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Lord Sainsbury of Turville: My Lords, perhaps I may make quite clear what I said. The National Audit

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Office intends to produce a report. As far as I am aware, no report is yet available. The NAO intends to produce one.

Baroness Miller of Hendon: My Lords, that is an extraordinary response. It is extraordinary because I have received information that I would have sight of the report. My researcher then took a telephone call to say that the Department of Trade and Industry did not wish me to see it. I do not know where the lines have crossed here, but that was exactly what I had heard; namely, that there was a report and that it made a recommendation. I spoke to two different people. However, I do not wish to say any more, other than to recommend that the Minister should make inquiries within his own department. If there is such a report, he will be in a position to respond to the remainder of my questions.

In view of this discussion, I see no purpose in taking the matter any further at this point. I shall withdraw the amendment, but I hope that we shall be able to have further communications before we return to the matter at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 71 [Limit on loans and other arrangements with government]:

Lord Sainsbury of Turville moved Amendment No. 19:

    Page 44, line 41, at end insert--

("( ) amounts outstanding in respect of the principal of debt securities issued in pursuance of section 63 of this Act, and").

The noble Lord said: My Lords, in speaking to Amendment No. 19, perhaps I may speak also to Amendments Nos. 20, 21 and 44.

Amendments Nos. 19 and 20 amend Clause 71 by removing the Government's shareholding in the Post Office company and its wholly owned subsidiaries from the calculation of the Post Office company's indebtedness to government while retaining within the calculation any debt securities issued to government under Clause 63.

I am very grateful to the noble Lord, Lord Dearing, for prompting further consideration of the interaction of the old subsection (2)(f) in Clause 71 with the overall calculation of indebtedness determined by the clause. Following the debate in Committee on the noble Lord's amendment, we have reconsidered with our financial advisers the interaction of the Government's shareholding with the overall limit on indebtedness to government of the Post Office company. We have concluded that the inclusion of the Government's equity does not mirror normal commercial practice in determining the borrowing limit for a company. These amendments therefore remove the equity from the calculation while retaining within it debt securities issued to government under Clause 63.

Amendment No. 21 makes provision for any debt assumed by the Post Office company under Clause 74(1) to be treated for the purposes of the Corporation Tax Acts as if it had been assumed wholly in

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consideration of a loan made to the Post Office company of an amount equal to the principal sum payable under the debt. Clause 74 gives the Secretary of State powers for the restructuring of the balance sheet of the Post Office company by April 2002 by injecting debt to create a commercial level of gearing. If the debt were treated as having been assumed for no consideration, interest payments by the company could be considered a distribution and attract a tax charge. This amendment mirrors the existing provisions in Schedule 4 in respect of the treatment of shares and other securities for the purposes of the Corporation Tax Acts. It is intended to maintain a position of tax neutrality for the Post Office company during the restructuring of the company's balance sheet.

Amendment No. 44 provides that for the purposes of calculating total indebtedness of the Post Office Corporation under Clause 115, the Secretary of State will determine the sterling equivalent of any foreign currency debt. The amendment ensures that Clause 115 mirrors the provision in Clause 71(4) regarding the determination of the sterling equivalent of any foreign currency debt for the Post Office company. I beg to move.

Lord Dearing: My Lords, I am grateful to the Minister for his response. It has persuaded me that there is such a thing as beginner's luck. Furthermore, wisdom is to be found in the proverb that, "Everything comes to he who waits". I waited eight hours--not to be called! However, it was well worth it.

Perhaps I may trespass a little on the time of the House. I was moved by the way in which the noble Lord, Lord Clarke, spoke in support of his amendment. I felt that he was speaking on behalf of those postmen and postwomen who go out with the mail, heads down in the February darkness and rain, to the backstreets of this land. They will not understand what is going on in this House. However, they have a deep feeling for the Post Office, a feeling that has been developed over five centuries, since the first Master of the King's Mail, Brian Tuke, to the opening in 1635 of a postal service for the likes of us. It is a great and historic institution, a part of the fabric of this realm. I believe that the noble Lord, Lord Clarke, reminded us of that, as did the noble Baroness, Lady Miller.

On behalf of all those people, as well as on behalf of the national interest, I intervened with my amendment to talk about the balance sheet of the new Post Office company. It should be given strength so that it will be able to support those 180,000 Post Office workers and enable them to carry forward the great tradition that they have inherited.

On the last occasion I mentioned my concern that, in negotiating major partnerships in a world in which the big players--the well-heeled, strongly commercial players--are likely to become great postal operators throughout Europe and perhaps the world, the Post Office should have a balance sheet which gives it a basis of strength for such negotiations. I expressed also

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my concern that it was important to ensure that the Post Office should be able to demonstrate strong operating results.

The reduction of the monopoly from 350 grammes to 150 grammes--the Post Office has agreed to that and that is the intention of the Government--will take £100 million out of the bottom line. If the commission has its way, the chief executive stated, I believe, the mail's profits will be eliminated. I also mentioned the taking out of past profits in the form of assets, producing £100 million a year. Furthermore, at that point I had not recollected that the Post Office has enjoyed a pensions contributions holiday for the Post Office staff superannuation scheme for very many years. That is worth at least £100 million a year. I am concerned, therefore, that the Minister should be valiant in pursuit of the principle that he announced in response to my amendment; namely, that in thinking of the balance sheet, the Government should be forward-thinking about the purposes that they have in mind and the national interest, and they should enable the Post Office to go forward in strength.

I recognise that this matter is in the hands of those who have much more expert knowledge than I. I have great confidence in them. I thank the Minister and I am sure that he will be valiant in their support.

Lord Skelmersdale: My Lords, this subject came up rather belatedly in Committee. It was not the fault of the noble Lord, Lord Dearing, as he explained, but perhaps the fault of some of the rest of us that his amendment was not reached on that occasion. Since then, we have had the report and financial accounts of the Post Office. On 19th June, it announced a post-tax loss of £264 million for the year 1999-00. It was the first time in 24 years that the corporation had not made a profit. Not surprisingly, the result was heavily influenced by the £571 million write-down of the assets, due to the changes made to the Horizon project to automate the Post Office network.

Although that result was not unexpected (it was planned for) in a real world it would surely affect the balance sheet, would it not? We shall all want to be convinced that the balance sheet will be strong notwithstanding the write-down, which has been necessary through what the Minister could fairly believe were government activities beyond the control of the Post Office.

Lord Sainsbury of Turville: My Lords, the losses were due to an accounting write-down. The reason for the write-down had to do with the fact that we had to take action to deal with the misconceived project that had been put in place to automate Post Office Counters. To the extend that accounting entries are ever real, this is a real accounting entry. The money that had been put into the project was effectively of no value going forward to the Post Office. So the situation was corrected in a perfectly correct accounting way. What it does not affect is the underlying ability of the Post Office to create profits in future years.

The thinking behind the amendment is exactly that which the noble Lord, Lord Dearing, so well represented. We want to see the Post Office going

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forward with a strong balance sheet, and able to develop its business commercially. In the world that we are entering there is no strategy for standing still. The market is opening up, and we want to see the Post Office play a major role. Clearly, in order to do so, it must have the financial resources. That is why we have made arrangements for it to be able to acquire more debt. This amendment will place the Post Office in a strong position as it goes forward.

I appreciate the fact that the noble Lord, Lord Dearing, has raised this point. I hope that in responding in this way we can indicate our strong feeling that the Post Office should go forward with a strong balance sheet.

On Question, amendment agreed to.

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