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Postal Services Bill [HL]

My answer may give the noble Lord some comfort but I am advised that I must do this quickly, so I shall do it at a canter. By replacing "may" with "must", Amendment 88D would require Ofcom, when imposing access price controls, to have regard to prices at which services are available in comparable competitive markets and to determine what it considers represents efficiency by using cost accounting methods. Our view is that, by constraining the manner in which Ofcom can regulate the sector, the amendment oversimplifies the complexity of the task of regulation and the need to allow the regulator the appropriate flexibility. All network businesses with large common costs are complicated, as my noble friend Lord Clarke said earlier. Royal Mail is a network business with high levels of complexity. The current drafting of the clause guides Ofcom to consider areas to which it might have regard when imposing access price controls, but it seeks not to constrain Ofcom’s discretion in these areas. Ofcom has a track record of doing similar tasks, perhaps with an even more complex, multilayered network business. Given the complexity of these markets and businesses, our sense is that Ofcom should retain the flexibility to consider what methodologies to use when setting access prices. Amendment 88E would add an additional requirement on Ofcom to ensure that if it sets any access prices, it must seek to ensure that the prices take account of the costs of providing the service. Against the backdrop of a rapidly changing market and, we hope, an accelerated modernisation programme for Royal Mail, as we have stated before, Ofcom will need to ensure that access prices are set neither too high or too low nor, indeed, indulge in artificial cross-subsidisation. If access prices are too low and below cost, that damages the Royal Mail's ability to provide a universal service. Conversely, if access prices are too high, that will in the long term encourage users to move to alternative forms of distribution, such as digital media, far more quickly. Clause 34 is explicit in stating that Ofcom cannot impose an access price control unless it appears that the universal service provider might set its prices excessively high or begin imposing a price for a margin squeeze adversely affecting users. Evidence suggests that Royal Mail has not modernised as quickly as other leading European operators and is therefore not as efficient as it could be—and, we all hope, will be. Ofcom will need to take into account that it will take time and expense to reach an efficient cost base. Again, that is an area where Ofcom has considerable experience in establishing coherent and what are generally regarded as sensible glide paths for that adjustment. In the intervening period, a balance must be struck by Ofcom ensuring that Royal Mail does not provide an unfair subsidy to other access operators—a point regularly and rightly made by my noble friend Lord Clarke—while ensuring that that inefficient costs are not locked in for the long-term, as both outcomes would damage Royal Mail's ability to provide the universal service. However—the brief cold comfort—the noble Lord, Lord Hunt, has raised some interesting points with which I have some sympathy and the Government will take them away and give them further thought. I hope that in the light of those explanations, the noble Lord will not press his amendments.