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Postal Services Bill [HL]

We made clear in the policy statement which we issued when the Bill was published that the issue of appropriate workforce incentives was high on our agenda and that the Government would want to talk to potential partners about incentives, including employee share ownership. We heard at Second Reading, and again today, that several noble Lords believe that it is important to give Royal Mail employees real shares in this business to drive the transformation that we all agree it needs. We share the view that getting incentives right to drive modernisation in the business is important. However, in tabling this and other amendments, noble Lords have acknowledged that Royal Mail employees already benefit from some such incentives. As has been stated, Royal Mail staff currently participate in a shadow or phantom share scheme known as ColleagueShare. This was introduced in 2007 and provides members with an incentive scheme linked to the value of the business, driven by modernisation, akin to real shares. The scheme is only part way through and will run to 2012. It is true that in 2007 the Government considered Royal Mail’s proposal for a significant proportion of its shares to be provided to employees. It was decided at that time that the ColleagueShare scheme was more appropriate, not least because I gather there was no interest in or enthusiasm for a full scheme among the workforce. This was before the unequivocal findings of the Hooper report which made it clear that for the universal service to be sustained, an injection of capital from a strategic partner would be required. I do not know whether that might influence workforce attitudes now. That remains to be tested. I accept that the ColleagueShare scheme has not been a resounding success in inspiring the modernisation of Royal Mail that it was designed to produce. However, the scheme is only part way through and runs until 2012. I think that its success should be judged then and not now. The benefits which could accrue from the present scheme are potentially generous to Royal Mail’s employees. Each participant in the scheme could get up £5,300 in total, which is equivalent to a total payout of £0.9 billion over the life of the plan. This level of payout to staff would be more than five times the reported operating profits of the group in the year to March 2008. It demonstrates the importance that we place on ensuring that Royal Mail’s workforce shares in the company’s success. We do not, however, want to be obliged to offer shares for sale to employees at this stage as Amendment 3 contemplates. We need to reflect on the benefits of the existing shadow scheme in driving Royal Mail’s modernisation before putting in place any alternative incentive scheme. Any incentives must be linked, and be seen to be linked, to successful performance of the company. We acknowledge that as the years go by the appropriate staff incentive arrangements may change. However, these arrangements would rightly be a matter for the Royal Mail management and any partner to consider in the context of their transformation plans for Royal Mail. The legislation should not prevent the right arrangements being put in place, and the noble Lord, Lord Hunt, has acknowledged that that is the case. The legislation does not prevent any such arrangements being put in place. It is entirely permissive but leaves the judgment for subsequent discussion between the current management, the new partner and the workforce. Accordingly, the draft Bill allows the Secretary of State to transfer up to 49 per cent of the shares of the letters business to third parties. We would not want to reduce that percentage. As I made clear at Second Reading, we expect around 30 per cent to be acquired by a partner, but the precise level of any equity stake will be a matter for commercial negotiation. This will take place alongside and in parallel to the passage of this Bill through this House. The original timeline that I described at the time of Second Reading still stands; it remains the basis on which the Government are operating. Nevertheless, this should still leave sufficient headroom for some shares in Royal Mail to be transferred to employees if that was thought desirable. The percentage of such shares would be a matter for debate. We could not accept provision of shares to employees that would dilute the Government’s own stake in Royal Mail to below half, which would stop the company from being publicly owned. Amendment 26 could allow that to happen. However, let me stress again that Royal Mail is not restricted under this Bill from providing shares to employees. We are happy to engage in further discussions with interested parties in both Houses to ensure that we put in place the very best form of incentives to drive modernisation in the business. It is also vital that any incentive arrangements represent value for money for the taxpayer and that Royal Mail should be maintained in public ownership so as to ensure that the Government have the right and ultimately the ability to ensure Royal Mail’s future and that it is run in the public interest. In light of what I have said on the current provisions in the Bill and the employee scheme that already exists, I ask the noble Lord to withdraw the amendment.