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Ms Hewitt: It is pathetic of the right hon. Gentleman to try and suggest that the £2 million spent on the rebranding exercise is the cause of the problem. It turns out to have been a waste of time, but it is certainly not the cause of the enormous problems that the company faces. Much more serious is the fact that costs have not been adequately controlled at a time when the expected growth in mail volumes has simply not been achieved. Let me point out to him that of the redundancies that the company announced today, 4,500 will fall in management and administrative support services.

Mr. Jim Cousins (Newcastle upon Tyne, Central): Does my right hon. Friend accept that many of us who supported the introduction of a postal regulator did not anticipate that that would result in throwing post office services into a competition for which investment had not been made? Will she assure the House that there will be investment in the capacity to compete? Will she ensure that people who lose their jobs—most of them will be older workers who will come forward for voluntary redundancy—will be offered flexibility so that they do not face the choice of a slashed pension or income support? In particular, will she ensure that the urban post office network, without which neighbourhood shopping in working-class areas in this country will not survive, will be the target of sustained, meaningful and determined Government support?

Ms Hewitt: I share my hon. Friend's concerns about the urban post office network. In addition to the investment that I announced last week and the support that we have already provided, my right hon. Friend the Secretary of State for Transport, Local Government and the Regions has established a fund to support sub-post offices in deprived urban areas, where they are particularly essential.

My hon. Friend is right that the company has suffered from underinvestment for a very long time. We are now supporting it in making the necessary investment in restructuring and modernisation. Of course, as part of the voluntary redundancy package, the company will be taking steps to enhance and support the pensions of those leaving the Post Office.

Mr. John Greenway (Ryedale): How can the Consignia business plan be taken seriously when, judging by the right hon. Lady's answers, she cannot tell us how many urban post offices will close, where the redundancies will fall or even whether the price of a first-class stamp will rise? How many postal workers in rural areas will lose their jobs? There is already a shortage of them, and the service is deteriorating. Is not the bottom

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line of what she has told the House, as with everything else under this Government, that the price people pay will go up and the service that they receive will get worse?

Ms Hewitt: The hon. Gentleman does not seem to understand the idea of commercial freedom—[Interruption.]

Mr. Speaker: Order. Let the Secretary of State answer.

Ms Hewitt: Thank you, Mr. Speaker. The whole point about commercial freedom, which we have given the Post Office and which the hon. Gentleman's Government wholly failed to give it, is that those in management are responsible for managing the company. They must make the decisions about the necessary restructuring and modernisation of the company, and they will need to decide whether a price rise is justified and whether they can justify that to consumers by providing an improved quality of service.

I do not think that many of us in the House have been satisfied with the quality of service from the Post Office over some years. This morning's statement and the appointment of the new chairman of Consignia—the Post Office—are essential first steps in restoring the Post Office to health and in ensuring that consumers get a service on which they can rely and of which we can all be proud.

Mr. Kelvin Hopkins (Luton, North): May I ask my right hon. Friend about stamp prices? Are not stamps in Britain cheaper than in any other European Union country apart from Spain? A first-class stamp in Germany is the equivalent of 37p, as opposed to 27p here. Have we not had a Post Office on the cheap? Regardless of incompetent management—that is no doubt true—we have relatively low-paid postal workers and no blame should be attached to them for what has happened. Is not it as likely as day following night following day that, if the Post Office is opened up to competition and the private sector gets hold of some lucrative chunks, the first thing that will happen will be massive price rises to maximise profit?

Ms Hewitt: It is perfectly true that stamp prices here are lower than those in not all but most parts of the European Union. It is for the company to decide whether it wants to seek a price rise, and for the regulator, after consulting the consumer watchdog, to decide whether to grant it. However, we should be clear that stamp price rises, which may or may not follow, are not a way to get round problems of inefficiency, poor management and bad industrial relations. Those problems must all be addressed in any case. This morning's announcement was the first step to sorting them out.

David Burnside (South Antrim): Will the Secretary of State explain why in the necessary rationalisation of Parcelforce depots, Great Britain has taken a 50 per cent. cut but Northern Ireland has taken a 75 per cent. cut, which includes the closure of Belfast North, Londonderry and Portadown? Why are we taking more of the pain than the rest of the United Kingdom? When the Secretary of State is in discussion with Allan Leighton on job losses and consigning Consignia to the dustbin of marketing

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disasters of all time, will she see that the senior managers who are responsible lose their jobs first, rather than the ordinary people on the ground?

Ms Hewitt: I want particularly to pay tribute to the men and women working in the Post Office in Northern Ireland, who have continued to do their job with enormous courage in extremely difficult circumstances.

The specific proposals for rationalisation of the transport depots have been made by Consignia on the basis of a detailed examination of postal patterns in different parts of the country. I shall be happy to obtain further information on the specific point in relation to Northern Ireland, and I will write to the hon. Gentleman accordingly.

Mr. Tony Banks (West Ham): Is it not a fact that Conservative Governments plundered billions of pounds from the profits of the Post Office, money that could have been used for investment purposes and restructuring? Is that not a further example of where we are inheriting the legacy of Thatcherism?

Will my right hon. Friend tell me—I have a large Parcelforce depot in West Ham—that there will be no compulsory redundancies? Will she tell us also to what extent there is still room for negotiation on which depots are due to be closed?

Ms Hewitt: I entirely agree with my hon. Friend's point that the Post Office has suffered from many years of drift and decline under the Conservatives. There was one review after another under the Conservative Government, and no decisions. There was a flat refusal to

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give the company commercial freedom within the public sector. Ninety per cent. of its profits were taken in dividend, and there was no investment. That was at a time when every other postal service in Europe was modernising.

My hon. Friend is right to say that it is this Government who have seized the problem and have put in the management that is required to make the tough decisions that are needed to start turning the Post Office round.

Sir Patrick Cormack (South Staffordshire): Will the right hon. and geographically erroneous Lady confirm that on 25 March 1997 the Post Office was in profit? Will she tell us that she is confident that on 25 March 2007 the Post Office will be in profit again, that all the village post offices in my constituency will still be open and that we shall still have an early morning delivery?

Ms Hewitt: The profits that were being made in the Conservative years were artificially inflated to secure covert tax rises and the subsidy to the Treasury—[Interruption.]

Mr. Speaker: Order.

Ms Hewitt: There was little point in having a profitable company when the Conservative Government were taking 90 per cent. in dividends and refusing to let the company make the necessary investment. I believe that we are putting in place a management capable of restoring the Post Office to health. This is the first in a series of restructuring measures that will restore the Post Office to profitability and ensure that we have postal services throughout the country that will deliver for customers, including our constituents.

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4.28 pm

The Secretary of State for Transport, Local Government and the Regions (Mr. Stephen Byers): With permission, Mr. Speaker, I would like to make a statement on the bid for Railtrack plc made today by Network Rail.

As the House will be aware, Railtrack was taken into administration on 7 October as a result of a High Court order. As Mr. Justice Lightman said at the time:

Railtrack was put into administration because it was, or was likely to be, unable to pay its debts. But let us remember also that it had failed to maintain the railway safely and properly. It had failed to gain a proper understanding of its assets. It had failed to manage modernisation projects such as the west coast main line. Let us not forget that Railtrack was at the heart of the flawed and failed privatisation carried out by the Tories.

The Government have always said that what we need is a successor to Railtrack that is focused on the public interest and on the needs of passengers. Railtrack has made some progress during administration under the management of John Armitt, and his appointment as chief executive has been widely welcomed in the industry, but I agree with the Transport Committee, which said in its latest report, the first for this Session:

Because of the difficulties in putting together a business plan and the limited knowledge that Railtrack had of its own assets, the administrator has indicated that there will be further delays in launching his competitive process.

What we need is an end to administration, so that the improvements that we all want to see to the country's rail infrastructure can be delivered as soon as possible. There is therefore a value to the Government, the taxpayer and rail users in an earlier exit from administration. Network Rail's bid reflects that approach.

Network Rail says that its proposal could if accepted by the shareholders take Railtrack plc out of administration as early as the end of July this year. Network Rail would be a company limited by guarantee. It would not have shareholders, so it will not be paying out dividends. Unlike Railtrack, its operating surplus will be reinvested in the rail network. Its core focus will be the maintenance and renewal of Britain's railway. It will focus on the needs of the travelling public, not short-term profit for shareholders. It will be able to raise capital for investment more cheaply—a better deal all round for the travelling public.

The Government have always said that Railtrack shareholders should get the value in the company to which they are entitled. Railtrack Group has assets that could be used to provide value for its shareholders. My understanding is that Railtrack Group has over £350 million in cash deposits; it has an interest as owner in section one of the channel tunnel rail link; and it has some property interests.

The Government have indicated that a grant of £300 million will be made available to reflect the benefits of an early exit from administration. I must inform the

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House that, if such an early exit is not achieved, the money will not be available. An earlier exit from administration, resulting in a more focused and efficient rail network operator, would lead to a quicker realisation of efficiency savings, reduce performance penalties, and allow 10-year plan projects to proceed more quickly.

Network Rail's proposal, based on the concept of a company limited by guarantee, is designed to be more efficient than Railtrack, with lower financing costs and no dividends to pay. That is why the Government are prepared to make this payment. For the Government, it will be self-financing from savings that will be made. It therefore follows that, if there is not an early exit, the savings will not be made, and in such circumstances the £300 million will not be made available.

Since Railtrack was taken into administration, the Government have said that every single penny of taxpayers' money must be used to improve the rail network. That is exactly what the grant of £300 million will do. It will benefit the travelling public, and that has to be our top priority.

The administrator has said that he is actively reviewing Network Rail's proposal in the context of the administration. If today's bid were successful, it would enable a company limited by guarantee to become the successor to Railtrack. As the House will know, the Government have said all along that they view a company limited by guarantee as an attractive successor body.

Network Rail is committed to engineering excellence. Its bid has the potential to bring the rail industry together and overcome the fragmentation that has all too often characterised it in the past.

It is now for the administrator to decide how he should conduct the process in the light of today's bid. He has confirmed that he will treat any further proposals that might be made on their merits. Getting Railtrack out of administration must be done on the basis that it will produce a viable, financially sound company—one that takes a long-term perspective, and that puts the emphasis first and foremost on operating a safe, efficient and reliable rail network.

Taking action on Railtrack has been criticised by some, including the Conservative party—[Hon. Members: No."] Yes. But today's developments demonstrate what can be achieved. As a result of today's bid by Network Rail, we can now see a railway system that is united and not fragmented; a railway industry with a shared strategic vision; a railway industry that values its employees and will invest in them; and a network provider that will answer to the interests of passengers and not private shareholders.

That is all now possible as a result of today's proposals. We are now in a position to lay Railtrack to rest and to put in its place a successor body that will deliver for the travelling public. On that basis, I commend today's developments to the House.

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