Post Office

Part of the debate – in the House of Commons at 12:00 am on 15 July 1975.

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Photo of Mr Tom King Mr Tom King , Bridgwater 12:00, 15 July 1975

This is the latest chapter in the very sad and clearly quickening saga of the problems of the Post Office. Public confidence in what used to be one of the prides of our nation—the efficiency and economy of the Post Office—was undoubtedly enormously weakened by the price increases and problems of last March, and that weakened confidence has had no chance to re-establish itself before this latest bombshell—one can use no lesser word—has broken on the British people. Charges are to be yet further increased. To many people, it seems that the Post Office's financial system is out of control and that the Government and the management are at a loss to know what to do about it.

Our Post Office can still stand comparison on an international basis, but anyone who looks further than the present situation recognises that the trends are extremely worrying. The service is deteriorating, and costs are rocketing. It is right that we should address ourselves to this situation.

On 15th April the deficit was indicated by the Chancellor of the Exchequer as £70 million. A hint appeared in The Guardian of 29th April, which reported: The Post Office yesterday denied reports that its published estimates for a 1975–76 deficit of £50 million relied on faulty arithmetic and that a more recent assessment of the sums produced a loss figure of about £300 million.The Guardian also included a statement from the Post Office that no further price increases were envisaged for the present calendar year. We see a story in the Daily Express today, however, which alleges that the Treasury has claimed that the Post Office gave false figures about its profits this year and that part of the Chancellor's Budget Statement was based on these figures. The report says: Senior Treasury officials claim that Mr. Healey had not tried to disguise the corporation's financial plight, but that the Post Office had hidden the truth, hoping that there would be a further State aid later this year. That is a very serious allegation indeed. It is not for us to enter into inter-governmental arguments of this nature but obviously the House must be concerned that within a week of the Chancellor of the Exchequer's statement I was told in a Written Answer that the Chairman of the Post Office had been to see Ministers to inform them that the expected loss would be rather greater than the Chancellor of the Exchequer had anticipated. What is the House and the country to think when within three months of the statement by the Chancellor—who presumably has access to the best information—that the loss was to be £70 million it becomes clear that the deficit is £300 million? What confidence can we have that it is now £300 million if within three months £230 million is added to the first forecast? This is the acute worry of those of us who are concerned about the problems of inflation and the Government's own finances. The Government amendment regrets that the actions of the previous Administration in imposing artificial restrictions on the development of the nationalised industries created severe financial problems for the Post Office. That might have been a good amendment if it had been tabled 12 months ago. It is not so good now that the Chancellor has assessed the total liability of such financial limitations as might have been responsible for the present situation at £70 million. Where has the further £230 mil- lion come from? I can understand the Government's difficulty in trying to find an amendment which would command some sort of support in the House but I hope we will not face the problems of the Post Office by looking backwards. If this is going to degenerate into a "Yah boo, it was your fault, no, it was yours" sort of argument we shall never tackle the real problems which everyone in the Post Office recognises it is facing.

In the second half of the Government's amendment, reference is made to the objective of phasing out the deficits of the nationalised industries and restoring them to profitability. I do not think anybody would seriously challenge that objective, but we are bound to consider the Government's strategy, and whether it is likely to work. Our motion deplores the failure of Ministers to advance any coherent strategy to meet the critical situation of the Post Office or exercise any effective financial control over it, and when one looks at the size of the deficit one sees that no further illustration is needed to explain what is meant by the exercise of effective financial control.

The objective of phasing out the deficit is extremely worthy, but it is to be met by enormous price increases. When we talk of a coherent strategy, we mean that the Government should speak with one voice. In the Second Reading debate on the Statutory Corporations (Financial Provisions) Bill on 9th June, the Chief Secretary to the Treasury said: The alternative of large price increases can be self-defeating in some industries. We are seeing signs of it in the postal services, where large price increases result in falling sales, making it even more difficult for the industry to pay its way, and, in the longer term, it must affect employment prospects."—[Official Report, 9th June 1975; Vol. 893, c. 56.] That is precisely right. There is every evidence that the strategy followed in the March round of price increases is having exactly that effect. Rising prices are causing a rapid decline in traffice. I was told in a Written Answer yesterday that first-class traffic had fallen by 26·2 per cent. over the corresponding period last year. In reply to a similar question a month after the price increases, I was told that the fall in first-class traffic had been 25 per cent. The evidence therefore is that there is an increasing shift away from first-class traffic.

There has been no information from the Minister on metered traffic, so we still do not know what is actually happening to business metered traffic. My understanding is that a tremendous number of businesses which are acutely conscious of the costs they face in all directions, have taken tough action on the procedures they follow over mail. When the metered figures come through I think we shall see that they are substantially down.

I turn now to the telephone service. A lot of people do not appreciate the interaction of the changes in the unit time and unit cost. Since 1970 the charge for a six-minute local call at peak time will, following these increased charges, have gone up by 600 per cent. I know of businesses where the staff are not permitted to post a first-class letter without the authority of the manager. I know of instances where similar controls are exercised over telephone calls. It was not until the last round of telephone increases that many people realised that it was cheaper to telephone in the afternoon than in the morning, and that a number of actions to reduce costs were open to businesses.

The Government are embarking on a strategy of yet further price increases as though they are confident that that is the way to solve the deficit. Yet they admit, and the Minister of State admitted it in his answer to me yesterday, that they do not yet know what the effect of the last round of price increases has been.

I have referred on the postal side to the absence of any evidence on the effect on metred traffic. Such evidence as we have points to a drop of 26.2 per cent. on first-class traffic and a drop of 8½ per cent. on the estimate of total traffic. On telephones, I asked what evidence there was of a reduction in telephone usage, and I was given a remarkable answer which said We have spoken with the Post Office, which points out that it is too early to judge the impact of the recent tariff increases". There is then another paragraph and the answer then goes on to say that the judgment is that the impact of the tariff increases has been substantially as was assumed when the increases were proposed."—[Official Report, 14th July, 1975; Vol. 895, c. 364.] I am prepared to believe the first answer, which is honest and right. What evid- ence is there that the drop is not substantial?

It is worth considering how some of these price increases are being proposed. In the latest POUNC letter to people asking for a comment on the telephone tariff increase it is stated that the Post Office has chosen to increase charges because that will enable people to mitigate their cost by reducing their usage. What would the Price Commission say to a bread manufacturer who said, "You cannot complain about the price increase because people can eat less if they do not like the higher price." One needs to look carefully at the figures in the POUNC report. The report has not been widely circulated. It estimates that average increase in cost for a business in terms of telephone calls will be from £155 to £262 in a year. That is obviously quite a small business. Other businesses with substantial telephone usage will suffer equivalent very substantial increases.

We therefore face a situation in which the increase in postal charges will have gone up this year from 4½p first class to 8½p, and in which telephone charges will have risen 600 per cent. since 1970. One can see just how far price escalation has gone. The last round of increases evoked an enormous storm. POUNC said that it had never before had such a substantial number of protests. I wonder what the impact of this increase will be, and I wonder whether Ministers have estimated what is likely to happen to some of the essential traffic elements. Take mail order, for example. I have seen figures quoted which show that following the latest increase in March, mail order companies arranged to avoid sending 20 per cent. of their traffic through the post, relying instead on alternative arrangements. It is now estimated that as much as 50 per cent. of this traffic may be sent by alternative means.

The Minister of State will be aware of the reports made by mail order publishers and publishers in general who were faced with tremendous increases in costs at the previous round and for many of whom the present increase will spell disaster. I wonder what the increases will do to the Christmas card trade. It is ironic that in the mail today I should have received a note about the House of Commons Christmas card issue. I hope that there will not be too big a print order, under your guidance, Mr. Speaker, because it will cost 6½p to send cards and this is bound to have a serious effect on the numbers posted.

I was advised that the previous increases made a considerable amount of direct mail more marginal and put a lot of it out of court. These increases will certainly kill a substantial amount of valuable traffic which the Post Office has been trying to develop through its marketing departments. In its last report POUNC drew attention to the value of the commercial and business traffic to the Post Office, and how this very important part underpinned a lot of overheads and general costs. If there is a substantial fall in that traffic the implications are obviously extremely serious.

The other aspect—and this is what worries me about the Government's strategy—concerns telegrams. In March it was possible to send a 10-word telegram for 60p. If these increases go through the minimum charge will be £1·40p. Many people think that the minimum charge is 70p but it is, in fact, 70p plus 7p for each word. One can send a telegram for 70p, but if one wants to put anything in it the cost will be £1·40p.

Is the Post Office trying to price itself clean out of the market? In my constituency telegrams are very much a life-line for poor members of the community, particularly for those who cannot afford a telephone. How are they to manage if the cheapest way of making urgent contact with a member of their family will cost £1·40p or more? What concerns me is that what is happening with the telegram may be carried through into the postal side.

There are various items on which I should like the benefit of the Minister's advice. One of the things the Post Office is worried about is the pension fund. On 9th June the then Minister of State, Treasury said: the circumstances surrounding the deficiency are complex and we are still discussing with the Post Office the best way to deal with it." —[Official Report, 9th June 1975; Vol. 893, c. 152.] Has there been any resolution of that problem yet?

Secondly, I presume that the costs, charges and estimates were worked out on the basis of the on-going wage commitments of the Post Office. I understand that one of those commitments is a form of cost of living adjustment of 1 per cent. for every 1 per cent. rise in the cost of living index. Under the Government's anti-inflation policy, will that cost of living bonus be controlled, and will it affect the amount that the Post Office will have to pay out in the present year? I understand from page 5 of the White Paper that this will be one of the contractual obligations that the Post Office will be entitled to terminate.

Thirdly, on the particular provision regarding the cuts in services and the changes in services, the newspaper account said that it was proposed to delay second class mail to the third day. Is it intended to delay all second class mail to the third day, so as to try to ensure some advantage for first class post and to try to prevent any further deterioration in traffic? Further, the Minister of State refused on an earlier occasion to give me an undertaking, in view of the financial situation of the Post Office, that there will be no further proposal from the Government to extend any further public ownership into telephone manufacturing and to extend the Post Office's activities in that area. Is it not clear that in the present situation, given the problems that management so clearly faces in the Post Office, it would be sheer lunacy to try to expand the Post Office's remit yet further into telephone manufacturing?

Our motion calls for an independent inquiry. I appreciate that my hon. Friend the Member for Leeds, North-West (Sir D. Kaberry) is present and that he is chairing a Select Committee on this very subject. I think that my hon. Friend will accept the magnitude of the problem and the scale of the public's concern over a situation which calls for something even more wide-ranging than the remit of a Select Committee. Obviously we shall look with great interest at the Select Committee's report. It will be most valuable material for an independent inquiry. There is also need for something more than a view by POUNC, I am not surprised that Lord Peddie said how appalled he was at the way in which events have proceeded. On the 3rd January the council was sent some urgent representations regarding the largest increases ever. It was told that its answers had to be received by the end of January. Apologies were made and it was said that that situation would never be repeated. What happened? On 16th July the council received further urgent representations regarding further increases and the council has to make its representations by early August. In other words, the council received the same three weeks' notice in which to consider massivley important and far-reaching proposals for the future of the Post Office.

The situation that I have described puts the council in an impossible situation. We believe that an inquiry must consider the options that are now facing the Post Office. It will have to consider whether the management set-up and the organisation of the Post Office in its present structure is right, or whether it should be divided into two separate corporations. It will have to consider whether it is realistic to have a chairman and chief executive doubling in the same rôle—one man doing the two jobs. What is the scope for reductions in manning?

The POUNC Report in paragraph 22—this was a prelude to the March increases—stated: We are convinced that in the Post Office, as in most large organisations, there is considerable scope for cost reductions which would not prejudice quality of service or employment. We were disappointed to find no evidence of realisation by the Post Office of the vital need for such action. That is a very serious charge to make, but unfortunately that is the belief that many members of the public share. Against that background it is clear that if the public are to recognise the problems faced by the Post Office and the options that are before it, and if they are to have any confidence that the Government, the Post Office management, the unions and the House are taking any interest in these problems, an urgent independent inquiry should be held in order to report on the problems.

If we do not proceed with an inquiry, it seems that the Government strategy will be a steady deterioration of service, and a rapid increase in price. There will then not be minor changes on the margin—for example, no second rural deliveries and other rural services being cut—but the whole national service will be rapidly taken outside the range of a considerable number of people. Anyone who has read the Age Concern pamphlet will know that that is a real problem—namely, that Post Office services are being priced out of people's pockets. People are asking whether there is any price level at which the Post Office can provide an acceptable service and still make a profit.

That is why we welcome the opportunity that this debate provides. That is why we censure the Government for their lack of any coherent strategy. That is why we call for an urgent and immediate independent inquiry into the future of the Post Office.