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Dr David Kelly

12.26 pm

The Attorney-General (Mr Dominic Grieve): With permission, Mr Speaker, I would like to make a statement about the death of Dr David Kelly and whether an application should be made by me to the High Court for an inquest to be held into his death.

As a Law Officer of the Crown, I am routinely asked to consider such applications as part of my public interest role. It is in that role that I make this statement. I would not normally present the result of my considerations so publicly, but given the interest that this case has attracted from Members of the House and in the media, I think it is right that this House has the chance to consider my conclusions and to ask questions.

The House will be aware that Dr Kelly was a distinguished Government scientist, who became one of the chief weapons inspectors in Iraq on behalf of the United Nations Special Commission and who, from 1991 onwards, was deeply involved in investigating the biological warfare programme of the Iraqi regime. Dr Kelly built up a high reputation as a weapons inspector, not only in the United Kingdom but internationally.

Against a background of allegations of information having been leaked to the media, on Thursday 10 July 2003 both the Foreign Affairs Committee and the Intelligence and Security Committee requested that Dr Kelly appear before them to give evidence. He gave evidence to the Foreign Affairs Committee in a hearing televised to the public on 15 July, and he gave evidence to the Intelligence and Security Committee in a private hearing on 16 July.

In the afternoon of the following day, Dr Kelly left his home to take a walk. By the late evening, he had not returned and his family contacted the police. A search was commenced that resulted in his body being found in the morning of 18 July in woodland on Harrowdown hill in Oxfordshire. It appeared that Dr Kelly had taken his own life by cutting his wrist. Thames Valley police nevertheless commenced an investigation into the case as a potential homicide.

That day, the then Lord Chancellor, Lord Falconer, set up an inquiry chaired by Lord Hutton to investigate the circumstances surrounding the death of Dr Kelly. The Oxfordshire coroner also opened an inquest into the death as he was obliged to do. In August, the Lord Chancellor exercised his powers under the Coroners Act 1988 to transfer the functions of the inquest to the inquiry. The inquest was adjourned on 14 August, after sending the registrar a certificate of death in which the causes were stated to be, first, haemorrhage and incised wounds to the left wrist and, secondly, co-praxomol ingestion and coronary artery atherosclerosis. When the Hutton inquiry reported in January 2004, it confirmed the causes of death as they appeared in the death certificate. Thereafter, on 16 March 2004, the coroner indicated that there was no basis or need to resume the inquest, and that his functions were accordingly at an end.

Because of the interest in the political issues that formed the backdrop to Dr Kelly’s death, a significant number of people have raised concerns about his death and the process used to investigate it, and have called for a new inquest to be set up. At this stage, only the

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High Court can order an inquest, and then only on an application made by me or by another with my consent. I was asked last year to make such an application and have since been provided with a large amount of information that is said to support the case for an inquest. I am grateful to all those who have taken the time and trouble to put that information together.

As Attorney-General, I had then to exercise a non-political role as guardian of the public interest and consider whether any proper grounds existed for such an application to be made. Recognising the importance of the matter, I have sought the help of independent experts to review the evidence and the new information supplied to me. That has involved help from Dr Richard Shepherd, a leading forensic pathologist, and Professor Robert Flanagan, a distinguished toxicologist. I also sought and received the considered views of Lord Hutton; Mr Nicholas Gardiner, the Oxfordshire coroner; Dr Nicholas Hunt, the pathologist who carried out the original post-mortem; and others in response to the allegations made against their handling of the matter originally. I have also been greatly assisted by officers of the Thames Valley police. I wish to record my thanks to all who have helped me in considering this matter, and in particular to the legal staff at the Attorney-General’s office who have helped me.

Having given the most careful consideration to all the material that has been sent to me, I have concluded that the evidence that Dr Kelly took his own life is overwhelmingly strong. Further, nothing that I have seen supports any allegation that Dr Kelly was murdered or that his death was the subject of any kind of conspiracy or cover-up. In my view, no purpose would be served by my making an application to the High Court for an inquest, and indeed I have no reasonable basis for doing so. There is no possibility that, at an inquest, a verdict other than suicide would be returned.

It is not possible in the short time that I have now to explain in detail the reasoning behind my conclusions. In order to inform the House, I have placed in the Libraries of both Houses today a more detailed statement of my reasons, copies of the independent reports that I commissioned, the responses of Lord Hutton and others, some additional material and a schedule—a 60-page list that I hope covers most, if not all, the arguments that have been put to me and my response to each and every such argument based on all the evidence available.

May I just say, in broad terms, that the suggestion that Dr Kelly did not take his own life is based not on positive evidence as such but on a criticism of the findings of the investigation and inquiry? It began with the views of a number of doctors, undoubtedly expert in their own areas of practice but not qualified as forensic pathologists, that Dr Kelly could not have died from loss of blood from the wounds described. To be fair to those who make such a claim, they did not have access to the material on which those conclusions had been reached in making their own reasoned arguments.

Once such a doubt had been created, those who believed that Dr Kelly was murdered looked for contradictions in the evidence given to Lord Hutton, for matters that were apparently not followed up by the police and for any other issues that might be considered suspicious. Much has been made, for example, of the position in which Dr Kelly’s body was found. Although all the witnesses bar two gave evidence to the inquiry

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that Dr Kelly was found lying on his back with, as the photographs show, his head very close to the trunk of a tree, the two witnesses who found the body stated that it was propped against a tree. Lord Hutton, who had considerable experience as a trial judge, recognised that honest witnesses, in genuinely seeking to explain what they saw, can and sometimes will none the less recall the same scene differently. Any Member who has any experience of the trial process will say the same. That is underlined by the fact that one of those two witnesses, in the statement that he made to the police closer to the time of the event, actually described the body as being on its back and not propped. That is not a criticism of that witness, but from that minor contradiction came the view that the body must have been moved.

If the body had been moved, then why, by whom and for what purpose? The issue has proven a fertile ground for imaginative speculation to take over. In fact, all the evidence provided by the very careful forensic examination of the scene at the time and the detailed review that, exceptionally, I have undertaken, supports the view that Dr Kelly died where he was found and from the causes determined. There is no evidence that I have seen that would suggest any other explanation, or that suggests any cover up or conspiracy whatever.

I wish to emphasise that my conclusions and decision are, as they must be, entirely my own and based on my assessment of the evidence. I have received no representations of any kind from the Prime Minister or any other ministerial colleague on this decision.

The material is in the Library for all to consider. I believe that anyone approaching this matter with an open mind, whatever their previous misgivings, will find it convincing. I would add only that I offer to the Kelly family my sincere sympathy, not simply for their loss, great though that undoubtedly is, but for having to bear that loss in the glare of intrusive publicity over such a long period. They have borne that load with great fortitude and dignity. Although I realise that it will always be impossible to satisfy everyone, I would hope for their sake that a line can now be drawn under this matter.

Catherine McKinnell (Newcastle upon Tyne North) (Lab): I thank the right hon. and learned Gentleman for early sight of both his statement and the detailed reasons for his decision not to apply to the High Court for an inquest into the death of Dr David Kelly.

Having been afforded the opportunity to read and examine the documentation relating to the Attorney-General’s inquiries, in so far as time has permitted, the shadow Law Officers are grateful for the opportunity to review the documents, from which we derive confidence that the Attorney-General has addressed himself fully to the issues involved. We have been reassured by the comprehensive nature of the inquiry and the quality of the reports produced. The allegations made have clearly been taken seriously and inquired into, and I should like to commend the thorough and extremely transparent way in which he has handled the issue. I hope that that will give Members of the House and members of the public the reassurance that he was seeking to provide.

The Attorney-General’s findings corroborate those of the right hon. Lord Hutton, who concluded in his 2004 report into the circumstances surrounding the death of Dr Kelly that he was

“satisfied that Dr Kelly took his own life”

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“further satisfied that no other person was involved in the death of Dr Kelly.”

The Attorney-General’s decision also substantiates the findings of the post-mortem and the toxicology reports conducted following Dr Kelly’s death and published by the Ministry of Justice last October

“in the interests of maintaining public confidence in the inquiry into how Dr Kelly came by his death.”

The Opposition therefore accept the Attorney-General’s decision today, on the basis that he has very carefully and clearly outlined his detailed reasons for not applying to the High Court to request an inquest into Dr Kelly’s death, due to the lack of new, compelling evidence that Dr Kelly did not commit suicide.

We are grateful to the Attorney-General for the written statement and related documents that he has placed in the Libraries of both Houses, which will assist Members and the public in understanding the basis of his announcement today. None the less, I am aware that few in this House will yet have had the advantage of perusing the documents. I therefore wonder whether he will provide for Members of the House, and for members of the public, who may listen to this statement but not peruse the documents in the Library, a brief outline of the legal basis of his decision not to apply to the High Court for a new inquest; confirmation that he is satisfied that, as has been extensively raised in media reports, the evidential burden of proof beyond reasonable doubt as to the cause of Dr Kelly’s death has been met, thereby dispelling concerns that a coroner’s inquest would return a different verdict; and a statement of whether he believes that his decision today would not rule out a future inquest should any new and compelling evidence about the circumstances surrounding Dr Kelly’s death come to light.

Finally, I also wish to extend my sincere sympathy to the Kelly family for both their tragic loss and the undoubted difficulty that the extensive publicity surrounding the matter has caused.

The Attorney-General: I am most grateful to the hon. Lady for her kind words. I appreciate them and I have no doubt that they will be appreciated by all those who have been involved in reviewing this case.

The hon. Lady raises a number of important points, which I shall do my best to answer. First, I very much hope for the sake of all concerned that this will produce finality, but it is absolutely right that if some new and compelling evidence were to come to light at some point in future that suggests that there might be something wrong in the original inquiry findings, it would of course be possible for the matter to be looked at again, as in the case of any inquest or inquiry. In that sense, there is no bar as a result of the statement that I have made today.

Secondly, the hon. Lady asked me to explain my legal powers a little. The background is that the inquest process was replaced originally by a decision of Lord Falconer to have an inquiry, pursuant to section 17A of the Coroners Act 1988. That decision was never challenged at the time—somebody could have done so if they had wanted to, and there is no reason whatever to suppose that there was anything improper about the decision. Indeed, as I understood it, the decision marked the

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seriousness with which Lord Falconer took the matter at that time, and it marked his desire to have an inquiry that would be capable of going further in its scope than an inquest, particularly in respect of looking at some of the surrounding circumstances, which an inquest would not be particularly well placed to do.

Lord Hutton did indeed look at those surrounding circumstances, but they were not really the subject of this review. The review arose from the representations of the memorialist doctors who indicated that they thought that the lack of certainty specifically as to the cause of death was such that I ought to exercise my powers under section 13 of the 1988 Act to make an application to the High Court for the inquest to take place—we may have to face up to the fact that no inquest took place, because it adjourned without being completed.

I do not wish to get involved in legal technicalities, but those powers are of a slightly technical nature. However, I approached the matter on the basis that if there was an evidential basis for calling into question the inquiry’s findings on the cause of death, I would make such an application, whatever the technical difficulties might be, because of my view that in such circumstances, the Court would be minded at least to find a way to allow the matter to be reinvestigated. That was the basis on which I operated. That we have taken some time and, I must say, a lot of trouble, to look at this matter very carefully is a reflection of the seriousness, in my view, of the allegations that were being made, and of the fact that the allegations were being made by apparently sensible and reasonable people. I am grateful to them for bringing those problems forward.

That is the basis on which I operated, but having operated in that way and having reviewed all the evidence—the hon. Lady has seen the schedule, which I hope will be helpful to hon. Members who go to the Library to look at it—I decided that the evidence was overwhelming that this was a tragic case of suicide, and that suicide caused Dr Kelly’s death for the medical reasons that were correctly identified at the time that the death certificate was made out.

Richard Ottaway (Croydon South) (Con): As a member of the Select Committee on Foreign Affairs that took evidence from David Kelly in 2003, I have never doubted that he committed suicide. I have always believed that Lord Hutton was right on that, even though his conclusions on the war have subsequently been challenged.

I have known the Attorney-General for many years, and I know that he will have done a perfectly thorough and diligent job. Will he accept that the evidence is clear, and that it is time to bring closure to this matter and move on?

The Attorney-General: I certainly think that the evidence is clear, and indeed that there is no evidence to the contrary—that point will be quite clear to anybody who looks at the schedule—in the sense that I could see perfectly satisfactory answers to every question that was raised with me, all of which led inexorably to the suicide verdict.

I agree with my hon. Friend. I hope that this will enable us finally to draw a line under the matter. It was clearly a matter of huge and legitimate public concern

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for a variety of reasons, and everything took place in a very difficult political environment. However, I believe that my review and its findings are very clear-cut. This was not a question of my having to make a balancing decision and coming down on one side or the other. I reviewed all the material, and the outcome is that it is quite clear to me that the original inquiry’s findings were correct.

Andrew Miller (Ellesmere Port and Neston) (Lab): May I congratulate the Attorney-General on the clarity of his statement and on his decision, which on the basis of the scientific evidence that I have read is quite right? Will he confirm that the detailed scientific reports are included in the bundle of papers that he has placed in the Library, including those from Richard Shepherd and Robert Flanagan, to which he referred? Will he ensure that an interpretation for lay people of what the scientists wrote is included, so that the conspiracy theories do not develop again?

The Attorney-General: The hon. Gentleman will be the best judge of that. Professor Flanagan’s and Dr Shepherd’s reports will both be in the Library. I think they are written in pretty plain English. Clearly, they are also medically based, which is inevitable. In the schedule, I have used that material and other material to seek to set out each matter in slightly plainer terms. I think it is readily comprehensible, and I hope it will help to inform the public as well as Members of the House.

Sir Alan Beith (Berwick-upon-Tweed) (LD): Will the Attorney-General note that when, along with my Intelligence and Security Committee colleagues, I questioned Dr Kelly two days before he died, I formed the view that a very distinguished public servant was deeply distressed by the situation in which he had placed himself? Although I am wholly unpersuaded by any of the theories that have been put forward as an alternative to suicide, will the Attorney-General spell out what he thinks will be lost by allowing the process of inquiry to be completed by an inquest?

The Attorney-General: The first problem is that there is no basis on which the High Court could possibly order an inquest. In my judgment, if I were to go to the Court and make such an application, it would be dismissed, and dismissed with—I assume, on the basis of my reasoning—a certain amount of irritation, because such an application must be made on an evidential basis.

We have also held an inquiry. I make the point in the schedule that the suggestion that the inquiry was in some way inferior to an inquest, in the sense that it was unable to look at some of the things that an inquest could have looked at, really does not bear any reasoned—either logical or legal—examination. Therefore, in practical terms, the inquest—or something tantamount or equivalent to it—has already taken place. On top of that, a review has been carried out in the knowledge of public anxiety by eminent professionals, who have looked specifically at the anxieties that have been raised, either by the memorialists or others. In each case, they have said that the original findings were correct.

I should just make the point that there was one exception: the timing of death was reviewed, because the conclusion was reached that the tables that were used by the pathologist at the time—through no fault of

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that pathologist—were in fact not accurate. That is a question of the development of medical science. With that exception, nothing calls into question any of the detailed findings or comments that were made originally.

Mr Tom Harris (Glasgow South) (Lab): May I warmly welcome the Attorney-General’s statement? He will of course know that this will do nothing to discourage the paranoid conspiracy theorists, but on the other hand they would not change their minds just because of the existence of evidence even if an inquiry went ahead.

Speaking of paranoid conspiracy theorists, where is the Under-Secretary of State for Transport, the hon. Member for Lewes (Norman Baker)? When only last year he told the media that the Hutton inquiry had cut corners, was he speaking on behalf of the Government?

The Attorney-General: I am quite sure that he was not speaking on behalf of the Government. In any case, the Government do not have a position on the matter. I have a position on the matter, based on my review, and I am sure that many Members across the spectrum have individual views on the subject, and that is their entitlement—as it is of anybody in this country.

Karl McCartney (Lincoln) (Con): I listened intently to my right hon. and learned Friend’s statement, particularly the part where he mentioned that he had not received any representations from ministerial colleagues. Will he clarify whether he consulted the Prime Minister in advance of coming to the House to make this statement?

The Attorney-General: I most certainly did not, and it would not have been proper for me to do so. Nobody has spoken to me about it, and that applies to all my ministerial colleagues.

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): As a member of the Foreign Affairs Committee when it took evidence from Dr David Kelly—as was my hon. Friend the Member for Leeds North East (Fabian Hamilton)—I have followed these proceedings probably more closely than other hon. Members. I thank the Attorney-General for his statement and ask him to remind those who remain unsatisfied that they also have a responsibility to the family of Dr David Kelly and, unless they can really substantiate their claims, they should look at the evidence in front of them and be satisfied.

The Attorney-General: The evidence is there in the Library to see, and it will be available to the public as well. I hope that those who have concerns will take the time to look at the material. Of course, the background to this is a human tragedy of great pain for the family, and that is why I hope that people will be convinced that this matter should now be laid to rest.

Sir Peter Bottomley (Worthing West) (Con): What in my view distinguishes this case from the sad case of Jay Abatan, who died on 29 January 1999—an inquest was held 10 years later, at which new evidence came forward—is that in this case there were no new witnesses or evidence. In relying on the work of Lord Hutton’s team and others, I hope that my right hon. and learned Friend will accept that those of us who believe that Lord Hutton came to the wrong conclusion on the main

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parts of the inquiry can maintain that belief. If he had come to a different conclusion and used a gentler form of words than “sexed up”—or whatever the expression was—we would have had a near perfect ending to what was a very bad episode in which the previous Government behaved appallingly.

The Attorney-General: I understand the point that my hon. Friend makes. The review that I carried out was focused on the cause of death, because it was the calling into question of the inquiry’s findings and of the signing of the death certificate that started the spiral of speculation that has grown from that. I focused on that issue and my conclusions are directed to it. I appreciate that there are wider issues that Lord Hutton tried to address, but they are not matters that I have sought to reopen. I know that those matters remain controversial to many.

Kelvin Hopkins (Luton North) (Lab): My hon. Friend the Member for Glasgow South (Mr Harris), who is no longer in his place, referred in passing to the book written by the hon. Member for Lewes (Norman Baker), who is now a Minister. Did the Attorney-General respond specifically in his judgment to some of the points made in that book and would he care to say briefly what he thought of it?

The Attorney-General: I have looked at the book on several occasions. It is partly a critique of the evidential process of the inquiry and partly a speculation—I do not think it has ever been suggested that it is anything more than speculation—about alternative possibilities for what might have happened to Dr Kelly. Having focused on the evidence, I have come to conclusions on the evidence. I hope that, as a result, my hon. Friend the Member for Lewes (Norman Baker)—quite apart from anyone else—may conclude that this was in fact a case of suicide.

Patrick Mercer (Newark) (Con): May I thank the Attorney-General for the clarity that has been shed on this subject? However, there is no doubt that certain bodies will now ask for a judicial review of his decision. Would the Government care to undertake not to order costs to be raised against them in the event of that application being unsuccessful?

The Attorney-General: I have to say to my hon. Friend that that is a hypothetical question. It is obviously open to individuals to apply for judicial review of my reasoning and decisions. At the moment, I simply express the hope that they will not feel the need to do so.

Thomas Docherty (Dunfermline and West Fife) (Lab): Will the Attorney-General say whether he would be content if one of his ministerial colleagues were to publicly dissent from his decision, given his quasi-judicial role?

The Attorney-General: I am not aware of any ministerial colleague having expressed any view that dissents from my decision.

Tom Brake (Carshalton and Wallington) (LD): Does the Attorney-General understand why, given that key witnesses were not called during the Hutton inquiry,

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that the inquiry did not have legal standing and that further evidence has come to light since, some—including Dr Stephen Frost—consider that inquiry to have been inadequate? Does the Attorney-General also understand why doubts will remain about the process followed, if not necessarily about the cause of death?

The Attorney-General: I am aware that doubts were expressed about the process. I have reviewed the process, but above all I have reviewed the evidential conclusions based on the process and the evidence. The conclusion that I have reached is that the process came to the correct conclusion. On that basis, it seems to me that it achieved what it set out to do and did it properly.

Geoffrey Clifton-Brown (The Cotswolds) (Con): I came to this statement prepared to be dissatisfied with what I would hear because I have spoken to one of the country’s leading cardiovascular surgeons who has received evidence—admittedly second-hand and not directly—and who has said to me on several occasions that Dr Kelly could not have died from a slit to the wrist, because that would not have caused death. However, that surgeon did not of course consider in that judgment what chemicals or drugs Dr Kelly might have taken. So I commend my right hon. and learned Friend. From what I have heard today, he has conducted a thorough and impartial inquiry. I reserve judgment because I wish to read the material he has placed in the Library, but unless new evidence comes to light, I think a line should now be drawn under this matter to allow the family to put it behind them.

The Attorney-General: I am most grateful to my hon. Friend. I listed in my statement the causes of death as they were found and put in the death certificate, and that has been reviewed in great detail. The unequivocal view of Dr Shepherd and Professor Flanagan is that those causes of death are entirely correct, and that the combination of factors as listed was what caused the death of Dr Kelly. Of course, the primary cause was the fact that he slit his wrists and took an overdose.

Mr Robert Buckland (South Swindon) (Con): As someone who also harboured doubts about the quality of the process before the Attorney-General’s review, may I welcome the clarity of his statement? Does it amount to this—in focusing on the function of a coroner’s inquiry, which is to look into nothing more or less than the cause of death and to reach a verdict from a range of options available as a matter of law, is he telling the House that any inquest would have been driven to a verdict of suicide?

The Attorney-General: Yes, indeed. There is no evidence that I have seen, including the material that has been produced on the review, that could lead to an inquest coming to any other conclusion.

Bob Stewart (Beckenham) (Con): Does the Attorney-General agree that his statement today should put to bed some of the outrageous and fallacious speculations that members of our security forces might have murdered Dr Kelly?

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The Attorney-General: I entirely agree with my hon. Friend. I have to say that those suggestions have always struck me as being at the rather far-fetched end of the spectrum. The evidence overwhelmingly shows that Dr Kelly committed suicide: he was not killed by anyone.

Mr Peter Bone (Wellingborough) (Con): The Attorney-General has done the House a great favour by coming here and making such a full statement. It should be an example to other Ministers. He said in his statement that he is routinely asked to apply to the High Court for inquests. For the House’s information, will he say how many times he has actually gone to the High Court?

The Attorney-General: Generally speaking, I do not have to do it myself, but give permission for it to be done. I did that very recently in a case where a body had been found and never identified. Some considerable time afterwards identification became possible, so the inquest had to be reopened for the purpose of identifying that the person who had died and had been long buried was, in fact, the person concerned. That is an example. It is part of my functions to do it. I have to review each such case, but generally speaking, I give my permission to others to do it, and do not have to take that role myself.

Robert Halfon (Harlow) (Con): I commend my right hon. and learned Friend on his statement, and hope very much that it will draw a line under all these conspiracy theories. Does he agree that these theories came about because of the previous Government’s mishandling of the case for the Iraq war, particularly the 45-minute claim about an attack on British targets?

The Attorney-General: My hon. Friend asks me to stray from the role that brought me to the Dispatch Box as the guardian of the public interest and into the realm of politics. I shall restrain myself from doing so.

Madam Deputy Speaker (Dawn Primarolo): Attorney-General, thank you very much. I know that the whole House appreciates the detailed answers and your statement today. It is widely appreciated.

Postal Services Bill (Programme) (No. 2)

Motion made, and Question put forthwith (Standing Order No. 83A( 7 )),

That the following provisions shall apply to the Postal Services Bill for the purpose of supplementing the Order of 27 October 2010 (Postal Services Bill (Programme)):

Consideration of Lords Amendments

1. Proceedings on consideration of Lords Amendments shall (so far as not previously concluded) be brought to a conclusion three hours after their commencement at today’s sitting.

Subsequent stages

2. Any further Message from the Lords may be considered forthwith without any Question being put.

3. The proceedings on any further Message from the Lords shall (so far as not previously concluded) be brought to a conclusion one hour after their commencement.—(Mr Dunne.)

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Postal Services Bill

Consideration of Lords amendments

Clause 2

Report on decision to dispose of shares in a Royal Mail company etc

1.1 pm

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey): I beg to move, That this House agrees with Lords amendment 1.

Madam Deputy Speaker (Dawn Primarolo): With this it will be convenient to consider Lords amendments 2 to 11.

Mr Davey: I would like briefly to take hon. Members back to the Bill’s Third Reading in this House, when I marked the passing of the Bill into the capable hands of the other place by saying that the coalition Government’s decision to take on this difficult issue showed them at their strongest and most radical. As we welcome the Bill back, I would like to add to that and say that the Lords amendments before us today also show government at its most open-minded and collaborative, because they represent the constructive and collective efforts of both sides of the other place to improve and strengthen the Bill. The amendments in this group concern part 1 of the Bill and the provisions for the ownership of Royal Mail and the Post Office. I am clear that when it comes to undertaking a sale of shares in Royal Mail, the Government must have the flexibility to negotiate the right deal at the right time.

I know that hon. Members have been anxious to hear more about the next steps in our plans for Royal Mail, so with your indulgence, Madam Deputy Speaker, and in the interests of transparency, I would like to set out briefly the next two crucial steps that need to be taken to secure the future of Royal Mail. As my noble Friend Baroness Wilcox said on Third Reading in the other place, the Government intend to take on Royal Mail’s historical pension deficit with effect from March 2012 as part of the preparations for the sale of the company. I am sure that hon. Members will appreciate what a relief it will be to the 435,000 members of the Royal Mail pension plan to know that their accrued pension rights will be protected sooner rather than later.

The key concern of people up and down the country is that the universal service must be protected. To do that, Royal Mail needs to be on a sustainable commercial footing. The company currently has about £1.7 billion of debt facilities with the Government. We need to restructure the company’s balance sheet in due course, and in order to put Royal Mail on that sustainable commercial footing, we will need to reduce significantly that level of debt. Of course, we will need approval from the European Commission to provide this financial support, and we have already begun informal discussions with the Commission. The Government will submit a formal stated notification in the next few days, and I hope that the process will be completed by March 2012.

We will discuss amendments to part 3 of the Bill, which deal with the new regulatory regime, later on, but of course implementing that regime will be another

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crucial step towards securing the future of the universal service. I would like to assure hon. Members that the work to establish this is already under way. In particular, Ofcom, the new regulator, will launch a consultation in the autumn with a view to establishing the new regulatory framework in the spring of 2012. I hope that that update is helpful.

I begin my main remarks on this group of amendments by commending Opposition Members on pushing us on whether, given our commitment to transparent government, more could and should be done to offer more information to Parliament. Amendment 1 is a direct response to that. Clause 2 already commits the Government to report to Parliament when a decision to dispose of shares has been made. Amendment 1 adds three new requirements for that report: first, that it must include the objective for the sale; secondly, that it must include details of the expected commercial relationship between Royal Mail and Post Office Ltd following the disposal of shares; and thirdly, that where the proposed disposal would result in shares being placed into the employee share scheme for the first time, the report must include details of that scheme. As I previously said to the Public Bill Committee, I will ensure that shares are placed in the employee share scheme from the time of the very first sale of shares in Royal Mail.

The second of the new requirements—to provide information on the expected commercial relationship between Post Office Ltd and Royal Mail after the sale of shares—will work together with amendment 9 to address a key concern that I know is held by many in the House. After much debate in the House and elsewhere, I can still see no reason why the strong commercial relationship between Post Office Ltd and Royal Mail should weaken after the two companies have been separated. More importantly, the senior management at Royal Mail has been clear that this relationship will continue. That is why the chairman of Royal Mail, Donald Brydon, felt able to say to the Bill Committee that prior to a sale of shares in Royal Mail, the two companies would put in place a new contract for the longest time legally permissible. I have gone on the record—and I am happy to do so again today—as saying that the Government, as sole shareholder, will ensure that the two companies fulfil this commitment.

The negotiation of that contract is, rightly, a commercial matter for the two companies, and not for the Government or this legislation. However, Lords amendment 1 will ensure that, prior to a sale of shares in Royal Mail, Parliament has a snapshot of the expected commercial relationship following the sale, and Lords amendment 9 would make it clear that the annual report on the post office network must include information every year on the postal services provided as part of that relationship. Lords amendment 10 is a technical amendment to clarify the enforcement powers that apply to the annual report on the post office network.

There can be no doubt that the future of this iconic British institution is of enormous interest to Members of this House and in the other place. I believe that a mutual Post Office is a radical and exciting proposal, and one that is supported by all parties. However, I acknowledge that our position—that mutualisation must be a bottom-up process that engages sub-postmasters, customers and management—means that we cannot be as explicit now about what that mutual will look like.

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Co-operatives UK has now published its report on the options for a mutual, and that report will form the basis for the Government’s full public consultation in due course. Until the conclusion of that process, the Government remain open to all views. We will not dictate the form that mutualisation will take.

To give both Houses more oversight of what an eventual Post Office mutual might look like, we have tabled Lords amendments 2 to 8, which would introduce the affirmative procedure to the powers to mutualise Post Office Ltd. Furthermore, those amendments would ensure that the report on mutualisation provided for under clause 5 must be laid prior to the vote, so that hon. Members have full and detailed information on the mutualisation plans before they debate and vote on them. Let me be clear, however, that the plans, as I have said before, will be developed from the bottom up and in full consultation with all of the Post Office’s major stakeholders.

The last amendment in this group—Lords amendment 11 —addresses an issue that I know is close to the hearts of many hon. Members. When my right hon. Friend the Business Secretary opened the debate on the Bill on Second Reading, he talked of this country being a pioneer of postal services in the 19th century. It is that proud and rich postal history that Lords amendment 11 seeks to protect, by requiring Royal Mail to report annually on its activities in relation to the British postal museum and archive. Having visited the British postal museum and archive, I can say that it provides a wonderful and fascinating record of our postal heritage, and is absolutely deserving of the protection that Lords amendment 11 seeks to provide. I would be quite keen to share with the House the benefit of my visit and some of the lessons that I learnt—for example, that the first post boxes were green, before moving to chocolate brown and then ending up one of the shades of red that we see across our country—but I am sure that you would bring me to order if I did, Madam Deputy Speaker.

In conclusion, the amendments in this group respond to a number of concerns raised in both this House and the other place. They seek to offer more information on the implications of the sale of shares, more parliamentary control over Post Office mutualisation and greater transparency of Royal Mail’s heritage activities. I believe that the objectives that they seek to achieve are truly cross-party objectives, so I would urge the House to agree to them.

Nia Griffith (Llanelli) (Lab): It is indeed our intention to be a constructive Opposition and to welcome amendments that improve the Bill. However, even though we welcome some of the amendments this afternoon—particularly where they reflect to some degree the position that we have taken on aspects of the Bill—we remain totally opposed to the main purpose of the Bill, which is to sell off Royal Mail 100% to private enterprise. That is completely different from our proposal, which was to keep Royal Mail in majority public ownership. Selling off Royal Mail into 100% private ownership means that only through the regulatory regime will the Government and the taxpayers of this country have any influence on the service provided.

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Lorely Burt (Solihull) (LD): Will the hon. Lady give way on that point?

Nia Griffith: I shall take your advice on the matter, Madam Deputy Speaker; I believe that the hon. Lady should stick to the amendments on the Order Paper.

This first group of amendments concerns the sell-off of Royal Mail and the splitting up of the Royal Mail Group into a privately owned postal service and a publicly owned network of post office counters. It is against that background that we should consider Lords amendment 1, which requires that when the Secretary of State lays before Parliament a report on the disposal of a Royal Mail company, it should include

“information about the expected commercial relationship…between the Royal Mail company in question and any Post Office company”.

We genuinely welcome the inclusion of such information in the report, but no one should be under any illusion that this in any way constitutes an inter-business agreement between Royal Mail and the post office network. Hooper recommended in his report that there should be a long-term agreement between Royal Mail and Post Office Ltd, and the National Federation of SubPostmasters has asked for an IBA of a minimum of 10 years. We have repeatedly called on the Government, at all stages of the Bill, to include an inter-business agreement in the legislation, and have tabled amendments to that effect.

One third of Post Office Ltd’s revenue comes from Royal Mail. Without that revenue, Post Office Ltd would be unable to keep many post offices open. With the greatest of respect to Moya Greene, the current chief executive officer of Royal Mail, who has talked about a privatised Royal Mail continuing to use the post office network, it is no good simply having fine words. Those fine words need to be translated into a proper bankable contract—a proper agreement. Other countries manage to put agreements into their legislation, but the real difficulty in this case is an intense obstinacy on the part of the Government, who have set themselves against enshrining any protection for the post office network in legislation.

A profit-hungry privatised Royal Mail will be looking to cut costs and maximise profits. That could result in Royal Mail drawing up an agreement for part or even all of its services with providers other than the post office network, such as a supermarket chain or a high street store. A privatised Royal Mail may well wish to continue to have some sort of agreement with Post Office Ltd, but that agreement could be for a much reduced service from that which the Post Office currently provides. It could involve just a small proportion of the current network of Post Office branches. That could give rise to the surreal spectacle of some post offices being places where people could hand over their parcels or register their letters, with other post offices not offering postal services. It sounds a bit like a children’s riddle—“When is a post office not a post office?”—but it would be no joking matter for our post office network or for the public, who want easy access to postal services, if such services were available at only some of the current post office branches.

1.15 pm

Any decision by a privatised Royal Mail to reduce the number of branches that it uses would have a catastrophic effect on the income of the post office network, and

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threaten the viability and very existence of any branches that Royal Mail chose not to use. It is therefore regrettable that the Government have refused to include a clause in the Bill requiring an inter-business agreement and that Lords amendment 1, which requires a report on such an agreement, is the nearest that they are prepared to get. The amendment does, nevertheless, mean that the report that the Secretary of State lays before Parliament must include some mention of the expected commercial relationship between Royal Mail company and any Post Office company, and for that reason we welcome it.

Let me turn to the part of Lords amendment 1 that deals with shares. We accept the principle of employee shares, and appreciate the benefits that such schemes can bring, but in this instance employees will need to know a lot more about exactly how any scheme would work. We have pressed for greater detail about the scheme, so we welcome the proposal in the amendment that a report be laid before Parliament setting out the detail of a proposed employee share scheme before the disposal of Royal Mail takes place. In Committee, we pointed out that the Bill as it stands requires employee shares to be offered only when the last Crown share in Royal Mail has been sold. We argued the case for a trigger that kicks in when the first shares are sold. The Minister for postal services has suggested that, despite the wording of the Bill, the Government would, in fact, make available some employee shares when the first disposal is made. I very much welcome his confirmation of that point today, so that employees will not have to wait until the last Crown share is sold before being able to apply for any employee shares.

There remain, however, a number of unanswered questions, on which I hope the Minister can give us some guidance today. Would shares be held on an equal basis, with equal voting rights for each shareholder and an equal distribution of dividends, or would some shareholders be more equal than others? In Committee, we made the case for more than 10% of the shares to be in the employee share scheme; we have suggested up to 20%. That case is backed by specialist bodies that gave evidence to the Public Bill Committee, including the Employee Ownership Association and ifs ProShare. Is there any chance that the Government might consider that?

We would also like greater certainty about the eligibility criteria. Who would be entitled to shares or share options, and what would that mean in practice? Would employees be able to act to influence the strategic direction of the company to some extent, albeit from a minority position? In particular, what is to prevent shares from going to employees one day and being sold within a year or two? We all know of previous examples of where that has happened, with shares being rapidly sold on to big institutions. What mechanisms are the Government considering to prevent that from happening? We hope to hear from the Minister the extent of the detail that the Government intend to report and how much time they will provide for Parliament to consider the report.

We welcome Lords amendments 2 to 8, which give Parliament increased control over the mutualisation of a Post Office company. The effect of amendments 2 to 4 would be to subject the disposal of the Crown’s interest in a Post Office company to a relevant mutual to the affirmative resolution procedure. That would require

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the Secretary of State to lay a draft order before Parliament and for it to be approved by both Houses before it could be made. Lords Amendments 5 to 8 require the Secretary of State to lay a report before Parliament before an order directing the issue or transfer of shares or share rights in a Post Office company to a relevant mutual is made. That is an improvement on the original requirement, which was to lay a report after any direction for the disposal of the Crown’s interest in a Post Office company to a relevant mutual had been made.

These amendments strengthen the opportunity for Parliament to scrutinise any proposals for the mutualisation of the Post Office. This is important because considerable challenges must be faced before any such mutualisation can take place. We welcome the work on mutualisation detailed in the recently produced report by Co-operatives UK, which includes information on various mutual options, and on the ownership and governance of a potential mutual, but we recognise that the real challenge is to make the post office network viable. For all the Government’s fine rhetoric, we are concerned about their failure to guarantee business for the post office network. For mutualisation to be a success, we need to see a serious, viable business plan for our post office network. We are fully aware of the Government’s plans to spend money on the network, but their accompanying document “Securing the post office network in the digital age” does not address the issue of how to generate new streams of business for the network.

Post office income can be divided into three main categories—Royal Mail business, Government business and other commercial business—and the Government have failed to provide guarantees of business in any of them. I have just explained how the lack of an inter-business agreement between a privatised Royal Mail and the post office network could result in the loss of all or a substantial part of Royal Mail business from the post office. As for the Department for Business, Innovation and Skills’ claim to be making the Post Office a front office for Government business, that message does not seem to be getting across to other Government Departments.

For example, we have just seen the Department for Work and Pensions award the contract for benefit cheques, the so-called green giros, to a rival organisation. Apart from a couple of pilot projects, there has been little progress on the proposals for more Government business made in a letter from the National Federation of SubPostmasters to the Secretary of State for Work and Pensions dated 23 September last year. At the moment, the post bank promised in the Liberal Democrat manifesto and mentioned in the coalition agreement looks like just another broken promise and missed opportunity, especially after Labour had laid the foundations for it before we left government. Nor is there any sign of any other substantial new commercial business for the post office network.

This complete failure to introduce new streams of business calls into question the wisdom of the way in which the £1.34 billion of taxpayers’ money allocated to the Post Office is being used, with the subsidy for running the Post Office and the provision of a few new counters seemingly accounting for the lion’s share of the funds. This also raises the question of what will happen when the subsidy runs out in 2015. The Government have stated that they wish to reduce their subsidy, but if

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there are no new streams of Government business to make the network more viable, the post office network will be in serious trouble. However, the fact that Lords amendments 2 to 8 improve the opportunity for parliamentary scrutiny means that we will support them.

We welcome Lords amendments 9 and 10, which clarify that in the Post Office company’s annual report to the Secretary of State on the post office network, details of postal services provided under arrangements between a Post Office company and a universal service provider must be included. We welcome any amendments that improve clarity and increase the opportunity for parliamentary scrutiny.

Lords amendment 11 would require Royal Mail to report annually to the Secretary of State on its activities in relation to the British Postal Museum collection and the Royal Mail archive. The proposal would also require the Secretary of State to lay the report before Parliament. In Committee, we sought amendments to ensure that the work of the British Postal Museum and Archive—the BPMA—would continue following the passage of the Bill, and that the heritage cared for by the curators of the museum would be protected. That protection needs to be strengthened, because the Bill moves us away from a situation in which one Government-owned company, Royal Mail, is clearly responsible for supporting and safeguarding our postal heritage, to one in which there will be at least two companies with different ownership models. There will also be the potential for a privatised Royal Mail company to be taken over, perhaps by foreign postal administrations or other companies with no interest in supporting Britain’s postal heritage.

I do not feel that the Lords amendment is as strong as the one that we originally proposed. Nevertheless, anything that we can do to protect our heritage is to be welcomed. The BPMA is the leading resource for British postal heritage. It cares for visual, physical and written records dating back more than 400 years, including stamps, poster design, photography, staff records and vehicles. The BPMA is the custodian of two internationally significant collections—the Royal Mail archive and the collection of the former national postal museum. Together, the museum and archive collections form a unique record of a national institution, and offer a fascinating perspective on the history of British society, design and industry. We want the strongest possible protection for the British Postal Museum collection and the Royal Mail archive, and although we were looking for stronger protection, we are of course pleased to lend our support to that amendment.

Lorely Burt: I welcome the Lords amendments that we are considering today. They are an indication of the way in which the Government and the Opposition can work together, because the Government have obviously listened to the constructive suggestions made by Members on both sides of the House. There is a great deal of consensus; I believe that the amendments went through the other place without a Division. That goes to show just how well things can work when everyone is minded to make that happen.

On the subject of shares going to employees, when I wrongly tried to intervene on the hon. Member for Llanelli (Nia Griffith), I was going to point out that it is not 100% of the company that is being sold off to private interests: it is actually 90%, and 10% will go to

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the employees. The benefits to those employees will be huge. The Bill recognises the importance of the work of the conscientious postman or woman who keeps the post coming through the letterbox six days a week, come rain or shine, and the importance of the work force to the success of the company. The proposals will offer real benefits to the employees.

I greatly welcome the fact that the pension plan members will be protected and that the subsuming of the pension plan is being brought forward. That will give tremendous reassurance to prospective pensioners in Royal Mail. Perhaps most importantly, and despite the disagreement of the Opposition, we are securing the future of the company. The worst thing would be for the Government to do nothing, which would allow Royal Mail to decline and fall. It is an unfortunate fact that, under the previous Government, 65,000 Royal Mail employees lost their jobs and 7,000 post offices were closed. The future of the post office network is now secure. I also greatly welcome the proposal for a vote before mutualisation. That will put in place important protections.

I should like to ask my hon. Friend the Minister a few questions. Does he think that I have understated the benefits for employees? Can he think of any others? Can he give me an assurance that the universal service obligation will be properly protected? Has he had any discussions with representatives of the Communication Workers Union, and, if so, what do they think about the proposals?

Jack Dromey (Birmingham, Erdington) (Lab): It is important that, when we come to the House, we should reflect the feelings of our constituents. I should therefore like to tell two stories. First, just before Christmas, I visited the local postal sorting office at Sutton New road. I spoke to each of the excellent men and women there. They told me how they had worked there for 10, 15 or 20 years. Some had worked there for 25 years. They work in all weathers to provide an outstanding service to the people of north Birmingham. They felt bitter about what they regard as a betrayal of their loyal service to the country.

Secondly, I want to tell a story not so much about a local post office as about a local entrepreneur who wants to reopen a post office. We have in Perry Common a community well served by the Witton Lodge community association. That community has backed an individual who now runs the local grocery shop—it used to be a sub-post office—and he wants to reopen that post office. Through me, he has approached both the Post Office and the Government for support, only to have it declined. If I may, I will return to that matter at the conclusion of my remarks.

1.30 pm

The Lords amendments focus on local post offices, among other things, and the evidence is clear that they are finding it increasingly hard to survive. By some estimates, only 4,000 of the UK’s 11,905 post offices are economically viable. Despite assurances from the Government that there will be no further programme of post office closures, the evidence shows that branches are closing every day of the week. More than 150 offices are closed on a long-term “temporary” basis and there

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is no guarantee that these will re-open; many are likely to stay closed indefinitely. As Consumer Focus stated in a press release,

“we have continued to see a dwindling in the overall number of branches.”

Nationwide, 900 post offices are up for sale. That is why the Post Office cannot afford to lose any more revenue. The post office network is already loss making and depends on an annual Government subsidy to remain afloat. In 2009-10, the Post Office made an operating loss of £80 million before Government subsidy and its financial position continues to weaken. Its target this year, excluding subsidy, is for a £120 million loss.

The Government have pushed through this unwelcome Bill, allowing the privatisation of Royal Mail with scant regard for the consequences for the post office network or the universal service of a six-day delivery at a uniform, affordable price across the whole of the UK. As the Labour Front-Bench team has made absolutely clear, we continue to oppose the wholesale privatisation of the Royal Mail. We called on the Government for a guarantee of an inter-business agreement between Royal Mail and Post Office Ltd. The Government have refused to listen to that, including in these amendments, so they are abrogating their responsibilities to the post office network.

I have to say that Conservative and Liberal Democrat MPs are quick to use the Post Office in their localities for their own political ends, but not as quick to stand up in this place for their local post offices in their time of need. I also have to say that the Government’s approach calls into question the logic of allocating £1.3 billion of taxpayers’ money for subsidy and refurbishment of post offices when the Government are not prepared to put a clause in the Bill to guarantee the future of Royal Mail business to the Post Office.

The Minister referred to history, and this remarkable institution of the Post Office certainly has a remarkable history. We have seen over the last 50 to 100 years how it has developed ground-breaking initiatives that make no profit but serve the community—ranging from free delivery of articles for the blind to answering letters written to Santa free of charge.

Returning to the issue of the Post Office—

Madam Deputy Speaker (Dawn Primarolo): I might be anticipating what the hon. Gentleman is going to do, but may I remind him that these Lords amendments are quite specific, so he needs to focus his remarks on them? Perhaps he was just about to do so.

Jack Dromey: I was just about to do so, Madam Deputy Speaker, but like the Minister, I embarked on some historical anecdotes, as the Post Office is very proud of its history.

There is a simple inescapable reality, which is that the Post Office is dependent on Royal Mail’s business. A third of its revenue—£334 million—and a third of sub-postmasters’ pay—£240 million—is generated by selling Royal Mail products and services. The Bill does not safeguard on a continuing basis the inter-business agreement. The Government will not undertake to extend the current five-year guarantee to 10 years. Key stakeholders recognise the importance of making a longer commitment

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on the IBA. Let me cite what Consumer Focus said in its evidence to the other place:

“There are few safeguards to keep that contract for the long term. It’s entirely conceivable—though it seems an odd thing to suggest—but several years down the line you could have a post office network where you cannot undertake mail transactions. It would be for Royal Mail to determine which operator—whether it was Post Office Ltd or Tesco or whomever—to offer mail services and there would be no requirement for stamps or parcels.”

It continued:

“You could see a scenario where Royal Mail looked to cherry pick so Tesco, say, could meet its requirements in urban areas and the Post Office would pick up the slack in rural areas where there isn’t anybody else. And that has very serious implications in terms of the viability and integrity of the network because urban areas typically make money.”

Consumer Focus went on to argue that the number of post offices could fall by 37% as a consequence of these measures—from the current level of 11,900 to the minimum number consistent with the Government’s access criteria of 7,500. In Birmingham alone, seven post offices face closure.

The National Federation of SubPostmasters has added its call to the need for action. It also argues for a minimum 10-year IBA. Let me quote what it says:

“The NFSP believes that in order to avoid further post office closures, existing levels of Royal Mail work at post offices must be maintained with a minimum 10 year IBA between the two companies following separation.”

The Government’s stance is clear, albeit sad. They have rejected a number of opportunities to make the commitments that have been called for.

Fiona O'Donnell (East Lothian) (Lab): Is my hon. Friend aware of the recommendation in the Select Committee on Scottish Affairs report that the Government should be doing more to remove the barriers to local post offices providing services in relation to devolved and local government?

Jack Dromey: To develop our post office network, it is necessary to be imaginative and creative. Sadly, we are moving in the opposite direction.

The Government’s stance could not be clearer. They have rejected a number of opportunities to make the commitment firm in this important legislation. They have declined to accept a statutory commitment, as exists in countries such as Germany and the Netherlands, to a figure of 11,500. They have rejected the embedding in the Bill of the access criteria on how near people’s local post office will be. Post offices locally cannot live on warm words alone; good intentions and high hopes mean naught if we cannot have guarantees for the future.

Lorely Burt: Will the hon. Gentleman refresh my memory on how many new post offices were created under the Labour Government? Was there not a net decline, or managed decline, of the Post Office amounting to 7,000 post offices. Why does he decry the fact that this coalition Government are doing all they can to preserve and enhance the post office service that we have inherited?

Jack Dromey rose—

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Madam Deputy Speaker (Dawn Primarolo): Order. We are supposed to be discussing amendments that have come from the House of Lords and deal with commercial relationships, the interaction between various bodies and the issue of an employee share scheme. I would be grateful—no, I insist that Members stick to the amendments before us on these important issues.

Jack Dromey: In that case, I must regretfully resist the temptation to respond to the hon. Member for Solihull (Lorely Burt), much as I should like to do so.

Let me make a point that goes to the heart of what you have just said, Madam Deputy Speaker. We have been given few assurances about the method by which Royal Mail may be sold in a way that guarantees value for money for the taxpayer, and we have no idea who its new owner might be. We have no assurance that employee shares will be held in trust and could not simply be sold on in a short period, which would defeat the objective of employee involvement. We do not know for sure that access pricing for Royal Mail competitors will be fair. An IBA should have been included in the Bill, on a continuing basis. What will happen to the post office network after 2015, when the comprehensive spending review money runs out but the Bill’s provisions do not, and when, sadly, we then embark on the path towards privatisation of Royal Mail?

Let me return to the two constituency stories that I related earlier. Few jobs in Britain have been immortalised in children’s books, but Postman Pat reflects the high regard that exists for the postmen and postwomen in Birmingham and Britain, and they feel badly let down by the Bill. Will the Minister accept my invitation to visit Perry Common and meet Tarnjhit Dhesi, members of the Witton Lodge community association, and representatives of local care homes and tenants’ organisations? Will he sit down and listen to the case that they have put for the reopening of their post office in a small high street that some entrepreneurs are trying to regenerate, at the heart of which is an admirable man who wants to provide a service for the community?

That man said this to me: “Jack, I don’t understand why I read all these stories about the commitment to the post office network. The post office here closed a couple of years ago. We want to reopen, but the door has been shut in our faces.” Will the Minister translate his commitment to local post offices into action by coming to hear the voice of local people who want a local post office?

Damian Collins (Folkestone and Hythe) (Con): Following the speech by the hon. Member for Birmingham, Erdington (Jack Dromey), I wish to raise a few points relating to the inter-business agreement and the post office network.

The network should be under some obligation to adapt itself to the framework established by the Government. The creation of the post office local format, which allows limited services to be provided through other retail businesses, is an example of that at work. The location in his constituency that the hon. Gentleman cited may well be the type of location in which the post office can adapt its service to conform with the local retail environment and, in doing so, begin to thrive. I also agree with the Government that mutualisation should be partly a bottom-up process and not entirely driven from the top.

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At the end of last year, I met in my constituency representatives of Action with Communities in Rural Kent. Unfortunately, the Bill had already completed its passage through the House of Commons. That organisation does excellent work, with some public support. When a post office closes—not as a result of any decision by the Government or a Minister, but because the person who owned the business has either passed on or retired—the organisation actively seeks a new location for it. In the village where I live, a post office moved from stand-alone premises to the local pub. The mutualisation for which the Bill provides can support such work, and should be welcomed.

The Post Office’s own initiatives in developing the post office local format can support the trend as well. As the hon. Gentleman pointed out, the Government’s financial guarantee will expire in 2015. The Post Office should be using the intervening period to establish how it can adapt its activity to ensure that its business platform is as sustainable as possible in the future.

The inter-business agreement is a two-way street. In terms of access for British consumers, the post office network is unrivalled by any other retail business. Its footprint is much larger than those of all the supermarket chains put together, and it is very unlikely that Royal Mail could find another commercial provider which could match that. The IBA provides the possibility of an interesting two-way negotiation between the Post Office and Royal Mail. To what extent would Royal Mail like the Post Office to offer mail services from competing companies when it is given the freedom to do so? There is also the possibility that Royal Mail could establish a better relationship with the post office network. The Bill provides the opportunity for a more equal relationship than that which, at present, is skewed in Royal Mail’s favour.

There is much to be welcomed in the Bill from a business point of view. The Post Office should see it as an opportunity to embrace mutualisation and a different type of relationship with Royal Mail which will enable it to provide a better service for its customers.

1.45 pm

Mr Mike Weir (Angus) (SNP): I have expressed opposition to post office closures for 10 years in the House, and my view is unchanged. My colleagues and I do not think that the Post Office should be privatised, but the Bill is going through. I would laugh if it were not so sad to hear Labour Members slagging off the Government, given the number of post offices that their party closed, but I had better confine my remarks to the amendments so that you do not call me to order, Madam Deputy Speaker.

Although I welcome Lords amendment 1 to an extent because it would improve the report, it does not provide a guarantee of business. That remains a difficulty: there is considerable uncertainty in local post offices about future business, and I fear that many more will close if it is not dealt with. Many are closing now, not just because of the Post Office side of the business but because of the general state of the economy. At the risk of opening up another front of argument between the two sides, I will cite Ferryden in my constituency. During the closure programme it was agreed that Ferryden’s post office was needed, but the post office was in the local shop, which recently closed. The reason was not to do with the post

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office itself—and I appreciate that it is not within the Government’s immediate control—but the fact that the small shop, the last in the village, was considered to be no longer economic. When the shop went, the post office went as well.

The same difficulty exists in rural areas throughout the country. With respect to the hon. Member for Birmingham, Erdington (Jack Dromey), post offices will not take up the slack in rural areas, because they are closing there as well. It is a simple case of economics. It is unlikely that the Ferryden post office will go to another business, because it does not exist. The chances are that it will end up as an outreach programme and a restricted service to the village. The important thing is to try to keep some postal services in that village. I should have preferred an inter-business agreement that provided certainty about the future level of business. I appreciate the difficulties, but the continued uncertainty does not help.

My main point about the Lords amendment relates to new section (3A)(b), which concerns the proposed share scheme. I wanted to raise the issue at an earlier stage, but unfortunately we ran out of time. The amendment states that when shares are sold for the first time, details of the employee share scheme will be given. However, we do not know what the structure of the scheme will be. Clause 3(2) states that when the Crown no longer owns any part of Royal Mail, the share held by or on behalf of the employee share scheme must be at least 10%. I know that the Minister said that on the first sale of shares the share scheme details would be given, but the 10% is vitally important, because the Bill otherwise allows the sale of 90% of the company to one other entity, such as another postal operator. Leaving aside the argument put by the hon. Member for Llanelli (Nia Griffith) on behalf of the Opposition about whether 10% is an appropriate figure, the choice of this level does present a potential difficulty, depending on how the shareholding is held. In Committee, the Minister was pressed on whether the shareholding would be held in a trust for the benefit of the employees—the so-called John Lewis model—or whether it would be given in individual shares to the workers. We did not receive an answer to that question.

Fiona O'Donnell: Has the hon. Gentleman’s party had any discussions with the Government about the future of Royal Mail in an independent Scotland?

Mr Weir: The hon. Lady has taken her chances by asking that question, but it goes beyond the scope of the amendments before us. The Post Office is very important to rural areas of Scotland, and I will merely note that the Scottish Government have done much more than the UK Government to help rural post offices in the future—such as through the diversification and rates rebate schemes. That illustrates what we would do in an independent Scotland.

To return to the point I was making before being led down this interesting side road, the lack of detail about the structure presents a dilemma because, depending on what method is chosen, there could be unintended consequences in the future. If the John Lewis method is pursued, there may well be no problem, in that it will be a trust holding and will, in all likelihood, be held at or above the 10% level. However, if the shares are distributed

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to individual employees, we could have a very different scenario. Experience of previous privatisations suggests that a number of employees would immediately sell their shareholdings, and others would be likely to sell at some future date, either when they retire or, perhaps, by their executors on death. There is absolutely nothing wrong with that; they would be their shares so they can dispose of them as they see fit. Such actions could, however, have a serious consequence for the continuation of a workers’ shareholding within the company, because of the operation of our current company law, and especially as Ministers have made it absolutely clear that they would be relaxed about Royal Mail being bought either by one of the major foreign postal operators or by private equity companies up to the remaining 90% figure.

I remind the House that in cases where private equity companies have bought listed companies, they have on occasion de-listed the company and operated it as a private company. I particularly draw Members’ attention to the terms of section 429 of the Companies Act 1985, which gives provision in respect of implementation of the EU directive on takeover bids. One of the purposes of the directive was to deal with the problems of, and for, residual minority shareholders following a successful takeover bid, processes known as “squeeze out” and “sell out”. The provisions in question provide that following a takeover offer:

“If the offeror has, by virtue of acceptances of the offer, acquired or unconditionally contracted to acquire—

(a) not less than nine-tenths in value of the shares to which the offer relates, and

(b) in a case where the shares to which the offer relates are voting shares, not less than nine-tenths of the voting rights carried by those shares,

he may give notice to the holder of any shares to which the offer relates which the offeror has not acquired or unconditionally contracted to acquire that he desires to acquire those shares.”

In effect, therefore, anyone who acquires 90% of the shareholding in a company can force the sale of the shares of the remaining small shareholders and become sole owner of the company. If the Government were to sell 90% of Royal Mail to, say, Deutsche Post, there could clearly be a potential difficulty in regard to the workers’ shareholding in the future if that is held individually by Post Office workers. If at any time the individual shares held by the work force were to fall below 10%, there is the potential for the owner of the remaining 90% to force a sale and therefore wipe out the shareholdings of the workers.

I am sure the Minister will, in his usual inimitable manner, tell me that I am constructing a theoretical problem that would not occur in the real world, but I wanted to propose an amendment on this point because of a real case of this kind involving constituents of mine. My constituents, who are pensioners, were shareholders in Dana Petroleum, and had been for a large number of years. The company was not paying dividends, but the shareholding did increase in value and my constituents regarded it as a nest egg for the future. Unfortunately, Dana Petroleum was subject to a hostile takeover by the Korean National Oil Corporation, which I believe is state-owned—I believe it is part of a sovereign wealth fund. That company purchased the majority of shares, although my constituents did not wish to accept its offer. The new owners decided to

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de-list the company, with the effect that my constituents were forced to sell their shareholdings, in their case causing a capital gains tax liability.

Unless the Government give us details of the form the shareholding will take, there is a genuine danger that we could face that situation within Royal Mail in the future. If the Minister will stand up and say, “It will be the John Lewis model; it will be a share trust of at least 10% of the shares for all the employees in the company”, I do not think there will be a problem. Alternatively, however, we might go down the same road as with previous utility sales, where individual shares were given to the workers and that shareholding within the companies has been reduced over the years. It is interesting to note that many of the former utilities are now offering special deals to get small shareholders to sell out their remaining shares because they do not want the small shareholders. Although this idea of worker participation is a good one, I would rather the company was not privatised. If that does happen, however, the bigger the workers’ shareholding within it, the better, and the shareholders would, it is to be hoped, have real rights.

As there is a lack of detail on this point, there is a danger that we will end up with nothing for the workers and the company wholly in the hands of one, possibly foreign, postal service or private equity company. The recent experience of private equity companies buying out limited companies is not a good one; we need only look at the current problems with Southern Cross to see that. I ask the Minister to reflect on this issue, and give us an assurance on it, or at least more information as to how the shareholding is to be held.

Jim Shannon (Strangford) (DUP): I am aware that you have asked us to focus on the amendments, Madam Deputy Speaker, and I intend to do just that. I want to focus my comments on Lords amendment 9 to clause 11, referring in particular to the universal service provider. While some level of provision is given, I am not entirely convinced that we will have a better service. That is my opinion, and it is informed by the views of the people I represent, because they are telling me the same thing. It is being said not only by Post Office personnel, and among them it is stated by both those who own post offices—postmistresses and postmasters—and the Postman Pats of this world who do the hard graft out on the streets. Some Members have spoken about the business plan that post offices need in order to make them sustainable. Can the Minister convince me and other Members—and, through the Hansard report of the debate, convince my constituents—that the service will continue to deliver in the large rural community I represent that stretches from Portaferry to Ballynahinch?

For many of my constituents, post offices are a crucial part of their community. They are the front office of government. I am unconvinced that the revenues of sub-post offices will not decline, and that could lead to some of them closing. We need the Minister to respond to that point.

Some Members have spoken about the continuity of contracts beyond five years, and that is essential. The postmistresses and postmasters of the rural post offices in the areas I represent have told me that they are under

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absolutely no illusion about how things will progress, and I say on behalf of them that we need to ensure that they have such continuity.

Under the new law, the universal service for six days a week with one price sending post anywhere could be downgraded in just four years, and it is feared that the everyday post office user will experience price hikes and have to pay for the privatisation. The unions have pointed out the possible consequences of privatisation in respect of postal services, and I look forward to hearing the Minister comment on that point. This has already happened in the Netherlands and Germany, where the rural service has been reduced to three days a week, and the costs have risen.

2 pm

We might find examples where what is being proposed here has not worked out elsewhere, so what lessons have the Government taken to ensure that the same does not happen in this process?

I am keen and anxious to discover whether the Government have taken full account of the views of sub-postmasters. I understand that some 92% of them have said that they feel that the Post Office is “very unlikely” or “unlikely” to survive without the mail business provided by Royal Mail. As so many people are saying that, it would be unwise of the Government to ignore it.

As we all know the statistics on this, I do not intend to go into them. What consideration have the Government given to the crucial role of post offices in the community? I believe that we all agree that our post offices are more than just post offices; they are a social meeting point for a great many people. I know that that does not come into the economics of a post office, but it must be part of the process in deciding which post offices can remain open. Finance will be the driver in that, but post offices provide an opportunity for people to mix and mingle and the staff have clear contacts with the people in the community. Most of the hon. Members who are going to speak today will probably speak from a rural community background. The National Consumer Council has shown that the Post Office was thought to be more accessible than banks, and we cannot ignore that. When we decide what is going to happen with the Post Office today and what could happen in five or 10 years’ time, we have to ensure that we will get things right. Only 4% of villages have a bank, whereas 60% of them have a post office, so we should ask communities such as mine about this. It would be remiss of me not to make that point in the House today and not to ask the Government to tell us exactly what assurances we will be given. It is the essentials provided on a week-to-week basis that the banks do not do, because they are not in these places but the post offices are.

What consideration has been given to the view of businesses in rural communities that are near to the post offices? They say that some 15% of their revenue is created in the post offices, so has full consideration been given to that? What assurance do we have that that will continue to happen in the post offices? The fact that the service provision is universal is a crucial factor in what happens and what we take forward.

I raise the following point because I was asked it by the Royal National Institute of Blind People and other hon. Members have alluded to it. If closures go ahead,

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they will hit the blind and partially sighted particularly hard, leaving them even more socially and financially excluded than they have ever been before. They will no longer be able to use their local post office to help with the mountain of forms pushed on them by civil servants.

So the role of the post offices in rural communities and in urban centres is a crucial factor in terms of how people can respond to any changes that will take place. Worryingly, as I said in my introduction—I will say it again and I look forward to hearing the response—I do not believe that the Government have convinced the general public that the changes that are coming are changes for the better. I am not convinced of that, neither are the people who speak to me, the postmasters and postmistresses, or Royal Mail staff. Most importantly, the general public, who we have a duty and responsibility to look after, are not convinced of it either.

Michael Connarty (Linlithgow and East Falkirk) (Lab): Despite all these amendments, which have been won by clear arguments put by Labour Members in the House of Lords and the Cross Benchers who supported them, I am still concerned about having a Bill that is fit for purpose.

Lords amendment 1 provides a new requirement that the report made by the Secretary of State will make clear the

“objective intended to be achieved”

by the disposal of shares in Royal Mail. I have followed this issue very closely so I know that everything else falls on that. As you know, Madam Deputy Speaker, I am the secretary of the Communication Workers Union liaison group of MPs in this House and have been so for more than a decade. Despite all the Minister’s warm words, it is not clear what this is meant to achieve that can be achievable under this privatisation model as structured.

Does the “objective intended” include maintaining Royal Mail as an organisation able to deliver to all parts of the UK for a single charge or two varying charges? The Bill and the amendments provide no guarantees that that is the case. Will that be covered in the report given each year by the Secretary of State to the House in order to show just how far the failure has been progressed, and how far my concerns and those of other Opposition Members have been realised? If we were to fragment Royal Mail—it is entirely possible that that will happen as there is nothing to prevent it under the Government’s privatisation model—a Scottish regional mail delivery service could be given responsibility for meeting that objective under this model. That provider might then find that that particular part of the United Kingdom—the same could happen in places such as Cornwall and elsewhere in the south-west—the sparsity of the population and the diversity of the communities mean that it is not possible to make a profit. This process is about a privatisation and about giving organisations the right to run Royal Mail as an organisation that must make a profit. The Bill would allow them to come back to ask the Secretary of State to allow them to get rid of that universal service obligation.

Mr Davey: Will the hon. Gentleman tell the House which part of the Bill he is worried about? Which part will cause the fragmentation he is describing?

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Michael Connarty: The part of the Bill I am talking about—

Madam Deputy Speaker (Dawn Primarolo): Order. We are not discussing the entire Bill. We are having a time-limited debate about specific amendments. The Minister knows that as well as every other Member of this House, so I am sure that he does not want to tempt the hon. Member for Linlithgow and East Falkirk (Michael Connarty) down that path. Perhaps the hon. Gentleman can focus specifically on these amendments so that the Minister will not be troubled.

Michael Connarty: I was talking about the amendments; the new requirement in Lords amendment 1 is that the report must include the

“objective intended to be achieved”

by the disposal of shares. That is a specific Lords amendment and I am questioning what will be put before the House as a result. Will it be a report on the progress of fragmentation and of these parts in trying to achieve the Minister’s stated aim for his sale of these shares?

The Minister has spoken repeatedly about finding some way of saving the post office network. I know that great steps have been made on the Bill through the amendments won by the diligent efforts of Labour Members and Cross Benchers in the Lords. There will be some sort of inter-business agreement and it will be extended. I know that the Minister is not trying to pull the wool over our eyes, because he is telling us about his aspirations. However, when I hear him talk, I am unsure what his benchmarks for achievement under these amendments will be if it turns out that his idea of having a full network of post offices and post office “locals” does not work, the “locals” fade away and—I believe this will happen—we begin to lose post offices at a faster rate than would have happened under the previous Government’s plans to stop the flood by taking out a number of post offices and hoping to leave enough business for those that remained.

I did not agree with that approach, but I recognised what the previous Government were trying to do. I do not understand how the Secretary of State will report on these matters as a result of these amendments. If the report were honest, it might suggest that we have to do something different. I want the Minister to tell us what he feels his duties now are as a result of these amendments or what he feels the duties will be of whoever succeeds him, should there ever be a change of Minister. I do not wish such a change upon him, because he deserves to come back to apologise for everything he is now bringing about.

Is this about return to the Exchequer? Let us look at the attempts of previous Governments to sell shares and at the way in which they sold those shares. The sale of the first tranche of British Telecom shares achieved a 90% profit in one day for those who bought them, because it was an attempt to get quick money into the Exchequer—or was it just to get British Telecom into the private sector? If it was to get money into the Exchequer, the then Government appear to have greatly short-changed themselves and the country. A better example, also in telecoms, is provided by the sale of level 3 broadband, in which we made a substantial

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profit for the Exchequer because of the way in which we auctioned it off, although that did not please people in the industry.

I would like the Minister to tell us how these things are going to work. Will the judgment be based on return to the Exchequer? I know that the Government will, if they get their way, want to balance that against their willingness to take on any deficit in the pension fund that comes with taking on the pension assets. These matters have to be clearly spelt out by the Secretary of State so that people can judge what he is going to do in the Bill. That is what is accepted in the amendment. People want more clarity because we have not been given a clear understanding of the benchmarks and targets that the Government hope to achieve. We have had warm words and aspirations, but given the backdrop—the person who has given those assurances has previously given assurances that they were against full privatisation of the Post Office—we would like to see something a bit more solid on the ground. Perhaps the Minister could say something about what the intentions are.

The amendment also asks for more information about the purpose and structure of the mutualisation. It has been suggested to the Government that it might be useful to set up a task force immediately, but I do not think they have taken that idea up. The idea is to give share options to the members of a work force who have seen 55,000 of their members thrown out the door already and who have heard from the chief executive in the past few days that another 40,000 are about to go behind them, so there is hardly going to be an atmosphere in which anything can be done mutually unless a lot of hard work is done.

I agree with the points made my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) about the hard work and dedication of long-term Post Office employees. We know that people go and work there in the short term and realise that it is a difficult job with unbelievably hard hours and that they often have to work in the most inclement weather to get the mail through. However, many of the people who have been there for a long time want the company to succeed and want its work force to be secured and modernised. A task force would be useful, and it would be useful if the Minister would spell out exactly what will be the benchmark for mutualisation so that the amendments have some value when they are in the Bill.

Mr Weir: The proposal is for the mutualisation not of Royal Mail but of Post Office Ltd, so the average postie does not come into this. They are the ones who will be subject to whoever takes over. Mutualisation will apply only to Post Office Ltd after it is demerged from Royal Mail some time in the future.

Michael Connarty: That is even more frightening. People at that end of the business are facing the same problems from the same management. If the management model has changed, I would like to think that the Minister would put that forward.

Those are my concerns about the amendments, which have been hard won and which came with a promise from the Government that there would be real changes that would make a difference to the Bill. I wonder

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therefore whether the Minister, if he speaks on this again, will give some idea of what is going on to give us an infrastructure for these matters.

My final point is about the sale of shares to employees. The record is exactly as the hon. Member for Angus (Mr Weir) said. Shares are slowly but surely bought up by large organisations. The famous case is the one with Sid and the idea that Sid had some power, but Sid’s shares are probably now owned by several multinational hedge funds or equity funds or perhaps by insurance companies or a pension fund or two. There is this idea that members of the work force will get shares that will give them some sense of ownership, and I remember the first debates in which this was talked about by Ministers. This is one of the myths that the Liberals like to push—that if someone is given a few shares, that will make them a part of the ownership of the business. It does not do that unless those shares come with some powers. As we have seen from many of the banks’ recent annual general meetings, even having large amounts of shares does not give one any power over bonuses, performance or the behaviour of the people who run the companies. What will come with the deal apart from a few stocks and shares that will be stuck in the bank until they are sold to fund a holiday?

2.15 pm

Lorely Burt: The hon. Gentleman says that having large numbers of shares does not necessarily help, but being a small shareholder can be extremely helpful in large companies in which even small shareholders have a say and a voice.

Michael Connarty: I only wish that that were true. I assure the hon. Lady that although small shareholders can go along and make a protest and trumpet what they have to say, the bonuses, the sale of companies and the redundancies will still be voted through regardless of small the shareholders’ shouting. I am not in the business of standing on the fringe and shouting. I would much prefer the Bill to be rejected out of hand. I am against the privatisation of Royal Mail and I believe that the pension fund deficit was caused by the holidays taken by Royal Mail and Post Office Ltd, which were allowed by previous Governments of both hues. I would rather be standing here opposing what the Government are about to do to Royal Mail because I think that all the assurances we have been given, hard-won though they are, will not make a difference.

Capitalism will work as capitalism works and will do what is to the advantage of the people who hold the majority of the shares for the bottom line of their dividends. That will mean that people will lose their jobs and the Post Office will not be sustained using Royal Mail, which will not continue to provide a universal service at one price. The amendments will have to come with a lot more specific targets, which I do not see in the Bill or in any of the schedules to the Bill. Although I welcome the smaller amendments that have been made in this part of the Bill, I do not believe they will make a major difference to the outcome for Royal Mail or Post Office Ltd.

Mr Davey: The hon. Member for Linlithgow and East Falkirk (Michael Connarty) finished where the hon. Member for Llanelli (Nia Griffith) started—in

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total opposition to the Bill. I have to tell the Opposition that they are ignoring the economic and financial reality of Royal Mail. As a result of the reduction in letter volumes because of technology such as e-mail, the internet, text messaging and social networking, it is losing a huge amount of money. The reduction in letter volumes—its core business—is predicted to fall again and again, but it is not only Royal Mail that is affected. Every postal administration around the world is seeing letter volumes and revenues go down. That means that those administrations are leaching money and something has to be done. The previous Government failed to do anything, although I should pay tribute to Lord Mandelson, who had the decency, on Second Reading in the other place, to recognise that we were on the right track with this Bill. The fact that Labour Front Benchers are unable to recognise that today is testament to Labour’s unwillingness to face up to the reality of the challenges.

Nia Griffith: I am sorry to stray away from the amendment, Madam Deputy Speaker, but I think it needs to be put on the record that our Bill, as it stood as Lord Mandelson was taking it through the other place, would clearly have kept Royal Mail in majority public ownership. That was written into the Bill, but it is not in the current Bill. We are talking about a totally different Bill that goes for 100% privatisation. They are two completely different scenarios and the amendments in the Bill arise largely from some of the situations created by that difference.

Madam Deputy Speaker (Dawn Primarolo): Perhaps we could return to the amendments. We are debating the Lords amendments to the Bill—this is not Third Reading. The Minister is experienced and knows that. He has made his opening remarks. Will he answer the debate please?

Mr Davey: I am looking forward to doing that, Madam Deputy Speaker. The hon. Member for Llanelli welcomed Lords amendment 1 but felt that it did not go far enough. Despite all the arguments we have had in this place, she still believes that an inter-business agreement should be in the Bill, as do a number of her party’s members.

I do not wish to rehearse the long speeches that were made on Report, when our debate on this particular point lasted for about three hours, but let me repeat that putting provisions in the Bill in the way in which the hon. Lady suggests would create a significant risk of legal challenge owing to incompatibility with competition law. In addition, such an approach would almost certainly face a state aid challenge. I would have thought that she would have realised that, because it has been accepted by many who have examined the situation in detail.

The hon. Lady says that the absence of such provisions means that there is no protection for post offices, but the whole point is that the detail set out in our policy statement will enable them to be more profitable. It is real business that will save the post office network, not legal provisions in the Bill, so I disagree with her point.

The hon. Lady spent some time talking about employee shares. The Lords amendments will require the Secretary of State’s report to Parliament at the time of first sale of

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shares to include details about the employee share scheme. I would have thought that she would have supported that welcome development.

We would certainly want to report on such things as the terms by which shares would transfer to the employee share scheme and the design of the scheme. Such detail might include questions of whether there would be a trust model or individual shares, or a mixture of the two. There would also be consideration of the percentages to be transferred and the governance arrangements.

The hon. Lady asked how the shares will be allocated, but clearly that is a point for later discussion. Such a point might be addressed in the report. We can imagine allocating shares to employees on many bases, such as length of service, grade and salary. The Government would certainly not object to a proposal that shares and their benefits should be allocated evenly across employees to ensure that there is equal entitlement regardless of grade, salary or length of service. We have been clear that the scheme is for all employees of Royal Mail, not just the management, so I hope that people will not run away with the wrong idea.

Several Opposition Members asked what would stop employees selling shares immediately. Again, we are not making premature decisions about the scheme’s design, but we have always said, as I have repeated several times, that we are designing the scheme with longevity in mind—there are many attractions to a trust model for that very reason. However, it is not true that individual employees’ shares are always sold off by those employees. People arguing that point try to pray in aid the BT example, but the Public Bill Committee heard evidence that 66% of BT employees held on to their shares after the share plan had matured, so there is longevity in share ownership, even with the individual model. A lot of myths are cited by those who oppose employee share ownership, which was no doubt why the Labour party did not include employee shares in its 2009 Bill.

Mr Weir: The Minister says that 66% of those employees held on to their shares, but if they were 66% of a proportion of 10%, they would still be well below the threshold, so there could be a forced sale by the majority owner of the shares.

Mr Davey: I listened carefully to that interesting point in the hon. Gentleman’s speech, and the way in which he eloquently described the situation and referred to the Companies Act 2006 showed that we need to ensure that we design the scheme carefully. We will do so, because we want to deliver on employee share ownership, which is an objective of the Liberal Democrats, the coalition Government and the Bill.

The hon. Member for Llanelli was generally supportive of the proposals on mutualisation, but she spent a lot of time—do tell me if I stray out of order, Madam Deputy Speaker—saying that Government front-office services had not been delivered. We are turning around the decline under which the previous Administration took away more than £300 million of Government services from post offices. Our policy statement and the things that we are delivering show that there is a real future for the front office of government.

Nia Griffith rose

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Mr Davey: The hon. Lady is in no position to criticise the Government about this, but I am happy to allow her to intervene—I hope that she will be able to remain in order.

Nia Griffith: We are talking about the mutualisation of the Post Office, but that can take place only if it is viable. Will the Minister tell us what new streams of Government business have been given to the Post Office in the past year?

Mr Davey: The hon. Lady is right—and we have been clear about this—that the network must be viable before going to mutualisation. The problem is that we inherited a post office network that was so badly managed that we had to turn it round. She asks for specific details, but she knows that several were set out in our November policy statement. She ought to know that the National Federation of SubPostmasters welcomed the start of the pilot scheme offering document verification for pension applications in 106 post offices in the north-east. She should also know that that is only the first of three planned pilots with the Department for Work and Pensions; the other two involve national insurance applications and testing the impact of requiring jobseekers who sign on by post to attend their local post office instead. I would have thought that she would have welcomed such pilots.

Fiona O'Donnell: I note that the Minister missed the green giro off that list. The position not only puts the post office network in my constituency at risk, but means that people who cannot access a PayPoint in their villages must travel to cash their cheques.

Mr Davey: I expressed my disappointment that Post Office Ltd did not win that contract from the Department for Work and Pensions, but I have described three pilots on which the DWP is working with Post Office Ltd. I could also have talked about the proposals on credit unions that we hope will go forward, or the fact that Post Office Ltd has won a contract with the London boroughs so that local authority staff can have an authentication service at the local post office. If that scheme develops, it might have applications throughout the country. Such developments have been welcomed by the National Federation of SubPostmasters, but of course we want to go further, which is why we are so pleased to have persuaded the Royal Bank of Scotland to enable its customers to access their bank accounts through the post office network, which we believe will start to happen from September. I would have thought that the hon. Lady would welcome such developments.

Mr Ian Davidson (Glasgow South West) (Lab/Co-op): If such developments arrive in the future they will be welcome, but will the Minister return to the point about the green giro? Do we have joined-up government? This was an opportunity to boost the Post Office, so why did the Government not do something about it? Surely the Minister, as a Liberal, will not just blame European regulations.

Mr Davey: I certainly would not—but when Labour Members make such points they really have a cheek, because their Government removed more than £300 million of Government services from the post office network.

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We are working hard across the Government to ensure that we can position Post Office Ltd in a place from which it can win contracts from Government Departments in Whitehall and local authorities to deliver the front office of government. I can tell the hon. Gentleman that a huge amount of work is being done on this, and he needs to be a little patient.

The problem is that when we came into government and developed the strategy, the cupboard was bare because the previous Government had done almost nothing. They had allowed the post office network and the process for developing new business to wither on the vine because they were so busy closing 7,000 post offices. I have to tell Opposition Members that the tender for the green giro began under the previous Government, so they really ought to be careful. We have had to deal with the tender that Labour Ministers wrote.

Fiona O'Donnell: The Minister will no doubt want to read the piece of paper that has just arrived in front of him, but perhaps I should read him what the National Federation of SubPostmasters actually said:

“The government’s decision not to award the new contract for benefit cheques to the Post Office does not bode well.”

It seems to me that competence in the Government is not as high as he—

Madam Deputy Speaker (Dawn Primarolo): Order. Will the Minister, in answering, return to the question of viability and the links with mutuality in the context of the amendments we are discussing?

2.30 pm

Mr Davey: I agree that we should focus on the long-term viability of the post office network. I recently attended the annual conference of the National Federation of SubPostmasters in Torbay, where we discussed the sorts of thing we are proposing and they were able to look at the new machines that Post Office Ltd is developing to position itself to win Government contracts, such as the application, enrolment and identity machine, which is already being used for contracts from the Driver and Vehicle Licensing Agency. They already have a portable one, which could be used across the network, and a number of other machines. The sub-postmasters were absolutely delighted. I wish that Opposition Members who have spoken today had been there, because the sub-postmasters showed greater confidence in the future of their post offices and their businesses than they do.

I will respond to some of the comments made by other hon. Members who have spoken. I thank my hon. Friend the Member for Solihull (Lorely Burt) for her comments. She mentioned the benefits to employees that will result from the proposals on employee shares set out in the amendments, and she mentioned pensions, which we will come to later. She specifically asked what discussions we have had with the Communication Workers Union on some of the amendments. It is interesting that on 13 April the CWU issued a press release in which it said that it welcomed the amendments to the Bill. Its general secretary, Mr Billy Hayes, said:

“We warmly welcome these amendments…We are pleased that Government has taken on board some of our concerns”.

I have met the CWU, and it has noticed the progress that we have made.

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The hon. Member for Birmingham, Erdington (Jack Dromey) complained that post offices in his constituency would close as a result of the amendments, but I hope that he tells his constituents that four post offices closed in his constituency under the previous Government. All Members across the House will have discussed post office closures with many people in many communities. What we are offering in these amendments and in the Bill is hope that the Post Office will not see a repeat of those closure programmes, which have devastated so many people.

The hon. Gentleman asked what would happen after the spending review. The modernisation that the Bill and the amendments will enable us to undertake with the £1.34 billion will allow us to go further and continue the transformation. I believe that what we have with the funding package and the proposals is a radical change, but one that will lead to a sustainable network. He knows, because I wrote to him on 9 February, that the post office in Perry Common closed under the previous Government. Reopening it would lead to business migrating away from nearby offices at College road and Hawthorn road, which could jeopardise all three offices, which I am sure is not what he wants.

Jack Dromey: The Minister speaks of hope, and the same word was used when the Bill was launched. Seven post offices in Birmingham now face closure, one of which is in the Yardley constituency of a Liberal Democrat Member. Will the Minister agree to meet the community of Perry Common, which has signed a 1,000-strong petition asking for the reopening of a flexible post office in their locality? Earlier this week another Minister went to Perry Common and held it up as an excellent example of a community that has rebuilt its environment. It now wants to rebuild its high street, and it wants a sub-post office on it. Will the Minister meet the community and Mr Tarnjhit Dhesi, who is driving that proposal?

Mr Davey: I say to the hon. Gentleman and his constituents that they should look at the economics of the post office network in the area, because there are other post offices nearby, and talk with Post Office Ltd about the “locals” model that my hon. Friend the Member for Folkestone and Hythe (Damian Collins) mentioned.

The “locals” model holds real prospects for dealing with some of the post office network’s cost problems, and for helping to revive shops on our high streets by bringing them and post offices together. In our pilots, not only have postal operators liked the model that we are developing, but so have post office customers and local communities. Having seen the evidence, some communities that were sceptical have been delighted by the service quality that Post Office “locals” have delivered. That is the future, and my hon. Friend was quite right to turn to it.

Jack Dromey: I am sorry to press the point, but my local community has looked at the pilots, is inspired by the prospect of flexible provision and wants to engage, but it has had the door closed in its face. Ministers say that they are offering hope and are prepared to listen, so will the Minister meet a delegation from Perry Common and Mr Dhesi?

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Mr Davey: The reason why I am not agreeing to the hon. Gentleman’s kind invitation is that, under legislation that has been on the statute books for many years, and based on the practice of the previous Government, Post Office Ltd decides where Post Office “locals” open, so if that is his request he needs to address it to Post Office Ltd managers.

Jim Shannon: Hon. Members have referred to the pilots, but has there been a UK-wide pilot, or any in Scotland or Northern Ireland? If there has, could we have some idea of the feedback from them?

Mr Davey: There have been Post Office “locals” pilots in all parts of the country. We are up to 80 local schemes, and Post Office Ltd has tried to pilot them in urban, rural, suburban and urban-deprived areas. It is trying to test them out over time, taking account of seasonality and cash flow, so we are learning an awful lot of lessons from them. The recent analysis of the “locals” project by Consumer Focus is publicly available, and although it has some concerns about privacy it was able to show that on issues such as access, longer opening hours and reduced queues, people have found the projects to be a beneficial step forward.

The hon. Member for Strangford (Jim Shannon) said that he was concerned about the universal service obligation and worried that the Bill would undermine it. Far from it: one of the Bill’s main objectives is to secure the universal service, and Opposition Members have failed to realise that clause 30 includes stronger protections for the universal service than was previously the case.

The hon. Member for Angus (Mr Weir) made a very informed speech. He was a distinguished member of the Public Bill Committee, who failed to attend only on the few occasions when the weather prevented him from flying down to London, but in looking at the amendments before us I have to say that he has made the mistake of calling for guaranteed business for the post office network and, almost, of wanting to keep things in aspic.

On the train down to the annual meeting of the National Federation of SubPostmasters, I read the federation’s account of its 100-year history, which mentions the concerns that existed when telegrams were being phased out, and when postal orders were used. In other words, the business and services that have gone through our post office network have changed hugely, and we have had to develop them and move on, so setting things in aspic—putting things in the Bill, as some Members want—would not help.

Mr Weir: With respect to the Minister, this is not about setting things in aspic. The problem is that there is a great deal of uncertainty, because Royal Mail is up for privatisation, the link between Royal Mail and Post Office Ltd now relies on the good will of whoever runs Royal Mail, and with no guarantee of business it is difficult for those trying to sell post offices to find people to take them on, as they are uncertain of what business there will be in one or two years’ time.

Mr Davey: We are in danger of going over old ground. The hon. Gentleman will know, because we have had this debate many times, that it is my view that post offices are in a very strong position in this negotiation, because the idea that Royal Mail is going to absent itself

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from the post office network and allow its competitors to go in there is, frankly, nonsense. As for the particular issue that he has been raising with Post Office Ltd—the closure of Ferryden post office—he will know that that closed not because of any action of the Government or Post Office Ltd but following the resignation of the sub-postmaster. Post Office Ltd is looking at all available options to keep that service in his constituency open.

Mr Weir: If the Minister reads my remarks, he will see that that is what I said. I understand that the closure at Ferryden is not the Government’s responsibility. I have been in touch with the Post Office and it is trying to get an alternative, but it looks as though it will be an outreach service rather than anything else. That is a reduction in service to that community.

Mr Davey: I am sure that the hon. Gentleman will be engaging in that debate with Post Office Ltd.

The hon. Member for Linlithgow and East Falkirk (Michael Connarty) asked, in the context of the report, what objectives we have for Royal Mail and the Post Office. We have made it very clear that securing the universal service obligation is our top objective. Getting a good deal for Royal Mail and for the taxpayer is essential. There is no objective of fragmenting Royal Mail as he described. When he suggested that employee shares were not a good thing for employees, I began to despair. The only correct thing that he said was that employee share ownership—ownership of the company in which one is working—needs to be combined with involvement in worker participation.

We should look at what is happening in Royal Mail at the moment. Someone who goes to sorting offices such as Gatwick, Greenford or Cardiff, as I have done, sees a world-class mail system and the rolling out of a programme of modernisation that involves the workers directly and has as one of its key objectives the health and safety of those workers. Sorting offices are being made not only more productive but safer. There is great employee involvement. If we link that with employee share ownership, this business will have a real future. I hope that the House will welcome this group of amendments from the other place, and give them its approval.

Lords amendment 1 agreed to .

Lords amendments 2 to 11 agreed to .

Clause 21

Restriction on power to transfer assets

Mr Davey: I beg to move, That this House agrees with Lords amendment 12.

Madam Deputy Speaker (Dawn Primarolo): With this it will be convenient to take Lords amendments 13, 14, 23, 24 and 26 to 28.

Mr Davey: The amendments in this group are either minor or technical—or, indeed, both. However, they make some important improvements to the Bill that I hope all hon. Members will feel able to support.

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Lords amendments 12 to 14 concern the pensions provisions. Lords amendment 12 is, I must confess, not the easiest technical amendment that hon. Members will have had the pleasure of scrutinising, but I will attempt to explain it as clearly as possible. The amendment concerns the transfer of assets from the Royal Mail pension plan—RMPP—to the Government and is designed to deal with the fact that we expect the assets to transfer in two tranches. An estimated amount of the assets will transfer when Government takes on the historical liabilities of the RMPP. However, there will be a time lag between this point and the point when the necessary actuarial valuations are finalised. We will need a second transfer to take place when the scheme valuation has been completed: a corrective, or “mop-up”, transfer. The amendment ensures that this two-stage transfer is possible and that any adjustments applied to the second transfer are disregarded so that the funding level test to protect RMPP funding levels works as intended. This funding level test, assessed at the effective date of the transfers, should not be affected by any market movement in the assets that transfer later.

In supporting Lords amendment 12, I would like to be clear on one broader point. The Bill provides a safeguard in clause 21 so that the ratio of assets to liabilities in the RMPP must be no worse after assets transfer to the Government than before. However, we intend to go beyond that minimum and leave the RMPP fully funded after transfer, subject to state aid approval.

2.45 pm

Lords amendment 13 will put in place a legal framework for the sharing of information between the new public scheme, the trustees of the Royal Mail pension plan and relevant employers. In her evidence to the Public Bill Committee, the chair of the Royal Mail pension plan trustees, Jane Newell, stressed the importance of ensuring a seamless service for pension plan members who will find themselves with accrued rights in two schemes, rather than one. That is exactly what Lords amendment 13 seeks to do. It will, for example, facilitate the provision to members of a single benefit statement, rather than two.

Lords amendment 14, which is the final amendment to the pensions provisions, will simply allow secondary legislation made under the pensions provisions to be commenced on a day specified by the Secretary of State through a commencement order. That might be necessary to synchronise the various elements of the pensions solution.

Lords amendments 23 and 27 will give effect to the recommendations of the Delegated Powers and Regulatory Reform Committee in the other place. The Government listen carefully to the views of that wise and respected Committee, as is reflected by the fact that we have accepted the two recommendations of its report on the Bill.

Lords amendment 23 concerns the appeals regime in part 3. Clause 58 allows the Secretary of State to apply, with or without modifications, certain provisions of the Enterprise Act 2002 to appeals made under the Bill. The Delegated Powers and Regulatory Reform Committee recommended that the provision be modified to prevent it from being broad enough to allow increases in civil or criminal penalties beyond the levels set out in the Enterprise Act 2002. Lords amendment 23 will do just that.

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The second recommendation of the Delegated Powers and Regulatory Reform Committee concerns the Secretary of State’s power to amend Ofcom’s universal postal service order in a special administration scenario. Although the Committee accepted the need for that power and recognised that it would apply only in very limited circumstances, it recommended that the power be subject to the negative procedure. Lords amendment 27 will give effect to that recommendation.

Lords amendment 24 simply clarifies that directions made by the Secretary of State under part 3 must be in writing, and may be varied or revoked by a further direction. Lords amendment 26 will remove a reference to that procedure in clause 60 as it will be superseded by Lords amendment 24.

Finally, Lords amendment 28 is a consequence of this year’s referendum on the powers of the Welsh Assembly. The Bill sought to make a consequential amendment to schedule 5 to the Government of Wales Act 2006. However, the yes vote in the referendum resulted in that schedule ceasing to have effect. Lords amendment 28 simply deletes what is now a redundant reference in the Bill.

As I said, the amendments are technical and perhaps not of the most interest to the House. However, I hope hon. Members agree that they represent small but important improvements to the Bill and feel able to support them.

Nia Griffith: This is a group of technical amendments. We all want legislation to be as clear, precise and effective as possible. We will therefore support them.

Lords amendments 12 to 14 will form an important part of the Bill. The transfer of the Royal Mail pension plan and the fact that the Government will take responsibility for it are aspects of the Bill with which all parties agree. Any amendments that offer further clarity and security in respect of the handling of workers’ hard-earned pensions are to be welcomed. We had a thorough discussion of the pensions issues in Committee, so I simply reiterate our support for those amendments. I also confirm our support for Lords amendments 24 and 26.

Lords amendments 23 and 27 give effect to recommendations of the House of Lords Delegated Powers and Regulatory Reform Committee. Lords amendment 27 strengthens parliamentary scrutiny by introducing the negative resolution procedure into the Secretary of State’s power to amend the universal service order in a special administration scenario. As it strengthens the opportunity for parliamentary scrutiny, we shall support it.

Lords amendment 28 is purely technical and has been made to reflect the new situation with regard to Wales, following the result of the referendum held on 3 March in which the people of Wales voted yes to additional powers for the Welsh Assembly Government. We campaigned for and welcomed that referendum result, as it will help to streamline procedures, cut out wasteful duplication and ensure that the Assembly has the appropriate legislative powers in the areas for which it already has spending responsibility. We accept the clear need for the amendment and will support it.

Mr Davey: I thank the hon. Lady for welcoming the amendments, and I hope that the rest of the House will support them.

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Lords amendment 12 agreed to .

Lords amendments 13 and 14 agreed to.

Clause 27

General authorisation to provide postal services

Mr Davey: I beg to move, That this House agrees with Lords amendment 15.

Madam Deputy Speaker (Dawn Primarolo): With this it will be convenient to take Lords amendments 16 to 22 and 25.

Mr Davey: As has been made clear at every possible opportunity, the Government are absolutely committed to the long-term security of the universal postal service. As Royal Mail is the provider of that universal service, and the only possible provider of it for the foreseeable future, its viability is clearly of huge importance to achieving that goal. The Lords amendments to the regulatory provisions of the Bill respond to points raised in both Houses and by Members of all parties, and will help to ensure that the Bill meets our primary objective of securing the universal service.

Lords amendment 17, on Ofcom’s duties, will ensure that Royal Mail has the opportunity to earn a reasonable commercial rate of return on all expenditure incurred in providing the universal postal service, and on any regulated access services in so far as they make use of the universal postal service network. Although it is obviously not within the gift of the regulator to determine precisely what returns Royal Mail can make—that should depend on the market and the company’s performance—it is essential that the regulatory framework should provide incentives for Royal Mail to be successful and make the necessary efficiency improvements, and allow for good performance to be rewarded without regulation eroding the effect of increased efficiency. The amendment will ensure just that.

Lords amendments 16 and 18 further amend Ofcom’s duties, to specify that the requirement for efficiency should apply

“before the end of a reasonable period”,

to give Royal Mail time to continue its vital modernisation. That is an important change. Clearly, the delivery of the universal postal service needs to become more efficient, and neither those amendments nor the ones to which I have already spoken will undermine that. However, we do think that it is important to give Royal Mail a reasonable period of time in which to modernise and achieve efficiency.

As part of that ongoing modernisation, Royal Mail will need to invest in new machinery and technology. Before making long-term investments, boards and shareholders look for certainty. Lords amendment 22 will give Royal Mail certainty that for a significant length of time—10 years—it will be able to remain the universal service provider throughout the whole of the United Kingdom. As previously drafted, the Bill could have given rise to doubts about the certainty of Royal Mail’s designation as the universal service provider in the short to medium term, as it effectively provided for a three-year moratorium period before there could be a procurement determination. Although it was not the

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Government’s intention, the risk of Royal Mail losing part or all of its designation after three years via a procurement determination could clearly have discouraged the company from making otherwise rational and important long-term investments in its infrastructure. That is why Lords amendment 22 gives Royal Mail a 10-year period of certainty.

However, although we need Royal Mail to have that certainty, we also need to keep up the pressure on it to press ahead with modernisation. We must recognise that the threat of a compensation fund means increased uncertainty for its competitors. It is therefore not unreasonable to seek to delay the possible introduction of a compensation fund until necessary modernisation has taken place.

We have looked again at the moratorium period before Ofcom can initiate an unfair burden review and concluded that a period of five years is appropriate. Lords amendment 21 gives effect to that.

During the passage of the Bill, many hon. Members have raised concerns about the prospect of other operators cherry-picking profitable elements of Royal Mail’s delivery business and, as a result, putting the security of the universal service at risk. The Government have reflected on those concerns, and during the Bill’s passage through the other place engaged in constructive discussion with Opposition Front Benchers there, as well as with Royal Mail and the Communication Workers Union.

Although we are confident that Ofcom has the necessary tools to ensure fair and effective competition in the market, it is our belief that on occasion it will need to build in greater time to inform its use of those tools. Lords amendments 15, 20 and 25 address that by giving Ofcom the power to require operators to pre-notify them of the planned commencement or expansion of a letters business on a specified scale. We have left the precise scale for later definition—it will depend on the market at the time—but our clear intention is that that should apply only to a significant letter delivery operation that could have a damaging impact on the provision of the universal service. That notification mechanism will ensure that Ofcom has the necessary time to evaluate the potential impact on the universal service of such an operation before the operation has commenced and, critically, before any potential damage has been done to the security of the universal service.

I stress that the notification condition is aimed at avoiding damaging cherry-picking that would put in jeopardy the long-term security of the universal service. As such, our clear view is that the condition should apply only to those operators seeking to commence or expand a significant letter delivery service, but it will not impose any additional burden on, for example, current access competitors, courier services or parcel delivery businesses.