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Geraint Davies (Croydon, Central): We have had an interesting debate, which the Tories opened with a ragbag of political opportunism, conveniently forgetting that 80 per cent. of the profit in their time was syphoned to the Treasury and that they closed 3,500 post offices. They did not pledge any additional funding for the extra deliveries that they want and were unclear about their commitment to privatisation, although as we drew out Tory Front Benchers it became obvious that in their hearts that is what they want. The former right hon. Member for Henley, Mr. Heseltine, came unstuck over his popularity for that policy, not least among his Back Benchers, who in their hearts wanted privatisation but realised in electoral terms that it would be political suicide.
Mr. Waterson: The hon. Gentleman says that we want funding for extra deliveries: nothing could be further from the truth. All we are doing is pointing to the fact that parts of the existing service on which people have relied for years are being stoppedthe morning collection, the second delivery and the morning delivery to private addresses. We are looking to maintain the status quo, rather than bringing in anything new.
Geraint Davies: Implicit in the comments that were made was the idea that if current services were reduced, the timing and frequency of deliveries would be reinstated by the Conservativesotherwise their argument would be hollow. I heard no commitment to provide extra funding from Government subsidy to Consignia to make that possible. If the hon. Member for Eastbourne (Mr. Waterson) wants to illuminate his position, I shall be happy to give way. Apparently, he does not. That is a big surprise.
The Conservatives' position is clear. They want privatisation, a system of regulation that is RPI minus X, and cherry-picking in respect of competitive access. As the NAO report makes clear, that will threaten the concept of universal provision of services to rural and urban communities throughout the country. The Conservatives know that the situation would have been much worse under privatisation. The key prospect for the Government to break out of the traditional nationalised industry and stay clear of privatisation is to manage a mixed economy that balances service delivery, public interest and some degree of commercial enterprise.
I was interested to hear the Liberal position, which is a rather stark exaggeration of the prospects envisaged in the NAO report. I shall return to that report later. I was pleased to hear the hon. Member for Angus (Mr. Weir) set out the position of the Scottish and Welsh nationalists. They would devolve control of the Post Office to Scotland, where average unit costs are obviously much higher because the community is much more rural. They would stick a massive tax on the people of Scotland and Wales, or increase prices, which is the logical consequence of devolution. What the Welsh and Scottish people do not wantof course, I am ethnically Welshis more costs heaped on them by people who do not understand the economics of more and more devolution.
Geraint Davies: I understand the argument that privatisation and cherry-picking would undermine the viability of rural communities. My point is that if the responsibility for and financial management of the Post Office were devolved, the average unit cost would, other things being equal, go up.
In my brief contribution, I shall deal with two aspectsfirst, the general analysis of the pressures that face the Post Office and, secondly, East Croydon post office, which is threatened with imminent closure. I shall do so not merely because I have a constituency interest, but because some of the factors and opportunities there illustrate the commercial opportunities for the Post Office elsewhere in Britain, which I hope the management will take up, rather than be fixated with making cuts to balance budgets. The other way to achieve that is to generate revenue, as anyone who has been in business, as I have, would know.
No one has spoken about the marketplace in general. Hon. Members may know that 20 billion letters are sent in Britain every year. The Post Office is not in chronic decline, partly because of the increasing amount of business post: 86 per cent. of letters sent are from businesses, and 67 per cent. of received letters are for domestic addresses. There has been an enormous increase in what some call business mail, and others regard as junk mail. Issues about relative pricing are also involved in that context.
There has certainly been a growth in the number of letters, but, set against that, many people who used to write letters use telephones more, and many people who use telephones communicate increasingly by e-mail. That change in the marketplace obviously needs to be embraced by a modern Post Office. A key area for growth is parcel delivery; a lot of that business is generated by e-mail and does not even involve the Post Office. The Post Office does not have a good history in parcel delivery, and quite a lot of profit is being made by new companies entering that marketplace.
My hon. Friend the Member for Ochil (Mr. O'Neill) has already mentioned relative prices in the European context. It costs 26p to send a 20 g letter in Britain, compared with 39.3p in Germany and 24p in the United States. Our stamp costs are far below those of France, Italy and the Netherlands. Our charge for a 60 g package is 26p, compared with 50.6p in Germany; in this case, America is more expensive than us, as are France, Italy and the Netherlands.
In relative terms, the prices charged to the British public and businesses are low. To a certain extent, that explains the fact that there was rapid revenue growth between 1995 and 2001, with the Post Office's turnover increasing from £6 billion to £8 billion, while profit margins went into decline; it is now making a loss. The National Audit Office has asked whether the regime of RPI minus X is sensible in terms of our wish to have decent service delivery at a time and price that consumers
The economics of cherry-picking dictate that if the marginal revenue is greater than the marginal cost, the private sector will move in. Obviously, the private sector is not interested in operating in the kind of market that is depicted on the front of the National Audit Office report. It shows a man in a strange sort of truck going across a field to deliver one or two letters. Such activity is not exactly profit-making, but it is part of the universal service that we ensure. The problem that we face is that the universal service obligation is challenged by the niche entry into the market of those people who pick off certain types of business, particularly urban business and business-to-business transactions. The NAO report states:
Instead, we are beginning to see a downward pressure on prices, the level of some services is beginning to decline in terms of multiple delivery and delivery times, and, in theory, the universality of the service is being challenged. We have seen the beginning of market entry being allowed by Postcomm, with licences being issued, but the problem for Consignia is that about 40 per cent. of its costs are fixed. As it competes at a marginal level, the situation will be more painful.
As a result of the European proposals for liberalisation more of the Post Office's core services will be open to competition. In particular, from 2003, the delivery of any item above 100 g will be open to competition; by 2006, that will extend to any item over 50 g. The Government need to consider the business's profile as we move forward.
Like other Members, I am concerned about the reliability of the first-class post. The Post Office has been condemned for not meeting its target of delivering 92.5 per cent. of first-class post by the following day. In fact, it achieves a low of 89 per cent., which is only marginally less. If a manager is told, "You're priority is to improve from 89 per cent. to 92.5 per cent. or above," one response might be to cut one of the two deliveries to ensure that at least one gets through later in the day. If the objectives and incentives do not embrace service frequency and timingwe are talking about value judgmentsthe machinery of devolved management will produce results that might be undesirable from some points of view.
I understand that only 7 per cent. of letters arrive by second post, but they absorb about 40 per cent. of the cost. From a business management perspective, one can see the point of changes such as those that have been discussed on the "Today" programme and elsewhere. However, my feeling is that the regulatory framework should enable us to understand and embrace outputs, which are, in fact, predictable.
There are clearly tensions to balance between the public service and the profit motive and commercial viability. There are also tensions between universal service provision and a cherry-picking competition. It is important to factor in not only the obvious commercial saving arising from post office closures, but the wider social costtwo different sums. We must establish not only the potential commercial and operational saving of reductions in service frequency, but the wider externality in terms of economic value.
Perhaps such balances have already been struck, and one can argue that they have, but questions of fine tuning need to be addressed if we are to pursue a mixed-economy approach. Neither reverting to a traditional, state-run monopoly, nor exploring the vagaries of privatisation are in the consumer and public interest. It is difficult to strike a fine balance, and I respect the fact that the Government are doing well in that regard. The fact remains, however, that a guaranteed first-class delivery rate of 92.5 per cent., RPI minus X, universality and market entry can result in operational decisions that some people do not want.
We need to review the parameters, constraints and opportunities. My colleagues on the Public Accounts Committee and I look forward to quizzing representatives of Postcomm about the way in which its regime is influencing management behaviour and public service.
The Government need to strike the right balancenot a state monopoly or a privatised monopolyand encourage a regime that tries not simply to drive down costs, but innovatively to generate commercial revenue. With that in mind, I want to discuss briefly the case of East Croydon Crown post office. It is on East Croydon station, which, as many hon. Members may know, is the fourth busiest public transport interchange in the country. The trains and the new tram systemas leader of the council, I was involved in its introductiontransport some 18 million passengers along the tracks. In addition, there is the bus centre.
Given the enormous number of people milling around the station, why is the post office not breaking even? One reason is that it is not open when people are travelling to and from work, which is extraordinary. Moreover, the profile of the business is aimed at a declining marketthe unemployed and pensionersrather than commuters. I suggested that the post office change the range of available products, and perhaps provide a sign to show that the post office is there, given that it is 10 yds from the main terminus. I have been negotiating with the unions, whose representatives saycontradicting the picture painted of themthat their members are willing to stay open outside normal working hours to serve those going to and from work who may want, for instance, to collect internet-ordered products that cannot be delivered to their houses because they will not be in.