Postal Services Bill
(13 years, 1 month ago)
Lords ChamberRead Hansard Text Read Debate Ministerial Extracts
Baroness Drake
“( ) On making an order under subsection (2), and prior to the transfer of qualifying accrued rights, the Secretary of State must inform—
(a) all members affected that they are to be transferred to the new scheme;(b) all active and deferred members of their accrued rights in the new scheme;(c) all pension members of the details of payments from the new scheme and when they will commence; and(d) all members of the details of the new scheme.”
Baroness Drake
My Lords, Amendment 24EB seeks to place a duty on the Secretary of State to provide certain information to Royal Mail pension plan scheme members before their accrued pension rights are transferred to a new public scheme.
Clause 16 allows the Secretary of State to create by order a new public scheme and to make provision to transfer members’ qualifying accrued rights under the Royal Mail pension plan on a date still to be specified into that new scheme, thereby allowing the Government to take responsibility for those liabilities. The pension rights that members of the Royal Mail pension plan have accrued up to that date will be covered by that government support. Pension rights accrued after that date will remain with the Royal Mail pension plan. I am sure that scheme members will be reassured by the additional security for the funding of accrued benefits which the new scheme provides because it will be backed by the covenant of the Government, but these members will still be looking for reassurances as to the protection of their individual rights and interests. I am sure that there is much detailed consultation between the trustees and employee representatives still to take place.
All the privatisations of public corporations and utilities over the past 20 years have had carefully to address the issue of accrued defined benefit pension rights. The solution taken has not been the same in each instance. In the case of the sale of BT, a Crown guarantee was given. On the privatisation of the railway, the Government assumed responsibility for pensioner liabilities which existed up to the point of privatisation. Other privatisations have taken other approaches.
The pension arrangements proposed in this Bill, on the sale of Royal Mail, which are intended to facilitate privatisation and give greater security to members given the current level of deficit, are quite complex. They cover all categories of scheme members, active, deferred and pensioner, in respect of their pension rights accrued up to the specified date, which is yet to be determined. Some conditionalities continue between the new public scheme and the Royal Mail pension plan post privatisation. I am not arguing against that complexity where it enhances the protection afforded to scheme members, but it goes to support my amendment that members should know prior to the transfer to a new public scheme what their accrued rights are that are to be transferred to that scheme.
There are three concepts in this Bill which will need to acquire flesh: a qualifying member, qualifying accrued rights, and qualifying time before members of the Royal Mail pension plan definitively know who is affected, what the rights are and what the cut-off date is for determining the accrued rights that are to be transferred. The members will be anxious to know. It is human nature, given the importance of this matter, that they will be so anxious.
The other conditionalities relate to such matters as the increases in the value of pensions which occur after the qualifying date where they are linked, for example, to a final salary, and who bears the cost for this. The Bill reserves powers for the Secretary of State to amend the rules of the Royal Mail pension plan to address these matters. Complexity can carry ambiguity over the long term unless it is made very clear and people know precisely what their rights are and what the arrangements mean. Time moves on, key players go and memories fade. The BT Crown guarantee has had to be clarified at judicial review and the statutory framework of pension protection in the rail industry has from time to time required the assistance of legal opinion and clarification.
It is very important that members of the Royal Mail pension plan affected by this transfer of their accrued rights to the new scheme are personally informed before the transfer takes place so that they know who they are, what their accrued rights being transferred are and details of the arrangements and procedures applying in the new scheme. The amendment seeks to ensure that that happens. It would be totally unreasonable for them not to be so informed before the transfer of their rights to a new scheme.
I have absolutely no doubt that the Secretary of State will be motivated to treat people well, but people will be anxious. They need the confidence of knowing what is to be done to them before it is actually done. This will give them peace of mind. Clause 16(7) makes provision for an order to have retrospective effect; for example, where the effective date for the purpose of the transfer of pension liabilities has been agreed as a part of a wider arrangement with a third party and precedes the date of any order to set up the new pension scheme. The amendment does not prevent such a provision, but in the same way as the implementation of a retrospective date would be after the order had been made, so, too, the transfer of people’s accrued rights should not be implemented until after the individual scheme members have been provided with the relevant information about the treatment of their pension benefits.
Lord Young of Norwood Green
I will speak to Amendments 24EC, 24ED, 24FA and 24GA, which stand in my name, and also to Amendment 24EB.
As my noble friend Lady Drake pointed out, there is, at the point of transfer to the new scheme, no clarity in the Government’s proposals regarding a number of issues that are of great importance to members of the Royal Mail pension plan. To begin with, there is the simple issue of who will be the immediate point of contact for scheme members who have a query or concern. The Secretary of State could, at least initially after the transfer, insist on continuity by having the new scheme administered from the current Royal Mail pension centre in Chesterfield. This would guarantee that the concerns of Royal Mail pension plan members are dealt with by staff who are familiar with those members and their problems. Chesterfield would also be seen as a familiar location, with familiar access points via telephone, email and postal address. Such a simple move would go some way to minimising concern during a difficult period of change for postal workers and retired members.
Equally, there is the question of the future governance of the scheme at the point of transfer. The current trustees of the scheme will end their trusteeship. That means that union members and pensioners will lose their current nominated and elected trustees. Whatever the Government’s intentions on these matters for the future, the fact is that at the point of transfer there will be a loss of representation of Royal Mail pension plan members in the functioning of the scheme. Immediately prior to the transfer, existing trustees will not be in a position to provide the assurances and information that are necessary, and which are outlined in this amendment.
In the other place, the Minister sought to give some reassurances on these questions. The honourable Ed Davey said:
“Because we want to continue the high standard of service and support to which members of the pension plan are accustomed, we want to work with the trustees on ensuring that administration is in place. No final decision has been made on how the new governance scheme will be administered, but it is likely that the Government will look—at least initially—to contract the administration of the new scheme to the existing Royal Mail pension plan administrators in Chesterfield. We are speaking with the trustees about that”.
We welcome that statement, and would welcome some reinforcement of it. That was said on 25 November, but what is the position now? Have the Government considered further the issue of contracting the administration of the new scheme to Chesterfield?
On the issue of the new scheme’s governance, the Minister said:
“We understand the importance of pension scheme members having input into running their scheme; that is absolutely common ground between us. We will therefore consider establishing a governance group with member representation for the new public sector pension scheme for current beneficiaries. When considering this, we will take account of the views of stakeholders and practices in other large public sector pension schemes. For example, the NHS pension scheme and the principal civil service pension scheme”.
He went on to talk about the governance group and it being,
“critical that the public sector pension scheme works with the Royal Mail pension plan, in terms of administration, governance and communication”.
He ended his contribution saying:
“We are absolutely committed to that”.—[Official Report, Commons, Postal Services Bill Committee, 25/11/10; cols. 431-32.]
Again, what progress has been made on this question?
If nearly four months later there is no greater clarity then, far from reassuring Royal Mail pension plan members, the Government will be responsible for having caused them greater concern. The intention of the amendment, as my noble friend Lady Drake said, is not to undermine but to seek clarity by obliging the Secretary of State to address Royal Mail pension plan members directly at the point of their greatest concern—that is, before the changes take place. In the absence of any further clarity from the Government, this amendment is surely profoundly important.
In relation to Amendment 24ED, as we noted in a previous amendment, under Clause 17 the Secretary of State has to make an order for the division of assets because of the separation of the pension schemes. There is no intent to prevent this process through this amendment, but there is concern that the trustees are losing control of hard-earned assets. There has to be a will to co-operate closely with the scheme representatives to ensure that there is a smooth transition in separating the schemes. The Bill gives great discretionary power to the Secretary of State; such power would not normally exist with the private employer in a pension scheme, so in order to demonstrate that there will be some checks on this power, we need a clearer picture of the future governance of the scheme. At this point in time, the Government have not had to make plain any detail about the future governance of the new scheme. Are the Government in a position to elaborate on their current thinking on this issue?
On Amendment 24GA, in Clause 24 there is no obligation on the Secretary of State to consult directly with representatives of the unions in Royal Mail. Although elected from and by union members, the members’ trustees are bound by law to act outside the formal democracy and accountability of trade unions. It has to be said that the practice of the Government is better than the formulation in the Bill. Meetings are taking place between the ministerial team and BIS and the elected officials of the union to discuss the future of the pensions plan. That is necessary and sensible. But nothing in this relationship is guaranteed on the face of the Bill. It is not beyond the bounds of possibility that matters between the Government and the unions may take a turn for the worse before the implementation of the new scheme. One hopes that this will not occur, but banking on hope is not a good guide for legislators or those affected by legislation.
I believe that the Government should accept this amendment, because it recognises that the real interests of postal employees have different representative forms. The best practice of this Government is to act on this fact. Now let the Government guarantee this in legislation.
Lord De Mauley
My Lords, before I start I should repeat my declaration of an interest in that my wife jointly owns and runs a business which is essentially a web-based mail order company and as such uses Royal Mail for delivery of its product.
Before I turn to the detail of the amendments, it may help if I provide a brief overview of the provisions in Part 2 of the Bill and the intentions behind them. These provisions will allow the Government to take over the historic deficit in the Royal Mail pension plan. As noble Lords are very well aware, the deficit in the Royal Mail pension plan is huge and volatile. As at 31 March 2010, it amounted to £8.4 billion, and the total liabilities in the plan amounted to £34.4 billion. So this pension burden is completely out of proportion to the size of the business. The provisions set out in Part 2 will allow this pension burden to be addressed as part of a package of measures to secure the future of the universal postal service. We propose that responsibility for the deficit will be removed from the business by the transfer of the historic liabilities to a new public pension scheme. Responsibility for ongoing pension accruals and salary-related liabilities will be left with the Royal Mail. Indeed, I think I can say that there is very little difference between this approach and that of the last Government.
Lord Morris of Handsworth
The Minister made reference to the liabilities. Could he say a word about the inherited assets?
Lord De Mauley
Yes, my Lords. As a general point, could I say that we are in Committee? So the noble Lord is free to come in after I have spoken, if he wishes. I do not think that my mental calculator is fast enough, but the assets are the difference between the £34.4 billion liabilities and the £8.4 billion deficit. My maths is failing me, but it is something in the region of £26 billion. But I am sure that divine intervention will bring the exact figure to me shortly.
Royal Mail will also continue to have full responsibility for past and ongoing accruals in the senior executive pension plan. These proposals will safeguard the pension benefits accrued by members and I am sure that all sides of the Committee share that objective. Member protection is paramount and features prominently in the Bill. In particular, Clause 19 provides that benefits—let me be clear, that is the full range of member benefits including increases and payments to dependants—cannot be adversely affected by transfer into the new public scheme. Our proposals are subject to state aid clearance, which is why some of the detail can be provided only in secondary legislation.
Viscount Eccles
My Lords, I thank my noble friend very much for an extremely clear exposition. We started the group with an extremely clear and well expressed amendment from the noble Baroness, Lady Drake. I want to ask a question that perhaps cannot be answered this morning: namely, what information has been conveyed from Royal Mail either to Postcomm, as it is at present, or to the Government about the expected experience under the new pension scheme? Pension schemes are very difficult to keep in surplus or in balance if the number of employees is declining or their average age is rising. Royal Mail recently declared that it was going to reduce its staff and workforce and I think has further plans that might lead to that happening again in the future. In my submission it is likely that the new scheme, which is entirely properly set up under the arrangements as described, nevertheless could be threatened with going into deficit at an early date. In looking at that subject, I hope that the Government are also taking account of the comparative costs of pensions to Royal Mail and to other postal operators. As I say, I am not looking to receive a detailed assurance today as this is a new and rather complex point. Nevertheless, at a later stage I might consider it right to revert to this subject.
Lord De Mauley
My Lords, my noble friend makes an extremely important point. The terminology is confusing but I think that he is talking about the RMPP scheme, the old liabilities and assets having been transferred out into what is rather confusingly called the new scheme. Therefore, he is concerned about the ongoing liabilities in the RMPP scheme. I will write to him, but I can tell him that £1.5 billion of funding will be left in the new scheme specifically to cover what is known as the salary link. However, I had better expand on that in writing, if I may.
Baroness Drake
My Lords, I hope that I may respond to some of the points made in the debate, particularly to the comments made by the Minister. Before I deal specifically with my own Amendment 24EB, I wish to comment on Amendment 24EC, which was spoken to by my noble friend Lord Young, as this addresses the Secretary of State exercising powers under Clause 17. As far as I can see, there is no explicit requirement on the Secretary of State to consult the trustees when exercising powers under Clause 17. Clause 17 gives the Secretary of State considerable powers. He can divide up the Royal Mail pension plan—not the new scheme but the Royal Mail pension plan—into different sections and allocate assets and liabilities between them, and he can allow different companies to participate in that scheme. The Secretary of State also has the power to determine what assets go on to the balance sheets of companies in preparing for privatisation or in a post-privatisation world.
These matters are of great importance to the trustees of the Royal Mail pension plan, which is left with accruing liabilities, or existing liabilities, that are not transferred to the new scheme. They will be very interested in the strength of the employer covenant backing any section so created, and what it does to the security of the members left in a particular section so created. In the occupational pension world, if you weaken the employer covenant to a particular section, that is a notifiable event—it is not something that you can breeze over. It is what the regulator exists for, which I suspect is why my noble friend raised the issue of the Pensions Regulator.
Hypothetically, if I were an employee of Post Office Ltd and I had accruing rights in the remaining Royal Mail pension scheme, I would want my trustees to be very alert to what assets were left on the balance sheet of Post Office Ltd, because they are the assets—the covenant—that are backing the future benefits or the benefits that are remaining in the Royal Mail pension plan. These are real issues for the trustees. This will remain an occupational pension scheme because, as I thought, the Minister has not said that Crown guarantee carries on in the Royal Mail pension plan.
I do not think that we have clarity about how the Secretary of State can exercise his power under Clause 16 to split up the Royal Mail pension plan and how at the same time the trustees can exercise their power to protect the employees so that their position as creditors or the strength of the employer covenant is not weakened and the members left in a less favourable position.
On Amendment 24EB, I fully recognise that the proposals in the Bill allow for the deficit to be taken over by the Government; that will clearly give a lot of people in the scheme peace of mind. I welcome the Minister’s comment that members’ protection is of great importance. I think I welcome his statement that there will be a comprehensive communication exercise before, during and after the transfer, which is clearly very positive and on the record. However, we still need clarity about what will happen before the transfer. What communication will there be then? If the Government could clarify that, in writing or in some other way, that might deal with the issue.
The Minister referred to the Royal Mail pension plan trustees having statutory obligations to provide information to pension scheme members, and that is absolutely true. However, we have a complex situation in that there is almost a Secretary of State override to impose certain powers or requirements on the Royal Mail pension scheme. The trustees cannot account for that—they cannot explain that. The Government might choose them as the conduit to do that, but they cannot make those decisions or answer the questions that arise because of powers exercised by the Secretary of State.
I anticipated that the inefficiency of double communication might be raised, but I am not persuaded that that is an argument for not allowing people the maximum information prior to transfer. That is the reason for civil servants and Royal Mail pension plan trustees coming up with an efficient communication plan; it is not really a reason for not giving full and proper information prior to transfer.
It would be helpful to obtain greater clarity about the information that would be provided. However, I recognise that the noble Lord was seeking to improve the assurances given on the importance of protecting members’ information.
Lord De Mauley
Before the noble Baroness withdraws her amendment, I am happy to provide some clarification on the points she raised. She asked about the Secretary of State being obliged to consult, and I mentioned Clause 17. I apologise if I was not clear enough. The Government’s position is that under the general provisions in Clause 24 the Secretary of State must consult the trustees on the powers set out in Clause 17. I hope that that is helpful.
The noble Baroness also asked about the Crown guarantee. Perhaps I should clarify the Government’s position, which is that an unfunded public sector scheme is a better option, because providing a Crown guarantee would expose the Government, and therefore taxpayers, to significant risks—for example, investment risk—that are not under government control. With a guarantee, it would not be clear as to what liabilities the Government would be taking on, because although they would assume responsibility for the deficit, the Royal Mail trustees would continue to exercise control over investment policy and discretionary powers in relation to benefits to members. Our proposal to establish a new unfunded scheme is consistent with the majority of existing public service pension schemes. The pay-as-you-go model provides members of the Royal Mail pension plan with certainty that their benefits will be paid, while minimising the taxpayers’ exposure to investment risk and future volatility in the scheme’s funding position.
I should say in answer to the noble Baroness’s second broad point that officials have already started to work very closely with the trustees to implement Part 2, including over asset allocation. These discussions are critical in helping the Government to implement the pension solution.
Baroness Drake
I thank the Minister for those further clarifications. They are helpful, although they trigger one or two queries. Any further clarity that can be provided in writing would certainly be helpful. I interpreted what the Minister said as the Government putting on record that if they seek to exercise their powers under Clause 17, they will consult the trustees. That is helpful.
My point about the Crown guarantee was that after the transfer of liabilities or accrued rights to the new pension scheme, there remains a Royal Mail pension scheme with either liabilities or accruing liabilities, and it will remain an occupational pension scheme. I sought to clarify whether the Secretary of State would not exercise any powers over that remaining pension scheme in a way that undermined the protections afforded to the Royal Mail pension scheme under the normal range of occupational regulations. That was a key point.
The Minister’s clarifications have been helpful. Ambiguities remain and I am sure that they will be the subject of further discussion. Any clarity that can be given to my noble friend Lord Young on what happens before the transfer would be helpful. I beg leave to withdraw the amendment.
“( ) Before making an order under this section, the Secretary of State must consult the trustees of the RMPP.”
Lord Young of Norwood Green
I, too, welcome the clarification. We will study the words closely. I concur with the points made by my noble friend Lady Drake. We reserve the right to return to these issues on Report, given their importance.
Lord De Mauley
“( ) For the purposes of this section as it applies in relation to the transfer of assets after the relevant time by virtue of a transfer order—
(a) treat the assets as if they had been transferred at the relevant time, but(b) disregard so much of the assets as were transferred to reflect the fact that the assets were not actually transferred at the relevant time.”
Lord De Mauley
“( ) Information that—
(a) relates to pensions or other benefits under the RMPP or a new public scheme, or(b) relates to the administration of the RMPP or a new public scheme in respect of those pensions or other benefits,may be shared among relevant persons for the purpose of facilitating the administration of the RMPP or new public scheme.( ) “Relevant persons” means—
(a) the Secretary of State,(b) any person who administers, or exercises functions under, a new public scheme,(c) the trustee of the RMPP,(d) any person who exercises functions on behalf of the trustee of the RMPP, or(e) any person who is or has been an employer of a qualifying member of the RMPP.”
Lord De Mauley
“( ) Any order under this Part may provide for it (or any of its provisions) to come into force on a specified day.
( ) A “specified day” means a day specified in an order made by the Secretary of State under this subsection (and different days may be specified for different purposes).
Subsections (1) to (3) do not apply to an order under this subsection.”
Lord Young of Norwood Green
My Lords, this important amendment seeks to reassert that the universal service should be maintained as a benefit to the whole country even though this may involve some cost. The amendment aims to remove the new criteria that Clause 28(3) seeks to introduce. These criteria direct Ofcom to have regard to the universal service being financially sustainable and efficient. The criteria are new; they did not apply to Postcomm.
These seem to be perfectly reasonable provisions. Who would not want financial sustainability or efficiency? However, the universal postal service is the object of our discussion, and the stark facts are that some elements of it cost more than the revenue they yield, and some parts are underutilised on a regular basis. That is why it is vital to draw attention to the new provision in the Bill.
It is generally accepted that the universal service is a good and necessary thing and that its delivery by Royal Mail has been well handled. That is significant. There is no body of evidence to suggest that Royal Mail's provision of the universal service lacks something. However, the Government have implied that it lacks something by suggesting new criteria. Let us look at these. In future, the universal service must be financially sustainable. Let us then suggest that the six-day delivery model may involve a degree of loss on at least one day a week—or, if not loss, then a lower rate of return on one or more days. Anyone who has some familiarity with the pattern of deliveries across the working week will endorse such a view. Therefore, would this not mean, on a strict interpretation, that the six-day service is not financially sustainable?
Let us consider the term “efficient”. Is it efficient to maintain delivery vehicles and stock that may not be fully utilised but which guarantee a universal service to remote areas? From a commercial point of view, if these vehicles are utilised less than the other vehicles in the network on average, that is definitely inefficient. If that is the case, would it not be an argument for extending the number of exceptions to the USO on the basis that remote areas require an inefficient use of scarce resources?
Ofcom will be forced to move in this direction once the new owners of a privatised Royal Mail demonstrate that part of the USO can never be financially sustainable or efficient. In the debate in the other place, when questioned on this issue the Minister for Postal Services was forced into hypothetical speculation about how Ofcom would use these new criteria to do something that Postcomm does not—I repeat: does not—do at present.
Viscount Eccles
In the interests of time, it may be better for the noble Lord to wait until I explain what it is about.
Lord Young of Norwood Green
On reflection, I am happy to do that and shall conclude my comments at this point.
Lord Jenkin of Roding
My Lords, the noble Lord, Lord Young of Norwood Green, has said that this is a very large group of amendments. I considered whether it might be possible to disaggregate some of them and came to the conclusion that, as they all broadly address the same subject—access to the network—it is sensible for them all to be discussed together.
The amendments in the name of the noble Lord and his noble friends seek to make access more difficult, and those in my name and the names of my noble friends Lady Wheatcroft and Lord Skelmersdale take a different line. Before I speak to individual amendments, I thought it might be helpful to say something about what we are aiming at. I do not think it is all that different from what the noble Lord, Lord Young, has described to us, although I think the balance is different.
We want to provide a fair balance between protecting the universal service obligation and promoting competition in the postal sector. Therefore, our overall purpose is to try to find a way in which one can do that. I raised this point at Second Reading and since then my noble friends and I have had the opportunity to hold a number of meetings. We have met the chairman of Royal Mail, Ms Moya Greene, who is a very formidable and able lady—an excellent appointment. We have also had meetings with some of the major companies that entered the postal market under the existing legislation, which was introduced by the previous Government.
Turning first to what one learnt from the chairman, it is clear that Royal Mail is still facing an uphill struggle to become profitable, despite the prospective relief from the overhang of the huge pension liability, which we have just been discussing, and despite what seems to be a very welcome improvement in relations with the trade unions. Access to private capital for Royal Mail is seen as absolutely essential if it is to become profitable. That is why it fully supports the provisions in the Bill to remove the existing statutory restrictions on ownership. New capital will help not only to speed up the modernisation of the business, which all are agreed is very necessary, but to secure new sources of business, which it must have if it is to become profitable.
Ms Greene also pointed out to us—I quote her words, which I hope is not embarrassing—that there needs to be “a dramatically different regulatory approach”. I am not sure that we have that yet in this Bill. Ms Greene has described regulation by Postcomm as “intrusive, extensive interference with no freedom to Royal Mail to price their products or to introduce new products”. Moreover, she put the cost of dealing with regulatory impact at no less than £53 million a year. I find that an almost incredible figure, but she says that that is what it costs. We must return to this issue perhaps at a later stage. One has to ask why the competitors should not pay part of the cost of regulation. They are covered by it and they appeal to it, so why should not part of that cost be borne by them? That is the view from the chairman of Royal Mail, and I find it quite compelling.
Viscount Eccles
My Lords, we have had two very interesting contributions—I am tempted to call them Second Reading speeches, but perhaps that is unkind or does not fully take into account where the argument has reached. They have been an overall look at where we are. We should remember, first, that the price of stamps went up substantially on 4 April. We should not forget that in all these discussions.
Secondly, we have talked a lot about regulation. Regulation is indeed central, and we have concluded across the House—the Government have certainly concluded—that Postcomm, for one reason or another, has not understood the situation correctly. I think that that is the right way to put it. I cite Mr Tim Brown’s opening to Postcomm's February report:
“There is consensus that deregulating where it is safe to do so is the correct approach and that change is urgently needed”.
That is a pretty comprehensive sentence for a regulator who has been regulating for the past six years. Then there are some qualifications, but he continues:
“That said, all interested parties acknowledge that the current framework is not fit for purpose”.
I do not think that you could go further than that. In his final paragraph, he concludes by saying two things:
“The 2012 price control may look and feel very different to the current price control developed in 2006 … Regardless of the ongoing Parliamentary process, the coming months will be crucial in putting in place the building blocks for a new and sustainable regulatory framework”.
In the ongoing conversations between Postcomm and Ofcom, it is pretty clear that Postcomm has come to the conclusion that it does not know what is going on. I make that comment with all seriousness. I think the reason is competition.
Baroness Dean of Thornton-le-Fylde
My Lords, Amendment 24PB, which stands in my name and that of my noble friend Lord Brooke of Alverthorpe, would insert a new clause related to the indebtedness of a potential universal service provider. In following the Bill’s progress, it has become clear to me that we have a willing seller. However, the financial model has not been revealed to us. We do not know whether it will be an IPO or some other type of financial structure. We also do not know whether there is a willing buyer; we will not know that for some time yet. We do know that it will be a regulated business, which is right. I think that many Members on this side of the Committee would identify entirely with the criticisms of Postcomm. Some of us believe that it has been positively damaging for Royal Mail services over many years and that it is completely non-commercial in its outlook.
This amendment has been drafted against a background of not knowing what the structure might be. In any sale, however, whatever the structure might be, there is a real danger that the acquirer of Royal Mail might be burdened with enormous debt. We have to consider that possibility very seriously because an overburdening of debt will threaten the viability of the new organisation, certainly in the longer term and possibly also in the shorter term. This is not a new phenomenon but is often encountered in any kind of sale or takeover. Two recent and obvious examples in the private sector come to mind—the Kraft takeover of Cadbury and the Boots takeover some time earlier.
In this case we are looking at a business that will be regulated, and there are some direct parallels. For instance, in moving to purchase BAA, Ferrovial was warned—perhaps that is too strong a word—by the Civil Aviation Authority, the aviation industry regulator, about the high level of indebtedness it would take on to implement the takeover. We all know the result. At that time, when considering its review, the CAA indicated that it might take that issue into account in reaching its decisions, which included price increases.
I should declare an interest as a member of the board of National Air Traffic Services. After its recent review of NATS, the CAA imposed on NATS a maximum debt level that would protect it from over ladening itself, a decision which was welcomed by many although not welcomed by some. It is protection for a company which is investing £150 million a year in its infrastructure and which will continue to need to do so.
Although the amendment does not require Ofcom to impose a maximum debt level, Ofcom would have to publish guidelines on how the new USP’s indebtedness and valuation of assets will be calculated. As the regulator of a regulated company, Ofcom would then have to monitor the situation. If it judges that action has to be taken, this amendment will permit it to do so. It will also enable Ofcom, in publishing the regulations, to limit the debt burden that can be applied. In other words, it is a protective clause for a company that is currently wholly publicly owned but that, under the Government’s current policy, probably will not be in future.
Baroness Wheatcroft
My Lords, I share the concerns of the noble Baroness, Lady Dean of Thornton-le-Fylde. Overgearing is as bad for companies as it is for Governments, and it is something we need to be aware of as we move towards selling Royal Mail. I would favour an initial public offering, but that in itself is no protection against what might come afterwards, so this is something we should look at. But first we have to have something that is saleable, which in its current form Royal Mail most certainly is not. Protecting the interests of the users of the postal services must mean protecting the universal service; that is paramount. Clause 28 gives Ofcom an overriding duty to do just that, to secure the universal service, and that is why my noble friend Lord Jenkin and I have tabled Amendment 24Q because, in our view, if there is an overriding duty then the triple lock imposed by Clause 37(4) is unnecessary if we are to stimulate the competition that eventually we would like to see.
Competition, as we have heard, depends first on having a level playing field, as otherwise fair competition is completely out of the question. Competition is in the interests of consumers and it is what in the long term our amendment would help to achieve. But, at the moment, the universal service is in jeopardy because Royal Mail’s financial position is indeed precarious. To some extent the company has brought this fate upon itself. Successive managements have failed to achieve the efficiencies that they knew should have been brought about, and that in the face of a market becoming ever more dangerous. However, the current management is well aware of what needs to be done and, I believe, is fully capable of doing it as long as it is given the tools. It has the will, but it does not have the right regulatory regime.
I agree with the noble Lord, Lord Young of Norwood Green, about the problems with the current access arrangements. Royal Mail needs much more freedom to decide on its products and its prices. Competition has to be on that level playing field. There are now many private postal operators who are free to tailor their products and their prices to what the market wants. They can cherry pick, but Royal Mail is prohibited from giving itself that freedom. Ofcom, when it takes over the regulation of Royal Mail from Postcomm, needs to impose a different and very much lighter regulatory regime. As we have heard, Postcomm has not been the most successful of regulators, but it has put forward among the options going ahead that of removing its ability to set prices and leaving Royal Mail free to set its own prices, with a right of appeal being in place for those who feel that it is not playing fair. The competition would have the ultimate answer.
If Royal Mail is to have a viable future and appeal to investors, it needs to be able to compete. It should not be as expensive for the company as the current regulatory regime, which is expensive in two ways: it forbids Royal Mail to compete with the many private operators, and it gives Royal Mail a huge bill—£53 million in the current year, as we have heard. In the interests of fair competition, we really should consider what my noble friend Lord Jenkin mentioned, and share the cost of regulation. In any case, under the new regime the bill should be much lighter, but I see no reason why those who are benefiting from it should not make a contribution.
Baroness Kramer
My Lords, I hesitate to rise on this occasion because there have been so many detailed, coherent and powerful speeches, but perhaps I may make two brief comments. I would ask the Minister, as he looks at the potential amendments to Clause 28, to recognise that it is an extraordinarily powerful clause. Everyone in this House is concerned that Royal Mail should have an effective future and that we should have a secure universal service provider. Moreover, everyone in this House is aware that Postcomm in its approach to regulation has played a role—it has not been the only factor but it is certainly a critical one—in bringing Royal Mail, frankly, to its financial knees. If I were a potential investor I would ask myself how that regulatory environment was going to change because I certainly would not want to put my head into the same noose that Royal Mail has had to face for the past decade or so. Clause 28 therefore signals a fundamental change in the outlook, priorities and focus for Ofcom, particularly by for once looking for financial sustainability. So I urge the Minister, in looking at a variety of complex and interwoven evidence, to continue to recognise the importance of sustaining a balance between competition and the future of the universal service provider. But let us not lose what this clause has finally brought to the picture.
My final brief comment is that concerns have been expressed around the Committee that one of the responses Ofcom might make to financial pressures in the universal service provider would be to restrict the scope of the universal service. It seems to me that that would be very hard to do, given the language used in this clause and in Clause 30. I know that it was only meant to get the debate going, but I am rather taken with Amendment 24H tabled by the noble Viscount, Lord Eccles, which would require paying attention to the underlying costings. That would drive in the direction of recognising that price might be the mechanism to use to ensure Royal Mail’s financial future rather than reducing the scope of the USP.
Lord Brooke of Alverthorpe
My Lords, I shall speak briefly in support of Amendment 24PB, which has already been spoken to by my noble friend Lady Dean. I await the Minister’s response with interest because that will give an indication of the Government’s view not just on how they will tackle this particular piece of legislation, but their more general view on the problems we face in many other areas of society related to indebtedness. It will also be an indication of whether we are learning the lessons of history. I go back to NATS which, when it was privatised, was very highly geared indeed. My old friend the former Chancellor and then Prime Minister was even prepared to contemplate a gearing of 129 per cent, but in the event it was limited to 110 per cent, which was still an extraordinarily high gearing to bear for the airlines group that bought the major part of the company.
We privatised in order to bring in capital, to bring in to a degree the economic disciplines of the private sector, and to bring in private sector management that we hoped would result in better performance. Capital was a vital part of that, so if you end up with a company potentially coming in which has borrowed most of the money to purchase your concern and then finds that it is unable to provide the capital needed to effect changes in the operation of your concern, you are in real difficulties. That was the experience with NATS. It ran into the September 11 debacle fairly quickly and then had to go running back to the Government for a form of bailout. We know perfectly well from our experiences over the past decade that if utilities go to the wall, they have to be bailed out. We know also that in defining utilities, we find that a substantial part of the private sector itself ends up as a form of utility, which is what the banks are. They could not be allowed to go to the wall so they had to be bailed out. Let us hope that the report that is coming out on the banks will teach us some lessons from history that we can use to good effect.
BAA was purchased on the basis of very high gearing indeed, and there is a big question mark over the extent to which the capital that went in has been used to its fullest effect. We know perfectly well that those who suffered from the poor performance of BAA just before Christmas because of a lack of capital investment in equipment will feel that BAA did not deliver as it should have done. Instead, BAA has spent much of its time trying to make profits to repay the capital it borrowed at very high interest rates. When we come to changing the status of Royal Mail, there is no way that we should be looking at a company that is very highly geared.
The noble Baroness, Lady Dean, has made in this amendment a modest attempt—it is not very prescriptive—to put right the wrongs that we have experienced in the past. When we move to talk in a different context about the private sector, perhaps these are the frameworks that we should lay down for changes there, too. The Americans certainly know that, when utilities have been privatised, there should not be gearings of more than 60 per cent. I hope that we can look for similar changes in this legislation.
Lord Young of Norwood Green
My Lords, I shall comment on some of the other amendments and points that have been made in this debate, which the noble Baroness, Lady Kramer, was right to say has been rather wide-ranging and complex. Perhaps such a large group of amendments has both benefits and disbenefits.
I was interested in the assessment of the noble Lord, Lord Jenkin, of the cost of regulation and his points about regulators paying. He said that we should create a level playing field. That seems a difficult objective to achieve, given that, as the noble Baroness, Lady Wheatcroft, candidly observed, competitors can cherry pick. We have seen that under the current regulations they go where it is easiest to operate, which is usually in city areas. We do not see them clustering around the rural areas, because, as we know from the correspondence that was helpfully sent to us by the noble Baroness, Lady Wilcox, the cost of doing so is prohibitive, and there are special circumstances in London which increase their costs—for example, wages.
Our amendments would ensure that Ofcom protects the universal service obligation and the universal service provider. We want to make sure that Royal Mail can fairly account for all the costs—I stress, all the costs—of providing that universal service. The noble Lord, Lord Jenkin, provided an interesting figure for the cost of regulation in his proposal that the competitors should pick up some of it. It is an interesting approach.
We are opposed to Amendment 24Q in the name of the noble Lord and the noble Baroness, Lady Wheatcroft, because the imposition of an access condition here is premised on market power. In reality, that applies only to Royal Mail. By excluding the notion of efficiency as a criterion for access, the amendment would exclude the need for Royal Mail to secure its network while providing access. If it is inefficient for Royal Mail, the terms of access are unfair. The amendment would allow Ofcom, in theory at least, to endorse inefficient and therefore unfair access to Royal Mail.
I said at the outset that I was interested in Amendment 24H in the name of the noble Viscount, Lord Eccles, and moved by him with a focus on the costing approach. If it is the intention of the amendment, as I think it is, to ensure that Ofcom has an obligation to allow the universal service provider to cover the proper costs of the universal service, it would be welcome. If, however, the minimum standards for the universal service obligation have to be subject to a set of costing systems, we could be worried about whether it would undermine the force of the obligation to maintain the universal service standards as they are.
It seems that we are all united in trying to ensure that we preserve the universal service and the universal service provider. Where there is an important difference of opinion is how competition should be introduced. We have tried to ensure in our amendments that Ofcom takes into account the true and total cost of providing that universal service.
Amendment 24PB, spoken to by the noble Baroness, Lady Wheatcroft, and my noble friends Lady Dean and Lord Brooke, is an important probing amendment. We will listen intently to what the Minister says on this subject.
Lord Flight
My Lords, we have had an extremely important discussion of the Bill today. The real logic of what I believe the noble Lord, Lord Jenkin, the noble Baroness, Lady Wheatcroft, and in particular the noble Viscount, Lord Eccles, have drawn to our attention is that there is no need to regulate the monopoly issue—the Competition Commission can do that. There is not a real monopoly when you look at it; you are just cluttering up the business with an unnecessary cost. The issue is whether a regulator is needed to regulate the universal service. I can see some argument for that being the case, although, in principle, if provision of the universal service is written into the legislation and, as it were, into the charter, whether regulation is needed to make sure that it is delivered, or whether it can be done by another method, is a question. However, in terms of the competition aspect, I simply do not see any realistic case for the need for regulators to monitor it.
Viscount Eccles
You could run Royal Mail on the basis of the universal service only. That is to say, if you were being properly paid by whoever was using it, you could outsource—I use that word advisedly—every form of sorting except probably the very final sort where you sequence the delivery. You could write a PhD thesis on whether a final-delivery universal service provider should have to sort mail. My answer to that question would be no, it should not have to. It would have to collect it, because that is in the universal service, but it could immediately deliver it to somebody else who did all the sorting. That of course is what is happening with the people who have access agreements. In that way, you would reduce quite dramatically the amount of capital you needed and you might also establish a profitable business which would be attractive to the market.
Lord Christopher
My Lords, I had not intended to speak, but some of the comments made require a response. The noble Lord, Lord Flight, put his finger on one point: we have had much discussion about competition for the universal service when it does not exist and, in my own judgment, never will. However, you need regulation, because science moves on and who knows what might happen?
I was interested in the intervention of the noble Viscount, Lord Eccles, because I was going to use as a not-too-strong illustration the supermarkets. It is very interesting that they have not come together to provide a universal delivery service; they all do it on their own. Whether they ever will, I do not know, but I think that people would be very worried if we had the system which the noble Viscount, Lord Eccles, has just suggested, because the delivery of one’s letter in 24 hours would disappear and it would become increasingly difficult to discover who was responsible for it.
I shall move on to something more practical; the low cost of postage in this country, as has been mentioned. A couple of days ago, the Telegraph ran one of its happy headlines about the increase in the price of postage, and now utterly unrealistic correspondence is going on. I should like to put the differences on record. Despite the increase that is about to take place, we are still the second cheapest in Europe and the only country which has a mandatory access service. No other country in Europe has picked that up—not one. The new price of posting a first-class letter in the UK is to be 46p as compared with the following countries, none of which has an access requirement. In Denmark it costs 64p; in Germany 48p; in Belgium 51p; in the Netherlands 38p; in Sweden 58p; in France 50p; in Austria 48p; and in Spain, at the bottom, 30p, which will come as no surprise to anyone who has had experience of its postal service. Whichever company ultimately buys Royal Mail, it will seek to make a profit, so how can we conceivably expect a price structure to exist unless we have some regulation over it? We should be realistic, not only with ourselves but with the country, about the fact that there will continue to be increases in the price of mail in this country.
Lord De Mauley
My Lords, the essence of this large group of amendments concerns the balance between protecting the universal service on the one hand and allowing competition on the other. We agree that the new regulatory regime must strike the right balance between those two objectives. I thank all noble Lords who have contributed informed views from both ends of that spectrum. Satisfying all noble Lords will be something of a challenge.
The Government’s policy for the mail market is clear: competition is beneficial but must not undermine the universal service. Securing the universal service is therefore the overarching objective of the Bill. Clause 28, which gives Ofcom its primary duties for postal services, and Clauses 37 and 38, which relate to the access regime, are fundamentally important to ensuring that that objective is met.
Amendment 24GC seeks to remove subsection (3) of Clause 28, which ensures that, in performing its primary duty, Ofcom must have regard to the need for the provision of the universal postal service to be both financially sustainable and efficient. It is vital that the Bill ensures that Ofcom considers the impact of all that it does in regulating the market on the long-term financial sustainability of the universal service. None of us would want Ofcom to support the development of the market in a way that would undermine the long-term viability of the universal service. Furthermore, it is common ground that Royal Mail needs to modernise and to become ever more efficient. It is therefore also important that the financial sustainability requirement is balanced by a duty to have regard to the need for efficiency. Clause 28(3) is therefore a vital part of the new regulatory framework that we are creating.
The noble Lord, Lord Young, suggested that there will be pressure to remove parts of the universal service that are not efficient. The requirements to have regard to both financial sustainability and efficiency apply to the universal service as a whole; it is both inevitable and in the nature of any universal service that some parts of it will be profitable and will need to cross-subsidise those parts that are not. There is nothing in the approach set out in the Bill that could or would lead to every individual component of the universal service needing to be profitable in itself—although, obviously, Royal Mail would hope that they could be. The Bill seeks to ensure that the universal service as a whole is financially sustainable and that it is delivered efficiently to the requirements and standards set.
Lord Jenkin of Roding
I was not referring to the cost of Postcomm. I was referring to the cost that fell on the Royal Mail from complying with the regulatory requirements of Postcomm. That is the point that was made to me. I was astonished at the size of the figure, but I accepted what was being said.
Lord De Mauley
My Lords, I am most grateful to my noble friend for his clarification. I hope that I can reassure him that under the current regime, under the Postal Services Act 2000, any operators providing services within the scope of the universal service that have significant turnover are obliged to contribute to the costs. That will be the case under this Bill as well.
The debate that we have heard today, for which I thank noble Lords on all sides for their helpful and knowledgeable contributions, demonstrates that a case can be made to move the access regime in either direction. However, I strongly believe that the provisions in the Bill set the right framework for access—one that supports competition but not at the expense of the universal service. I am of the firm view that Clauses 37 and 48 strike the right balance and, when combined with other powers in the Bill, give Ofcom the tools to ensure a better and more effective access regime. I hope, therefore, that after this rather lengthy explanation, the noble Lord will feel able to withdraw his amendment.
Lord Young of Norwood Green
As a matter of historical accuracy, I did not play a prominent part in dealing with the previous Bill. That was done by my noble friends Lord Mandelson and Lord Tunnicliffe, although I was part of the Government.
Lord Young of Norwood Green
I felt that the Minister’s comments were helpful. He has agreed to take away some issues, which would be useful. He stressed the importance of ensuring that competition does not undermine the universal service provision or the role of the universal service provider. It is important to hear those remarks and to have them put on the record. I also welcome the response that he made to the amendment spoken to by my noble friend Lord Brooke. Reserving the right to look carefully at the record and at any further correspondence from the Minister, as well as amendments that may come on Report, I beg leave to withdraw the amendment.
Lord Clarke of Hampstead
Lord Clarke of Hampstead
I start by declaring my usual interests. From the age of 14, as a telegraph boy, I have been directly associated with the Post Office and am very proud to have that association.
In the past 24 hours, I have given a lot of care to the idea of moving this amendment separately, upsetting some of my friends, who wanted me to leave it in the group. The purpose of taking it out of the group is to focus on one of the most important things that the new Royal Mail will have to face, which was mentioned in the last debate at length. Incidentally, the last debate has given me some comfort because, after 10 years of criticising Postcomm with very little or no support from my own Government and my own friends, I heard an analysis from the noble Viscount, Lord Eccles, who put his finger right on it. It has been a con from the start, and those of us who said so 10 years ago can feel a little bit comforted that after a decade people have come round to realise that what we were saying about cherry-pickers has come true. I welcome the new approach, whoever the owners are of the new Royal Mail.
I will not be too long. Given the timing of this debate and its wide and, I think, unwieldy groupings, I know that there is a desire among noble Lords to get off for the Recess in good time, so I will not go over the history too much, but I will say one or two things. However, some people will find it difficult to understand why, with all this complexity that we have just been dealing with, we are proposing legislation at the fag-end of a term, when people are going off. I find that a little bit trying—but never mind, it has happened.
I would be failing in my responsibilities as a human being and my conscience if I did not stand up and speak about this question of profitability of the new Royal Mail. A number of friends have said that it is not necessary, but what is at issue here is the regulator and the criteria that Ofcom will have to apply to looking at things like tariffs and at what surrounds the making up of a price structure for competitors and for access agreements to work. Of course they are necessary to make sure that we have the universal service. I think every Member who has spoken would agree that it is an important part of the fabric of our society to maintain the principles not only of Rowland Hill but of the 300 years of Post Office service since Queen Anne’s time.
I have every confidence that Ofcom will do a good job, although it would not take much to do better than Postcomm. In fact, this is not a new thought. On 9 February two years ago I wrote to Mr Brown, the chief executive of Postcomm, who had written a nice letter to me asking a couple of things. I told him,
“Postcomm is an organisation that gives me little confidence that its existence was ever necessary. I may be the only person who believes that the transfer of postal regulation to Ofcom is a step in the right direction”.
I welcomed the change then and I welcome it now, providing that Ofcom is given the right tools to do the job that it is going to be charged with. Part of that is dealt with in my amendment, which says that the question of profitability must be in the minds of the people considering these things. It is no good expecting Royal Mail to do the work contained in the universal service obligation if it is not able to price things the right way. The price structure must allow profitability. I spent too long in my job trying to get the Post Office to pay its dues to the pension fund. There was a 12-year holiday, when it did not pay anything into the pension fund—and we wonder why it got into a state in the end—but that is another story.
There was ill conceived regulation at that time. I sat over there and listened to the Statement from a chap from down the other end, Stephen Byers, telling us that this liberalisation and new deal would bring in an era of a tremendous new Post Office for the 21st century. I stood up and said that it was a load of nonsense, because if you do not have something to stop people creaming off the work of Royal Mail, as has happened, you will find yourself in trouble. Yet nobody listened, least of all from my own Government’s side. That followed through to the ill fated 2009 Bill, which has been mentioned, and the product of that ill conceived regulation has been that people in the industry have paid a heavy price. Billions of pounds have been lost because of how Postcomm works.
I said that I would be brief and I will. We will be entering a new era in the long and well respected history of the Post Office. I am not used to begging for things but I beg the Government on this point: not to make another mistake by allowing the anomalous situation whereby an outside body is able to hamstring the business. I have had to come to terms with the idea that the Royal Mail will never be the same once it is privatised. As I said last time we were in Committee, it hurts but it is happening. Nevertheless a new Royal Mail, invigorated by new and competent management, gives us a new chance. That is not to say that Post Office managements were not competent in the past but they were never allowed to do the job because of political interference over decades. The 1960s, 1970s and 1980s were dominated by political interference. Ever since the Post Office became a corporation in 1969, politicians had their fingers on the service being provided.
With that new and competent management, together with the historic agreements that have been mentioned about going forward with modernisation, the staff and people who run Royal Mail deserve to be given fair and just regulation, to quote the noble Lord, Lord Jenkin. It has to be fair and just. I hope that the Government will recognise that the regulator has to be fair. I believe that requiring that the service be “profitable”, instead of “financial sustainable”, will help. I look forward to the Minister telling me that the Government agree that the Royal Mail will be entitled to be profitable.
Baroness Kramer
My Lords, I had not expected to speak on this amendment at all. Having looked at the language, I thought that “financially sustainable” looked pretty adequate. Why shift it to “profitable” and set the bar higher? However, listening to the noble Lord, Lord Clarke, I found myself convinced on this so I felt I should get to my feet. It would be a positive for this Bill if we came out knowing that we would not have to revisit the future of Royal Mail, the universal service provider, and that it had been moved on to a basis where it would thrive in future and deliver the services that we all want and that our community and economy need, so that we do not have to keep coming back to patch it. Constant salami slicing is quite often the tradition as we make change. As I look at that, the requirement for profitability has some real appeal because financial sustainability can be achieved in many ways; you could talk about additional subsidy, or whatever else. It seems to me that there is a far more secure future. The noble Lord, Lord Clarke, has convinced me and I hope that he will have some success in convincing the Government.
Lord Christopher
My Lords, it would be extremely helpful if the noble Baroness could explain at some point the precise purpose of this clause because it can be read in more than one way. If we are talking about Royal Mail or the company that will own it alone, that is one thing. If we are talking additionally about those providing only part of the service, that is another. The logic of the situation is that when Royal Mail is 99.9 per cent efficient, if it is using much the same machinery as those currently doing some of the sorting do—I think 10 or 12 have been mentioned—then it seems it would not be able to make a profit. What is more, the service would not be economical. Economies of scale suggest that you sort this mail in one place, or at least in one system, so I would appreciate some clarification. Where I fully agree with the two speakers on this, the mover and the speaker from the Liberal Benches, is that whatever happens we really do not want to revisit this issue. If I am right, and that competition to some degree in universal providers is a myth, we must be sure that we do not have to subsidise a Post Office and that proper charges can be made.
Lord Young of Norwood Green
My Lords, I can understand why my noble friend tabled his amendment, given his long association which started at the GPO—an association which I shared, although not on the postal but on the telecoms side, so we both have a long-standing and abiding interest. We want Royal Mail to have the ability to be profitable as the universal service provider meeting its universal service obligation. That has been the Government’s aim in removing the burden of the pension and in making it clear in today’s comments that they are in favour of competition, but not to the point that it undermines the Royal Mail’s ability to function. If that “profitable” was to take into account the full costs of providing the universal service obligation, we could see the benefit of that. There are some concerns about what implications there might be when that test is applied, such as on stamp tariffs et cetera, but I will certainly be interested to hear the Minister’s response to this amendment.
Lord De Mauley
My Lords, Amendment 24GD, moved by the noble Lord, Lord Clarke of Hampstead, seeks to delete “financially sustainable” from Clause 28(3), and replace those words with “profitable”. If I may say so, he makes an important point, as do my noble friend Lady Kramer and the noble Lords, Lord Christopher and Lord Young. There was a long discussion in Committee in the other place over whether financially sustainable meant “profitable”. The Minister for Postal Affairs put it on the parliamentary record, and I would like to do the same today, that this Government absolutely seek for Royal Mail to be a profitable company. Part of the problem and the threat to the universal postal service is that, under the way in which the previous Government managed the postal services sector, Royal Mail has not been making profits and has been a drain on the taxpayer, so at the heart of this concept is the belief that to be sustainable the universal service must make a return for its provider. The only alternative, after all, is perpetual taxpayer subsidy, which is not a realistic, acceptable solution.
Importantly, in addition, “financially sustainable” is a broader concept than simply “profitable”. A company can be profitable in the short term but not necessarily financially sustainable; equally, it can make losses in the short term but have a sustainable future. As I have said, it will be for Ofcom to determine what needs to be taken into consideration when having regard to financial sustainability: the ability to earn a rate of return on investment; profitability; the setting of prices; long-term market volumes, and so on.
As I said in response to the previous group of amendments, the arguments that have already been made on Clause 28 and Ofcom’s duties, both in your Lordships’ House and the other place, have persuaded me to revisit Ofcom’s regulatory duties. The protection of the universal service is of paramount importance and we understand that we must get this absolutely right. That is the very reason why we are taking action and why we brought the Bill forward.
The noble Lord, Lord Clarke, in particular has unrivalled experience of the postal sector and I am always grateful for his contributions to our debates. He made some excellent and important points and I will reflect on them further when considering this issue. Given my commitment to look again at the issue and to bring forward proposals on Report, I hope that the noble Lord will feel able to withdraw Amendment 24GD.
Lord Clarke of Hampstead
My Lords, I thank the noble Baroness, Lady Kramer, the noble Lord, Lord Christopher, and my noble friend Lord Young for their contributions. I did not do this as a perverse way of having a voice today. I simply believe that we have a chance to look at history and not make the same mistake again. That is why I am particularly pleased to hear what the Minister has just said about revisiting the whole question of the regulatory responsibilities of Ofcom. In those circumstances, I beg leave to withdraw the amendment.
Viscount Eccles
Viscount Eccles
My Lords, I shall be brief. I await with interest the remarks of other Members of the House on this group of amendments. My amendment seeks to leave out the words “as a minimum” as they refer to the universal postal service. I put down the amendment to see whether or not the Government had any intention of adding to the universal service because, if I read “as a minimum” correctly, that is an opportunity left open in future after the system of reviewing, which is the subject of other amendments in this group that will be discussed now. With that initial probe, I beg to move.
Viscount Tenby
My Lords, I shall speak to Amendments 24J and 24K. I hope that I will not be accused of being self-indulgent if I suggest that it may be for the convenience of the Committee if I tack on Amendment 24N, to which I can attempt to move seamlessly after my remarks on Amendment 24K. All these amendments are in the name of my noble friend Lord Low, who very much regrets that he is unable to be here owing to urgent business commitments abroad.
Amendment 24J is a straightforward amendment that is designed to place in the Bill the assurances that the Minister was kind enough to give at Second Reading. At that stage she made it clear that there is no scope for the postal services regulator, Ofcom, to downgrade the minimum requirements that make up the universal postal service. At Second Reading the noble Lord, Lord Tunnicliffe, and my noble friend Lord Low expressed concern that the Ofcom market review, which has to take place within 18 months of the Bill receiving Royal Assent, might be the vehicle for downgrading the universal service obligation. In response the Minister said:
“I am happy to reassure them that this is completely untrue. There is no small print allowing this … Ofcom must have conducted a market review to ensure that the services offered as part of the universal service reflect user needs. These are set out in statute and the review cannot recommend a downgrade of the minimum requirements after 18 months”.—[Official Report, 16/2/11; col. 777.]
That is a welcome reassurance. It is both clear and unambiguous. I therefore hope that the Minister will have no objection to including in the Bill in an equally clear and unambiguous fashion the restriction that it reinforces.
By placing in the Bill that restriction on changes to the universal postal service—a restriction that has support on all sides of the House—we make it clear to Ofcom and, more importantly, to any future Government who may have other ideas, that although Royal Mail is being privatised, the service that the public rightly expect to receive will be maintained. I very much hope that on that basis the Minister will welcome the amendment.
Amendment 24K seeks to strengthen the Bill by giving greater protection to the universal service by ensuring that the current minimum requirements are maintained for a period of five years. I welcome the establishment of Ofcom as the new regulator for postal services. I need not repeat the argument for that. Suffice it to say that it makes sense with the continued development of electronic communications and their integration with traditional postal services. Ofcom will have a key role in determining whether a privatised Royal Mail succeeds or fails. It will not just regulate competition; it will regulate service levels.
Underpinning that is the universal postal service, which is made up of a number of minimum requirements. The obligation itself is non-negotiable: if you have a licence to deliver letters and packets within the regulated area, you must meet the obligations placed on you by these requirements. The value of the universal postal service to the public would surely be diminished if the minimum requirements that underpin it were eroded. Recent research conducted by Consumer Focus and Postcomm highlighted the fact that safeguarding the universal service remains key for customers.
I do not doubt the Minister’s intentions on this, but we should be clear: once the Bill receives Royal Assent, she then hands over responsibility for the protection of the universal postal service to Ofcom, along with an obligation to review the current minimum requirements to see whether they are meeting what are called the “reasonable needs” of consumers. This, along with some 14 other provisions in the Bill, allows the regulator or the Minister to vary the terms of the universal service obligation in a variety of circumstances.
That is worrying. The “reasonable needs” of one person may not be the same as those of another. One person may feel that their reasonable need is to have a delivery every day, while another may be happy to make do with two or three a week. Some people may feel that it is a reasonable need to be able to pay less to post a letter to the next town than to a town 300 miles away. Is that right or wrong? I suggest that it is a matter of opinion.
That is why I believe this amendment will strengthen the Bill. It provides a period of certainty and stability for the public and for any prospective purchaser of Royal Mail. Rather than leave Ofcom with the vague remit to review the universal service “from time to time” it ensures that for a period of five years the current minimum requirements making up the universal service obligation are safe. It protects uniform pricing as well as daily letter and packet collection and delivery to all homes. It protects freepost services for blind people that would otherwise be disproportionately expensive because of the additional weight of braille materials.
The universal service is essential to small businesses. The Federation of Small Businesses notes that small businesses are really struggling in the current economic climate and is concerned that changes to Royal Mail and the Post Office will leave them without access to an accessible and affordable UK-wide postal service. The concerns raised by the federation are stark. It states:
“Given that more than 99 per cent of all businesses in the UK employ less than 50 people, and are dependent on Royal Mail and the Post Office, the importance of the universal service obligation is paramount to their survival and future growth”.
Ensuring that the current minimum requirements are maintained for five years would give pause to those who might want to use the sale of Royal Mail as the opportunity to reduce the level of service to which we are accustomed. To take just one all important example, it would protect the principle of a uniform price for a stamp wherever you happen to live. The public want to see their current service maintained. The Bill as drafted leaves too many loopholes for those who might want to erode the current minimum requirements that make up the universal postal service. I urge your Lordships to support this amendment to protect our cherished universal postal service in order to ensure that small businesses, pensioners, people with disabilities and everyone else in our society who has come to rely on the universal service are protected.
Lord Laird
My Lords, I have two amendments in this grouping. I propose, with the permission of your Lordships, to refer first to Amendment 24L. The purpose of this amendment is simple; by delaying the ability of Ofcom to review the universal postal service, the current minimum requirements of the universal postal service will be protected for six years.
It is not my intention to go over a lot of the information so excellently put on the record today by the noble Viscount, Lord Tenby, so I shall try to be brief. The universal postal service is a part of life for small businesses, rural communities, pensioners and others who value the six days a week, one price goes anywhere service.
As noble Lords have already said, the universal postal service and the post office network are part of our nation’s infrastructure and must be protected following the privatisation of Royal Mail. By moving this amendment, I wish to ensure that the current levels of service we enjoy are maintained for six years. The British public do not want to see their service watered down. I believe that guaranteeing the service for six years, while not ideal, offers sufficient compromise for the Government to accept without discouraging any potential new provider of the postal service.
Let us be under no illusions; our postal service is a national treasure. While the financial difficulties it has faced in recent years have led to a need for significant investment from the private sector, this should not be at a cost to the public, as is often the case with privatisation. If this House allows the universal service to be unprotected, the most vulnerable in our society will see increased prices and reduced services. This is not acceptable.
With your Lordships’ permission, I turn to Amendment 24M. I believe that this amendment, and others like it, reflects deeper concerns about the impact that the privatisation of Royal Mail will have on services in our communities, particularly in rural areas. Noble Lords have set out in Committee a number of worries that they have about the lack of commitment from the Government to use this Bill to ensure that postal services are continued at a level that users currently enjoy. There is also a worry about the effect that this privatisation will have on the network of post offices, which are so essential to rural communities across the United Kingdom.
I am instinctively nervous about this privatisation. I am not against privatisation per se but I believe that in this case the test of whether a transfer of ownership is successful is if those who need the service most see it improve. So far more questions have been asked than answered about the long-term future of postal services in rural areas, which in reality are never going to be anything other than a cash drain on Royal Mail. These concerns have been rejected by the Minister, who prefers to hand over responsibility for the maintenance of the universal postal service obligation to a regulator, whose remit is to promote competition to ensure that it reflects the reasonable needs of users.
This amendment aims to slow down any attempt by the regulator to denude the service that users in rural areas enjoy. As the noble Viscount has already pointed out, Northern Ireland, Scotland and Wales have similar characteristics in that the majority of their populations live in towns and cities and there is a substantial land mass that is sparsely populated. I ask the Minister of the day to report to Parliament on the impact of any review of the universal postal service on those areas to ensure that the people who rely on the postal service are not the first to suffer in the new age of Royal Mail commercialisation. That is why I have tabled these amendments.
Lord Stevenson of Balmacara
My Lords, in responding to the last two groups of amendments, the noble Lord, Lord De Mauley, said that the Government would consider strengthening the protection for the maintenance of the current universal service. We welcome that, and thank him. This group of amendments, as we have just heard, contains a number of rather interesting suggestions for how the Government might go about that.
Clause 33(5) would permit the Secretary of State to amend the minimum requirements of the universal postal service provided for in Clause 30, which, as we are well aware, provides a mail service six days a week at affordable, uniform prices throughout the United Kingdom. Under Clause 33(7)(a), such an order would be subject to an affirmative resolution procedure. Amendment 24LZA would delete Clause 33(5) in its current guise and ensure that the European Communities Act 1972, which would otherwise permit the Secretary of State to alter the minimum requirements for the universal service through the negative resolution procedure, cannot be used to reduce the universal service.
The Government have stated that the protection of the universal service is at the centre of the Bill and in particular underpins the privatisation proposed for Royal Mail. On Second Reading in this House, the Minister emphasised this, saying:
“The purpose of the Bill is to secure the future of the universal service. The Government are committed to the existing service—six days a week collection and delivery of letters, at uniform and affordable prices, for all the United Kingdom's 28 million addresses. This is at the heart of our legislation. We have no intention of downgrading the minimum requirements of the universal service”.
She continued:
“Crucially, this Bill gives both Houses of Parliament a say in whether the universal service can be amended in the future”.—[Official Report, 16/2/11; col. 776-77.]
Our concern is that although the Government say that they have no intention of downgrading the minimum requirements of the universal service and, indeed, have repeated that intention today, the Bill brings in a procedure for the amendment of the universal service not previously contemplated in legislation. This seems to be a bit of a problem, which we should address. Our amendment seeks to ensure that any amendment of the minimum universal service requirements can take place only as a result of primary legislation and not through an order brought in by the Secretary of State.
The Delegated Powers and Regulatory Reform Committee expressed concern at the way in which Clause 33(5) contains a significant power that would allow the Secretary of State to alter the minimum requirements for a universal postal service set out in Clause 30. It is worth quoting a little more of this passage in full:
“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”.
We have touched on that before. It continues:
“The order by OFCOM cannot alter the minimum requirements”.
That is a very important safeguard. The committee then says that,
“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 that would allow the Secretary of State to alter the minimum requirements for the universal postal service set out in Clause 30. We will come on to some elements of this in later amendments, but I want to pick out a particular aspect.
Lord Laming
My Lords, perhaps I may speak very briefly in support of Amendments 24J, 24K and 24N, in the name of my noble friend Lord Low of Dalston, that were so ably introduced by my noble friend Lord Tenby.
The Minister helpfully assured the House that the Government intend that the changes introduced by this important Bill will be open and transparent. These amendments have the virtue of combining simplicity with clarity. Amendment 24J leaves absolutely no doubt or ambiguity about the responsibilities of Ofcom in enforcing the minimum standards that together make up a universal postal service that we all value so highly. Amendment 24K seeks to reinforce the importance of the universal postal service obligation that is central to this. Amendment 24N seeks to ensure that no significant changes can be made without adequate consultation with the postal service user groups.
These amendments are not controversial. They are aimed at strengthening the Bill and making sure that, together as a community, we continue to enjoy a reliable, efficient and enduring universal postal service. I hope that the Minister will feel able to accept the amendments.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, the primary purpose of the Bill is to protect the universal service. The Bill requires Ofcom to secure the provision of the universal service and to ensure that it is meeting the reasonable needs of users. Indeed, that latter point is a requirement not just of this Bill but of the European postal services directive.
The noble Lord, Lord Stevenson, suggested that Ofcom’s duty to secure the future of the universal service was in some way on a par with its duty to have regard to the financial sustainability and efficiency of the universal service. I am happy to reassure noble Lords that this is not the case. Ofcom’s overriding duty in relation to postal services is to secure the provision of a universal service. In doing so, Ofcom must have regard to the need for financial sustainability and efficiency, but these considerations cannot outweigh the need to secure a universal service.
Clause 29 requires Ofcom to assess the needs of users and to set the universal postal service order at a level that meets those needs. The provision is a necessary tool to ensure that the postal market remains flexible and responsive to user needs. I know that there has been some confusion and concern about the relationship between the universal postal service order and the minimum requirements in Clause 30. The order will set out the particular products and services that Royal Mail must provide, over and above the minimum requirements and the standards that the company must meet. These products are currently set out in Royal Mail’s licence. As we are abolishing the licensing regime, they will need to be set by order in the future.
Amendment 24HZA, tabled by my noble friend Lord Eccles, seeks to constrain the scope of the universal postal service order. Clause 29(2) provides that the universal postal service order must include “as a minimum” each of the services set out in Clause 30. The subsection allows Ofcom to include more services or higher requirements—for example, it can specify the percentage of first-class letters that must be delivered the next day. Given that the universal service must evolve in line with user needs, this is appropriate. I understand where my noble friend is coming from and it is important that we hear the arguments he has made so well. However, I should say to him that to be compliant with the directive, we must allow Ofcom the flexibility to ensure that user needs are met. It is right that Ofcom, as the expert regulator with all the market information, is the body that makes the judgment. Given that explanation, I hope that my noble friend will withdraw his amendment.
Viscount Eccles
My Lords, I am very grateful to all those who have taken part in the debate on this group of amendments. I think particularly of the three amendments spoken to by the noble Viscount, Lord Tenby, and the noble Lord, Lord Laming. Their comments have shown very clearly how important the universal service provisions are to this House and to the general public. That also came through very clearly in the two amendments spoken to by the noble Lord, Lord Laird. I am sure that the Government will take on board that such concerns are at the forefront of everyone’s minds, and indeed that was set out very firmly by my noble friend on the Front Bench.
I am prompted to make only one short reflection. If the provision of that service does not produce a positive cash flow—I use that expression rather than talk about profits—we may well find ourselves returning to the subject again. We all fervently hope that the Bill will turn into an Act and that the subject does not recur—at least, not for very many years to come.
I think we would all agree that we have received the reassurances for which we were looking, and I therefore have much pleasure in begging leave to withdraw the amendment.
“( ) OFCOM must designate a postal operator as universal service provider.”
Lord Stevenson of Balmacara
I shall speak also to Amendment 24AHA. All the amendments in this group have a common theme. Amendment 24NZA seeks to maintain the integrity of the universal service obligation by maintaining one universal service provider. Amendment 24AHA provides that consumer protection conditions should apply not just to the UPS at the discretion of Ofcom but to all postal operators as is appropriate to the postal service that each provides.
There are several points where the Bill provides for more than one universal service provider. One example is where Ofcom makes a procurement determination under Clause 43 and decides to hand the provision to another operator. We do not know how rare an occasion that might be, although we hope that it would not be regular. The second is where the USP has been taken into administration under Part 4. We hope that this will not happen but, again, we do not know whether it will occur. Our basic contention is that the universal service should be delivered by one provider and that the only provider capable of delivering this is Royal Mail.
The provision of a daily collection and delivery service covering 28.4 million addresses in the UK requires a very large capital infrastructure and a large and skilful workforce. Because it constantly deploys such an array of capital and workers, Royal Mail is able to sustain an extraordinary turnover of mail. In the first half of 2010-11, the average daily mailbag contained around 68 million letters, packets and parcels. In 2009-10, Royal Mail carried 6.3 billion items of USO mail, 6.4 billion items of downstream access mail, and around 18.7 billion items in total.
No other company has ever delivered such a service in the United Kingdom and it is our view that no other company could do it going forward. However, surely the danger is that some companies think that they can provide parts of a universal service in certain geographically restricted areas. These areas are likely to be highly urbanised and, as was explained in our earlier debates, potentially very profitable for the provider. Therefore, we could envisage a competitor to Royal Mail offering to be a universal service provider for a city such as Birmingham. However, we could also envisage a situation where that competitor could not offer an alternative to the rural areas in the West Midlands.
Should that happen, there would be some huge problems. First, the areas surrounding Birmingham would have to continue to be serviced by Royal Mail. This would inevitably be loss-making, and Royal Mail would either have to bear the costs or increase stamp prices to compensate.
Secondly, the Birmingham provider would require a much more comprehensive access arrangement to Royal Mail’s network than exists under current downstream access arrangements. Not only would this create the basis for large-scale friction between the two networks but it would almost certainly create new costs, as the interaction between the two networks would have to be supervised.
Thirdly, there is no evidence in the EU of any other country currently operating with more than one USO provider. In Germany, at the moment there is no designated USP at all and it is all left to the market. Deutsche Post, however, is the effective provider, offering services six days a week nationwide and benefiting, by the way, from VAT exemptions in order to do this. The regulator in Germany has the power to arrange for the USP to be provided through public procurement if the market does not deliver a universal service but, as the market in the form of Deutsche Post is delivering a universal service, this has not happened to date. In the Netherlands, TNT can apply for a partial repeal of its designation as the USP, which perhaps could allow more than one USP to be designated but, again, that is not taking place.
It is noticeable in the legislation that there are two options under which we could see more than one USO provider in the UK. The first is a possible case of bankruptcy of Royal Mail and an interim administrative regime that would follow from that. The second is the case of the regulator making a procurement determination. On the first point, there has been no serious study of Royal Mail which suggests that its delivery of the universal service obligation has been malfunctioning to date; indeed, some earlier speakers have praised its operations, and I agree with that. Perhaps this lack of academic study is just an oversight of generations of academics and economists. Perhaps it is a tribute to the excellent staff and management of Royal Mail. Or perhaps it is really an acknowledgement that there is great effectiveness in the manner in which the USO has existed in Royal Mail—and, after all, if it isn't broken, don't fix it.
The second case in which more than one USO provider is provided for in the Bill is where Ofcom decides to allow for such a development by making a procurement determination. That is a power and not an instruction. We would argue that there is no reason why Ofcom should engage in such a move. We are all worried that there will be pressure from Royal Mail's competitors to secure such a procurement determination. That is why we think that, rather than experiment with the USO, it would be wise of the Government to secure its future without a gamble. The USO is a very complex operation to maintain, and ill-thought out ambitions are no alternative to the present provision.
On Amendment 24ABA, Clause 43 deals with how the universal service should be dealt with should Ofcom find that it constitutes a financial burden on Royal Mail. If it is found to be a burden, Ofcom has three options open to it. First, it can undertake a review of the minimum requirements of the universal service under Section 33; secondly, it can require that contributions be made from other postal operators towards the maintenance of the USO; or, thirdly, it can make a procurement determination, allowing part or all of the USO to be provided by a company other than Royal Mail. This amendment requires that a minimum of three years’ notice be given before any other operator can begin to provide postal services required under a universal service obligation.
As I have just argued, there are serious concerns about the potential impact of breaking up the USO through a procurement determination. It is questionable whether a multiple-provider USO could guarantee consistent levels of service across the country. We do not know what it might mean for the financing of the USO if the more profitable and easier-to-complete parts of the service go to competitors and Royal Mail is left servicing the more expensive, hard-to-deliver-to parts of the country. In a time of great change and economic flux, Royal Mail and the postal industry desperately need stability. Royal Mail is in the middle of a major programme of modernisation, including more than £2 billion of investment. That process, combined with an unloved regulatory regime, means that the company is facing a very restrictive financial position. Further major upheaval through the potential loss of the USO threatens the viability of such a programme. Any change to the USO provider must surely not come before Royal Mail has completed its modernisation and is financially secure. Moreover, the loss of any part of the universal service via procurement determination would have a major impact on Royal Mail’s business model and the viability of the business.
Royal Mail successfully delivers mail across the UK at an affordable, uniform tariff by taking advantage of the considerable economies of scale that it is able to access. The business must be given sufficient notice of any change if it is to be able to plan effectively and to continue to provide the service that we expect of it. A procurement determination is a very real possibility and inquiry into whether the universal service is a financial burden on Royal Mail would very likely find that it is a burden. For example, in evidence to the Scottish Affairs Select Committee, Tim Brown, the chief executive of Postcomm, stated that, a number of years ago,
“Royal Mail lost about £350 million on the universal service products”.
The postal industry has suffered from a lack of stability in recent years. The potential break-up of the universal service would exacerbate the problem. The most important element in the future of the postal services in the UK is the successful investment programme and the modernisation of Royal Mail. Long-term investment in postal infrastructure should not be compromised in order to make short-term savings via what would essentially be the franchising of elements of a profitable universal service. I beg to move.
Lord Cotter
My Lords, Amendment 24X suggests that the proposed period for the review of the universal service provider by Ofcom be extended from three years to four years. The Bill gives Ofcom a series of different powers to review the financial burden and how it is to be calculated through various recommendations. It has a lot to consider in the review and it is vital that the matters are considered in the correct manner. Ofcom must look at and assess the cost of the service provided both to the generator and to the consumer. We need to make sure that that is examined correctly to ensure that further losses are not made by Royal Mail. In view of the diversity and depth that are needed for the review to ensure the success of the universal service provided, why not allow an extra year for the evidence to be collected and presented? We need a comprehensive review that gives detailed examination to ensure that all aspects of the universal service provider are examined and given consideration. An extra year would ensure that all aspects were considered in such a way. I maintain that it is quite clear that more time is needed for the review of the universal service provider by Ofcom.
Baroness Kramer
I shall speak briefly to Amendment 24AB in my name and that of my noble friends Lord Razzall and Lord Cotter, as the argument for the need for stability and certainty for Royal Mail as a universal service provider has been made extensively in the House today in discussion of the previous group of amendments and by the noble Lord, Lord Stevenson, on this group. However, there is a glaring gap in the Bill, because there is no set timetable for the period during which Royal Mail would continue reliably to carry that role. The amendment would set a period of 10 years before Ofcom may make a procurement determination that would change that position.
The case was well made in the other House by a Member of the Opposition—some people will think that I am supporting those on the Benches opposite more today than those on mine. The honourable Member for Ochil and South Perthshire, I think, said that moving to the 10-year period,
“gives Royal Mail the certainty to make investment and business decisions, confident that it will remain the universal service provider for a reasonable amount of time”.—[Official Report, Commons, Postal Services Bill Committee, 7/12/10; col. 648.]
The point was also made that, for Royal Mail to have a secure future, significant investment will be required, much of it in equipment. Given the lifespan and cycles of equipment, 10 years becomes a reasonable minimum for that kind of stability.
We have heard again in this House real concern about cherry picking. It is clear to me that your Lordships do not want others coming in to cherry pick pieces or aspects of the universal service. I am sure that that is true for the public at large, who perhaps matter the most; it will certainly matter to Royal Mail itself and future investors. Given the widespread concern, it strikes me that an amendment such as Amendment 24AB neatly covers a variety of concerns by providing fundamental stability over a 10-year period. That may alleviate many of the other issues raised in this important debate.
Baroness Wilcox
My Lords, this group of amendments relates to the actions that could be taken if Ofcom found that there was an unfair financial burden on the universal service provider as a result of its complying with its universal service obligation to ensure that consumers are protected under the new regulatory regime. Clause 43 sets out three options if there were found to be an unfair burden: a review of the minimum requirements; a procurement process; or the establishment of a compensation fund. If it considered that action would need to be taken, Ofcom would have to recommend to the Secretary of State which of those options would best address the unfair burden.
I speak first to Amendment 24X, in the names of the noble Lords, Lord Razzall and Lord Cotter, and the noble Baroness, Lady Kramer. The noble Lord, Lord Cotter, made an eloquent case for the amendment. It is right that we should consider it alongside the other amendment that would prevent a procurement determination for 10 years; the two need to be seen in balance. Your Lordships will need no reminding that our central objective in the Bill is to protect the universal postal service. We have been clear that Royal Mail must continue to modernise and, to that end, have included a new requirement on Ofcom to have regard to the efficient provision of the universal service.
No one would dispute that Royal Mail needs to improve its efficiency, and the company has already taken significant steps on its modernisation journey. However, without further modernisation, costs will remain high, increasing the risk of substitution by other forms of communication, in turn exacerbating volume decline and further threatening the universal service. The package of measures in the Bill will greatly assist Royal Mail in its modernisation. We believe that it is important to allow Royal Mail to continue on this modernisation path for a few years, able to take advantage of the benefits of the Bill, before the regulator assesses whether the universal service represents an unfair burden. This would also give certainty to all those who might be required to contribute to a compensation fund, given the reassurance that that would not be on the table for at least three years after the Bill came into force. This is clearly a fine balance. There is no right number; it is a judgment. I would therefore like to take the amendment away to consider it, so I hope that the noble Lord will, for now, consent not to press it.
Lord Jenkin of Roding
We tried to give notice to my noble friend’s office that this amendment would not be moved, but the message has obviously not got through.
Baroness Wilcox
I apologise. Scrap that. How about Amendment 24NZA? This amendment is tabled in the name of the noble Lord, Lord Young, and is concerned with removing the ability to designate, in extremely limited circumstances, more than one company as a universal service provider. The intention of Clause 34 is to give Ofcom the power to designate more than one universal service provider in two specific circumstances only in order to ensure the provision of the universal service. As with other elements of the Bill, Clause 34 has been drafted to ensure that the Bill is future-proofed. It enables the regulatory regime to adapt when it needs to in order to ensure the continued and long-term provision of the universal service. The measures that we are taking are designed to put Royal Mail on a sustainable footing so that it can continue to provide the universal service that we all value so highly. However, it makes sense to future-proof the legislation in this way to ensure that the universal service could continue to be provided in two specific and extreme circumstances.
Clause 34 will allow Ofcom to designate more than one provider in only two specific cases. The first case is where providing the universal service is found to represent an unfair financial burden on the universal service provider. The Secretary of State agreed with Ofcom’s advice that the best way of addressing that burden was through a procurement exercise provided for by Clause 43. This would assess whether another company could provide the relevant part of the universal service with less of a burden. In that event, that company could be designated the universal service provider for that part of the universal service.
The second circumstance is where Royal Mail has become insolvent and has entered special administration. Where a postal administration order has been made under Part 4 and it is not possible to rescue Royal Mail as a going concern, some of its activities could be transferred to another company. Ofcom could then designate that company as a universal service provider as well in order to secure the universal service.
As I said, the full package of measures in this Bill is designed to secure the future of Royal Mail and the universal service and therefore to ensure that we do not end up in either of these scenarios. Both the procurement process and the special administration provisions are backstops to be used only—I repeat, only—if the future of the universal service is at risk. However, as I mentioned, having the ability to make multiple designations in these specific cases is a sensible and pragmatic safeguard.
It is also important to make it clear that having more than one designated universal service provider in no way provides for or permits a varying level of minimum service across the country. Provisions elsewhere in Part 3 have the effect of guaranteeing that the minimum requirements of the universal service must remain uniform. Given these assurances, I hope that noble Lords who tabled these amendments will feel able not to press them.
Amendment 24AHA, in the name of the noble Lord, Lord Young, relates to the power that Ofcom has under Clause 49 to impose a consumer protection condition on either,
“every postal operator, or … every postal operator of a specified description”.
The amendment would replace these categories with a single category that allows for the imposition of consumer protection on,
“every operator appropriate to the postal service each provides”.
The intention of this amendment may be to ensure that regulation can be applied with greater precision or to ensure that all circumstances are captured by regulation and that none falls through a perceived loophole. However, I hope that I can reassure noble Lords that it is unnecessary and has the potential to create confusion for the regulator and postal operators.
Giving Ofcom the power to describe separate categories of operator enables it to direct the consumer protection conditions very precisely. This follows the model in Section 52 of the Communications Act in relation to Ofcom’s functions in other regulated sectors. This approach is consistent with other parts of the Bill and allows for the clear and effective targeting of regulation to where it is required. I can therefore assure noble Lords that there are no loopholes.
I do not believe that this amendment would help Ofcom to regulate, nor would it offer any greater protection to consumers than is already provided for by Clause 49. However, it might leave the regulatory system open to challenge and confusion, which I believe all involved will wish to avoid. With these reassurances, I hope that the noble Lord, Lord Stevenson, will feel free to withdraw the amendment.
Lord Stevenson of Balmacara
I thank the Minister for her full reply. It was good of her to take the time to go through the detail we have raised because some of these are very technical points. Obviously we will need time to read through what she has said because she covered a lot of ground. I have not been keeping score, but my sense is that rather a lot of concessions were emerging in the previous two or three groups, which we are pleased about. We seek no vainglorious victory on this, but simply to improve the legislation, which is always the role of Her Majesty’s loyal Opposition in these matters. However, I am pleased that we are beginning to see a degree of discussion and debate around the issues that is not on the lines of “We have made the legislation and we will keep it”. We look forward to seeing what the Minister brings forward on Report.
Most of what has been said in this debate and in the debates on the two previous groups has really been about the type of regulation that must apply to the universal service provision and to the universal service obligation within that. There is bound to be tension between economic regulation on the one hand, which the noble Lord, Lord Jenkin, spoke to very fully, and the more social regulation which this side of the Committee wishes to see strengthened in order to ensure that the citizenship approach to the service is preserved. As many noble Lords have said, this is in a sense a fault-line across all the regulation that applies to former public utilities. I do not think that anyone has got it right yet and that there are going to be tensions. You cannot have at the same time the best possible public provision and the most profit-generating and economically appropriate way of doing these things because the two are in conflict. Profit will often—not always, but often—drive out the best. We have to live with that, and as the Minister said, we have to find a judgment that will work not only now but in the long term.
Although noble Lords who have spoken in the debate come from different places, we are all trying to seek one thing, which is that in times of change there will be some stability in the processes we are engaging with in this Bill. I felt that the Minister did respond in a way that gives us some assurance that on Report we will be able to see that built into the Bill. She also tried to explain why the Bill spends a lot of time future-proofing the arrangements. This may be simply because the advice she is getting from her civil servants is that, having gone through this in 2009, having walked up the aisle towards the altar and having been jilted at that point, they are experienced in these issues and therefore able to work towards producing what could be a divorce-proof marriage going forward. Perhaps there is a pre-nup situation here that we should be thinking about and using in other places, or perhaps not.
Having said that, the last part of the Minister’s speech stressed that future-proofing does not necessarily open loopholes, but we feel a little sceptical about that. We would like to look at it in some detail and I suspect that it will form one of our debates on Report. However, given what the Minister has said and the assurances we have received, which are extremely welcome, I beg leave to withdraw the amendment.
Lord Laird
“( ) Prior to a sale or transfer of a Post Office company, an agreement must be secured to guarantee the Inter-Business Agreement between Post Office Limited and each of the universal service providers for a period of not less than 15 years.”
Lord Laird
The post office network is part of the fabric of rural life. In Northern Ireland, as elsewhere, the local post office is so much more than a retail outlet. We all have access to big shopping centres to which we drive, sometimes for many miles, to do the weekly shopping. But the local post office plugs gaps and helps the wheels of the local economy to run smoothly.
The two businesses, Post Office Ltd and Royal Mail, are strongly linked. I am surprised that the Government are using this Bill to sever that link, but we have been reassured that they will continue to operate a business agreement so that local post offices can receive the vital revenue stream for the work they do for Royal Mail. However, the very act of separating Post Office Ltd and Royal Mail undermines the potential value of that relationship to local post offices.
My amendment seeks to guarantee that local post offices are able to plan and operate their businesses safe in the knowledge that they will continue to receive the custom from Royal Mail that helps them survive as small businesses. It seeks to make that agreement binding in law for 15 years, a reasonable period during which the remaining network of post offices will have time to establish themselves. I beg to move.
Lord Skelmersdale
My Lords, I readily understand why the noble Lord, Lord Laird, seeks to protect local post offices, not only in Northern Ireland but in the other far flung parts of the United Kingdom. The trouble is that, with this amendment, he has cast the agreement between Royal Mail and Post Office Ltd in what I would call a leaden block. Not only is 15 years very long term but it means that, when Royal Mail is sold, there will be absolutely no opportunity within that 15 years to change the agreement, which might well be to the benefit of both sides. In the initial sale, the pre-nup agreement, as the noble Lord, Lord Stevenson, has just called it, will come as part of that particular package, but, as I have said, over a period of perhaps very few years, it may be to the mutual interest of both sides of the equation to come to renew the agreement. As far as I can see it, the amendment of the noble Lord, Lord Laird, prevents that happening.
Lord Young of Norwood Green
Amendment 24PA, standing in my name, would ensure the continuation of the current inter-business agreement between Royal Mail and Post Office Ltd. The agreement should be in force before any disposal of an interest in a Royal Mail company and should include the definition of the relationship between that Royal Mail company and Post Office Ltd after the disposal.
Amendment 24P, in the name of the noble Lords, Lord Laird and Lord Rogan, seeks an inter-business agreement of 15 years’ duration, while that in the name of the noble Lord, Lord Bradshaw, seeks one of 10 years’ duration. We share the view that that would be a reasonable period, although Amendment 24PA makes the point at a different clause in the Bill. At this stage, I am sure that if Ministers could accept the principle then we could between us find the best place in the Bill to insert it.
The noble Lord, Lord Skelmersdale, made a point about setting things in tablets of stone. I should have thought that there ought to be the capacity to review some of the detail of an inter-business agreement. The important thing is to establish it.
The Post Office is dependent on Royal Mail's business for a significant part of its survival strategy. More than one-third of its revenue, some £343 million, and one-third of sub-postmasters' pay, £240 million, is generated by selling Royal Mail products and services. If the two businesses are to be forced to separate, our concern is that a privatised Royal Mail might look elsewhere for a better bargain and for other retail outlets to sell its products. There is no guarantee it will use post offices to the same extent. The Bill does not safeguard the inter-business agreement through which Royal Mail guarantees use of the Post Office as its retail arm. When it comes to be renegotiated, a privatised Royal Mail could look to reduce costs by using other outlets such as supermarkets or high-street chains instead of post offices. To date, the Government have not agreed to undertake to extend the current, five-year IBA to 10 years.
Without an extended IBA, there is no guarantee that Royal Mail will continue to use the Post Office. In evidence to the Postal Services Bill Committee, the Minister, Ed Davey, stated:
“No previous Government have thought to put it on any different footing”.
But then no other Government have needed to intervene on the inter-business agreement because no other Government have separated the Post Office from Royal Mail. The Minister tried to reassure stakeholders by arguing that both Royal Mail and the Post Office want an extended inter-business agreement. He further said in evidence to the committee:
“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”.
The stated aims of the current management of Royal Mail, while welcome, are insufficient reassurance. The relationship between the two companies is one of imbalance. The Post Office cannot survive without Royal Mail, yet Royal Mail could succeed without the Post Office. Ed Davey went on to argue in his evidence to the committee:
“If you actually wrote that there should be a contract between two companies that are going to be separate companies into law, I think that it would be subject to serious legal challenge”. —[Official Report, Commons, Postal Services Bill Committee, 11/11/10; cols. 121-23.]
However, he has provided no evidence to support this position. Given the importance of retaining the relationship between the two businesses and the risk of leaving its maintenance to the discretion of Royal Mail, the Government should instead require a 10-year IBA as part of the Bill and ensure that this meets the requirements of EU competition law. To do so could only strengthen the position of the Post Office. As I understand it from a recent discussion with the Post Office, it is indeed seeking to establish a legally binding agreement with Royal Mail.
Consumer Focus has warned of the risk to the Post Office of the lack of a long-term IBA. It has argued that the number of post offices could fall by 37 per cent, from its current level of 11,900 to a minimum number consistent with the Government’s access criteria, 7,500. The National Federation of Sub-Postmasters believes that a minimum 10-year IBA is essential and that, in order to avoid further post office closures, the existing levels of Royal Mail work at post offices must be maintained, with a minimum 10-year IBA between the two companies.
Post offices—predominantly those in rural areas—are still struggling to survive; they are finding it hard. Only 4,000 of the UK’s 11,905 post offices are economically viable and, despite assurances from the Government, which we welcome, that there will be no further programme of post office closures, branches are still closing every week. More than 150 post offices have closed on a long-term temporary basis this year alone, with no absolute guarantee that they will reopen. So there is genuine concern here. The 900 post offices that are currently up for sale, an issued referred to George Thomson, the General-Secretary of the National Federation of Sub-Postmasters, is an unusually high number. Many sub-postmasters are retiring or leaving the business because of the low levels of revenue generated in sub-post offices and the Post Office is struggling to find alternative premises and service providers.
The post office network can ill afford to lose any more work. That is why it was unfortunate, to put it mildly—it is my attempt at irony—that the Post Office’s contract to award 400,000 green giros a week has recently been lost. This provided 400,000 transactions a week, a significant of level of footfall supporting the network and around £70 million in revenue over five years to Post Office Ltd. It strikes an unfortunate note given the recent statements by the Government that they are determined to ensure that post offices will be the front office for a number of government services. I would welcome the Minister’s comments on that decision.
As I have said, the Government have rejected a number of opportunities to make that commitment firm in this important legislation. They have declined to accept a statutory commitment, as exists in countries such as Germany and the Netherlands, to a figure of 11,500 offices; they have rejected embedding into the Bill the access criteria stating how close your nearest post office will be; and they have even rejected empowering Ofcom to adjust the statutory commitment over time. We do not doubt the Government’s good intentions but it will take more than that to require a privatised Royal Mail to use the post office network to the same extent as now.
European competition law is trailed as a possible obstacle to an inter-business agreement. The Minister for Postal Services told the Public Bill Committee in another place:
“I am unaware of any statutory precedent for requiring particular commercial terms between two independent businesses”.—[Official Report, Commons, Postal Services Bill Committee, 23/11/10; col. 360.]
However, there is no precedent for separating the Royal Mail from the post office network. The National Federation of Sub-Postmasters has said that there is nowhere in the world where this has happened. It is the role of new legislation to create precedents. It is because of the precedent of totally separating the Post Office from a privatised Royal Mail that we seek to underpin the relationship with the post office network.
We hope that the Government will reconsider this vital business agreement, which will ensure not only an enduring relationship but the future of the Post Office. I am conscious of the time and I shall cut short my contribution. I look forward to the Minister’s response.
Baroness Wilcox
In these amendments, noble Lords express a concern that has been debated at length in the other place and in other fora—namely, that taking Post Office Ltd out of the Royal Mail group of companies will put at risk the commercial relationship between Royal Mail and Post Office Ltd, and therefore the post office network. The amendment also seeks to provide for any situation where the universal service provider may no longer be Royal Mail alone. I share the noble Lords’ laudable interest in ensuring that a strong commercial relationship is maintained between Royal Mail and Post Office Ltd but the approach taken in the amendment—legislating for a contract of a certain length—is not the way to achieve our shared objective.
In the evidence given by various stakeholders to the Public Bill Committee in the other place, strong backing was given for the separation of Royal Mail and Post Office Ltd. Let me reassure this House that the separation of Post Office Ltd and Royal Mail will not lead to dangers for the post office network. Operationally, these companies are reliant on one another. Post offices carried out more than 3 billion transactions for Royal Mail in 2009. They will continue to be partners because there will remain an overwhelming commercial imperative for the two businesses to work together.
In her evidence to the Public Committee in the other place, Moya Greene, the chief executive of Royal Mail, called the post office network,
“the best and strongest network in the country, by any yardstick”.
She also said that it would be “unthinkable” for there not always to be a very strong relationship between the Post Office and Royal Mail. To underline this point, Donald Brydon, Royal Mail’s chairman, pledged in his evidence to the same committee that, before any transaction took place, a continued long-term commercial contract will be put in place between the two businesses for the longest duration that is legally permissible. On Report in the other place, the Minister for Postal Affairs pledged to the House that the Government will ensure that this commitment is upheld. I repeat that pledge to your Lordships today.
I also remind your Lordships of my commitment to consider the amendment to Clause 2 proposed by the noble Lord, Lord Whitty. His amendment would have ensured that information regarding the relationship between the two companies is included in the report laid before Parliament when a decision has been taken to dispose of shares in a Royal Mail company. I hope to bring forward a government amendment on Report to address those concerns which I believe will also provide greater comfort to the noble Lords bringing forward these amendments today. However, I would like to explain why I cannot accept these particular amendments.
In these amendments, the noble Lords, Lord Laird and Lord Rogan, seek to place the agreement between Royal Mail and Post Office Ltd on a statutory basis, requiring a minimum duration to the contract of 15 years. The noble Lord, Lord Young, and his colleagues on the Front Bench also specify that the Secretary of State should ensure that an agreement of at least 10 years is in place. As was discussed in the other place, legislation is not the appropriate place for the commercially sensitive terms of a relationship between two independent businesses to be settled. These negotiations are best left to the businesses themselves, which know far better than we in this House their customers, the markets they serve and the services they require of one another. Contractual negotiations between these businesses will involve a complex interaction of many different factors, such as pricing, volume, service levels and duration. Focusing on the duration of the contract would simply not achieve our shared objective of ensuring the strongest possible commercial relationship between Post Office Ltd and Royal Mail. The experts—the businesses and their advisers—should negotiate and agree the commercial relationship between the two businesses for the long term, rather than us in Parliament. What the Secretary of State and indeed the Government can and will do is to ensure that there is a contract in place between the two businesses before separation. Most importantly, government can of course help to create the conditions in which both businesses can flourish in partnership with one another. One thing is certain: a struggling Royal Mail will lead to problems for the Post Office. This Bill introduces the ability to bring in much-needed private capital for Royal Mail to invest in its transformation so that it can offer the very best service.
Lord Young of Norwood Green
My Lords, I thank the Minister for her response. I have a couple of comments to make. She talked about a long-term contract that is legally permissible. I would welcome some elaboration on what the Government envisage. We constantly talk about this long-term contract that is legally permissible, but somehow we seem to be short on finding out what is the longest contract that is legally permissible. That creates a feeling of uncertainty. If she does not envisage that this is the appropriate place for that contract, in the legislation, can she make it clear that the Government will ensure that there is a contract in place before separation?
Although we welcome the £1.3 billion funding package, the other concern that I addressed in my contribution, to which she did not respond, was that the funding package is good but that it also requires commitment in business coming from the Government. As I pointed out, in the first test that we saw on this, on the green giro cheques, the Post Office did not get the contract. In our view, and in that of a number of people, that was a significant contract. Before I make up my mind, I would welcome a response on what is legally permissible with a long-term contract, or an explanation of what the Government are doing to get that answer if the noble Baroness does not have it, and on the commitment to ensuring that government business will go to the Post Office.
Baroness Wilcox
We have gone on record in the other place and I have repeated it here today. I have no doubt that the noble Lord will read it but I will write to him to clarify further, as best I may. I understand about the business. In fact, the contract was not that big but the Post Office had to bid for it. We are very encouraging of all government departments to bear in mind the work they may be doing themselves but which the Post Office could do better for them. We are encouraging all departments to look again and think carefully about what work they can start to bring forward that could be better done by the Post Office.
Earl Attlee
My Lords, I remind the Committee that the amendment was moved by the noble Lord, Lord Laird.
Lord Laird
My Lords, I thank the Minister and all noble Lords who took part in the debate. I was particularly interested in the remarks of the noble Lord, Lord Skelmersdale. I will consider these matters carefully and may return to them on a different occasion but I propose to withdraw the amendment at this stage.
“Indebtedness of potential USP
(1) OFCOM, in designating a postal operator as a universal service provider must take into account the financial indebtedness as a proportion of the value of the company of any potential USP, and may limit this indebtedness to such a percentage as OFCOM may from time to time determine.
(2) For the purpose of this section—
(a) “financial indebtedness” means, at any time, the aggregate outstanding principal, capital or nominal amount of any indebtedness of the company calculated in accordance with guidelines published by OFCOM, and(b) “value of the company” means the value of the company’s assets calculated in accordance with guidelines published by OFCOM and taking into account the timing of material transactions affecting that value.”
Baroness Dean of Thornton-le-Fylde
My Lords, I was encouraged, and I hope rightly so, by the Minister’s response that this matter would be considered between now and Report. Will that consideration include ensuring that we are not faced with Ofcom regulating after the sale, and that we have cover for the sale itself? If I had that assurance, I would be delighted to withdraw the amendment.
Lord De Mauley
I am sorry. May I ask the noble Baroness to repeat that? I was having words in my right ear.
Baroness Dean of Thornton-le-Fylde
I noticed that the noble Lord was somewhat distracted. My concern on this amendment is that if, on looking at the indebtedness of a potential USP, the Government come forward with a wholly acceptable measure, they do not do so after the boat has sailed—in other words, not after the sale. That is because the debt level which may or may not be raised by whatever model the Government decide on for the sale could still burden the company, although there would be provision for the future. Will the Minister please take that into account when he considers the matter before Report?
Baroness Dean of Thornton-le-Fylde
I thank the Minister very much for that. I beg leave to withdraw the amendment.
Earl Attlee
“( ) An order under subsection (6) applying an enactment under which a criminal or civil penalty could be imposed may not provide for the penalty to be greater than that which could be imposed under the enactment.”
Earl Attlee
My Lords, I shall speak also to Amendment 31. Amendment 25 implements a recommendation made by your Lordships’ Delegated Powers and Regulatory Reform Committee in its report on the Bill. The Government have also accepted the second and final recommendation by the committee, and we will come to that in a later debate.
Amendment 25 relates to Clause 58. This clause allows the Secretary of State to apply, with or without modifications, certain provisions of the Enterprise Act 2002 to appeals made under Clause 57 of this Bill. Amendment 25 ensures that this power is not broad enough to permit increases in civil or criminal penalties beyond the levels specified in the Enterprise Act 2002. I believe that this is a sensible and appropriate change and one that I hope your Lordships will welcome.
Amendment 31 seeks to remove from the Bill a reference to Schedule 5 to the Government of Wales Act 2006. Schedule 12 to the Bill included a consequential amendment to remove references to “licensed operators” and “Postcomm” in Schedule 5 to the Government of Wales Act. However, Schedule 5 to the Government of Wales Act will cease to have effect from 5 May this year. This is a consequence of the yes vote in the recent referendum on the powers of the Welsh Assembly and the resulting changes to the Assembly’s legislative competence. Schedule 5 will be replaced by Schedule 7 to the Government of Wales Act, in which the references to postal operators are not so defined and thus do not require amendment.
I hope that your Lordships will feel able to accept these government amendments. I beg to move.
Lord Stevenson of Balmacara
I thank the Minister for introducing these amendments. We on this side have no objection to them. They carry forward sensible recommendations from the Delegated Powers and Regulatory Reform Committee which we support in relation to these amendments and the subsequent amendment to the Government of Wales Act.
Lord Christopher
Lord Christopher
My Lords, I am slightly nonplussed to see two of these amendments grouped together as they are entirely at one, but we will live with that. As the Committee knows from what I have said previously, I am not sure that we are likely to get a buyer for Royal Mail that we shall come to love as much as we love Royal Mail. However, one has only to express some surprise that Cadbury chocolate is now made by an American cheese firm to realise that these difficult things happen.
We seek to achieve that, whatever may happen, the Queen’s head will appear on stamps. I hope that the Government will have no difficulty accepting this strengthening of the Bill. My noble friend Lord Clarke and I are slightly nonplussed because he has a print of the Bill that already includes the word “must”, and I have a print of the Bill that says “may”. I am happy with his print and I hope that the Minister will not contradict it.
I wish that I could speak as briefly on the other amendment that I wish to address, but I do not think I can. The reason for that is quite simple; I was wholly ignorant of the existence of a post office museum on such a scale as the one that exists. Ministers have tended to talk about an archive, and I always think of dungeons and cellars when in fact it is a very substantial museum. It was established as an independent charity and the principal and significant funder is Royal Mail. The museum has post office and Royal Mail records dating from the 17th century and is designated as an outstanding collection, which I do not believe is gained easily. It has statues and an archive that matches any that you might find at Kew, and illustrates the history of the postal system. I shall list some, at any rate, of its artefacts. It has stamps and their artwork; photographs, posters and design; records relating to the birth of mass communication; and technological reform in the Victorian era and the Penny Black stamp. It also has material relating to war and emergencies; material relating to films, broadcasting, censorship and politics; maps; and records of staff, finance and buildings essential to local and family history. Ten other things are also listed.
The museum is of great significance to the history of this country and to some degree the world, because we led the way in postal service. It has 36 full-time staff and 20 regular volunteers. It was part of the London Festival of Stamps in January this year. It accepts visits from schools and staff make visits to schools. There are around 1 million public visits, either on the net or in person. What is at stake is the money that keeps it going. One had better be frank about this; it receives £725,000 a year in cash from Royal Mail for its archive services and nearly £750,000 of items in kind. It has a donation—for which I trust Royal Mail gets tax relief—of £1,280,000 a year. The total is nearly £2,750,000. The amendment proposes that whoever takes on Royal Mail shall take on responsibility for the archive of the history of 400 years which it has inherited.
Lord Clarke of Hampstead
My Lords, obviously I completely support my noble friend. I do not intend to delay the Committee any longer than I have to, except to say that many years ago I went to the then postal museum in Bruce Castle in Tottenham—I hope noble Lords will forgive me for mentioning Tottenham, the day after its problems. It was also the home of Rowland Hill and the City of London Middlesex Regiment. I remember asking the curator of the museum, “Are you a philatelist? Do you collect stamps?”. As a postman, I never collected stamps because they lay all over the floor and you did not want to get involved with what was then called the investigation branch. Miss Flint turned to me and said, “Mr Clarke, stamps are just a bagatelle. I collect the waybills for the livery and the hay for the horses that fell off the stagecoaches between the various cities”. So I was put in my place about postal history.
I am concerned about the memorials to the fallen from two world wars in a number of Post Office buildings. I am concerned that the many works of art should be preserved, and I wholeheartedly agree with my noble friend Lord Christopher that we must provide the wherewithal.
Above all, my reason for speaking is to ask the Minister, who knows that I have this interest, what has happened to the Post Office railway. Do we still own it? I know that it is in mothballs. We used to get mail conveyed under the ground using an efficient post office railway system rather than having trucks rumbling around the streets, filling the air with fumes. I am just curious. Has it been sold already by the Post Office or is it an asset that will be taken into account in the valuation, which I hope will happen before too long?
I fully support the three amendments, and am anxious to know what has happened to that train. Some nasty people put me in one of the carriages when I was 15 years of age and sent me from Mount Pleasant up to Oxford Street, and I had to find my own way back. That was a punishment in those days for cheeky boys. It was a terrifying experience, but I want to know what has happened to the railway.
Lord Brooke of Sutton Mandeville
My Lords, it is a pleasure to follow the noble Lord, Lord Christopher, with whom, more than 25 years ago, I negotiated across a table in the Treasury on the pay and conditions at the Inland Revenue. Likewise, it is a pleasure to follow the noble Lord, Lord Clarke of Hampstead.
This is my first participation in the proceedings on the Bill, so I should declare a coincidental interest. When I was a temporary part-time undergraduate postman in Hampstead, nearly 60 years ago, I was assigned to a delivery round in Hampstead, later served so remarkably by the noble Lord. When I told him that I had delivered Christmas mail to the late Sir Ralph Richardson, who used to open the door to me in a silk dressing gown, the noble Lord, Lord Clarke, could give me the particulars not only of that address but of the whole round. When later I lived on the south face of Highgate West Hill, immediately overlooking the garden of the noble Lord, Lord Healey, on the Holly Lodge Estate, our regency terrace abutted that shrine of philatelists, the grave of Sir Rowland Hill, the inventor of the penny stamp, in the northern element of Highgate Cemetery. I would not want whoever lives in my house today to be troubled at night because Sir Rowland was turning in his grave at the treatment of his remarkable inheritance by either Her Majesty’s Government or your Lordships’ House.
It is also a pleasure to serve as a foot soldier in the gallant band assembled under the command of the two noble Lords opposite, whose concern, inter alia, is to ensure the maintenance of our postal heritage, which is the subject of the amendment. I would be misleading your Lordships’ House if I implied that either my signature or, I suspect, that of my noble friend Lord Boswell beside me, was written in invisible ink between the particular words in all three amendments in the group. Certainly, in my case and, I suspect, that of my noble friend Lord Boswell, my heart is loyal to the general calls of the noble Lords opposite. The whole House is in their debt for providing the hook on which to hang an exploration of how far Her Majesty's Government constructively concur with that concern.
Given the interest shown in the archive beside Mount Pleasant, not only by Back-Benchers but by Ministers—I know that my noble friend Lady Wilcox has paid a visit to it, and I hope that she was as impressed as I was when the All-Party Parliamentary Arts and Heritage Group had an enthralling visitation—I am reasonably clear that Her Majesty's Government are seized of the issue. At the end of this debate, we shall all have a clearer idea of how seized they are of a solution.
Of course I can see the problems that this inheritance confers on HMG but, at this time, those problems should be a spur to an imaginative and constructive solution rather than a response of despair and inertia. When I was at the Harvard Business School more than half a century ago, an engaging professor reminded us that if you did not know where you were trying to get to, any road would get you there. Conversely, in this instance, the scale of the inheritance and the United Kingdom’s pivotal role in postal history provide the knowledge of whence we have come. The existing collection, as the noble Lord, Lord Christopher, said, is designated in the “outstanding” category, which makes it the equal of the National Archives at Kew, and no one in your Lordships’ House would suggest that we should not seek to preserve those.
I should warn my noble friend that this is a battlefield over which I have fought previously. My favourite-ever Committee stage was that of the Greater London Authority Bill in the other place, where 27 of the Committee’s 29 Members sat for London seats. The only outsiders were the Minister’s PPS, who was from Aberdeen, and the Official Opposition’s Whip. The latter had, in his day, been the leader of another metropolitan authority. Much of the initial Bill, which grew by more than 50 per cent in the number of its clauses by the end of its progress, was devoted to strategies that the Mayor had to prepare. However, there was to be no strategy for archives. I moved a small amendment in a short speech saying that there should be such an archival strategy, but warned the Minister, the right honourable Nick Raynsford MP, that if his response showed no sympathy for the idea, I had a much longer speech up my sleeve for my response. He showed me no sympathy. I delivered my gargantuan but pertinent oration. The amendment was not carried, but the debate was the foundation for a similar amendment that was carried in your Lordships’ House.
I reassure the Minister that I am not uttering that threat today because I have every confidence that her heart is in the right place on this issue. However, I will listen closely to what Her Majesty's Government propose. Since I have not put down an amendment, I would be abusing the procedures of your Lordships' House—as some may feel I have already—if I aired my views, except to say that if the Government are, almost certainly sensibly, reluctant to load burdens on to the private sector for heritage maintenance. I suspect that transferring this task to Post Office Ltd would contain what an American advertising executive once described in my hearing as “the mucus of a good idea”. To mislay or disperse four centuries of postal history would be a stain on the escutcheon of any Administration, and especially on that of the coalition.
Lord Boswell of Aynho
My Lords, I am delighted to follow my noble and good friend, Lord Brooke of Sutton Mandeville, whose speeches I always enjoy. The House has enjoyed one this afternoon. We owe an equal debt of gratitude to the noble Lords, Lord Christopher and Lord Clarke, on the opposition Benches, for initiating this debate. I share with them the spirit of these amendments, and a belief in the importance of the subject. I should perhaps make clear to noble Lords that in another capacity and in another place I was involved in the establishment of the All-Party Parliamentary Group on Archives, of which in due course I became the founder chairman, and of which I am still an officer. We brought it into being because we thought that archives were a part of our heritage that was unsung, understated and always vulnerable to financial pressures, and that it needed a closer focus. I think that we were right to do that.
The group sits alongside the All-Party Parliamentary Arts and Heritage Group. As my noble friend pointed out, some of us were privileged to attend the British Postal Museum and Archive for an intensely interesting morning. Not only was it intrinsically interesting, but it showed the wider importance of archives, for example by showing the relationships involved in the formulation of new stamp designs and the exchanges before they were approved and came into circulation.
I will add at this point there are always two tests. One is the importance of business archives generally. In the capacity that I mentioned, I attended a meeting in this House at which the Business Archives Council launched a new guide for businesses. It was very well attended and addressed by the Governor of the Bank of England. It showed the importance of business archives. In the wider context of heritage, we are conscious that, for example, Minton and Wedgwood are under severe pressure at the moment, and it is important that we do not slip this catch in the course of the Postal Services Bill.
My second point is more generic. Wherever one transfers an activity or asset, or any combination, to private contractors or undertakers, it is particularly incumbent on us to make sure that our heritage is preserved. As I mentioned to the House, the British Postal Museum and Archive is a major resource. It represents the distillation of many years of postal and official history. I am privileged to know its director and the chair of its organising committee, who is both a neighbour and a personal friend. We should take time—I am sure that the Minister's good will is there—to see that we get this right.
I say to the House—I need not do so at length—that there are complexities in this. Many of them are set out in the amendments that noble Lords have brought forward. I look forward to the Minister's take on this and to hearing about the ways in which she might consider taking this forward. For a start, there is an archive and an associated obligation to what was once a department of state. Like any other archive, it has a relationship with the National Archives; that should be understood. It is a continuing act of state and an obligation that we should maintain.
Then there is the postal museum. By their nature, the assets are somewhat less intensely valued, although they may have a very high intrinsic and visual interest. The assets are not quite the same as those of the archive, and that is why it is called the British Postal Museum and Archive. That leads me to suggest that there may be different solutions in different cases. As I understand the Bill—this is also my first entry into the Committee stage—there is reasonable provision, at least within the clause to which the amendment is attached, for looking at the public record function and seeing that that is satisfied. That of course applies particularly to existing records, which is I think step one of the process. Then there is the question of what happens when people discharge public duties in the future and whether securing the continuing acquisition of relevant archives will be adequately tied down by the Bill.
There is also the question of proper resources. I remember from our visit that the museum is under some pressure with regard to its existing resources, and the noble Lord has already explained the financing. Nothing is easy in the heritage and archive world at the moment. However, we need to see that the whole thing does not fall down because it somehow misses out on financing.
Although not absolutely essential, it would clearly be very beneficial to the public interest to make sure that the postal museum and archive continued to be collocated on one site, with the possibility of their development either there or elsewhere as an asset to the heritage more generally. Therefore, there is both an archive interest and a wider heritage interest.
I know that my noble friend Lady Wilcox has visited the museum and I hope that she was impressed, as we were. I am sure that this is a problem that is capable of solution, and we look forward to her response in leading the way towards it.
Lord Young of Norwood Green
My Lords, I suspect that everything that needs to be said has been said already and I do not want to fall into the trap of saying “but not by everyone”. There is a common thread relating to heritage. I think that keeping the Queen’s head on stamps would be a reasonable tribute as we come up to her Diamond Jubilee. An amendment on that matter was the only amendment passed in the other place, and I look forward to hearing a confirmation of that. Other noble Lords have eloquently stressed the importance of the archive. When companies are privatised, that poses a real threat to their records, and I witnessed what happened to British Telecom’s archive and heritage. Therefore, I, too, look forward to the Minister’s response.
Baroness Wilcox
My Lords, I very much understand and appreciate the sentiments behind these amendments. Royal Mail has a tremendous history and heritage. I know that the noble Lords, Lord Clarke and Lord Christopher, have both campaigned to secure Royal Mail’s future for many years, and they have a strong desire to protect the company’s proud heritage.
As noble Lords have heard, I recently visited Royal Mail’s archive and saw for myself some of the public records, including a sheet of Penny Black stamps—something that I thought I would never see—and museum artefacts on display in the archive. I also saw on my visit the designs for stamps commissioned by the then Postmaster-General, Tony Benn, working with the artist David Gentleman, which did not include the image of Her Majesty. Thankfully, as I think the Committee will agree, these stamps were never issued and the tradition that the noble Lords are seeking to preserve through Amendments 25A and 25B continues to this day.
Clause 60 provides the Secretary of State with a power of direction that can be used to require the universal service provider to maintain that tradition and to make sure that the stamps receive royal approval before they are issued. Amendment 25A would require the Secretary of State to issue such a direction, while Amendment 25B would require that any such direction was subject to the affirmative resolution procedure.
This clause was discussed in the other place and, as was mentioned by the noble Lord, Lord Young, the Government subsequently introduced an amendment to strengthen the safeguards for protecting the future of this unique tradition. We are not here today to remove that amendment in any way. The current voluntary framework governing the approval of stamp designs has been in place for more than 40 years and it has worked well.
Royal Mail has been, and is currently, doing just what a direction would require it to do. I would therefore like to draw on a piece of timeless wisdom that says, “If it ain’t broke, don’t fix it”. That is not to say that we should not have the tools in place to fix it, if fixing were ever required. That is precisely what this clause provides for. However, this power is a failsafe that should be drawn on only when required. It can easily be drawn on by the Secretary of State if there is ever a justifiable need to do so.
On Amendment 25B, we take the view that if there is ever a need to use the power of direction, the direction itself will not be of a nature to warrant the use of the affirmative resolution procedure. This power of direction can be used only for a limited and focused purpose, in effect to re-impose time-honoured practice and processes. Furthermore the direction will be imposed only on the universal service provider, and Clause 60 allows for any such direction to be varied or revoked by subsequent directions. We believe that this clause as it stands is fit for purpose and proportionate to the important task of protecting the future of the sovereign’s image on UK postage stamps, if such protection is ever needed. I hope that I have been able to reassure the noble Lords on this.
On Amendment 29A, and as noble Lords will recognise, archive status and museum collection status are different, although both are currently maintained by the British Postal Museum and Archive—the BPMA. The archives of Royal Mail and its predecessors are part of the public record, and they will remain part of the public record after we dispose of shares in Royal Mail. The Bill makes this clear and ensures that no changes can be made to the way in which the records are kept without consultation with the Keeper of Public Records, which is the National Archive. As public records, the archive must be preserved, maintained and made available to the public in accordance with the Public Records Act 1958. Amendment 29A would, however, place additional requirements on Royal Mail that would not apply to other organisations which have responsibility for keeping public records. I do not think that it would be right to place an additional burden on a privately owned Royal Mail that Parliament does not place on publicly owned bodies.
The museum collection is not part of the public record; I understand that its ownership was passed to the BPMA in 2004. Although the Government, like noble Lords, wish to see the collection maintained, we do not believe that this should be a statutory requirement on Royal Mail. It is currently not a statutory requirement for Royal Mail to maintain the collection. Royal Mail funds the BPMA because it recognises the importance of its heritage; it does so not because it is publicly owned but because heritage is part of the Royal Mail brand. I would fully expect this approach to continue in the future. Royal Mail, whether privately or publicly owned, should be proud of its history and use it to positive advantage in an open and transparent way.
I read in my brief that British Telecom is a good example of a privatised company respecting and maintaining its heritage, although the noble Lord, Lord Young, has just given us an instance of when it was not. It has a purpose-built repository for the archive which is located in Holborn; and although the dedicated British Telecom Museum closed in 1997, it has invested some £6 million in establishing its Connected Earth initiative which provides access to its museum collection online and at its 10 partner museums located around the United Kingdom, including the National Museum of Scotland, the Museum of London and the Amberley Museum and Heritage Centre.
The noble Lord, Lord Clarke, mentioned the Post Office underground railway—Mail Rail. He was even kind enough to mention it to me the other day in passing so that I would not get caught out, as I would have done if he had mentioned it only today. I understand that the Post Office (London) Railway Act was passed by a Select Committee of this House in 1913. Construction began in 1914 but was halted during the First World War, when the tunnels were used to store and protect art treasures belonging to the National Portrait Gallery and the Tate. The railway finally opened in 1927. At its height it was carrying an estimated 4 million letters a day. Royal Mail decided to stop using Mail Rail for operational reasons in 2003, primarily because many of the mail centres that Mail Rail serviced had been closed or changed their function. Of the nine original stations, Royal Mail still owns only four of the properties.
Royal Mail is not unique in deciding to disuse such underground railways. The German and United States postal service providers have similar systems, but they also no longer carry mail. In fact, the United States railway in Chicago is now used to carry rubbish, as part of the city's waste disposal system. Royal Mail has not made any decisions about the future of the railway; it does, however, continue to maintain the tunnels, to ensure that they remain safe and sound. Although there have been previous discussions about putting the tunnels to commercial use, no commercially viable solution has been developed so far. Any suggestions that your Lordships may have on good commercial uses for the railway can be sent on a postcard to Royal Mail at 100 Victoria Embankment. I am sure that the company would be only too delighted to offer a prize to any offer put forward and successfully processed.
In all seriousness, in response to the noble Lords, Lord Boswell, Lord Brooke of Sutton Mandeville, Lord Christopher and Lord Young, I assure them that I recognise their concerns about Royal Mail, its heritage and how it should best be preserved in future. I would like to take away the issues that they have raised for further consideration and will return to the matter at Report. I ask that, with those reassurances, the noble Lord will be kind enough to withdraw his amendment at this time.
Viscount Eccles
Very briefly, I recall that 55 years ago, I used to be responsible for making 5 foot 8 inch diameter tunnel sections for the GPO tunnel system. The firm was called Head Wrightson, and it made many tonnes of the segments that made up the tunnel. There is no question of them deteriorating. As with the Northern line, which is older, they will be there for ever, because in London clay, cast iron has an almost infinite life. You will notice that when the Underground does things on old lines, it does not have to replace the tunnels.
On a more serious point, I urge my noble friend to have serious thought about the non-public records part—what could be loosely described as the stamp collection. It would be a great shame if it were not kept coherent and whole. I do not know if that can be achieved by some partnership agreement with the British Museum, for example, or some other imaginative idea about who would undertake some combined financial responsibility—perhaps partly charitable and partly public money. It would be a great shame if it was not kept together.
Baroness Wilcox
I will of course add the comments of the noble Viscount, Lord Eccles, to those that we have already heard in this debate. They will form part of our discussion before we come back at Report.
Lord Christopher
I thank noble Lords who have spoken in support of the amendment, which is very encouraging. I was going to call the noble Lord, Lord Brooke, my noble friend, because, as he said, he has been a friend for about 25 years. One of his remarks reminded me of a true story. I have been thinking about this for some time. The Inland Revenue has—or had; I hope that it still has—a very large and valuable collection of stamps which it seems to me appropriate to put into the museum. Some of them used to be exhibited in three or four large glass cases as you walked into Somerset House. You could view the stamps and they were changed. One day, someone from Stanley Gibbons came in and asked to see the chairman. He said, “Do you know what you have in your glass cases?”. The chairman said, “Well, stamps”. “Yes, he said, but there is £1 million-worth in there”. The stamps were then taken away. As far as I know, they are not being seen by anyone. That seems to me to be a great shame.
I thank the Minister for her remarks. Her early remarks were a bit technical and I will need to take some opinions on them but, in view of the assurances that she has given, I am content to withdraw the amendment.
Baroness Wheatcroft
Baroness Wheatcroft
My Lords, it is precisely because I do not want what is now known in so many quarters as snail mail to be consigned entirely to our heritage that I have tabled Amendments 25C and 30. I must confess that I have never done a mail round, but I have pushed numerous leaflets through numerous doors. Sadly, I never encountered a famous actor in a silk dressing gown or, indeed, a famous actor at all, but I met a lot of Rottweilers. I therefore know that our post men and women take risks when they go out on their rounds, and I applaud them and want them to continue doing that, but I do not believe that we should isolate Royal Mail from competition in the long term. That is what these amendments are about.
They take it for granted that we will have a regulatory regime that will allow Royal Mail to charge a fair price and to determine what products it offers. We had much discussion about that earlier in the day and received reassurances that the new regulatory regime will be more accommodating. However, there need to be safeguards. Amendment 25C concerns the move over from Postcomm to Ofcom as the regulatory authority. I do not want to malign every regulator, but one has to note that among regulators there are many tendencies towards doing more rather than less. It is somehow in the nature of the beast. Amendment 25C aims to put a line under what the regulator of postal services can touch. It decrees that before the appointed day for the change over from one regulator to another a line will be drawn and no other services should be brought within the scope of the regulation. It may be a technical amendment, but it seems one worth moving. We do not want to see, for instance, motorbike couriers or cycle couriers drawn within the scope of the legislation. There may be many of us who would like to see cycle couriers reined in, particularly those of us who have encountered them while driving, but that is not the role of Ofcom. Amendment 25C is intended simply to make it clear to the market that there are areas of deliveries that will remain free of regulation. I believe that that is important.
Amendment 30 covers the delivery of some of those election addresses that I, for one, have pushed through many doors. As noble Lords will know, the Representation of the People Act 1983 entitles candidates to a free delivery of election mail. I see no reason why we should preserve a monopoly situation here where Royal Mail is the only deliverer of that free address. Assuming that Royal Mail is able to charge a fair and profitable price for delivering what is known as the final mile, it seems perfectly reasonable that any other postal operator should be free to tender for that business. My noble friends Lord Jenkin and Lord Eccles stressed in earlier amendments that what we want to see is a market where competition flourishes. I believe that more competition might generate more business and that Royal Mail could in the end be the winner from that rather than the loser. I beg to move.
Lord Young of Norwood Green
My Lords, I oppose Amendment 25C moved by the noble Baroness, Lady Wheatcroft, and Amendment 30 also in her name. I do not think we can say arbitrarily that we are going to draw a line in the sand. Who knows what situations may arise? I did not quite understand that or get a validation of that argument.
As regards Amendment 30, we talked earlier about getting the balance right between trying to ensure the future of the universal service provider and competition. I am not sure why we would want to remove from the universal service provider this important and sensitive material in some cases, with a guaranteed standard of service and delivery of election material. The noble Baroness painted a picture whereby in the future it might be a competitive scenario but for the time being we believe that it should remain with the universal service provider.
Earl Attlee
My Lords, before turning to Amendments 25C and 30 in the name of my noble friend Lady Wheatcroft, I would like briefly to outline the important provisions that they seek to amend. The objective of Schedule 9 is to ensure a smooth transition between the current and the new regime, and to provide as much certainty to the market as possible. It enables Ofcom to carry out certain functions, including work on developing the new regulatory regime, during the transitional period between Royal Assent and the date at which Ofcom takes full responsibility for postal regulation on the appointed day. During the transitional period, Ofcom must determine the initial regulatory conditions, which will apply to postal operators until they are modified—if at all—once the Act fully comes into force and we move from a licensing to a general authorisation regime.
Amendment 25C seeks to add a requirement that Ofcom cannot impose any initial,
“conditions that could not have been imposed under Part 2 of the”,
Postal Services Act 2000. I would like to reassure my noble friend Lady Wheatcroft that there is no need for such an amendment. The schedule already provides that initial conditions,
“must be to substantially the same effect as the current licence conditions”.
There is no chance therefore of involving, say, motor cycle couriers.
Given that existing licence conditions stem from the 2000 Act, they will of course need to be compatible with it. It is inconceivable that in practice something could be substantially to the same effect as the current licence conditions without being compatible with the 2000 Act. The schedule also provides that were Ofcom to modify an initial condition, it cannot do so in such a way that was not compliant with the 2000 Act. I hope that this provides my noble friend with reassurance and that she will feel able to withdraw Amendment 25C.
Amendment 30, which concerns the Representation of the People Act 1983, would substitute the words “postal operator” for “universal postal service provider” with the intention of opening up to government the option of utilising any postal operator for the delivery of election material at public expense. My noble friends propose to make this amendment to Schedule 12, “Minor and consequential amendments”. While we see that there could be merit in opening up this area to competition, the proposed amendment cannot, in the Government’s view, be considered a simple minor consequential amendment as it has significant wider policy implications for the management of elections.
We would need to consider carefully all the implications and potential policy consequences before making any such change, and the timing of the Bill does not allow for that. I believe that this is an issue that requires further consideration, including discussion with other political parties, which I am sure will be of interest to the noble Lord, Lord Young. My officials have been liaising with their counterparts at the Cabinet Office, who have given an assurance that the matter is already on their radar for consideration and will be looked at as part of the wider work on the overall operation of elections following the referendum.
While I have sympathy with the intention of the amendment, I hope that my noble friend will accept this reasoning and not move Amendment 30 at the appropriate time.
Viscount Eccles
My noble friend has referred extensively to Schedule 9 covering the transitional arrangements, to which the amendment moved by my noble friend Lady Wheatcroft also refers. Those arrangements are very necessary because it has been agreed by Postcomm itself that its present regulatory system is dysfunctional, although to be correct, I think the words used were “not fit for purpose”. We are therefore moving from a regulatory system which is not fit for purpose to another one by another regulator. Of course I agree strongly with my noble friend in what she said about regulatory creep. So we are moving from an unsatisfactory situation into the unknown.
I have a second and rather more important point to make. My noble friend on the Front Bench keeps referring to Ofcom, which is absolutely right, but Schedule 9 gives the Secretary of State three order-making powers. Given that, we must ask the Government just to think through what they might say at the Report stage about this transitional period. It is all very well to say that Ofcom will do this and Ofcom will do that, but it is accountable to the Secretary of State who in turn is accountable to Parliament. If Ofcom makes a recommendation, it may have the power to make an order itself. It does in certain circumstances, although on many occasions it does not have it without the approval of the Secretary of State. What I think Members of the Committee on all sides are interested in is not just Ofcom’s attitude towards regulation, but the Government’s attitude to the system of regulation which is laid out in tremendous detail in the Bill and which, earlier in the day, my noble friend Lord De Mauley said would be given further consideration.
I am not sure that I have put it terribly well, but I think we still need to understand the basic attitude of this Administration towards a regulatory system for which, as it also said in Postcomm’s February paper, the building blocks have yet to be constructed.
Earl Attlee
My Lords, it may be helpful to the Committee if I explain the extra flexibility that “substantially the same effect” clearly gives Ofcom compared with the wording of the amendment. Where possible, Ofcom should be trying to make the initial conditions compatible with the new regime. There may be circumstances where an existing licence condition is not technically capable of transferring to the new regime, but it is possible to create a new regime requirement that has substantially the same effect. I think that that would be a desirable outcome.
Baroness Wheatcroft
My Lords, I thank the Minister for his response. I am to some extent relieved to know that nothing other than minor changes will be possible under the legislation. However, I share the concerns of my noble friend Lord Eccles that regulatory creep is something that we need to be eternally vigilant about, so I trust that this will continue. On Amendment 30, I was delighted to hear my noble friend say that this is already under consideration, and I look forward to seeing how that progresses. I am more than happy to withdraw the amendment.
“( ) the rescue as a going concern of the company subject to the order,”
Lord Stevenson of Balmacara
The amendment introduces an additional objective for the postal administration so that the main aim should be to rescue as a going concern the company that is subject to that order. This means that, instead of staying neutral as to whether the current universal service provider should be allowed to fail and should be replaced by an alternative or whether the company should be saved, the postal administrator would have a primary duty to seek to save the company.
When this issue was raised in the House of Commons Public Bill Committee, Mr Ed Davey said:
“We hope that we never find ourselves in either of those scenarios, and we do not expect that we will. Both procurement determination and the special administration provisions are genuine backstops, only to be used if the future of the universal service is at risk”.—[Official Report, 7/12/10; Commons, Postal Services Bill Committee, col. 602.]
While it is reassuring to read what the Minister said and that backstops will exist, it is essential that the Bill properly reflects this intention.
Transferring all or part of the universal service provider to another company, should it find itself in financial difficulty and subject to a postal administration order, would be hugely disruptive to customers, to service provision, to the company and to its staff. While it may not always be possible to support the company and help it become a going concern, there should surely be a presumption that this is the first and least disruptive course of action to be pursued. If this is not possible, the option to pursue a relevant transfer of course remains.
Royal Mail operates on a huge scale. While the business is modernising successfully, should it find itself in financial difficulty, this would likely be attributable to significant market changes and potentially an unsympathetic regulatory regime which exacerbated the problem rather than supported the company as a universal service provider. Therefore, we propose a further amendment, Amendment 25E, to ensure that the postal administrator takes into account the interests of employees of the company. Should the business go into administration, it is hard to see that passing all or some of the business to an alternative mail operator would be good for the employees. It would clearly, where possible, be preferable to re-establish the business as a going concern, and that is why we make these proposals.
Amendment 26A refers to the regulatory powers exercisable during postal administration. We note that Clause 80 creates a huge power, including in Clause 80(5), which says:
“The Secretary of State may by order amend section 30”.
The regulatory regime—in particular, access pricing—has been one of the most contentious areas of regulation since the introduction of competition into the United Kingdom. Indeed, the updated Hooper review of 2010 recommended the introduction of a new access regime to ensure the right balance between competition and the financial sustainability of the universal service.
It is rare for regulators to be loved and it is clear that Postcomm did not get the balance right. Among the outcomes of its tenure is the fact that Royal Mail’s competitors now have more than 60 per cent of the pre-sorted, “upstream”, bulk mail market, the most profitable business sector of the letters market. So we can certainly see how regulation can go wrong.
Unless the right balance is struck in pricing, there are likely to be further reductions in the universal service, at great cost to the public. The amendment would restrict the Secretary of State's hand so that an order to amend Section 30 may not do so in way which reduced the extent of the minimum requirements of the universal postal service. We hope that the Government will see this is a reasonable provision and support it.
Amendment 25F deals with postal transfer schemes and stems from the report of the Delegated Powers and Regulatory Reform Committee of this House, which invited the House to consider whether the Secretary of State’s approval, so far as it relates to the exercise of power in paragraph 9 of Schedule 11, should be subject to the negative procedure. Schedule 11 contains provisions for transfer schemes to achieve the objective of a postal administration. New paragraph 9(4), proposed by the amendment, would set out the conditions for approval and modification of a postal transfer scheme by the Secretary of State. The Secretary of State has to have regard to the public interest and must consult Ofcom prior to any modification of the scheme, but there is no requirement to consult Parliament. The amendment would therefore strengthen oversight and accountability for the Secretary of State’s approval or modification of postal transfer schemes. As the Bill stands, the Secretary of State has complete discretion to approve or modify a postal transfer order without any reference back to Parliament. The amendment would make such a decision subject to the negative resolution procedure as recommended by the committee. I beg to move.
Lord Christopher
These amendments certainly deserve support. One of the problems with writing the law is that you do not necessarily relate it to what is going on in the global economy. As I have said before, one should not rule out the prospect that whoever buys Royal Mail may get into difficulties and present you with considerable problems.
There are two examples at the moment, one of which is certainly ongoing and the other is, apparently, temporarily resolved. Not many people know that all the fire engines in London are owned by a company called AssetCo, which recently got into significant financial difficulties. I am told that it will be all right on the night but I have never seen anything to give me assurances about that. It certainly begs a question in my mind as to what would have happened if AssetCo had gone into administration or whatever. The other case, which is certainly continuing, concerns Southern Cross, one of the largest care home companies in Britain, with 31,000 residents in 750 homes. As I understand it, it is owned to a substantial degree by a company in the Middle East. I am not sure what would happen if the worst came to the worst in respect of these. It is therefore appropriate for the Government to place within the Bill sufficient provision to ensure not only that the service continues but that the staff are looked after and their future provided for. I can see no reason why these amendments should not be accepted.
Earl Attlee
My Lords, before I address the amendments it may be helpful to the Committee if I say a few words about the policy intention behind Part 4 of the Bill, which introduces a special administration regime. The noble Lord, Lord Christopher, suggested other areas which could, in certain circumstances, cause problems.
These special administration provisions are contingency provisions. We believe that the package of measures set out in the Bill will secure the future of Royal Mail and the universal postal service. The special administration provisions are simply the Government acting prudently and putting in place sufficient contingency plans to ensure that the universal service continues to be provided in the unlikely event that the provider is at risk of entering insolvency proceedings. The noble Lord, Lord Stevenson, referred to the possibility of this arising from an unsympathetic regulatory regime. I remind the noble Lord that the whole object of the Bill and the duty of Ofcom is to secure the universal postal service.
As set out in Clause 67, the overriding objective of a postal administration is to secure the universal postal service that so many of our communities and small businesses rely upon. In order to do this, the administrator and the Secretary of State must have the necessary tools and be able to use them swiftly and decisively to preserve the universal service. It is in this context that we must consider Amendments 25D, 25E and 26A.
Amendments 25D and 25E seek to add additional elements to the objectives of the postal administration. Amendment 26A would restrict the Secretary of State’s power to reduce the regulatory burden on the universal service provider while it was in special administration. Amendment 25D is intended to protect the interests of employees, while Amendment 25E seeks to ensure that the universal service provider is rescued as a going concern. I understand the intention behind the amendments but, as I have said, time will be of the essence in a special administration scenario. To act swiftly and decisively, we must be absolutely clear about the overriding objective, and in this case that must be the continued provision of the universal postal service. To add other objectives would reduce the administrator’s ability to take the action needed to secure the universal postal service—which must be our overriding aim.
Lord Stevenson of Balmacara
I thank the Minister very much for his comments. He came up to us at the end of day three of the Committee stage, with a more mournful expression than he sometimes has on his face, saying that we had cheated him of his moment of glory because we had withdrawn our amendment at quite short notice. It was the only amendment that he was down to speak to that day, and we took it away from him. Now here he is, irresistibly back in the Box, popping up all the time. So it does come back; it goes in rounds.
Quite a lot of what we have talked about today are what could be described as mop-up provisions and backstops—things that are very unlikely to occur. The Minister argued that, as a result, we did not really need to put them in the Bill, because they were so unlikely that it would be a waste of our time to spend our precious moments on them. In The Hitchhiker's Guide to the Galaxy, a book that I am sure all noble Lords have read, or listened to the programmes, there is a vehicle driven by a thing called the improbability drive, which has the result of making the space travellers turn up in the least likely situation that can be imagined at the time of their arriving. In a situation where they are being threatened by giants and attacked from all sides, they think of something completely unlikely and are immediately transported there. I simply say this because sometimes the impossible and the improbable does happen; we should not be deluded into thinking that it is so remote that we should not have provisions for it. That was what inspired us to put forward these proposals, some of which the Minister looked at sympathetically and some of which he did not.
It is important to have contingency provisions, and we are not arguing against that, but if we are going to do that we should be consistent. I hope that on reflection the Minister might accept that there were one or two points in what we said that might be worthy of a little bit more consideration. The principle on which we have been working is that if the aim is continuity, the going-concern process would be the least disruptive. That is why our amendments are framed as they are. I do not think that anything the Minister said is against what we are trying to achieve. My sense is that the whole process of going into administration would be such a major issue that making sure that there was greater concern than currently expressed in the statute for going concern would be helpful. But we would not push that at this stage.
As we reach the end of our discussions here, I wanted to say that, particularly today but as mentioned on a number of occasions in Committee, we have been a little unkind about Postcomm. We had a quotation from the noble Viscount that expressed in its own terms what it felt about itself. Even so, I am sure that the people at Postcomm have done what they could with possibly difficult ammunition to achieve what Parliament wanted them to do, and no personal criticism should be implied by what we or anybody else has said. On the other hand, the Minister kindly pointed out what the framework was for the new regulatory structure and expressed various options and hopes for that, but he did not say that Ofcom would not be an unsympathetic regulator in the same way as Postcomm was. We should bear that in mind. Having said that, we register our support for government Amendment 26.
Viscount Eccles
I intended no criticism of the individuals in Postcomm. We need to remember that regulators have only a limited amount of independence. We are inclined to talk as though they had a rather larger amount of independence than they actually have. When I look at the 2000 Act and think about the policy intentions behind it and the interpretation of them, I am not entirely surprised that Postcomm got itself into what it admits is a very difficult position. In any evaluation of how the present situation comes about, we have to remember—and that is exactly why I intervened on Schedule 9—that the Government of the day are in the final analysis the accountable body and Parliament with it, and the regulator is trying to carry out their wishes as it interprets them, with a certain amount of independence, but only a certain amount.
Earl Attlee
My Lords, I must confess to never having read The Hitchhiker’s Guide to the Galaxy, but I do have my own personal copy of the law of unintended consequences, which was passed many aeons go. I am happy to have further discussions with the noble Lord offline and we take on board his comments about Postcomm.
Baroness Wilcox
“An order under this subsection is subject to negative resolution procedure.”
Lord Kennedy of Southwark
“( ) A postal operator wishing to exercise the power to impose surcharges on or detain items where the postage is unpaid or underpaid shall take steps to identify items priced and posted over the counter at a post office or such other designated access point provider.”
Lord Kennedy of Southwark
My Lords, my noble friend Lord Whitty is unable to be in your Lordships’ House today and I have agreed to move this amendment on his behalf. The provisions in the Bill allow Royal Mail to detain postal packets and to impose a surcharge in respect of non-payment or underpayment. When the correct amount is not paid or no payment is made that is absolutely right—I have no problem with that whatever—but the Bill is too one-sided. This series of amendments seeks to redress the balance so that the consumer who, through no fault of their own, finds themselves in dispute with the Royal Mail about whether the correct price or any price has been paid has the basis of making a case to be considered.
Presently, the burden of proof rests entirely with the consumer. I am sure that all of us in this Committee would accept that mistakes happen. This amendment seeks to take account of that fact and that, on occasions, people have gone into Post Offices and paid the correct fee to send their packet through the system but the appropriate stamps have in error not been affixed. The packet goes on its merry way and the intended recipient at the other end has it delayed and can only get their hands on it on payment of a surcharge, even though the packet’s delivery has been paid for. This is not fair and not right.
Noble Lords may ask, “Where is your evidence?”. Well, I have it and I will happily give it to the Minister later. The evidence is a special delivery, signed-for packet to Consumer Focus from Royal Mail itself. Royal Mail forgot to put a stamp on the packet, then surcharged Consumer Focus for the pleasure of receiving papers from Royal Mail. The Government need to look carefully at this area. Maybe such a detailed provision does not need to be included in the Bill at all. If it is retained, there needs to be some protection for consumers from unjustifiably imposed surcharges. I beg to move.
Earl Attlee
My Lords, as we have discussed, for the universal service to be sustainable the provider must be able to cover its costs. The nature of our postal network means that it is possible for users, inadvertently or otherwise, to put items into the system without the correct postage. In such situations, to prevent the system from unravelling, it is vital that postal operators can recover the postage that should have been paid. Paragraph 35 of Schedule 12 to the Bill gives postal operators the right to detain items with insufficient postage until the correct amount has been paid and allows them to impose a surcharge. Importantly, Ofcom may limit the amount of the surcharge and the length of the detention period. Once the correct postage and any surcharge have been paid, the operator may no longer detain the item.
Amendments 28 and 29 in the name of the noble Lord, Lord Whitty, and ably—and, I have to say, wickedly—moved by the noble Lord, Lord Kennedy, with his knock-out argument, seek to prevent detention or surcharging if the item was priced and posted at a post office or other such designated access point provider. Amendment 27 would require postal operators wishing to detain or apply surcharges to underpaid items to take steps to identify items priced and posted at a post office or other such designated access point provider.
While I fully understand where the noble Lords are coming from, I do not think that legislation is the solution to this problem. I understand from Royal Mail that if a customer complains that they were surcharged for an item that was posted at a post office, the surcharge is automatically refunded.
In addition, I understand that this is a relatively small problem. Between October and December 2010, Post Office Ltd had around 300 complaints about surcharging of underpaid mail posted at a branch. In a typical quarter, however, the Post Office will conduct over 100 million label or stamp transactions. Complaints about surcharging to Royal Mail amount to 1 per cent of the total complaints received.
Given that there are effective systems in place to deal with these matters, I fear that imposing the regulatory burdens proposed by these amendments would be disproportionate to the scale of problem. I hope that the noble Lord will reflect and feel able to withdraw the amendment.
Lord Kennedy of Southwark
My Lords, I thank the Minister for his response. These issues need looking at. I am happy at this stage to withdraw the amendment but my noble friend Lord Whitty may bring this back on Report. I beg leave to withdraw the amendment.
Baroness Wilcox