Royal Mail

Opposition Day — [5th Allotted Day] – in the House of Commons at 4:18 pm on 11th February 2009.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform) 4:18 pm, 11th February 2009

I beg to move,

That this House
welcomes the Hooper review of UK postal services;
and urges the Government to implement rapidly the review's proposals for the partial privatisation of Royal Mail.

I regret that I am not the spokesman for my party on the subject of Titian or any other great Venetian painter. I am, however, addressing a serious issue, and presenting what I hope the whole House will consider to be a helpful motion. I am aware that over the years I have acquired a slightly clichéd reputation as a rather combative politician, and I sometimes weary of being described as a bruiser, so I decided to table a constructive and helpful motion as the first Opposition motion on the subject of a DBERR responsibility.

Lord MandelsonPeter Mandelson—has rightly described himself as an old political friend of mine. I thought I would table a motion that agreed with an important statement that he had made in December last year, supported his announcement about the future of Royal Mail and urged him to proceed with that policy. My hon. Friends and I will have to ask some very important questions—in two months the Government have failed to clarify aspects of the policy, so there will be serious issues for me to raise—but I had assumed that the motion, as drafted, would stand alone on the Order Paper.

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Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Will the right hon. and learned Gentleman give way?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I will in just a second. First, let me explain the slight puzzlement that I am currently experiencing.

If one tables a motion that appears to be supportive of what a Government spokesman said on a subject only two months ago, one rather expects the Government to join Opposition Members in any Division that is called; we might expect to see whether there are Members who have failed to be persuaded by Lord Mandelson and who wish to hold out against this wide consensus, and perhaps expect an informative debate, particularly for those interested in the serious subject of Royal Mail, to then take place—but no. On the Order Paper has appeared a long, convoluted and almost impenetrable amendment, which someone has decided to table to correct our simple support for Lord Mandelson, and it actually arouses more mysteries than it solves.

So there will be other questions. Will the Government explain whether they are sticking to their policy? What do they mean in seeking to qualify an endorsement of what the Cabinet Minister with responsibility for Royal Mail was committing the Government to two months ago, as was the Minister for Employment Relations and Postal Affairs, who repeated the same statement and agreed to the policy?

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Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The problem with the right hon. and learned Gentleman's motion is the adverb.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I have never seen a longer amendment to remove an adverb in all my life. I think that those who drafted the Government amendment had more on their minds than an adverb.

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Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

Will the right hon. and learned Gentleman give way?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I will give way shortly, but I do not want to be drawn on to Titian now. Let me make a little more progress first, as we must get on to the serious substance of the debate.

When Lord Mandelson made his statement on the Hooper report on 16 December, which was repeated by the Minister now present, he could not have been clearer about what the policy would be. He accepted the three main recommendations of the extremely good Hooper report. There were questions on pensions, regulation and, most importantly, part-privatisation. He and the Minister were clear—there was clarity in both Houses—that they were committed to bringing in a partner through a minority stake in Royal Mail. They made it clear that that would not apply to the post office network, so Post Office Ltd would have to be separated out, as it was Royal Mail that was having private sector capital and a private sector partner introduced. We have reflected on that and waited for the details, but as our motion shows, we are prepared to agree that that needs to be proceeded with with some urgency.

I realise that there were some difficulties at the time; not everybody agreed with what the Ministers said then. Indeed, the Minister for Employment Relations and Postal Affairs suffered a considerable misfortune, because on the following day, 17 December, his trusted parliamentary aide—his own Parliamentary Private Secretary, Mr. McGovern—resigned. He left the Government, saying—I am relying on the BBC online site—

"I do not support what looks to me like partial privatisation of the Royal Mail."

I do not blame the hon. Gentleman for saying that it looked like partial privatisation of Royal Mail, because what had been announced was partial privatisation of Royal Mail. I thought that that was what we were going to debate, but I shall now have to wait and see what we are going to debate.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I shall give way once more, and then I will turn to the substance, which I hope will enable us to unravel this mystery, because it is indeed a mystery, of the Government's current policy.

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Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

I am grateful to the right hon. and learned Gentleman, and I do not want to paint him into a corner, but the only artist he is in danger of becoming is a political con artist, and let me say this to him in all sincerity—[Hon. Members: "Withdraw!"]

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Please will the hon. Gentleman withdraw that remark?

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Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

I certainly withdraw the remark; I am sure the right hon. and learned Gentleman understands what I am driving at. In his comments so far, he has already made it clear that his strategy is to drive a wedge between Lord Mandelson and the rest of the Government. [Interruption.] Does he accept— [Interruption.] Will he not accept— [Interruption.]

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. The House must come to order.

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Photo of Peter Kilfoyle Peter Kilfoyle Labour, Liverpool, Walton

Does the right hon. and learned Gentleman accept that there is a difference between the Conservative and Labour Members: we are concerned about those with a real interest in the Post Office—Post Office users and staff—whereas the Conservatives want to score cheap political points?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I share all the concern about the Post Office—I use it and realise that it is in an important institution—but to say that the Conservatives are the con artists in all this, which is out of order, is ridiculous. Our position could not be one of greater clarity. What is mystifying—what justifies the description that the hon. Gentleman uses—is the complete obscurity of the Government's position, given what they have gone through.

It is important that we know where we stand, given where we have come from. I was the Minister with responsibility for the Post Office about 20 years ago—I have done the job that the Minister for Employment Relations and Postal Affairs, who is sitting opposite me, is doing—and I faced all the same problems of how to ensure that Royal Mail became a modern service organisation that could have a very strong future and could modernise in line with what was being done in other countries and so on.

At that time, I went to the then Prime Minister, Margaret Thatcher, to try to persuade her that we needed to introduce some private capital and private expertise as part of the programme that we were carrying forward in many of the public services. For reasons of which I am still unaware, I and many others were not able to persuade Margaret Thatcher to proceed with the partial or full privatisation of Royal Mail. I do not want to go too much into the history, but it was widely publicised that Michael Heseltine and I made efforts to persuade the Major Government to introduce private capital into Royal Mail—I am afraid to say that I argued to my colleagues that it would not last 10 years if we did not go down that path—but, again, I was unsuccessful.

The Conservatives' approach has been consistent and clear. In 1998, when Lord Mandelson was last Secretary of State for Trade and Industry, he put forward some proposals and my right hon. Friend Mr. Redwood, who was then speaking on behalf of my party, suggested that private capital should be introduced into the business. We offered to support the Government if they wanted to do that, but they were vehement in their rejections. Lord Mandelson was dismissive of our proposal, saying that it

"should be stamped 'return to sender'".—[ Hansard, 7 December 1998; Vol. 322, c. 26.]

As recently as 2006, the current Secretary of State for Health, who was then Business Secretary, said that he would give an "absolute, unequivocal commitment" that a stake in Royal Mail would not be sold to the private sector.

The Conservatives have been clear in their approach, I have certainly been clear and consistent and the Labour party has been pretty clear about things so far. I congratulate Lord Mandelson on his courage and his success. Who would have thought that after all those years the labour movement would be introducing this proposal, with Lord Mandelson, echoed by his Minister for Employment Relations and Postal Affairs, commending it in this House. I welcome and support that.

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Several hon. Members:

rose —

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I shall give way when I finish this passage.

This proposal is a U-turn. I do not criticise the Labour party for making a U-turn, because all Ministers have had to make U-turns. They should be made clearly and explained, and they should be done with a straightforwardness and elegance. Is that what was done on 16 December? I congratulate the Secretary of State on tearing up his election manifesto commitment, which had been so foolishly given, and on being so explicit—but what has happened now? The Government's amendment is not a U-turn—it is an obscure wriggle; I have never seen meaning vanish into a burrow before. It is plainly drafted by a committee, probably chaired by a nominee of the Chief Whip. If it were parliamentary for me to use the term "con artist" about anybody in this Chamber, the authors of this amendment would be strong contenders for it.

I shall move on to the substance. I anticipated that I would be pressing the Minister to go through the substance of what has been proposed and what interest has been expressed—TNT was said to be very interested. When the stake is sold, will the proceeds go to Royal Mail? In addition, there are the very difficult questions about the pensions and the regulator. However, the Minister now has more questions to answer than simply on the policy, because the Hooper report—which we all find very convincing—compellingly sets out why the status quo is not an option and change is necessary; that more private capital would be welcome; and that some managerial experience of change in this kind of industry needs to be introduced urgently.

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Photo of Peter Hain Peter Hain Labour, Neath

This is good, knockabout, Oxbridge stuff— [ Interruption. ] That is why all the Oxbridge types behind the right hon. and learned Gentleman are cheering him. But if he welcomes the Hooper report, why does he not support the Government's efforts to address the pension deficit? The Tories would leave Post Office pensioners in the lurch by pursuing their obsession with privatisation, as they always have.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

We have been trying to get the Government to say what they will do about the pension deficit. I trust that we will receive some enlightenment today.

I shall put the issue in context. I have already said that there is widespread consensus about Royal Mail. For example, there is widespread consensus that any proposals for its future should be based on the universal service obligation, which Royal Mail should accept, whatever its form. It is necessary to have a nationwide service, with deliveries to any citizen or household at a uniform price; Royal Mail must continue to discharge that obligation. Indeed, the Hooper report says that the changes that it recommends are above all necessary to ensure that the universal service obligation can be continued.

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Photo of Robert Smith Robert Smith Shadow Deputy Leader of the House of Commons, Opposition Whip (Commons)

The right hon. and learned Gentleman makes an important point about protecting the universal service obligation for the sake of all our constituents. Is there not a lesson to be learned from the fact that, yet again, the UK introduced competition into postal services faster and deeper than did countries in mainland Europe, meaning that rival companies have a protected home market and are able to cherry-pick in our market? Would it not be more sensible to have a levy on competition to protect the universal service and ensure a level playing field in this country?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

There should certainly be a level playing field, and the consumer benefits from such competition. It will be extended across Europe and I hope that Royal Mail will be a powerful contender in wider markets, if it can be modernised and reach the standards of efficiency of its competitors. The Government introduced that competition. We agree that it is of lasting benefit to business and the ordinary user of the service in this country, but competition is not responsible for the present difficulties.

Royal Mail's long-standing difficulties are being compounded by the change in the medium of communication. Far more revenue has been lost—the threat to the taxpayer from Royal Mail's current state is considerable—from the introduction of new technology and the steady loss of traffic than has been lost to competition. Hooper is right that the loss of volume—the amount of letters and parcels to be delivered—is speeding up. It could be 7 to 10 per cent. next year without any difficulty, and that is leading Royal Mail in an ever-more downward direction. Other problems include the fact that it has not adopted the modern technology of its competitors in Europe, the enormous pension deficit hanging around its neck like a millstone and the lack of change over the past few years. As Hooper rightly said, it also suffers from extremely bad industrial relations. As we all remember, there was a most unfortunate strike in 2007, which weakened the business still further. Many small and medium-sized businesses joined their bigger competitors in deciding that they could not longer trust Royal Mail, and they turned away from it.

I have merely summarised the analysis set out in Hooper. I have not left myself time to repeat it, but it has been accepted completely by the Government and I think that it is unanswerable. The status quo is not tenable in any way at all.

These problems are familiar to anyone who has ever followed Royal Mail. Similar discussions have gone on for a very long time, and I am sad to say that Hooper's analysis and the litany of problems that he sets out remind me of when I was the Minister in charge. That was a very long time ago, but the problems have actually got worse and worse in the past 10 or 12 years.

Lord Mandelson's clarion call to action before Christmas came after 12 years of inaction or pointless action, and when one looks at the state of the business one realises that it is getting nowhere fast. In 2001, the Government gave Post Office Ltd commercial freedom, but none of the reforms that have been tried has worked. Over and over again, the Hooper commission refers to the political background that has inhibited the management's ability to take decisions. It is obvious that a succession of Ministers—until these men of courage came along—have been intervening, slowing down the management and giving in to pressure in trying to make sure that the changes do not take place.

I believe that the time has come for a genuine consensus about action. Does the Government amendment mean that, after two months of failing to produce any detail, they are now buckling at the knee and deciding to leave the matter for a bit? If they are going back to the 12 years of pretty useless inactivity that has been their policy so far, the message of the Hooper report is that the Royal Mail may not survive, as it says that the universal service obligation depends on the changes that it recommends.

I hope that the Minister will correct my misunderstanding and that he will make it clear that partial privatisation—not even full privatisation—is an option. That is quite a concession from someone who was in the Thatcher Government, but the Opposition are not pressing for anything other than a minority partner to enter into a mixed public-private sector partnership. I hope that the Minister will confirm that that is the Government's policy, and that progress is being made with it.

I leave the Minister to make the case for private capital. Where else is the capital going to come from, given the state of the public finances, the needs of the Post Office and the circumstances of the next few years? Does anyone really believe that the Post Office will be able to compete successfully with health, education and defence for the capital that it requires? As Hooper argues compellingly, private sector competitors that are prepared to come in as partners in Royal Mail will be able to bring with them the experience of change and of management that will help the transition to go smoothly. They will be able to deal with the understandable fears of staff and stakeholders, and the understandable need to win back confidence in the business.

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Photo of John Heppell John Heppell Labour, Nottingham East

Will the right hon. and learned Gentleman give way?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I will not, as many hon. Members want to speak in the debate, and Back Benchers are under a time limit.

The regulatory proposals make sense. It plainly makes sense to transfer the regulatory responsibilities for Royal Mail from Postcomm to Ofcom. The change goes with other things, as Hooper says, but it makes sense in any event, as the relationship between Postcomm and Royal Mail has been fairly unsatisfactory. In addition, it no longer makes sense to deal with Royal Mail apart from the other responsibilities that Ofcom has.

The pension question is, as Mr. Hain says, very important. The Government have allowed the pension deficit to become extremely severe by the standards of any commercial organisation in the country. The report does not clearly recommend anything; it leaves options. However, it does say that the Government should address the growing pensions deficit.

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Photo of John Heppell John Heppell Labour, Nottingham East

Will the right hon. and learned Gentleman give way on that point?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

No, I am afraid that I do not have time to give way any more.

The report says that the Government should address the pensions deficit—and so they should. We are talking about £22 billion of assets and £29 billion of liabilities. The company as a company, and the business as a business, is balance-sheet insolvent, as Hooper rightly says. It will probably be quite impossible to get a private sector partner to take an equity stake, when the company has that around its neck. There are options, and the Minister for Employment Relations and Postal Affairs should by now be able to tell us what options will be pursued to deal with the problem.

The real fear, which my hon. Friend Alan Duncan has previously expressed, is that the Treasury—or perhaps the Cabinet as a whole, having been induced to agree to the remarkable new policy—has taken the view that the simple solution is to have a look at the £22 billion of assets. It is very useful to have £22 billion of assets, which the Government can take care of by taking them into their coffers. The £29 billion of liabilities will therefore be added to that great stock of unfunded public sector pension liabilities that the future taxpayer already faces. Who knows what will be done to those liabilities? That option would be irresponsible and very short term.

Alternatives are difficult. We faced those difficulties in the past with British Telecom and others. Given what is happening at the moment, more public money being spent in vast sums is unlikely, but there may be statutory guarantees in case the new entity goes bankrupt; British Telecom was placed on that footing when it was privatised. That idea is canvassed in the report, and it could be considered carefully by the Government. We need, and have today provided the opportunity for, the Government to address the pensions problem, now that two months have passed. We need them to tell us how they will face that problem, which, so long as it lasts, puts job security and service improvements in Royal Mail in tremendous doubt. It is a tremendous threat to today's taxpayers, future taxpayers or both. How do the Government propose to address what Royal Mail has piled up on its desk?

I conclude by going back to the main question, although I did not think that it would be the main question. Of course, I dwelt on this point when I started my remarks, but there is a most remarkable outcome of the amendment that appeared on the Order Paper this morning. Instead of having a comparatively low-key debate, as I thought we would, in which we would ask questions and Ministers would give details and some indication of when the legislation would come forward and what form it would take, we find that we are trying to ask what on earth the policy is at all. [Interruption.] Well, a note of indignation comes into my voice.

The Government are merely proposing that the House vote for the suggestion that the Government should address the pensions problem. Of course the Government should address the pensions problem; we have been saying that for two months. Exactly how do they propose to address it? The Government amendment

"notes that modernisation in the Royal Mail is essential and that investment must be found for it".

That does not sound as clear as Lord Mandelson was two months ago. I have never seen a more ridiculous statement of the obvious put on the Order Paper, but if the Government are inviting us to agree with the suggestion that investment must be found for the modernisation of Royal Mail, I suggest that they tell us what their proposals are for finding it, if they are abandoning the proposals that they had two months ago, when they had a private sector partner.

The motion dregs everything up, including an attempt to compare the Government's investment record with the investment record of the Conservative Government some time ago; it is all our fault, apparently. That was more than 12 years ago. The motion is obviously written by a committee. It is obviously written with parliamentary process in mind. Indeed, the amendment winds up with the ringing reassurance that

"legislation on these issues will be subject to normal parliamentary procedures."

I do not know which Labour rebel needed to be reassured that the Government would at least allow Parliament a debate—a short, cursory one, no doubt—touching on the subject, or why a motion had to be passed to indicate that normal parliamentary procedures would be used to scrutinise the measures.

I can only say that this is an important debate, Royal Mail is an important service, the service is in crisis, and the Government have produced a report that says that the universal service obligation may well not survive unless they address it now. It is a serious motion. The Government had a clear policy that we would support if they went back to it. I hope the Minister will say that he will cling to it. I hope he does not obscure all questions, going through an elaborately orchestrated regime where he tries to reassure rebels on the Labour Benches that the Government are not going to do anything at all. That would not be in the national interest. In the light of the Government amendment, the future of Royal Mail is a more urgent and worrying question than it was even yesterday when we tabled the motion.

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Several hon. Members:

rose —

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. I apologise to the House that I omitted to inform it that Mr. Speaker has selected the amendment in the name of the Prime Minister. I was clearly distracted by the difficult point of order that I had to deal with.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee 4:46 pm, 11th February 2009

I beg to move an amendment, to leave out from "House" to the end of the Question and add:

"notes the threats to the future of the Royal Mail and welcomes the conclusion of the Hooper Report that, as part of a plan to place the Royal Mail on a sustainable path for the future, the current six days a week universal service obligation (USO) must be protected, that the primary duty of a new regulator should be to maintain the USO, and that the Government should address the growing pensions deficit;
notes that modernisation in the Royal Mail is essential and that investment must be found for it;
endorses the call for a new relationship between management and postal unions;
urges engagement with relevant stakeholders to secure the Government's commitment to a thriving and prosperous Royal Mail, secure in public ownership, that is able to compete and lead internationally and that preserves the universal postal service;
further notes the Conservatives' failure to invest in Royal Mail when they were in power in contrast with Labour's support for both Royal Mail and the Post Office;
and notes that legislation on these issues will be subject to normal parliamentary procedures."

We welcome the opportunity to debate the future of Royal Mail. I thank Mr. Clarke for his introduction to the debate. I confess that my research on his past career must have been less than complete. I had not realised that he had held the post of Minister with responsibility for postal affairs some years ago, so let me begin my thanking him warmly for the legacy that he bequeathed to us. His experience will have given him a familiarity with the issues. The difference between the time when he had responsibility for these matters and now is the technological revolution, which lies at the heart of many of the difficulties that the company faces.

The right hon. and learned Gentleman is an experienced and very canny politician, but I do not think the motion tabled by his party is the most canny thing that he has done. If he is serious when he says that there is nothing in the Government amendment that he or his colleagues could disagree with, I warmly welcome him to join us in the Lobby tonight to vote for the Government amendment.

For its 300-year history, Royal Mail has been able to rely with a considerable degree of certainty on mail volumes rising and falling in line with the country's gross domestic product. That was the case for many years, but in recent years that pattern has been overtaken by the technological revolution and the choices that citizens make every day about how they communicate with one another and how they do business: an e-mail sent is a letter not sent; a bill paid by direct debit is a letter not sent; family pictures posted on a photo-sharing website such as Flickr are pictures not sent through the post. All this has become clear and all of it has become worldwide.

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Photo of Albert Owen Albert Owen Labour, Ynys Môn

I am grateful to my right hon. Friend for giving way on that important point about new technology. Is he a little surprised, as I am, that the shadow Business Secretary seems not to have been to a sorting office since he was in charge? When I go, I see an increased volume of parcels. It is new technology such as eBay that is allowing that extra business. The Post Office, when given the opportunity, can deliver a good service.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

My hon. Friend is correct to say that there has been an increase in the volume of packets posted, but I have to tell him that the volume of mail sent overall has declined not just in this country but in many others. In just three years, the volume of mail posted in the UK has fallen by 5 million items per day. There has been an increase in the number of packets posted as a result of internet shopping and so on, but that increase is included in an overall drop of 5 million items a day. This effect is evident not only in the UK but in France, Germany, the Netherlands, Italy and many other countries.

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Photo of Robert Goodwill Robert Goodwill Shadow Minister (Transport)

Does the Minister not agree that the downgrade in some of the service has contributed to the problem? Businesses in Scarborough that start work at 9 o'clock in the morning and used to find the mail on the doormat waiting to be processed now sometimes have to wait until 2 o'clock in the afternoon before the mail arrives.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

What I will say is that the maintenance of the universal service obligation—the six-day-a-week, one-price-goes-anywhere delivery—is extremely important. It is at the heart of the Hooper report and we are determined to preserve it.

The US postal service has a monopoly on letters, and we have been urged by some critics of our proposals to examine it as an example of why the Government's proposals are not needed. It was recently reported to be heading for a loss of $6 billion after a fall in mail volumes last year of 4.5 per cent. That has led the company to ask Congress for permission to drop the Saturday delivery. Mr. John Potter, the US Postmaster General, said:

"it is clear that the problems we are facing are intensifying...No one knows at what point mail volume will bottom out."

Unlike in the United States, dropping the Saturday service is not a route that we want to go down. For the first time, our USO is loss-making, but we believe it is valuable to the public and to the small businesses mentioned by the hon. Gentleman. We want to maintain it and to make the changes necessary to do so, rather than consigning our postal service to decline.

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Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

Later in his speech, will my right hon. Friend clear up the press reports regarding redundancies—I think 16,000 was the figure mentioned? Alternatively, perhaps he can write to me when he has thought about that question.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I believe that the company said that it had no such plans. Hooper considered the background of change that I have set out and made three interlinked recommendations. The first was that the Government should address the historic pension deficit in Royal Mail. The second was that there should be a strategic partnership between Royal Mail and another postal or network company. The third was that the regulatory system should be changed.

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Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs)

I understand what the Minister is saying about the USO, and I agree with him, but the problem is that even the management of Royal Mail have made noises to the effect that they would like to change the USO. Indeed, they have tried to do so through zonal pricing, which was, thankfully, rejected. What guarantees do we have that, if Royal Mail is part privatised, the private company will not seek changes to the USO?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

We have enshrined the USO in primary legislation and we will continue to do so in the future.

The falling volume of mail is not the only challenge facing the company. The pension deficit is another huge challenge. Three years ago, it was valued at £3.4 billion. The most recent estimate, in March 2008, was £5.9 billon. The next valuation is likely to be even worse.

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Photo of John Grogan John Grogan Labour, Selby

My right hon. Friend mentions the strategic partnership. Does he find it as intriguing as I do that there is no mention of that strategic partnership in the Government amendment? Does that reflect the growing concern of Cabinet Members and in the Whips Office and No. 10 that the proposal should not be proceeded with, not least because it could raise the price of stamps and cut the level of service?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

Let me pick up on that last point. Is the Minister confirming that my alarm was unfounded and that the idea of getting a strategic partner who will buy a stake in the company remains firmly the Government's policy, even though he is not prepared to agree to our motion, which expresses support for it?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I just said that Hooper gave three interlinked recommendations, one of which was a strategic partnership between Royal Mail and another postal or network company.

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Photo of Geraldine Smith Geraldine Smith Labour, Morecambe and Lunesdale

If a strategic partner partly owns Royal Mail, is that not part-privatisation? Am I missing something?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

Royal Mail will remain a publicly owned company. We have made that clear and that is why we do not believe that the process can be characterised in the way set out by my hon. Friend.

Let me continue talking about the pension fund. Let us not underestimate the problems that it creates for Royal Mail. It is one of the largest pension schemes in the country and the liabilities represent more than 75 times the company's profits, whereas the FTSE 100 average is two and a half times. Even other schemes with big deficits are dwarfed in comparison with Royal Mail's; the liabilities of the next largest schemes range in size from nine to 13 times profits. In cash terms, the company's total pension costs in the year to March 2008 were more than £800 million, of which £280 million was allocated for pension deficit recovery. That is before the next valuation process, which is due to begin next month. We want to face up to the problem, on which the Opposition motion is completely silent. That is another reason not to support it.

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Photo of Graham Stuart Graham Stuart Conservative, Beverley and Holderness

I congratulate the Minister on having the courage of his convictions in looking at the facts and seeing the need for change. However, will he share with the House what progress he is making with what some might call the dinosaur elements on his own Back Benches? We have heard today from various Labour Members, most of whom are members of the Communication Workers Union, and some of whom habitually fail to mention that when they stand up to speak.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

We all have an interest in this issue, and all right hon. and hon. Members' views on it are valid.

Addressing the pension deficit is not an easy decision. If we do that for Royal Mail, taxpayers are entitled to ask what change they will get in return. How will taxpayers have confidence that Royal Mail can make the changes it needs to make to cope with falling mail volumes and new technology? That issue is critical. As the Hooper report rightly says, only one company can deliver the USO; only one company can send a postman or woman up every garden path in the country six days a week. The health of Royal Mail matters, and we have to take the decisions necessary to secure its future.

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Photo of David Taylor David Taylor Labour, North West Leicestershire

I am not sure whether my right hon. Friend was at the Labour party conference 20 weeks ago. It passed a policy supporting a wholly publicly owned Royal Mail, and that was strongly endorsed by my right hon. Friend Mr. Hutton, who is not known for an aversion to dallying with the private sector. Does the Minister not accept that if a wholly publicly owned Royal Mail was a partly privatised organisation, that would be not only oxymoronic but like being a little bit pregnant?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I shall come back to the analogy of being a little bit pregnant. That policy said that we had set out a vision of a wholly publicly owned Royal Mail; we have for years. If my hon. Friend reads on, he will see that it also said we had commissioned the Hooper report to look to the future. Hooper has now reported and made his recommendations.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

No, I must make some progress. Royal Mail has made some progress in recent years. Its performance in delivering first-class post by the following day has improved and some investment in new machinery has been made. However, it is still less automated than many comparable services. There is still a great deal to do, to secure not only automation but the delivery of new products. One example used in the Hooper report is walk sequencing—the last stage of post sorting before the delivery round. That is done by hand in the UK, while some competitors do 85 per cent. of that work by machine.

Much has been made in recent weeks of the finance needed to make progress on the issue. I want to make two points about that. First, the £1.2 billion that the Government gave Royal Mail two years ago is a commercial loan, which must be repaid to the Government. Secondly, that form of finance is neither fast nor flexible. Even after lengthy negotiations between the company and the Government, two years on the European Commission is still deliberating about whether the financing is allowable under state aid provision. Royal Mail must not only complete, install and use the new machinery that it needs, but develop new products. The idea that the company's problems will be over if we lift the pensions deficit is wrong. The company needs ongoing capital and expertise to combine the use of mail with other technologies. We have seen too little of that in the UK. Partnership offers the opportunity not only to inject new capital into the business but to bring in expertise and the confidence to make the changes that the company has so far not made far enough or fast enough.

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Photo of Bob Spink Bob Spink Independent, Castle Point

I congratulate the Minister on finally getting away from the dogma and getting down pragmatically to how we can help Royal Mail and the Post Office. In fact, the Prime Minister's amendment says that the Labour Government want to help and support Royal Mail and the Post Office. Will he take that away for future consideration and try to find a way to enable the banks to make their current accounts available in post offices, which would be very supportive?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I think the hon. Gentleman will find that millions of bank accounts are available to post offices. Perhaps people do not know enough about that. Many day-to-day banking services are available through post offices.

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Photo of Peter Luff Peter Luff Chair, Business and Enterprise Committee

Can the Minister confirm that of the £1.2 billion of investment that he mentioned, some £600 million remains unspent? I understand that that is not particularly surprising, because it was always intended to last longer than just one or two years, and some of it will be paid out only when the machinery is delivered. His hon. Friends have criticised the failure of management to spend that £600 million, but am I correct in believing that it is perfectly reasonable that it remains unspent?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

The critical point about the £1.2 billion that has been missed in recent weeks is that this is a commercial loan that has to be repaid, not a grant that is simply given by the Government to the company.

Let me say a bit more about the issue of partnership. Hooper recommends a partnership with another postal or network company that has carried out the kind of change with which Royal Mail needs to go further and faster. The nub of this debate is what this means and why it is necessary. It does not mean privatisation of Royal Mail. A company is either publicly owned or not, and with this Government Royal Mail will remain publicly owned. Let me make it clear that that will be specified in the legislation to implement the Government's proposals. The Government will own the majority of the company and appoint the majority of the board, and it will still count as a publicly owned company. Royal Mail will not be privatised, and the partnership that we propose is not the first step towards privatisation. That is one reason why we will not be voting for the Opposition's motion.

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Photo of David Hamilton David Hamilton Labour, Midlothian

I am rather puzzled by my right hon. Friend saying that Royal Mail will be a publicly owned company; it will be a majority stakeholder company. If the democratic decisions have to be taken in the way that he says, what is in it for the private company coming in? It will not come here to be outvoted every single time it wants to make a change.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I am making it clear that because the Government will still own the majority of the company, it will be a publicly owned company and will count as such. Privatisation is not our intention, but partnership on a minority basis can be of real benefit to the publicly owned Royal Mail by giving it access not only to capital but to the experience and commercial confidence needed to drive through change.

There is another important point about this. A partnership can also help to make Royal Mail a bigger player at a time when European postal markets are liberalising and consolidating.

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Several hon. Members:

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I want to make some progress.

By the end of next year, there will be liberalised postal markets in most of the 15 European Union member states, and two years later throughout the whole EU. Royal Mail already has a presence in Europe through its purchase several years ago of the GLS parcels business. In future, there is likely to be further consolidation in the European postal market. Earlier this month, the Swedish and Danish authorities announced that they had signed the final shareholders' agreement to merge their national postal companies. A joint venture can make Royal Mail a bigger player in Europe and able to play a leading role as the market develops. We should not turn our back on those opportunities because ideology stops us from considering a partnership even on a minority basis.

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D

There does not appear to be a 2-minute warning buzz before Controller abruptly ends a time-limited speech/statement by an MP . Not fair to listeners when have good statements to listen to from MP, also must surely be unfair to the MP to not do plausibly fair completion, especially when earlier statements/talk by other Mp's have been with overblown, wind-baggy .bits., even too much repetitive vagueness, may cause listeners to doze, with cluttered confuysed brain, get relief when new speech starts...

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Photo of John Gummer John Gummer Conservative, Suffolk Coastal

If a private company owns part of Royal Mail, is it not the case that Royal Mail becomes a partly owned national company? It cannot be a wholly owned national company if somebody else owns part of it.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

And the Conservative party prides itself on knowing business. The difference between a majority and a minority shareholding is fundamental in business, and my point is that Royal Mail will remain a publicly owned company.

If the work force fear the consequences of a partnership, I say this: industrial relations in Royal Mail, as Hooper pointed out, are in urgent need of a fresh start. Change has been hampered by a lack of trust between management and work force. In 2007, as the right hon. and learned Member for Rushcliffe said, 627,000 employee days were lost as a result of industrial action, accounting for 60 per cent. of the total days lost to strikes throughout the whole UK economy in that year. It is not just a question of that major strike, but the threat of other strikes, too. Disputes are frequently threatened, such as those threatened on pension changes or mail centre changes, which we saw in recent months, and they are hurting the company. They slow the pace of necessary change, and they hurt the customer and the mail market, as people are tempted to switch to other digital communications to meet their needs. For everyone to agree that they are up for change in general, but to oppose it in the particular is no way forward.

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Several hon. Members:

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I will give way in a moment.

We need a longer-term plan, with a proper buy-in from the work force, and an acceptance right through the company of what needs to happen. A reformed board, with influence at every level of the company and with the experience of going through such change, can offer the fresh start in industrial relations that the company sorely needs.

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Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye

My right hon. Friend is absolutely right to say that buy-in from the work force is key to the future of the Post Office and Royal Mail. On what he said about who controls Royal Mail, will any Bill that he introduces make it clear that the public and the Government—the state—will continue to have a controlling interest in the shareholdings, and that it will not be possible at any time for the minority interest to become a majority one?

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Photo of David Anderson David Anderson Labour, Blaydon

Is the Minister seriously suggesting to us that industrial relations will improve if we have a deal with a private partner with a track record of being a strike-breaker and a scab?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

If my hon. Friend is referring to the company that I think he is, he will find that it recognises trade unions and operates with them on a day-to-day basis. This is an important point. The idea that the industrial relations of the company are better as they are than they would be under a different arrangement does not bear comparison with the urgent need to improve industrial relations in this company.

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Several hon. Members:

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I have given way a couple of times and I would like to turn to the question of regulation.

Regulation, and how competition functions, is a crucial part of the picture and again one that the Opposition motion is silent on. The argument has been made that competition from other postal companies is at the root of the Royal Mail's problems. It is true that that has meant a loss of revenue, but as Hooper reports, that loss is more down to competition from new technologies than from other mail companies. Let me make the Government's position on this issue clear. Competition from other mail companies will not go away but, as we make the other changes, it is right that we look at the terms of that competition and its impact on the universal service obligation.

Regulation will continue to be important in ensuring that the postal service maintains the USO in the wider communications market. As I said, Royal Mail as a company is in a unique position to deliver to 28 million business and residential addresses. The postal market needs a regulator that understands the wider communications market and the part that the post plays in that market. We believe that Ofcom will be able to fulfil that role and its primary purpose in regulating the postal market will be to maintain the USO.

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Photo of Patricia Hewitt Patricia Hewitt Labour, Leicester West

Will my right hon. Friend confirm that Royal Mail has lost approximately five times more revenue as a result of the transformation to e-commerce, e-mail and so on than as a result of the competition that has been introduced to the UK market?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

My right hon. Friend, who has long experience of these matters, is absolutely right. Competition with other mail companies does matter to Royal Mail, but competition with other technologies has lost it far more revenue. The figure that she gives is correctly quoted from the Hooper report.

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Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Shadow Secretary of State for International Development

Will the Minister accept that as Royal Mail is currently wholly publicly owned, if it is going to make important changes involving the loss of jobs, it should consult the public properly? It proposes to close a sorting office at Wotton-under-Edge, a small market town in my constituency in which the sorting office is a major employer. Royal Mail has refused to attend any public meetings or give a business case. Does the Minister not believe that it has an obligation to explain to my constituents why it is making such a change?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

The Hooper report states that Royal Mail needs to make changes to sorting and delivery offices and, given the automation that is occurring, that need is recognised throughout the company.

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Photo of Philip Dunne Philip Dunne Opposition Whip (Commons)

Will the Minister clarify once and for all whether the entities with which he is prepared to have discussions on competition will be precluded from being existing competitors of Royal Mail? Will he rule in or out private equity investing directly alongside the Government?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

Hooper is quite clear that he believes that a valuable partnership will be with a postal or network company that has carried out changes such as Royal Mail needs. I cannot comment on every discussion that the Department has, but that is the recommendation in the report and the outcome that we seek.

I wish to say a word about post offices. I know that the debate is about Royal Mail, but right hon. and hon. Members care a great deal about post offices. The closures of the past year were difficult for local communities, but now that they are drawing to a close, the network is in a more stable position. The Government made clear the future of the Post Office card account shortly before Christmas, and we are now working with the Select Committee on Business and Enterprise and Post Office Ltd to identify future new areas of business. The Post Office is partly a social and community service, and the network of about 11,500 branches depends on Government subsidy to survive. We will keep that network in 100 per cent. public ownership, although of course most post office services are delivered by sub-postmasters, who are private business people and often have their own businesses attached.

Like many Members, I want the Post Office's banking and financial services offering to be expanded. It is a trusted brand and has more branches than all the banks put together, so it has real potential in that area. However, with post offices accounting for a little more than one tenth of Royal Mail Group's overall turnover and even that proportion depending on subsidy from the Government, we should not pretend that such an expansion can solve its problems.

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Photo of Alan Reid Alan Reid Shadow Minister (Northern Ireland), Shadow Minister (Scotland)

The Minister is right to say that we have to expand financial services at post offices, but I draw his attention to the recent announcement by National Savings & Investments that holders of individual cash savings accounts will no longer be able to make cash deposits over the counter at post offices. Surely that is a retrograde step, taking yet more business away from the Post Office. Will the Minister contact NS&I and reverse that decision?

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

The Post Office has welcomed that, because it has its own product.

I shall draw my arguments to a close. It has been put to us that there are challenges, but that with a slight increase in profits recently, Royal Mail is doing okay and there is no need for change. However, it is important to make it clear that the profits are tiny compared with the challenges that the company faces.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I am afraid that I must keep going.

Much of the profit last year came from the European parcels business, and indeed the Post Office's share of the profit came from the Government's subsidy. The letters business is making a very small profit, against a turnover of some £7 billion, and when the chief executive of Royal Mail Group announced those results recently, he said:

"We must step up the pace at which we are transforming Royal Mail otherwise, as the recent Hooper report made clear, we face decline".

Hooper suggested that there would be a small profit this year, but that the company would have a significant negative cash flow every year for the next four years. Royal Mail has told the Government that volumes are continuing to fall—even faster than in the past two years—and that that will have an adverse impact on future revenues and profits. Without further action, the position will be compounded by any steps that the trustees might need to take to tackle the pension deficit, which could double when it is revalued.

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Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am grateful to my right hon. Friend and neighbour for giving way. I urge him not to accept the Conservative motion, which suggests that the Government press ahead "rapidly". The issues are delicate and difficult, and I urge my right hon. Friend and the Government to proceed slowly, not rapidly.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I certainly assure my hon. Friend that we will not accept the Conservative motion, though my invitation to the right hon. and learned Member for Rushcliffe stands.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I am sorry, but I must end my remarks shortly.

Let me tackle stamp prices. It has been suggested that another solution to the company's problems could be to increase stamp prices sharply. The price of a stamp will go up by 3p in April, and it increased by 2p last year. We must remember that customers have a choice nowadays, and steep price increases are likely to accelerate the decline in the volume of mail. Such steep increases do not, therefore, offer an easy answer to the challenges that Royal Mail faces.

Royal Mail must take modernisation further and faster than it has done. It must diversify its operations against a background of volumes of mail falling between 5 and 8 per cent. each year. To achieve that, it will need investment over and above what it has been allocated.

The debate rightly concentrates on the merit of Hooper's proposals, but let me make one thing clear: if we do not act, the pension trustees, in the face of the new valuation, could ask for changes such as vastly increased company contributions to recover the deficit, thus placing further strain on Royal Mail, or vastly increased amounts of money from the Government for the escrow account, which acts as insurance and security for the pension fund. The Government cannot simply sign such a cheque without knowing that Royal Mail is on a more sustainable track for the future.

Unless modernisation happens, the company will be ill equipped to deal with its challenges. It will be faced either with increasing prices, thereby worsening e-substitution, or a decline in the quality of service, possibly with the same result, and threatening the universal service obligation, which we are trying to protect. Of course, it would be nice if we could make the issue go away, but that would not present a solution to Royal Mail's problems. There has been a pattern in the past of settling rather than resolving difficult issues. That is why it is important to have a coherent package for the problems that Royal Mail faces, and that is what we have set out.

We will not fall for the less-than-canny motion from the Opposition, which is silent about many of the company's challenges. Instead, we have set out a plan, which says no to the privatisation of Royal Mail; yes to keeping it as a publicly owned company; yes to pension security; and yes to a new system of regulation with the USO at its heart. Any legislation to implement those proposals will be fully and properly debated by the House. On that basis, I ask my colleagues to reject the Opposition motion and support the Government amendment.

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills) 5:18 pm, 11th February 2009

I am grateful for the opportunity to discuss the Hooper report. When the statement was made, I said that it was important to debate the matter fully. Indeed, if ever an issue deserved a pre-legislative scrutiny process, surely this is it.

Richard Hooper and his team have done an excellent job with the report, which is thoughtful and thorough. Whatever one's views of some of the individual points, the general thrust and conclusions cannot be ignored. Let me begin, therefore, by looking at the principal points, which are helpfully set out in the "Headlines" section of the report. Let me deal first with the universal service obligation. It is fairly hard to conceive of a report saying that the USO should be disposed of, but there were options for diluting it. I am extremely glad that Hooper rejected all those options. Not only does the Hooper report recommend the maintenance of a six-day-a-week USO to all addresses in the United Kingdom—I would qualify "all addresses" as "the vast majority of addresses"; a Mr. John Ridgeway on the Ardmore peninsula is still waiting for the resumption of his deliveries—but it points out that the USO is very much part of the economic and social glue of our country. The USO must remain a six-day obligation, its coverage must be as near as possible to 100 per cent. and, as has been pointed out, it needs to be affordable. The report draws the clear conclusion that to maintain that kind of USO is not possible under the Royal Mail's current arrangements and in the face of competition from other media, particularly text messaging and e-mail.

The second point is the need to deal with the pensions deficit, which continues to balloon, having been around £3.4 billion in March 2006. Hooper reckoned that it was around £5.9 billion, and given the movements of the markets, it has probably increased substantially since then. Both the deficit and the deficit payment are a serious drag on the company. Of the 13.5 per cent. gap that Hooper identified between Royal Mail's operating profit and the operating profit of the continental companies that he believed to be most efficient, 4.3 per cent. was made up by the catch-up deficit payment.

Thirdly, the report emphasises the difference between postal services—that is, Royal Mail—and post offices, and recommends that post offices should remain wholly in public ownership. That is a point with which I agree entirely. Hooper does not go any further on post offices, as that was not in his remit, but the report must be an opportunity to put the post offices on a sound footing. I shall return to that point in a moment.

The fourth point that Hooper made relates to regulation. It is absolutely right that regulation should be dealt with, and I think that Ofcom is the proper body for that. Fifthly, the report makes it perfectly clear—virtually everyone agrees with this—that the status quo is not an option. Royal Mail needs to change and modernise, and it needs to face external competition from outwith mail services. It needs, in Hooper's words, to transform and diversify. The conclusion reached is that achieving that requires introduction of expertise through a partnership management agreement with one of the private companies, which will bring commercial confidence, instil better practices and create the ability to acquire and access private capital. In that regard, the Government have indicated that they favour a sale of a minority stake in Royal Mail to a private partner. That raises some questions that need clear consideration.

I shall come to those questions in a moment, but let me first touch on the motion before us, which Mr. Clarke moved. Broadly speaking, his motion says: "We agree—bring it on," to which I say: how wonderfully retro. What a thorough cast back to Thatcherism—indeed, it is Thatcherism that even Mrs. Thatcher would not have agreed to. It is privatisation of the "Chuck 'em all out into the cold hard world, the cold waters of competition and commercial reality and the job's done" kind.

Of course, it helps the right hon. and learned Gentleman that the Conservative party is broadly a policy-free zone on Royal Mail. I could certainly find nothing published on the Conservative website, although admittedly there may be something else, apart from the helpful admission made by his predecessor, Alan Duncan, that the Conservatives will continue to close post offices, as they did under the previous Administration. It is a shame that the right hon. and learned Gentleman chose to paint such an uninspiring and rather passé picture. It is certainly not one that I would ask my colleagues to follow.

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

I was waiting to hear the hon. Gentleman say whether he was in favour of partial privatisation, which I think we all agree is a perfectly accurate description of the Government's proposals. Are the Liberals still thinking about this complicated issue?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

I am extremely grateful to the right hon. and learned Gentleman for that intervention. I draw his attention to the amendment that I tabled, which is a fairly accurate reflection of the policy that we adopted at our conference three years ago, which I believe is widely available. I shall come to that point in some detail in a moment.

I want to look at the opportunities that flow from the report. The first is the real chance to help the post office network. I again want to make the distinction between the Post Office and the Royal Mail. Many of our constituents think that they are one and the same thing, but there is a real difference. Hooper recommends that the post office network remain in the public sector, with which I wholeheartedly agree, but I believe that we should go beyond that. We should take it out of Royal Mail Group and make it a separate entity, with a separate board dealt with by the shareholder executive, so that it is clearly and distinctly separate from Royal Mail and from whatever might happen to it. I would also like that board to have some stakeholder representation, particularly by sub-postmasters, as that would help to inform its future. A key point would be for the post office network to be a separately owned and managed entity that was not bound up in whatever future Royal Mail might have.

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Photo of Pat McFadden Pat McFadden Minister of State (Department for Business, Enterprise and Regulatory Reform) (Employment Relations and Postal Affairs), Member, Labour Party National Executive Committee

I appreciate that the hon. Gentleman is setting out his party's policy on the company structure, but does he accept that about 30 per cent. of post offices' income comes from their contract with Royal Mail? Has he considered that when setting out his proposed structure?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Absolutely, and I would ask the Minister to ensure that there was a clear, transparent contract between the two entities. I am trying to draw his attention to the fact that it seems extremely difficult for an organisation that has taken in private equity to own part of another organisation that is said to be wholly in the public sector. I do not believe that an organisation can be wholly in the public sector if it is part of a group that has a minority stake from somewhere else.

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Perhaps the Minister might like to observe that, with friends like that, who needs enemies?

The Post Office needs capital and, as part of what goes on, it is important that some of the capital raised should go to the Post Office. The Minister alluded to the fact that capital is needed to transform the future of the Post Office, to help it to become viable. I see two ways in which that could be done. The first involves the creation of what has been termed a post bank. The second would be for post offices to become the first point of contact between the citizen and the state. As so many local offices and benefits centres have closed, so the ability for people to interface with a human being to deal with simple questions has disappeared. That is a job that could be done by post offices for a modest fee, and it would save the Government a great deal of administrative money at a later stage.

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Photo of Albert Owen Albert Owen Labour, Ynys Môn

The hon. Gentleman is making an interesting point. Does he agree that it is important to set up a model whereby local authorities can be the driver of local services in the local community?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

I have indeed discussed the potential for putting contracts into post offices with my own local authority, the Highland council. It pointed out that it had very good service centres, but that some areas were not covered by them. There is certainly room to look further into that, so the hon. Gentleman has raised a good point.

Let me deal now with Royal Mail. It seems to me that allowing an entity somewhere simply to take a minority stake to become a business partner combines pretty much the worst elements of all worlds. If it is simply a matter of gaining access to capital and nothing else, there is a range of alternative mechanisms for accessing private capital—non-voting equity, bonds, preference stock, which the Government love at the moment, loan stock and so forth. There is also the possibility of creating a 50:50 joint venture—in other words, doing nothing about Royal Mail itself, but creating a 50:50 joint venture with both sides placing into it what they want.

There are many ways of dealing with the problem, but one of my worries about taking a minority stake is how it can be valued, particularly at this time in today's markets. How do we decide how much it is worth? How much equity is sold for what price? If the stake is to be 10, 25, 35 or 49 per cent.—there is quite a difference between those numbers—we should bear in mind that a single minority shareholder will not go sticking his money into a company unless he has what is known as a shareholder's agreement, which sets out the terms that apply, making it clear whether and when the public side—the Government—can or cannot do certain things. With all those points unresolved and undiscussed, the claim that the Government's proposals offer secure public ownership seems to me to be ever so slightly disingenuous.

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Photo of Peter Luff Peter Luff Chair, Business and Enterprise Committee

If I understand the hon. Gentleman correctly, what he is citing as a problem is actually one of the strengths of the proposal, as it will actually commit the Treasury to behaving in a responsible way towards Royal Mail Group, which, frankly, it has not done for 20 years.

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Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General

Does the hon. Gentleman agree with the Minister's point that, by having an outside third-party investor, the trade unions will, in effect, be better behaved than they have been in the past?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

That is precisely the point I am coming on to. I wonder whether the hon. Gentleman will allow me to develop it in my own words and intervene again later if he wants to.

Hooper makes it clear that the commercial partnership is far more important—or at least equally as important—as the capital. His key point is the need for engagement between the unions, particularly the Communication Workers Union, and the modernisation process. That is something that requires trust, so I want to put a suggestion to the Minister about how that might be achieved. Simply banging in and issuing a slug of shares for money will not necessarily accomplish that task. My suggestion to him has been part of our policy for three years, so I hope he looks very carefully at it. It is to give the work force a substantial holding in Royal Mail as part of the overall package. It is not quite, as some have said it is, the John Lewis model, because that obviously requires 100 per cent. ownership, but I submit that providing a real equity stake in the company could go quite a long way towards aiming all the partners and stakeholders broadly in the same direction and might help to deliver some of the trust that Hooper says is so greatly lacking.

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Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Does the hon. Gentleman agree that even if the Government took the route that he is suggesting, and certainly if they took what appears to be their own preferred route, it could not be said that the Post Office would become a publicly owned company in the sense that it is now? Surely it is to misuse words to suggest to Labour Back Benchers that they are not telling the truth when they say that this is a partial privatisation or a partial mutualisation.

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

I am not terribly hung up over whether it is a partial privatisation or a wholly public non-privatisation. What concerns me, as I said earlier, is the creation of a modernised Royal Mail that is fit for purpose and delivers on a universal service obligation, and a post office network that is clearly and obviously in the public sector.

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Photo of Simon Hughes Simon Hughes Shadow Secretary of State for Energy and Climate Change

May I reinforce what my hon. Friend is saying? I have talked to people who work for Royal Mail in a big sorting office just over the bridge near my constituency. When I have put to them the alternatives—another private sector company coming in with a minority shareholder, or the workers having shares and ownership—it is blindingly obvious which of those alternatives has the better chance of securing a good working relationship, and it is not the first.

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Photo of Julie Kirkbride Julie Kirkbride Conservative, Bromsgrove

I find the idea of greater employee participation and ownership very attractive, but it raises an obvious problem: where would the money for investment come from? Would the employees be expected to pay for their shares, rather than being given them? If not, where are we to find the money with which to modernise Royal Mail?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

Let me make clear that I am in favour of an injection of finance, and in favour of a partnership. What I am saying is that as part of that overall deal, proper consideration could be given to the employees through the granting of shares so that they would have a real stake.

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Photo of Michael Weir Michael Weir Shadow Spokesperson (Trade and Industry), Shadow Spokesperson (Environment, Food and Rural Affairs)

Will the employees be able to trade the shares? Is the hon. Gentleman suggesting a combination of private enterprise, perhaps involving a private company, and employee and state ownership? Given such an arrangement, how would the profit be divided?

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Photo of John Thurso John Thurso Shadow Secretary of State for Business, Innovation and Skills, Liberal Democrat Spokesperson (Business, Innovation and Skills)

If the hon. Gentleman will forgive me, I will not give him a lecture at this stage on how these things work. I hope he will accept that I have visited a number of companies in which shares are traded, but are traded within the trust that owns the shares for the individual employees.

I cannot, in all fairness, ask my hon. Friends to support the Government amendment, which, as has already been pointed out, seems to add to the confusion by using phrases such as "secure in public ownership" when Royal Mail clearly is not in that position. I have to say that I cannot ask them to support the Conservatives' motion either. I will say to the Minister, however, that if he is prepared to examine the case that I have presented for the Post Office and employee involvement, I am sure I shall be able to engage with him constructively.

The British people deserve and expect both the protection of their post offices and a competitive USO-based postal service. The status quo is not tenable. We must look to a future that is well structured and based on commercial competition, but also, critically, on trust between the stakeholders.

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Several hon. Members:

rose —

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I remind the House that Mr. Speaker has placed a limit of eight minutes on Back-Bench speeches. It is fairly obvious that, given the time available, that will restrict the number of Members whom I am able to call, so I propose to try to ease the situation by reducing the limit to six minutes for all Members called after 6 pm.

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Photo of Patricia Hewitt Patricia Hewitt Labour, Leicester West 5:39 pm, 11th February 2009

I am grateful for the opportunity to speak, and for the opportunity to follow the speeches that we have just heard. I must, of course, declare an interest. As noted in the Register of Members' Interests, the Communication Workers Union has been a generous donor to my constituency campaign funds in the last two general elections. However, its members know that, on this issue, I do not agree with them.

I must also say that I have considerable sympathy with my right hon. Friend the Minister. I believe I am right in saying that I was the longest serving Secretary of State for Trade and Industry since the 1950s, and in that capacity I had the great pleasure of being the owner, on behalf of the public, of Royal Mail. In that period, we made substantial changes to Royal Mail's leadership, financing and structure. We brought in a completely new board led by Allan Leighton, to whom all of us owe considerable thanks. We put in additional funding. We changed the balance sheet. We introduced real support, with the help of the TUC, to try to create the social partnership that was so obviously needed between management and trade unions.

We did all that, and some change came. Costs were reduced—Mr. Hooper says by about £0.5 billion, while Royal Mail says by more than £1 billion. Customer service was improved, at least for some years. Losses, which in those days were £1 million a day and threatening to rise, have been turned into a fragile, to use Royal Mail's own word, profit just last year. However, the reality—to which my right hon. Friend the Minister clearly pointed—is that the changes that have taken place in Royal Mail in the last eight years have not gone far enough or anything like fast enough.

Over the past decade and more, I have been a regular visitor to my local sorting office in Leicester. I have seen one very welcome change: industrial relations, which were pretty parlous 10 years ago, are now, so far as I can tell, reasonably good. Sadly, however, that is not the picture across Royal Mail. Apart from that, as far as I can see almost nothing has changed in that sorting office. I welcome one aspect of that: many of the Post Office men and women whom I met 10, 11 or 12 years ago are still there, absolutely dedicated and loyal Royal Mail workers whose commitment to the organisation is one of its greatest strengths. However, the lack of change in the sorting methods is shocking. My right hon. Friend the Minister rightly referred to the business of sorting post into the "walks" that are then taken out. What I saw just before Christmas was exactly what I saw more than 10 years ago: postmen and women who are going to go out on the "walk" at about at 8 o'clock coming in at 5 or 6 o'clock in the morning and hand-sorting the mail into old-fashioned cubby-holes that were probably there 50 or even 100 years ago. A system that has been 85 per cent. automated by Deutsche Post, TNT and other postal operators and competitors is wholly unautomated in my own and many other local sorting offices.

That lack of change, coupled with the transformation in the technologies we all now use, is probably the central reason that has led to the crisis—that is what it is—in Royal Mail's current position. Royal Mail itself says the overall financial situation is increasingly fragile. The universal service obligation lost money last year. The pension scheme is completely unaffordable by the company on its current performance. Postcomm says Royal Mail in its current form is not sustainable. Richard Hooper says that the status quo, and in particular the USO—to which all Members, at least on the Labour Benches, are completely committed—is under threat. The truth is that only about a third of the original master modernisation plan, which was drawn up under Allan Leighton's leadership of the new board, has actually been implemented, and only about £85 million of the Government's financing facilities that were put in place in 2001-02 and renewed only a few years ago has actually been used.

Royal Mail desperately needs a new capital injection and a much faster pace of modernisation, in particular to deal with the massive inefficiency in the running of local sorting offices. That modernisation would benefit employees, who should not be working in 19th century conditions in a 21st century Royal Mail. It also needs a solution to the pension fund deficit. The Minister rightly said that once the new valuation is made, given what has happened to stock markets in this global financial and economic crisis, that deficit will be frightening.

Beyond all those changes, what Royal Mail needs is an injection—not just at the top, but all the way down, through senior, middle and junior management—of new people who have expertise and experience gained in another organisation. I am thinking of a network organisation, preferably a postal one, that has already been through this difficult transformation, on which Deutsche Post and TNT embarked in the 1990s. That expertise and experience exists, but it is not to be found in Royal Mail. It needs to be introduced through a strategic partner—a minority partner. That partner also must demonstrate the track record of social partnership working that we have tried to create in Royal Mail. Clearly, the management have not succeeded in that, but neither has the leadership of the Communication Workers Union, who accept the need for change in principle, but have not been willing to make those changes in practice.

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Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye

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Photo of Patricia Hewitt Patricia Hewitt Labour, Leicester West

I simply cannot give way, given the time.

For all the reasons I have outlined, I strongly support the Government amendment, and I wish the Minister every success with this difficult piece of work in progress.

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Photo of Peter Luff Peter Luff Chair, Business and Enterprise Committee 5:47 pm, 11th February 2009

It is a pleasure to follow Ms Hewitt, who made a characteristically thoughtful and well informed contribution, which was marred only by one brief lapse into partisanship; although I speak as Chair of the Select Committee on Business and Enterprise, I hope I speak for the whole House when I say that we all support the universal service obligation.

My Committee is in the middle of two relevant inquiries into this subject. One deals with the Hooper review and mail services—we are having a further evidence session next week with Royal Mail and Postcomm—and the other one, to which the Minister referred in his opening remarks, deals with the future of the post office network. I urge hon. Members from all parts of the House to give us their views about the options for sustaining the future of that network. All this means that my hands are a bit tied in this debate—I have no reports from my Committee on which to rely, so I must be slightly restrained in the expression of some of my views.

It is important to acknowledge, as this debate has, the huge range of problems facing Royal Mail in particular, as opposed to Post Office Ltd. They include: poor industrial relations; the growth of electronic communications and the recession, which together mean declining mail volumes in the UK—those volumes declined by 2.5 per cent. last year and are projected to decline by 4.5 per cent. this year and by 8 per cent. next year; and a failure to invest over at least two decades—my argument with the Government amendment is that it singles out the Conservative party for attack, but this Government also bear some responsibility for the failure to invest—which needs to be addressed now.

Further problems include a very rapid growth in competition for business bulk mail—it has perhaps been more rapid than Postcomm recognised, although it has not surprised me; serious doubts about the effectiveness of the regulator, which, let us not forget, thought, during the recent price review, that mail volumes would grow; conflict between the twin regulatory objectives of the universal service obligation and competition—I welcome the fact that the Government amendment talks about the USO in such clear terms, because that gives guidance to the new regulator; a massive pension deficit, to which reference has been regularly made; and problems, which have not been mentioned today, over pricing of the competitors' access headroom arrangements—the so-called final mile. If I had the time, I would explain to the House how that actively disincentivises efficiency gains by Royal Mail Group.

Of course, that leads to the most urgent need, which is for capital and expertise in order for the organisation to modernise and compete. I think that all in this House accept—I hope we do—the Hooper review's principal conclusion that the status quo is not tenable. That brings us to the three crucial issues in the review—pensions, the partner and Postcomm. There is a vital fourth one—the need to secure better industrial relations in the company. I shall not talk about it today, but it is an overriding issue that must be taken into consideration.

I have reservations about the proposed merger of Postcomm with Ofcom, but I accept the logic and it is probably the right thing to do. The Committee will look at the merger carefully, because there is a serious risk of regulatory overload on Ofcom. It is already charged with the complex issue of telecommunications regulation, although in Europe most regulators share postal services and telecommunications responsibilities. Ofcom also has the whole broadcasting arena to deal with, which often takes up a lot of time. Jonathan Ross can trump some important strategic issues concerning how the other aspects of Ofcom's work should be regulated.

The Government have a problem with regulators generally. They tend to describe regulators as independent and delegate too many policy decisions to them. The regulators must be economic regulators, and the Government must set the policy framework, which is why I welcome the statement about the universal service obligation in the Government's amendment. We must be clear that Ofcom, when it becomes the postal services regulator, should not be required to take too many public policy decisions, which should be the preserve of Ministers.

Broadly speaking, the regulatory aspects will not be too controversial. The pension deficit, however, raises more difficult questions. The Government want to enter into a hugely expensive commitment, which will be a huge commitment for the taxpayer in the long term. I am trying to get to the bottom of why the pension problem is so bad for Royal Mail Group. I suspect that the real explanation is that it is an exemplar of the bigger, hidden problems throughout the public sector. Because Royal Mail is a trading company and has to be transparent about its pension fund, it has to explain the issues with it, but I suspect that similar issues lurk all over the public sector and Royal Mail's problems are not that unusual. Of course, any transfer of the pension deficit to the Exchequer will be subject to EU state aid scrutiny. The precedents are reasonably encouraging—there are different pension arrangements in France, but when La Poste transferred its pension deficit to the state, it did receive clearance, albeit in slightly different circumstances. One very important point about the transfer of the pension deficit is that any settlement must be reflected in the price paid by a new partner or partners for a stake in the company free from that debt.

I turn now to the crucial question of the partner. Is it just a matter of ideology—public good, private bad? I confess that my preference is for commercial activity to be undertaken by the private sector, but hard questions have to be asked. If the strategic partner is an existing mail operator, is the loss of competition in the market a price worth paying? Does the doctrine of unripe time apply? It does not seem an especially good time to hand over capital raising to the private sector. By the way, if a 30 per cent. private stake in RBS means that it is a private company, how does a 30 per cent. private stake in Royal Mail make it a public one? I have some intellectual difficulty with that.

Hooper says that a partner is needed for three reasons—capital, expertise and political stability. The Committee will need evidence for that claim, and especially for why all three objectives can be delivered only by the one mechanism of introducing a private sector partner. On the first—capital—the state is providing capital at present and we have discussed that with the Minister. It is provided on commercial terms, as it has to be, but—as he explained—it has not had EU state aid clearance yet. Big questions would be asked about any further applications for capital from Royal Mail Group, and they might not receive favourable answers.

The second reason is expertise. I thought that Allan Leighton and Adam Crozier were brought in to provide expertise. The right hon. Lady suggested that expertise was needed throughout the organisation, and that may be the explanation. In the past, the Government have sought to address the expertise question by bringing it in from the private sector.

On political stability, I understand the point that having an arrangement with a private sector partner locks the Treasury into a new, fairer way of treating Royal Mail. Richard Hooper made a great deal of that point in giving evidence to the Committee a few weeks ago. But is there another way of achieving that political stability, which the company clearly needs and has not had for far too long?

My instincts are with Hooper, but I understand the concerns that have been expressed. The Government have to produce compelling, evidence-based reasons for the approach. Royal Mail will be an attractive business without a pension deficit, with a more intelligent regulator—people are critical of Postcomm—and with the USO to give it market dominance. So if it is a bad time to raise capital, it is also a bad time to price an asset such as Royal Mail when it is freed from all its obligations in this new world. I hope that the price will at least include an earn-out over several years, to ensure that the taxpayer's interests are properly looked after. On a happier note, however, we must not forget that a 70 per cent. holding should still mean a flow of dividends back to the Treasury for a very long time.

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Photo of Geraldine Smith Geraldine Smith Labour, Morecambe and Lunesdale 5:54 pm, 11th February 2009

I am delighted to have an opportunity to vote today against the part-privatisation of Royal Mail. I am not too sure that I could vote for the Minister's speech, if there was a vote on it, as he also seemed to be talking about part-privatisation, but the Government have tabled a sensible amendment and I will support that.

There is great strength of feeling about this matter. One hundred and thirty Members of this House, most of them Labour, have signed an early-day motion opposing postal privatisation, but the strength of feeling is not confined to Parliament. An independent public opinion poll recently found that 75 per cent. of people who had heard of the possibility of Royal Mail being privatised opposed the idea. When respondents were asked about the possibility of foreign ownership, the proportion strongly opposing the partial privatisation of Royal Mail rose to 89 per cent.

I represent a large rural constituency, and people there realise that part-privatisation means higher prices and reduced services. The actual cost of sending an item from London to the Isle of Skye is £28, so I can understand why the Scottish National party has concerns about partial privatisation. There has been talk of dinosaurs, but the only dinosaurs are those people who do not realise that privatisation is going out of fashion. We have had to rescue the fat cat bankers who got us into so many difficulties and we are nationalising the banks, so privatisation is not the British public's flavour of the month.

The Hooper report is flawed. Hooper admits that there is no agreement between Royal Mail and the regulator about the business's basic operating costs, but at no point does he seek any independent costings. How can he reach conclusions on a business when he does not know the cost of providing the service?

Earlier, the Minister said that the universal service obligation was making a loss, but the regulator said that it was making a profit. Between 1981 and 1999, Royal Mail was forced to hand over £2.4 billion in profits. The then Conservative Government starved it of investment at a time when other European countries were investing in their postal services. They were modernising and automating their postal operations while the British Government were taking profits away from the business. Moreover, contributions holidays meant that the employer did not contribute to pension schemes for many years.

Recently, the UK has gone ahead of the European Union with postal liberalisation. We have allowed private postal companies like TNT to come in and cherry-pick all the best business, yet Royal Mail cannot enter those markets because they are closed. TNT has retained a monopoly on mail of less than 50 g in weight: Royal Mail cannot touch that, but TNT can come in and take our profits.

We need a fair pricing policy for Royal Mail. The Hooper report acknowledges that prices in the UK are low, relative to many other European countries. For example, to send a first-class item weighing 100 g, Post Danmark charges three times the Royal Mail price. Sweden's Posten and Belgium's La Poste both charge more than twice that, while Deutsche Post and TNT deliver a letter of 100 g for around three times the price charged by Royal Mail. So we know what is going to happen to postal rates for the general public in this country when the private sector gets involved.

The UK is also the only European country to operate a peculiar form of downstream access arrangements that have led Royal Mail, and therefore the British taxpayer, to subsidise the businesses of private competitors. Royal Mail delivers items at a loss: what business with true commercial freedom would be obliged to accept that it made a loss on every item? That is nonsense, but the regulator fixed a price, and what the regulator knew about postal services could be written on the back of a postage stamp.

Some £2 billion has been lost in revenue in the past five years, because during the price control period postage rates were held at an artificially low level as a result of Postcomm's mistaken forecast about the failure of mail volume growth. Postcomm got it wrong and, as a result, Royal Mail lost £2 billion, but Hooper refuses to take a view on pricing. He just defers the decision, and no one seems to be mentioning the issue. Pricing has not been taken into consideration, and what Royal Mail really needs is a fair pricing policy. Despite all those challenges, this year Royal Mail has managed to make a profit of £255 million; that is just for one quarter. That is compared with a figure of £162 million for the whole of 2007 and 2008.

What is the solution for Royal Mail? First, the Hooper report has taken no account of the impact of the recent 3p tariff increase in assessing future profitability; that has not been reflected in the costing. Changes to downstream access are certainly needed. That could stem the loss of revenue to private competitors, and turn Hooper's projected profit forecast from red to black. If the Government took responsibility for the pensions deficit, as they have said they will, Royal Mail would save an additional £280 million a year for the next 15 years. Keeping the company wholly in the public sector would mean that the money could be used for future investment, rather than just profit taking.

Finally, there needs to be greater investment and modernisation. That can be achieved if Royal Mail starts spending the £600 million that it has already borrowed from the Government to modernise. I actually speak to postal workers; I spoke to a Communication Workers Union area delivery representative, and found that no one had even approached him about walk sequencing. As for the CWU nationally, the unions have not been approached about all that new technology. When they have been approached, agreements have been reached. In the past few years, 40,000 Royal Mail jobs have been lost, so we are talking about a union that is prepared to make hard choices.

We need a bit of information in this debate. Too many people are making statements who know very little about the operation of the British postal service. As for new, fresh, British top management, I think that the gene pool is wide enough for us to find those people in this country; we do not need foreign managers. Is my right hon. Friend Ms Hewitt, suggesting that we employ 11,000 new managers—that we sack all the existing management and bring in Dutch managers? What does she mean? What are the practicalities? It is nonsense. We need British management—

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Photo of Charles Hendry Charles Hendry Shadow Minister (Energy and Climate Change) 6:03 pm, 11th February 2009

It is a great pleasure to follow Geraldine Smith. I do not agree with much of what she said, but she has been a doughty and determined defender of postal services. It is sad that we have to hold a debate about the very survival of one of most loved services. There is no doubt that Royal Mail has been an incredibly highly prized service. The concept of the universal service obligation means that post is delivered to every single house every day. Royal Mail has an excellent delivery record, as the hon. Lady said, certainly in comparison with many other countries, and the price has been very favourable, given the cost of delivering letters.

The sadness is that, at best, the Government have allowed the service to wither on the vine over the past 12 years. At worst, we could say that they have comprehensively trashed it. First, the Government did not secure a level playing field. International operators can come to the United Kingdom to take some of the most lucrative parts of the business, perhaps making them loss leaders before making further advances. British postal services cannot provide those same services in other European countries. The Government have been negligent in not pushing the issue further and not seeking a level playing field for Royal Mail overseas.

Secondly, the Government are guilty of not having had a vision for the postal service and Royal Mail more generally. As a consequence, the management of Royal Mail have been left to manage the decline of the service. We have lost the Sunday collection. The first—indeed, the only—post arrives later and later, and the second delivery has been cancelled altogether. We have seen Saturday collections being moved to earlier times. I went past a post box the other day where the last collection on Saturday was at 9.15 am, so gone is the late morning collection, gone is the Sunday collection, and it is no longer the convenient service that it used to be.

We must be fair and say that that is not the responsibility of the managers. They have been trying to manage a difficult business through difficult times and they faced a triple squeeze. I pay tribute to Adam Crozier for much of the work that he has done and for his genuine zeal and enthusiasm to deliver a 21st century service. He has been squeezed by the financial pressures that we heard about in the excellent speech from my right hon. and learned Friend Mr. Clarke, by the huge pension fund deficit, which would technically make the Royal Mail insolvent, and by increased competition both from other services such as e-mail and from other operators.

Equally, we should not blame workers. There are, of course, major problems in some of the cities, but the postal workers in my constituency are incredibly diligent, hard-working, enthusiastic people who provide an outstanding service. From my contact with them—people who have worked in Royal Mail for many years, in some cases 20 years or more—I know that they want to deliver a continuing good service in the years to come and they recognise the need to modernise. The challenge will be to carry them with us during that period of change.

It is right that the Business and Enterprise Committee will be asked to look into how the Post Office can offer services more akin to those of the financial services offered by banks. I agree with that because we suggested it. It was the Opposition motion last year that suggested that post offices should offer a wider range of services, but the Government Whips marshalled their troops to vote it down.

The sadness and the irony of the situation are that a Government with vision would have decided on the services that Royal Mail and the Post Office could offer, before deciding to slash and burn their way through the post office network. The process should have been completely reversed. We should have looked at how we could extend the services and how post offices could offer more services to the community and then determined the size of network necessary to deliver that, rather than doing it the other way round.

That is the charge that goes to the heart of the Government's failings. There has been no vision of how to go through the process, and they have ended up confused and unable to see their way forward, as was evident from the Minister's speech today. Royal Mail needs a massive injection of finance. It needs to modernise its processes and to invest in reskilling its work force. It needs to address the pension fund problems, about which we have heard so much. It needs to be able to compete with well-resourced international businesses.

That means that there must be a new approach, and part-privatisation must be part of that process. There must be an opportunity to engage the work force and there may, therefore, be opportunities to involve them as shareholders in a revitalised business. But the Minister must accept that what the Government propose is part-privatisation. It is not full privatisation, but bringing in other investors is, by definition, part-privatisation. He should have the courage to say to the House that that is what the Government propose. We will support him in delivering that, because it is the only way to deliver the change that this vital service needs.

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Photo of John Heppell John Heppell Labour, Nottingham East 6:08 pm, 11th February 2009

It is a pleasure to take part in this debate, especially facing my neighbour—I almost said my hon. Friend—Mr. Clarke, whose contributions I always value and whose judgment I sometimes doubt. I know he was one of the first people to predict the present economic crisis. The difficulty was that he predicted it in 1997, 1998, 2000 and so on, until the present day. He might say that he is a man ahead of his time. Another phrase comes to mind; it seems to me like premature speculation.

I do not share the view of my hon. Friend Mr. Kilfoyle that the motion moved by the right hon. and learned Member for Rushcliffe was to do with wrong-footing the Labour party, although I do think that was part of it. It was quite clever to pick the emotive words—I do not want to get hung up on the point about whether it is privatisation or not, but the reference to "partial privatisation" was certainly going to be a red rag to many of my colleagues. That goes without saying. I think the right hon. and learned Gentleman realised that by doing that he was concentrating the debate—or certainly the Labour speeches.

In some respects, however, I think there was a simpler reason why the right hon. and learned Gentleman needed to concentrate on that one particular point. Hooper makes it quite clear:

"Our recommendations are a package. Each element of the package is needed if the universal service is to be sustained: modernisation achieved through partnership, tackling the pension deficit, and changing the regulatory regime."

I do not think the right hon. and learned Gentleman can agree with the rest of those recommendations. He can say he welcomes them, but they are not contained in the motion. Why does the motion not say that we will back Hooper on all his recommendations? When we take a long cautious look at the legislation, rather than a rapid look, and when we decide what we are going to do, I suspect that in Committee and at other stages, there will be a fair amount of opposition from those on the Tory Benches to the regulatory regime that we propose. History suggests that that will be the case.

I suspect it is also the case that we will not get any guarantees on the pension deficit either. I may be wrong, but when we are talking about an Opposition who are committed to cuts in public services across the board in every area, including in this Department, why would Royal Mail pensions be left out? Why would the Opposition decide, "Oh yes, we'll find the £7 billion, £8 billion or £9 billion for that while we're cutting the other services"? That just does not ring true to me. It does not chime with what we have heard in the past. The right hon. and learned Gentleman's predecessor as shadow Business Secretary would not even give a guarantee about the Post Office. I know that the Post Office is not part of today's debate, but the Government have made a £1.7 billion commitment to keep the post office network. When asked about that, the previous shadow Business Secretary, Alan Duncan, would not give a guarantee—I have the quotes.

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Photo of Charles Hendry Charles Hendry Shadow Minister (Energy and Climate Change)

Perhaps the hon. Gentleman should go back and look again at that debate. I responded to it, and I gave a clear, categorical assurance that that would be the case.

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Photo of John Heppell John Heppell Labour, Nottingham East

My hon. Friend Martin Salter asked the then shadow Business Secretary:

"If I am to be tempted to vote for the motion, will he give an undertaking on behalf of his party to put £1.7 billion of investment into the network so that it can be sustained in a good old socialist fashion up to 2011?"

The then shadow Business Secretary said:

"I will not do that".—[ Hansard, 19 March 2008; Vol. 473, c. 950.]

That is fairly specific. If I am wrong, I would be happy to give way to the right hon. and learned Member for Rushcliffe so that he can get up and give a guarantee now. As we are talking about the Hooper review, will he give a guarantee that the Opposition will back the Government's view and do something about the pensions deficit?

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Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Shadow Secretary of State (Business, Enterprise and Regulatory Reform)

There is absolutely no dispute from the Opposition or anywhere else that the accrued pension rights of those in the pension fund must be protected. It is a question of how that is financed. The hon. Gentleman appears to believe that the Government are committing themselves to injecting £7 billion to effect that guarantee. I do not think they are. Our position at the moment, which is why the motion is how it is, is that we are waiting for the Government to spell out how they will address the pension deficit, but the Minister for Employment Relations and Postal Affairs studiously avoided giving any detail about how he was going to do it.

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Photo of John Heppell John Heppell Labour, Nottingham East

I suspect that that will not be the case. Just this week, the Mayor of London, who used to be the hon. Member for Henley, was pronouncing about public sector pensions and how it was not our job to protect them. I understand the argument that the Tory party would make. It would ask why public sector pensions should be protected when people with private pensions, who are going broke, are not, and then there are the people who have no pensions. Taxpayers have to pay for that public sector protection. Given that people who have put their money into housing have lost 15 per cent. and that pension funds are losing about 35 per cent., the argument that the Government should not intervene to find the money for the pensions is powerful.

However, there is a powerful argument the other way, and I am not just talking about the fact that many of the people involved got the pension rights by accepting fairly low-paid public service jobs, although that is one point. In this case, another argument can also be made. The package is not just to protect thousands of peoples' pensions; it will modernise Royal Mail, set up a new regulatory regime and guarantee the universal service obligation.

The package will also raise private sector money. I might be at odds with my colleagues on this, but I have no problem with that, although I am not sure how much should be raised in that way or whether another mechanism could be used. Hooper was fairly specific on the issue; it is not only about the money that a private sector partner would involve. He says:

"We recommend a strategic partnership between Royal Mail and one or more private sector companies with demonstrable experience of transforming a major business, ideally a major network business."

In talking about her experience with TNT and Deutsche Post, my right hon. Friend Ms Hewitt made it clear that those companies have experience of making a company modernise and become more efficient. Many of my comrades have sentimental views about Royal Mail and the Post Office and those views are shared by many across the country. My comrades want to protect the services, and I think that Hooper does as well—but he wants to do so by doing what is necessary to protect them. The Hooper review is called "Modernise or decline". He is right about one thing: doing nothing, and taking the usual Tory line, is not an option. We need to be very proactive.

There is a problem with everyone wanting to cherry-pick from the report. The report holds together well, although—I will be honest—there are bits of it that I do not understand: I could not quite understand what John Thurso was saying about it. However, the details can be worked out in Committee.

Just one last word—

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I am afraid that the hon. Gentleman had to be pipped at the post.

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Photo of Dai Davies Dai Davies Independent, Blaenau Gwent 6:17 pm, 11th February 2009

I shall be very quick, Mr. Deputy Speaker, so that more Members can speak.

I echo the sentiments of Geraldine Smith; I only wish that she had had as much time as the Front Benchers. I want to make four quick points. First, the Government said that they were in no rush, and I urge them to leave the decision until the next general election, to put it in their manifesto and to let the people decide. In my constituency, the people want the Post Office and Royal Mail to be kept in public ownership.

My second point is that we all agree on the need to modernise, but where have we been? We talk about the equipment that Royal Mail has to use. Where have we been in changing that, and what has the chief executive done to bring that about? What have we paid him for not doing it? Huge amounts of money.

Thirdly, a level playing field has been mentioned on numerous occasions. The post office in my constituency delivers for the last 2 miles, which is the most difficult part of the delivery. The TNTs of this world—the private companies—get the cream, while the people at the sharp end are left with a really difficult job. I urge any Member who has not visited a sorting office or walked some of the patches to which our postmen have to go, to give that a go. Has Hooper done it? Did he visit the sorting offices and speak to the posties? He certainly did not do so in my constituency.

Fourthly, we have seen what greed has done to the banks; the drive for profit and more money has almost destroyed the financial system of this country and across the world. I urge the Government to consider that, and not to allow the same to happen to Royal Mail.

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Photo of Albert Owen Albert Owen Labour, Ynys Môn 6:19 pm, 11th February 2009

I welcome this debate on Royal Mail. I also welcome the shadow Business Secretary, who is no longer in his place, to his new role. I can understand why he has been brought into it, because he was certainly entertaining, and the Conservative party needs an entertainment officer as they have not had one on such issues for some time. I did not realise that he had been in charge of the Post Office. I remember disagreeing with him when he was in charge of health, education and the economy. However, I agree with him on many issues, including Europe, and I agreed with him when he told Mrs. Thatcher that it was time to go. It is a shame that he is not in his place, because I am trying to offer him some warm words. Nevertheless, I cannot agree with his motion because, as my hon. Friend Mr. Heppell said, it is just mischief-making, and this is a serious debate about a serious issue.

I welcome many of the interesting recommendations made by Hooper in his report, particularly on the universal service obligation, which is very important to areas such as mine which are on the periphery and rely on the six-days-a-week service. We do not have very fast broadband and we have a poor gas network, but at least we have our USO. We need the post delivered on time in a daily fashion like the rest of the United Kingdom.

When the Business and Enterprise Committee considers the details of the future of the Post Office, I urge it to develop the issues that the Government have raised about establishing better financial services for the Post Office network. That is a good idea, and it has come not only from the Conservative party; it has consensus around it. Among the best services that the Post Office provides is the exchange service for the pound against foreign currencies, where it has been very successful.

On the Post Office card account, the Government were right to provide that security and foundation to the post office network for the future, and we need to build on that. Given the crisis in the financial sector, the trusted brand that is the Post Office is a good way of providing such services to local communities across the United Kingdom of Great Britain and Northern Ireland.

I do not have much time left to give an alternative to what has been said about this issue being just about privatisation and the public sector. There are other models that the Business and Enterprise Committee and the Department should consider. In Wales, we all get water provided by Glas Cymru, which is the owner of Welsh Water. It is a not-for-profit organisation—a company limited by guarantee. It provides an excellent service, and Hooper dismisses it too quickly in his report. It is a successful model that could be used in delivering monopoly services such as mail, although I understand that there is the issue of European regulations. Its activities are funded and financed by bonds. It has within its organisation specialist contract partners employed by Welsh Water following a procurement process.

That business model improves service delivery by employing the best contract partner for each distinct activity within the business. Looking at the postal business globally, I can see that type of model helping to deliver services. It is an example of the kind of partnership within a monopoly that Hooper dismisses so quickly. The company also has the unique distinction of paying annual bonuses to its customers—dividends are given on an annual basis by reducing the bills—and it is able to get guaranteed loans over a period whereby it can reinvest in the company infrastructure. That is also worth considering when we talk about universal postal services. This is not about private versus public alone; we need to go beyond that.

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Photo of Phil Wilson Phil Wilson Labour, Sedgefield

Does my hon. Friend agree that we need to resolve the problems around Royal Mail under this Government? If the Tories had their way, they would probably privatise it in its entirety?

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Photo of Albert Owen Albert Owen Labour, Ynys Môn

I was not going to go down that partisan route, but I do worry about privatisation and the Conservatives. Royal Mail is the only organisation left that they did not privatise before, so it would be the first to go if they came back to office; they would start where they left off. The railways are a good example of the mess that they made. I am quite pleased, however, that we brought Network Rail back into public ownership as a not-for-profit organisation. It works side by side with private train operators, which is why I am suggesting an alternative model where a not-for-profit organisation is used to deliver a quality service and product to all customers. That should be the basis of what we do.

We tend to have dogmatic and ideological debates on such matters, but at the end of the day, we often forget that Royal Mail is there to provide a service to the public. I do not think that nationalisation or public ownership are dirty words, and the intelligent way forward in this debate is to look at alternative models. Hooper made a huge mistake in dismissing alternative models that work in this country, models which are regulated, which provide a high standard of service and which provide investment for the future. The risks involved in providing water are quite huge, but through such a model, Glas Cymru is able to invest for the long term by getting guarantees. We are giving guarantees to the banks and to everyone else.

The Treasury should look seriously at the model that I am suggesting and look at what Glas Cymru is doing. It is delivering a public service through a not-for-profit model that provides a good standard of service for the people that I represent and for all of the people of Wales. That model can be rolled out across the whole United Kingdom.

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Photo of Rob Wilson Rob Wilson Opposition Whip (Commons) 6:26 pm, 11th February 2009

I am pleased to have the opportunity to contribute to this important debate, and I shall try to be quick because I know that others want to speak.

In common with many areas of the country, my constituency of Reading, East has not been immune to the failings of Royal Mail. For the last couple of years, I have been involved in a campaign to prevent the local sorting office from closing. That has had an impact on workers; we are losing hundreds of jobs because of the closure. Many people have already been laid off and hundreds more have been, as they put it, left hanging in limbo. Royal Mail is moving the office to a £20 million mail centre in Swindon, and despite my best efforts to save those jobs—indeed, I arranged an all-party group to see the previous Minister responsible for postal services, Jim Fitzpatrick—I have unfortunately been unable to put a halt to the process. I have had regular meetings with employees, and I held a surgery recently at my local sorting centre. It is clear to see the human impact of the failings of this commercial organisation, and if change does not take place, even more jobs will be lost in the years to come.

The closure is due, in part, to the failure of Royal Mail's national management. It has failed to get a grip on many of the problems that it has faced over the past decade. In Reading, as in the rest of the country, one of those problems is the fact, mentioned by many hon. Members, that the technology used is seriously behind the times. Royal Mail chose to close its sorting centre in Reading to move to Swindon and, consequently, hundreds of people have been left out of work.

The Hooper report, which was published at the end of last year, makes it clear that one of the principal threats to Royal Mail comes from technology and the massive explosion in digital media, the internet and mobile technology. As many have said, that has prompted a substantial decline in the number of letters being sent by consumers. Another factor is Royal Mail's outdated sorting procedures, as compared with those of other European countries. When I met the Minister responsible for postal services last year, I pressed him hard on that point. I repeat what I said to him then: modernisation is crucial to Royal Mail so that it can compete properly in the wider market that is now open to all European competitors.

As I said, my local sorting office on Caversham road is unfortunately going to close, but I believe that the Minister probably now accepts that there is an urgent need for considerable investment in new sorting equipment. Otherwise, many other sorting offices around the country will close and more jobs will be lost.

Poor industrial relations have dogged Royal Mail for years, and the disputes that have come about as a result are well documented. In my constituency there have been local tensions between the management and the Communication Workers Union. Such disputes are holding back Royal Mail, and I appeal to the CWU and the management of Royal Mail to stop their endless conflicts and get on with saving and modernising the business. That is clearly what most employees want.

The most high-profile recommendation in the report is that Royal Mail should be part-privatised. The Minister seemed to get in a bit of a state about whether to admit that it will be privatised. That is recommended so that the expertise and capital investment necessary to modernise the business can be brought in. The opportunity to use that private capital and expertise will improve postal services and could give Royal Mail a new lease of life by enabling it to compete with other companies on equal terms.

Nearly two months after the publication of Hooper's proposals, the Government are still yet to provide serious details—the meat on the bone—of what they actually intend to do. It is about time that we began to hear their detailed plans. If we do not, there will be more damaging speculation about what the future holds and more uncertainty for the employees of Royal Mail.

We all know that Royal Mail faces very serious challenges and is grappling with the process of modernisation. The Hooper review argued strongly that now is the time to act, and it is clear that the status quo is no longer tenable. It is time for Royal Mail to modernise, or it will face continued decline. I hope, for its own sake and that of its remaining workers in my constituency, that it is given the opportunity to thrive again.

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Photo of Joan Walley Joan Walley Labour, Stoke-on-Trent North 6:32 pm, 11th February 2009

In the very few minutes that I have, I wish to make the point that an Opposition day, when the Opposition want to make political capital—despite the situation in the Thatcher years, with which we are familiar—is not the time to have a debate on such an important subject as Royal Mail and the delivery of postal services.

I have looked carefully at the Government's amendment, and there is nothing in it that I disagree with, so I have no problem with it. However, I do have a problem with what my hon. Friend the Minister said about the direction in which we are going on the Hooper report's recommendation 13 on bringing in a private partner. That leads to the suggestion that we have partial privatisation on our hands. John Thurso mentioned the possibility of pre-legislative scrutiny, which might be a way of trying to deal with the current problems.

One problem is the way in which Royal Mail has been starved of investment. As my hon. Friend Geraldine Smith pointed out, about £2.4 billion of profits went to the Treasury under the external financing limits. That money should have been invested in Royal Mail. The liberalisation has been carried out in haste, so Royal Mail has not properly been able to compete with European competitors, and we have been at a disadvantage.

The problem is how to make good the legacy of the wrong decisions that have been taken in the past. Somehow we must deal with that problem and secure the long-term commitment to the universal service obligation, and we must also find the money for investment in pensions so that delivery people all over the country, including in my local office in Burslem, know that the Government are protecting and safeguarding their pensions.

I genuinely recognise that balancing all that with the need to act quickly on the modernisation agenda will not be easy. The Government could use the Hooper report as a starting point. Negotiations could also take place with the Communication Workers Union, which in its detailed response of more than 60 paragraphs stated that it wants to work with the Government to find a way forward. However, if that way forward is bound by recommendation 13, which states that the only method of proceeding is through the private sector, I tell the Under-Secretary of State for Business, Enterprise and Regulatory Reform, my hon. Friend Ian Pearson, that it is wrong way. Although we have assurances that further legislation will be introduced, and that Parliament will have an opportunity to debate it, we need to put investment in place now. My hon. Friend Albert Owen suggested that there are other ways in which to proceed. The private sector has no monopoly on the right way to bring in expertise to transform the Royal Mail radically.

Whatever has been said about Adam Crozier and whatever he may have done for the premier league, he has not got back to me directly about individual issues that I have raised with Royal Mail about management. We must recognise that the Government own the Post Office, and it is not good enough for Ministers to say that they cannot interfere in operational matters.

The Hooper report, which was published in December, is already out of date. It took evidence during the credit crunch, and the easy, not very detailed recommendations that it makes about the way forward with a private sector partner are not right. I urge my hon. Friend the Under-Secretary to reconsider and involve hon. Members of all parties in finding a way forward, so that I can tell people in the Burslem delivery office that the Government are examining their needs.

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Photo of Jonathan Djanogly Jonathan Djanogly Shadow Minister (Business, Innovation and Skills), Shadow Solicitor General, Shadow Minister (Justice), Shadow Solicitor General 6:36 pm, 11th February 2009

Let me repeat the shadow Secretary of State's earlier remark that we welcome Richard Hooper's review of the UK postal services sector. Published on 16 December, with the title "Modernise or decline", it provides a worrying statement about the desperate condition of Royal Mail today. Simply, it states that the status quo is untenable. Sadly, that conclusion comes as no surprise to the Conservative party. As my hon. Friends the Members for Wealden (Charles Hendry) and for Reading, East (Mr. Wilson) noted, it confirms what we have feared for a decade: the Labour Government's negligence in failing to address the vital issues that face Royal Mail has allowed it to slip down the premier league of European postal service providers.

We are faced with a stark choice: Royal Mail must modernise or decline. Mr. Hooper's review has at last forced the Government to accept the need for reform—at least that is what we thought from Lord Mandelson's response to it, and I think that the Minister, after some interrogation, ended up taking the same view in a roundabout manner. I still do not know where the Liberal Democrats stand; I think that they sort of support the report but do not like third-party voting—or something.

However, survival alone is not what Conservative Members hope to achieve. We share Hooper's belief in having a positive future for Royal Mail if the right actions are taken. Given the urgency, why have not the Government seen fit to publish proper details of their plans? Before encouraging prompt action, we must see clear and acceptable proposals. All we currently have is a set of hollow statements by Lord Mandelson in the other place, and a promise that he would provide a full statement early this year.

I remind hon. Members, especially Joan Walley, who strangely accused us of dithering, that we are already well into February, and yet no comprehensive details of Government policy have been released. We do not know whether Ministers fear the dissent of their own party, or whether the Government have been unwilling or unable to formulate a policy. Either way, that is indicative of a Government in disarray and lacking in direction or leadership.

Perhaps we need to look at Labour's manifesto, in which the party commits to a publicly owned Royal Mail, or the Warwick II deal, as mentioned by the hon. Members for Morecambe and Lunesdale (Geraldine Smith), for Ynys Môn (Albert Owen) and for Stoke-on-Trent, North, to ascertain why Ministers minimise the public air time they give their part-privatisation proposals. We note the 131 Members of Parliament who signed the anti-privatisation early-day motion. However, the issue is ultimately for Labour, not us. What we are interested in is saving Royal Mail and checking that the Government have the policy, the resolve and the leadership to deliver on that. At the moment, we have no such confidence. Are they, as my right hon. and learned Friend Mr. Clarke said, buckling at the knees?

We on the Conservative Benches understand Mr. Hooper's concern that there should be a sale of a stake to a strategic partner, so we welcome Lord Mandelson's endorsement of partial privatisation. If we are to reverse the downward-spiralling fortunes of Royal Mail, strategic outside input is, we agree, essential. However, as John Thurso and my hon. Friend Peter Luff said, important questions remain unanswered in relation to Lord Mandelson's vague proposals.

What form will a partial privatisation take? How much of Royal Mail do the Government intend to privatise? What price, if any, will they charge for such a stake? Who will keep the sale proceeds—Royal Mail or the Treasury? What type of partner do the Government want for Royal Mail and will any partner be obliged to invest in the company? As my hon. Friend the Member for Wealden said, will the Government also promise that the sale process will not break down into the kind of farce that they delivered in the tender process for the Post Office card account?

Although we support the concept of some form of outside ownership, our support for the Government's partial privatisation proposals is not unconditional. The proposals must not be just a convenient way to flog assets to prop up a Government on their last legs and desperate to reduce their debt pile at any cost. We agree with Hooper and Lord Mandelson that, in finding a solution, three interdependent aspects must be carefully considered.

First, any new partner to Royal Mail must introduce some much-needed commercial confidence. As admitted by the Minister, at present, bureaucracy and internal conflict, which includes a long history of—let us face it—terrible industrial relations, frequently paralyse Royal Mail when it comes to making decisions and bringing about change. That is particularly the case with modernisation. As Ms Hewitt pointed out, new sorting machinery is on the way, and the Royal Mail network will be subject to a review as a result. However, few at present consider that Royal Mail is equipped to bring forward such vital changes. We were pleased that the Minister accepted that outside experience will be invaluable in moving Royal Mail ahead, although we consider that a careful review of the qualifications of any third party as a strategic partner will be essential.

Secondly, the Hooper review maintains that private investment will be required to modernise Royal Mail fully. We do not know how much that will be and we are unable to verify any figures, because the Government have refused to provide any such details. Can the Minister replying to this debate confirm that when he comes forward with privatisation proposals, he will provide details of the likely capital requirement, so that the House can properly assess those proposals?

Thirdly, and perhaps most problematic of all, as pointed out by my right hon. and learned Friend the Member for Rushcliffe, the right hon. Member for Leicester, West and the Chairman of the Business and Enterprise Committee, my hon. Friend the Member for Mid-Worcestershire, current estimates of the pension deficit vary widely, but we all know that it is the largest problem that Royal Mail faces. Worse still, the deficit is growing, in what is a turbulent economy.

We have voiced serious concerns about the Government's intentions in that regard. By taking over the entire responsibility for the pension scheme on an unfunded basis, the Government could quite easily raid the fund's £22 billion of assets, thereby bolstering the nation's balance sheet, which has been saddled with mind-boggling levels of debt, in the short term and piling on unknown billions of liabilities for future generations. Absolutely nothing that the Government have said today gives us any confidence about what their direction will be in that regard. I join Mr. Hain in calling for the Government to provide their proposals, and the sooner the better.

The Minister now needs to reassure the hundreds of thousands of postal workers who are members of the scheme that a future Government will not have the ability to strip them of their benefits. One thing is for sure: with a revaluation of the pension fund due in the near future—I think in the next month or two—the Government cannot put off dealing with the issue any longer. The consequences for working members of the scheme could otherwise be very bleak, and they would certainly not thank the Government for their continued inaction.

So a variety of issues need to be looked at together. Mr. Hooper noted that a strategic partnership with a third party, effective regulation and the need to deal with the pensions deficit were all connected, and all necessary. We agree with his view that we cannot pick and mix between these issues, and that they need to be dealt with at the same time, although that was clearly not the view of Mr. Heppell.

My right hon. and learned Friend Mr. Clifton-Brown and for Wealden, and the hon. Members for Blaenau Gwent (Mr. Davies) and for Ynys Môn all pointed out that the importance of maintaining the post office network and retaining the universal service obligation was assumed in all of this. Combined, they are an essential element of our society, providing a lifeline to communities up and down the country. As Hooper's review said, they are part of our economic and social glue, but their future is inextricably linked with Royal Mail.

Let us also keep in mind that the price control regulations are due to be revisited in 2010, which could seriously impact on the process of part-privatisation and modernisation. Royal Mail's dominance of the market ensures the need for strong regulation. The Hooper proposals for a merger of Postcomm and Ofcom are generally welcomed, although as my hon. Friend the Member for Mid-Worcestershire said, we will need to be satisfied that emphasis in the merged entity will be placed on the development of specific postal industry expertise.

Rumours abound that legislation to enable privatisation is imminent. Will the Minister now confirm when this is going to happen? We strongly urge the Government to initiate the Bill here in this elected Chamber, and not in the other place. We believe that this elected House is best qualified to deal with matters of such importance, even if most of the Department's unaccountable Ministers sit in the other place. I am sure that that sentiment is shared by many hon. Members here.

Royal Mail, like the Labour Government, stands on the brink. The difference, though, is clear. While redemption is beyond this Government, Royal Mail can yet recover and prosper. There is a final opportunity for the Government to revive Royal Mail instead of continuing to drag it down. We urge them to release and rapidly implement appropriate proposals, and to set Royal Mail on the course to recovery set out so comprehensively in the Hooper review.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury 6:47 pm, 11th February 2009

Royal Mail and the Post Office form an important part of the social fabric of UK society, along with the universal service obligation, which the Government put into primary legislation for the first time in 2000. It is right that we have had a passionate debate on the future of Royal Mail, and I pay tribute to my hon. Friends for the contributions that they have made this evening.

My right hon. Friend Ms Hewitt made a very brave speech. She has a great deal of experience in these areas, and she talked about the fact that far more automation was necessary in the Post Office. I absolutely agree with her about that. My hon. Friends the Members for Morecambe and Lunesdale (Geraldine Smith) and for Stoke-on-Trent, North (Joan Walley) are long-standing champions of Royal Mail and the Post Office. They hold strong views on these matters, and I want to tell them that there will be more opportunities to debate the Government's policy proposals in future.

My hon. Friends the Members for Nottingham, East (Mr. Heppell) and for Ynys Môn (Albert Owen) also raised some important points. My hon. Friend the Member for Nottingham, East stressed the fact that the Hooper recommendations were a package. We strongly believe that this is a package of policy proposals, and that it would be wrong to pick and mix. My hon. Friend the Member for Ynys Môn mentioned Glas Cymru. In response, I want to point out that that is a monopoly water utility, rather than a company facing intense competition. The kind of business model that is appropriate for a water utility might not necessarily be appropriate for Royal Mail.

I want briefly to refer to the Government's investment in the Post Office. We provided £2 billion to support the network between 1999 and 2006, and we are providing a further £1.7 billion to 2011, including a £150 million a year subsidy. We have made it clear that we will continue to subsidise the network beyond that time, which demonstrates the Government's commitment.

In the remaining time available, I want to talk about the economics of Royal Mail, and then to talk about the politics. The first thing on the economics is that we believe Hooper produced a thorough report. Mr. Davies asked whether Hooper spoke to the posties. Yes, he certainly did on visits to UK mail centres and delivery offices, and the panel went out on rounds with postal workers. Hooper and his team also made visits abroad and saw the post at work in the Netherlands, France, Denmark, Belgium, Germany and the United States of America.

Let us look at Hooper's numbers and the challenges to the business model that Royal Mail faces today. Hooper talked about a market decline of anything between 5 and 7 per cent.—and the figures have only got worse since then. As my right hon. Friend the Member for Leicester, West said, the loss of business to digital communications is five times more than the loss to competition among other postal operators, but Royal Mail is still losing business to other such operators. The letters business made a loss last year. Royal Mail made a profit in the third quarter, but it was largely due to a European subsidiary and it came only after Government support for the business. We should contrast that with leading counterparts that are making margins of 13 to 15 per cent. on their postal business.

It is quite clear that Royal Mail needs cash to modernise. It has a £1.2 billion commercial loan provided by the Government: half has already been spent and the other half will probably be spent in the next 12 months, but it is still not nearly enough, given the huge problems Royal Mail faces in modernising and competing in an intensely competitive environment. On top of that, as hon. Members have noted, there is an enormous pension deficit, valued at £4.9 billion in March 2008—and, as we know, most asset classes have seen a severe decline since that period, so the pension deficit can only get substantially worse. Hooper also forecasts that from 2009-10 onwards, there will be a £400 million a year cash-flow deficit. With what we know now and from what has happened since Hooper reported, the situation is, as I have said, only going to get worse.

If we accept that doing nothing is not an option, we have to ask ourselves what is the best option for the Government to pursue. How can we maintain the universal service obligation; how do we fund the business and its pensions deficit in the future; and how do we modernise the business to put it on a sustainable footing?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

No, I want to continue and answer those questions in the time available to me. Let me explain my views on those questions. We have to ask what is the right thing to do for consumers—the people and businesses that use Royal Mail—and what is right and fair for Royal Mail's work force. Do we, as taxpayers, want to address the pensions deficit? We have said, as a Government, that we do, but the Opposition have been strangely silent on that issue. Should taxpayers totally fund the likely future deficits of Royal Mail, which could rise above £500 million a year for the foreseeable future?

Personally, I would not rule out some sort of share participation by the Royal Mail work force, but I do not think it is in its long-term interest to set its face against bringing in private capital through a minority partnership. That is why the Government's policy is to support the proposals in the Hooper report. As I say, we intend to make proposals for discussion.

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Several hon. Members:

rose —

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

Let me talk about the politics. Mr. Clarke was—as always—brutally honest about his failures as a Minister. He was not able to deliver private capital to Royal Mail when he was responsible for postal affairs: he said quite clearly that he was overruled by Margaret Thatcher.

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Several hon. Members:

rose —

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Photo of Michael Connarty Michael Connarty Chair, European Scrutiny Committee

I am grateful to my hon. Friend. If he had heard the opening speech by Mr. Clarke, he would know that the right hon. and learned Gentleman pointed out that although he was a big beast supported by Tarzan, Mrs. Thatcher would not privatise the Post Office because she knew that that would be a death blow—a suicide note—for the Conservatives.

Having heard this afternoon's speeches, I will not be voting for the Conservative motion and I will not be voting for the Government's amendment. I urge Members not to allow this part-privatisation—with what was, in fact, just an offer of further share options from the junior Minister—to proceed.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I was merely expressing my own view that such an option should not be ruled out. My hon. Friend will have heard the figures that I gave. He will understand the position that Royal Mail is in. A pensions deficit that was valued at £5.9 billion nearly 12 months ago will in fact be substantially worse, and the projected £400 million annual deficit for the foreseeable future can also only get worse. We need to sort out the position; the question is, what is the best way for us to sort it out? Would it be best to sort it out purely through Government money, or to bring in private-sector capital in the form of a minority shareholding while retaining existing expertise and management?

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

I have only two or three minutes before the guillotine falls.

I want to be as brutally honest as the right hon. and learned Member for Rushcliffe. We do have problems discussing this issue in the Labour party: there is clearly a difference of opinion, and it would be wrong for us not to reflect that by debating the issue. However, I do not think that an Opposition day debate that is being used opportunistically by the Conservative party is the appropriate vehicle for such a discussion.

We, as a Government, have always made clear our wish to maintain the universal service obligation and to do the right and fair thing by the Royal Mail work force and by the United Kingdom taxpayer, who is a consumer of the service and is also being expected to fund it. Let me pose this question to my right hon. and hon. Friends: should the Government fund the whole of Royal Mail for ever—the pensions deficit, the other ongoing deficits and the requirements for modernisation—or does it make sense to bring in some private sector capital and expertise? That is a question that we must continue to debate in the future, although we are not making decisions on it tonight. The Government will present policy proposals shortly.

I appreciate Members' concerns, but let us discuss them openly and honestly. Royal Mail's future poses a real structural problem, because of the changing business world in which it operates. Let us be frank about that, and try to find the best way in which to sort it out.

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Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

The House divided: Ayes 151, Noes 376.

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Division number 36 Royal Mail — Rapid partial privatization — rejected

Aye: 151 MPs

No: 376 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 115 MPs

Absents: A-Z by last name

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Question accordingly negatived.

Question put forthwith (Standing Order No. 31(2)), That the proposed words be there added.

The House divided: Ayes 309, Noes 208.

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Division number 37 Royal Mail — Notes Conservatives' failure to invest

Aye: 309 MPs

No: 208 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 125 MPs

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Question accordingly agreed to.

The Deputy Speaker declared the main Question, as amended, to be agreed to (Standing Order No. 31(2)).

Resolved,

That this House notes the threats to the future of the Royal Mail and welcomes the conclusion of the Hooper Report that, as part of a plan to place the Royal Mail on a sustainable path for the future, the current six days a week universal service obligation (USO) must be protected, that the primary duty of a new regulator should be to maintain the USO, and that the Government should address the growing pensions deficit; notes that modernisation in the Royal Mail is essential and that investment must be found for it; endorses the call for a new relationship between management and postal unions; urges engagement with relevant stakeholders to secure the Government's commitment to a thriving and prosperous Royal Mail, secure in public ownership, that is able to compete and lead internationally and that preserves the universal postal service; further notes the Conservatives' failure to invest in Royal Mail when they were in power in contrast with Labour's support for both Royal Mail and the Post Office; and notes that legislation on these issues will be subject to normal parliamentary procedures.

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The post company in Taiwan is always rich more than any bank because they have auto sort mail and package delivery, bank, insurance and sale services.

Submitted by Helen Hsiao