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Postal Services Bill [HL]

My Lords, this has been a very instructive and informed debate, as I would expect from this House, and I am very grateful to noble Lords for their contributions. However, I must say at the outset that it is striking that the only contribution that we had from a customer, a client, of the Royal Mail came from the noble Lord, Lord Alliance. In a short but incisive and insightful contribution to the debate, he made it clear as a grateful customer—a large and substantial customer—of the Royal Mail, that his businesses and the prospects of countless other businesses across our country required Royal Mail to change with the times. That struck an important note that will find an echo not only in our successive debates and discussion of many matters as part of Committee but—at least, I hope—in the other House as well. The debate after my introduction began with my noble friend Lord Clarke of Hampstead offering a peon of praise to the chairman, the chief executive and the management of Royal Mail. They will have been pleasantly surprised to hear the compliments and praise offered to them. I must say that, offline, the union’s language about the management, past and present, is very different. I share my noble friend’s desire and vision for the Royal Mail to become once again, as he called it, a world-beater. I am only sorry that in his contribution and, I have to say, those of noble Lords who supported him, although everyone was very willing to set out the vision, the objectives and the need for change, when it came to the crunch and support was needed for the means to bring about that change, that support was absent. I just have to say that it is all very well my noble friends urging the Government to take the necessary action to turn around the Royal Mail and to couple those urgings in the same breath with the remark that the status quo is not an option, without willing any means, plans or proposals other than what the Government are setting out in the Bill on the basis of Richard Hooper's report. I have to say that I have not heard a single plan B or alternative proposal that would enable us to turn around the finances of the Royal Mail, transform the business, and sustain the universal service organisation from anyone who has opposed the Bill. The truth is that it is not only the present Government’s plans, but also—I am bound with some humility to acknowledge what the noble Lord, Lord Fowler, said in his contribution—the proposals of previous Governments that have fallen on very barren earth. I did not agree with all the proposals, but they were at least a conscientious effort to turn around the finances, the business and the fortunes of this organisation. Every action, every policy and every piece of legislation brought forward not just by this Government but also by previous Governments has been consistently opposed by the union representing the workforce in Royal Mail. I speak for all the Government and the overwhelming majority of my noble friends. Those of us who want to see this situation transformed now have to put our actions and our money where our words have previously been. We have to see through this legislation and this change. We owe it to the Royal Mail, its workforce and, above all, its customers to do so. My noble friend Lord Clarke referred to the fact that each of the Royal Mail’s companies is currently in profit, which was an important point in his argument against the need for further change. The Royal Mail group’s reported profits to date this year do not provide the full story. Much of the profit referred to by my noble friend came thanks to Royal Mail’s European subsidiary. Post Office Limited’s share of the profit came only after the Government’s subsidy of £112 million. That is not quite the honest penny or honest profit that my noble friend seemed to describe in his remarks. Without subsidy, Post Office Limited is still loss making. The business which delivers the universal service has made only a 1 per cent margin. The universal service remains loss making. To pray in aid the Royal Mail group’s reported profits, as circulated recently, does not tell the whole story and does not bear out the arguments made by those who wish to oppose the Government’s legislation. In respect of the changes that the Bill proposes on regulation, I do not believe that this Bill is simply, as my noble friend Lord Clarke suggested, embroidery. It establishes a fair and modern regulatory framework, which ensures that the universal service is at the heart of the new regulator Ofcom’s duties. It is true that the universal service is outlined in the existing Postal Services Act, but this legislation goes much further. It ensures that if Ofcom finds any tension between its functions in relation to post, the regulator must give precedence to the universal service. That is a very important step forward, which some noble Lords have acknowledged, but not all. My noble friend Lord Clarke also suggested that it would be possible and desirable to delay modernisation of the Royal Mail and its delivery service as it will take many years for new equipment to arrive. I have to tell him that quite a lot of equipment has already arrived on the premises of Royal Mail across the country. It is still incarcerated in plastic wrapping waiting to be unwrapped and put into service in order to turn around the very business and its service about which we are talking today. However, I would acknowledge—it is not all a negative picture or a sad story—that Royal Mail placed orders for walk sequencing machinery in 2008. More than 500 machines will be needed, with the first tranche arriving later this year. Pilots of the new technology will begin then. By the end of this month the company will have spent £700 million on modernisation. But the company is running to stand still. It has left this so late, which goes to the kernel of the company’s problems. My noble friend Lord O’Neill of Clackmannan made a speech that I can only describe as a tour de force based on his considerable experience as the former chairman of the relevant Select Committee in the other place. This company for too long and in too many ways is a modern logistics company that has been run like a government department. Royal Mail has been bedevilled by a constant churn of Ministers, one after another. I am sorry to say that I unwittingly and involuntarily played my own part in that churn when I was Secretary of State for Trade and Industry 10 years ago. My noble friend is right: people with a couple of good ideas have moved on only too frequently before they could follow through those ideas and see them take effect. As my noble friend Lord Brooke of Alverthorpe said—I hope he will not mind if I paraphrase him—every plan for modernisation has been batted back and forth from pillar to post with matters being settled in the Royal Mail but never resolved, which is at the heart of why the company is in the situation that it is. Of course, I would be the first to agree with my noble friend Lord Soley when he suggests that this Bill should have been introduced way back in 1999. I agree with him that we would not have the pension fund crisis now if this had been done in the first place. As each tide of reform has been launched, but has failed, over and over again we have found—we must now come to the conclusion—that the Royal Mail, as my noble friend Lord Giddens observed, is simply not capable of changing and reforming within its present structure. For that reason, its structure has to change to bring about the transformative effect that a new structure, a new strategic partner holding a minority stake in the company, would enable us to introduce. The noble Lords, Lord Hunt and Lord Neill, asked why the Government in their command paper mentioned selling a 30 per cent stake. The level of any equity stake will be a matter for commercial negotiation, which will take place alongside and in parallel to the passage of this Bill through this House. The figure of 30 per cent that I have again quoted today reflects the level which we believe would give a partner sufficient influence to transform the business while maximising the value of the taxpayer’s ongoing investment and retaining control over a public sector company. But I have to say to the noble Lords, Lord Hunt, Lord Neill and Lord Birt, that I have no illusions about the tightrope that the Government will walk in trying to attract and persuade those who have already given indications of interest to engage more seriously in this process. Indeed, I should say at this point that TNT is not the only postal operator in Europe which has expressed an interest in forming a strategic partnership with Royal Mail. As we go through the process of attracting, engaging and then entering serious negotiations, as I say, I am well aware of the tightrope we will be walking along—that of ensuring that the offer we make is sufficiently attractive to the would-be strategic partner and convincing that strategic partner that it really will be able to play a meaningful, effective and influential role in transforming Royal Mail, while making it absolutely clear that majority ownership and ultimate control will remain in the hands of the majority shareholder, the Government. This is not easy, but we will walk the tightrope, and I am reasonably confident that we will succeed in landing a strategic partner who can provide the expertise, experience and confidence needed from such a postal operator, with a track record not only of turning around a business of this sort, but also, importantly, bringing along the workforce and its union in the process, and I attach considerable importance to that. Related to those remarks, perhaps I may say to all noble Lords who have raised the issue of what share Royal Mail’s workforce may have in the ownership of the company going forward, I certainly do not exclude this possibility. In principle it is the right idea both to debate and, if possible, to pursue. I have to say that when I floated the idea before Christmas to the national leadership of the Communication Workers Union, I was not exactly overwhelmed by the enthusiasm of the response, but none the less I shall continue to hold discussions with them, as I shall with others. Perhaps I may say in parentheses to the noble Lord, Lord De Mauley, that I do not think it is possible, while commercial negotiations are ongoing, to provide more details on the form of the partnership we think it would be possible to create. However, I will ensure that the House is informed of any important developments on this as our discussions continue and as the Bill goes through all its stages. When I find the relevant notes, which tragically I cannot, I want to respond to the important issues raised by the noble Lord, Lord Razzall, on the Post Office. We absolutely guarantee the future independence of the Post Office and its network within the Royal Mail group. We absolutely guarantee in this Bill that the Post Office will remain 100 per cent owned on behalf of the public sector. As he knows, I am open to discussions about how the Post Office might extend its business relationships, connections and its role both within the Royal Mail group and in the provision of further services both government and financial. Moreover, while it should go without saying, nonetheless I will say it: the Government will sustain their very considerable subsidy to Post Office Limited. It has been suggested that some of the proceeds from a minority sale might also benefit the Post Office. I can imagine the discussion I will be having with the Chancellor of the Exchequer, who will say "Fine, you can give it some of the proceeds from the sale, but you should realise that some of the subsidy we already give will therefore have to be docked from the account". That is a discussion we have not yet reached, but it is necessary to bear it in mind. I believe that the points I have just made also answer the issues raised by the noble Lord, Lord Cotter. A whole variety of other issues were raised. I am glad that most if not all noble Lords who spoke in the debate have welcomed the Government’s proposal on pensions. The chair of the trustees has outlined a very serious funding situation facing the Royal Mail scheme, so I wonder how those who oppose this Bill and are trying to obstruct its progress think the Government can somehow magic out of a hat a sort of white rabbit to liberate Royal Mail’s pension fund from its current deficit and crisis. That miracle working is not available to me or to the Government without this Bill being taken through all its stages and ultimately being enacted. But let me reassure my noble friend Lord Clarke on one point: the Government are protecting the benefits which have been earned by members of the scheme. This is clearly set out in Part 2 of the Bill. Perhaps I may also respond to points raised by my noble friends Lord Hoyle and Lord Lea about restraint of trade if Royal Mail enters into partnership with a competitor. I can assure them that, were Royal Mail to seek to enter into a strategic partnership with a significant competitor, the structure and terms of the arrangement would need to be approved by the relevant competition authorities. My noble friend Lord Haskel rightly suggested that as a Government we are morally obliged to fund this pensions deficit, but I have to underline a point in conclusion about pensions. In my view, which I offer as my own political judgment, it is inconceivable that the public would simply go along with a bail-out of this fund in this part of the public sector when so many other funds are under similar, but not as critical, pressure. They will wonder why we are doing this for the members of Royal Mail’s pension fund but not for the members of pension funds in other parts of the public sector. The truth is that the public would accept such a bail-out only, I believe, if the Government take steps to ensure that the company as a whole has a future and is engaged in transforming the service it provides. Perhaps I can say in conclusion that today’s debate has reminded me that perhaps rarely in life, and even more rarely in politics, one gets an opportunity to return to an issue and do what needs to be done. One is given the chance to correct previous errors in public policy and regulation and is afforded the opportunity to make changes that can both protect what we should value and provide for the changes in practice and performance that every single one of us, in our heart of hearts, now knows is absolutely needed in the case of Royal Mail. For my part, I can reassure this House and the other place that the Postal Services Bill is a product neither of theology nor ideology but of independent and thorough analysis and advice, coupled with extensive consultation and debate that has been taking place now for a considerable period. The noble Lord, Lord Hunt, suggested that we were rushing into the Bill. The opposite is the case: we have waited too long to bring these proposals before Parliament. Like the noble Lord, I welcome the quality of tonight’s debate and look forward to what I know will be a high quality, gruelling, line-by-line scrutiny of the Bill. We have been given a chance to lead the parliamentary debate on this legislation, which will lead to a new, modern, relevant and, above all, successful framework for the future of postal services in this country. I, for one, relish the opportunity and the challenge.