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Postal Services Bill [HL]

Amendment 89Q would require Ofcom to estimate from a benchmarking exercise the inefficiencies of the universal service provider and exclude it from the costs of complying with universal postal service obligations. The noble Lord understandably seeks to make sure that competitors are not unreasonably required to subsidise existing inefficiencies through the existence of a compensation fund. I tried to answer this question in part earlier, but let me restate that the Government fully agree with the noble Lord that the compensation fund should not subsidise inefficiencies. It is absolutely the Government’s intention that the fund should be used only as a last resort. It is there to protect the universal service if future market changes mean that an efficient and modernised Royal Mail is unable to do so fairly on its own. In addition, Ofcom will be able to impose a compensation fund only if it determines that the burden sustained by Royal Mail is unfair—that is, if the costs of delivery outweigh the benefits. That is not a simple question of costs, as the costs are often, as we know, clearer—although not currently, it is sad to say—and the benefits are often more intangible. But it is clear that there are enormous benefits to being the universal service provider. Finally, as I said in answer to the previous amendment, any compensation scheme will be required to be objective, proportionate and transparent, to avoid undue discrimination and to prevent or minimise any distortion of competition. Ofcom will also have to take into account the universal service cost calculation mechanism set out in annexe 1 to the postal services directive. That would require national regulatory authorities—Ofcom in this case—to consider all appropriate incentives for postal service providers to provide the universal service obligations cost-efficiently. I can reassure noble Lords that the amendment is genuinely not necessary. We agree with the noble Lord that the compensation fund should not act as a subsidy for inefficiency but we consider that the legislation and the directive already provide effective mechanisms to ensure that this will not happen. I therefore invite the noble Lord to withdraw his amendment.