|Previous Section||Index||Home Page|
Over the past decade and more, I have been a regular visitor to my local sorting office in Leicester. I have seen one very welcome change: industrial relations, which
were pretty parlous 10 years ago, are now, so far as I can tell, reasonably good. Sadly, however, that is not the picture across Royal Mail. Apart from that, as far as I can see almost nothing has changed in that sorting office. I welcome one aspect of that: many of the Post Office men and women whom I met 10, 11 or 12 years ago are still there, absolutely dedicated and loyal Royal Mail workers whose commitment to the organisation is one of its greatest strengths. However, the lack of change in the sorting methods is shocking. My right hon. Friend the Minister rightly referred to the business of sorting post into the walks that are then taken out. What I saw just before Christmas was exactly what I saw more than 10 years ago: postmen and women who are going to go out on the walk at about at 8 oclock coming in at 5 or 6 oclock in the morning and hand-sorting the mail into old-fashioned cubby-holes that were probably there 50 or even 100 years ago. A system that has been 85 per cent. automated by Deutsche Post, TNT and other postal operators and competitors is wholly unautomated in my own and many other local sorting offices.
That lack of change, coupled with the transformation in the technologies we all now use, is probably the central reason that has led to the crisisthat is what it isin Royal Mails current position. Royal Mail itself says the overall financial situation is increasingly fragile. The universal service obligation lost money last year. The pension scheme is completely unaffordable by the company on its current performance. Postcomm says Royal Mail in its current form is not sustainable. Richard Hooper says that the status quo, and in particular the USOto which all Members, at least on the Labour Benches, are completely committedis under threat. The truth is that only about a third of the original master modernisation plan, which was drawn up under Allan Leightons leadership of the new board, has actually been implemented, and only about £85 million of the Governments financing facilities that were put in place in 2001-02 and renewed only a few years ago has actually been used.
Royal Mail desperately needs a new capital injection and a much faster pace of modernisation, in particular to deal with the massive inefficiency in the running of local sorting offices. That modernisation would benefit employees, who should not be working in 19th century conditions in a 21st century Royal Mail. It also needs a solution to the pension fund deficit. The Minister rightly said that once the new valuation is made, given what has happened to stock markets in this global financial and economic crisis, that deficit will be frightening.
Beyond all those changes, what Royal Mail needs is an injectionnot just at the top, but all the way down, through senior, middle and junior managementof new people who have expertise and experience gained in another organisation. I am thinking of a network organisation, preferably a postal one, that has already been through this difficult transformation, on which Deutsche Post and TNT embarked in the 1990s. That expertise and experience exists, but it is not to be found in Royal Mail. It needs to be introduced through a strategic partnera minority partner. That partner also must demonstrate the track record of social partnership working that we have tried to create in Royal Mail. Clearly, the management have not succeeded in that, but neither has the leadership of the Communication
Workers Union, who accept the need for change in principle, but have not been willing to make those changes in practice.
Peter Luff (Mid-Worcestershire) (Con): It is a pleasure to follow the right hon. Member for Leicester, West (Ms Hewitt), who made a characteristically thoughtful and well informed contribution, which was marred only by one brief lapse into partisanship; although I speak as Chair of the Select Committee on Business and Enterprise, I hope I speak for the whole House when I say that we all support the universal service obligation.
My Committee is in the middle of two relevant inquiries into this subject. One deals with the Hooper review and mail serviceswe are having a further evidence session next week with Royal Mail and Postcommand the other one, to which the Minister referred in his opening remarks, deals with the future of the post office network. I urge hon. Members from all parts of the House to give us their views about the options for sustaining the future of that network. All this means that my hands are a bit tied in this debateI have no reports from my Committee on which to rely, so I must be slightly restrained in the expression of some of my views.
It is important to acknowledge, as this debate has, the huge range of problems facing Royal Mail in particular, as opposed to Post Office Ltd. They include: poor industrial relations; the growth of electronic communications and the recession, which together mean declining mail volumes in the UKthose volumes declined by 2.5 per cent. last year and are projected to decline by 4.5 per cent. this year and by 8 per cent. next year; and a failure to invest over at least two decadesmy argument with the Government amendment is that it singles out the Conservative party for attack, but this Government also bear some responsibility for the failure to investwhich needs to be addressed now.
Further problems include a very rapid growth in competition for business bulk mailit has perhaps been more rapid than Postcomm recognised, although it has not surprised me; serious doubts about the effectiveness of the regulator, which, let us not forget, thought, during the recent price review, that mail volumes would grow; conflict between the twin regulatory objectives of the universal service obligation and competitionI welcome the fact that the Government amendment talks about the USO in such clear terms, because that gives guidance to the new regulator; a massive pension deficit, to which reference has been regularly made; and problems, which have not been mentioned today, over pricing of the competitors access headroom arrangementsthe so-called final mile. If I had the time, I would explain to the House how that actively disincentivises efficiency gains by Royal Mail Group.
Of course, that leads to the most urgent need, which is for capital and expertise in order for the organisation to modernise and compete. I think that all in this House
acceptI hope we dothe Hooper reviews principal conclusion that the status quo is not tenable. That brings us to the three crucial issues in the reviewpensions, the partner and Postcomm. There is a vital fourth onethe need to secure better industrial relations in the company. I shall not talk about it today, but it is an overriding issue that must be taken into consideration.
I have reservations about the proposed merger of Postcomm with Ofcom, but I accept the logic and it is probably the right thing to do. The Committee will look at the merger carefully, because there is a serious risk of regulatory overload on Ofcom. It is already charged with the complex issue of telecommunications regulation, although in Europe most regulators share postal services and telecommunications responsibilities. Ofcom also has the whole broadcasting arena to deal with, which often takes up a lot of time. Jonathan Ross can trump some important strategic issues concerning how the other aspects of Ofcoms work should be regulated.
The Government have a problem with regulators generally. They tend to describe regulators as independent and delegate too many policy decisions to them. The regulators must be economic regulators, and the Government must set the policy framework, which is why I welcome the statement about the universal service obligation in the Governments amendment. We must be clear that Ofcom, when it becomes the postal services regulator, should not be required to take too many public policy decisions, which should be the preserve of Ministers.
Broadly speaking, the regulatory aspects will not be too controversial. The pension deficit, however, raises more difficult questions. The Government want to enter into a hugely expensive commitment, which will be a huge commitment for the taxpayer in the long term. I am trying to get to the bottom of why the pension problem is so bad for Royal Mail Group. I suspect that the real explanation is that it is an exemplar of the bigger, hidden problems throughout the public sector. Because Royal Mail is a trading company and has to be transparent about its pension fund, it has to explain the issues with it, but I suspect that similar issues lurk all over the public sector and Royal Mails problems are not that unusual. Of course, any transfer of the pension deficit to the Exchequer will be subject to EU state aid scrutiny. The precedents are reasonably encouragingthere are different pension arrangements in France, but when La Poste transferred its pension deficit to the state, it did receive clearance, albeit in slightly different circumstances. One very important point about the transfer of the pension deficit is that any settlement must be reflected in the price paid by a new partner or partners for a stake in the company free from that debt.
I turn now to the crucial question of the partner. Is it just a matter of ideologypublic good, private bad? I confess that my preference is for commercial activity to be undertaken by the private sector, but hard questions have to be asked. If the strategic partner is an existing mail operator, is the loss of competition in the market a price worth paying? Does the doctrine of unripe time apply? It does not seem an especially good time to hand over capital raising to the private sector. By the way, if a 30 per cent. private stake in RBS means that it is a
private company, how does a 30 per cent. private stake in Royal Mail make it a public one? I have some intellectual difficulty with that.
Hooper says that a partner is needed for three reasonscapital, expertise and political stability. The Committee will need evidence for that claim, and especially for why all three objectives can be delivered only by the one mechanism of introducing a private sector partner. On the firstcapitalthe state is providing capital at present and we have discussed that with the Minister. It is provided on commercial terms, as it has to be, butas he explainedit has not had EU state aid clearance yet. Big questions would be asked about any further applications for capital from Royal Mail Group, and they might not receive favourable answers.
The second reason is expertise. I thought that Allan Leighton and Adam Crozier were brought in to provide expertise. The right hon. Lady suggested that expertise was needed throughout the organisation, and that may be the explanation. In the past, the Government have sought to address the expertise question by bringing it in from the private sector.
On political stability, I understand the point that having an arrangement with a private sector partner locks the Treasury into a new, fairer way of treating Royal Mail. Richard Hooper made a great deal of that point in giving evidence to the Committee a few weeks ago. But is there another way of achieving that political stability, which the company clearly needs and has not had for far too long?
My instincts are with Hooper, but I understand the concerns that have been expressed. The Government have to produce compelling, evidence-based reasons for the approach. Royal Mail will be an attractive business without a pension deficit, with a more intelligent regulatorpeople are critical of Postcommand with the USO to give it market dominance. So if it is a bad time to raise capital, it is also a bad time to price an asset such as Royal Mail when it is freed from all its obligations in this new world. I hope that the price will at least include an earn-out over several years, to ensure that the taxpayers interests are properly looked after. On a happier note, however, we must not forget that a 70 per cent. holding should still mean a flow of dividends back to the Treasury for a very long time.
Geraldine Smith (Morecambe and Lunesdale) (Lab): I am delighted to have an opportunity to vote today against the part-privatisation of Royal Mail. I am not too sure that I could vote for the Ministers speech, if there was a vote on it, as he also seemed to be talking about part-privatisation, but the Government have tabled a sensible amendment and I will support that.
There is great strength of feeling about this matter. One hundred and thirty Members of this House, most of them Labour, have signed an early-day motion opposing postal privatisation, but the strength of feeling is not confined to Parliament. An independent public opinion poll recently found that 75 per cent. of people who had heard of the possibility of Royal Mail being privatised opposed the idea. When respondents were asked about the possibility of foreign ownership, the proportion strongly opposing the partial privatisation of Royal Mail rose to 89 per cent.
I represent a large rural constituency, and people there realise that part-privatisation means higher prices and reduced services. The actual cost of sending an item from London to the Isle of Skye is £28, so I can understand why the Scottish National party has concerns about partial privatisation. There has been talk of dinosaurs, but the only dinosaurs are those people who do not realise that privatisation is going out of fashion. We have had to rescue the fat cat bankers who got us into so many difficulties and we are nationalising the banks, so privatisation is not the British publics flavour of the month.
The Hooper report is flawed. Hooper admits that there is no agreement between Royal Mail and the regulator about the businesss basic operating costs, but at no point does he seek any independent costings. How can he reach conclusions on a business when he does not know the cost of providing the service?
Earlier, the Minister said that the universal service obligation was making a loss, but the regulator said that it was making a profit. Between 1981 and 1999, Royal Mail was forced to hand over £2.4 billion in profits. The then Conservative Government starved it of investment at a time when other European countries were investing in their postal services. They were modernising and automating their postal operations while the British Government were taking profits away from the business. Moreover, contributions holidays meant that the employer did not contribute to pension schemes for many years.
Recently, the UK has gone ahead of the European Union with postal liberalisation. We have allowed private postal companies like TNT to come in and cherry-pick all the best business, yet Royal Mail cannot enter those markets because they are closed. TNT has retained a monopoly on mail of less than 50 g in weight: Royal Mail cannot touch that, but TNT can come in and take our profits.
We need a fair pricing policy for Royal Mail. The Hooper report acknowledges that prices in the UK are low, relative to many other European countries. For example, to send a first-class item weighing 100 g, Post Danmark charges three times the Royal Mail price. Swedens Posten and Belgiums La Poste both charge more than twice that, while Deutsche Post and TNT deliver a letter of 100 g for around three times the price charged by Royal Mail. So we know what is going to happen to postal rates for the general public in this country when the private sector gets involved.
The UK is also the only European country to operate a peculiar form of downstream access arrangements that have led Royal Mail, and therefore the British taxpayer, to subsidise the businesses of private competitors. Royal Mail delivers items at a loss: what business with true commercial freedom would be obliged to accept that it made a loss on every item? That is nonsense, but the regulator fixed a price, and what the regulator knew about postal services could be written on the back of a postage stamp.
Some £2 billion has been lost in revenue in the past five years, because during the price control period postage rates were held at an artificially low level as a result of Postcomms mistaken forecast about the failure of mail volume growth. Postcomm got it wrong and, as a result, Royal Mail lost £2 billion, but Hooper refuses to take a view on pricing. He just defers the decision, and no one seems to be mentioning the issue. Pricing has not been
taken into consideration, and what Royal Mail really needs is a fair pricing policy. Despite all those challenges, this year Royal Mail has managed to make a profit of £255 million; that is just for one quarter. That is compared with a figure of £162 million for the whole of 2007 and 2008.
What is the solution for Royal Mail? First, the Hooper report has taken no account of the impact of the recent 3p tariff increase in assessing future profitability; that has not been reflected in the costing. Changes to downstream access are certainly needed. That could stem the loss of revenue to private competitors, and turn Hoopers projected profit forecast from red to black. If the Government took responsibility for the pensions deficit, as they have said they will, Royal Mail would save an additional £280 million a year for the next 15 years. Keeping the company wholly in the public sector would mean that the money could be used for future investment, rather than just profit taking.
Finally, there needs to be greater investment and modernisation. That can be achieved if Royal Mail starts spending the £600 million that it has already borrowed from the Government to modernise. I actually speak to postal workers; I spoke to a Communication Workers Union area delivery representative, and found that no one had even approached him about walk sequencing. As for the CWU nationally, the unions have not been approached about all that new technology. When they have been approached, agreements have been reached. In the past few years, 40,000 Royal Mail jobs have been lost, so we are talking about a union that is prepared to make hard choices.
We need a bit of information in this debate. Too many people are making statements who know very little about the operation of the British postal service. As for new, fresh, British top management, I think that the gene pool is wide enough for us to find those people in this country; we do not need foreign managers. Is my right hon. Friend the Member for Leicester, West (Ms Hewitt), suggesting that we employ 11,000 new managersthat we sack all the existing management and bring in Dutch managers? What does she mean? What are the practicalities? It is nonsense. We need British management
Charles Hendry (Wealden) (Con): It is a great pleasure to follow the hon. Member for Morecambe and Lunesdale (Geraldine Smith). I do not agree with much of what she said, but she has been a doughty and determined defender of postal services. It is sad that we have to hold a debate about the very survival of one of most loved services. There is no doubt that Royal Mail has been an incredibly highly prized service. The concept of the universal service obligation means that post is delivered to every single house every day. Royal Mail has an excellent delivery record, as the hon. Lady said, certainly in comparison with many other countries, and the price has been very favourable, given the cost of delivering letters.
|Next Section||Index||Home Page|