---

Postal Services Bill [HL]

I think that I can do away with declaring an interest. It should be evident by now that I have an interest in Post Office matters from my previous employment. Amendment 88 is, from the point of view of running the Royal Mail, one of the most important things that we will be looking at, putting aside the other major parts of the Bill. It is important because of the history of the last eight to 10 years, when the Royal Mail was not allowed to act on a commercial basis, and because of the way in which the whole thing was sorted out in the early days. I was going to bore the Committee; I have put down about 10 references that I have made in the House to the whole business of pricing. However, it is getting a bit late, so I will not go through them all, but I might pick up one or two of them. Many of the problems of today stem from the fact that our Government got it terribly wrong in allowing Postcomm to misinterpret its brief and to favour the route for competition. It is not surprising that establishing competition for Royal Mail involves setting up a comparable network to Royal Mail. The Royal Mail network currently involves daily collections from 115,000 pillar boxes, 11,500 post offices and daily delivery to 28.4 million addresses with fewer than 3,000 delivery exemptions. It has a workforce of around 167,000, 69 mail centres, 1,400 delivery offices and one national hub. It has around 31,000 vehicles, two trains and 42 flights a day. Competitors would have to consider whether they could mirror or match that infrastructure, which gives the Post Office such a unique position. As we heard the other night, Royal Mail is really the only potential provider for the universal service. Those sorts of resources are necessary if the UPS is to be provided. Therefore, what we are looking at is the fact that competition has baulked at making such a substantial capital investment, despite all the fluffy talk about the investment that competitors could make. Instead, the competitors have concentrated on part-sorting mail and trunking it to Royal Mail offices for completion in sortation and delivery by Royal Mail. This access work has been carried out at prices for Royal Mail that have allowed exceptional profits for competitors. In fact, there is a subsidy provided by Royal Mail. Nobody has done the work. Even Hooper could not reach a conclusion on how you do this costing to get a commercial basis. This subsidy is often talked about as 2p an item. You are talking about millions of items a day. Because of a law that the Labour Government introduced, the competitors are enjoying this subsidy from Royal Mail, which delivers at a loss while having to maintain that infrastructure. That is why I mentioned the infrastructure earlier; it is quite a costly operation. No one can say with accuracy how much Royal Mail has lost because of this misguided Postcomm policy, but I should think around £100 million a year for the competitors has been a nice little feather bed. I have just looked up some of my comments from eight years ago; all this was accurately prophesied. As I say, Richard Hooper could not come to a conclusion in his report. He just left the matter for further examination by Ofcom. My Amendment 88 seeks to guarantee the position for the future. If access is carried out on commercial terms, services are purchased at their value rather than through a subsidy. Royal Mail is currently unable to compete for access work, not because of inefficiency but because the regulator has established a system of pricing that is completely unfavourable to it. Richard Hooper’s report recognised that the system of access pricing with Postcomm’s headroom regulation is unlike any other system of access offered by other European postal providers. The access headroom regulation prevents Royal Mail from lowering the price that it can charge retail customers for its bulk end-to-end service without also lowering the access price by the same proportion. This means that any cost savings made on upstream activity cannot be passed on to retail customers without the business then losing revenue by also having to lower the access price. With the lowering of the access price to competitors, those competitors can pass the savings on to their own customers and retain contracts. The only additional efficiency being provided is that created by Royal Mail, which, in turn, gains no benefit. In regulatory terms, this would be characterised as a perverse outcome, yet Postcomm has sat on this perversion and no one has seen fit to address it—notwithstanding the fact that the House of Lords has been told on many occasions that what was going on was not only morally wrong but commercially daft when you think of Royal Mail’s position. If my amendment is accepted by the Government, such an outcome would have to be addressed by the regulator. Amendment 96 in this group deals with information about performance conditions, which is important when you consider the amendment about commercial charging. The new clause says: ""(1) Any information about performance condition is a condition that OFCOM may impose requiring a postal operator to do one or more of the following—""(a) publish information about the extent to which it is providing specified postal services in accordance with specified standards;""(b) publish annually an independently audited performance report; and""(c) provide specified information (at such times and in such manner as OFCOM may direct) to other postal operators and users of postal services about the service provided by that postal operator.""(2) The reference in subsection (1)(b) to an independently audited performance report is to a report that—""(a) contains information about the postal operator’s performance in complying with any regulatory conditions; and""(b) is audited for accuracy by a person who is independent of both OFCOM and the postal operator.""(3) Any information about performance condition may require the postal operator to meet the costs of the audit required by subsection (1)(b)"." The new clause would provide the public with information about the performance of postal operators. As the Bill stands, it is only the universal service provider—we have all agreed in this House that, although it has not been written in the Bill, we are talking about Royal Mail—that is obliged to publish information and audited performance details. Many noble Lords will be anxious for Royal Mail to compete on a level playing field. Indeed, I note that the Parliamentary Labour Party brief issued by the Secretary of State on 26 February in support of First Reading was entitled "A Level Playing Field for the Royal Mail". The noble Lord, Lord Hunt, reminded me the other day that that term is correct terminology for these Europeans. Is it too much to hope that the Government will move beyond such pieties in order to implement the measures necessary to secure a level playing field? The Bill asks very little of a postal company that competes with Royal Mail. Clause 45 is entitled "Consumer protection conditions". Ofcom decides which are appropriate from the following: ""(a) to assume specified liability in respect of specified loss of or damage to specified postal packets,""(b) to establish and maintain procedures, standards and policies with respect to consumer protection matters,""(c) to make payments relating to qualifying consumer expenses of the National Consumer Council or the Office of Fair Trading"." Those requirements are all necessary and useful, but they are hardly sufficient. Along with that, Clause 46 indicates that Ofcom may require postal operators to provide a "redress scheme", which is clearly to allow for some consumer protection in the case of failure in the service offered. In total, the conditions that Ofcom may impose are minimal. At no point does the customer or independent observer have an opportunity to compare an audited performance of these firms with that of Royal Mail. I hope that the Government will take this amendment in hand. Much has been made of the term "transparency", not least in Richard Hooper’s report. We should be clear that, to date, what is being spoken about as transparency is merely the exchange of information between the regulator and Royal Mail. None of us will see this material unless we work with the regulator, Royal Mail management or limited circles of government. Such transparency is merely about reducing friction between the regulator and Royal Mail management on the provision of Royal Mail data; it is nothing larger than that. Broader transparency would allow the customer and independent observers to actively compare and contrast the performance of postal operators. I hope that there is more substance to the Government’s commitment to transparency than has so far been suggested. I beg to move.