Lord Young of Norwood Green
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Postal Services Bill
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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.
“( ) 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 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.
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.
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 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 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.
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.
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.