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Mr. Richard Page (South-West Hertfordshire): Will the Secretary of State tell the House why it has taken the Government five years to realise that the previous management was not up to scratch?

Ms Hewitt: As I indicated in my statement, we have taken a series of actions since 1997 to strengthen the performance of the company. We started by giving it much greater commercial freedom and then we brought in a new finance director, because one of the highest priorities was to ensure that the company regained control over its costs.

The hon. Gentleman may not be aware of the untimely death of the finance director early in 2000. Because of that, and the time inevitably taken to appoint his successor, the board was without a finance director for

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many months, and that contributed to the problems on which the new finance director, who arrived at the beginning of last year, has had to get a grip. We have made significant changes in the management of the company and we are continuing to do so to ensure that we get the first-rate management that we need. I hope that Opposition Members will give the management and the work force the support that they deserve to turn the company around.

Diana Organ (Forest of Dean): What reassurances can my right hon. Friend give to my constituents about the future viability of rural post offices? When will the universal bank be fully implemented and when will other commercial products, such as house insurance, be introduced into rural post offices, to increase footfall and keep the businesses viable?

Ms Hewitt: That is one of the issues that we have asked the new chief executive, David Mills, to take forward. With a background in retail banking, he is ideally placed to ensure that the Post Office develops those new commercial products, especially in financial services, to serve communities that are often financially excluded. Sub-post offices have an important role to play in that and the success so far of the household insurance product illustrates the potential. The universal banking service is on target for introduction next year, as I have previously confirmed.

Mr. Nicholas Winterton (Macclesfield): A sizeable part of my constituency is rural and some of it is very remote. In those remote areas, some businesses will receive more than 20 packages or letters a day. If they are to get priority service, will the other people who live in that area also get it, because it would be a nonsense to duplicate the service in those rural areas to which the reliable universal service is essential?

Ms Hewitt: The hon. Gentleman makes a sensible point and that is exactly the sort of practical issue that will be considered in the new pilots for the tailored delivery scheme. Where businesses—perhaps only one or two—are located in a remote rural area and receive 20 or 30 items of mail a day that they need to have delivered early in the morning, it may make more sense to have a single delivery for everybody in that village, instead of going out again later in the morning. That is an operational and practical issue and the company will draw conclusions on that point from the pilots that it intends to run in rural areas.

Mr. Michael Jabez Foster (Hastings and Rye): My right hon. Friend gives cause for optimism when she tells us of the acceptance by the management of the error of their ways, including the daft change of name. Have they learned the lesson that not beating up staff is one way to create enterprise among them? Can she do anything to instil a sense of respect for the staff that has been so sadly missing in the past two or three years?

Ms Hewitt: My hon. Friend will be aware that I have previously expressed criticisms of the management in part of the business. One has only to read the Sawyer report to see just how bad the management and industrial relations had got, not everywhere, but in some of the

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sorting offices in particular. I pay tribute to the union, in particular, and to the new management for the way in which they have worked together since the publication of the Sawyer report. We have seen an enormous reduction in the number of days lost to strike action, from hundreds of thousands five years ago to a few hundred in the past few months.

We are going in the right direction and Allan Leighton, who has made a point since becoming interim chairman of going to the sorting offices at 5 am, visiting delivery centres late in the evening and talking to the front-line staff, has been welcomed by the work force as the breath of fresh air that the company so badly needs.

Dr. John Pugh (Southport): Given the £1.2 million a day loss that Consignia is enjoying at present, what operating loss does the Secretary of State anticipate next year?

Ms Hewitt: The company is anticipating that its total losses next year, including exceptional items, will be about the same as this year. It is rightly making cautious assumptions in order not to disappoint on its targets as it has so often done in the past. As I said, further redundancy costs will arise from this morning's announcement and those will, of course, be included in next year's accounts for the current financial year.

Mrs. Louise Ellman (Liverpool, Riverside): Could the Secretary of State clarify her role in ensuring that the reborn Royal Mail will provide good public services in poor urban areas, such as Liverpool?

Ms Hewitt: I am already working with the new management of the company to ensure the first-rate management that we need and to ensure that the board and the management understand the importance of delivering the universal service obligation and higher standards of customer service throughout the country but, in particular, in vulnerable areas, whether those are poor urban areas such as my hon. Friend's constituency or rural areas where the post office and the Royal Mail play a uniquely important role. Equally, I have made it clear to Allan Leighton and David Mills that we must sustain an effective and modernised network of sub-post offices so that those can continue to play their vital social role, in particular in the most disadvantaged neighbourhoods.

Mr. Michael Jack (Fylde): The Secretary of State has just shared with the House the fact that next year the Post Office will make a further £1.1 billion loss, thus leaving only two years to return to profitability. As the owner of the company, will she tell the House what profitability targets will have to be achieved in years two and three to return to the profitability that she set, what rate of return on the company's capital she has agreed in future and, if those targets are not agreed, what sanction she will apply to the management?

Ms Hewitt: As I said, the company—rightly, in my view—is making very cautious assumptions and is allowing for the fact that in the current financial year it will have to make further provision for the exceptional costs of redundancies and restructuring that flow from this morning's announcement. The path that it has set, however, is—as Allan Leighton made clear and as the

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right hon. Gentleman will see from the accounts, which are being published today—for a return to profitability by the end of the third year. We will be monitoring the company's progress extremely closely on those profitability targets. If they are not met, we have made it clear to management that they will not only not receive their performance-related pay but that we will, if necessary, make further changes to the management.

Mr. Colin Challen (Morley and Rothwell): It is always a pleasure to be behind a Front-Bench spokesman who is willing to listen and then to act. In that spirit, will my right hon. Friend listen to customers in the forthcoming years of liberalisation, revisit the universal service obligation and strengthen it?

Ms Hewitt: I have already said that the universal service obligation is at the heart of our policy. That is why we gave it statutory backing in the Postal Services Act 2000, but the biggest threat to that obligation comes not from liberalisation and market opening—provided that that is done sensibly and at a sensible pace—but from the company's own inefficiency and losses. If it had continued like that, there would have been a very serious threat to the universal service. That is why it is so important that the company, under its new leadership, has now put forward and agreed this renewal plan and is taking it forward in partnership with the union to ensure that that obligation is strengthened and that quality of service is delivered throughout the country.

Mr. Christopher Chope (Christchurch): What is the Secretary of State going to do about the independent regulator if he says that it is not reasonable to increase the price of a stamp? Furthermore, what is the point of having an independent regulator if the Secretary of State tries to lean on him by prejudging his decision? If the price of a stamp goes up, does she agree that it will mean, in effect, that the customers are paying for this awful incompetence?

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Ms Hewitt: I have made it clear several times already that I would not have supported any price rise—nor thought it justified—if it was simply masking the inefficiency of the company's operations. The regulator—the Postal Services Commission—was, rightly, set up as an integral part of the move to commercial freedom for a publicly owned company. The members of that body are reasonable people—as the hon. Gentleman would expect; they have clear statutory objectives and I have no doubt that they will continue to make reasonable decisions, as they did on this occasion. Their independence, as the chairman, Graham Corbett, recently confirmed, is under no threat whatever, but he thought it perfectly proper—as did I—that I should make my views of the risks inherent in the earlier proposals known both to the Consignia chairman and to the commissioners.

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