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 Gregor Mackenzie Mr Gregor Mackenzie , Rutherglen 12:00, 15 July 1975

I beg to move, to leave out from "House" to the end of the Question and to add instead thereof: '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; and endorses the Government objective of phasing out the deficits of the nationalised industries and restoring them to profitability'. I always listen with considerable interest to the speeches of the hon. Member for Bridgwater (Mr. King). I know that the hon. Gentleman speaks with considerable authority on the Post Office. Indeed, he worked closely with the former Minister of Posts and Telecommunications in the first few years of the life of the Post Office as a public corporation when the working relationship between it and the Government was being established. However, I am a little disappointed having heard the hon. Gentleman's speech tonight. It was less constructive than I had hoped. It was less constructive than the speeches and debates which we have had in the House over the past few years. During that time I think that genuine attempts were made by both sides of the House to put forward constructive proposals to the Government of the day.

I know that the hon. Member for Henley (Mr. Heseltine) does not see it ever as his duty to put anything constructive before the House. Perhaps the hon. Gentleman is afraid that he is storing up hostages for the future. It is unfortunate that perhaps the hon. Member for Bridgwater is following his example. From our point of view, and from the point of view of those who have taken part in Post Office debates over many years, the hon. Gentleman's speech was not what we expected from him.

Before I discuss the motion and the amendment I shall make a few general observations. It is obvious, yet none the less necessary to make the point, that we are discussing the Post Office against the background of an unprecedented rate of inflation in this country, at least in modern times, and a rate higher than that of many Western European countries. Until we get inflation under control—and our White Paper published last week shows we are determined to do so—the difficulties being faced by the Post Office will continue.

Inflation hits hard all nationalised industries, but the Post Office, with its very large number of employees and its high wage bill, is perhaps more vulnerable than most. I have no doubt that this evening many criticisms will be made. But it is part of the value of a debate such as this that it gives the House of Commons an opportunity to bring to the attention of the Chairman and the Board of the Post Office how public opinion sees the organisation for the management of which they are responsible. However, criticisms which ignore the high inflation in which the Post Office has to operate would be unconstructive and unfair.

The second point I want to make is that though I am happy to come to the Dispatch Box to answer questions and to defend the Post Office so far as the Government's responsibilities are involved—that is my job—I do not run the Post Office. There is no longer a Postmaster-General. If Conservatives want me to defend every dot and comma of the Post Office's proposals or to justify every action the corporation has taken the implication is that they want the Post Office reconstituted as a Government Department. But they cannot have it both ways. They cannot expect Ministers to accept responsibility for everything a nationalised industry does and at the same time criticise them for excessive intervenion in its affairs.

It is not many weeks ago that my right hon. Friend the former Secretary of State for Industry was loudly criticised by the Opposition when he sought to comment on the loss of jobs in the steel industry. This is a matter that concerned a great many of us at that time.

Another fundamental question is whether the Post Office is to be run as a social service or as a commercial organisation. The statute that made the Post Office an independent corporation provided for the latter and I believe that to be right. The Post Office has its social obligations under the Act and it takes them seriously. But this does not relieve it of its statutory obligations to pay its way. The corporation the unions and the Government are united in the belief that this should be so.

Another question I want to pose is how far the taxpayer or the consumer should pay for the Post Office services bearing in mind that the taxpayer is the man in the street. We believe that the consumer should pay—and pay according to the use he makes of the service. Industry and commerce are the main users of the Post Office and I do not see why the taxpayer should subsidise their telephone calls or their mail. We have never concealed the fact that getting the nationalised industries back to realistic prices will be painful. My right hon. Friend the Chancellor of the Exchequer has made that clear. But we are determined to phase out these subsidies and we are ready to accept the consequences.

The hon. Member for Bridgwater was at pains to say that in a debate such as this we should not look to the past, but since the Conservatives were in charge of Post Office affairs for four years out of the five years since 1970, we are entitled as a House to look critically at what happened over that four-year period. I remind the House that the basic reason why the Post Office—this also applies to other nationalised industries—has had to make a succession of price rises is that the previous Government artificially held their prices down from 1971 onwards.

Let us remember that the Post Office Corporation in the first years of its existence made a modest profit—as the old Post Office did. In 1971–72 its profit was £36 million. But the imposition by the Conservative Government of price-controls immediately put them into a deficit situation. In 1972–73 that deficit was £64 million and in 1973–74 it had reached £128 million. Furthermore, the corporation's difficulties were sharpened by the increasing rate of inflation. As a result, the Post Office deficit in 1974–75 exceeded £300 million and it was estimated at the beginning of this calender year that, if no remedial action were taken, it could reach £700 million in 1975–76.

Tariff increases, which were implemented in the spring, were designed to reduce the 1975–76 deficit to £50 million at 1974 prices—or £70 million at current prices. The hon. Gentleman quoted from the Daily Express. I had my attention drawn to that matter, and I am sure the hon. Gentleman will not be surprised to hear that I do not believe everything I read in the Daily Express. Furthermore, I hope that the House will not accept the hon. Gentleman's comments on that piece. However, the deficit is now estimated at £300 million. This must be a matter of great concern to each and every one of us.

In explanation, let me first say that when the Post Office prepared the forecasts on which its spring tariff increases were based, the board assumed a narrower interpretation of the social contract than proved to be the case. It also assumed a rate of inflation for 1975–76 which proved optimistic. In the event, wage increases were higher than had been allowed for.

These higher levels of payment, along with their internal consequences for pensions, added £137 million to the estimated deficit. Secondly, the growth of the telephone business has—because of the downturn in the economy—been slower than the Post Office expected. This might have added as much as a further £50 million to the estimated deficit. The remainder is made up chiefly of general cost increases arising from the high rate of inflation.

In this situation there were three practical choices—first, increasing the subsidy, which would in turn have increased public expenditure and the public sector borrowing requirements; secondly, accepting a large deficit which also would have increased the public sector borrowing requirement; or thirdly, having sought all due economy, increasing tariffs. The last was the only one consistent with the Government's general policy for the management of the economy—the objective of phasing out nationalised industry deficits in 1976–77. It was also the only course consistent with encouraging the proper commercial outlook in the Post Office.

Nothing has been more damaging to efficiency in nationalised industries than the continual run of large deficits. That is why the Post Office is putting forward these proposals for tariff increases. At the same time on telecommunications it is taking an opportunity to seek not just to break even but to earn the 2 per cent. on turnover permitted under the Price Cede. One important effect which this will have will be to increase the proportion of the telecommunication investment programme which is internally financed. The programme is a massive one amounting to £810 million in 1975–76.

In the face of all these difficulties the Government have taken positive steps to restore the situation. First, we are determined to restore financial disciplines—disciplines which the payment of continual subsidies has eroded. Secondly, earlier this year we strengthened the Post Office Board through the appointment of a Finance Director and of four distinguished part-time members. Thirdly, we are securing an improved flow of information from the Post Office to the Government on lines recommended by Sir Henry Benson.

The proposals include the provision of corporate plans for each of the main businesses, an annual budget and quarterly return of performance against budget on both finance and physical indicators. They are designed to recognise the legitimate interest of Government in the long-term strategy and efficiency of the Post Office without our getting involved with day-to-day management. All these proposals closely accord with the recommendations on corporate planning made at the end of 1973 by the Select Committee on Nationalised Industries.

Fourthly, whilst we appreciate the savings to be effected by the Post Office, with the help of the trade unions concerned, we as a Government will continue to encourage and support the Post Office in measures to reduce costs. My right hon. Friend the Secretary of State has made it very clear to the Post Office Board that the Government are looking for the most rigorous economies in the future.