Royal Mail and the Universal Service Obligation

(Limited Text - Ministerial Extracts only)

Thursday 12th January 2023 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to speak with you in the Chair, Ms Ali. I congratulate the hon. Member for Jarrow (Kate Osborne) on securing this really important debate about Royal Mail and the future of the universal postal service, and I very much appreciate her experience and expertise, and what she is able to add to this very important debate. She talked about the changes at the top of Royal Mail, as well as the changes in personnel in my role. I pay tribute to my predecessors, not least for their unwavering commitment to Royal Mail workers, who do such a fine job, and to a universal postal service, which I will come to in a second. Today’s debate is the second I have had on this matter in this Chamber this week, which shows how important the subject is to our constituents and to fellow Members of Parliament. I agree with the way the hon. Lady described the service; it is a lifeline for many throughout our communities.

I thank all right hon. and hon. Members for their important contributions. As they know, postal services are an integral part of the modern economy, allowing the smallest of businesses to connect with customers across the world and providing consumers with access to a vast range of products. Most people rely on at least some important information to be delivered by post. Cards and letters remain a special way to keep in touch with loved ones, and, as the hon. Member for Luton South (Rachel Hopkins) said, it was hugely important that covid tests were distributed properly during the pandemic.

In the last financial year, all postal operators delivered around 3.8 billion parcels across the UK and Royal Mail delivered around 8 billion addressed letters. My hon. Friend the Member for Wantage (David Johnston) is right that the volume of letters delivered has dropped to 8 billion; it was around double that in 2013, at the time of privatisation. Nevertheless, the importance of the postal service in keeping people connected was never more apparent than during the covid pandemic. We are hugely grateful to the delivery workers, who worked exceptionally hard to deliver letters and parcels in those difficult circumstances.

My right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale (David Mundell) and the hon. Member for Glasgow South West (Chris Stephens) talked about the pride that postal workers feel in their jobs. I absolutely concur with that. My father was a milkman in our local community. The hon. Member for Glasgow South West talked about how vulnerable members of the community are looked after by postal workers, and that was the experience of my father in our little local community as well, so I fully recognise the importance of the service.

Post offices also play a unique and vital role in the UK’s postal system. We are committed to ensuring that we keep a minimum of 11,500 branches throughout the UK, with 99% of the population being within three miles of a post office. That is why we have invested £2.5 billion in the post office network over the last 10 years.

The hon. Member for Eltham (Clive Efford) seemed to think that Government Members view public service workers as enemies. I gently say to him that I take exception to that. We all have friends and relatives who proudly work in the public service. My mum was a social worker who worked in the public sector all her life, and she did a fantastic job, so I do not recognise the hon. Gentleman’s characterisation, and I do not recognise in my colleagues, either.

[Clive Efford]

My simple question is: how will the Minister vote on the Bill on Monday?

[Kevin Hollinrake]

We will have a good opportunity to debate the Bill on Monday, so I do not want to get dragged into that right now.

[Ian Lavery]

Yes or no?

[Kevin Hollinrake]

As the Minister concerned, clearly I will vote in favour, as the hon. Gentleman would imagine, but let us have a good debate about that on Monday. I spoke to one of the hon. Gentleman’s colleagues, the Chair of the Business, Energy and Industrial Strategy Committee, the hon. Member for Bristol North West (Darren Jones), today, and he said he was very supportive of a minimum service level, so we should not draw battle lines on this issue simply on party political grounds. But perhaps we should have a go at debating that on Monday.

The importance of the universal postal service is a key element of today’s debate, as mentioned by many hon. Members, including my right hon. Friend the Member for Dumfriesshire, Clydesdale and Tweeddale, my hon. Friend the Member for Wimbledon (Stephen Hammond), and the hon. Members for Reading East (Matt Rodda), for Luton South, for Wansbeck (Ian Lavery) and for Ilford South (Sam Tarry). Our objective continues to be the provision of a financially sustainable and efficient universal service that meets the needs of users, within an open and competitive postal market. That is why the six-day-a-week, one-price-goes-anywhere, universal service remains at the heart of the regulatory regime, and why Ofcom has a primary duty to secure its provision.

My hon. Friend the Member for Wimbledon asked what I am doing to make sure that Ofcom meets its responsibilities. I met the head of Ofcom and other members and pointed out very clearly its role as a regulator, and in ensuring that this service continues.

To be completely clear, the Government currently have no plans to change the statutory minimum requirements of the universal postal service, which are set out in the Postal Services Act 2011.

[Chris Stephens]

I take what the Minister says in good faith, but could he maybe just respond to some of our concerns about the actions of Royal Mail and the proposed takeover from Vesa Equity? While the Government are saying that they want to keep the six-day service, Royal Mail management and some of its shareholders seem to be trying to do something completely different.

[Kevin Hollinrake]

The hon. Gentleman raises an important point. I will come on to the Vesa point later, but set out in the legislation, from back in 2011, there is a clear and transparent process for how any changes to the universal postal service should be considered. That was coalition legislation. Any such change would need to be made through secondary legislation and be agreed by Parliament. We would also expect Ofcom to consult with all stakeholders. Our position has been very clear in my meetings with Royal Mail and Ofcom: we think that the six-day service should continue.

Ofcom has a monitoring regime in place to identify any risks or threats to the universal postal service. Since 2012, it has published an annual report setting out key data and trends in the postal sector, the impact of the changing market dynamics on UK postal services, and Royal Mail’s performance. Royal Mail is clearly facing some challenges, particularly given the long-term decline in letter volumes and the currently challenging economic backdrop, but I have yet to receive any convincing case for a need to change to meet users’ needs and to ensure the financial sustainability of the universal postal service.

A number of hon. Members, including my hon. Friend the Member for Wimbledon and the hon. Member for Jarrow, raised a point about large business owners and the impact on large businesses, such as those that produce magazines and the like, and how they would be impacted. We would fully expect their needs to be taken into account, in terms of user needs’ surveys. The hon. Member for Reading East talked about the impact on small and medium-sized enterprises—something that is very important to me personally—and making sure that they can get marketing messages out to communities across their target areas.

I have made it clear to Royal Mail that it needs to make any case for change to Ofcom and that I will fully consider any advice the regulator gives me on the future scope of the universal postal service.

Hon. Members have understandably raised concerns about Royal Mail’s service delivery performance. The hon. Member for Liverpool, West Derby (Ian Byrne) and my hon. Friend the Member for Wimbledon both raised that point. It is true that the business has faced increasing pressures over the last few years, not least the coronavirus pandemic and the industrial relations dispute with the Communication Workers Union. There have been impacts on the business and the users of postal services. It is regrettable to see postal services disrupted due to strike action and to see the impact that that is having on consumers, businesses and other users.

We are not involved in the negotiations, given that Royal Mail is a private company. However, we are monitoring the dispute closely and have urged Royal Mail and the CWU to reach a resolution as soon as possible. I know there are ACAS talks right now and there will be no further strikes until 20 January, until the talks have concluded. I very much hope that the talks will prove successful.

[Ian Lavery]

Before the Minister concludes, will he comment on the fact that Royal Mail is openly bragging that it has £1.7 billion in a war chest for union-busting and investing in the company?

[Kevin Hollinrake]

I will come on to that important point.

Among other things, Royal Mail is required by Ofcom regulation to achieve certain performance targets in the delivery of its universal service products to ensure that consumers receive an adequate level of service. The regulator has powers to investigate and to take enforcement action, as it did when it fined Royal Mail £1.5 million in 2020 for missing its 2018-19 first class national delivery target.

Ofcom does accept that covid-19 has had a continued impact on Royal Mail’s service delivery, which is why Ofcom did not fine it for its regulatory obligations breaches last year. However, in that decision, Ofcom also noted its concerns, which should concern us all, about Royal Mail’s performance in the early part of the year, which Ofcom felt fell well short of where it should be. Ofcom believes that Royal Mail has had plenty of time to learn lessons from the pandemic, which will mean that it is unlikely to consider the factors considered for 2021-22 as exceptional and beyond its control in the future. Royal Mail has committed to restoring quality of service as soon as possible, and I expect Ofcom to keep a close eye on its performance over the remainder of this year.

Points about renationalisation were raised by the hon. Members for Glasgow East (David Linden), Coventry South (Zarah Sultana) and Glasgow South West and others. While Royal Mail undoubtedly faces challenges, the Government are clear that renationalising the business is not the answer. One of the primary reasons for the sale was to enable Royal Mail to access the capital it needs to invest. When Royal Mail was independently reviewed in 2008 for the last Labour Government, we were told that it was underfunded and had not kept pace; it was 40% less efficient than equivalents around the world.

Financial performance was raised by the hon. Member for Wansbeck and the hon. Member for Cynon Valley (Beth Winter). I think the hon. Member for Cynon Valley said that she had not had a response to her letter. I have asked my officials to look into that urgently, along with the letter from the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), to ensure that they get responses quickly; I apologise for that.

In terms of profitability, it is important to look at Royal Mail in isolation, rather than at IDS itself. Different figures have been bandied about. Look at profitability this year: as Members have mentioned, in the same period in the previous year it made a profit of £235 million —this year, it made a loss of £220 million. To answer hon. Members’ questions, in its regulatory notice in the Regulatory News Service—in which the information must be accurate—it blames that on the strikes, the lack of productivity improvements that were set out in the “Pathway to Change” document and the macro-economic climate.

The hon. Member for Wansbeck described the £1.7 billion invested as a war chest to fight unions; I do not think that that is an accurate statement. I saw it reported in one of the papers—I think it stated that it was £1.7 billion to invest across the businesses. That does not mean that it uses that war chest to simply fight industrial action, and I would not expect that to happen. We are keen to ensure that the dispute is resolved, and amicably.

Royal Mail has invested more than £2 billion in the UK business since privatisation, including £900 million over the last three years and £441 million in the last financial year, in areas such as electric vans, two new parcel hubs, automation and improving its poorest performing delivery offices. Importantly, that investment is transforming how Royal Mail operates, with parcel automation up from 12% in 2019 to 65% now. There is certainly room for improvement in Royal Mail’s service delivery. Ofcom’s analysis tells us that most consumers continue to be satisfied with postal services, but we should continue to challenge Royal Mail on its performance.

As I have set out, the Government remain committed to securing a financially sustainable and efficient universal postal service for users throughout the UK that is accessible and affordable. There are currently no plans to change the minimum requirements of the service.