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The point on energy-intensive industries is well made. We must not let them off the hook, but we must recognise the industry they are in. Between now and October, we will be working very hard to work through the implications. As the noble Lord alluded to it, I should just say that we are going to have the opportunity to debate this. We have a statutory instrument coming up on this. We are doing an impact assessment, and then there will be a debate on these issues in the two Houses. I am looking forward to that debate and to hearing more information, and I value comments. That just shows that the democratic process is working. It also gives us the opportunity to discuss openly the committee's recommendations and those things we agree with and do not agree with.

Lord Clinton-Davis: I speak as the president of BALPA. What specific discussions have taken place with the aviation industry? It is important that the Government should speak to all sections of the industry, the trade unions and, not least, consumers. If the Government have not yet taken steps, what do they propose in that regard?

Lord Marland: The aviation industry is clearly a very high-carbon-using industry. I think I am right in saying that at the moment it is outside the EU ETS and that there is a programme to get it into that scheme. Of course, we will recognise that aviation is part of our everyday life. It is not something you can turn off overnight. There are big technological advances going on in the aviation world. We applaud that. We applaud the fact that the industry is making every effort to recognise the need for carbon reduction globally, and we would be completely mad not to listen to what it has to say.

Lord Maples: My Lords, I am one of the growing group of people inside and outside Parliament who think that this whole policy is completely misconceived. Even if you believe and accept the link that the Climate Change Act makes between carbon emissions and world temperatures, surely the way that this policy is operating at present is curious economic masochism. At a time of falling real incomes for families and a desperate need for economic growth, it is imposing additional costs in terms of fuel bills.

The Minister said that the Government are looking at the problems of energy-intensive industries to make sure that they remain competitive. I do not know whether there will be any left here in 2025. The Minister may be aware that a large German cement manufacturer recently moved its plant to Asia and financed the whole of the new factory by selling its carbon credits in Germany. That is the perversity of the way this policy operates. How can we make energy-intensive industries remain competitive while at the same time achieving these targets to which their contribution is so important?

Lord Marland: The noble Lord's views on climate change are well known. As I said, the energy-intensive industries are fundamental to this country. Obviously,

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it is incredibly disappointing that, at this particular economic time, they are leaving and moving to China. The whole reason why we will be spending a lot of time looking at it is that we can address some of the fears that the noble Lord puts forward. I would say, though, that we must be very careful about criticising some of the endeavours here. We are accessing, arguably, a £31-trillion marketplace, which will be good for British business. We already see signs of Siemens starting factories, of GE wanting to start a factory, of new investment coming into the country, which we want to encourage. We also have to realise that this Government-and indeed the previous Government-inherited an electricity market dependent on oil and gas, which was diminishing in supply. No Government had put in place a replacement for it that allowed us to have the energy security that we desperately need to stand alone. Energy security is very high on this Government's priority list. I would hope that the noble Lord would recognise that, and support us in that endeavour.

Lord Turnbull: My Lords, I naturally sympathise with the predicament of the Minister having to ventriloquise the zeal of the Minister in another place-not for the first time this afternoon. However, will he personally reflect on whether the robustness of climate science justifies the UK, uniquely in the world, setting statutory carbon reduction targets way out into the middle of this century? Secondly, will he reflect on whether the Intergovernmental Panel on Climate Change is still credible as the principal source of advice to Governments in this field?

Lord Marland: I am not sure whether the answers are yes, no, no, yes. Broadly speaking, I do not stand here trotting out cant or zeal that has been put to me by my colleagues. We work very closely as a team in coming up with what we think are the right policies. There is no difference between us in that. The Committee on Climate Change does an excellent job. It gives us a guiding principle on where we need to go as a responsible society. We must remember that we have a responsibility not just for our lifetime, but our children's lifetime, and-the noble Lord is too young to have grandchildren -our grandchildren's lifetime.

Lord Turnbull: I have four.

Lord Marland: That is why we must commit to reducing our carbon footprint. We must put energy security high on our list. We must make use of the wonderful natural resources that we have in this country to fulfil that security.

Lord Puttnam: My Lords, I congratulate the noble Lord not just on the Statement but on the work that he and his colleagues must have done in the department to enable them to present it to the House. I doubt that it was an easily won text.

It is very important that the House remembers that the Climate Change Bill went through a long scrutiny process during which we managed to maintain an all-party consensus on all the significant issues. Both

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Houses signed up to it. No one worked harder than the noble Lord, Lord Taylor of Holbeach, to make this possible. It is very important that we maintain that all-party approach to this issue. Frankly, it is very important that the department is robust in resisting the cries not only from inside this House but from outside it, and in not allowing itself to be deflected from these targets. They are important. That Bill, now an Act, is one of which this House and the nation should be enormously proud.

I get around the world quite a bit and I know that other countries think that we have done a remarkable thing here. For us to start to back off and become in any way apologetic for our achievement would be tragic. I enthusiastically welcome this Statement and I am absolutely delighted about the battle we have won.

Lord Marland: I am very grateful to the noble Lord, Lord Puttnam, who is a friend of the department, irrespective whether there is a Labour or, as at present, a coalition Government. We are very grateful for his positive remarks. I, too, pay tribute to my noble friend Lord Taylor of Holbeach, who has been at my side during many debates on this subject. In fact, he very kindly answered for me on a statutory instrument earlier today when I was called elsewhere. On both counts, I am marching shoulder to shoulder with the noble Lord.

Lord Ryder of Wensum: In broad terms, can the Minister tell us the expected cost to the taxpayer of these measures?

Lord Marland: There are a number of costs floating around the place. The gross cost of the carbon budget over the five-year period is estimated at £7 billion. However, because we have the benefit of, and are keeping our options open on, utilising carbon trading, and because we have consistently established a surplus which we can trade into the market, and given a number of the domestic improvements that we are making through the Green Deal et cetera, we feel that figure can come down to £1.7 billion over five years. I think that noble Lords will agree that that is a very containable figure, given the opportunity of accessing an enormous market that will bring prosperity and jobs into the country. I hope that the benefit of that will far outweigh that figure.

The Lord Bishop of Chester: My Lords, briefly, what assumptions are being made by the Government in their plans for the building of new nuclear power stations or the introduction of carbon capture and storage, and the cost thereof? They are subjects which seem to be absent from the Statement.

Lord Marland: The right reverend Prelate hits on a very topical issue. I am very happy to say that tomorrow we will present the findings of Mike Weightman, who was commissioned by the Secretary of State, Chris Huhne, to report on Fukushima, and look at them in terms of the future of the nuclear industry in this country. It would be wrong of me to intercept that report in this House, as it will be announced tomorrow.

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However, I can say that I met Mike Weightman earlier this week when we went through the implications of his report. We must not be complacent about our own position, but I think that we will feel quite positive by the end of tomorrow. That will, I hope, bring new nuclear back on to the agenda. I think that it has the broad approval of the House and it of course goes to the heart of carbon reduction and energy security.

On carbon capture and storage, as the right reverend Prelate knows, I am leading negotiations on the first demonstrator. I had meetings last night with the chairmen of each of the consortium companies to try to get us to the timetable that I have mentioned to the House. Broadly speaking, we are on track with that timetable and we are now looking at a cost which should be achievable. I hope that we will have that fully on the agenda towards the autumn-as I hope, for my part, we will have with new nuclear.

Lord Lea of Crondall: My Lords, I am one of those who have been involved in the programme in one way or another since Rio in 1992. Some of the fiscal questions now being raised are timely. I should like to ask about the relationship between the Government's Statement and the Committee on Climate Change, and which is which. Page 2 of the executive summary indicates that there is an assumption that the price of carbon will rise to £70 a tonne in real terms, on present values, by 2030. You can see that this is necessary to make the arithmetic work. I am rather reminded of doing the national plan in 1965, where we played around with investment numbers and price numbers till everything fitted. We are doing an exercise in looking at numbers that will fit fiscally, but without saying to people what carbon tax they will have to pay in real terms. We must of course be transparent and honest with people. However, a carbon tax-albeit a European one-which I advocated in my maiden speech 11 years ago and I am not against, is a regressive tax. Now is the time to be much more transparent in how all the fiscal arithmetic fits together. There is a growing demand for that, however it is managed. The document is very short on financial figures; it is all tonnages of carbon dioxide. On the financial side, there is scope for a bit more transparency.

Lord Marland: The noble Lord is absolutely right. We must be very committed to the fiscal aspect of this and we must be transparent. We will be transparent, and we will put the British taxpayer first in terms of the fiscal implications.

Postal Services Bill

Report (2nd Day) (Continued)

5.36 pm

Amendment 63B

Moved by Lord Rogan

63B: Clause 28, page 16, line 17, at end insert-

"( ) The Secretary of State shall ensure that the current designated universal service provider secures an inter-business agreement with Post Office Limited for a period of not less than 10 years from the date at which the provisions of this Part come generally into force."



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Lord Rogan: My Lords, this amendment is of the utmost importance to the post office network, which has been in steady decline over the years. I welcome the Government's commitment to oppose post office closures, although that is not entirely in their hands. However, if an inter-business agreement between Royal Mail and Post Office Ltd is not enshrined in law, there is a real concern that, over time, Royal Mail will downgrade the value of its contact with the post office network, putting it under even more financial pressure. I am not alone in thinking this, and many noble Lords have raised similar concerns. Indeed, the Minister agreed that the Government hoped to achieve a 10- year agreement prior to disposal on our previous day on Report. With such agreement on the record, I hope that the Government will accept this amendment and see that the concern which is shared across the House is addressed.

The post office network is part of the fabric of British life. In Northern Ireland, as elsewhere, the local post office is so much more than a retail outlet; it is an essential community hub. I fear that, without an inter-business agreement, a privatised Royal Mail will seek new outlets for its services, which can be only a bad thing for our struggling post office network. The amendment in my name and that of the noble Lord, Lord Laird, seeks to guarantee that local post offices are able to continue to plan and operate their business safe in the knowledge that they will continue to receive the revenue streams from Royal Mail that help them survive as small businesses.

We cannot legislate to protect the post office network for an indefinite period. It is probably true that, at some point in the future, the post office network will end up going it alone, which will be regrettable, but, as Royal Mail goes through a major transformation and the post office network's existence depends upon a very generous taxpayer subsidy, it is surely vital that we do all we can to help it through these tumultuous times.

Post offices provide a vital service to communities around the United Kingdom, especially in rural areas in Scotland, Wales and Northern Ireland. But their existence is fragile. Over the past 20 years, there have been some 9,000 post office closures. An inter-business agreement, enshrined in law for 10 years, provides the stability that the post office network needs to survive. Without an IBA, the future of post offices across the United Kingdom looks bleak and further closures will undoubtedly follow.

Lord Stevenson of Balmacara: My Lords, I rise to speak to Amendment 67A in this group and to give our support to Amendment 63B in the names of the noble Lords, Lord Laird and Lord Rogan. We associate ourselves with the remarks that the noble Lord, Lord Rogan, has just made.

The Bill separates Royal Mail from the post office network, the first time such a separation has happened anywhere in the world. Throughout our debates in your Lordships' House, we have stressed the importance to the country of the post office network, not just as a vehicle for the day-to-day transactions of our citizens and in support of our small businesses-important though those are-but because the post office is at the

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heart of our communities up and down the country. In an earlier debate, the noble Lord, Lord Empey, described the post office as part of the national infrastructure. It is, indeed, a vital part of the hard wiring of our country and, with its continuing presence and high standards of operation and service, it helps to define who we are in an increasingly globalised world.

The Government have supported the post office network and we pay tribute to this. It must have been hard to secure the funding necessary to honour the increase to £180 million per annum in the previous Government's social network payment for otherwise unviable post offices, but they have secured the necessary investment within the confines of the spending review and they have specified that Post Office Ltd must have 11,500 outlets in the year 2014-15. That is all very welcome but-there is always a but-it leaves a number of operational and practical questions unanswered, which we fear may bring down what are the clearly genuine good aspirations of the Government for the post office network. Of these, the two areas our amendment probes are what happens after 2014-15 and what is to stop a privatised Royal Mail reducing its use of post offices.

As we have heard, the Post Office is dependent on Royal Mail's business for its survival. Over one-third of its revenues, £343 million, and one-third of sub-postmasters' pay, £240 million, is generated selling Royal Mail products and services. The bald fact is that there is nothing in the Bill to require a privatised Royal Mail under new ownership to utilise the current post office network. Andy Burrows of Consumer Focus has said:

"It's entirely conceivable ... that several years down the line you could have a post office network where you cannot undertake mail transactions".

We already know that post offices, predominantly those in rural areas, are finding it hard to survive. As the National Federation of SubPostmasters has said, many sub-post offices are "hanging by a thread".

Despite Ministers' assurances that there will be no government programme of post office closures, post offices are closing. Last week it was revealed that there are now 400 post offices which are, in the parlance, subject to "long-term temporary closure"-up from 150 last year. I am sure that all Members of your Lordships' House hope that "long-term temporary closure" is not just a euphemism for permanent closure. Whatever the truth of that, the fact is that there are nearly 1,000 sub-post offices up for sale but unsold. We accept that there is always churn, but this is an unusually high number according to the NFSP.

We have argued throughout the passage of the Bill that we simply do not understand why it is impossible for the Government to work with the component parts of the present Royal Mail to broker at least an extension of the current agreement between Post Office Ltd and the soon-to-be separated Royal Mail so that our post office network has a more certain future. They currently have an agreement in place and both managing directors appear to believe that such an agreement is necessary and makes good business sense. The experience from the rest of the world suggests that neither Royal Mail nor Post Office Ltd could survive for long without

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such an inter-business agreement. It seems logical that any private sector bidder for Royal Mail would appreciate the good sense of having an agreement in place at the time of sale. It would be an asset, not a liability.

The Minister for Postal Services told the other place that,

So what is the problem? If the Government have the power at the moment to require the Royal Mail and the Post Office to conclude an agreement or to extend the present one, and they believe they have the power as shareholder to ensure that Royal Mail concludes the longest legally permissible contract before separation, why on earth do we not put it in the Bill and be done with it? It would be very sad if, a few years down the track, the post office network collapses because the new owner of Royal Mail does as we fear. It may seem overly melodramatic to say this, but I do not think the country would ever forgive a Government that passed over the opportunity to save our much loved and cherished post offices.

We believe the Government should do it-as do the noble Lords, Lord Rogan and Lord Laird-and so we support the amendment standing in the names of the noble Lords. Our amendment does not ask for the Government to determine the terms of an inter-business agreement-that would be a matter for the two companies -but to ensure that the agreement is of sufficient duration, which we suggest should be 10 years, so that the people who operate and work in our post offices, most of whom invest their own money in the business, know where they stand.

George Thomson of the NFSP told the Public Bill Committee in another place:

"We need security for sub-postmasters; they have £2 billion of their own money invested in this business. If you were a company investing £2 billion in a PFI to build a school or hospital, you would get a 21-year contract. I am not asking for a 21-year contract, but, by God, I am asking for a 10-year IBA contract".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 39.]

Those are strong words, but we firmly believe that your Lordships' House should listen carefully to those on the front line.

5.45 pm

Lord Jenkin of Roding: My Lords, I hope my noble friend will in the end decide to resist the blandishments that have been advanced across the Floor of the House. The noble Lord, Lord Stevenson of Balmacara, gave the game away at the end of the speech when he said, "We are not asking to legislate for the terms of an agreement". These are complex agreements and it is much better that they should be left to the two companies-both of which are now under competent and trustworthy leadership-to determine the terms of the agreement. As the noble Lord, Lord Stevenson, said-the noble Lord, Lord Rogan, made the same point-there is an existing agreement between the Post Office and Royal Mail and there needs to be, in one way or another, a continuing agreement.



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The noble Lord, Lord Stevenson, said that the two organisations could not exist the one without the other. Without being an expert in this area, I do not know how far that would be true in perpetuity but it certainly would be true for the time being. Therefore it is very much in the interests of both Royal Mail and the Post Office that there should be a workable agreement between the two. It is for them to negotiate, decide and then sign; it cannot be a matter of Parliament legislating and telling them what to do. Otherwise, what is the point of having the present leadership of these two organisations? Why should it not be in the Civil Service?

But, of course, they are commercial companies. They are facing the problems we have debated at some length over recent weeks and they have to be given the trust to do what they consider is in their best interests and the best interests of their customers and employees. I used the word "blandishments" earlier; I was being fairly kind. Parliament should not interfere in this area in the way the amendment suggests and I hope my noble friend will feel able to resist it.

Lord Razzall: My Lords, everyone in the House would entirely endorse the remarks made by the two noble Lords who have brought forward amendments in relation to the importance to our national life of the post office network. That is a given on all Benches and I suspect that no Member of your Lordships' House would disagree.

I have two propositions, which I hope your Lordships' will accept, which are totally germane to why the two amendments should be rejected. First, from a commercial point of view, it is virtually inconceivable that any operator of the Royal Mail with a universal delivery obligation to deliver mail six days a week would not wish to avail themselves of the services of the Post Office. There is no other network in the United Kingdom that would enable that obligation to be fulfilled. There is, therefore, an essential logic as to why any owner of the Royal Mail would wish to continue to use the post office network.

Secondly, the noble Lords who have brought forward these amendments have to take on board that, were their amendments to be carried and the requirement placed in the Bill, there is a significant concern that the European state aid rules would come into play. The whole transaction could be held up for a year or two while the European state aid issue was resolved, during which time the Royal Mail would get into further financial difficulties.

In my view, it is inevitable that any operator of the Royal Mail is bound to use the Post Office to deliver the universal service obligation. At the same time, I would not wish to risk the hold-up of this transaction, thereby jeopardising the future of Royal Mail, because of the operation of the state aid rules.

Lord Whitty: My Lords, I was not going to intervene in this debate because I agree with much of what has been said by the noble Lord, Lord Rogan, and my colleague on the Front Bench and I have intervened in this area at earlier stages in the debate. Parliament has a huge responsibility here as two great parts of the nation's infrastructure are in trouble and both require

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a new start. The Government have concluded that, in respect of the Royal Mail part, the new start shall be under private ownership. As the noble Baroness knows, I do not entirely agree with that, but nevertheless that is where we are. Everybody who has contributed agrees that there has to be some sort of stable relationship between the two parts, as we move into this new world. The Government's difficulty is that they have to find a buyer for Royal Mail, the logistics part of the operation. Nobody is saying, and indeed my noble friend Lord Stevenson explicitly said, that Parliament should lay down the terms of that relationship, but Parliament has a right to know that that relationship will exist because it will determine the nature of both sides of that organisation-in terms of this amendment for the next 10 years. Clearly both sides may have an interest in ensuring that such an agreement is established prior to this Bill being implemented and the privatisation going through.

If I can be a little rude, I want to talk about the elephant in the room. The suspicion on this side is that if an amendment of this nature is not passed then the issue will not be the nature of the negotiations between Royal Mail and the post office network but the nature of the discussions between the Government and a potential investor. The Government will not find it easy to find an investor. The last Government did not find it easy to find an investor for a rather smaller proportion of Royal Mail and, if the interests of Post Office Ltd were sacrificed by untying some of the responsibilities of Royal Mail towards its Post Office Ltd partner as part of the deal, the interests of both sides and particularly those of the post office network will have been sacrificed. I hate to put it this way, but I have a degree of suspicion not of Royal Mail or the post office network but of the Government's need to induce an investor in Royal Mail in the first place. If one of the terms of that inducement were to prejudice the future relationship with the post office network then the suspicions could be justified.

Viscount Eccles: Can the noble Lord can give us some indication of how he comes to the conclusion that somebody buying into Royal Mail would have a different interest and would not wish to use the Post Office in the same way?

Lord Whitty: My Lords, it would be the nature of any investor in any situation to maximise their degree of flexibility-any company investing in any potential asset, particularly one which has so many obligations on it in the public domain, wants to maximise its flexibility. I do not know the investors the Government have in mind-we have not been clear on that; we have not even been clear whether it will be a single investor or an IPO or another arrangement-but my expectation is that it will be one or perhaps one or two in a consortium buying Royal Mail. They would wish to maximise their investment, on that front, as on other fronts. Giving them that flexibility could seriously prejudice the future of a socially, economically and regionally important part of our infrastructure. That is the suspicion that lies, in my view, behind this amendment.



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I do not understand the point of the noble Lord, Lord Razzall, about state aid because if you have an agreement of that length in any case, whether it was voluntarily negotiated or imposed by Act of Parliament, state aid may be involved. So either way the possibility of state aid interest arises, and I recognise that that is one of the inhibitions on government. I am afraid that, if the noble Baroness does not accept this amendment or something like it, then she is heightening the suspicion that we are going to fall over backwards to placate a potential investor to the potential detriment of the post office network and those who depend on it.

Baroness Kramer: My Lords, I want to come in now on this conversation. The noble Lord, Lord Whitty, talked about an elephant in the room and then dismissed the EU state aid issue. Many Members of this House have been following the debate from the beginning-some have come in perhaps a little later, but many have been engaged from the beginning-and have heard directly from Moya Greene, the current chief executive of Royal Mail, that she would wish for the longest possible agreement that she could achieve within the law for an inter-business relationship with the Post Office. Many will also have heard the same from Paula Vennells, the managing director of the Post Office part of the current Royal Mail Group whom I think we may regard as the chief executive presumptive of the Post Office when it becomes a completely separate entity. They have also heard the Government say, on many occasions, that they would wish for, and would try to achieve, the longest possible agreement that could be done legally.

The issue of European state aid rules is absolutely critical. The noble Lord, Lord Whitty, will have looked at the financial condition of Royal Mail Group and will understand that it is urgent that new investment comes in, in a very timely manner, if the group is to be preserved. The Post Office side also needs the injection of £1.34 billion that the Government are committed to putting into it, which would come through this legislation and the new structures. That is what will guarantee its future.

However, all of that would be jeopardised when-one could say "if", but I suspect that if we go back to the lawyers and ask the Government it would be "when"-the state aid rules were tripped by one of these two amendments. I am rather under the impression that the Government have done everything they can to find language that would not trigger European state aid rules and cannot find it. The language proposed today by the noble Lords, Lord Stevenson and Lord Rogan, trips the European state aid rules. That would mean 24 months of constant wrangling, in which it is impossible to go out and bring in a new investor. All investors require some degree of certainty about what is happening to the organisation they are meant to examine and on which they are meant then to make an offer. It would also mean 24 months of uncertainty for the public. If this was two or three years ago, the luxury of including a clause like this and being resigned to spending two years fighting through state aid issues might have been possible. I suggest that we do not have that luxury at the moment.



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We have two key organisations which matter to all our communities. We have people who work for Royal Mail-the regular staff who do incredibly hard work and need certainty about their jobs-and we have communities that rely on the Post Office. If we inject something like 24 months of further uncertainty, and who knows what comes out of the state aid negotiations, we jeopardise everything we have been trying to achieve-for weeks now in this House and in the other place-which is to make sure there is a secure future for the Royal Mail Group and that both the Royal Mail and Post Office parts of it can thrive. I understand that people have suspicions and concerns and will not take government assurances because they do not like to take them and perhaps do not quite believe Moya Greene or do not quite take the word of Paula Vennells. I understand all that, but there is an overriding issue and it has not been addressed by those who moved this amendment. The language triggers state aid provisions-we cannot afford the consequences of having that in the Bill.

Baroness Wilcox: My Lords, I thank very much indeed noble Lords who have spoken before me. I particularly thank my noble friend Lady Kramer for the exposition that she has just given to sum up with. I shall leave as many of those comments aside because they speak well for what I would like to say. I shall address some of the comments from the Opposition and the Cross-Benchers who moved the amendments.

The issue of the inter-business agreement between Royal Mail and Post Office Ltd is one of the issues which has stimulated the most debate throughout the passage of this Bill, both in this House and in another place. The noble Lord, Lord Razzall, summed up in his words the fact that all of us who have taken part in these discussions wish to see the same thing-this body established within the nation's life to be continued in the best way possible. But we are going to do it in the way that we think will be effective; we have watched the Opposition try to do it in a different way and it was not effective. We are right to want to ensure the best possible future for the Post Office, which, as many noble Lords have pointed out, is a national institution highly valued by communities up and down our country.

Before I turn to the substance of the amendments, I would like to respond to the comments of the noble Lord, Lord Stevenson, on the 400 long-term temporary closures. There are inevitably changes in the total number of post offices from month to month, as some offices close and others are reopened. In fact, there has been a net reduction of only 58 offices in the last nine months-and this is, of course, constantly in flux. The Government have committed to no new programme of post office closures, as noble Lords have kindly noted.

Your Lordships are of course well aware of the fact that Royal Mail's business is extremely important to the Post Office. This fact has not escaped us in government either, or the two companies themselves, as you have heard many times in our discussions. As your Lordships will by now be well aware, the chief executive and chairman of Royal Mail have pledged to ensure that the longest contract legally permissible will be in place before any sale. Edward Davey, the Minister in another place, and I have committed to both Houses that we

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will ensure that this pledge is upheld, and your Lordships have approved an amendment to the Bill to ensure that the report on the disposal of shares in Royal Mail will include details of the ongoing relationship between the two companies.

The new contract between Royal Mail and Post Office Ltd is not yet finalised, and, as I have said before, it serves little purpose to focus on the duration of the contract alone. The contract, which we hope to be ready to be signed next spring, will contain far more complex details, such as pricing and service level agreements, volume commitments and exclusivity agreements. The final nature of all of those details will have a bearing on the longest legally permissible duration of the contract. These details should not be presided over by government, but must be agreed by the two companies and their advisers. They are the experts, they know the businesses best, and it is they, not we in Parliament, who should fine-tune the details of this contract.

When this amendment was debated in Committee in this House, the noble Lord, Lord Young, posed various questions regarding what the longest legally permissible contract actually meant. I wrote to him following that exchange and, as I said in that letter, because the contract will focus on many other factors as well as duration, it is difficult to speculate on how long the longest permissible contract would be. We hope that the contract's duration could be for as long as 10 years, or even more, but this cannot be finalised until all of the detailed negotiations are complete. The Government could not accept any contract between Royal Mail and Post Office Ltd which might be liable to legal challenge. Without a robust long-term contract between them, both companies would suffer commercially precisely the circumstances that noble Lords are seeking to avoid through their amendments. The Government could also not accept a legislative obligation which might lead to that very situation. As I have said repeatedly, the terms of this contract must be negotiated between those who know the businesses best.

In response to the concern expressed by the noble Lord, Lord Whitty, about the impact that a potential bidder for Royal Mail could have on the terms of the inter-business agreement, I would like to reassure noble Lords that any investor will have no input into these terms. As the chair and chief executive of the Royal Mail has stated, the longest legally permissible contract will be put in place before any investment into the Royal Mail. We will of course ensure that that happens. As I have said previously, what the Secretary of State, and indeed the Government, can and will help to do is to ensure that there is a contract in place between the two businesses before separation, and its duration will be for as long as is legally permissible. But most importantly, government must also help to create the conditions in which both businesses will flourish in partnership with one another.

Let me reassure this House that the separation of Post Office Ltd and Royal Mail will not lead to dangers for the post office network. As my noble friend Lord Razzall, emphasised, operationally, these companies are reliant on one another. Post offices carried out over 3 billion transactions for Royal Mail in 2009, and they will continue to be partners because there will remain an overwhelming commercial imperative

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for the two businesses to work together. The noble Lord, Lord Stevenson, noted that there are no international precedents for splitting a mail provider and retail arm. The Government are not aware of any international comparisons for the Post Office, which has such a vast branch network, offering a broad range of government, financial and mail services in the heart of communities. Separation from Royal Mail will give the Post Office the chance to focus on growing its revenue and getting the most out of its branch network. It will ensure that each organisation is able to focus more effectively on its own challenges and help to secure a sustainable network. The separation of Post Office Ltd from Royal Mail was welcomed during the Public Bill Committee evidence sessions in the other place by the consumer group Consumer Focus, the current regulator Postcomm, and the independent expert Richard Hooper.

It is of course important too that the Post Office continues to offer the very best possible service to Royal Mail, as well as to other current and potential clients. Our £1.34 billion funding package to the Post Office over the spending review period will ensure that the service provided by post offices is modernised and improved, to ensure that people continue to see their local post offices as the natural and convenient place to access Royal Mail products and that the Royal Mail management continues to see the Post Office as its retail partner of choice. This Government have not given Post Office Ltd such a considerable sum of money for nothing. We will do all we can to ensure that Post Office Ltd has a vibrant future, and continues its valued relationship with Royal Mail. As I have said before, it is primarily by attracting customers for all types of services that the Post Office will ensure its future success. With this Government's funding and support, I believe that is precisely what it will achieve. As such, I would ask the noble Lords to withdraw their amendments.

Lord Rogan: I thank the Minister for her reply. However, I feel that she could have gone further. Therefore, I wish to test the opinion of the House.

6.08 pm

Division on Amendment 63B

Contents 165; Not-Contents 235.

Amendment 63B disagreed.


Division No. 1


CONTENTS

Adams of Craigielea, B.
Adonis, L.
Ahmed, L.
Anderson of Swansea, L.
Armstrong of Hill Top, B.
Armstrong of Ilminster, L.
Barnett, L.
Bassam of Brighton, L.
Beecham, L.
Berkeley, L.
Bhattacharyya, L.
Bilston, L.
Blood, B.
Borrie, L.
Boyd of Duncansby, L.
Brookman, L.
Campbell-Savours, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Collins of Highbury, L.
Corbett of Castle Vale, L.
Corston, B.
Craig of Radley, L.
Crawley, B.
Davidson of Glen Clova, L.


17 May 2011 : Column 1310

Davies of Coity, L.
Davies of Oldham, L.
Davies of Stamford, L.
Dean of Thornton-le-Fylde, B.
Dear, L.
Deech, B.
Dixon, L.
Drake, B.
Dubs, L.
Elder, L.
Elystan-Morgan, L.
Emerton, B.
Evans of Parkside, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Finlay of Llandaff, B.
Ford, B.
Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Giddens, L.
Gilbert, L.
Golding, B.
Gordon of Strathblane, L.
Gould of Potternewton, B.
Grantchester, L.
Grenfell, L.
Grey-Thompson, B.
Grocott, L.
Harris of Haringey, L.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Hayter of Kentish Town, B.
Healy of Primrose Hill, B.
Henig, B.
Hollins, B.
Hollis of Heigham, B.
Howarth of Newport, L.
Howells of St Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Stretford, B.
Hughes of Woodside, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Jones, L.
Jones of Whitchurch, B.
Judd, L.
Kennedy of Southwark, L.
Kennedy of The Shaws, B.
King of Bow, B.
King of West Bromwich, L.
Kirkhill, L.
Knight of Weymouth, L.
Laird, L.
Lea of Crondall, L.
Liddell of Coatdyke, B.
Liddle, L.
Lister of Burtersett, B.
Lofthouse of Pontefract, L.
Low of Dalston, L.
McAvoy, L.
McCluskey, L.
McConnell of Glenscorrodale, L.
McFall of Alcluith, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Mallalieu, B.
Martin of Springburn, L.
Massey of Darwen, B.
Maxton, L.
Meacher, B.
Moonie, L.
Morgan of Drefelin, B.
Morgan of Ely, B.
Morgan of Huyton, B.
Morris of Aberavon, L.
Morris of Handsworth, L.
Morris of Manchester, L.
Morris of Yardley, B.
Noon, L.
Patel of Bradford, L.
Pitkeathley, B.
Plant of Highfield, L.
Prescott, L.
Prosser, B.
Puttnam, L.
Quin, B.
Radice, L.
Rea, L.
Reid of Cardowan, L.
Rendell of Babergh, B.
Richard, L.
Robertson of Port Ellen, L.
Rogan, L. [Teller]
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B.
Sawyer, L.
Scotland of Asthal, B.
Sewel, L.
Sherlock, B.
Simon, V.
Smith of Basildon, B.
Smith of Finsbury, L.
Smith of Gilmorehill, B.
Soley, L.
Stevenson of Balmacara, L.
Stoddart of Swindon, L.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Taylor of Bolton, B.
Temple-Morris, L.
Thornton, B.
Tomlinson, L.
Touhig, L.
Triesman, L.
Tunnicliffe, L. [Teller]
Turnberg, L.
Turner of Camden, B.
Wall of New Barnet, B.
Walpole, L.
Warner, L.
Watson of Invergowrie, L.
West of Spithead, L.
Wheeler, B.
Whitaker, B.
Whitty, L.
Wigley, L.
Wilkins, B.
Williams of Elvel, L.
Wills, L.
Wood of Anfield, L.
Young of Norwood Green, L.

NOT CONTENTS

Aberdare, L.
Addington, L.
Ahmad of Wimbledon, L.
Alderdice, L.
Allenby of Megiddo, V.
Alton of Liverpool, L.
Anelay of St Johns, B. [Teller]
Arran, E.


17 May 2011 : Column 1311

Astor of Hever, L.
Attlee, E.
Avebury, L.
Ballyedmond, L.
Barker, B.
Benjamin, B.
Berridge, B.
Best, L.
Black of Brentwood, L.
Blencathra, L.
Bonham-Carter of Yarnbury, B.
Boswell of Aynho, L.
Bowness, L.
Bradshaw, L.
Bridgeman, V.
Brinton, B.
Brittan of Spennithorne, L.
Brooke of Sutton Mandeville, L.
Browning, B.
Butler-Sloss, B.
Byford, B.
Cameron of Dillington, L.
Carlile of Berriew, L.
Cathcart, E.
Cavendish of Furness, L.
Chalker of Wallasey, B.
Clement-Jones, L.
Colwyn, L.
Cope of Berkeley, L.
Cormack, L.
Cotter, L.
Courtown, E.
Coussins, B.
Craigavon, V.
Crickhowell, L.
Crisp, L.
Cumberlege, B.
De Mauley, L.
Denham, L.
Dholakia, L.
Dixon-Smith, L.
Dobbs, L.
Doocey, B.
D'Souza, B.
Dykes, L.
Eames, L.
Eaton, B.
Eccles, V.
Eccles of Moulton, B.
Edmiston, L.
Elton, L.
Erroll, E.
Faulks, L.
Flight, L.
Fookes, B.
Fowler, L.
Framlingham, L.
Fraser of Carmyllie, L.
Freud, L.
Garden of Frognal, B.
Gardiner of Kimble, L.
Gardner of Parkes, B.
Garel-Jones, L.
Geddes, L.
German, L.
Glasgow, E.
Glenarthur, L.
Glendonbrook, L.
Glentoran, L.
Gold, L.
Goodhart, L.
Goodlad, L.
Goschen, V.
Grade of Yarmouth, L.
Greaves, L.
Greenway, L.
Hamilton of Epsom, L.
Hamwee, B.
Hannay of Chiswick, L.
Harris of Peckham, L.
Harris of Richmond, B.
Heyhoe Flint, B.
Higgins, L.
Hill of Oareford, L.
Hodgson of Astley Abbotts, L.
Home, E.
Howard of Rising, L.
Howe, E.
Howell of Guildford, L.
Hunt of Wirral, L.
Hussein-Ece, B.
Inglewood, L.
James of Blackheath, L.
Jenkin of Kennington, B.
Jenkin of Roding, L.
Jolly, B.
Jones of Cheltenham, L.
Jopling, L.
Kakkar, L.
King of Bridgwater, L.
Kirkham, L.
Kirkwood of Kirkhope, L.
Kramer, B.
Laming, L.
Lawson of Blaby, L.
Lee of Trafford, L.
Lexden, L.
Lingfield, L.
Linklater of Butterstone, B.
Listowel, E.
Liverpool, E.
Loomba, L.
Lucas, L.
Luce, L.
Luke, L.
Lyell, L.
McColl of Dulwich, L.
Macfarlane of Bearsden, L.
MacGregor of Pulham Market, L.
Mackay of Clashfern, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Maginnis of Drumglass, L.
Mancroft, L.
Maples, L.
Mar and Kellie, E.
Marks of Henley-on-Thames, L.
Marland, L.
Marlesford, L.
Masham of Ilton, B.
Mawhinney, L.
Mawson, L.
Mayhew of Twysden, L.
Methuen, L.
Miller of Chilthorne Domer, B.
Montrose, D.
Moore of Lower Marsh, L.
Morris of Bolton, B.
Moynihan, L.
Naseby, L.
Neuberger, B.
Newby, L.
Newlove, B.
Newton of Braintree, L.
Noakes, B.
Northover, B.
Norton of Louth, L.
O'Cathain, B.
O'Loan, B.


17 May 2011 : Column 1312

Palmer, L.
Parminter, B.
Patel, L.
Perry of Southwark, B.
Phillips of Sudbury, L.
Popat, L.
Powell of Bayswater, L.
Ramsbotham, L.
Randerson, B.
Rawlings, B.
Razzall, L.
Reay, L.
Redesdale, L.
Renfrew of Kaimsthorn, L.
Rennard, L.
Ribeiro, L.
Risby, L.
Roberts of Conwy, L.
Roberts of Llandudno, L.
Rodgers of Quarry Bank, L.
Rotherwick, L.
Rowe-Beddoe, L.
Ryder of Wensum, L.
St John of Bletso, L.
Saltoun of Abernethy, Ly.
Sanderson of Bowden, L.
Sassoon, L.
Scott of Needham Market, B.
Seccombe, B.
Selborne, E.
Selkirk of Douglas, L.
Selsdon, L.
Sharkey, L.
Sharples, B.
Shaw of Northstead, L.
Sheikh, L.
Shipley, L.
Shutt of Greetland, L. [Teller]
Skelmersdale, L.
Smith of Clifton, L.
Steel of Aikwood, L.
Stewartby, L.
Stoneham of Droxford, L.
Stowell of Beeston, B.
Strasburger, L.
Strathclyde, L.
Taverne, L.
Taylor of Goss Moor, L.
Taylor of Holbeach, L.
Teverson, L.
Thomas of Swynnerton, L.
Thomas of Walliswood, B.
Thomas of Winchester, B.
Tordoff, L.
Trenchard, V.
Tugendhat, L.
Tyler, L.
Ullswater, V.
Vallance of Tummel, L.
Verma, B.
Waddington, L.
Wade of Chorlton, L.
Wakeham, L.
Wallace of Saltaire, L.
Wallace of Tankerness, L.
Walmsley, B.
Walton of Detchant, L.
Warnock, B.
Warsi, B.
Wasserman, L.
Wheatcroft, B.
Wilcox, B.
Williams of Crosby, B.
Williamson of Horton, L.
Willis of Knaresborough, L.
Willoughby de Broke, L.
Younger of Leckie, V.

6.23 pm

Clause 32 : Exceptions to minimum requirements

Amendment 64

Moved by Lord Young of Norwood Green

64: Clause 32, page 19, line 9, after "be" insert "highly"

Lord Young of Norwood Green: My Lords, this amendment seeks to strengthen Clause 32 by tightening the definition of when the universal service does not apply from exceptional to highly exceptional circumstances. I fully recognise that there will always be extreme circumstances under which the universal service need not apply for practical or safety reasons. However, in the context of a privatised Royal Mail and a new regulator, Clause 32(2)(b) is an avenue that could be exploited.

The Scottish Affairs Committee has had serious concerns about the potential for this loophole to be exploited. Tim Brown, chief executive of Postcomm, gave assurances to the committee that the current rate of exceptions is very low. He stated:

"There are about 1,400 exceptions for delivery in Scotland and a total in the UK of just under 3,000".

The Minister for Postal Affairs sought to reassure the committee that the clause replicates the current situation and that the way in which it would be applied would not change. He stated:

"This subsection in clause 32 reflects that. It uses language that comes directly from the postal services directive and is

17 May 2011 : Column 1313

identical to what was in the Postal Services Bill 2009. It also reflects the current situation. It is not some sort of get-out clause; it is for exceptions only for health and safety, geography and weather".

The Scottish Affairs Committee reached the following conclusion in its December 2010 report, Postal Services in Scotland:

"We recommend that clarification be included on the face of the Bill that this clause should only ever be applied to a very small number of addresses, similar in order to the current number".

In its response to the report, the Government gave the following assurances:

"The Government reiterates the assurances given by the Minister for Postal Affairs in his oral evidence to the Committee and agrees that the number of exceptions should be kept to a minimum-but this system is only workable if we give Ofcom, as the expert independent regulator, the necessary discretion. The Government is not aware of any concerns with the way Postcomm have set up and run the existing system for exceptions and Ofcom have indicated that they have every intention of continuing with the Postcomm system".

We do not think that this goes far enough. Greater assurances that the application of Clause 32(2) will not be extended would give peace of mind to those who fear the erosion of postal services in rural areas. I recognise that, in highly exceptional circumstances, exemptions from the universal service are necessary and that the current level is acceptable. I invite the Minister to give the stronger reassurance that was sought by the Scottish Affairs Committee.

I will now deal with Amendment 66 before turning to Amendments 65 and 65A. Amendment 66 seeks to make it clear that in any review of the universal postal service that may take place, the principle of "one price goes anywhere" in the UK is maintained. As we know, Clause 33(5) permits the Secretary of State by order to change the minimum requirements of the universal service. In Clause 30, requirement 3 demands,

the uniform public tariff, but that can be amended by the Secretary of State under Clause 33. Clause 33(6) states:

"The provision that may be made by an order under subsection (5) does not include the making of different provision in relation to different places in the United Kingdom".

I am sure Ministers intend that to require a uniform tariff, but a tariff is not mentioned. The European standard does not require a uniform tariff in each country, nor does Clause 35 specify that the prices imposed as part of a universal service provision condition should be universal. A uniform tariff is an essential part of the universal service. It is important to business and to the general public. Amendment 66 seeks only to confirm that a USP condition must maintain the universal service at a uniform tariff and I hope that the Minister can be reassuring on this matter.

I turn to Amendment 65 and its supporting Amendment 65A, in the name of the noble Lord, Lord Low. The noble Baroness, Lady Wilcox, told the House at Second Reading:

"We have no intention of downgrading the minimum requirements of the universal service".-[Official Report, 16/2/11; col. 776.]

The question remains: why does Clause 33 set out the means for the Secretary of State to do just that? Ministers have clarified the scope of the Ofcom market review under Clause 29. Again, the Minister told the House that,



17 May 2011 : Column 1314

Yet it is perfectly clear that Clause 33 allows just that, without any time constraint. It could happen after six, 12 or 18 months.

The Delegated Powers and Regulatory Reform Committee of this House expressed concern at the way that Clause 33(5) contains, as it said,

Ofcom can carry out a review of the minimum requirements at any time, at its own initiative or under the direction of the Secretary of State and, the committee said,

Ministers will tell us that this clause provides three locks against change to the universal service requirements, but those could equally be seen as three steps to changing the universal service obligation. Use of this power in Clause 33 could see a reduction of the universal letter service from six to five days a week or remove certain requirements for services to be provided, including a reduced service for the blind and partially sighted.

A recent report for Postcomm estimated that Royal Mail's net cost of delivering on a Saturday, compared with a five-day universal service, is £256 million. TNT in the Netherlands has labelled the universal service as a kind of Jurassic Park that it should get rid of. Without this amendment, the Government will be inviting upon themselves an intense lobbying campaign from Royal Mail's new owners aimed at both Ofcom and themselves to downgrade the universal service requirements.

In Amendment 65 we do not seek to reverse the powers provided for in Clause 33. All we ask for is a five-year transitional period of restraint: restraint to set an atmosphere of confidence for customers at a time of difficult change; and restraint that the Government have already said that they intend to observe. Ministers have, to their credit, listened to representations and tabled amendments to provide similar transitional periods.

Under Amendment 69, Ofcom could not choose to review the cost of providing the universal service, as provided for under Clause 42, for five years rather than three. How surprising that similar restraint would not be shown in the centrepiece of the Bill, the universal service. Amendment 65A in the name of the noble Lord, Lord Low, also seeks no diminution in the minimum standards of the universal service for at least five years.

This is a test of the Government's commitment to the current requirements of the universal postal service. All we ask is for five years. After all, five years under the Fixed-term Parliaments Bill is only the duration of a Parliament. If the Government really mean what they say about protecting the universal service, I hope that they will look favourably on these amendments. I beg to move.



17 May 2011 : Column 1315

Lord Low of Dalston: I should like to speak to Amendment 65A. I think I can be quite brief because the noble Lord, Lord Young of Norwood Green, has covered quite a lot of the ground. I thank him for his supportive remarks. My Amendment 65A seeks to curtail the Secretary of State's power to make an order amending the minimum requirements of the universal postal service, as set out in Clause 30, by providing that, for five years after the Bill comes into force, he,

I tabled a number of amendments at Committee designed to reinforce the minimum requirements of the universal postal service so that they could not be downgraded. My noble friend Lord Tenby kindly moved them for me in my absence on 6 April. At cols. 1782-84, the Minister gave comprehensive reassurances about Ofcom's ability-or, rather, lack of it-to vary the minimum requirements. I confess myself fully satisfied with these. She made it clear that the primary purpose of the Bill is to protect the universal service. "Ofcom's overriding duty," she said,

The Bill requires Ofcom to secure the provision of the universal service. She continued,

contained in Clause 30, and:

Furthermore, the Minister said, "The power in Clause 33,"-for Ofcom to review the extent to which the minimum requirements reflect the needs of users of postal services-

Finally, the Minister made it clear that the Government have no intention of reducing the minimum requirements of the universal postal service. That is all very satisfactory and we can accept that Ofcom does not pose a threat to the universal service.

Amendment 65A therefore has a specific and narrowly focused target in view: the Secretary of State's power under Clause 33(5) to amend the minimum requirements contained in Clause 30. As the noble Lord, Lord Young of Norwood Green, said, the Delegated Powers and Regulatory Reform Committee makes reference to this provision in its report on the Bill in paragraph (9), under the significant heading "Clause 33(5) alteration of the minimum requirements for the universal postal service". It says:

"If OFCOM carry out a review (and they may be directed by the Secretary of State to do so) the Secretary of State may then, by order subject to affirmative procedure, amend clause 30. The Secretary of State is not constrained necessarily to follow any conclusions of the review. The Committee makes no recommendation on clause 33(5), but draws it to the attention of the House as a significant power which would allow the Secretary of State to alter the minimum requirements for a universal postal service",

without reference to any Ofcom review.

Fears have been expressed that once Royal Mail has been sold off, the new owners will put pressure on the Secretary of State to reduce the minimum requirements of the universal postal service on the ground that they

17 May 2011 : Column 1316

impose a burden on the business, which undermines its viability. What they really mean is that it will erode their profits. I believe this is a reasonable concern and my amendment curtailing the Secretary of State's power to reduce the minimum requirements of the universal postal service for five years would afford a period of stability and be good for employees of Royal Mail and users of postal services across the United Kingdom.

I have had constructive discussions with Edward Davey, the Minister responsible for the Bill in another place, and I am grateful to him for making himself available to meet me. As I said, I believe I have identified a problem in Clause 33(5) and suggested what I think is a workable way forward which would meet the needs of both the Secretary of State and users of postal services. However, if the Minister can repeat her assurance this evening that the Government have no intention of eroding the universal postal service and can assure me further that they have no intention of using the power in Clause 33(5) within a decent period of time, we might be able to get by without the need to divide the House.

Baroness Kramer: My Lords, I want to make a couple of quick comments and ask a couple of questions of the Minister. I do not have the scope to get clarity myself.

Is it possible to constrain Ofcom's powers to review by setting a clear period of time in which a review may not take place? We have a problem with the European postal services directive, which requires that the regulator responds to the needs of users. In other words, it has five years in which it cannot provide the response required under the directive. We have a possible problem with that.

I also looked quickly at the Communications Act 2003, which sits alongside this new legislation. Most of its content is about Ofcom's regulation of television and radio, and so on. However, it also has a series of general obligations for Ofcom, which presumably apply to every activity in which Ofcom participates. These again require-as I read them; others may have a different view, but I think probably not-an ongoing process of review, so we have a potential conflict between two pieces of legislation. Does that exist? It would obviously add to the complication.

Having been in the other place, which I know is not always a good thing to say about oneself when in your Lordships' House, I know that the chances that any Member of the House of Commons would allow an affirmative resolution to reduce the universal service obligation have got to be pretty close to zero. Frankly, I could think of nothing more suicidal in whatever election that individual has to face next. Some people may not consider that to be the strongest possible lock but, frankly, I find it hard to think of a stronger one. Far stronger, as far as I can see, than any legislation is the power of realpolitik that would apply under these circumstances.

Lord Borrie: My Lords, subject to the questions that have usefully been asked by the noble Baroness, Lady Kramer, and to which the Minister will no doubt

17 May 2011 : Column 1317

respond, the amendments proposed by my Front Bench and the noble Lord, Lord Low of Dalston, are useful and would have definite gains if they were accepted by the Government. I want to make two points. First, in relation to a review by Ofcom, which is provided for and to which one cannot in principle object, Amendment 66, in the names of my Front Bench team, would confirm the uniform tariff. I do not see how the Minister can object to that; it is a brief and clear amendment. The second point, which was mentioned by both the noble Lord, Lord Low, and the opposition Front Bench, is that there should be a transitional period for the thing to work through. There should be a period in which there will be no change. That, too, seems a helpful and creative amendment, which has been modestly but clearly put forward.

Viscount Eccles: My Lords, Clause 33 provides for a process that has been accurately and elegantly described by the noble Lord, Lord Low, whose amendment concentrates on the Secretary of State's powers. That is clearly the right place to put the emphasis. There seems to be no case at all for preventing Ofcom carrying out the review. The clause is expressed in entirely neutral terms, but in accordance with European legislation. It just says:

"OFCOM may from time to time review the extent to which the provision made ... reflects the reasonable needs of the users".

I cannot see how anybody could object to that. The review might indeed come out as saying not that the obligation should be reduced but that it should be increased. It is a neutral expression.

What is of more consequence is the point made by the noble Lord, Lord Low. Not only can the Secretary of State direct Ofcom to carry out a review without prejudice to what that review says or what the Secretary of State's reaction to it will be, but he also has these order-making powers. What is being sought by the amendment of the noble Lord, Lord Low, is a statutory delay in the ability to use those powers. I find that difficult because Ofcom is coming to this service obligation afresh. We simply do not know what conclusions about the overall needs of the regulatory regime it will come to when it presents them in the first quarter of next year. Ofcom is independent, very large, very experienced and has substantial resources. It is most unlikely that it will come to conclusions that do not meet the reasonable needs of the users of postal services. That is what it is required to take into account.

In that event, we could speculate about the content of an order made by the Secretary of State in response to an Ofcom review but, frankly, it would be pure speculation. There is the conspiracy theory that is being promoted by the Benches opposite. Nothing supports the contention that there is a conspiracy in this. You can have doubts about how private sector companies behave. They have an ability sometimes to be one step in front of Whitehall because, on the whole, they do their homework with great diligence and know what they are allowed to do and what they are not allowed to do. However, we have decided in this Bill that we want private sector investment in both Royal Mail and, eventually, via the mutual option, the post offices.



17 May 2011 : Column 1318

6.45 pm

Then we come to the question of whether the Secretary of State would decide, in response to an Ofcom review, to make an order. It is not self-evident that the order would diminish the obligations under the universal service provider's arrangements. It might do the opposite. The order is also subject to the affirmative resolution, which means that it gets debated in both Houses. If one House or the other does not like it, it can vote it down. The safeguards in this clause, particularly in view of the speed with which this market is moving and of the relative newcomer Ofcom coming to the scene at a very important time, mean that there is nothing in the clause to which we should object.

Baroness Wilcox: My Lords, I can confirm that the very purpose of the Bill is to protect the universal service. I should like to put the mind of the noble Lord, Lord Young, at rest on that before I go any further. I hope, too, that I can satisfy my noble friend Lady Kramer in my response. I know that the noble Lord, Lord Low, has spoken to the Minister in another place, Edward Davey. I hope I can reassure the noble Lord on the points he was most worried about.

The Bill requires Ofcom to secure the provision of the universal service and to ensure that it meets the reasonable needs of users. That latter point is a requirement not just of the Bill but of the European postal services directive. On Amendment 64, Clause 32(2)(b) retains the ability for the regulator to make exceptions where the minimum requirements for delivery and collection in Clause 30 need not apply. These are for exceptional circumstances or geographical conditions. Amendment 64 seeks to change the wording to "highly exceptional". The wording of the clause directly replicates Section 4(1)(a) of the Postal Services Act 2000. It also exactly replicates a provision from the Opposition's 2009 Bill. It flows from Article 3(3) of the European directive, which states that member states must take steps to ensure the universal service,

The kind of situation that constitutes an exception would be an address on a remote island, where there is a single ferry service a week. It would be unreasonable to expect Royal Mail to deliver every day to such an address, as it would require it to charter its own boat. Another example would be where dangerous dogs at an address pose a genuine threat to postmen or postwomen. Currently this allows Postcomm to permit Royal Mail not to make daily deliveries to some addresses in extreme circumstances. Present exceptions apply to only 0.01 per cent of the approximately 28 million United Kingdom addresses. We agree with the intention behind this amendment-that the number of exceptions must be kept a minimum. However, I must confess to your Lordships that I am not sure precisely what effect saying "highly exceptional", as opposed to "exceptional", would have. It would appear to raise the bar, although to what height is unclear. We must recognise that raising the bar is likely to have two effects. First, it will probably result in more risks for hard-working postmen and postwomen, who will be asked to go to a large number of unsafe addresses. Secondly, it will probably

17 May 2011 : Column 1319

put a greater burden on the universal service provider. I have to say to your Lordships that on both counts I am uneasy.

The question I ask your Lordships is whether the current situation is unacceptable. My view is that there is no evidence of a need to move away from what we now have. Indeed, that was the view of the Opposition two years ago. Unless noble Lords opposite can provide us with a rationale for this change, the Government cannot support it. I therefore ask them to consider withdrawing this amendment.

Amendment 65, in the names of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, seeks to prevent a review of the minimum requirements for a period of five years from when this part of the Bill comes into force. Similarly, Amendment 65A, in the name of the noble Lord, Lord Low, seeks to prevent the Secretary of State reducing the minimum requirements-again for a period of five years from when this part of the Bill comes into force. The whole issue of the minimum requirements is something we considered during our deliberations in Committee, and I am sorry that noble Lords were not convinced by my contribution to that debate. As I have said, the power in Clause 33 enhances the safeguards against changes to the universal service minimum requirements. Clause 30 enshrines the current minimum requirements for the universal service, with the important addition of free services for the blind or partially sighted. These requirements gold-plate our European obligations, but it is gold-plating of which we are rightly proud.

As I said during Committee, and as my colleague the Minister for Postal Affairs has said in the other place, the Government have no intention of reducing the minimum requirements of the universal service during this Parliament. As things stand now, and as they would have stood under the 2009 Bill, a future Government could reduce those minimum requirements to the level required by the European directive through a negative resolution procedure using powers under the European Communities Act 1972. This means that, until this legislation is passed, Saturday deliveries could be dropped, and different prices could be charged for sending letters to different parts of the country. We do not believe that that is acceptable, and that is why we have introduced Clause 33. Clause 33 puts in place a clear procedure to be followed before the minimum requirements could be altered. Through this procedure, it offers vital new protections for us all. The protections are threefold, and I think it is important that I set this out again for your Lordships. First, there can be no changes to the minimum requirements unless Ofcom has conducted a review of the needs of users, which would, of course, inform any subsequent Secretary of State's decision. Secondly, the clause guarantees that no change can result in a different minimum level of service to different parts of the country, so we could never have a five-day-a-week letter delivery requirement in Cornwall, but a six-day-a-week requirement in Birmingham, and services must always be priced uniformly. Thirdly, any proposal for change would be subject to the affirmative procedure in both Houses.

Given these enhanced protections, I am afraid that I do not believe it would be helpful to tie the hands of the regulator or the Secretary of State in the way

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proposed by these amendments, as mentioned by my noble friend Lord Eccles. Ofcom will be responsible for regulating the postal services market and should be able to review the market and user needs where it feels it is appropriate. Let us not forget that Ofcom's primary duty will be to secure the universal service. It will need to be able to gather information on customer and market needs if it is to fulfil this obligation. That would include vital information about the needs of vulnerable consumers. This is an important point as one of the general duties of Ofcom under Section 3 of the Communications Act 2003 is a requirement to have regard to the needs of persons with disabilities, the elderly and those on low incomes.

Furthermore, it has been made absolutely clear by both myself and the Minister for Postal Affairs that the Government have no intention of reducing the minimum requirements of the universal service. Even if a future Government believed that changes should be made, the Bill guarantees that no change can result in a different minimum level of service to different parts of the country, and guarantees that services must always be priced uniformly. Critically, any proposal to change the minimum requirements would have to come before this House and the other place and be subject to the affirmative procedure in both Houses.

It has been put to me that the first thing an investor in Royal Mail would do is lobby the Government, Ofcom and Parliament to reduce the minimum requirements of the universal service. Let me be clear to this House: any investor in Royal Mail will know our position on the minimum requirements. They will be fully aware of the strong protections that we have built around them, and they will therefore invest in the full knowledge of these protections. Of course, we cannot stop them lobbying, but I can reassure this House that they will not find it straightforward.

Finally, while I hope I have made clear that this Government have no intention of changing the minimum requirements, I am happy to put on the record again, as the noble Lord, Lord Low, has requested, that that assurance applies for the rest of this Parliament, which is almost four years. However, I should also point out that the European Union directive requires that the universal service must respond to the needs of its users. A five-year legislative ban on any changes could therefore amount to non-compliance with our European Union obligations.

Given the reassurances I have made on the protections for the minimum requirements, I would hope that the noble Lords, Lord Young and Lord Low, will feel able not to press their amendments.

Lord Young of Norwood Green: My Lords, before I respond to what the Minister has said, I reassure the noble Viscount, Lord Eccles, that I do not subscribe to conspiracy theories-

Baroness Wilcox: My Lords, I apologise as I do not think that I have spoken to Amendment 66. I know that I have taken rather a long time to reply to this group of amendments, but it contains some very important points, particularly in relation to the matters raised by the noble Lord, Lord Low.



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Amendment 66 is similar to an amendment tabled in Committee, although that was to Clause 35. As with that amendment, I agree wholeheartedly with the intention behind it. However, I am delighted to assure the noble Lord, Lord Young, that it is simply not needed. It is the Government's intention to ensure that the one-price-goes-anywhere service is protected and that the minimum requirements of the universal service cannot vary across the United Kingdom. We are absolutely clear that the wording of the Bill as it stands-specifically requirement 3 in Clause 30-fulfils that intention. There is no cause for doubt. Furthermore, in Clause 33 we are putting in place new safeguards that explicitly prevent any changes to the minimum requirements that would result in non-uniform pricing, so the one-price-goes-anywhere service is protected now and in the future.

In Committee, the noble Lord, Lord Stevenson, asked about the interplay between uniformity and the requirement in Clause 35 that if a designated universal service condition makes provisions for the tariffs to be used for determining prices for universal services, Ofcom must take into account the costs of providing the service or part of the service. There is no contradiction between this and the need for uniform pricing. It simply means that the uniform price should take account of the total costs. Uniformity is a defining feature of our universal service and the Government are committed to maintaining it as such. I do not think that I can be any clearer than this. The provisions in Clause 30 and Clause 33 already guarantee a one-price-goes-anywhere service. I hope that the noble Lord will, at the appropriate time, not press the amendment.

7 pm

Lord Young of Norwood Green: I thank the Minister for those comments. There were references in her previous contribution to a uniform tariff, so I was not going to be pedantic. I welcome the further words that she has put on the record.

I wanted to respond to the point made by the noble Viscount, Lord Eccles, on the conspiracy theory. I do not subscribe to conspiracy theories as a rule, and I do not in this circumstance. We are perfectly right to express our concerns. That is what the Delegated Powers and Regulatory Reform Committee did, so I rest our case on that. It was a perfectly reasonable response and I listened carefully to the noble Lord, Lord Low of Dalston, in his-as usual-beautifully argued and rational contribution. I am reassured by the Minister in relation to Amendment 64. Why did we seek to introduce the word "highly"-a nuanced amendment, if you like? We saw in a fully privatised environment a different environment, and I welcome her comments on that. I also welcome the assurances that she gave in relation to Amendment 66 and will take them into account.

I listened carefully to the contribution on Amendment 65 and Amendment 65A, tabled by the noble Lord, Lord Low. The Minister kept us in suspense until the end of her contribution when she gave an assurance about extending the restriction to the end of this Parliament. Who am I to quibble over four years

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rather than five? I welcome the intent of that and the other words in that assurance. With those comments, I beg leave to withdraw the amendment.

Amendment 64 withdrawn.

Clause 33 : Review of minimum requirements

Amendments 65 to 66 not moved.

Clause 34 : Designation of universal service providers

Amendment 66A

Moved by Lord Young of Norwood Green

66A: Clause 34, page 19, line 38, leave out subsection (1) and insert-

"( ) OFCOM must designate a postal operator as universal service provider."

Lord Young of Norwood Green: The point at issue in Amendment 66A is whether Royal Mail should be allowed to be hived off and broken up into pieces. We are proud of the fact that there are 115,000 post boxes around the country. Royal Mail has increasingly modern mail centres and the famous fleet of 30,000 red vehicles. The Royal Mail Group's letters and packages business covers the whole of the UK with a one-price-goes-anywhere universal service, six days a week. That is something that Royal Mail is proud of, and something that we, as customers, want. It works only because it is part of an integrated system. Amendment 66A would ensure that we cannot have a situation where everything is shattered into smithereens, people pick up the bits that they want, cherry picking, and the bit that needs most help and support-the bit that is most threatened-is left. The consequence of such a situation may be to undermine our universal service, so we seek support for Amendment 66A.

I shall comment, if I may, on government Amendment 69. Clause 42 provides for Ofcom to review the extent to which the universal service provider is bearing a financial burden by providing the universal postal service. Clause 43 provides for the regulator to consider mechanisms to provide for a burden-sharing arrangement, if Ofcom finds that such a burden exists. This is both a necessary and welcome mechanism in the Bill. Government Amendment 69 would prevent Ofcom from making such a review for a period of five years rather than three years, as originally proposed. This could be seen as a concession to those who want to resist a levy to share the burden of the universal service. We are a bit concerned about that and would like to hear the Government's reasons. However, we can see the argument for a five-year transitional period in this case, as we have sought for the USO minimum requirements under Clause 35.

Government Amendment 70 is exactly in line with the provisions that have been sought by the Opposition. It is welcomed by both management and staff in Royal Mail. With the potential turmoil and uncertainty of privatisation, it is important to provide some guarantee that Royal Mail will be able to make long-term investment

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decisions in the provision of the universal service. If it could lose all or part of the universal service, that would surely be a deterrent to major investment in the network that guarantees that the universal service is provided. By guaranteeing the universal service provision to Royal Mail for a 10-year period, this amendment gives Royal Mail the confidence to make necessary future investment. We are delighted that the Government have listened to the submission on this question from this side of the House, and from those inside the sector who have argued for such an amendment.

Amendment 70A goes on to seek that a reasonable period of notice be given before any other operator can begin providing postal services required under a universal service obligation. Under Clause 43, Ofcom can make a procurement determination-in other words, allow some or all of the universal service to be provided by a company other than Royal Mail. Royal Mail and the postal sector desperately need stability. Royal Mail is undertaking a major programme of modernisation involving more than £2 billion of investment. This process, combined with an aggressive regulatory regime, means that the company is facing a very restricted financial position. The business must be given sufficient notice of such a drastic change if it is to be able to plan effectively and to continue to provide the services expected of it. We are pleased that the Government have listened to representations and agreed that there should be no procurement determination for at least 10 years. However, if such a drastic move were to be made to remove Royal Mail as universal service provider, Amendment 70A would simply ensure that a reasonable period of notice would be required to allow everyone to make the transition. We hope to hear an assurance to this effect.

Lord Jenkin of Roding: My Lords, I listened to the noble Lord, Lord Young, but there are anxieties that the protection of the universal service and the amendments he has moved may, to some extent, weaken the determination of the management of Royal Mail to make the maximum effort to achieve the efficiencies that are now widely recognised as being an essential part of the whole programme. The Bill contains measures which would enable the Government, on the advice of Ofcom, to take other measures, for instance going for procurement, to which the noble Lord referred, if somebody else is prepared to offer the service at a lower cost because they are more efficient. It would be difficult to preclude that happening by legislation. Similarly, on the question of the fund, if other providers are to contribute to a fund, is there not a danger that they will find themselves contributing to reinforcing the inefficiencies of Royal Mail? I have said in previous debates that the chief executive of Royal Mail is making a tremendous, herculean effort as a manager to secure the efficiency savings that can be made. She is the first to admit that there is more to do. Royal Mail recognises that it has made a start and that she has the apparent support of the workforce. There needs to be greater efficiency.

I read these amendments, tabled by the Opposition, as removing some of the pressure on Royal Mail to get ahead with that. The noble Lord shakes his head but that is the fear. I therefore hope that that amendment will not be accepted. The amendments proposed by

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my noble friend on the Front Bench seem to be an admirable way of giving the appropriate protection to ensure that the services have the opportunity to become as efficient as possible, so perhaps not surprisingly, I find myself supporting the government amendments. I hope that they will not be used so that competitors, who could offer other services, find themselves subsidising the inefficiencies of Royal Mail. I know that that is not my noble friend's intention but nevertheless there are fears among some of the competitors that that might be the unintended consequence. If my noble friend can reassure me on that I will be very grateful.

Lord De Mauley: My Lords, I thank all noble Lords who participated in this short debate. I shall speak to the amendment the name of the noble Lord, Lord Young. It would remove from the Bill the ability to designate, even in extremely limited circumstances, more than one company as a universal service provider. The intention of Clause 34 is to give Ofcom the power to designate more than one universal service provider in two specific circumstances only, in order to ensure the provision of the universal service.

As with other elements of the Bill, Clause 34 has been drafted to ensure that the Bill stands the test of time. It enables the regulatory regime to adapt when it needs to, in order to ensure the continued and long-term provision of the universal service. The measures we are taking in this Bill are designed to put Royal Mail on a sustainable footing so that it can continue to provide the universal service that we all value so highly.

However, it makes sense to set the legislation in this way to ensure that the universal service could continue to be provided in two specific, and extreme, circumstances. The first of these is where providing the universal service is found to represent an unfair financial burden on the universal service provider. The Secretary of State agreed with Ofcom's advice that the best way of addressing that burden was through a procurement exercise, provided for by Clause 43.

I want to be clear that this is not about another operator being able to cherry pick profitable parts of Royal Mail's business. This scenario would transpire only if it was determined that Royal Mail was subject to an unfair burden in providing the universal service. Ofcom would then assess whether another company could provide the relevant part of the universal service with less of a burden-in effect, removing the burden from Royal Mail. It is in this scenario that another company could be designated the universal service provider for that part of the universal service.

The second circumstance-and we all hope that this will never happen-is where Royal Mail has become insolvent and has entered special administration. Where a postal administration order has been made under Part 4, and it is not possible to rescue Royal Mail as a going concern, some of its activities could be transferred to another company, and Ofcom could then designate that company as a universal service provider as well, in order to secure the universal service.

As I have said, the full package of measures in the Bill is designed to secure the future of Royal Mail and the universal service, and therefore to ensure that we

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do not end up in either of those scenarios. Both the procurement process and the special administration provisions are backstops to be used only if the future of the universal service is at risk. However, as already has been mentioned, having the ability to make such designations in these specific cases is a sensible and pragmatic safeguard.

It is also important to make it clear that having more than one designated universal service provider in no way provides for or permits a varying level of minimum service across the country. Provisions elsewhere in Part 3 guarantee that the minimum requirements of the universal service remain uniform. I hope that, with those assurances, the noble Lord will feel able to withdraw the amendment.

Turning now to Amendment 70A in the name of the noble Lord, Lord Young, let me start by saying that I could not agree more with the intention behind this amendment, which seeks to protect the universal service provider from harmful cherry picking that could undermine the universal service. However, I hope to convince the noble Lord that this amendment is neither as strong nor as targeted as government Amendment 68, which we discussed in an earlier group, and government Amendment 70, to which I will come shortly.

Amendment 70A would apply only after several conditions had been met. First, a review of the costs of the universal service under Clause 42 would have to have taken place and, as we will discuss shortly, we are proposing that this cannot take place for five years. Secondly, Ofcom would have to have determined that the universal service provided an unfair burden, and would then have to report to the Secretary of State setting out its recommendations for dealing with any unfair burden identified by Ofcom. Finally, the Secretary of State would have to make a decision on what action to direct Ofcom to take, and all this would have to take place before Amendment 70A would apply.

7.15 pm

However, government Amendment 68, which gives Ofcom the power to impose notification conditions on any operator who is starting or expanding a service within the scope of the universal service, will apply from day one of the new regulatory regime coming into force. I ask the noble Lord, Lord Young, to accept that the government amendment therefore offers even stronger protections for the universal service than his Amendment 70A. Our amendment is also targeted at the area of activity that really threatens the sustainability of the universal service. The noble Lord and I agree that that is the cherry picking of letter delivery. I therefore hope that the noble Lord will consider not moving Amendment 70A in light of the government amendments whose purpose is to deal with his concerns.

Turning now to government Amendments 69 and 70, we all recognise that Royal Mail needs to modernise and become more efficient. My noble friend Lord Jenkin, more than anyone, has referred to that. As part of that process, Royal Mail will need to invest in new machinery and new technology and, before making long-term investments, boards and shareholders look for certainty. Amendment 70 seeks to give certainty to

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Royal Mail that for a significant length of time it will remain the universal service provider throughout the whole United Kingdom.

As your Lordships know, in this Bill we were keen to put more tools in the regulatory toolbox to ensure that Ofcom can fulfil its overarching duty to secure the universal postal service. To that end, if Ofcom concludes, following a review under Clause 42, that providing the universal service represents an unfair burden to Royal Mail, we have included in Clause 43 a number of options for addressing that burden, including that of a procurement process.

The procurement option will allow Ofcom, if the Secretary of State so directs, to carry out a form of competitive tendering to see if any other postal operators are able to provide some or all of the universal postal service in a manner that eliminates or reduces the extent of the unfair burden. The advantage of this would be that it could result in the requirements of the universal service being met, but at a lower cost. It could therefore provide benefits to consumers in securing the long-term future of the universal service, on which we all rely.

However, as my noble friend Lady Kramer eloquently argued in Committee, there could be some unintended dangers resulting from the current drafting of the Bill. Some have seen this procurement option as a potential mechanism to transfer all, or a large part, of the universal service provider designation to a new provider. This is not our intention, nor is it how we would expect such an option to be used. Our expectation is that a procurement determination is much more likely to apply to small areas where, for example, a local provider or possibly a community provider might be able to deliver savings.

We accept, however, that the clause as drafted could give rise to doubts over the certainty of Royal Mail's designation as universal service provider in the short-to-medium term. The Bill as currently drafted effectively gives a three-year moratorium period before there could be a procurement determination. We accept that the risk of Royal Mail losing part or all of its designation after three years may discourage the company from making otherwise rational and important investments in its infrastructure to provide the universal service that payback over a longer period. That is absolutely not the Government's intention and that is why we have brought forward Amendment 70. That amendment will give Royal Mail a 10-year period of certainty. We believe that this length of time is appropriate to the sorts of decisions the Royal Mail board will be taking. The same period of notice is currently in Royal Mail's licence from Postcomm and is not dissimilar to the length of time that is common in other regulated sectors where obligations such as the universal service are imposed.

However, let us not forget that the procurement option could potentially be to the advantage of Royal Mail by relieving it of the requirement to provide the universal service in an area where it is an unfair burden. Our amendment does not therefore rule out a procurement determination entirely for 10 years. It allows for one if Royal Mail also agrees. We believe that this combination is the best way of meeting our

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central objective of securing the universal postal service, and I hope that all noble Lords will feel able to support this amendment.

Although we need Royal Mail to have the certainty that I have described, we also need there to be pressure on it to press ahead with modernisation, and this brings us back to my noble friend's point. We must recognise that the threat of a compensation fund means increased uncertainty for Royal Mail's competitors. It is therefore not unreasonable to seek to delay the possible introduction of a compensation fund until necessary modernisation has taken place.

Following the earlier helpful suggestion from my noble friends Lord Razzall, Lady Kramer and Lord Cotter, we have looked again at the moratorium period before Ofcom can conduct an unfair burden review. We have concluded that a period of five years is appropriate, and that is reflected in Amendment 69. This means that neither a compensation fund nor a procurement determination can be initiated for five years unless the Secretary of State directs Ofcom to carry out a Clause 42 review. Preventing the introduction of a compensation fund for this period maintains the pressure on Royal Mail to continue essential modernisation. As has been made clear time and again, unless Royal Mail modernises, the universal postal service will be under threat. Therefore, I hope that all noble Lords are able to support Amendments 69 and 70.

Lord Young of Norwood Green: My Lords, I listened very carefully to what the noble Lord, Lord De Mauley, said in referring to the government amendments and in responding to my amendments. I want to pick up a point made by the noble Lord, Lord Jenkin. I point out to him the competition pressures of the marketplace that already exist for Royal Mail from the digital environment. Those are pretty significant, but the Bill also refers to a duty to secure the provision of a universal postal service. I note that Clause 28(3) talks about,

However, there are more than enough other external pressures on Royal Mail, and I think that it well understands the importance of the modernisation programme, which is going ahead at a pace. I do not mean to dismiss the noble Lord's concern; I am just trying to address it in a slightly different way.

We will look carefully at the question of the unfair burden and the specific circumstances in which it would apply, although I feel that our concerns were addressed.

I said in my previous contribution that we would support the government amendment. We had some concern about the need for a change in the period from three to five years, certainly in relation to Amendment 69, but I suppose that it is hard for us to argue against the five-year approach, given that we sought it in the USO minimum requirements. However, I understand the point that the noble Lord, Lord De Mauley, was making.

Taking into account the responses from the Minister, I beg leave to withdraw the amendment.

Amendment 66A withdrawn.



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Amendment 67

Moved by Baroness Dean of Thornton-le-Fylde

67: After Clause 34, insert the following new Clause-

"Indebtedness of potential USP

(1) OFCOM, in designating a postal operator as a universal service provider (USP), must take into account the financial indebtedness as a proportion of the value of the company of any potential USP, and may limit this indebtedness to such a percentage as OFCOM may from time to time determine.

(2) For the purposes of this section-

(a) "financial indebtedness" means, at any time, the aggregate outstanding principal, capital or nominal amount of any indebtedness of the company calculated in accordance with guidelines published by OFCOM, and

(b) "value of the company" means the value of the company's assets calculated in accordance with guidelines published by OFCOM and taking into account the timing of material transactions affecting that value."

Baroness Dean of Thornton-le-Fylde: My Lords, Amendment 67 deals with the potential indebtedness of a universal service provider. It is an issue that we aired in the latter stages of Committee at the beginning of April-a long time ago. In that debate, the Minister, the noble Lord, Lord De Mauley, very kindly said that he would go back and look at the matter. Subsequently, he kindly wrote to me to try to give me some assurances. Unfortunately, his letter did not give me the assurances that I was seeking because he referred to conditions under Clauses 38 and 53. He referred to the fact that Ofcom "could" indeed include conditions or that it "could impose" a similar condition. Later in his letter, he said that Ofcom would be "able to impose" any conditions.

On the previous amendment, the Minister referred to the importance of the universal service provision requiring modernisation, but clearly you are not going to be able to invest in modernisation if you do not have the capital to do it. This goes to the heart of my concerns. It is not my intention to press this amendment to a Division but, as the Bill stands, I am perplexed as to why the Government will not agree either to make a commitment or to put something in the Bill in this regard-there are government amendments before us this evening-requiring Ofcom either to monitor or perhaps to intervene, rather than leave it entirely up to Ofcom. That, in itself, raises the question: how do you trigger Ofcom carrying out work that will deal with this issue? Will the trigger be a complaint from a member of the public or from a government department? Who would pull the trigger that would make such a review take place? My concern is genuine and I wonder whether it can be dealt with in the Bill. There is so much else in the Bill. It deals with charges and costs and a whole range of financial issues but it does not appear to deal with financial help for the universal service provider.

We are now at a late stage of the Bill and it is not my intention to detain your Lordships. However, I do not think that the House would be carrying out its function of scrutinising and improving legislation if we let the Bill go from this Chamber without some

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kind of reference to this matter-if not in the Bill itself then perhaps in the form of an assurance from the Minister at the Dispatch Box that the chosen universal service provider would have the financial health and well-being to be able to carry out the modernisation programme that across the House we agree is absolutely essential.

Lord Young of Norwood Green: My Lords, I support Amendment 67. It would introduce a new clause after Clause 34 requiring Ofcom to monitor indebtedness and giving it the power to limit the indebtedness of the universal service provider in relation to the overall value of the company.

In an earlier debate, my noble friend Lord Brooke of Alverthorpe drew attention to the case of the air traffic control company, NATS, which, when it was privatised, was very highly geared. It was limited to 100 per cent, which was still an extraordinarily high gearing to bear for the airlines group that bought the major part of the company. One aim of the public/private partnership was to bring in capital. My noble friend pointed out that real difficulties would be caused if a company coming into ownership of a utility borrowed most of the money to make the purchase and then found that it was unable to provide the capital needed to effect the changes and necessary modernisation in the operation-a point made by my noble friend Lady Dean. In the same debate, the noble Baroness, Lady Wheatcroft, said:

"Overgearing is as bad for companies as it for Governments, and it is something we need to be aware of as we move towards selling Royal Mail".-[Official Report, 6/4/11; col. 1758.]

I wholeheartedly endorse the analysis made by my noble friend Lady Dean. This is an important issue and we await with interest the Minister's response.

Viscount Eccles: My Lords, perhaps I may make a very brief intervention. The noble Baroness, Lady Dean, and I have a small piece of shared past. In fact, we have shared more than one but this one is financial. We were both involved in a company which had an unhappy ending because it got its indebtedness entirely wrong. As far as I am concerned, I am sure that it is a small piece of burnt soul, and no doubt the noble Baroness, Lady Dean, feels the same. Therefore, being really concerned about the gearing of a balance sheet, which is what we are talking about, is absolutely right.

7.30 pm

In this amendment, Ofcom will have an absolutely clear duty to take into account the state of the universal service provider's balance sheet. I do not see how it can possibly deal with the need to preserve the universal service in a good condition. The commercial returns that we have referred to and the service to the public are inevitable. The second part, about whether Ofcom should have the power to limit that indebtedness to a percentage so that the gearing is, from time to time, limited to a certain figure, is much more difficult. We must rely on the good sense-and the business sense-of the Royal Mail and any investors in the Royal Mail, and the good sense of Ofcom to alert the stakeholders

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concerned to any problems that it perceives, which it definitely would be able to do. This amendment goes a bit too far in trying to provide belt and braces, which is not an endeavour we should support.

Baroness Kramer: My Lords, I very much appreciate the thrust of the amendment. Obviously it is crucial to everybody in your Lordships' House that whoever becomes the private partner or investor in the Royal Mail should have the resources to be able to continue the modernisation programme and make sure that it becomes a very successful company. From my guilty experiences of years as a corporate banker, I know it is extremely difficult to write a financial test that will do this. I understand that the noble Baroness, Lady Dean, has made a good thrust at it. However, the reality is that, unless there are also tests on cash flow and the income statement, and a variety of different tests looking at the balance sheet, there is not a hope of getting a grip. In the days of modern financial structuring, and with the range of options that are allowed under various accounting procedures, the chances that a financial test-even a carefully drawn one-would provide the ability for Ofcom to identify and winnow out a provider would be extremely limited. It will be a much more complex task that requires understanding the businesses and the broader scope of the work that they do. It requires ongoing monitoring; it requires a much more complex approach.

One of the comforts that perhaps some of us have in this House is that Ofcom is at least doing this with the media industries, and that it has that kind of business and financial understanding which ought to allow it to recognise if the private partners in the universal service provider have the appropriate financial structure and strength to be able to provide capital in the future. It seems to me that the thrust of the amendment is a very important one. However, in practice, this is not something that can be devised in a House like this and put in the Bill. There is comfort within the broader role that Ofcom plays. Its experience and expertise means that we should have every expectation that it would exercise real prudence in financial oversight of a universal service provider.

Lord De Mauley: My Lords, I am grateful to the noble Baroness, Lady Dean, for tabling Amendment 67, as it concerns a vital issue. I also hope that she found my letter on the matter following Committee useful even if she was not entirely satisfied by it. I am grateful to her for finding time to meet me to discuss the matter, which the Government take extremely seriously.

Amendment 67 proposes to give Ofcom the power to limit the indebtedness of the universal service provider in relation to the overall value of the company. The noble Baroness speaks from great experience on this issue and the noble Lord, Lord Young, expanded on her experience, which we value greatly. She made it clear how important it is that Ofcom has the power to monitor the finances of the universal service provider and to act where the situation demands. I very much acknowledge that point. I reassure her and your Lordships generally that Ofcom is well equipped to tackle the risk of unsustainable levels of debt within the universal

17 May 2011 : Column 1331

service provider. As I said in Committee, Ofcom already has the power to impose designated USP conditions through Clause 35 that could include conditions akin to the condition 16 requirement in the Royal Mail's existing licence. That condition does not allow the Royal Mail to do anything that,

carry on its business.

As the noble Baroness, Lady Dean, has mentioned, Ofcom also has powers under Clauses 38 and 53 to require information from the universal service provider and to set accounting conditions to ensure it can accurately monitor the costs of the universal postal service. I appreciate that the noble Baroness, Lady Dean, is concerned at the conditionality implied by my use of "could include", in the context of a condition 16 requirement in the Royal Mail's licence. There is no reason I can think of why the condition 16 requirement will not be so included. However, it will not be a matter for the Government. It will be a matter for Ofcom. I hope that the noble Baroness will find considerable comfort when I say that Ofcom's primary duty for the post is to secure the provision of the universal service. If Ofcom considered that it was essential to use any or all of the powers that I have mentioned in order to deliver that objective, it would, as my noble friend Lord Eccles has said, be legally obliged to do so. I hope and believe that this is what the noble Baroness seeks to achieve through her amendment. With these assurances, I hope that she will feel able to withdraw Amendment 67.

Baroness Dean of Thornton-le-Fylde: My Lords, I thank the noble Lords who have taken part in this short debate and particularly the Minister for meeting me this morning to discuss the issue. We are all trying to get to the same spot. The question is how we do it. I say to the noble Baroness, Lady Kramer, that I do not feel as faint-hearted as she appears to be about putting a debt level on this. This will be a business, with regulated and very transparent charges. It is not like a plc. What is suggested here applies now in the air traffic control regulated business in the UK. The CAA suggested this-though not in this exact wording-and set a gearing level beyond which National Air Traffic Services could not go. I declare I am a member of the board of NATS. The structure of the organisation is part public and part private sector. Nevertheless, NATS is in the CAA stage of regulation for the next three years.

It is, therefore, possible to do it. I accept that it would be a lot more difficult in a wholly private industry which is not regulated like the new universal service provider will be. It has been a helpful debate. I have not reached the destination that I wanted to. Nevertheless there is concern around the House. I hope that Ofcom will take the comments on board when it is looking at what will be a very difficult and sensitive decision. This presupposes that there are buyers out there that will want to take on the universal service provision. I would like to withdraw this amendment.

Amendment 67 withdrawn.

Amendment 67A not moved.



17 May 2011 : Column 1332

Clause 37 : USP access conditions

Amendment 67B not moved.

Amendment 68

Moved by Baroness Wilcox

68: After Clause 39, insert the following new Clause-

"Notification condition

(1) OFCOM may impose a notification condition on-

(a) every person providing, or intending to provide, a service within the scope of the universal postal service, or

(b) every person providing, or intending to provide, a service within the scope of the universal postal service of a specified description.

(2) A notification condition is a condition requiring the person to give OFCOM-

(a) advance notice of the person's intention to provide a letters business on a specified scale (whether or not the person is currently providing a letters business or any other postal service), and

(b) where the person is already providing a letters business on a specified scale, advance notice of the person's intention to expand the business by a specified extent.

(3) A specified scale or extent may be determined by reference to any specified factor.

(4) The Secretary of State may at any time direct OFCOM to impose a notification condition.

(5) The direction may (but need not) specify some or all of the provision to be contained in the condition.

(6) Where a notification condition applies to a person at a time when the person is not providing a postal service-

(a) Schedule 7 (enforcement of regulatory conditions) is to have effect as if paragraph 7(2) and (3) were omitted and as if, for the purposes of paragraph 11, the person were providing a postal service, and

(b) Schedule 8 (information provisions) is to have effect as if the person were a person falling within paragraph 1(2) and as if, for the purposes of paragraph 8, the person were providing a postal service.

(7) In this section-

"advance notice" means written notice given at least a specified period of time before the person intends to do as mentioned in subsection (2)(a) or (b),

"a letters business" means a postal service which consists in the delivery of letters, and

"specified" mean specified in the notification condition."

Amendment 68 agreed.

Clause 42 : Review of costs of universal service obligations

Amendment 69

Moved by Baroness Wilcox

69: Clause 42, page 26, line 36, leave out "3" and insert "5"

Amendment 69 agreed.



17 May 2011 : Column 1333

Clause 43 : Fairness of bearing burden of universal service obligations

Amendment 70

Moved by Baroness Wilcox

70: Clause 43, page 28, line 1, at end insert-

"( ) A direction under subsection (12) may not require OFCOM to make a procurement determination at any time in the period of 10 years beginning with the day on which this section comes into force unless the universal service provider has agreed to the making of the determination."

Amendment 70 agreed.

Amendment 70A not moved.

Clause 49 : Consumer protection conditions

Amendment 70B not moved.

Clause 60 : UK postage stamps bearing image of Her Majesty

Amendment 71

Moved by Baroness Wilcox

71: Clause 60, page 38, line 27, leave out subsections (4) and (5)

Amendment 71 agreed.

Clause 63 : Interpretation of Part 3 etc

Amendments 72 and 73

Moved by Baroness Wilcox

72: Clause 63, page 39, line 35, at end insert-

""notification condition" has the meaning given by section (Notification condition),"

73: Clause 63, page 40, line 31, at end insert-

"( ) Any direction given by the Secretary of State under any provision of this Part-

(a) must be in writing, and

(b) may be varied or revoked by a further direction."

Amendments 72 and 73 agreed.

Clause 67 : Objective of a postal administration

Amendment 74 not moved.

Schedule 11 : Postal transfer schemes

Amendment 75 not moved.



17 May 2011 : Column 1334

European Union Bill

Committee (6th Day)

7.40 pm

Clause 6 : Decisions requiring approval by Act and by referendum

Amendment 41

Moved by Lord Pearson of Rannoch

41: Clause 6, page 5, line 16, at end insert-

"( ) a decision under Article 311 of TEU which would result in the net contribution of the United Kingdom to the European Union's own resources exceeding £10 billion;"

Lord Pearson of Rannoch: This amendment gives the British people a referendum on the economic cost of our EU membership. This would discover whether they want to go on paying through the nose to be bossed around by an organisation which is of absolutely no use to them. The amendment is targeted on the net cash we send to Brussels every year. It does not address the gross cash we send, which is roughly double, although many Eurosceptics argue that we should concentrate on that gross amount because so much of what Brussels sends back to us of our own money goes on projects designed to enhance the EU's image which we could certainly spend more fruitfully elsewhere.

This amendment requires that when our net contribution reaches £10 billion per annum, or nearly half the current spending cuts of £21 billion, there must be a referendum to see whether the British people want to go on paying such tribute. For clarity, and to show how reasonable this amendment is when set against some of the wider costs of our EU membership which are more difficult to define, it is worth spelling out some of those other costs.

This amendment does not include the huge liabilities to which we are now exposed from bailing out that cruel failure, the euro. At the moment, these include the £3.25 billion we have underwritten for Ireland and the further £7 billion to which we have been illegally signed up under the financial stability mechanism. I suppose there may be more on the way for Greece, Portugal and even Spain, but so far that is £10.25 billion, which we are unlikely to get back. Again, I would point out that that is nearly half our current spending cuts.

Nor does the amendment cover the billions we have thrown away by surrendering control of our fishing industry to Brussels and its iniquitous common fisheries policy-a cost that seems to be estimated at about £2 billion annually. Beyond its financial cost, whatever it is, it is perhaps worth reminding your Lordships of the EU's own recent estimate that some 800,000 tonnes of fish are thrown back dead into the North Sea every year. To get this statistic into everyday proportion, I invite your Lordships to imagine a 40-tonne articulated lorry that fills most of your Lordships' Chamber from the Throne to the Bar, although it is not quite as high. Then I ask your Lordships to stretch your imagination further and to think of 20,000 such lorries, all full of

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dead fish. Some environmental bodies put the annual discarded fish at 2 million tonnes, which comes to 50,000 articulated lorries. To get all these lorries into understandable perspective, it perhaps helps to think that their contents would fill the Palace of Westminster and Whitehall several times over with dead fish every year.

Lord Lea of Crondall: I am sure we are all fascinated, but is the noble Lord not in favour of any sort of conservation policy in the seas around Europe or is he just saying that we have been robbed?

7.45 pm

Lord Pearson of Rannoch: We were not robbed because we voluntarily signed our fishing away before we signed up to the 1972 Act. We gave it away. We Eurosceptics would like our fishing back. We would like our waters back. We would like to control them entirely ourselves, as do the Icelanders, the Norwegians and the Faroe Islanders, to their great national benefit. When we have re-established our fishing stocks by not discarding any fish, we will then let out any surplus not required by our industry, once we have re-established that, to foreigners. That is what we would like to do.

Lord Lea of Crondall: I am going to the Faroe Islands in a couple of weeks' time, and I point out that the issue with the Faroe Islands at the moment is that our mackerel, if we like to call them that, are going their way, the Faroe Islanders catch them, and we do not want them to be landed in this country. I do not know whether we will ever solve those problems without some sort of common regime.

Lord Pearson of Rannoch: I am sure we could collaborate with other nations that control their own waters. What we do not want to do is to go on with a common fisheries policy that ensures that hundreds of thousands of tonnes of fish are thrown back dead every year and which has removed a very valuable industry. I hope that is clear to the noble Lord. While on my statistics the fish that are thrown back dead every year would fill this Palace of Westminster and Whitehall several times over, I have to tell your Lordships that there are those outside the political class who think that that might be a rather better use for them than being thrown overboard to pollute the seabed.

This amendment does not require a referendum if we are so foolish as to stay in the common agricultural policy, which is estimated to cost each family in the land around £1,000 per annum in higher food costs, or some £26 billion. On the environment, this amendment does not address the £18 billion per annum which the Government say we are going to spend on their climate change initiative inspired by the European Union, complete with all those useless and ugly windmills, not to mention the closure of our coal-fired power stations. The amendment does not include the cost to our economy when the lights go out, nor does it cover the billion or so we send to Brussels for it to misspend on foreign aid.

Finally, the amendment does not include the huge costs of overregulation which the EU imposes on our whole economy. I dealt with this in minimal detail on 3

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May at cols. 398 to 400, so I will not repeat it now, but we are talking about anything between 4 per cent and 10 per cent of GDP by most estimates. Our GDP now stands at around £1.5 trillion, so we are talking about anything between £60 billion and £150 billion. If any noble Lords want to challenge these figures, they can, of course, do so, but I trust they will join me in pressing the Government for an official cost-benefit analysis of our membership if they do.

This amendment is not triggered by any of the £100 billion or so per annum of waste which I have just mentioned that is notched up by these and other EU follies. The joy under this amendment is that a referendum would be triggered only when our net cash thrown down the drain in Brussels equals £10 billion per annum according to the Government's own figures. Mark you, the Office for National Statistics has recently put our net contribution at around £9 billion already this year, and most people seem to agree that we are looking at £10 billion for next year, so we are nearly there. I can point out that the noble Lord, Lord Sassoon, in his Answer to my noble friend Lord Vinson yesterday put our net contribution as low as £4.7 billion, so there is room for clarity here. I have a feeling that the noble Lord, Lord Sassoon, was mentioning the figures put forward by the Treasury, which are very much lower than the figures put forward by the Pink Book, but that is perhaps an argument for the cost-benefit analysis when we get there.

We are talking about £10 billion per annum. This may not sound much to our Europhile political class, but it is an awful lot of money to real British people. Ten billion pounds per annum comes to some £27.39 million every day. That would pay for 900 nurses every day at a salary of £30,000 per year each-or teachers, or policemen, or other public servants. The amendment requires a referendum when the net cash that we send to Brussels would pay the annual salaries for 900 nurses every day, or for 328,500 nurses every year.

There is another way to understand the importance of £10 billion per annum, which comes to £400 per annum for each of our 26 million families. All these costs have to be seen against the perilous state of our economy and the sacrifices and difficulties in which many of our people now find themselves through no fault of their own. Current spending cuts, as I have mentioned, appear to be around £21 billion. Which would the British people prefer?

I am sure that the Government and your Europhile Lordships will say that the benefits of our EU membership are so wondrous and obvious and that they go far beyond its mere vulgar cost to our long-suffering taxpayers. I have never understood what those benefits really are; what benefits we get from our EU membership, which we could not get from free trade and friendly collaboration with our European friends; what benefits we get, for instance, that the Swiss do not enjoy from outside the EU.

Perhaps the Minister could be more precise today about these great benefits. This Government and the previous Government-and previous Governments for some time-have said that a cost-benefit analysis would be a waste of money. The Stern report on climate

17 May 2011 : Column 1337

change, however, cost only £1.272 million on a subject at least as complex as our EU membership. Surely that tiny sum would be well worth spending to discover whether the colossal costs of our EU membership are justified or not.

We, of course, are told that we stand taller as a sovereign nation in meetings of the international conferencariat all over the planet-because we have diluted our sovereignty into the new form of supranational government in Brussels run by bureaucrats. If the Minister is going to advance this line again today, could he give some concrete examples of the great advantages and the successes? Does he think, for instance, that the EU did a good job when the lid came off Yugoslavia, or that it is doing a good job in north Africa? What confidence does he have in the EU's new External Action Service?

I conclude by asking the Government, yet again, to settle these matters by ordering an objective, unbiased cost-benefit analysis of our EU membership. In the mean time, this amendment asks that the British people be given a referendum when our cash payments to Brussels exceed £10 billion to decide whether they want to go on paying it. I beg to move.

Baroness Nicholson of Winterbourne: My Lords, I am a little dazzled by the complexity of the millions and billions and almost trillions of pounds and euros that the noble Lord, Lord Pearson of Rannoch, has laid in front of us. Indeed, while I was listening to him most closely, I recalled a moment of great happiness when I was begging for charity recently and I received a cheque with so many zeros that they fell off the end of the cheque. I ran around saying to someone else who could add up more closely in the charity, "Look, look, look, we have done exactly what we want to do". He pulled me down to earth and he said, "Do be careful-this is a cheque from Burkina Faso". When it was added up, it came to about $5.

The arguments put forward by the noble Lord, Lord Pearson of Rannoch, while in no way impugning, by this comment, his grasp of finance and passionate loyalty to the European Union's holding on to her old funds, make me wonder whether in fact this amendment does not belong in the Bill at all. In other words, is he offering us the king with no clothes? Surely this Bill is about the transfer of powers and competencies. It is not about the transfer of finance, which should enable the European Union to carry out the powers and competencies it already has. In other words, this is not a Bill that enables us successfully to argue various different figures about financing of the European Union. My suggestion is that this most interesting amendment does not in fact belong here at all. It is correct and proper, incidentally, that the European Union should be suitably funded for the competencies that the member states have authorised it to carry out.

There is also the problem that this figure simply does not take into account our contribution from the United Kingdom to the EU budget in terms of inflation. How would the noble Lord react if, for example, the UK goes over the £10 billion mark, but proportionately our contribution is in fact smaller? That could be the case with the growth of Germany and other economies:

17 May 2011 : Column 1338

our proportion-our net contribution-could be proportionately smaller but might be larger than £10 billion. In the calculation of our UK contribution-the net versus the gross-the timing of the UK's actual contribution needs to be taken into account. This amendment is impractical on timing grounds alone, because our contribution generally comes in after the event.

It is, of course, natural that I would be likely to disagree with the noble Lord, Lord Pearson of Rannoch, on his comments that we have diluted sovereignty from the United Kingdom in joining the European Union. I will disregard the temptation to go down that channel, otherwise we will not make any progress on this amendment-save to say that in foreign affairs and defence and security, if I could dare tempt him with that wicked phrase, we have greater strength, power, and a wider outreach with our European Union member state partners than we could possibly ever have standing, talking and trying to influence alone.

In fact, I suggest that this matter is in complete contrast to the measures that we, and other member states, have already introduced to make significant savings in domestic budgets. Of course, I agree with the noble Lord profoundly that we should empower our Ministers, our civil servants and our diplomats to argue as forcefully as possible against the sorts of increases that, sadly, the European Commission and the European Parliament have recently demonstrated that they want. That argument is, without question, right and proper, but to do that we need to empower our Ministers and diplomats. We cannot do that if we bring this type of amendment forward and claim that the mere transfer of money transfers competencies to the EU. It does not. That is why I suggest this amendment should be discussed in another Bill, at another time and in another place.

Lord Tomlinson: My Lords, the House should be grateful to the noble Lord, Lord Pearson. I want to congratulate him on lightening the mood of the House after what has been a pretty dismal day. We had the attempt this afternoon to introduce proposals that amount to constitutional vandalism and there will be no proposal for a referendum on that. The noble Lord, Lord Pearson of Rannoch, has today conducted himself in a way that is worthy of our congratulations for his fertile imagination, which I hope somebody will recognise as qualifying him for consideration for the Booker prize for creative fiction.

If we come to the substance of what the noble Lord, Lord Pearson, was saying, he inevitably gets his estimates somehow sort of right. Our membership of the European Union costs us somewhere between 4 per cent and 10 per cent of our GDP-not much of a margin; the odds are that he is going to be somewhere within that sort of range, but it lacks precision.

8 pm

The noble Lord, Lord Pearson, once again referred to Switzerland-he has done it a number of times in Committee although I have not risen to the bait before-as if it were a paradise for democratic decision-making by referendum. I have not bothered to go to the

17 May 2011 : Column 1339

Library, because I am sure that the noble Lord will correct me if he thinks that I am wrong, but my recollection tells me that the last three referenda in Switzerland have been on matters of great importance. One was forced on the heights of minarets. If people who had a different cultural background from the majority of the Swiss wanted a mosque in which to practise their religion, a referendum would determine the height of the minaret. Another was on the role of women. Unfortunately, this democratic paradise run by referenda damaged the role of women. And then there was a referendum fairly recently, of great importance, where males who had served in the Swiss military service insisted on keeping their rifle, after it had been disabled, rather than hand it back. I say to the noble Lord, Lord Pearson, that I really do not think that this is the participatory democracy that we want.

Having raised Switzerland, the noble Lord then made his fundamental mistake. It was in his analysis of the financial implications of our membership. The budget of the European Union-this is the point that I expected the noble Baroness, Lady Nicholson, to make-is not actually written in sterling; it is written in euros. If we look at what our membership has cost in euros, we will find a remarkable level of stability, with the increase in the budget barely matching the rate of inflation. Yet the noble Lord, Lord Pearson, happily tells us that it has gone up from £6 billion or £10 billion, or nearly £10 billion-it is £9 billion this year and will certainly be £10 billion next year-and that we will have to have a referendum. However, during the past seven or eight years, our budgetary contribution, for which we were billed in euros, was in euros that cost us about 65 pence each. The budgetary contribution that we would be asked for today is in euros that cost 87 pence each. That is because the great economic success of the United Kingdom in the European Union, which we were led to believe would have been even greater were we trading independently, has been to see from 2004 to 2011 a devaluation of about a third-33 per cent-in the value of our currency against the euro. Most of the increase in the sterling cost of our contribution to the European budget is not reflected in the euro figures; it is the translation of those euro figures into sterling. The major increase in our budgetary cost is caused by our relative devaluation.

However, I do not want to be harsh on the noble Lord, Lord Pearson; I encourage him to continue. His efforts are very much appreciated. They lighten the mood after a rather dismal sort of day. I would encourage him with the thought that one day, maybe by accident, he will get a fact right.

Lord Willoughby de Broke: My Lords, I support my noble friend's amendment. Perhaps I may disagree rather gently with the noble Baroness, Lady Nicholson, who said that a transfer of money is not a transfer of power or competence. The noble Baroness, Lady Brinton, said something similar, I think, at Second Reading-I have rather lost track of whether it was Second Reading or the first, second, third, fourth or fifth day of Committee. I disagree. The noble Lord has taken net figures. I prefer to deal with gross figures-our gross contribution is something like £15 billion. After all, if you are a taxpayer, you do not say, "I am only paying 10 per cent

17 May 2011 : Column 1340

tax" if you are paying 50 per cent, 40 per cent or 20 per cent tax just because you are getting roads or police services; you are paying the headline tax.

We pay a lot of money to the European Union. We get some of it back in the rebate, which was halved by Tony Blair, and we get some of it back as contributions to the CAP and the cohesion funds. All those funds come back with an EU label on them. I give an example as a farmer. I am in the Highland stewardship scheme and I continually get letters from Defra saying that it is going to change the timing of the payments because it conflicts with EU rules or that I cannot plant this or that because the Commission has told us that we cannot. That demonstrates to me very clearly that a transfer of money to Europe gives that amount of money's worth of power to Europe to tell us what we should do with it. It sends it back to us with an EU label on it telling us how we may spend that money. That seems to me an incontrovertible demonstration that a transfer of money is a transfer of power.

People deserve a referendum on whether all this money should continue to be given away. I am not sure why we have set the limit at £10 billion. It sounds very high to me; I would put it much lower than that. The British people should surely be given a say in this vital matter of supply, because, after all, it is their money that is being supplied. Therefore, I strongly support my noble friend's amendment.

Lord Risby: My Lords, I apologise for arriving in your Lordships' Chamber a few minutes late; I was unavoidably detained. I think that the Committee should be grateful to the noble Lord, Lord Pearson of Rannoch, who has underscored something which causes huge concern to the people of this country; that is, the spending patterns within the European Union and the lack of accountability. In that sense, he is entirely correct.

The Bill sets out that a referendum would be necessary if there was a proposal for the veto which covers the multiannual budget-the seven-year budget-to be removed. That financial perspective is crucially important given all the various spending envelopes contained in it. Of course, the previous Government gave up the veto on the annual budget.

It is right that people have been concerned about the proposal recently for a 4.9 per cent increase by the Commission, which is absurd. It has got nothing to do with irrational newspaper headlines; it is a fact that there is austerity in all parts of the European Union and this has to be reflected in what is proposed by the European Commission. It has led the Prime Minister of our country to make this point clearly and I hope that, in due course, as it is further examined by the Commission and the European Parliament, it will be dealt with.

We can all be grateful for underscoring the importance of the necessity for frugality. However, the Bill deals with transfers of power and competence, a point made by my noble friend Lady Nicholson. Funding of the EU is not part of the Bill and therefore the amendment is irrelevant.

On the point about fixing the sum of £10 billion, the noble Lord, Lord Pearson, asked what the benefits were from membership of the European Union. Over

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the years, the Commission has been able to drive reform in many member countries which, for domestic reasons, found it very difficult to improve competition and undertake privatisation of their nationalised industries, and it has done so very effectively. It has been useful for national Governments to have that force available to enable them to do so and the Commission has driven forward the single market in that respect effectively-not perfectly but effectively. For us, as a trading nation, that has been a significant contribution to our own prosperity.

For many reasons the European Commission needs a budget-frugal and sensible, but a budget it certainly needs to carry out its functions.

Lord Stoddart of Swindon: My Lords, like the noble Lord, Lord Tomlinson, I welcome this modest amendment from the noble Lord, Lord Pearson. He is seeking a referendum-or at least to discuss the possibility of one -at the appropriate time, which falls within the competence of the Bill, on the amount of money the people are paying to the European Union and what they get for it. It is about time the people of this country were consulted in a far greater manner about the money which they have to pay, one way or another, across the exchanges to the benefit of other countries. After all, the taxes levied in this country are now high and are going higher. People cannot understand why on earth they are being squeezed to the extent of about £20 billion a year when we are paying over to the European Union £10 billion a year. Indeed, if we also take into account the loans, it is more than £22 billion a year.

We should understand that that money does not belong to the Government but to the taxpayers, the people who are being asked to pay more and more out of their own pockets while we pay more and more across the exchanges to other people who, in some cases, may very well be better off than ourselves. It is therefore about time the people of this country were consulted about the money they pay-not the Government-to the European Union, which, quite frankly, is not popular in this country. According to the latest opinion polls, a majority of people would be happy to come out, which is why I would like them to be consulted. The people of this country are not against referendums-indeed, they would still like a referendum on the Lisbon treaty. They showed in the AV referendum that they can respond to argument and give a proper and positive decision.

The noble Baroness, Lady Nicholson, said that this is a small country and that its influence is improved and increased by being a member of the European Union. She implied that this country really could not go it alone. It is very odd that this little country built an empire with far fewer than 60 million people; that it has now established a great Commonwealth which unfortunately it does not make enough use of; and that it stood alone against the forces of Nazism during the last war and therefore saved the world from the ravages of Hitler. That is not a bad record.

Baroness Nicholson of Winterbourne: I am very grateful indeed to the noble Lord. It is most courteous and gallant of him to allow me to make a brief comment. Would he not agree that our great leader

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who led us in that battle and standalone fight, Winston Churchill, was in fact a supporter of the Treaty of Brussels, which in 1947 would have greatly enlarged our integration into what has now become the European Union with far wider and deeper social clauses, for example, than the Treaty of Rome created?

8.15 pm

Lord Stoddart of Swindon: Yes, there is only one problem about that-he believed in a united Europe, but not including this country. Winston Churchill never believed that we would be part of a European union, particularly of the sort we have now. So I do not think the point made by the noble Baroness is at all valid.

The noble Lord, Lord Tomlinson, was dismissive of the arguments used by the noble Lord, Lord Pearson. The noble Lord, Lord Pearson, has repeatedly asked for a cost-benefit analysis. That has always been refused. However, the expenditure by the European Union is very often not the sort of expenditure that we would want in this country. Indeed, the Prime Minister is currently concerned about some of the spending within the European Union and wishes to bring it down, particularly when the next negotiation takes place on the septennial outcome from 2014. Therefore, it is not only the noble Lord, Lord Pearson, and people like me who are concerned about the amount of money we are paying. The Prime Minister and perhaps other people, too, are beginning to understand that the whole idea of the European Union is expensive and it is not conducive to good government.

As to whether we receive any benefit, it is very difficult to see any but we are always told that we have the benefits of trade. Yesterday, when the Minister was answering the noble Lord, Lord Vinson, he did not seem to know whether the percentage of our trade was 40 per cent or 50 per cent, so that is quite uncertain. What is absolutely certain is that we trade in permanent deficit with the European Union. People say that our trade is profitable with Europe, but that is by no means certain because of this endemic deficit. Since trade is claimed as the great benefit, I think we really ought to reassess our position.

I do not know whether the noble Lord, Lord Pearson, is going to put his amendment to the vote tonight. I imagine not-not at this time of night, which is similar to the time we entered into debate on this Bill last night. I was very tempted this evening to speak to the Motion that this Bill goes into Committee, as I did yesterday, and actually vote on it. That would have been the nuclear option and I do not like nuclear options. But neither do I like embarrassing Governments, and this Government are embarrassing themselves and this Committee. It is going to be even worse because they intend, as I understand it, to bring the Bill back not only next Monday, but on Wednesday as well when we have a very important visitor to the Palace of Westminster. They have the idea that we should be discussing this Bill when many Members-I shall not be here-will wish to go to see our very distinguished visitor, President Obama. What on earth are this Government thinking about? What are the Chief Whip and the Leader of the House thinking about in doing that sort of thing?



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I hope that the message will get back to them that this Committee is not in favour of the way in which the Government are conducting this Bill, because the Members who are taking an interest in it are being messed about. They have other things to do, and the Government should be considering not only their convenience but that of the Members of this Committee who have been good enough to take part in the debates to try to improve the Bill.

Lord Grenfell: I apologise for intervening at this point, but I think we have strayed rather far in the latter remarks of the noble Lord, Lord Stoddart. I go back to the position taken by the noble Lord, Lord Pearson of Rannoch, and his supporters, on a referendum on what we are required to pay into the European Union. I understand their principle to be that if the British taxpayers are to provide this money, the British taxpayers should be allowed to say whether they approve of it being done. The further logic of that is that this would normally then apply to any case in which the British taxpayers are required to pay an assessment into international institutions. Are noble Lords who are supporting the amendment saying that the European Union is an exception and that it is because we do not like it that we want a referendum? Would they not be more honest in saying that if the principle is that the British taxpayer has a right to vote on what money we pay to international institutions, why are we not having a referendum on our assessment to the United Nations, the FAO or UNESCO or the money that we put into the International Development Association arm of the World Bank? You could go on for ever. If you added up everything that we are putting into all international institutions, it would come to more than what is being paid into the European Union. So why not have a referendum on all of it?

Lord Stoddart of Swindon: The noble Lord has raised a very important point. It would be very useful to know exactly in total how much we are paying not only to the EU but to all the other institutions and more that he has just mentioned. The British people would be very interested in that.

Lord Grenfell: Perhaps we could finish on that point. It would be very interesting, if we made just a little more publicity about the value that we derive from the assessments that we pay to many international institutions. The noble Lord has talked about the importance of trade. If we were not paying our way with many of the international institutions that are enabling developing countries to develop their ability to trade with us, we would be the losers. There is always a benefit to be had from this, but what I find extraordinary is that the noble Lords should limit this to one institution, and our membership in it, which they do not happen to like. It does not make a great deal of sense.

Lord Pearson of Rannoch: My Lords, perhaps I could try to make it make sense for the noble Lord. There are some huge differences between the money we pay to the European Union and the money we pay to the other institutions that he has mentioned. There is, of course, the question of quantum; without a

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cost-benefit analysis, we will not agree the figures, but from what I said today and on 3 May, we are looking at a cost of EU membership possibly in the region of £100 billion a year.

There is also another very important point. These other institutions that the noble Lord has mentioned do not make our law. They do not make the majority of our national law-it may be-in secret. They do not have laws proposed by the unelected Commission in secret, negotiated in secret by COREPER, passed in secret by the Council and imposed on the people and this Parliament by the European Union. These other institutions certainly are not in the same class. If we are having referendums, I do not think that it would be a bad idea to have one on NATO and other institutions. The British people would probably agree them, for the reasons that the noble Lord gave. The one that they will not agree is the one on the European Union.

Lord Tomlinson: The noble Lord referred yet again to this question of a cost-benefit analysis. How is he proposing to define "benefit"? He wants to have the cost-benefit analysis, but he has told us we get no benefit. Will he give us a clue about what definition of "benefit" would satisfy his demand?

Lord Pearson of Rannoch: My Lords, if the noble Lord would be good enough to read my Bill, which is now top of the waiting list and is sitting in the Printed Paper Office not very far away, he would understand how we propose to go about a cost-benefit analysis, with a truly independent committee of inquiry reporting to Parliament and the people. However, the noble Lord makes a very good point. Although I am often asked this question, I cannot think of a single advantage or benefit that we have had from our membership of the European Union that we could not have had by friendly collaboration and free trade with our good neighbours in Europe.

Lord Flight: My Lords, this amendment is not the correct vehicle to address what desperately needs to be addressed, which is the EU budget. It is completely unaccountable. I recollect that in the other place, for several years in the early 2000s, I had the task of going through the EU budget and debating it in the committee that existed for that purpose. It was extremely frustrating that there was no power to do anything about it. I am sure that this is somewhat out of date, but at that time roughly half of the budget went on the CAP, a quarter went on structural funds-the one area that seemed to be very positive and to have done useful work-and something like a quarter went on all sorts of strange pet projects. I remember discovering that £500 million, I think, had been allocated for the advancement of democracy in Africa, and only some £20 million had actually been identified as to where it had gone. Candidly, I think the EU budget has risen considerably more in the last decade than even out-of-control UK government expenditure. Therefore I am wholly sympathetic to the principle, and the EU budget will need to be properly democratically accountable and reined in. However, I do not feel that this amendment is the right way to address that problem.


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