Draft Postal Services Act 2000 (Determination of Turnover for Penalties)(Amendment) Order 2001

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Dr. Vincent Cable (Twickenham): I shall make a few comments in the same spirit. The impact of the two orders appears to be minor, but they touch on two of the central issues in the economics of the Post Office: the deregulation process and the fines regime. This is a useful opportunity to ask questions about the relationship between those two issues.

First, on the extension of deregulation to overseas post, is that purely a token and minor change? Can the Minister produce a figure for the share of Post Office business that we are talking about? Are we discussing 1 per cent., 5 per cent. or 0.1 per cent.? It would be useful to know whether this is an entirely marginal change, or whether it has business implications on which we should be focusing.

Like the hon. Member for Eastbourne (Mr. Waterson), I will say a little about the two central issues, which are how the fines regime might apply to Consignia if it continues to fail to deliver and the deregulation process of which the second order is part. Consignia's failure to deliver is alarming. In a rather fevered letter from the Post Office shortly before Christmas, I was accused of alarmism, but I discovered that many of the comments that I was making at the time were mild compared with those made this morning by Mr. Leighton, the newly designated part-time chairman, who has clearly taken on board that this is a critical situation.

My concern is that if Consignia's losses continue to mount, it will be difficult for it to meet its universal service obligations, to which it is bound by Postal Services Commission—Postcomm—regulations, even if it wishes to do so. The universal service obligation depends on the profitable parts of the old Royal Mail business cross-subsidising the less profitable parts, which are essentially collection and delivery in the more remote areas.

The issue that I have been trying to raise is hypothetical, but it is none the less looming: what happens if Consignia's losses reach a point at which it is no longer able to meet its universal service obligations and must default on them? Will the fines system kick in? If Consignia is fined for not doing what it cannot do, how does that help to improve the

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position? It would help me to obtain a better understanding of the issue, and it would answer the question of hon. Member for Eastbourne, if I knew how the fines would apply to Consignia. What happens if Consignia is unable to meet the universal service obligation that Postcomm imposes on it under the legislation?

Secondly, on deregulation, the problem is that there is already an enormous amount of competition through e-mail and fax. The Royal Mail did not invest over the years because most of its profits were effectively taken by the Treasury under the old regime before the reforms that led to the new fixed dividend. A large part of those profits was simply siphoned back into the Treasury and none of the surpluses were invested, which meant that the Royal Mail was hopelessly ill-equipped to cope with new competition when it came. Indeed, we are discussing deregulatory changes that will expose it to more competition.

There is a two-pronged attack on the Post Office's markets. One prong is coming from Postcomm—the order augments the margin of that competitive pressure—and the other from the European Commission. The problem with competition in the context of the Royal Mail's business is that one is dealing with a network monopoly, not a normal type of business. Whenever Postcomm or the European Commission strip away another bit of the market from the Post Office, another slab of profit is taken away. Unit costs are driven up and the risk is that inefficiency, rather than efficiency, will be increased. Competition is a good mantra and I often subscribe to it, but applying greater competition to a network monopoly risks making the system worse, not better.

My concern was to get a handle on how far the deregulatory change would alter the nature of the business, but I also want to use this opportunity to ask two fundamental questions. First, what will happen to Consignia's universal service obligation as it drifts further into the red? Secondly, do the Government appreciate that simply increasing competition will not in itself help the business of a network monopoly and might actually make its problems worse?

10.50 am

Miss Melanie Johnson: First, on the matters raised by the hon. Member for Eastbourne, there is nothing strange about the penalties order coming before the Committee at this time. In fact, it was laid in draft on 19 July last year, but we were awaiting a second order, which was to be considered at the same time. Had there not been an oversight in respect of the specific two-year penalty, everything would have been dealt with at the same time. There is nothing particularly significant, therefore, about the timing of what is simply a tidying-up exercise. Indeed, we have responded in perfectly reasonable time, given that no problems can arise before March 2003 in any event. It is clearly right to correct and put in good order the regulatory regime and the hon. Gentleman doubtless understands and supports that principle.

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The hon. Gentleman also mentioned a report mentioned in an article in the weekend press—I believe that it appeared in the Sunday press, in fact—but he will doubtless be disappointed to learn that Ministers have seen no such report.

Mr. Waterson: Given the detailed and almost daily involvement of Ministers in Consignia—borne out in part by an answer I was given a day or two ago—would the Minister and her colleagues not like to see that report? Will they be asking for a copy?

Miss Johnson: My point is that I am not aware that such a report actually exists, so I cannot ask to see it.

Mr. Waterson: I just want to be clear about this. Is the Minister suggesting that the entire article was based on a report that does not exist?

Miss Johnson: I cannot engage with the hon. Gentleman's continuing speculation on press speculation, which could lead to yet further speculation. There was clearly a speculative report.

Mr. Charles Hendry (Wealden): Can the Minister confirm the comments of her colleague the Minister for Employment and the Regions, who said yesterday that although effort will be put into maintaining the rural network he anticipates a significant reduction in the number of urban sub-post offices?

Miss Johnson: The Government are committed to the post office network, which is why we commissioned a full report on it from the performance and innovation unit, which has been available for some time. Some £270 million has been ring-fenced to enable implementation of the report's recommendations. We have a commitment to preventing avoidable closures of rural post offices and we are introducing the universal bank and developing ''Your guide to government'' general practitioner facilities. We are also developing separate measures to provide financial support to the rural network. The Government accepted all 24 recommendations of the PIU report, which is in the public domain. My hon. Friend the Minister for Employment and the Regions and I agree on those matters.

Dr. Cable: Does the Minister agree that, whether or not the report actually exists, the estimate of a 7,000-branch contraction in the 18,000-branch network is entirely consistent with the implications of a 40 per cent. loss in the income of Post Office Counters following the introduction of automated credit transfer? Although, as she rightly said, the Government have produced many new ideas for raising income, following the PIU initiative, many of them do not go far towards offsetting the £450 million loss. The potential loss of 7,000 branches is still a likely scenario as a result of the loss of income from the Post Office Counters network.

Miss Johnson: I appreciate that the hon. Gentleman would like me to speculate on what he has just said, but I shall not be drawn on those matters. The Committee is here to consider the orders and I have made it clear to the hon. Gentlemen that Ministers do not have any

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such report. We are not even sure whether one exists. I have made the position clear and I cannot speculate on it further.

The financial penalties will not necessarily be the first sanction that Postcomm imposes when a licensee fails to meet obligations under the universal service obligation. Postcomm will be able to make orders. It is under an obligation to have regard to the financial ability to deliver the universal service. That is its obligation in the matter.

I appreciate that the hon. Gentleman wishes to espouse competition on some occasions but not on others, as he said. That is often a good mantra. The orders are about the marketing and competition arrangements that are the framework within which postal services provision takes place. The effect of the second order is to deregulate in a positive way and that of the first order is to close the gap in the penalty.

Mr. Waterson rose—

The Chairman: Order. Is the Minister giving way?

Miss Johnson: I will give way to the hon. Gentleman.

Mr. Waterson: I had the impression that the Minister might be nearing her peroration and I did not want to interrupt any of her Churchillian cadences. Will she comment on the statements from ABN Amro about 30 per cent. of the market being opened up to competition?

Miss Johnson: I am sure that there are many comments about the postal services market. Were we here so that I could comment on any that hon. Members wished to select, we could be here for a very long time—longer than the time allotted to debate the order. I shall not be drawn to speculate on comments by any organisations or on any press reports. That is not my role in this Committee.

I am grateful for the general acceptance of the two orders. The hon. Gentleman drew the correct conclusion about my cadences. I believe that that acceptance follows the positive spirit with which we debated primary legislation nearly two years ago. In conclusion, the order on the determination of turnover for penalties enhances the fairness of the basis for calculating the maximum penalty on licence holders. The order to modify section 7 of the 2000 Act removes a small burden on those handling mail destined for delivery abroad without harming the universal postal service in this country.

Question put and agreed to.


    That the Committee has considered the draft Postal Services Act 2000 (Determination of Turnover for Penalties) (Amendment) Order 2001.

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    That the Committee has considered the draft Postal Services Act 2000 (Modification of Section 7) Order 2002—[Mr. Norris.]

        Committee rose at one minute to Eleven o'clock.

The following Members attended the Committee:
Widdecombe, Miss Ann (Chairman)
Abbott, Ms
Atherton, Ms
Cable, Dr.
Davey, Valerie
Hendry, Mr.
Jenkins, Mr.

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Johnson, Miss Melanie
Lewis, Mr. Terry
Norris, Dan
Quinn, Lawrie
Ross, Mr.
Tynan, Mr.
Waterson, Mr.

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