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Postal Services Bill [HL]

My Lords, the first amendment in this rather large group deals with the ownership of Royal Mail and the vexed problem that people like me face on the question of its privatisation. Amendment 1 seeks to remove the Government’s Clause 1 and replace it with the proposed new clause as printed on pages 1 and 2 of the Marshalled List. It would remove the distinction between the Post Office and Royal Mail companies and the differences in their ownership. It then provides for the transfer of all the property rights and liabilities of Royal Mail Holdings plc to a newly-formed company, limited by guarantee, which is to be nominated by the Secretary of State. I have placed these amendments deliberately in the hope that our Government are both listening and learning and are prepared to rectify the serious mistake they are likely to make if they continue on their present journey. Growing numbers inside and outside this House, and in the other place, are against the Government’s proposals for privatisation. This opposition is very soundly based and has been reinforced by evidence and events since the Bill was first introduced to the House. Noble Lords will recall that the Government, without pause for reflection, and on the same day that the Hooper report was published, announced their support for all the recommendations of that report, including privatisation. This was, we were told, a coherent package of measures which had to be taken together. It was based on analysis that was supposed to demonstrate that the Royal Mail was both the least profitable and the least efficient of the European postal providers. On such a basis, radical surgery in the form of a strategic partner from the private sector was necessary. The industry is to be part-privatised, with just less than 50 per cent being offered to the partner. December 16 seemed a day of great and clear purpose for the Government. How have the analysis and the proposals held up since that time? First, we have to note that the Bill departed from the strictures of Hooper, being a package from which no departure was allowed. The Bill includes a facility to establish a universal service support fund. I endorse that facility, and it has been endorsed by the people who work in the industry. Hooper explicitly rejected the establishment of such a fund, characterising it as counterproductive. Despite Hooper’s certainty that the Government and their advisers were less clear than Hooper that the only distortion to the postal industry was the public ownership of the Royal Mail, somewhere there was a nagging doubt—that the mistakes of Postcomm had been underplayed by Hooper in his final report; an impression that will be reinforced by rereading Hooper’s earlier and superior report. That is the interim report, which mysteriously got changed after certain interventions by government people. Be that as it may, the Government allowed themselves this exception, despite Hooper insisting that his report could not be taken a la carte. I suggest that the Government should recognise their mistake in their hasty endorsement of the rest of Hooper, because everything since 16 December tells against the supposed integrity of Hooper’s analysis. For example, in April the Universal Postal Union published an important report: The global economic and financial crisis: Initial insights into its impact on the postal sector. That interesting report analyses the impact of the recession on all major postal operators in the world. In this sense, it is an important corrective to the Hooper report, which fails to suggest what impact the recession was having on Royal Mail and the mail market in general. In fact, Hooper’s report tends to view declining mail volumes as essentially a result of e-substitution. However, the UPU report is notable for giving a context for changes in postal traffic and thus a greater explanation. It is clear that the postal industry, like other industries, is suffering from the impact of the recession. The report indicates that there has been a sharp decline in domestic letter traffic of an average of 5.9 per cent during the fourth quarter of 2008 compared to the previous year. Express activity suffered even more sharply, dropping by 7.9 per cent on the same year to year basis. Parcels traffic has suffered least from the crisis, displaying a strong resilience, despite the economic downturn, and saw a 1.1 per cent growth during the fourth quarter of last year. What is very positive in the report is that it gives those figures an even broader context by comparing the position to that of the Great Depression in the 1930s. Of course, such comparisons are freely drawn by many commentators when trying to analyse the current recession and crisis in the financial sector. I am convinced that such a comparison is also helpful in understanding the real state of the postal industry today. How does this comparison work in the postal sector? In the United States Postal Service, revenue declined by 12.3 per cent between 1931 and 1932. In Germany, letter postal volumes declined by 16.6 per cent between 1930 and 1931. In France, there was a 15.5 per cent drop in franking revenues between 1929 and 1930, leading to a 24.8 per cent drop in these revenues between 1931 and 1932. This allows us to see that, despite Hooper, there is a clear cyclical element at work in mail traffic variations in line with cyclical developments in the rest of the economy. We can therefore say that Hooper’s report has failed to locate the problems facing the postal industry in the context of the international economic recession. It would be a great mistake for the Government to ignore this new material and to assume that Hooper has the final word on future trends in traffic. It would certainly be foolish to fail to anticipate Royal Mail’s contribution to the economic recovery. It may be said that this is interesting but not the most significant element of Hooper’s analysis. We must then return to other elements, including the suggestion that Royal Mail is both the least profitable and the least efficient of European postal operators. I say that again, because if a lie is told, as somebody in fascist Germany in the 1930s said, and you repeat it, it will be believed. The suggestion that Royal Mail is both the least profitable and least efficient of the European postal operators is simply not true. Last week, first quarter results were published by a number of European privatised postal operators. TNT saw a year-on-year drop of 58 per cent in operating profits. Posten, in Sweden, suffered a drop of nearly 50 per cent in operating earnings. Post Denmark saw its profits drop by 52 per cent. Deutsche Post has yet to publish its first quarter results, but in the last quarter of 2008 it reported a €3.16 billion loss. In comparison, Royal Mail has increased its profits in both quarters and is expected roughly to double its profits for the full year. So much for Royal Mail being the least profitable operator. What has been demonstrated is that Royal Mail is weathering the recession better than its supposedly superior rivals. It was never the case that Hooper had made the definitive analysis that the Government saw there. I remind noble Lords of what the Business and Enterprise Committee of the other place wrote in its verdict on the Postal Services Bill on 1 April: ""We agree with two key aspects of the proposals. First, that the Government should take responsibility for the historic pensions deficit. Most of its liabilities stem from Royal Mail’s time as a monopoly provider. It needs to be freed from them, as many of its European counterparts have already been freed. Moreover, pension fund members deserve to know that their pensions are secure. Second, we also agree that a new regulatory framework, in which postal services are viewed as part of a wider communications market, is entirely appropriate"." The report continues: ""However, we do not consider either the Independent Review or the Government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package which includes the third reform, the involvement of a private sector equity partner in Royal Mail. Similarly, we are not persuaded that the provisions contained in the Bill allowing such a partnership are necessary or desirable"." Those are the words of a committee in the other place. The report also indicates that the Government have been entirely unclear about the issue of investment, which undermines the suggestion that privatisation is necessary. The report also makes important contributions as to the lack of rationale regarding splitting Post Office Ltd and the Royal Mail Group. Nor have the Government indicated what the impact on competition will be if, as seems likely, the chosen partner is already active in the UK mail market. The report points out how completely unclear any partnership agreement would be in terms of further capital injections and actual control of the company. I endorse one of the final points in the summary, which says: ""We are left with the conclusion that either the Government has not fully thought through its position about future share sales, or that it has done so and is refusing to reveal its hand"." To date, the Government have not responded to this report. The opportunity exists for the Government to examine this important piece of work and to consider taking a step back before proceeding further with a Bill whose credibility has now been seriously weakened. My amendment offers a potential way forward for the Government, not to satisfy me or my emotional ties with the Post Office—I should have declared an interest but I am sure that most noble Lords know it by now—but as a way for the Government to disengage themselves from an argument that is not wanted by members of the Labour Party, members of the public or Members of Parliament down the other end. I want them to examine this important piece of work again and, I hope, the existing elements of the Bill which have been endorsed by the Business and Enterprise Committee and by the majority of opinion in this House. We have made good progress in Committee in how we tackle the whole question of pensions and regulatory activities. However, I greatly fear that the Government do not yet recognise how unkind these past few months have been to Hooper’s proposals. We recently had a statement from Deutsche Post. We remember Deutsche Post from the early days in December when everyone was flurrying around to get a grip on our wonderful, profitable post service. What does it say now? We have a statement that it has no intention of bidding for Royal Mail. It has been rattled by its recent results, which followed hard on the heels of DHL withdrawing from the North American inland express market with huge losses, so it is concentrating on putting its basic business right. Surely there is a lesson for the Government here. Deutsche Post’s statement means that, unless the Government inform us otherwise, there are only two potential partners interested in acquiring Royal Mail: the private equity firm CVC and, of course, the one that keeps cropping up and is likely to get the job if we ever let this go through, TNT. On the second day in Committee, the Secretary of State would not be drawn into commenting on TNT’s suitability for partnership with Royal Mail. He said, ""we are undertaking a fair competition to identify a suitable partner for Royal Mail".—[Official Report, 31/3/09; col. 967.]" My question still is, and I put it today, whether the Government are now prepared to admit the failure of such a search. After all, if TNT is the sole suitable bidder, then the competition has indeed failed. Since 16 December, when the predators were circling like vultures, TNT has been involved in illegal acts including the falsification and backdating of documents. The company was forced to pay back £49 million to the Revenue, including unpaid tax penalties and interest. There were similar inquiries into its tax affairs with other EU countries, although we do not know whether they resulted in further payments or disciplinary action. The current chief executive of TNT, Mr Peter Bakker, was in post at the company at the time that those illegal acts were undertaken. We have also learnt that the chief executive of Royal Mail, Adam Crozier, has accused TNT of trying to poach customers from Royal Mail’s profitable European parcel subsidiary, General Logistics Systems. We know that Adam Crozier sent an e-mail to the Government about this, but have yet to learn whether the Government responded to that correspondence. I confess that I do not read the weekend papers, but others have told me since they came into this Building today that we have learnt a bit more about TNT. TNT is now considering its position. When the £3 billion figure is cited, it makes this whole thing look even sorrier than it was to begin with. If we were going to sell off our birthright for £3 billion then, in the words of that great Conservative Prime Minister, Harold Macmillan, it would be like selling the family silver. It is not right to sell off such a profitable post office. Since then, we have witnessed further evidence of the unsuitability of TNT as a strategic partner. Towards the end of April, the European Court of Justice ruled against a challenge by TNT to have Royal Mail’s VAT exemption lifted. The European Court of Justice ruled that Royal Mail had an important obligation in the form of the universal service, and that, therefore, the role of TNT and Royal Mail were not comparable in the UK. So we see a potential partner with partnership skills that include trying to force Royal Mail to charge considerably more for its service. We have seen press reports that, in the potential negotiations, TNT insists upon guaranteed earnings from any future stake in Royal Mail. Presumably TNT expects the taxpayer to subsidise its acquisition of Royal Mail, as we have been subsidising its work through the downstream access ever since Postcomm made its original decisions on the tariffs to be charged. I did not read it, but somebody I trust implicitly said that we have learnt from the Sunday Telegraph that TNT wants Royal Mail’s profitable European parcels arm, GLS. Well, of course it does! Anybody with half a brain would see what it is up to. If something is profitable, they want it. We would be daft if we let them have it. Further, it is suggested that TNT’s offer falls well short of the Government’s anticipated £3 billion for a 30 per cent stake. Finally, I read in the Library a report in yesterday’s Observer that some of TNT’s own bill investors are moving to reject the acquisition of Royal Mail. The paper says that Jan Keuppens, representing the firm Robeko, one of the top 15 shareholders, believes that TNT’s management should focus on reversing the 58 per cent slide in its own profits reported last week. According to the article, Jan Keuppens said that, ""‘buying a stake in Royal Mail would be a distraction … They should not do it, unless they can agree a really good price and conditions. Many investors are saying that, even at a cheap price, TNT should not do a deal’"." This is the reality of the potential partner, TNT. Surely this should give the Government pause for thought. Yet it appears that the Government have yet to consider the value of examining an alternative. Last week, Compass published its pamphlet Modernisation by Consent. It is proposing the establishment of an alternative structure for Royal Mail, maintaining it in the public sector, while ensuring sufficient investment through the direct investment of profits raised. Unfortunately, the Government’s response, identical to their immediate response to Hooper, was to reject it out of hand. Apparently this proposal is "a political fix". From where I am standing, the Government are in need of a few political fixes. I have drawn up these amendments to demonstrate how the proposals raised in the Compass pamphlet could be introduced. I am not saying they are the last word, but they could be introduced. There is substantial room for further discussion, particularly on the type of governance that a company limited by guarantee with no share capital would require. Not only would such a move offer an alternative route to a successful Royal Mail in the public sector, it would also be popular, allowing Royal Mail, including the post office network, some stability, with new elements of accountability in governance possible. Yesterday I noted in the Sunday Times, again from our lovely Library, that the most recent poll on Post Office privatisation indicated that a mere 20 per cent of those questioned were in favour. Sixty-nine per cent wanted the structure to remain the same or to be turned into a publicly owned, not-for-profit company. All those years that I have been involved in the Labour Party and listened to pollsters, there is always an inherent group in any polling that would oppose anything at all, but is 20 per cent any basis for moving towards the destruction of the wholly publicly owned Post Office? I desperately want to see a fourth term for a Labour Government. That alone distinguishes me from some of the siren voices egging the Government on in this pursuit for privatisation. But all the published evidence is that privatisation of Royal Mail is deeply unpopular and will be hugely damaging to the Government’s electoral prospects. From our debates in Committee, we learnt that the current modernisation proposals for Royal Mail management are fully funded. Indeed, despite agreement being reached with the Government in the financial year 2006-07, management have yet to acquire or deploy the walk-sequencing machines. I shall now go off the brief I prepared for myself. On the last day of Committee, this House was assured that it would get the details of what modernisation meant, the cost of the machines and their make, and where they would come from. This gives me the opportunity to repeat what I said in Committee. The Secretary of State said at Second Reading the machines were here and in wraps. There is nobody in this country who can tell you where those machines are—not a company that says it has supplied them. Again I ask: where are those machines? Where are the wrappings? How much did they cost? When were they ordered? What is the lead time in getting delivery? We have also learnt that the Government assuming responsibility for the pension fund deficit results in the company having an additional £280 million capital per year for the next 14 years. If Ofcom ends this subsidy given to competitors via access arrangements, Royal Mail would have a further £100 million capital a year on top of the additional £280 million. This means that there is no financial imperative for privatisation, so perhaps privatisation is just a "political fix" after all. We know that the time for a sale, even if it were the right thing to do, would not be now. The Compass Group recently demonstrated that a sale now would yield only 50 per cent of what would have been achieved a year ago. Therefore, for reasons of public need, the integrity of the industry and its workforce, and financial prudence, I urge the Government to forgo the policy of privatisation. There is an alternative: all that it needs is for the Government to display the will to take it and the will to carry out their own manifesto commitments. I beg to move.