness. Might I ask the two people speaking behind the Woolsack to retreat into the Prince’s Chamber, as is suggested in the Companion?

The Parliamentary Under-Secretary said:

“Any amendment to the RMPP rules that would allow the scheme to be more easily wound up would fall foul of the protection provided for members under clause 19(2), as any such amendment would have a material effect on members’ ‘relevant pension provision’ … and given that our intention is to take on the historic deficits for the Royal Mail together with a more manageable scheme, it would not be appropriate for the Secretary of State to make any amendment to the RMPP that would allow the scheme to be wound up”.—[Official Report, Commons, Postal Services Bill Committee, 30/11/10; col. 445.]

In view of that debate, and in view of the fact that this amendment now introduces an intention to separate the plan into separate schemes rather than separate sections, is it the Government’s position that there will be no change to the winding-up provisions in any separate scheme if and when a section of the RMPP is constituted as a separate pension scheme?

My Lords, I certainly concur with the points made by my noble friend Lady Drake, and I shall not repeat them because once again she has covered the waterfront on that issue. I want to take the opportunity to say, first, that we welcome the constructive approach of the Government Front Bench, led by the noble Baroness, Lady Wilcox, with her ineffable charm in listening to the representations, in bringing forward a number of appropriate amendments and assurances. Our every wish has not been granted but I did not expect that that would be the case.

I pay tribute to the many noble Lords who have contributed to the debate and I would single out two: the noble Lord, Lord Low, who unfortunately is not in his seat, but I am sure that it will be conveyed to him, and my noble friend Lord Clarke, who is not with us today. He reminded us how much of his life has been invested in what we both joined as the GPO. It is also traditional in these cases to pay tribute to the Bill team, who have served us very well. I was reflecting that it was led by Jo Shanmudalingam—I probably have her name wrong. I do not know whether she is in the Box today, but I know that she is expecting her second child. I could not help reflecting that some mothers pay a lot of attention to what babies hear when they are in the womb, and play them Mozart. I am thinking of this child who has been exposed to House of Lords debates, whose first words, instead of “Mama” may be “My Lords”. The only hope is that she will grow out of it, or it might be a career destination. In any event we thank the Bill team.

My final piece of advice to the Minister is to remember what they put on the side of fragile parcels or packages, and the same goes for this Bill: handle with care.

I shall start by giving my last response on this Bill to the noble Baroness, Lady Drake, and reassure her, I hope, that there is no change in policy. Clause 18 allows for the RMPP to be divided into different sections to reflect the restructuring of the Royal Mail Group Ltd under Part 1 of the Bill. We do not have powers to create a separate pension scheme. However, in the fullness of time it is possible that the businesses might wish to alter the pension arrangements by transferring a section of the RMPP into a new stand-alone arrangement. Any such change would need to meet the safeguards provided under statute and under the scheme rules. The amendment simply ensures that in this event, the information-sharing framework provided under Part 2 would apply to the new scheme as it did to the old section. The trustee would need to consent to any proposal made by the employer to create separate schemes under the scheme rules and under general pensions legislation.

I will conclude the debate by offering my sincere thanks to all Members of this House who have, without exception, made wise, informed and passionate contributions to the debate. I pay particular thanks to the noble Lord, Lord Young, who has been a passionate and informed advocate for Royal Mail and the Post Office from the Benches opposite. The Government have sought to be open to the debate, to reflect on the concerns raised and to work alongside noble Lords to ensure that the Bill leaves this House in a form that gives us the best chance of securing the future of the universal postal service. The amendments passed in your Lordships' House have been the result of constructive cross-House working and I sincerely thank all noble Lords for approaching the Bill in this spirit. I, too, have understood how difficult it has been for some noble Lords who have a very different view of what should be the future of the Royal Mail and who do not see privatisation as any answer to this. I thank them in particular for their good grace and for the marvellous stories that they have shared of their experiences over a long period in a service which, over many years, has served its country well.

Amendment 3 agreed.

Bill passed and returned to the Commons with amendments.