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10.33 pm

The Minister for E-Commerce and Competitiveness (Mr. Douglas Alexander): I begin by paying tribute to my hon. Friend the Member for Morley and Rothwell (Mr. Challen) for securing this debate. I know of his interest and long-standing commitment to our postal services. He has raised a number of important issues, and I shall endeavour to address each of them. Let me begin my response by setting the debate in context and explaining the Government's approach to this important issue.

When the Government took office in 1997, one of our first priorities was to address the failure of the previous Administration to give the Post Office the greater

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commercial freedom called for by Post Office management and unions and deemed vital if it was to invest in new services and address the needs of its customers. In January 2000, the Postal Services Bill was introduced. Derek Hodgson, then general secretary of the Communication Workers Union, said of the Bill:

In March 2001, Consignia therefore became a plc, with a newly redefined relationship with Government as the sole shareholder, no longer operating as a statutory monopoly, but in a regulated postal market. Other elements of the freedom include the right to retain a greater share of the profits to reinvest in its core business and the ability to borrow to finance strategic investments.

In addition, regulatory reforms introduced under the Postal Services Act 2000 were specifically designed to promote the interests of consumers in a framework that will ensure that the universal service, of which my hon. Friend spoke at such length, is safeguarded. In recognition of its social and economic importance, the Government have for the first time, as my hon. Friend kindly acknowledged, enshrined the universal service obligation in primary legislation.

The Postal Services Act states that the universal service consists of a postal service provided at an affordable price, determined by a public tariff, which is uniform throughout the United Kingdom and includes daily delivery to the home or premises of every individual in the United Kingdom and daily collection from access points. The Act established an independent regulator, known as Postcomm, to oversee the postal market and a consumer council, known as Postwatch, to protect the interests of consumers.

Postcomm is an independent body responsible for regulating the United Kingdom postal market. It operates through a licensing regime for the area of the market broadly equivalent to the Post Office's former statutory monopoly. Within those limits, some exceptions—for example, document exchange services—are excluded from the licensing regime. Above the limits, there is a deregulated market fully open to competition.

I emphasise that Postcomm's primary duty is to ensure the provision of the universal service. It is the regulator's responsibility to determine how the universal service obligation is implemented in the interests of consumers. It is also responsible for promoting the interests of consumers, where appropriate, through the introduction of more competition.

Postcomm has met its duty to ensure that a universal service is provided throughout the United Kingdom by issuing its first licence to Consignia. Under the terms of that licence, Consignia has to provide a range of services in the context of a general obligation to provide a universal postal service at an affordable uniform tariff.

Postcomm has indeed initiated early consideration of the controls that should apply to Consignia's prices from April 2003. In November last year, it issued a public consultation document to invite initial reaction to the appropriate objectives and approach that Postcomm ought to have in mind when formulating revised price control arrangements. The document outlines a number of options relating to the structure, form and duration of the revised price control, while highlighting the importance of

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safeguarding the quality of service. Postcomm aims to publish initial proposals for Consignia's revised price control in the summer this year.

Subject to Postcomm's primary duty to ensure the provision of the universal service, it is also under a duty to further the interests of users of postal services, wherever appropriate, by promoting effective competition between postal operators. Postcomm can therefore consider applications for other licences, provided that it is satisfied that the universal service can be maintained.

While considering how more competition might be introduced to the market, Postcomm initially published a statement of its interim licensing policy in April 2001. In its document, "Interim Approach to Licensing", Postcomm outlined that the licence applications most likely to succeed in the interim period, until it has formalised its long-term approach to the introduction of competition, are those to certain niche services, provided that they do not affect the maintenance of the universal postal service. When issuing new licences, Postcomm must be satisfied that the universal service can be maintained.

Six very specific interim licences have been issued while Postcomm consults on the framework for a longer-term policy on the introduction of competition. Postcomm has also undertaken a wide-ranging consultation on competition based on the consultation document it issued in June last year. It is expected to produce its proposals early in 2002. Those proposals should be viewed in the context of a likely European agreement progressively to reduce the price-weight limits to reservation. In developing its longer-term policy on competition, Postcomm will consider whether there is scope for the United Kingdom to open up the market further.

The proposals will be subject to a further period of consultation, with the aim of finalising a longer-term competition and licensing policy by April 2002.

As my hon. Friend said, however, competition cannot just be seen in a United Kingdom context. In 1997, in response to the developments in the wider European postal market, the European Union established a framework for the regulation of postal services that allowed certain letter services to be reserved to universal service providers, but only to the extent necessary to ensure the provision of the universal service. The EU agreed on maximum limits for the services that could be reserved, but made explicit provision for those limits to be reduced and for competition to increase.

In considering the scope and timing of further reductions, the Council has reached political agreement on a framework systematically to lower the price and weight levels. This is now being considered by the European Parliament. The framework envisages a reduction in services that may be reserved from 350g to 100g in 2003 and to 50g in 2006. Following a review in 2006 that will focus on the impact of further reductions on the universal service, the European Commission may then propose either to phase out reservation in 2009 or to take other appropriate steps. This final stage will be subject to co-decision between the European Parliament and the European Council.

As a Government, we support the European Council agreement to establish a timetable for progressive liberalisation in Europe that is consistent with maintaining

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the universal service. We believe that it is important to move quickly to reach agreement to provide market certainty and to allow companies to prepare and to adjust to market changes. In the absence of any agreement, the current EU postal directive will lapse in 2004 with resulting market uncertainties.

It is important that, as the UK market becomes more open to competition, the wider European market also opens up. That will provide opportunities for British companies, including Consignia. The larger European post offices, such as Deutsche Post and La Poste, are active competitors in this market. Postal services are not only a domestic interest particularly for business. Indeed, the international mail market is one of the fastest growing parts of the sector.

I shall now try to place those policy developments in context. The postal market is, in general, becoming more and more diverse. "Post" does not just mean the personal letters, greetings cards or postcards that we all send and receive as individuals. In addition to the letters market, there are thriving markets for packets and parcels and for express services and for logistics. If the market is diverse, so are postal users. Businesses—large and small—are the main generators of mail, but many of their customers are individual consumers who not only receive but generate mail in response.

Customers are becoming more discerning and demanding about the services that they want and most particularly about business mail services. Therefore, there is increasing demand for more targeted, faster, more reliable and better quality services and for new postal services such as through the development of hybrid mail services using other communication technologies, time delivery services and track and trace so that it is possible to know where an item is at any stage of the delivery process. There is also demand for other products that facilitate business contact with customers.

Customers increasingly have a choice. Companies make greater use of electronic services, but individuals have access to a wider range of options, whether it is to send their greetings cards electronically or to pay their bills online. Sending things by post is no longer the only option for both individuals and business consumers and postal services have to compete for their place in the market.

As well as competition from new communication services and new technologies, outside the regulated letter market in the United Kingdom there is a thriving competitive market of 4,000 companies that operate in the wider distribution market. They offer a range of courier, express and logistics services and they range from the large international carriers to small local dispatch companies. They all compete to offer the services that customers want. Many of the larger competing companies are owned by or are in partnership with Post Office companies.

As customers have more choice—whether from direct competition from other service providers or from alternative means of communication—Consignia must make rapid progress to improve its performance and to give customers what they want, namely a better range of high-quality, reliable and well-priced services. Current poor performance is the result of its failure to resolve these problems in previous years when, as my hon. Friend acknowledged, the future of the Post Office was placed

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in limbo following the Conservative's failed proposals. However, as a result of recent reforms, Consignia now has the greater commercial freedom sought by management and, indeed, by unions to respond to a more competitive environment.

As shareholder, the Government are obviously disappointed by Consignia's present financial performance. It is clear that the company urgently needs to improve its performance and we are taking steps actively to strengthen its management.

Early last year, a new finance director, Marisa Cassoni, joined the board. That was followed by the appointment of Allan Leighton to the non-executive team to take a special interest in the post office network. A new chief executive of Post Office Counters Ltd. is being recruited and arrangements are in hand to appoint a new chairman of the company.

Consignia clearly needs to stem its losses and improve its performance. Its proposals on cost cutting are still at an initial stage. It will be vital, therefore, that as they are developed management works effectively with the work force to achieve the necessary changes. The Government were encouraged to see that Consignia and the Communication Workers Union have reached agreement on the basis for developing a framework for handling job reductions in the company. Although industrial relations and the resolution of disputes are, of course, a matter for the management of the company and the unions, the Government have consistently encouraged both sides to work in partnership.

Since the publication of the Sawyer report in July last year, which highlighted the real problems on both sides within Royal Mail's service delivery operation and made

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recommendations to try to resolve them, progress in developing a partnership approach to industrial relations within the company has been encouraging and should be used as the foundation of a long-term solution to the difficulties that have dogged it for so many years. A more efficient company, providing high-quality competitive services, is in the strong interests of consumers and the taxpayer. The postal market will not stand still and it is necessary to have a framework to allow consumers the benefits of competition while ensuring that the universal service is maintained at an affordable uniform tariff.

It is for the consumer that services are provided and it is the consumer who will look elsewhere if those services do not provide the quality and reliability required. We want consumers to benefit from the choice afforded by competition, but they will also benefit from a strong postal service as represented by a competitive and efficient Consignia that is able to provide not only the traditional universal postal service that we all value, but a wide range of competitive products and services.

The reforms that the Government have put in place include in particular the introduction of a new regulatory framework to provide the benefits of competition, with the universal service at its core, the establishment of an independent regulator and a new council for consumers, and the provision of a new framework of support for the post office network. We have also given Consignia the commercial freedom that it wants and needs to develop the company. All those initiatives together provide the necessary framework for a customer-focused approach and ensure that there is a strong postal services market for the benefit of all.

Question put and agreed to.

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