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Postal Services Bill [HL]

We have had an appropriately detailed discussion on a range of significant questions. I hope noble Lords will forgive me if, despite the lateness of the hour, I do my best to try to answer the points that have been raised. As I listened to the debate, it seemed to me to fall into three broad categories: specification and designation; protection and local impact, and the consultation processes and protections around that; and the provision of information, not to mention an interesting side debate on devolution. Amendment 85 in the name of my noble friend Lord Clarke relates to Clause 31, which deals with the designation of the universal service provider. As he rightly pointed out, that is the Royal Mail. The clause gives Ofcom the power to designate a single postal operator as the universal service provider so as to ensure the provision of the universal service. Ofcom may impose a designated USP condition, USP access conditions and USP accounting conditions only on the designated universal service provider. It is primarily through these conditions that Ofcom can secure the provision of a universal service. As we can all agree, currently the only operator that is able to provide the universal service is Royal Mail, so it will by default become the designated universal service provider. My noble friend’s proposal is that the Bill explicitly states that Ofcom may only designate a postal operator which is or was a Royal Mail company as the universal service provider. I hope that he will agree with our view that this amendment will make no difference practically because, for the foreseeable future, only Royal Mail could conceivably be in contention for this designation. There is, however, a further issue that we must consider—it may sound procedural—which concerns our European obligations under the postal services directive. Under Article 4, designations of universal service providers must be, ""based on the principles of transparency, non-discrimination and proportionality"." There is a concern about whether naming a specific company in the Bill, however obvious that choice may be, would be in technical breach of that obligation. Furthermore, the directive also requires that the designation of a universal service provider must be subject to a periodic review. If Royal Mail was explicitly named in the Bill, and if at any point in the future a periodic review found that another postal operator could and should be either the designated universal service provider or a contributor to a universal service activity, new legislation would be required. It would thus be more likely that a challenge would be brought against us on the basis of Article 4. I appreciate that that may sound like speculation, but I remember similar debates being held in 2001 about the specification of the provision of a universal service in telephony, where everyone at the time believed that there could be only one company. Only seven or eight years on, we are facing the prospect of considering changing the pool of contributors to that activity. It is our view, therefore, that the amendment is unnecessary, could cause us difficulty in relation to our European obligations and is not necessary to gain the securities that I believe my noble friend is seeking. Amendment 87 relates to Clause 32 on the designated universal service provider condition. My noble friend has proposed that the whole of subsection (2) be removed. This subsection limits Ofcom’s discretion as to when it can impose a designated USP condition. It means that Ofcom can only impose these conditions if it believes them to be necessary to secure the provision of the universal postal service. As such, it is designed so that the regulatory burden on the universal service provider is not increased needlessly. To remove this subsection as proposed in the amendment would mean that the regulatory burden on Royal Mail might be greater than necessary, which Royal Mail itself would presumably not wish. That would be in contrast to one of our aims in this Bill—it was raised earlier—which is to reduce the regulatory burden on postal operators, including the universal service provider. Furthermore, the postal services directive provides that certain conditions can be imposed only where necessary to secure the provision of the universal service. These provisions are caught by that requirement of the directive. Closely related is my noble friend’s Amendment 89, which seeks to remove Ofcom’s discretion with respect to the imposition of USP accounting conditions and has the effect of requiring them to be imposed on the universal service provider. This amendment would not, in the view of the Government, have any beneficial effect in terms of regulating the universal service provider. In fact, over time, and as the market develops, the amendment has the potential to hamper both regulation and the Royal Mail as the universal service provider. To regulate effectively—in my view this is at the heart of this debate—it is clear that Ofcom must be able to obtain accurate information about Royal Mail’s costs. Obtaining cost transparency will support Ofcom in monitoring the universal service; it will support the user, in setting appropriate universal service prices for users; it will support Royal Mail, in allowing it to have the necessary transparent information to run its business; and it will support the level of competition that we wish in that it will be competition based on real prices rather than on estimated numbers. The Hooper review highlighted the persistent disagreements between Postcomm and Royal Mail over the allocation of costs as one of the core reasons for the dysfunctionality in that relationship, and recommended that Ofcom addresses cost transparency as a priority. The Government entirely agree with the analysis of Hooper in this area and have set out in Clause 35 the requirements that Ofcom may impose on Royal Mail in order to assist in establishing cost transparency. The requirements that Ofcom may impose are broad, as they should be, particularly given that this is being done in the first instance. Like other network businesses, many of Royal Mail’s products use common systems, such as sorting machinery or delivery vans, and it can be complex to identify the individual costs of particular products. We assert that it is not in anyone’s interest for Ofcom, particularly in the first outing to ascertain the baseline of these costs, to be constrained in its ability to determine them as accurately and precisely as we would wish. However, as the market changes and Royal Mail modernises it is also essential that Ofcom retains the ability to be flexible when dealing with USP accounting conditions. By replacing Ofcom’s discretion to impose a USP accounting condition with a requirement to do so, this amendment would bind Ofcom’s hands and fix an obligation in perpetuity on the universal service provider. While there may be a compelling case now for USP accounting conditions, to legislate in perpetuity on this matter risks imposing a higher regulatory stasis and burden than we believe is necessary at this time. Ofcom has a demonstrable track record of cost determination, for example with BT in the telecoms sector. In the Government’s opinion, the final decision on the detail and necessity of any USP accounting conditions should rightly remain with Ofcom, which should rightly be held to account for it. I turn to my noble friend’s Amendment 86A. As we have said, securing the universal service is our primary aim. While an annual review of trends and factors affecting the future development and delivery of the universal service would certainly be interesting, it is not, I am afraid, the Government’s view that the nature and frequency of market reviews should be mandated in the legislation. These are properly matters for Ofcom. However, I should say two things to my noble friend, from which I hope he will take some reassurance. The first is that the central reason for asking Ofcom to conduct a strategic review around the universal service and to have the powers in relation to cost transparency is to ensure that we have the quality of data and evidence in the market that we can rely on. That will provide us with objective information, which has been sorely missing from much of the discussion—even the Hooper report acknowledges that. Secondly, it is true that Ofcom has established a track record and a reputation for an enthusiasm in publishing annual reviews and data statements—although it has been criticised by some for that. The communications market review is a case in point. I am willing to place on the record the Government’s view that we would expect Ofcom to adjust its annual publications to take account of the importance of this new responsibility. My noble friend’s amendment also requires the universal service provider within these annual reviews to assess the impact that these trends and factors will have on the provision of post offices. The regulatory provisions in this Bill are focused on the mails market. Provision of mail services is of course an important function of the post office network, as he and my noble friend Lord Hoyle highlighted. Changes in the provision of the universal postal service will have an impact on the business of the Post Office—a point rightly made by my noble friends—just as developments in the other markets that the Post Office focuses on will. We would expect Royal Mail and Post Office Limited to have regard to this as a matter of course. It accounts for approximately 30 per cent of the Post Office’s revenue. However, the Post Office’s role, as my noble friend knows far better than I ever will, is about far more than mail. The Post Office offers an array of financial services products and provides access to government services and benefits to millions via its unrivalled national network. The Government will continue to take steps to ensure the Post Office can take advantage of opportunities as its markets develop. The Government have already demonstrated their commitment to a sustainable future for the Post Office by their current investment of up to £1.7 billion in the network. As the Secretary of State made clear at Second Reading and again this evening, we will continue to provide significant funding for the network and will not support any further programme of post office closures. On the specific question asked by my noble friend Lord Clarke concerning the decisions on where post office locations are too centralised, the access criteria for the post office network were introduced precisely to ensure that the company maintained a national network providing reasonable access to service throughout the United Kingdom. I make no apology that this Government have sought to provide these national protections. It is the first time, I would say, that any Government have taken a planned and strategic view of the availability of post offices across the country. Consumer Focus, the statutory consumer advocacy body, also has existing powers under the Consumers, Estate Agents and Redress Act to investigate any matter relating to the number and location of public post offices across the UK. So far as concerns the other information that my noble friend is proposing to require the designated universal service provider to have at its disposal, it is, again, unclear why that needs to be explicit in the Bill or to what end it would be put. The lack of any definition for each of the three areas that my noble friend has identified is also concerning. The Government’s view is that forcing Ofcom to require the designated USP to provide this information would be unreasonably burdensome for the universal service provider and that it would not add to the protection of the universal service that my noble friend seeks. Amendment 86B would require the designated universal service provider to produce separate annual reports on the provision of the universal postal service across the United Kingdom and in each of the devolved Administrations, as well as for the Greater London Authority. The amendment is unclear as to what aspect or in what respect the reports should discuss or provide information about the universal service. It is also silent on how the costs of producing such reports should be met, to whom they should be made and the use to which they would be put. However, I point my noble friend to Clause 33, headed "Publication of information about performance". Under this, a designated USP condition must require the universal service provider to, ""publish information about the extent to which it is providing specified postal services in accordance with specified standards, and … to publish annually an independently audited performance report"." The Bill thus already contains some requirements for information on performance of the universal service provider. With regard to the specific points about Wales, Scotland and Northern Ireland, although it is the case that postal services, like the remainder of the communications market, are a reserved matter, it is also the case that Ofcom has established a regulatory capability on the ground in each of those countries, as it is required to do. It is also the case that Ofcom has a standing advisory panel for each of those countries, as it is required to do. It is the case, too, by custom and practice, that Ofcom has acted in consultation with the devolved Administrations in an open and transparent manner on major issues of policy across the communications market. I hope that my noble friend takes that as some reassurance. Penultimately, it is worth adding that Ofcom will have to produce an annual report about its performance, during the year, of its duty to secure the universal postal service, as outlined at paragraph 69 of Schedule 10, where there is an express new obligation in relation to postal services. Amendment 87A covers much of the same ground as Amendment 86B, although it is incorporated within Clause 33, which I have already discussed. As we have said, securing the universal service is our primary aim. We do not believe that the information sought in the amendments will help to secure that universal service, although I hope that some of the comments this evening will have given my noble friend some reassurance. Given those explanations, I hope that he will see fit to withdraw his amendment.