Royal Mail

Baroness Clark of Kilwinning Excerpts

Tuesday 25th June 2013 Westminster Hall

[Katy Clark (North Ayrshire and Arran) (Lab)]

It is a pleasure, Mr Davies, to see you in the Chair and to have secured this debate on the privatisation of Royal Mail. I should declare an interest here. I am chair of the Communication Workers Union’s parliamentary group. Members may well be aware that only last week in a consultative ballot on Royal Mail 96% of CWU members voted to reject the Government’s proposals in relation to privatisation. Other organisations such as the National Federation of SubPostmasters have also expressed concerns about the Government’s plans and have called for a delay in the proposals. It says that post offices will face an “extremely uncertain future” should the proposals go ahead. Given the concern in the industry about the Government’s plans, Parliament should have the time and the opportunity to debate such issues.

In addition to the concerns that I have just outlined in relation to post offices, the affordable six-day service is under threat and would be less secure if Royal Mail is transferred into private ownership. The Government claim that the universal service is enshrined in law, but many aspects of the universal service obligation are set by the regulator and can be easily changed. The track record of the regulator to date does not inspire confidence. The regulator has recently consulted on user needs from the universal service. It looked at ways in which the universal service could be changed to make it cheaper to run, including getting rid of first-class mail and therefore next-day service, reducing quality standards and cutting delivery days from six to five days each week. The regulator stepped back from making any changes, but a privatised Royal Mail under severe pressure to compete and to generate a return for shareholders is likely to lobby for such changes.

In the coalition agreement, the Government said that they would aim to inject private capital into Royal Mail. The Postal Services Act 2011, which was passed by Parliament in the last parliamentary session, enables the Government to proceed with the sell-off of the 497-year-old postal service.

In January 2012, during the passage of the 2011 Bill, I secured a debate on the privatisation of Royal Mail that focused on the impact that privatisation might have on the post office network.

[Mr Jim Cunningham (Coventry South) (Lab)]

I am sure that, later on, my hon. Friend will touch on the matter of the remote areas of this country, such as Cornwall, Devon and the isles in Scotland. Under the proposals, many people will not get regular mail and will therefore feel cut off, especially when it comes to receiving giro cheques and other such things and communicating with their families.

[Katy Clark]

As my hon. Friend will be aware, I represent a constituency which has, as well as many deprived areas, rural and island communities. I am aware of the concern in such areas over the implications of privatisation should it go ahead.

[Mr Andrew Turner (Isle of Wight) (Con)]

Although this proposal is an opportunity, it also has some costs. My concern is that rural and island areas such as mine would face problems. Is it the case that keeping the service with Ofcom provides a guarantee and means that there will be no change?

[Katy Clark]

I hope to explore some of those issues in today’s debate. The fear is that the current regime, which was set up under the 2011 Act, will not give the kind of security that many of us feel is required.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Lady for being so gracious in giving way and congratulate her on securing this debate. The fact that so many Members are here indicates the interest in the matter across the whole United Kingdom of Great Britain and Northern Ireland. Is she aware that the annual profit of Royal Mail has risen by up to 60% in the past year, which shows that we now have a more viable and stable business? Does she also think that, perhaps for older people in rural areas, the post office represents more than just a place to go to buy their postage stamps and that the impact on them will be greater than on anyone else in the population?

[Katy Clark]

The hon. Gentleman makes a powerful point, which I hope to explore in my speech. The point that I was making 18 months ago when I previously secured a debate on this issue was that no other country in the world has attempted to do what the Government are doing here, which is to separate the mail service from the post office network. At that time, a great deal of the concern over the proposed privatisation related to the already vulnerable post office network. At the time, there were many warm words from the Government about how post offices would not suffer as they would become the front of house for the Government. Indeed, the Government said in that debate that they were looking at a range of both national and local government services that post offices could provide. They said that post offices could act as the front line for users in local communities.

One of the major reasons why the National Federation of SubPostmasters is now saying that there should be an immediate delay in the privatisation plans is that the Government have failed to deliver on that promise. Its concern is that post offices remain highly dependent on Royal Mail transactions. It says that both post offices and a stand-alone Post Office Ltd would have a highly uncertain future should privatisation of Royal Mail go ahead.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is making an excellent speech. Integral to the whole postal and Royal Mail industry is the cross-subsidy, which is justified because the industry is, at least in part, a public service; it is not just a commercial service. Does she agree that if it is a public service and there is cross-subsidy, it does not fit with the private sector?

[Katy Clark]

I do indeed agree with my hon. Friend.

[Ann McKechin (Glasgow North) (Lab)]

May I add an additional factor? My hon. Friend and I are on the Business, Innovation and Skills Committee, and last week, we took evidence from Royal Mail on the impact of the independence referendum, which is due to take place after the timetable for privatisation. The representative was unable to provide any scenario planning by Royal Mail should the referendum result be a positive one for independence, or to tell us what the consequences would be for Royal Mail. Does she not agree that that was utterly astonishing?

[Katy Clark]

I thank my hon. Friend, who serves with me on the BIS Committee. I was also astonished by that fact. There are specific issues for Scotland, given its demographics and its large rural areas. My fear is that if Royal Mail was allowed to be privatised, the consequences in Scotland would be particularly harsh.

[Jeremy Corbyn (Islington North) (Lab)]

My hon. Friend has been generous with her time. I agree with the points that were made earlier about the separation and atomisation of the whole post office network between post offices and mail delivery. Is she aware that those of us who are fighting to defend our post offices, such as the one in the Holloway road in my constituency, are told that the solution is to hand it over to a supermarket, get rid of the staff and bring in staff on lower wages who will share what is already a very busy post office with the supermarket. The proposals are nonsense and are claiming all kinds of losses that I do not think exist to justify privatisation of a valuable public service.

[Katy Clark]

My hon. Friend clearly expresses the risks that exist in city as well as rural areas.

Before I move on to the next part of my speech, I call on the Minister to outline what work has been done to date to provide more Government work to the post office network and to say what work is in progress and will be completed prior to privatisation going ahead.

[Margot James (Stourbridge) (Con)]

I congratulate the hon. Lady on securing this important debate. However, will she not acknowledge that under the previous Government many post offices were closed with inadequate consultation? In my constituency, we saw several closures. At least under this Government there has been an end to those closures. Also, contrary to what the hon. Member for Islington North (Jeremy Corbyn) said, in my constituency we are working with some very good supermarkets to bring back a post office counter service that will deliver 95% of what a traditional post office would have delivered, and surely that is a benefit.

[Katy Clark]

I am grateful to the hon. Lady for that intervention. Of course, I served with her on the BIS Committee for a considerable period. Clearly, she is making a party political intervention. Unfortunately, we are still seeing post offices closing as a result of the vulnerable situation that they are in, and we must not be complacent. We need to ensure that we put in place a framework whereby the Post Office is able to survive and our mail services can operate in such a way that they have a long-term future.

[Mr Mike Weir (Angus) (SNP)]

rose—

[Jake Berry (Rossendale and Darwen) (Con)]

rose—

[Katy Clark]

I will take one more intervention, from the hon. Member for Angus (Mr Weir).

[Mr Weir]

I thank the hon. Lady for giving way and she is quite right that some post offices are still closing. However, many other post offices are suffering from having to offer reduced services, because they are being moved on to the Post Office Local model, and in some cases the Post Office is approaching local postmasters and asking them if they want to change or retire and consequently downgrading the service.

[Katy Clark]

The hon. Gentleman puts his point well. I will now move on to discuss some of the issues relating to Royal Mail itself, because I think that we have fully explored some of the challenges that the post office service will face if this privatisation goes ahead.

Since the legislation was passed, the Government have taken a considerable number of steps to prepare Royal Mail for privatisation. Royal Mail Holdings Ltd, as it is now known, is currently a 100% publicly owned UK-wide company, which was established as a sister company to the Post Office. This restructuring took place as part of the preparation for privatisation. A legal framework has been created that makes Royal Mail responsible for the collection, sorting and delivery of letters and parcels under a universal service obligation. The Government have indicated that they intend to sell shares in Royal Mail in the financial year 2013-14. Indeed, in a written statement in April, the Minister said that the Government would proceed with the sale of shares at what he called a fair commercial price.

[Lisa Nandy (Wigan) (Lab)]

I am grateful to my hon. Friend for giving way, and I congratulate her on securing this debate. Earlier, she made a compelling case about who stands to lose from the Government’s sell-off of Royal Mail, but I am pleased that she has turned her attention to who stands to gain from it. Does she share my concern that the Government are refusing to answer questions from my hon. Friend the Member for Edinburgh South (Ian Murray) about the involvement of Goldman Sachs and UBS, and that—despite repeated requests under the Freedom of Information Act—they will not reveal the fees that Goldman Sachs and UBS stand to make from the sale of Royal Mail?

[Katy Clark]

I am very grateful to my hon. Friend for that intervention. Indeed, that was one of the questions that I was going to ask the Minister, and she has saved me from putting it to the Minister in my speech. I very much hope that he will address that issue when he responds to this debate.

In the Minister’s letter to all MPs dated 17 May, which enclosed a copy of a speech that he had made to the Policy Exchange, he stated that the Government’s policy was not ideological and a number of assurances were given to MPs. It would be useful if he could provide the House today with a great deal more information about what the Government plan to do and how many shares they will sell off.

Royal Mail is unique in the UK postal market in that it is the only universal service provider. The 2011 Act has enabled a regulatory framework to be created, so that persons are automatically entitled to provide postal services provided that they notify Ofcom and comply with the conditions set by that organisation. This is a serious threat to Royal Mail, as competitors are now entering the end-to-end market.

[Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)]

I am very grateful to my hon. Friend for giving way and I congratulate her on securing this very important debate. I am sorry that I missed the early part of her speech. Does she agree that the current approach is really about privatising profitability but nationalising debt—in other words, corporatism?

[Katy Clark]

I agree with my right hon. Friend. Indeed, the profits currently being made by Royal Mail have already been highlighted in an earlier intervention.

Many MPs will be very aware of some of Royal Mail’s competitors, such as TNT, which for many years have had a role in the postal market through what have been called downstream access contracts. Of course, many MPs will be aware of that from their annual visits to post offices at Christmas, where they will have heard of the frustration of those who work in sorting offices at having to deliver items for TNT and other organisations for what is called “the last mile” or so, and at a financial loss to Royal Mail. There is a very strong view that this practice is unfair and that it is unreasonable to expect Royal Mail to carry out that work at such a loss-making rate. My experience of meeting delivery staff working for Royal Mail is that they have a very high level of public service ethos and wish to see the highest possible standards in service to the public. There was real frustration that Royal Mail was being forced to operate with its hands tied behind its back in this way.

Now, however, TNT is also being allowed into the end-to-end market. TNT has set up a delivery service in west and central London, and it recently announced the extension of that service to south-west London. Of course, TNT is able to win business because it can choose where, when and what to deliver, without the quality of service standards and by undercutting the jobs, pay and conditions of other postal workers.

[Joan Walley (Stoke-on-Trent North) (Lab)]

I congratulate my hon. Friend on securing this debate, and I hope that she will get some response from the Minister. However, I must say to her that it is not only in rural areas that we are concerned about the loss of what is the universal standard; it is also in urban areas. We could be facing the prospect of just one or two deliveries a week—far fewer deliveries than at the moment under the present certainties that we have.

[Katy Clark]

I thank my hon. Friend for that intervention.

It may well be possible for TNT to provide a service by undercutting in places such as London. However, it is highly unlikely that they would ever be able, or willing, to provide a similar service in areas such as North Ayrshire and Arran, or indeed in many other parts of the country. The TNT model of competition means cutting costs at the expense of decent jobs. TNT employs staff on zero-hours contracts at below-living wage standards. In London, I understand that TNT pays £7.10 per hour, which is £1.45 below the living wage. I am also advised that TNT over-hire staff to ensure that there are more than enough people to do the job every day, so that each day workers on zero-hours contracts are turned away.

[Kelvin Hopkins]

On this question of TNT and other private deliverers, they openly admit that what they provide themselves is the local deliveries, which are cheap, and anything that is long-distance they throw to the Royal Mail.

--- Later in debate ---

[Katy Clark]

The Government claim that Ofcom will regulate entrants into the postal services market, but there has been no attempt to prevent TNT cherry-picking in this way or to regulate the use of zero-hours contracts and other poor contractual conditions.

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate my hon. Friend on securing this very important debate. Does she agree that probably the first thing that the private sector would cut from the Royal Mail service is our unique Saturday delivery?

[Katy Clark]

I agree with my hon. Friend that that is indeed something that many people are fearful of.

Frankly, I say to the Minister that it is completely unacceptable to proceed to develop our postal services in this country in the way that TNT is operating at this time. We all know from our own experiences that if we allow sectors to offer poor conditions and poverty pay then it is the state and society as a whole that end up paying the price by subsidising bad employers. If the Minister is saying that his policy is not ideological, surely he must accept that allowing operators to come into the market in this way is highly damaging, both to the universal service obligation and to the public sector employer, which takes people on with better terms and conditions of employment. This cherry-picking of work is undermining the Royal Mail service and the universal service obligation.

If a privatised Royal Mail were to operate in a similar way, which we can only presume it would given that its main motive as a private company would be to maximise profits for its shareholders, then we can only expect it to try to cherry-pick, given that it has to compete with the TNTs of this world. This is incredibly bad news for our mail service.

[Mr Jim Cunningham]

I congratulate my hon. Friend on securing this debate. Another thing to consider is the pension fund and its future, particularly regarding effects on Royal Mail employees. A reasonable pension fund will be a magnet for a lot of asset strippers.

[Katy Clark]

The fact that the Government have taken over responsibility for the pension fund has made Royal Mail a far more attractive prospect to anyone who wants to buy shares. I believe that that was why the Government decided to go ahead in that way.

In the run-up to privatisation, price controls have been removed from the cost of stamps. The cost of first-class stamps increased from 46p to 60p in April 2012, and second-class stamps have gone up 36p to 50p, although there is a 55p cap on the cost of those. The Business, Innovation and Skills Committee, of which I am a member, expressed concern, in our report on stamp prices, about the impact that this will have on vulnerable customers.

On 29 May, the Government announced the appointment of advisers to the Government for the sale of Royal Mail. We understand that they are working on a flotation with a value close to £3 billion. This will be the largest privatisation in the UK since the railways in the 1980s. However, the Government have not specified what the form of that sale will be, whether an initial public offering or a sale to private equity, although they have said that an initial public offering is their preference. Will the Minister give an update to the House on the Government’s thinking on this aspect?

The Minister took the unusual step of saying that Royal Mail may be sold to a foreign buyer if the communication workers continue with their campaign against privatisation. Can the Minister say when a decision will be taken as to what the form of a sale will be?

As my hon. Friend the Member for Wigan (Lisa Nandy) highlighted, there has been a great deal of concern about the costs associated with privatisation, which are likely to be huge. Barclays, Bank of America Merrill Lynch, Goldman Sachs and UBS have been employed to work on the sale. It is believed that the banks alone will receive £30 million in fees. No detail has been provided to the House. Will the Minister outline in detail all costs that will be incurred by the taxpayer in the process of this privatisation, and undertake to ensure that all costings are put into the public domain?

[Mr David Anderson (Blaydon) (Lab)]

I congratulate my hon. Friend on securing this debate. She said that the Minister said that Royal Mail could end up being sold to foreign companies. Is that not the case, because as we have seen with railway privatisation this week, 64% of what was British Rail is now owned by foreign companies? Does the Minister, and does my hon. Friend, think that the public in this country are aware that our Royal Mail could be owned by foreign companies?

[Katy Clark]

My hon. Friend is well aware that many parts of the public sector that have been taken into private hands have ended up being owned by both private people abroad and by foreign countries. That is not in the public interest.

[Robert Flello (Stoke-on-Trent South) (Lab)]

I apologise because other business in the House detained me, although I know that my hon. Friend’s speech will have been excellent so far. I congratulate her on securing this debate. Does she agree that there is also quite a strong possibility—indeed, a probability—that because of Royal Mail’s land assets and buildings, often in central locations in our cities, we could end up seeing the complete dismantling of what we currently know as the Royal Mail, with bits being sold off, left, right and centre?

[Katy Clark]

My hon. Friend highlights a real threat.

The original Hooper report in 2008 identified a number of issues with Royal Mail that needed to be addressed, many of which have now been dealt with. We have already heard that the Government have taken over the pensions deficit and that regulation has been put in place. The Government’s case now seems to be based on the need for capital. However, Royal Mail is doing well in the public sector and, contrary to the Government’s claim, there does not seem to be any good reason why Royal Mail should not be able to borrow the capital it needs to invest, while remaining in the public sector.

We have heard that Royal Mail’s operating profits increased from £152 million in 2012 to £403 million in the last year. The state aid approval that enabled the Government to take on the pension deficit also gives them authority to write off almost £1 billion of Royal Mail’s debt, as £1.1 billion was allowed and only £150 million has been used so far.

Any revenue from the privatisation would go to the Treasury, not the company. If the Government believe that Royal Mail will be strong enough to borrow in the private sector, why do they not believe it will be strong enough to borrow in public hands? Network Rail, for example, is to all intents a public company, but it has borrowed more than £30 billion from private markets. This borrowing does not count towards public debt.

I have asked the Government today to confirm how many shares they intend to sell off. For example, should only 50% of the shares be sold, does the Minister believe that Royal Mail could borrow from the private sector, or does he believe that all the shares need to be sold off to do that?

The service to the public is severely put at risk by a privatised Royal Mail. No doubt, the Minister in response will explain the protections of the inter-business agreement between Royal Mail and the Post Office. However, he will also be aware that there are few safeguards to ensure that that agreement is not watered down significantly a few years down the road. The Government may say that this proposed privatisation is not ideological, but given the risks of proceeding down this path, surely the Minister must accept that it cannot be in the interests of the public for this privatisation to take place at this time.

I ask the Government to answer a number of questions. Will they explain whether the legal requirement for the provision of universal service is a UK-wide obligation or could it be met in Scotland, Wales or Northern Ireland alone? How frequently will Ofcom, the regulator, be required to carry out a review of the universal service requirement, to ensure it reflects the reasonable needs of postal service users? Will Ofcom be required to seek the Minister’s approval before it can carry out a review of the universal service requirement?

Will prospective purchasers be allowed to divest Royal Mail of its international parcels business, General Logistics Systems? Will Royal Mail purchasers be allowed to divest the business of the postcode address file? What steps is the Minister taking to ensure that the universal service is protected following privatisation? What steps are the Government taking now to publish the terms of the sale of Royal Mail and how they intend to proceed, so that Parliament can give proper scrutiny to what is going to happen in the next few months?

[Several hon. Members rose—]