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Royal Mail

Royal Mail and the Post Office form an important part of the social fabric of UK society, along with the universal service obligation, which the Government put into primary legislation for the first time in 2000. It is right that we have had a passionate debate on the future of Royal Mail, and I pay tribute to my hon. Friends for the contributions that they have made this evening. My right hon. Friend the Member for Leicester, West (Ms Hewitt) made a very brave speech. She has a great deal of experience in these areas, and she talked about the fact that far more automation was necessary in the Post Office. I absolutely agree with her about that. My hon. Friends the Members for Morecambe and Lunesdale (Geraldine Smith) and for Stoke-on-Trent, North (Joan Walley) are long-standing champions of Royal Mail and the Post Office. They hold strong views on these matters, and I want to tell them that there will be more opportunities to debate the Government's policy proposals in future. My hon. Friends the Members for Nottingham, East (Mr. Heppell) and for Ynys Môn (Albert Owen) also raised some important points. My hon. Friend the Member for Nottingham, East stressed the fact that the Hooper recommendations were a package. We strongly believe that this is a package of policy proposals, and that it would be wrong to pick and mix. My hon. Friend the Member for Ynys Môn mentioned Glas Cymru. In response, I want to point out that that is a monopoly water utility, rather than a company facing intense competition. The kind of business model that is appropriate for a water utility might not necessarily be appropriate for Royal Mail. I want briefly to refer to the Government's investment in the Post Office. We provided £2 billion to support the network between 1999 and 2006, and we are providing a further £1.7 billion to 2011, including a £150 million a year subsidy. We have made it clear that we will continue to subsidise the network beyond that time, which demonstrates the Government's commitment. In the remaining time available, I want to talk about the economics of Royal Mail, and then to talk about the politics. The first thing on the economics is that we believe Hooper produced a thorough report. The hon. Member for Blaenau Gwent (Mr. Davies) asked whether Hooper spoke for the posties. Yes, he certainly did on visits to UK mail centres and delivery offices, and the panel went out on rounds with postal workers. Hooper and his team also made visits abroad and saw the post at work in the Netherlands, France, Denmark, Belgium, Germany and the United States of America. Let us look at Hooper's numbers and the challenges to the business model that Royal Mail faces today. Hooper talked about a market decline of anything between 5 and 7 per cent.—and the figures have only got worse since then. As my right hon. Friend the Member for Leicester, West said, the loss of business to digital communications is five times more than the loss to competition among other postal operators, but Royal Mail is still losing business to other such operators. The letters business made a loss last year. Royal Mail made a profit in the third quarter, but it was largely due to a European subsidiary and it came only after Government support for the business. We should contrast that with leading counterparts that are making margins of 13 to 15 per cent. on their postal business. It is quite clear that Royal Mail needs cash to modernise. It has a £1.2 billion commercial loan provided by the Government: half has already been spent and the other half will probably be spent in the next 12 months, but it is still not nearly enough, given the huge problems Royal Mail faces in modernising and competing in an intensely competitive environment. On top of that, as hon. Members have noted, there is an enormous pension deficit, valued at £4.9 billion in March 2008—and, as we know, most asset classes have seen a severe decline since that period, so the pension deficit can only get substantially worse. Hooper also forecasts that from 2009-10 onwards, there will be a £400 million a year cash-flow deficit. With what we know now and from what has happened since Hooper reported, the situation is, as I have said, only going to get worse. If we accept that doing nothing is not an option, we have to ask ourselves what is the best option for the Government to pursue. How can we maintain the universal service obligation; how do we fund the business and its pensions deficit in the future; and how do we modernise the business to put it on a sustainable footing?