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Postal Services Bill
|©Parliamentary copyright||Prepared 19th November 2010|
Publications on the internet
Postal Services Bill
Postal Services Bill
The Committee consisted of the following Members:
Chris Stanton, Annette Toft, Committee Clerks
† attended the Committee
Nia Griffith (Llanelli) (Lab): I expect that you will be pleased to hear, Mr Amess, that I will not start from the beginning on amendment 16. In fact, this morning I had nearly come to the end of my deliberations on it. We had reached the part of proposed new subsection (2)(a)(f) that deals with a universal postal service. We were talking about the absolute importance of rural areas being able to develop e-mail businesses and small businesses growing up using postal services, because it is sometimes so difficult to get investment by big companies, with large numbers of jobs, into areas that are very far from the markets. Therefore provision that is universal, in terms of both a uniform price and deliveries six days a week, is critical. That is why we believe that it needs to be specified, through the amendment, that we expect the Secretary of State to make clear exactly
I want to stress again why we believe that further consideration of these matters is necessary and why we tabled amendments 17, 18 and 15. The current Postal Services Bill has a number of similarities to the 2009 Postal Services Bill, but this Bill will privatise Royal Mail in its entirety, which makes it distinct from the 2009 Bill. One of our difficulties is in trying to grasp the detail and to discover exactly what information is in the Bill about whether there will be an initial public offering, whether it will happen all at once or in tranches, whether it will lead to a sale to a proven communications business or a private equity group or whether it will mean the break-up of the company into different geographical and functional units, with parts of the business being hived off and so on. Because we need more detail and information, we were anxious to table amendments 17, 18 and 15, which would all, in varying degrees, bring accountability back to Parliament by ensuring that we had more information about what exactly is proposed.
As we have said many times already, there are few examples of 100% privatisation having taken place. Even countries such as the USA and Canada, where Moya Greene came from, have postal services that are publicly owned. I will spare hon. Members a reference to a certain postal service that I am sure my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East will mention.
Damian Collins (Folkestone and Hythe) (Con): May I pre-empt the interest in Deutsche Post? Does the hon. Lady not share my interest in the fact that that privately run company is looking to expand its network of mailboxes
Nia Griffith: I would rather not intervene in the dialogue about a postal service of which I have very little knowledge, so I shall leave that point for the hon. Members with a specific interest in that company.
There have not been many instances of 100% privatisation. That brings me back to the specific issue. We are looking at further measures whereby there would be an opportunity to bring back to Parliament the proposals outlined in the Bill, about which we want much more detail. We could move to the alternative resolution or, indeed, a super-affirmative resolution procedure that would require the Bill to be put before Parliament. There is more detail that we want to know about, which is why our preference is for the strongest of the four amendments that we have tabled. It would ensure the maximum possible involvement of Parliament in the full scrutiny of the Bill.
People might think that we are exaggerating, that we cannot see the wood for the trees or that we have not understood the detail of the clause, but previous privatisation legislation has provided more detail. Matters have been spelt out more clearly. For example, the Railways Act 1993 imposed a series of general duties on the Secretary of State and the franchising director in respect of the award of franchises. There were detailed prescriptions concerning to what type of entities assets could be transferred. Under the Railways Act, the franchise director of the British Railways Board was restricted to transfer assets to franchised companies or companies that the board wholly owned under sections 85 and 86 of the Act. The Secretary of State was also subject to several franchising and licensing general duties to protect the interests of users of railways services in respect of price and quality, in particular.
We are all concerned about the users of the Royal Mail service and the users of the post office network as they, by implication, will be affected by what happens. Under the Railways Act, specific measures have mentioned such concerns in more detail than are set out in the Bill. The Secretary of State was also subject to a number of general duties such as promoting the use of the railway network, promoting efficiency, promoting competition, minimising restrictions on operators and ensuring safety. He was further obliged to promote the award of franchise agreements to companies in which employees had a substantial interest. We are worried that there is not the same degree of detail under the Bill as drafted, which is why ideally we would like a new Bill introduced. Failing that, we would go for a super-affirmative resolution or an affirmative resolution procedure because such matters need considerable consideration and it would be a mistake to move forward too quickly. Parliament needs to have the opportunity for further scrutiny of exactly what the Government are proposing. It is for that reason that I support the amendment, about which my hon. Friend the Member for Ochil and South Perthshire has spoken so eloquently.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab): I support amendment 16 tabled by my hon. Friends the Members for Ochil and South Perthshire and for Llanelli. Paragraph (a) of the amendment
In the first evidence session, Dave Ward of the Communication Workers Union said that the representative sitting on the board did not have to be a trade union rep. There is great scope there and the CWU has again shown flexibility. The amendment would allow a continuation of the bridge-building that has happened over the past two years through the modernisation programme. Also, such representation on the board would be of direct benefit to all employees, whether they are union members or not. The board would work with the trade union, which is recognised on site, but which also represents employees who make the democratic decision not to be a member of the union.
As I said, such a position would also help build on the trust and relations established over the past two years, after the previous difficult years. Fundamental to a position on the board for an employee representative would be the communication between the shop floor, the board and the other directors on that board. The great prospect—better than just an employee representative—is the element of customer representation. We are talking about a relationship on the board between the producers—the work force—and the actual customers. I do not think that is very common but it would be a great industrial practice to take forward. In fact, ideas for mutual relationships have been proposed in the co-operative movement. Unfortunately, between the 1930s and 1950s, the Conservative party blocked such relationships between producers and a consumers.
Customer representatives on the board would also have a great effect in building up trust between the work force and customers. We avoid the middleman, which, the majority of the time, tends to be different tiers of management. We could have the shop floor talking directly to the customer.
Tom Blenkinsop: I do not know, to be honest, but that is a consideration. Obviously, there are different ways of being a customer. There is the individual member of the public but also business. As the hon. Gentleman rightly said, some businesses are in direct competition with Royal Mail. That is something for us to consider and discuss.
Richard Fuller: I appreciate that it is quite confusing in that instance. It might be something of merit for the Minister to consider. In the instance of employees, there is a suggestion—in fact, there is a part of the Bill—that would provide employees with 10% or more of the stakes in the business. Should the employee representative represent the interests of employees as shareholders, employees as a whole, or the union members of the work force?
Tom Blenkinsop: I think that it should be employees as a whole. We have not talked specifically about a trade union representative as opposed to an employee representative. Obviously, the union wants to have some input and discussion about whom the representative would be. As Dave Ward said, the representative need not be a trade union representative. But communication between the shop floor and the consumer is important.
Richard Fuller: I appreciate the hon. Gentleman’s being so generous and giving way. If the representative on the board is not a member of the trade union, is there the potential for conflict between the two? How would that be resolved in messages to the work force—a large proportion of which is unionised—if there is a dissonance between what the representative of the board says and what the trade unionist says?
Tom Blenkinsop: That industry relationship exists anyway. If the hon. Gentleman is advocating collective representation across all industrial sites, I am absolutely willing to support him 100%. There is real scope across parties to look at that type of relationship in industry. We could have a direct conversation between shop floor employees and consumers, and miss the middleman in between. That would be a really radical step for genuine industrial relations. It would allow the shop floor to understand commercial viability and also get their voice across to the consumer.
If a board had an employee representative and a customer representative, it would speed up the time taken to make decisions. A middleman proposes consumer need—why x, y and z need to be done—to management, which is then relayed to the shop floor. That process would be quicker if an employee representative could talk directly to a consumer representative. There is huge scope for a change of focus.
As I have said, such a change would build on the good industrial relations that have been established over the past two years under the modernisation programme. It would also show employees that they have a visible democratic stake in the company and are represented by someone who can reflect their views, as varied as those may be, between unionised and non-unionised workers on the board. Employees would have a direct relationship with a board representative.
There will be a question about what system should be in place, and who should be consulted to appoint such a person. The amendment proposes that there would not be a restriction to only one representative, and after consultation with the unions and other employees at different tiers within Royal Mail it might be found that two are needed, so that should be considered.
Gordon Banks: Does my hon. Friend agree with the point that I tried to make earlier—that however many employee or customer representatives there may be on the board, it is important that they have the full roles and responsibilities of other members, so that it is not a two-tier board?
Paragraph (b) of the amendment concerns the location of the headquarters of the new business. The measure would demonstrate clearly to the employees, the customer, and the country as a whole that we, as a Parliament, want whoever will own Royal Mail to be based in the UK. The danger is that the potential buyers—Deutsche Post or TNT—already have European headquarters. That does not necessarily mean that if they owned Royal Mail they would keep their headquarters in Europe, or that Royal Mail would not be in the UK. The amendment, however, makes it clear that any potential buyer must have a base here.
Mr Mike Weir (Angus) (SNP): Is not the crux of the matter the structure of the company after it is privatised? If it will be an independent entity, it can have a separate operation, board and head office in the UK; if, however, it is fully owned by, say, Deutsche Post, it may be run merely as a subsidiary of that company, with any entity in the UK having very little power over the ultimate direction.
Tom Blenkinsop: I raised the point earlier with my hon. Friend the Member for Ochil and South Perthshire that there is nothing to stop a potential buyer from liquidating certain assets to re-source its services in another country. Similarly, it may want to liquidate many assets and sell the service on to make a short-term profit, which would be the case if it were an equity firm or some such asset-stripping organisation. That is what leaves industry per se vulnerable to privatisations, unless regulation stipulates that any future business must have a headquarters the UK. Of course, that in and of itself does not stop a business from having an HQ in Britain and asset-stripping the whole industry.
Damian Collins: Is the hon. Gentleman suggesting that if the best offer made for Royal Mail shares was made by a company that happened to be headquartered overseas but nevertheless demonstrated an outstanding track record in the delivery of postal services, the resources to invest and the desire to do so, that offer should be turned down simply because the company was headquartered in a different country? Is his concern so great that we should accept an inferior offer for Royal Mail simply on that basis?
Tom Blenkinsop: Not necessarily. After the privatisation of British Steel, when it joined Hoogovens to form Corus, whose base is now in London—in Millbank, actually—the historical link, or the culture within the industry, was very Dutch-dominated. There are complications there. Having just the HQ in Britain is not in and of itself a demonstration that Royal Mail would be kept in Britain, but it would certainly be better than not putting that stipulation in.
Nia Griffith (Llanelli) (Lab): Does my hon. Friend recognise the comments made by employees in my Corus plant, that all the work seemed to be going to Holland and that they did not feel that they were getting the same opportunities to bid for the same types of work?
Mr Davey: I would be very concerned if the letters for the constituents of the hon. Member for Llanelli ended up in Holland. That would be very bad performance, and I do not think the regulatory system would allow that.
Tom Blenkinsop: As I was saying, in relation to the steel industry, we had a site—a beam mill—that was part of the Scunthorpe site. Teesside was producing slab steel. For the 12 months prior to the mothballing in February, steel was being imported from the IJmuiden site in Holland, even though the Teesside site was perfectly viable, as we now know. I have been arguing, alongside my brothers in the community, for the past two years, that things had been perfectly viable.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): Does my hon. Friend agree that his practical experience on the ground in Teesside is supported by a raft of academic research that suggests that when the crunch comes, foreign-owned businesses, understandably, tend to make savings where they can overseas rather than in their home country? The Cadbury takeover, in particular, brought out a lot of that evidence into the public domain.
Richard Fuller: I am concerned that the analogy may not be appropriate. Is the hon. Gentleman, in the comparison with the steel industry, honestly suggesting that savings might mean that a foreign owner would take British letters overseas, sort them, bring them back and then deliver them? Or is there some other way in which it could export Royal Mail services overseas?
Tom Blenkinsop: I was not saying that, of course. I was talking about the actual capital in the business and the residual value of the existing capital, which would be quite easy to sell very quickly to recoup a lot of the equity initially spent in a sale. Likewise, in the steel industry, a perfectly viable site such as Teesside, which unfortunately underwent the overlook of the Prime Minister’s fiscal friend Kirby Adams, would have to deal with that situation unless we stipulated quite clearly that there should be a UK base.
Gregg McClymont: There is a potential irony here. We could have a situation where a German or Dutch postal operator used profits from a British operation to support their operation in their home market, in which post office numbers are protected by statute. We could see a shrinking of the number of postal access points in Britain to support the businesses of a Dutch or German owner in their own country, where they are protected by statute.
Damian Collins: I am aware that a Member may not intervene on an intervention, but seeing that the hon. Gentleman has accepted his colleague’s premise, I would like to ask—I have completely lost the train of my thought now. [ Laughter. ]
Tom Blenkinsop: As my hon. Friend was saying, the largest minority shareholder in Deutsche Post—the German Government—would potentially be able to subsidise their share and their financial interest via Royal Mail.
Damian Collins: The hon. Members for Cumbernauld, Kilsyth and Kirkintilloch East and for Middlesbrough South and East Cleveland were discussing whether Royal Mail’s profits might be used to subsidise other postal services in another jurisdiction, but does the hon. Gentleman agree that it would be a wonderful position for Royal Mail to be in to be profitable and have such cash at its disposal?
Tom Blenkinsop: I believe that Royal Mail, after two years of modernisation, is perfectly profitable. The issue at stake is whether the state and the public have an interest in that profitability going forward. Obviously, we are discussing that now.
To return to the amendment, capital flows are now truly international, but the amendment would protect the UK integrity of Royal Mail and would bind any successful bidder to a recognition of the importance of having a headquarters located in the UK and making it an integral part of Royal Mail going forward. As my hon. Friend the Member for Ochil and South Perthshire alluded to, there is the history of Royal Mail—people’s familiarity with something that they grew up with and that is part of their community, and of their personality and relationships. It is important, and it is a bigger issue than just having a UK base. It is a small part of a broader point about ensuring that the Government have a say in that service going forward. It is also about preserving the UK identity in Royal Mail at its very least.
Paragraph (c) of the amendment would stop any potential buyer or future owner moving the headquarters of Royal Mail in the future, so that they could not decide to have a base in the UK as stipulated by the Government and pay that lip service, then after a year or two move the headquarters elsewhere. If Royal Mail is sold on to another owner, the amendment would ensure that the headquarters remained in the UK with that new owner.
Tom Blenkinsop: We can only discuss Royal Mail in the parameters of the present. The Royal Mail is providing a postal service for the UK. I do not know whether the Minister envisages Royal Mail becoming a multinational business, be it publically or privately owned. All I know is that I am discussing the postal service for Britain, and making sure that British postal service has its HQ in the UK. Perhaps the Minister will let us know his future plans for Royal Mail.
Mr Davey: I am interested to know whether the hon. Gentleman is worried about a UK headquarters that is part of a global company whose global headquarters may be located elsewhere, or whether he is concerned that the company that runs Royal Mail must have its global headquarters located in London. Which is it?
Tom Blenkinsop: The universal service obligation assumes a service for UK nationals living in the UK, and the amendment would ensure that the service that they use has an HQ for them. I do not know what the Minister’s plans are for a global Royal Mail. I am not sure whether the Bill alludes to a potential buyer that he already has in mind.
Gordon Banks: Does my hon. Friend agree that we are talking about Royal Mail as it serves the UK? The amendment therefore talks about Royal Mail as it serves the UK going forward. If the Minister can negotiate, through his good skills, both a UK headquarters and a global headquarters for whatever company buys Royal Mail, would my hon. Friend accept that?Tom Blenkinsop: Yes, I would; but obviously, we would like to know what the Minister’s ideas and plans are for the Royal Mail. There is an allusion to a service or potential owner.
Graeme Morrice (Livingston) (Lab): Will my hon. Friend join me in reassuring the Minister on his apparent dilemma about where the head office would be—whether in the UK or globally? If we do not go down the road of privatisation lock, stock and barrel, everything will remain in the United Kingdom.
Tom Blenkinsop: My hon. Friend makes a good point. We have to ensure that Royal Mail has its headquarters in the UK, which will reassure people across the country that the Royal Mail service is for the UK.
Paragraph (e) of the amendment would require a ballot of employees to ensure—on the basis of 51% or a simple majority—that they knew what was going to happen and agreed with it, which is crucial for industrial relations in the industry. It would be interesting to know whether not only direct employees of Royal Mail, but contractors and subcontractors, might be balloted—what would their relationship be to such a ballot, and would they be allowed to vote? We also need to look at that to ensure that everyone who works for Royal Mail, directly or indirectly, has a say in its future, because that has an implication for those contractors and subcontractors.
On paragraph (f) of the amendment, it is clear that the taxpayer needs to have information about any potential buyer of Royal Mail—times, dates, financial offers,
Damian Collins: Does the hon. Gentleman agree that one of the good things about the Bill is that it gives slightly more scrutiny to Parliament than previous privatisations? Although the Bill gives the Secretary of State the power to privatise Royal Mail, he has to give a report to Parliament before completing that, whereas for the British Telecom privatisation the Secretary of State had no such obligation.
Tom Blenkinsop: I do not see any fundamental change. The amendments would allow for more parliamentary scrutiny, after other layers of society have scrutinised any potential deal. Previous privatisations were de facto, as the hon. Gentleman said. Essentially, the Bill as it stands still makes this a de facto privatisation. The report is more about telling Parliament that the sale is complete after that has happened, rather than giving Parliament a chance to see and adequately scrutinise a potential deal before an agreement is made.
David Wright (Telford) (Lab): Does my hon. Friend think it is ironic that the amendment, as I know from my years in the House spent sitting in Committee, is exactly the type that Liberal Democrat Members have tabled over the years—for bringing information to Parliament, inserting sunset clauses, requiring reports back to Parliament and ensuring that hon. Members are informed? On reflection, they may well have been right at times. Their amendments have often been rejected, but perhaps they should accept such amendments now that they are part of the coalition Government.
Tom Blenkinsop: I agree. I do not think that there should be a cap on any consultation. Paragraph (d) of the amendment relates to that. How many communities are aware of the elements of the Bill that we are discussing? Apart from the headlines, have the public been genuinely consulted as service users? I recently spoke with residents in Guisborough in my constituency, following the Remembrance day ceremony, and found that local people there had no idea of what was being proposed, who the potential buyers might be, what the shares would be or anything else on the matter until I brought it up.
Gordon Banks: Does my hon. Friend agree that while there might not be a great deal of public knowledge about the proposals, the one thing that the public are clear about in that regard is that they want to see Royal Mail retained? I mentioned in an earlier sitting that 60% of the population would not agree with the Bill selling off Royal Mail, and 63% of Liberal Democrat voters feel exactly the same way.
Tom Blenkinsop: Of course I agree with my hon. Friend; the facts from that poll speak for themselves. I do not think that people are naive enough to believe that public ownership will not necessarily mean that we would need to access private capital to provide the
The Chair: I have listened carefully to the debate and decided that, because it developed very widely, there will be no clause stand part debate. Before the Minister responds, I ask hon. Members to bear that in mind. If they wish to get anything off their chests, they should speak again to the amendments or to the next set of amendments.
Mr Davey: We have had a two-hour debate on the amendments, which has given me time to think of an appropriate soubriquet. I christened the group of proposed amendments to clause 1 the Red Bull amendments because the Opposition wanted to speed through the privatisation of Royal Mail—in undue haste in more than one respect. I call the current group the Gordian knot amendments, particularly in respect of the hon. Member for Ochil and South Perthshire, because they seek to tie the Government in knots, in an attempt to delay and put barriers in the way of what is in the Bill. The question is whether the Committee should give the Government flexibility as they go about trying to get private capital into Royal Mail. We are never quite sure of Opposition Members’ intention, because in the proposed amendments to clause 1 they wanted to speed up privatisation, but in the clause 2 amendments they seem to want to put barriers in the way. That is their right as the Opposition, but the Government believe that it is absolutely vital to retail flexibility on how shares or share rights are issued or transferred in future. Only if we have that flexibility can we ensure the best commercial outcome for Royal Mail and the taxpayer.
We saw the Opposition’s efforts with the Postal Services Bill 2009, when they put artificial barriers on the timing and form of the sale, which was totally counter-productive. That sale did not go ahead. Indeed, the House did not have the pleasure of debating that Bill. The current Bill will not do that, and we are clear that we want flexibility. We have made it clear that, unlike the previous Government, we do not intend to launch a sale process until after the Bill receives Royal Assent. We have also made it clear that a sale could be through either an auction for potential purchasers, or a flotation. Our aim will be to ensure that the sale process secures what is best for Royal Mail and the best value for the taxpayer.
The Government have fully recognised the role of Parliament in this issue. That is why we have the Bill, and it is why clause 2 requires the Secretary of State to lay a report before Parliament when he has decided to undertake a “relevant disposal”, to use the phraseology of the Bill, or has decided that another person—for example, Royal Mail Holdings plc or Royal Mail Group Ltd—should undertake such a disposal. That is why we will resist the amendments.
We have had a wide-ranging debate over the last two hours. I do not wish to go down every alley down which Opposition Members have taken us—no doubt you
My hon. Friend the Member for Bath (Mr Foster) is particularly knowledgeable about Ralph Allen, who was mentioned by the hon. Member for Ochil and South Perthshire as one of the founders of the postal system. He increased the number of stagecoaches that served the country in the 18th century. The hon. Gentleman will know that there is an exceedingly good school in Bath named after Ralph Allen; it is a very fine, co-ed comprehensive school.
This group of amendments seeks to insert requirements in the Bill that are not necessary to achieve the Government’s objectives. The amendments would, first, reduce the Government’s flexibility to achieve value for money for the taxpayer from a disposal; secondly, further delay action being taken to address the challenges faced by Royal Mail and the postal market; and thirdly, put in place additional barriers to a sale of shares. For all those reasons, we cannot accept them.
Mr Davey: I will deal with that later. I thought I had explained to the hon. Gentleman in our debate on the earlier group of amendments why not only are we not afraid of consultation but consultation has occurred. I shall repeat those arguments in due course.
I wanted particularly to focus on amendment 16, which seeks to include a plethora of criteria and conditions that would need to be met before any disposal could take place. It surprised me that hon. Members believe that such conditions should include a new Bill, in addition to this one, before there can be a disposal. I thought that we were debating the issue of Royal Mail and private capital, and that we did not want to delay such consideration even further. I can see absolutely no reason for a Government to introduce two successive pieces of legislation to sell a company. That would be a complete waste of parliamentary time and would delay the injection of private capital and disciplines that we have all heard Royal Mail so desperately needs.
Opposition Members were in the Committee when Richard Hooper made it absolutely clear that urgent action was needed on the full package that his report proposes; otherwise, Royal Mail would not survive. That is the thrust of what he said in the update of his
I do not believe that there is any need for another Bill. The record of how past Governments have privatised utilities shows that they have not used a two-Bill model. It would be inadvisable to do so. It would prevent negotiations on a transaction because any commercial partner that is interested in investing would say to the Minister or departmental official, “It is very interesting, but you have another parliamentary hurdle to leap. How can we invest in the negotiations and prepare for the transaction, given that Parliament can veto it?” This proposal is particularly ill thought-through.
Paragraphs (a) and (b) of amendment 16 are predicated on Royal Mail being sold to a foreign company. My right hon. Friend the Secretary of State made it clear on Second Reading that the Government have no difficulty with foreign ownership if it is in the best interests of the company and the taxpayer. It is surprising that the Opposition are worried about that. Royal Mail has the proud heritage of providing the universal service across the UK, but it would be inappropriate for Government to enshrine in statute the location of the offices of a private sector company. What is important is the service that Royal Mail provides to its customers. The regulatory regime established by part 3 of the Bill will ensure that a high quality universal postal service is provided, regardless of who owns the company and where its headquarters are located. Unless we tackle the problems facing Royal Mail and the sector, we will not have a Royal Mail or a universal postal service left. It is urgent that we take action.
When I challenged Opposition Members in the long debate that we had about precedents, they did not want to engage. I intervened to ask why the Labour Government sold off British Energy in 2009 to a French company, EDF, that has its headquarters in Paris. We might have discussed BAA plc, the owners of which are headquartered in Madrid. We might have discussed the privatisation of the electricity industry: one distributor, London Electricity, was acquired by EDF in 2009 under the previous Government and another, East Midlands Electricity, is owned by E.ON, the headquarters of which is in Düsseldorf. If Opposition Members want to pursue this point, they must explain to the Committee how the people who have their electricity supplied by East Midlands Electricity and London Electricity, the passengers who use British airports owned by BAA and the customers of British Energy are being so dramatically poorly served as a result of the headquarters of the companies that own and run those businesses being located in other European cities. I do not think that they can make that case, and that is why they did not bother to respond to me earlier.
David Wright: The Minister’s remarks downplay the historic and cultural significance of Royal Mail. It has been around for centuries in this country, people have a great affinity with it and it is a national institution. His remarks about the privatisation of segments of other service industries fail to acknowledge the significance of this institution to the British people.
Mr Davey: I assure the hon. Gentleman that I recognise the significance of this institution to the British people. He will recall that I began my remarks with a history lesson, so I do have a feel for the institution’s history. However, many institutions of great history and heritage are owned by companies and shareholders in other countries. I am glad that he intervened because I am happy to dwell on this point, rather than make the progress that I had planned to make.
There are many other companies and organisations owned by British shareholders, British pension funds and British investors in other countries whose headquarters are located in London and elsewhere in this country. That is a very good thing. It is called the 21st century. Although Royal Mail may have history, it is important that we live in the 21st century and that our companies and Government policy are linked to the 21st century, not the 16th century. I am sure that the hon. Gentleman wants to take us back to the halcyon days of the 16th and 17th centuries, but our constituents would like to live in the 21st century where Royal Mail is faced by the challenge of the internet and the e-mail, and why the Bill has been drafted.
Graeme Morrice: I concur with the comments made by my hon. Friend the Member for Telford. I have listened carefully to the Minister, but is he saying that if the most money comes from, say, a Belgian private company, his Conservative and Liberal Democrat coalition Government would be happy to see a plaque on a building in Brussels saying, “Headquarters of the British Royal Mail”?
Mr Davey: The hon. Gentleman, like some of his hon. Friends, has been regaling us with different fantasies about what might happen here or what might happen there. But he and his colleagues have to focus on why they want to saddle any future owner and operator with that requirement. It has not happened under previous legislation. When the Labour party was in government, it did not pay heed to such matters. Perhaps the Opposition have such high-tax plans for British business that were they to come back to power, they would have to require by law companies to stay in this country because otherwise those companies would flee. Perhaps that is what is behind their approach.
Mr Weir: It is interesting that the Minister is making the point about living in the 21st century. I am all in favour of that, but he and his colleague, the hon. Member for Bedford, were making a great joke about the suggestion that mail would go elsewhere to be sorted and come back to the United Kingdom. One of the problems of globalisation is that mail is a commodity just like anything else. I offer the hon. Gentleman the example of a seafood company that was taking langoustines from Scotland, sending them to Thailand to have them dressed and bringing them back for sale in the UK all within 24 hours. Why would mail be that different?
Mr Davey: I am glad that the hon. Gentleman introduced Thailand into the debate because I had the pleasure of visiting the Thai Post Office three times. Its headquarters is located on the outskirts of Bangkok, near the airport. Although I went there three times, I spent less than 24 hours in Thailand. That is what a busy boy I was
Mr Weir: It is interesting, but langoustines are perishable goods and such journeys can be carried out. It does not have to be Thailand; it could be Belgium, which is closer. There are already examples of bulk mailers posting mail in other European countries because it is cheaper to get it into the UK that way.
Mr Davey: We could be in danger of needing a discussion on international postal rates and how different countries in the past have arbitraged on different rates of postage and how the Universal Postal Union in its quinquennial conferences has had to tackle the problems of arbitrage on postal rates. However, we should not detain the Committee on such a debate because it is the only circumstance in which the hon. Gentleman’s nightmare scenario could arise. Given that 70 million letters are posted every day in the United Kingdom, the idea that they will all be offshore in the way suggested by the hon. Gentleman is frankly nonsense.
Mr Davey: No, I would like to move on. Paragraph (d) of amendment 16 concerns an issue that has worried one or two Labour Members. It would require some sort of new consultation exercise to take place. I do not believe that there is the need to conduct a new consultation exercise along the lines suggested in the amendment. Our policy is soundly based; it is the result of a major, independent review by Richard Hooper commissioned by the previous Government. He and his fellow panel members met all the major stakeholders in the industry, held more than 200 meetings and accepted further written contributions. Over the summer, my right hon. Friend the Secretary of State invited Richard Hooper to look back at his 2008 report and update it. During that update, Richard Hooper met all the leading stakeholders in the industry again. Since I came into the Government, I have met some of the key players in the sector and discussed Government proposals with them.
All that consultation going back over a period of years was taken into account when we published our policy document on 13 October and fed that into the Bill. I do not believe that there is a need for further consultation; that would lead only to further delay, and Royal Mail needs action now. Perhaps Mr Consultation would like to intervene.
Graeme Morrice: I am most grateful to Mr Privatise Royal Mail. The Minister does not want to embark on consultation, and he has explained why. There may have been consultation under the previous Labour Government, but it was a different Bill to that proposed now, which is wholesale privatisation.
I will repeat a question that I asked in an earlier intervention. Why is the Minister scared to consult on the current Bill? During the general election, there was no mention in the Conservative party manifesto of the full privatisation of Royal Mail, and the Liberal Democrat
Mr Davey: I am in danger of repeating myself, just as the hon. Gentleman has done. I do not wish to go around every single block a third or fourth time. I simply say that I believe the proposals to be well founded and that they build on a lot of work and consultation carried out by the previous Government. Richard Hooper told the Committee that unless we press ahead quickly he was extremely worried for the future of Royal Mail and the universal postal service. Given that, further delay and inaction would be deeply damaging.
Paragraph (a) of amendment 16 is about having an employee representative on the board. I listened intently to those Labour Members who sought to explain the measure in detail, although I have to say that we got fairly little detail. I was quite upset at that as I am a strong believer in industrial democracy. I am sure that Labour Members will have read the Bullock royal commission on industrial democracy from 1977. They might have thought that that was an idea that they would have pursued when in government. I checked the previous Labour Government’s record on industrial democracy and having workers on the board over the past 13 years, but I could not find any action by the previous Government to put workers on the board. In fact, in the debate on the 2009 Postal Services Bill, two Labour peers, Lord Morgan and Lord Lea, proposed, in what would have been new clause 3A, that the Royal Mail board should comprise Crown representation, workers’ representation and corporate partners’ representation. That new clause was resisted by the previous Government, who did not want workers on the board.
The present Government, with a Liberal Democrat Minister, have put in the Bill, as we shall debate under clause 3, a larger percentage of shares for employees than there has been in any privatisation legislation in this country before. If there is one way to ensure that employees can have a voice in a company in the future, it is to give them a share of that company in the future—something that Labour Members refused to do when they were in government, even last year, when they had the previous Postal Services Bill and the opportunity to do so. Therefore I have to say, in response to their warm words about having workers as board members and how fantastic an idea that would be, that they never did that when they were in government, that they opposed it when Labour Members put it forward, and that we have a proposal to deliver on the force of that idea far more effectively. They did not do that in government. I wonder whether they will oppose employee shares for workers.
Mr Davey: I think that the hon. Gentleman is talking about what is sometimes referred to as the phantom colleague share plan. I am sure that that will be discussed in detail. He knows that there are no shares for employees in that plan and therefore it is rather different from what we propose.
Mr Davey: In a second. Royal Mail may decide that, but I certainly do not consider it appropriate to impose it through legislation. Board composition should be a matter for the company and its shareholders, including the employee shareholders, who under our proposals will be able to decide on it themselves. They will not be dictated to by the Government, and it will not be set permanently in statute. The need is for flexibility.
In this debate, Labour Members have referred to what Richard Hooper told the Committee when he gave evidence on 11 November. It was interesting that they did not read out the full answer that he gave on that question to my hon. Friend the Member for Bedford, because at the end of his answer, Richard Hooper said:
“I suspect that the answer to your question is that when you are preparing Royal Mail for privatisation, you need quite a lot of flexibility. I think that if there are too many rules around it, those people who are finding buyers will have more difficulty.”––[Official Report, Postal Services Public Bill Committee, 11 November 2010; c. 116, Q231.]
Having considered the proposal about having workers on the board, as my hon. Friend invited him to, Richard Hooper basically said, “Don’t put it in the legislation. Leave it up to the company. Leave it up to the shareholders.” That is exactly what we intend to do.
Finally, I come to the part of amendment 16 that would require a majority vote by employees before a relevant disposal could be made. Again, that would be highly unusual. It looks like another attempt by the Opposition to put a barrier in the way of addressing Royal Mail’s concerns. It should be for the shareholders of any company to decide on a change of ownership. They own the company, and they should decide on that. In this case, the Government are the sole shareholder of Royal Mail, and we believe that it is in the interests of the company and the taxpayer to facilitate an issue or disposal of shares that will allow an injection of private sector capital and disciplines into the company in the way that we propose. The idea that the matter should be put to an employee vote does not make sense at all.
Amendments 17 and 18 would add a requirement for additional parliamentary approval, either through a super-affirmative procedure or an affirmative procedure, before shares could be disposed of or issued. Such a requirement is not necessary. We are now in the process of scrutinising the Bill, which contains a package of measures that we should be debating. Those measures secure the future of the Royal Mail, and they are what the Committee and the House need to decide.
It is right that the power to enable the Secretary of State to dispose of shares in the Royal Mail company should be considered alongside the other two parts of the package in the Bill—tackling the pension deficit and reforming the regulatory regime. The Opposition would have us separate those two issues, although Richard Hooper emphasised in his evidence last week that none of the measures he proposed in his report—whether the one for the previous Government or the update for this Government—should be taken in isolation. They are part of a package. Interestingly, if we look at the Postal Services Bill of 2009—I make no apology for coming back to that, because it was only last year and it was a Labour Bill—Labour included no such mechanism. There was no such time-consuming mechanism in that Bill.
Additional parliamentary processes would create enormous uncertainty for potential investors, as I discussed a few moments ago. Any uncertainty would reduce the value of the business and, ultimately, undermine the prospects for selling the company. We cannot support that position. I am therefore surprised that Labour Members wish to delay the time at which the Secretary of State should report to Parliament on the proposed sale of Royal Mail. The clause requires the Secretary of State to report to Parliament as “soon as” he has decided that the sale process should be launched. The amendments would leave the Secretary of State waiting until new investors had been identified.
Amendment 15 would require—as would proposed new subsection (2)(f) of amendment 16—the Secretary of State to introduce a further Bill empowering him to dispose of the Royal Mail. As I said earlier, that is not appropriate.
There was some discussion about whether the process of the Secretary of State reporting to the House should be set down—whether he should make an oral statement or how he should report. I refer hon. Members to the Bill, which, if read carefully, can be seen to be giving Parliament a particularly good role. We are not saying that the Secretary of State should report only once. If there are different tranches of sales—if a minority stake is sold, then further shares in future—on each occasion, we are suggesting, the Secretary of State should lay a report before the House. That is a super-accountability, compared with what we have seen in the past, and therefore meets all the concerns of the Opposition.
The absurdity of the idea that we should stipulate in legislation that the report should be made by an oral statement is shown by envisaging a situation in which the Secretary of State decides at a particular point in the whole process that he wants to put 100 shares or 1,000 shares into an employee share trust, as part of a number of different parts of the transaction. If we stipulated an oral statement, the Secretary of State would have to come to the House and make an oral statement about a relatively minor part of a process. That would be completely inappropriate and waste parliamentary time—were it to happen, the Opposition would no doubt be complaining. We therefore do not intend to do that.
In conclusion, we need to proceed quickly with the process. The proposed amendments would achieve the opposite. They are not in the interests of the taxpayer or of Royal Mail, and I urge the hon. Member for Ochil and South Perthshire to withdraw the amendment.
I was glad to hear that the hon. Member for Angus has sympathy for our argument. As I tried to say earlier, although amendment 16 may not be perfect, we have given the Minister an opportunity to take it, or parts of it, away and return with Government amendments on Report to increase the transparency. We heard from him a few moments ago that he has no intention of doing so, and why does that not surprise me?
On the issue of the headquarters, the fears of the hon. Member for Angus are important. Yes, we want to see the headquarters of Royal Mail, a UK organisation and company, in the UK, but we also want to see the management functions of Royal Mail below the headquarters be retained within the United Kingdom. I alluded to that when I tried to draw the steps of employee progress through Royal Mail—how employees could work up the ladder, as many have done. That would be much more achievable if not only the HQ, but the operational divisions of management structures, were held within the United Kingdom.
My hon. Friend the Member for Kingston upon Hull East, who is not in his seat at the moment, again supported the amendment. I am glad that he felt that it would strengthen the Bill in many ways. My hon. Friends, to a man and a woman, feel that. We do not agree with the Minister on the level of transparency in the Bill. As the Bill stands, we do not think that it is particularly burdensome on the Minister.
My hon. Friend the Member for Llanelli spoke well about our intentions regarding the Bill and the advantages of work force representation on the board. That would give a level of transparency in employee-management relationships, which is again lacking in the Bill as it stands. I made a point in an intervention. We are talking about a communications company here, and we think that there should be an extremely good set of communications within it, from the top management right down to the shop floor. Having one or two representatives of the work force on the board would achieve that.
My hon. Friend also mentioned the issue of the HQ in the UK, and how the National Federation of SubPostmasters has been lobbying for it. It is important to know—I intervened on my hon. Friend the Member for Middlesbrough South and East Cleveland on this point—that people want to retain not only the HQ of Royal Mail in the United Kingdom, as it is now, but Royal Mail in public ownership, which is contrary to what the Minister stood for in the election a few short months ago.
On democracy and the need for a ballot, the Minister sees the amendment as a major set of hurdles. In some ways, he has himself to blame, because in the evidence session, he threw a challenge down above the hoops that we expected him to jump through. He said earlier—from a sedentary position, I think—that we have excelled his expectations. The purpose of the amendments is not to put him through the wringer, but to improve the quality of the Bill, and we feel that each amendment—16, 17, 18 and 15—would do that; we are talking about 16 at the moment.
Amendment 16 would give a degree of accountability and transparency. The Minister persistently refers to the 2009 Bill, but it did not propose selling off 100% of Royal Mail or putting Royal Mail out of state or public control. This Bill, however, as we have heard, will put Royal Mail 100% into private hands. That is why there needs to be a level of scrutiny in preparation for that happening. Let us not confuse ourselves about what we are discussing. We are discussing the level of scrutiny on the deal that is on the table, which will sell Royal Mail. We are not discussing the level of scrutiny that has got us to this stage of the Bill. No one can doubt that there has been a degree of consultation, with Hooper’s reports in 2008 and 2010. We are discussing what happens when there is an offer on the table that the Secretary of State wants to accept and sell Royal Mail to whoever it is.
I am grateful for the support of my hon. Friend the Member for Middlesbrough South and East Cleveland. He spoke well about employee representation, and I bow to his superior knowledge of such matters, which is drawn from his previous life as a union representative. We all agree that employee representation would be a significant benefit to the work force. During my earlier remarks, Mr Amess, when Mr Hood was in the Chair, I floated the possibility of not only, as the amendment states, having employee representation, but having consumer representation on the board. My hon. Friend picked that up and ran with it. That level of interaction would be significantly beneficial to the company. It would show that this is a communications company that is intent on communicating.
In his remarks, the Minister took us back to yesterday and the Red Bull speeding-through amendments. There is nothing that the Minister should have been frightened about in yesterday’s amendments, because all he had to do was come back and revise the sunset clause. We were not saying, “You must go away and do that.” If the Minister had wanted to go away at that point in time, we would have rejoiced with him. At that time, the control to accept the sunset clause and still sell Royal Mail was firmly in the Minister’s hands. The Minister will not be surprised that I am disappointed with his remarks.
Gordon Banks: Opposition Members do not think that the burden on the Secretary of State does not provide an appropriate level of scrutiny. While the Gordian knot amendment may stick in our minds, we do not think that amendment 16 is as burdensome as the Minister has tried to make out.
The Minister took us back to previous privatisations, but my hon. Friend the Member for Telford intervened and made the point that the Minister does not grasp the cultural significance of Royal Mail to people in the UK. The tax scam that the Minister suggested was at the base of our amendments was a jovial aside. The introduction by the hon. Member for Angus on the issue of langoustines—I bet nobody imagined that we would have got langoustines into this debate—showed how a perishable good can be taken to the other side of the world and back in 24 hours. If that can be done with langoustines, it can be done with letters. Who knows what the future will bring, but we will remember the Minister’s words today if and when our letters start to be sorted somewhere else.
The need for consultation concerns consultation on the deal, as I have said, and not consultation on the process to get sales. We feel that the employees’ representative on the board is important, because of the way in which the Royal Mail will be held—I have made the point about 100% of Royal Mail being sold into private hands under the Bill.
I will be quick in winding up, because I know that we want to make progress. I was interested to hear the Minister say that the Royal Mail might think that that is a good idea. If so, why not do it now and save Royal Mail the bother, time and effort, as I am sure that it has other things to worry about? The Minister discussed flexibility, but I have offered him significant flexibility in the drafting of the amendment and in my contribution.
The Minister did not even take up my kind offer of amendments 17 and 18, which would be far less onerous than amendment 16, but which still provide for scrutiny of the sale. That disappoints me, because it is clear that he does not want any scrutiny of the deal that is put on the table to buy Royal Mail. He tried to convince us that the need to lay a report—or reports if there is a staged sell-off—is transparency enough. I remind him of his response to my hon. Friend the Member for Telford in the evidence session, which showed that the Bill is not strong enough on that point.
Nia Griffith: The words with which the amendment is concerned are brief: “a” and “the”. They may seem absolutely trivial, but behind those small words is an enormous difference. It is the difference between selling off the whole package and cherry-picking.
The question is why anyone would want to cherry-pick and have bits of the Royal Mail and not other bits. One might ask why that matters if the whole thing is going to be privatised anyway. The reason is that some bits are more attractive and offer better returns. We might find that the bit that is the most difficult to dispose of is that which is most closely linked to the universal service obligation. Clearly, the more of an obligation one has and the more conditions one has to fulfil, the more difficult it is to race away and make large profits. The real danger is that, if we split up Royal Mail and allow cherry-picking, we might end up with the Royal Mail letter service as we know it—the service that is most familiar to us—being under the most pressure. This morning, we talked at length about the very important role of the universal service obligation to the provision of a personal service right across the country at a uniform, affordable price. We should, therefore, resist any idea of cherry-picking.
It may be of interest to hon. Members to know a bit about the components of Royal Mail. Many people in this country may not have heard of General Logistics Systems, the arm of Royal Mail operating in continental Europe. That business has a very attractive look, partly because it works in markets that do not come under the same types of regulation—there are fewer obligations to have to fulfil. It is an attractive prospect. It handles more than 1 million parcels a day, and it has a network of 667 depots and 29 central transhipment points, with 16,000 delivery vehicles and 1,700 long-distance trucks. Its core operation is business-to-business parcel deliveries, and it has 220,000 customers in 34 states across Europe. In the financial year 2009-10, it delivered 345 million parcels, and had revenues of €1.7 billion. It is an important organisation, and it forms a large part of the success of Royal Mail Group. It would also be ripe for cherry-picking, which would be allowed under the clause as it stands.
GLS is extremely proud of its quality and its service. Its philosophy is one of having a united European-wide team spirit, with decentralised decision making in line with local market demands. In other words, it operates
In many respects, GLS is a bargain. As I have said, many people in the country may not even be aware that it is part of Royal Mail, that splendid institution which we are seeking to protect. If Royal Mail has to be hived off as a privatised organisation, we do not want to see it split up into tiny fractions. As I have mentioned, GLS, for those who have not remembered, stands for General Logistics Systems—it likes to tell us that it stands for “European Leader in Quality”, but I have not fixed those initials to the letters GLS. It is an attractive offer, which could be part of a cherry-picking operation.
I shall move on to Parcelforce, another component part of Royal Mail. Again, it has a different market from Royal Mail’s, which we tend to understand as the letter service in our country. It links into Europe and does not have the degree of regulation under the universal service obligation that our letter service has.
Parcelforce has had some good press recently: only a fortnight ago, it posted a 14% rise in its operating profit to £8 million for the six months ending on 26 September. Its turnover increased by 3%, from £191 million to £197 million for the first half of 2009.
That is not just a blip, because in the year up to May, it also revealed that its turnover had remained static at £399 million, but that its operating profit had risen 41% to £17 million, from £12 million during the 12 months to 31 March. That is a pleasing report and will make Parcelforce very attractive to buyers. That interest is not only theoretical, however, because we have heard some of the competitor companies lining up to say that they would be very interested indeed in considering the purchase of Parcelforce. There are a number of rivals to Royal Mail Group who are very likely to snap up Parcelforce. It is profitable and has a wide customer base, which will be extremely attractive to many parcel carriers. That is not a fantasy of Opposition Members; customers might line up to buy certain parts of Royal Mail but not be interested in other parts. As ever, if such cherry-picking takes place it could be more difficult to get a sensible purchase, by which I mean an appropriate purchase to get the best possible deal for the taxpayer. We might be left with a difficult situation in which the goodies have been taken and there is nothing much left.
Parcelforce has not always had it easy, of course. In 2002 it had difficulties, but it was prepared to make some significant changes. In that year it was making a loss and it realised that it needed to hone its service a little more finely and make the necessary changes, so that it could turn a loss-making business into a profitable one. That is exactly what it did.
Mr Davey: The hon. Lady is quite right to say how well Parcelforce is doing. Is that why, in the 2009 Bill, Parcelforce could have been sold and was not necessarily to be kept in majority Government ownership?
Nia Griffith: As we have said before, we are looking at what is in front of us and we are talking about very different situations. We are talking about part Government ownership and complete privatisation. If I go back to my original point, we are talking about the effect on the universal service obligation of what might be left, and that is the problem. It is not about a viable operation that could be sold off. The problem is that, whereas before there might have been a stronger Government guarantee about the universal service obligation, we know that a privatised market would put huge pressure on the regulator to push back the boundaries a little bit, and that is why the situation is different.
Nia Griffith: But that is exactly the point. When I talk about the 50%, I am talking about the effect of the universal service obligation on the part of the service that we all know about—having our letters delivered at home. If we get rid of a very successful part of that operation, it is what is left that matters. Under the previous Bill, there would have been considerably more Government influence on what was left, because of majority Government ownership. If we get rid of Government ownership and fully privatise, there is even less opportunity to influence. We have a regulator, but when regulators deal with a privatised monopoly, they are constantly under pressure: “Do you want higher prices or do you want to get rid of Saturday delivery?” We can hear those questions being asked almost as soon as privatisation takes place.
Mr Davey: I am afraid that the previous Government proposed that under the restrictions on ownership of both Parcelforce and GLS—there are no restrictions on GLS, as I am sure the hon. Lady knows—the successful parts of Royal Mail Group could have been sold off. The state would have been left to deal with the more problematic part of losses being made and volumes going down, and would have got rid of the profit-making parts where volumes were going up. Will the hon. Lady admit that that was rather an odd position for the previous Government to take?
Nia Griffith: Actually, quite the opposite. It is the falling mail volumes that make it difficult to make a letter service viable and profitable, even though a lot of changes have taken place in Royal Mail, which is carrying
Difficulty arises if the business is privatised. It would be a tremendous shame to split it up when, quite clearly, pressure would be on the letter service to try to increase profits even more. Again, pressure would be on the regulator when asked about moving back the boundaries, or to give in a little here and there. We have already seen permission given for a first class stamp to go up to 46p, so we can see the direction of travel. If Royal Mail is to be sold off, it would be helpful to the letters part of the service if there were a little help and support from the other parts of the package so that it moves forward completely and there is less pressure on the regulator to send prices sky-high and get rid of services.
Parcelforce Worldwide is part of the Royal Mail Group. It is a leading provider of a full range of services, including a guaranteed delivery at certain times on certain days. It uses a network of international partners to extend its reach way beyond the UK to 99.6% of the world population, which is pretty good. Its European delivery partners include General Logistics Systems and the E Parcel Group. It delivers 210,000 parcels a day and operates in three distinct markets. It works with business-to-business services such as the transportation of parcels and supplies from one company or commercial venture to another. For example, a manufacturer could be sending to a wholesaler or a wholesaler could be sending to a retailer, services that are likely to be repeat orders to restock a supply chain. It is a different type of service from the birthday card or the Christmas card market, which varies significantly. By that, I mean clearly defined, high-volume and high-value contracts that are likely to last a considerable time.
Parcelforce Worldwide has business-to-consumer services that involve parcels going from business to homes, driven by retailers and e-tailers. Have members of the Committee heard of the dreadful word “e-tailers”? It means that we are all buying more things not from the famous catalogue that used to be delivered to the doorstep by the lady down the road, but from the pictures on the internet. I am sure that hon. Members will be interested to know that the items used to be things like DVDs and books, but now they are clothes. There is a growing market for people just to click on to the internet, as a result of which the parcels that come to the doorstep might be bigger and heavier than they were. Apparently, that is a growing market and those who know about such things tell us that it will continue to grow.
The consumer-to-consumer arm of the Parcelforce Worldwide service is the postage of presents. We perhaps associate the idea of having something exciting to unwrap at Christmas with our childhood or nieces and nephews. The company thought that it should do something because it was not doing as well as it should have been. A couple of years ago, it realised that it needed to
Parcelforce Worldwide decided that it would differentiate between different types of users, those who want something instantly the next day and must have it by a certain time as quickly as possible and those who want reliability but do not necessarily need the item by the next day. Of course, people have different ideas about price. Some will pay a premium if they want to ensure that their particular item arrives on time, while others will prefer to pay the lower price as long as the item arrives safety and will organise themselves appropriately. Clearly, the company was looking at ways in which to improve the service so that it takes a juicier share of the profits.
Parcelforce Worldwide decided to create a new set of international services with those various factors as attributes differentiated by price and speed, in line with the customers’ needs. It also created new names. Businesses always love new names for their services, do they not? It reminds me of Italy, where there is a train called an espresso. However, that is not as quick as a rapido, which in turn is not as speedy as a rapidissimo—it goes on. Every time a new layer of speed is invented, there has to be another “-issimo” on the end.
Nia Griffith: If the Minister really wants to know, a slow train is an espresso; that is the slowest. It is a bit like “New-something” being one of the older buildings in a town, and one often finds a “New” street in an older part of the town.
Parcelforce Worldwide is doing quite well, and has 53 depots across the UK, where all those types of customers—business-to-business, business-to-consumer and consumer-to-consumer—can send their parcels both within the UK and to international destinations.
Of course, customers can send their parcels from post offices. However, is this going to be a “will be able to” if the Bill goes through, or will it be a “might”, if they are lucky? Or are people going to have to say, “Well, unfortunately, Llanelli is only a small town, so we have decided that we will have only one centre for parcels, down in Swansea”? These are the scenarios that people could be faced with when we see the privatisation go through a Bill like that, which does not seem to provide a secure enough regulatory framework.
Be that as it may, the point that we are talking about at the moment is whether the business should be allowed to be hived off even though it is successful. I will tell you a little bit more about the fact that it is extremely successful. It will tell you about its tracker systems, its partnerships and the way it can reach right round the
That brings us to the more familiar point, which is our Royal Mail Group. We all know about the letters and packages business, which covers the whole UK with a one-price-goes-anywhere universal service. That is something that Royal Mail is proud of, and something that we, as customers, consumers and their representatives, want. We are proud of the fact that there are 115,000 post-boxes around the country. I wonder whether they are going to remain red if Royal Mail is privatised, or whether they will become blue and yellow, with a large blue stripe and a thin yellow stripe. The Minister has to have some credit, has he not? Having post boxes painted after him has to be a legacy worth going for.We have 115,000 post-boxes, and we have the post office network that we are familiar with—12,000 post office branches. We have a varying number of mail centres, depending on how far down the modernisation programme we are, and the famous fleet of 30,000 red vehicles, which must be another opportunity for a badge, a logo or a stripe—the Ozymandias legacy that the Minister is obviously seeking.
We know all about the technological, “Beam me up, Scotty” stuff, but these parcel deliverers can still keep in the market, because people cannot magick parcels from A to B. There are plenty of ways to get messages through, such as simply speaking on the telephone, sending a text message or e-mailing, and we know the difficulties that that has thrown up for the service.
Essentially, Royal Mail is the most vulnerable service, because it has to provide the greatest chunk of its resources for the universal service provision to ensure that 28 million homes have a postal service that turns up regularly, six days a week, and offers a uniform, affordable price for items to be sent right across the UK. That is why my hon. Friend the Member for Ochil and South Perthshire and I tabled the amendment, in which the tiny words “a” and “the” assume such significance.
Amendments 20 and 21 also concern the fact that we cannot have a situation where everything is shattered into smithereens, people pick up the bits that they want, and the bit that needs most help and support—the bit that is most threatened—is left. That bit is then hived off to the private sector, which might desperately think that it needs to do some extra profit-making to meet its universal service obligations, which would put more strain on the regulator. The consequence of such a situation may be that we lose our services. That is why we have taken such care to propose a change from “a” to “the”.
Gregg McClymont: I support amendments 19 to 21 in the name of my hon. Friends, because the first line of clause 2(5) and clause 2(5)(a) provide that the Secretary of State for Business, Innovation and Skills can dispose of shares in “a Royal Mail company”, not “the Royal Mail company”. I shall focus on the use of the indefinite article in the clause.
I should like to focus on the use of the indefinite article in clause 2. There may be an entirely logical explanation for referring to “a Royal Mail company” rather than “the Royal Mail company”. It may be that the clause is written in that way to ensure that if the Royal Mail changes its name—I am sure we all remember its short-lived branding as Consignia—it would still be subject to the provisions and definitions in the clause. As I say, there may be a perfectly rational explanation for the use of the indefinite rather than the definite article. It may be entirely innocent, but the unintended consequences of the designation “a Royal Mail company” in the clause might be profound. Reference to the issuing of shares in “a Royal Mail company”—or Royal Mail Group, I should say—allows this or a future Government, in the form of the Secretary of State, to engage in the potential asset-stripping of Royal Mail, which is a danger.
Ministers have insisted that making shares available in Royal Mail is for the purpose of attracting capital to Royal Mail as a whole. The Secretary of State for Business, Innovation and Skills said in the debate on the Bill on 27 October:
“The problems that Royal Mail faces can be addressed through the Bill. After all, it is the only company with the ability to visit all 28 million addresses on a daily basis. It has an unrivalled customer base, and it can build on its position as the leading provider of letters and parcels by providing a new range of digital products for its customers. The Bill is the only way that we can make that positive future a reality.”—[Official Report, 27 October 2010; Vol. 517, c. 349.]
However, the usage in clause 2(5) of the indefinite article—as in “a Royal Mail company”—makes it possible for him to split up Royal Mail. Such a split would destroy Royal Mail’s ability to build on what he called its position as the leading provider of letters and parcels.
The most profitable bits of Royal Mail’s business, such as its European parcels business, to which my hon. Friend the Member for Llanelli referred, might be sold off separately. That would certainly please the Treasury, I suspect. It is possible that the use of the indefinite article in clause 2 is the policy of the Treasury. We all know that it is a formidable institution. By its own lights, it promotes prudence, caution and economy, but by definition its focus is short-term. Its interest in the Bill will be in maximising its short-term sales receipts. I do not complain about that, as it is what the Treasury does, but the Committee must take that potential Treasury interest into account in assessing the clause. Assuredly, the Treasury’s interest is not to ensure that Royal Mail remains a public utility of strategic importance. At least, that is not likely to be its primary interest, which is usually to maximise receipts. As that is its overriding concern, one can envisage a scenario in which profitable parts of Royal Mail, such as Parcelforce UK and GLS, the European parcels wing, are sold off separately, with the proceeds going—guess where?—to the Exchequer.
Just so that the Committee is clear about the precise danger that I am alerting it to, it is worth recapping the structure of Royal Mail Group. We know that it was split into several businesses—Royal Mail, Post Office Ltd, managing post office retail outlets, Parcelforce Worldwide and GLS. In the round, Royal Mail Group
“I look at what Royal Mail has been able to do in just two short years, when they finally got access to capital, and it has been amazing. We have been able to consolidate 10 mail centres. We have been able to introduce innovations, such as 47,000 new PDAs for all of our letter carriers. We have been able to introduce 10 new world-class mail sites. I invite you all to come and visit them—they are now being recognised internationally as some of the best mail processing centres in the world.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 8, Q11.]
“The important point I want to make is that private sector capital is needed in this business—it is needed urgently, it was needed two years ago and it is needed now. Whether it is a minority or majority shareholding, I would prefer to leave that to the political process.”––[Official Report, Postal Services Public Bill Committee, 11 November 2010; c. 108, Q214.]
To me, there is a fundamental point there. From the evidence that we have heard, full privatisation is not a technical requirement. It is a political decision. That emerged from the evidence of both Moya Greene and Richard Hooper. No one disputes Royal Mail’s need for additional capital. No evidence that the Committee has heard, however, has explained why that can only be achieved by full privatisation. No evidence that the Committee has heard explains why this capital could not be raised by either the sale of equity in Royal Mail, given the profitable arms to which we have referred, or the issuing of bonds. More pertinently, the first line of clause 2(5) and clause 2(5)(a), as they are written, could be used—I am sure this is not the Minister’s intention, but unintended consequences are what I am discussing—to break up Royal Mail.
Mr Davey: I have to bring the hon. Gentleman back to the point I made earlier in an intervention on his speech—the clause is about a report. It is not about what powers the Secretary of State has to break up Royal Mail in the way that he is discussing. The clause, and any amendments to it, must surely be about the report.
I am worried that a staggered break-up of Royal Mail is a possibility. More importantly, such a staggered break-up would make it more difficult to finance the universal service. Why do I say that? I say that simply because, the more that Royal Mail is broken down, the more financially significant the universal service becomes as a burden on the remaining assets. That is why the Bill also contains clauses that allow a potentially shrunken Royal Mail to apply for a reduction in the universal service. If we look at clause 28(3), clause 33, clause 42 and clause 43, you can see the provision for a potentially shrunken Royal Mail applying for a reduction in universal service.
In such a scenario, the Bill is likely to produce a situation where the Dutch integrated mail and post office business, TNT, or the integrated German business, Deutsche Post, will take all or part of Royal Mail’s business. The post office network could be shrunk in order to make those Royal Mail businesses more profitable in the short term. That gives rise to a horrible irony. Profits from UK business will be used to cross-subsidise the protected post office network in Germany and the Netherlands. The Governments in those countries decided to encourage those businesses to operate on a global basis—absolutely—but they did not think that it should be at the expense of Dutch and German citizens. They passed laws to make sure that their universal service, including the post office network, had legislative protection.
The Minister previously said to me—I have had a few discussions about this—that such protection for the post office network would be socialist over-regulation. I believe that his view amounts to a Thatcherite overreaction. For those reasons, we must amend “a” Royal Mail company to “the” Royal Mail company.
Ministers say that the changes are necessary to preserve the whole Royal Mail business. If that is true, the indefinite article is superfluous, whether in a report or otherwise. If Ministers are being careless about unintended consequences, we should oblige them to alter their position. Breaking up Royal Mail will diminish its ability to become the competitor that the Bill is ostensibly designed to create. Breaking up Royal Mail also reduces the ability of the company to finance the universal service. We must make sure that such an outcome is impossible. That is why I support amendments 19, 20 and 21, tabled in the name of my hon. Friend the Member for Llanelli.
Gordon Banks: I am grateful to have the opportunity to support amendments 19, 20 and 21 and my hon. Friend the Member for Llanelli. I congratulate my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on his very enlightening contribution. On amendments 19 and 20, my hon. Friend the Member
Perhaps if he were sitting on the Government Benches in Committee today, and if he had finished his constituency casework, he would perhaps be writing, “To see a Bill in a single word.” We would know what he meant because we are talking about the word, or indeed the letter, “a”. The impact of the use of the word “a” in relation to the clause under consideration is substantial, as we have already heard in contributions from Labour members of the Committee. The Bill allows the Secretary of State—perhaps I should say “a” Secretary of State—to dispose of shares in “a” Royal Mail company. Whereas the Bill clearly makes reference to the selling off of shares in “a” Royal Mail company, the Conservative manifesto made no such representation on sell-off. The Lib Dem manifesto did. It said that the Lib Dems would sell off 49% of shares in Royal Mail, and that the other 51% would be divided between an employee trust and the Government.
We have heard much about the sell-off. Indeed, the Minister has been desperately trying to defend why he is now selling off all of Royal Mail. We are now clear, from the contributions that have been made on the issue, that if the Bill is passed, 0% of shares—a big, fat nothing—will be owned by the Government. That is a number usually attributed on a Saturday afternoon to the football results of Alloa Athletic in Scotland. I hasten to say not now, as Mr Mulraney has given the club a new direction; I suppose the plastic pitch helps a little bit, too. Royal Mail will be owned outwith the Government, who will own nothing. That could be as much as 50.99% less than the Minister promised in his manifesto.
On the issue of selling some shares, the Minister has at least been consistent, unlike his Conservative colleagues. As I have already said, the coalition document has 18 words in it, but nothing related to the sale of Royal Mail. I guess the Minister has flip-flopped again. He stood in May on a manifesto to sell off some of Royal Mail, supports a coalition document that does not mention selling off Royal Mail, and then delivers a Bill that sells off all of Royal Mail.
The Bill, as it stands, will allow the Secretary of State, or dare I say, a Secretary of State, to engage in a random sell-off of Royal Mail, in a way that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East has referred to as asset-stripping. I am sure that this, to use another set of words from my hon. Friend, is an unintended consequence of the Bill, and that the Minister will quickly understand our constructive approach on the matter and accept the amendments. However, if not, perhaps he will be able to tell the Committee what input the Treasury has had in the wording of the Bill, as my hon. Friend has alluded to. It appears to us that the way the Bill is worded may encourage asset-stripping. We fear that the Treasury may be behind that objective, and that perhaps the Minister is not even in control of his own Bill. The Treasury’s best interest may not always be the country’s best interest, which I think was also a point made by my hon. Friend. Many people will recognise that short-term gain is not always the best outcome.
Again, under the Bill as it is currently drafted, the Secretary of State or—I do not mean to try your patience, Mr Amess—a Secretary of State will be able to sell off or asset-strip the best and most profitable parts of Royal Mail. I believe that we possibly heard something in preparation for that very issue when the Minister referred to it in Committee. I quote his reply to my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East. He said:
Let us analyse his words, because they could mean a lot in practice. It could mean the part privatisation of a section, or all of, the Royal Mail Group, but it could also mean the complete selling off of one of the companies within the group. Members will know, as we have heard, that Royal Mail Holdings plc is split into four businesses—Royal Mail, Post Office Ltd, Parcelforce and GLS. All are of varying sizes and have varying assets, revenue and profits, making some very interesting in the eyes of private UK and private foreign investors, but others less so.
Royal Mail has revenue of £6.5 billion and a profit of £121 million. It employs more than 155,000 staff. The GLS business has revenue of almost £1.5 billion, with a profit of £112 million, and it employs 12,000 staff. The Parcelforce business has revenue of £399 million with a profit of £17 million and employs more than 4,000 people. Last but not least, the Post Office business has revenue of £838 million, with a profit of £72 million, and employs more than 8,000 staff.The Minister and the Committee will note that those are large numbers in terms of both revenue and employment. He should note especially that all four arms of Royal Mail Holdings are in profit. As the hon. Gentleman has led me to think, the Bill could mean the selling-off of Parcelforce and 4,500 UK employees. It could mean the selling-off of its £399 million revenue and its profits of £17 million.
Indeed the competition is already sniffing around, with its comments of interest in Parcelforce not difficult to locate. As my hon. Friend the Member for Llanelli said, it is worth remembering why Parcelforce is of such interest to its competitors. Yes, it is profitable, but that was not always the case. In 2002, Parcelforce was making a loss, and I want to take the Committee through some of the important steps that it made. In response to that loss, those managing the business decided to change the type of service it offered. Instead of unguaranteed parcel deliveries, typically taking between two and four days, which all of us can remember, Parcelforce decided to focus on time and day guaranteed, express delivery. That resulted in an increased value of each delivery and an increase in operational efficiency. Parcelforce adopted a customer-oriented approach designed to attract and retain key customers. That can be seen when, during the exam season, Parcelforce regularly delivers millions of exam papers, scripts and coursework.
Interestingly, Parcelforce was also the first express carrier in the UK to give its customers the option of sending their parcels carbon-free. In June 2006, Parcelforce introduced an automated customer information line that allowed customers to track parcels and change
However, the Bill and the Minister’s words could also mean the selling off of GLS, which as I said earlier, employs more than 12,000 people throughout 36 European states, with revenues of nearly £1.5 billion and profits of £112 million.
Gordon Banks: I take the Minister’s point, but we are arguing that there is a need to retain Royal Mail in its entirety. As and when it is sold, we want to preserve other parts of the Royal Mail business as there is a dramatic need to make sure that its very profitable parts are retained within the group. Perhaps the hon. Gentleman will tell us which part it will be—GLS or Parcelforce? If he raises significant capital selling off those parts of Royal Mail, is it his intention to sell “the” Royal Mail? Does he see the break-up of Royal Mail as I have described as a problem or a solution to securing universal service?
To preserve “the” Royal Mail, amendments 19 and 20 must be accepted; otherwise we are trying to protect “a” Royal Mail, which we know nothing about. Breaking up Royal Mail Holdings plc places the ability of “the” Royal Mail to provide and finance a universal service under significant threat.
Some members of the Committee might be puzzled by our deliberations on the amendments, but we are trying to highlight the fact that “a” and “the” are extremely important words and the amendments would prevent the profitable parts of Royal Mail Holdings from being stripped away while the less profitable parts are left to wither on the vine. The real question must be, why do the Government want to relinquish a controlling share in a profitable company? Let us be clear that all parts of Royal Mail are profitable.
With regard to clause 2, why would the Government want to create a situation in which their actions allow cherry-picking, which would damage what is left of the business? Royal Mail’s strength in preserving the aspirations of its customers is dependent on the strength of the operation as a whole. That is why we are pressing the Minister, why we pressed him on Tuesday and why we will do so again, to deliver a 10 or 15-year inter-business agreement between the Post Office and Royal Mail. The Government fail to recognise that that interdependency means a lot. As has been said before in the Committee, it means that even with declining letter volumes there are opportunities for other Royal Mail holding companies
As Richard Hooper said during our oral evidence sessions, with his “Beam me up, Scotty” reference—I fear that it will be repeated numerous times during our proceedings—until we invent a means of teleportation, there will always be “great opportunities for Royal Mail”. He said that there would be great opportunities for Royal Mail, not Parcel Force. I wonder whether that was a coded message to the Minister to be careful and ensure that he does not take action that would damage the optimism that he expressed by allowing cherry-picking. That is what my hon. Friends and I are attempting to achieve with the amendments. I leave it to them and to Government Members to determine whether our proposals have Mr Hooper’s support.
In essence, if the most profitable parts of any business are taken away, the less profitable parts will drag the remainder under. In Royal Mail’s case, the company needs its parcel arm and its General Logistics Service arm to support its universal provision. That is what we must retain, as my hon. Friends and I have argued.
Finally, I believe that our amendments would increase the likelihood of the UK retaining a single business that provides a universal postal service. In doing so, we are more likely to preserve the relationship between users and service delivery in a way that would allow the brand to continue to represent the whole UK, rather than just a bit here and a bit there. We believe that that is very important as things stand today.
In closing, I will return to where I started, with William Blake. He is now seen as a romantic, but he was considered to be mad by many of his contemporaries. Perhaps some will see a likeness between him and me, but I would prefer that they did not publicise whether that comparison was drawn because of the romantic element or the mad one. During his lifetime, the British postal network grew and developed, and I trust that he would not want to see that damaged by a Bill that was defined by a single letter, a tool of his craft. I urge the Minister to listen to the case and make the right decision. We will then all know that he is not mad either, but really a romantic who wants to preserve Royal Mail for the people of the United Kingdom.
Mr Davey: I have decided that this group of amendments should be called the indefinite amendments, not simply because the hon. Member for Llanelli is a former language teacher and could no doubt take us through all the different parts of speech in great detail and give examples in Spanish, French, Italian and Welsh, but because they are concerned with whether we should replace the definite article with the indefinite article.
I will address my remarks first to the actual effect that the amendments would have, and therefore why we cannot accept them. I will then respond to the debate, although I think that most of it did not focus on the amendments. In the spirit of scrutiny, discussion and debate I am happy to deal with the speeches of the Opposition even though they were not necessarily related to the amendments. I say that just as an observation, not to carp.
As I have said before, the Government want to maintain flexibility for the structure of any future disposal so that they can secure the right investment for Royal Mail and the best value for money for the taxpayer. We also want to ensure appropriate transparency for Parliament, making sure that we can report on how we go about the sale, and whether that includes any restructuring. Decisions on that have not yet been taken.
Clause 2(5) is constructed to ensure that the report is provided to Parliament in all potential commercial scenarios for selling shares in the Royal Mail letters business. We want to make sure that however Royal Mail is sold, and whatever the structure—in whatever way the transaction is made—the Secretary of State should have to report to Parliament on the transaction. The problem with the amendments is that they would reduce the requirement for the Secretary of State to report to Parliament on future disposals, and it would be very much against our policy to accept them. It would reduce our transparency to Parliament.
Amendment 19 would significantly reduce the scope of the reporting requirement on the Government. The clause would not be limited to one specific company, and that is intentional. Amendment 19, however, would capture only Royal Mail Group Ltd, which is not desirable. We want to ensure that any of the companies could be captured.
Under part 1 of the Bill the Government could decide to sell shares at the level of the holding company, Royal Mail Holdings plc, rather than that of the universal service provider, Royal Mail Group Ltd. That could, for example, be done to enable the creation of tax-efficient employee share schemes, as we heard about from ifs ProShare in our evidence sittings last week. If the amendment were passed, the requirement for the Secretary of State to report on a decision to undertake a relevant disposal would not bite on all the potential transaction structures, and would therefore reduce transparency to Parliament. I am not convinced that that was what was intended, but it would be the effect of the provisions, and it is why the Government cannot accept them.
As to amendment 20, the reference in the clause to “a universal postal service” is simply to ensure that the definition of a Royal Mail company, and therefore the requirement for the Secretary of State to report to Parliament, captures a company providing a universal postal service. The amendment is not necessary to achieve that.
Turning to amendment 21, subsection (5)(b) would ensure that a Royal Mail company providing a universal service would be captured by the clause 5 reporting requirement, no matter what the structure of the Royal Mail group of companies might be before disposal. If we accepted any of the amendments the Secretary of State might not be required to report to Parliament when the transaction was made, because of the structure of the transaction.
It might be—and certainly the force of some of the speeches indicates—that the Opposition want to prevent flexibility in the way the Government approach the transaction and want a particular structure for Royal Mail Holdings or Royal Mail Group Ltd to be the one that is sold. That would be a huge mistake and would be unnecessarily restrictive during negotiations with a potential investor or investors, and would therefore be against the interests of Royal Mail and the taxpayer.
We are very much aware of all the subsidiaries of Royal Mail Holdings plc and of Royal Mail Group Ltd, and some of them have been mentioned today. The hon. Member for Llanelli rightly explained what a profitable and successful business GLS is. We have heard about Parcelforce and how it has improved, although that is not unequivocally a story of profits, unfortunately. Its last annual report shows that, in the year to 28 March 2010, Parcelforce Worldwide made the small loss of £6 million before tax. It is not, therefore, as successful as hon. Members were trying to paint, but I accept that it is moving in the right direction.
The whole point, as I said in my interventions on Labour Members, is that they want to restrict how we structure any company that we decide to sell, but in both the current legislation, the Postal Services Act 2000, and in the 2009 Postal Services Bill, the Labour Government allowed itself the freedom to sell off different parts of the Royal Mail. That would have been the case if they had their way. We do not want to put any restrictions on how we do this, just as they did not want to do so. We could—I am not saying that we will—sell GLS today. We are the shareholder, and there are no restrictions on our selling GLS, which is not mentioned in the 2000 Act. The 2009 Bill would have put no restrictions on the sale of Parcelforce by the previous Government.
We will have an unhelpful debate if we focus on what the law is, what it might have been and what it is proposed to be on such restrictions. The critical factor is to provide flexibility, so that the Government have several options open to them and can make commercial decisions in the interest of the taxpayer and of Royal Mail. If restrictions are placed on the law relating to how we go about that, it would prevent our meeting our core objectives.
Nia Griffith: Will the Minister outline any informal expressions of interest for any parts of Royal Mail that the Government have received? I would particularly like to know what interest there has been for a Royal Mail letters service without the other parts of the business.
Mr Davey: We are going about this process in a different way from the previous Government. We are introducing the legislation first—sorting out the parliamentary requirements to enable us to make the regulatory changes—and then we will worry about who may or may not want to buy the business. If we do it that way, we are much more likely to get significant private capital into the business to give Royal Mail a good future and also to get good value for the taxpayer. If we do what the previous Government did and try to sell and to legislate at the same time, we will make the same mistakes as they did. We would not be able to sell Royal Mail, and we would still have the problems that are well known to the Committee—falling volumes, which would not be tackled by increasing investment, and poor financial performance. We will not do that; we will pass the legislation first, and worry about the transaction afterwards. I do not, therefore, have anything to report to the hon. Lady.
The only subject missing from this debate is a full description of the many subsidiaries of Royal Mail Group Ltd: there is Royal Mail Estates Ltd; there is
Some hon. Members were arguing that they were worried that the Bill would somehow allow a future purchaser of Royal Mail to asset-strip and that that would cause huge problems. Let me try to deal with that and be as helpful as I possibly can. First, we simply would not sell to a bidder, if we believed that they were not interested and could not assist in securing the future of the universal postal service. In the Bill and in how we approach the transaction to meet our primary objective, we are driven by securing the universal postal service. I repeat that that is our primary objective. I hope that reassures Opposition Members.
Mr Weir: I appreciate what the Minister is saying, but does anything in the Bill prevent anyone who buys Royal Mail Group subsequently selling off pieces of it in a way that might impact on the universal service?
Mr Davey: The hon. Gentleman has anticipated where I was going, because a number of protections in the Bill will give reassurance to hon. Members who are worried about that. For example, under clause 35, Ofcom has the power to impose designated USP conditions akin to condition 16 of Royal Mail’s existing licence. Condition 16 does not allow Royal Mail to pursue things, such as an asset disposal or dividend payment, if doing so would create
to enable it to continue its business. We have a regulatory condition that can be imposed by Ofcom and that is akin to an existing condition. Furthermore, if Royal Mail is found to be in breach of its regulatory obligations, Ofcom can fine it up to 10% of its annual turnover of its postal business. If a privatised Royal Mail could not, through asset sales, deliver on its regulatory obligation, it would face a very large fine. Based on current turnover, a 10% fine on annual turnover would amount to a fine of £650 million, which is a big disincentive.
Gordon Banks: The Minister has referred to clause 35, which we will obviously discuss in greater depth at some point in the future, but I would just like to pick him up on the power that Ofcom will have. The Bill states that Ofcom “may” not Ofcom “will”.
Mr Davey: Let me deal with that straight away. Ofcom has a fundamental duty to secure the universal service and the financial sustainability of it. Ofcom has a number of powers that it may use in order to meet that overriding legal duty. I hope that I have reassured the hon. Gentleman on that immediately.
Mr Weir: What concerns me slightly is whether these conditions will be imposed from day one, because they seem to be things that Ofcom can react to. However, if the deed has already been done, so to speak, and the sale made, we could still be left with a problem.
Mr Davey: I am halfway through a list of protections that in itself is not fully comprehensive. I have a list of protections here in order to try to reassure hon. Members that these slight nightmares or fantasies will just not be possible. I have talked about the protections under clause 35 in relation to Ofcom and about the fines that can be imposed if Royal Mail is in breach of its regulatory obligations. Of course, there are also general company law provisions. For example, directors of any company—Royal Mail or otherwise—must act in a way that they consider most likely to lead to the success of the company for the benefit of its members as a whole. If an asset disposal dividend payment did not meet that test, that obligation would have been breached. So there are some corporate law issues.
There are also some fundamental economic issues. I hope these points will begin to satisfy the hon. Member for Angus, who does not look terribly satisfied at the moment. Royal Mail’s debt, which we have discussed on a number of occasions, is secured on its assets. So it is simply not possible to transfer the assets away from the business and its debts, which are secured on those assets. Some Opposition Members proposed that Royal Mail could raise the capital it needs from further debt financing. One of the problems with that is that Royal Mail has very few assets left that are not already secured on past borrowing. Again, that suggests that it is maxed out on security for its debt and would therefore not be able to transfer assets in the way that has been suggested.
There are other protections. I shall give Opposition Members one more example, if they are still not satisfied—the pensions regulator may not allow such behaviour, because it would weaken Royal Mail’s covenant to its pensioners. There are multiple protections—some derive from the Bill; some derive from general company law; some derive from pension law; and some derive from the way in which the assets are currently secured for past borrowing. I hope that that long list provides reassurance. Clause 2 is not quite the bogey-man clause that has been suggested in some of the speeches. It concerns reporting and how such a report should be made. If one puts that aside and considers what Opposition Members have said, their fears are unfounded.
The Government want to privatise Royal Mail to get sorely needed private capital and to ensure that it is a success for this country. Our prime objective is to secure the universal service provision, and we will not do anything to put that at risk. I hope, therefore, that Opposition Members have been persuaded by those arguments and will not press the amendments.
Nia Griffith: I thank the Minister for his clear explanation and for setting out one or two points on the record. We welcome the report to Parliament, because any information for parliamentarians is extremely important and we always wish to receive it.
We still have significant concerns about the weakness of the regulatory framework, which we will return to in subsequent sittings. Our fear is not one that is solely expressed by Members of Parliament; it was expressed clearly in the evidence sessions last week by Consumer Focus. The provision leaves the door open, once Ofcom has taken over, for significant opportunities for wriggle room in the EU directive of a five-day delivery at an affordable price, whatever that might mean—not a uniform price. Those would be the overall safeguards that would remain.
We have discussed many times the access points and the absence in the regulatory framework of a definition of an “access point”. The regulatory framework is something to which we shall want to return.
The amendments have provided us with a good opportunity to discuss the different options and parts of Royal Mail, and what might happen if it were broken up. I hope that the Minister will take on board our significant fears about the unpurchasability—a nice word for our Hansard reporters—of part of Royal Mail that may have to bear the burden of the universal service provision more or less on its own. We will want an update as often as possible from the Minister on how
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