Postal Services Bill [HL] — Committee (1st Day) (Continued)

– in the House of Lords at 4:09 pm on 24th March 2009.

Alert me about debates like this

Votes in this debate

Amendment 3

Moved by Lord Hunt of Wirral

3: After Clause 2, insert the following new Clause—

"Provisions for employee ownership scheme

Any issue or disposal of shares in the original holding company, or any of its subsidiaries to a party other than the Treasury, the Secretary of State or any nominee of either of them, must include making some of those shares available for purchase by employees of the original holding company or any of its subsidiaries."

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills) 4:48 pm, 24th March 2009

The amendment seeks to create a scheme which I know has the support of many Members of the Committee and, I detect, does not meet with total opposition from the Secretary of State. The noble Lord, Lord Razzall, has tabled an amendment in this group which offers a slightly different model of employee participation to my own and I look forward to hearing him speak on the subject.

The incentive of giving employees a stake in the success of their own company is well understood. Royal Mail has, of course, set up ColleagueShare, a phantom share scheme giving employees the opportunity to receive dividends if the company hits its targets and to sell the shares back at the end of five years, presumably at a profit if the modernisation process goes through and goes well. The scheme set out under the heading "Provisions for employee ownership scheme" attempts to mirror the incentives that apply in an equity-based share scheme. Does the Minister feel that the real deal would offer many more rewards for employees?

As my noble friend Lord Fowler mentioned at Second Reading, there are a range of views about whether or not to give employees more of a share in the company for which they work. Historically, there are some in the trade unions who do not like giving employees that power, and he has set out some examples in the past. However, there are others in the trade union movement, truly representative of the workforce, who I have always found have great popularity among their members because they advocate employee share ownership. The noble Lord, Lord Brooke of Alverthorpe, was also quite right to point to the improved relationship with employees that results then staff are given that greater involvement and participation in the running of the undertaking for which they work.

I declare an interest not only as a solicitor but as one who used to act for the Transport and General Workers' Union for many years and who is a strong supporter of the trade union movement when it offers real incentives and real benefits to its members. Indeed, there is no better organisation at looking after its members than the trade union movement that I used to serve, in tending to those who were injured or who had lost a member of their family. The amount of help and resources that came from the trade unions was remarkable. Those in the movement and those who represent employees have, rightly, often welcomed the opportunity for their members—and, indeed, for employees—to have the right to own shares.

As I understand it, the Bill in its present form does nothing to rule out the establishment of an employee share-ownership scheme, but the reality is that any such scheme would naturally have an impact on the negotiation and establishment of a private partnership deal.

Photo of Lord Hoyle Lord Hoyle Labour

I understand what the noble Lord is saying about the benefits to employers, and I do not disagree with him for one minute on the issue of share-owning, but as we have seen, for example, with bus companies that were municipally owned, many of the shares were given to employees who then sold them when they had a higher offer, which defeated the object of giving the shares to employees. Might it not be better if there were a clause somewhere that said that if the shares were going to be sold, they would have to be sold back to the company rather than to some predator who wanted to get their hands on them?

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

The noble Lord is right to point out the dangers of a predator. No doubt we will be dealing with that when we move on to the next amendment. My view is that it will be difficult to restrict the ownership in future. It is an inhibition that I do not favour, but I readily recognise the motivation behind what he has pointed out.

I refer back to the Minister's telling phrase, "Better late than never". Now that we are dealing with the prospect of a deal, my question to him is, "Deal or no deal?". The impact assessment states clearly that,

"Doing nothing is not a viable option".

He owes it to the Committee and to Parliament to tell us what is going on. Of course, it may be that he is unable to go into any detail because of commercial in-confidence negotiations. However, it might be helpful if he could give us some sort of timeline within which he is operating. A lot of us are troubled by the fact that there is no evidence of any deal at all, at present or in prospect. We need clarification of exactly what is going on. There were some indications at Second Reading. Where are we today? Where will we be when we get to May or June? Is the Secretary of State still working towards having a deal this summer?

I do not think it is enough for the noble Lord to say that he will look at employee share ownership some time in the future. It needs to be considered now. Indeed, the private partnership will no doubt impact heavily on ColleagueShare, for example. While we are talking about a possible equity-based scheme, I should be glad to have clarification of how the current phantom scheme is likely to operate, for it still has several years to run. If it continues, will the nominal value of the shares be tied to the real value that any private partner pays for its shares? How will the dividends be set against the profits paid to the minority partner?

I have no wish to take up any more time in putting all these questions, and there are many more. I hope that the amendments will give the Secretary of State the opportunity of answering some of those fundamental questions and giving us an idea of what lies in the future. I beg to move.

Photo of Lord Razzall Lord Razzall Spokesperson for Business, Enterprise and Regulatory Reform

I agree with the noble Lord, Lord Hunt of Wirral, that now is the time to determine whether we have an employee share trust. It will come as no surprise to the Minister to hear that we have for many years advocated that some element of the public ownership of the Royal Mail should be in the hands of the staff rather than the taxpayer. Clearly this is a complicated issue. We are suggesting that if the Government get their Bill through, under which up to 49 per cent of the Royal Mail can be in private hands, of the remaining 51 per cent, half should be retained by the Treasury and the other half should be in the hands of an employee trust.

I agree with the noble Lord, Lord Hoyle, that staff shares should not be sold in the market when someone makes a higher offer; they should be protected so that when someone leaves, those shares come back into the employee share trust. The model that we seek is the one adopted by the John Lewis Partnership and the Co-operative Society, although in both cases they have 100 per cent employee ownership. That may be a model for the post-capitalist world that we seem to be inching inexorably towards. It is no surprise that the largest takeover in the past month has been the Co-operative Society buying the Somerfield supermarket chain. How, in the modern world, can a company organised on a mutual basis be able to borrow the money necessary to acquire a major supermarket chain—as a result of which it is now back to fifth in the list of UK food retailers—whereas a number of organisations organised in a traditional manner find that more difficult to do?

The Government initially proposed having 30 per cent of Royal Mail in private hands, but the Bill, if they get it through, would permit them to make it 49 per cent. We propose that half the balance should be in an employee share trust, with the other half retained by the taxpayer. Our Amendment 26 in this group floats a proposal for a figure of 25.5 per cent and makes it clear that that will not affect the definition of public ownership. We do not think that more than 49 per cent should ever be in the hands of anybody other than the Treasury and the staff.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform 5:00 pm, 24th March 2009

We made clear in the policy statement which we issued when the Bill was published that the issue of appropriate workforce incentives was high on our agenda and that the Government would want to talk to potential partners about incentives, including employee share ownership.

We heard at Second Reading, and again today, that several noble Lords believe that it is important to give Royal Mail employees real shares in this business to drive the transformation that we all agree it needs. We share the view that getting incentives right to drive modernisation in the business is important. However, in tabling this and other amendments, noble Lords have acknowledged that Royal Mail employees already benefit from some such incentives. As has been stated, Royal Mail staff currently participate in a shadow or phantom share scheme known as ColleagueShare. This was introduced in 2007 and provides members with an incentive scheme linked to the value of the business, driven by modernisation, akin to real shares. The scheme is only part way through and will run to 2012.

It is true that in 2007 the Government considered Royal Mail's proposal for a significant proportion of its shares to be provided to employees. It was decided at that time that the ColleagueShare scheme was more appropriate, not least because I gather there was no interest in or enthusiasm for a full scheme among the workforce. This was before the unequivocal findings of the Hooper report which made it clear that for the universal service to be sustained, an injection of capital from a strategic partner would be required. I do not know whether that might influence workforce attitudes now. That remains to be tested.

I accept that the ColleagueShare scheme has not been a resounding success in inspiring the modernisation of Royal Mail that it was designed to produce. However, the scheme is only part way through and runs until 2012. I think that its success should be judged then and not now. The benefits which could accrue from the present scheme are potentially generous to Royal Mail's employees. Each participant in the scheme could get up £5,300 in total, which is equivalent to a total payout of £0.9 billion over the life of the plan. This level of payout to staff would be more than five times the reported operating profits of the group in the year to March 2008. It demonstrates the importance that we place on ensuring that Royal Mail's workforce shares in the company's success. We do not, however, want to be obliged to offer shares for sale to employees at this stage as Amendment 3 contemplates. We need to reflect on the benefits of the existing shadow scheme in driving Royal Mail's modernisation before putting in place any alternative incentive scheme. Any incentives must be linked, and be seen to be linked, to successful performance of the company.

We acknowledge that as the years go by the appropriate staff incentive arrangements may change. However, these arrangements would rightly be a matter for the Royal Mail management and any partner to consider in the context of their transformation plans for Royal Mail. The legislation should not prevent the right arrangements being put in place, and the noble Lord, Lord Hunt, has acknowledged that that is the case. The legislation does not prevent any such arrangements being put in place. It is entirely permissive but leaves the judgment for subsequent discussion between the current management, the new partner and the workforce. Accordingly, the draft Bill allows the Secretary of State to transfer up to 49 per cent of the shares of the letters business to third parties. We would not want to reduce that percentage. As I made clear at Second Reading, we expect around 30 per cent to be acquired by a partner, but the precise level of any equity stake will be a matter for commercial negotiation. This will take place alongside and in parallel to the passage of this Bill through this House. The original timeline that I described at the time of Second Reading still stands; it remains the basis on which the Government are operating. Nevertheless, this should still leave sufficient headroom for some shares in Royal Mail to be transferred to employees if that was thought desirable.

The percentage of such shares would be a matter for debate. We could not accept provision of shares to employees that would dilute the Government's own stake in Royal Mail to below half, which would stop the company from being publicly owned. Amendment 26 could allow that to happen. However, let me stress again that Royal Mail is not restricted under this Bill from providing shares to employees.

We are happy to engage in further discussions with interested parties in both Houses to ensure that we put in place the very best form of incentives to drive modernisation in the business. It is also vital that any incentive arrangements represent value for money for the taxpayer and that Royal Mail should be maintained in public ownership so as to ensure that the Government have the right and ultimately the ability to ensure Royal Mail's future and that it is run in the public interest.

In light of what I have said on the current provisions in the Bill and the employee scheme that already exists, I ask the noble Lord to withdraw the amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

That was a very helpful response, but it raises a number of further questions, particularly over the timeline. If I recollect, at Second Reading the Secretary of State talked about summer this year. Could he clarify that a little? Will what is happening in these discussions and negotiations be announced at least in principle before the Bill has completed its passage? He says that anything is possible, but there is no provision in the Bill for the sort of employee share ownership that I outlined—or, indeed, that the noble Lord, Lord Razzall, outlined.

We really want some sort of assurance that, if a private partner is greatly encouraged by the thought of extending share ownership as part of the deal, there will still be time to set out the scheme in much more detail. No doubt we will come later to what will happen to the proceeds of any sale of shares—or will we have to leave all that to the Secretary of State, who has not really outlined whether discussions have taken place with one, two, three, four or five different partners? I know that a lot of commercial in confidence negotiations must be going on—or at least I hope that they are, because we all want to see a satisfactory resolution to all this. But could the Secretary of State give a little more indication of what will happen if the private partner with which he starts to finalise discussions wants to see in this Bill some more detailed provision for an employee share ownership scheme, and whether he envisages that there will still be time to introduce that in the legislation?

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform

The relationship between Government and any partner will be subject to a shareholders' agreement. This will be a legally binding contract between the Government through Royal Mail Holdings as seller, and the buyer. That document will make clear what the buyer can do, for example on board appointments, and what it cannot do—for example, by placing restrictions on the sale of its shares. I am perfectly happy to respond further to questions about this agreement in due course. I think that it would more naturally arise in debate on subsequent amendments. What I would say at this stage is that the possibility of introducing a full employee share scheme would be something that we would discuss with the prospective partner. Should we reach a joint view that such is desirable, it is something that I think we would want to discuss with the workforce itself to test its opinion. Every last dot and comma of that does not need to be tied down as part of that agreement. That is the context in which we would address this issue.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

Does the Secretary of State believe that if that were to happen in these discussions, the present Bill would allow the sort of scheme that is being envisaged? It would be helpful to know that we are giving the Secretary of State enough power in this legislation to do the sort of thing that we have been discussing under the heading of employee share ownership. Any indication of that would be very welcome.

There is also talk about a share agreement—the Secretary of State has just mentioned one. Does that already exist in draft? There are shareholders' agreements, and there are shareholders' agreements. They are not all standard form. However, there may be a standard form that the Secretary of State and his fellow Ministers are working towards. It would be very helpful if he could perhaps share with us, or place a copy in the Library, the sort of provisions that he believes should be contained. We could then better adjudicate on whether the legislation in its present form would allow that to happen.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform

I appreciate the spirit of the noble Lord's inquiry. No such shareholder agreement exists because no such negotiation has yet taken place. We do not have some sort of putative agreement hanging around on a shelf waiting to be taken down, dusted off and shared. In answer to his previous question, which is very important, there is no legal bar on the Secretary of State or on Royal Mail and its prospective strategic partner agreeing to such an employee shareholding scheme. However, what the Government would say as shareholder, and what I have already said, is that any such scheme would have to be on the basis and within the terms and limitations that I have described—that is, one that does not push the Government, representing the public, into a minority ownership position in Royal Mail.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

I do not think that the Secretary of State quite said that there would be no need for any further legislation. I take it that he is virtually saying that. The noble Lord says, "That is what I meant". I think we are reassured by that. There is still the question about what happens to colleagues' share under any such agreement. I know that the Secretary of State will not have gone quite the route that he has outlined to us; namely, that no Minister and no official has even given any thought yet to what the shareholders' agreement would say. However, perhaps the main assurance I seek is that, as soon as there is a little bit more of a focus on this, he will share with the Committee the stages that are reached. In view of the spirit with which he approached my amendment, I have no hesitation at this stage in seeking the leave of the Committee to withdraw it.

Amendment 3 withdrawn.

Amendment 4

Moved by Lord Bradshaw

4: After Clause 2, insert the following new Clause—

"Post Office board of directors

(1) The Secretary of State must appoint a board of directors for each Post Office company.

(1) The board of directors for each Post Office company must further the objectives that it sets itself.

(2) OFCOM, as determined by section 28, must monitor the board of directors' efficiency and compliance with such objectives.

(4) OFCOM must also be responsible for the setting of charges."

Photo of Lord Bradshaw Lord Bradshaw Spokesperson for Transport 5:15 pm, 24th March 2009

I have no intention of repeating my Second Reading speech. I trust that the Minister, who was not present then, might have read it.

I have considerable experience of the governance of publicly owned industries. Those running them have to put up with constant government interference. We have heard this afternoon of two cases—pension holidays and payments to the Treasury—which have no doubt damaged the Royal Mail considerably.

We also have the problem of uncertain funding streams, but I believe that the Bill addresses that in Part 3, in the setting up of the new regulator, Ofcom, which we hope will be better than Postcomm. If Ofcom follows the pattern set by the Office of Rail Regulation for the railways, at least it will establish as firm a funding stream for the industry over five years. Of course, it is possible for the industry to make representations to the regulator about the following five years.

It seems that political interference turns on, first, setting not vague but very clear objectives of what the boards of these bodies are to do. One of them is, of course, to maintain the universal obligation. However, there is a need for a few objectives. The next thing is to appoint competent and able people to run them, free of political interference but subject to the regulator's control. The regulator has done well in the railways industry, but in others—perhaps the national grid is an example—the regulator has not done so well.

Thirdly, the public sector has of course had its fair share of the industrial relations problem. It has often been fairly constrained politically in what it can do by, for example, constant interference by the Government in wage negotiations, or rate or fare setting. However, the public sector is now moving to a point where it should have compulsory arbitration of disputes. I draw the Secretary of State's attention to the fact that there are six ballots outstanding on strike action in railway companies around London. Many of them concern small issues that ought to be cleared by arbitration and not by thoroughly inconveniencing lots of passengers.

I want the Secretary of State to think broadly in considering Amendments 4 and 10, and perhaps to think afresh about these problems. We must move the Post Office on to a new plateau which is reliable in terms of its industrial relations, its financing and its objectives. I beg to move.

Photo of Lord Whitty Lord Whitty Labour

I shall not be able to be present when the Committee discusses later amendments relating to the governance of Royal Mail. I declare my interest as chair of Consumer Focus. Confidence in the future of Royal Mail and the Post Office is key to this discussion. I do not agree with this amendment and I consider that the noble Lord has wrongly interpreted the relationship with the regulator. The board is not subject to the regulator; the regulator regulates certain aspects of the business but the board must be independent of the regulator and the Government. Therefore, I consider that the amendment is misconceived. However, the Government must indicate clearly how they expect the governance of the new structure to work. I am very grateful to the Secretary of State for sending me a copy of the envisaged structure of the new industry. However, governance issues arise at every level of the company and will be different for the different parts of the structure. Whether or not we need to go into huge detail in the Bill, it is incumbent on the Government to indicate how they see the governance structure emerging.

In that context I am bound to say that it is not only a question—as some have said—of representation of the potential partner or of the workers, you also need people on the board who have experience, as business or individual consumers, of the services both of Royal Mail and of Post Office Counters. Therefore, I do not support the relevant amendments on the Marshalled List today, but I hope that the Secretary of State will give a clearer indication of the thinking on governance.

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills

The amendments of the noble Lord, Lord Bradshaw, raise important questions and we look forward to hearing the Secretary of State's response. It is right that we should look at how best to support the network and encourage its expansion, modernisation and diversification. A strong board with, as the noble Lord, Lord Bradshaw, said, clear objectives, is, of course, a necessity as much for the Post Office as for Royal Mail, and I have a lot of sympathy with his concerns in this area. The noble Lord also referred to regulation. An interesting point arises here about the regulation of post offices. The Bill is, of course, largely focused on Royal Mail and Part 3 concerns Ofcom's responsibilities over Royal Mail, and potentially private sector providers of services within this sector. However, I believe that the reorganisation of Royal Mail Group will—the Secretary of State will correct me if I am wrong—bring Post Office Limited out of the remit of Postcomm. If I am right, it is important that we hear his reasons for excluding post offices from Ofcom's remit, and the Government's plans for the ongoing regulation of Post Office Limited. Of course, we will go into these issues in much more detail when we reach Part 3, but, as was made clear on earlier amendments, we certainly support the noble Lord's concerns that Post Office Limited should not be forgotten.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform

Ensuring the appropriate governance arrangements for the Royal Mail Group of companies is absolutely vital. At Second Reading, the noble Lord, Lord Bradshaw, raised very important points about corporate governance, as he has done again today, and the serious consequences which can arise if companies do not have sufficient clarity in this regard. I agree with the noble Lord's sentiments if not his amendments.

As required by company law, the board must discharge its duties in the best interest of the company, which is owned by its shareholders. The Combined Code on Corporate Governance states that,

"if this is ignored, the consequence may well be vulnerability or poor performance".

It is right, therefore, that the shareholders—in this case the Crown, and in the case of Royal Mail Group Limited, the private sector partner—should have their views represented on the board. The Government will maintain their existing rights of appointment to the board of Royal Mail Holdings plc, which will remain owned in its entirety by the Crown. Additionally, the Government will create a new board for the Post Office with a non-executive chair. This will provide a new level of support and challenge for the Post Office's management team. I hope that that specific proposal will be applauded by all Members of this House and will give the necessary reassurance and confidence in this Government's commitment to the future of the Post Office remaining not only wholly owned by the Crown but given the place within the corporate governance of the group as a whole that will enable it to develop fully in the future.

In relation to Royal Mail Group Ltd, the Government's intention under the partnership proposals is that its board should comprise both executive and non-executive directors, with a majority of non-executives. The precise composition of that company's board will be a matter of negotiation with the prospective partner. The Government expect to appoint the chairman and a majority of the non-executive directors.

Amendments 4 and 10 seek to give Ofcom the responsibility for monitoring the boards of Royal Mail and the Post Office. Of course, I agree that Ofcom has an important role to play in the postal services sector. That is why the Bill includes many provisions covering its powers and duties. To my knowledge, in only one very specific case linked to the maintenance of a free media does Ofcom have a role in appointing the board of an organisation—that is Channel 4. That rationale simply does not apply here. In response to the noble Lord, Lord De Mauley, on the question of the regulation of the Post Office, it is currently regulated through its contractual relationship with Royal Mail, and that will remain the case.

The sentiment behind the amendments is that the noble Lord is concerned about the Government's ability to operate and behave appropriately as a shareholder in relation to the company. While I appreciate that there may have been problems in the past, the Government have come a long way in how they behave as a shareholder, and they take their role very seriously. In 2003, we set up the Shareholder Executive, which is part of my own department, for the precise purpose of improving the Government's performance as a shareholder in business. The Shareholder Executive is a professional group that aims to create a climate surrounding ownership that, while challenging, is genuinely supportive and provides the framework for success. To achieve this, it works with the boards and management teams of the government-owned businesses to create long-term shareholder value. That role has been recognised as being highly successful, not least in a report by the National Audit Office in 2007.

I hope that I have reassured the noble Lord, Lord Bradshaw, that we have come a long way in how we approach governance. We take our role as shareholder very seriously; we do not spend our time second-guessing the board or exerting political pressure on the board. This approach is very much in line with the original legislative principles set down all those years ago by my grandfather in respect of nationalised industries. I say that to demonstrate that I did indeed read the noble Lord's Second Reading speech, in which he referred to my forebears.

The noble Lord also touched on industrial relations and the difficulty for management properly to manage when, in this business, it is possible for the union to go round the backs of the management to the shareholder to get matters—if I may put it in this way—"settled" without actually being resolved in the interests of the business as a whole and in the public interest. That situation gave rise to some unfortunate cases of, if not second-guessing the management, then a perception that the management was being destabilised—a sense in which there never seemed to be a bottom line in this business as the discussions went back and forth as people came in and out of the front doors and back doors of the sponsoring department. One of the reasons that the Government are particularly keen to see this legislation go through in its present form with the new private sector minority partner coming in is to bring about a much-needed, timely and refreshing change to that sort of atmosphere and climate that surrounded the management of the business and the conduct of its industrial relations.

I am also not persuaded that a role for Ofcom in the appointment of the boards of these companies will make a real impact on delivering the transformation that Royal Mail desperately needs or delivering the vital services provided by the Post Office. In light of the reassurances that I have offered and the arguments that I have put in response to the amendment, I kindly ask for it to be withdrawn.

Photo of Lord Bradshaw Lord Bradshaw Spokesperson for Transport 5:30 pm, 24th March 2009

I thank the Minister for that reply. I would just draw his attention to Network Rail—a company without shareholders and, apparently, without responsibility to government. Whenever I ask a Question on it, I am invited to write to the chairman at an address in Euston. No doubt that means that the Government take no responsibility for it. I am quite sure that neither the passengers nor the workforce are considered. So, we want in the Post Office a much, much more effective type of governance than that which we put up with in the railway.

I noted what the Minister said about the appointment of the executive and non-executive members. I shall be very anxious to see that the board is dominated by people with the public interest in mind, not the interests of shareholders in Holland or Germany or wherever. I shall read what he said.

If I have given the impression that I want Ofcom to appoint the board members, that is wrong—I do not. I do want Ofcom to fix the charge that the Post Office can make for providing services to third parties so that, for example, TNT cannot dump bags and bags of mail and pay less than it costs to deliver it. In the case of the Office of Rail Regulation, I think that a great deal has been done to bring the accountancy system into line.

Before I withdraw the amendment I would caution the Minister against taking too much comfort from the work of the National Audit Office. I have seen a recent NAO report that applauds the Government for the way in which they conducted a particular process. In fact, however, the NAO had simply ticked all the boxes of what the Government had done. It never asked whether or how it could have been done better.

With those thoughts, which I hope the Minister will reflect on, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

Clause 5: Royal Mail companies to be publicly owned

Amendment 5

Moved by Lord Morgan

5: Clause 3, page 2, line 15, leave out "publicly owned" and insert "owned in its entirety by the Crown"

Photo of Lord Morgan Lord Morgan Labour

I shall speak also to Amendments 7 and 8. If it is permissible, I would like to degroup Amendment 13, which is contingent on the previous three. I hope that that is all right.

These amendments are intended to be helpful, not hostile. They start from the premise that the Government are correct in seeking to promote constructive change within the postal service. There has been a great deal of argument about the managerial and financial record of Royal Mail, but clearly it needs to raise far greater funds to run the service efficiently—by how much is debatable. The Compass booklet correctly said that the Hooper report did not give a precise indication of the amount of investment required, but it is beyond dispute that much more is required. It is needed in part because Royal Mail has suffered under the existing regulatory framework from private companies picking off profitable bits of the business on unfair concessionary terms, but there is also a clear need to promote technical innovation, as other postal services have done.

The reason for these amendments is that the current government solution involves part-privatisation, which the Bill calls a "strategic partnership". The words "strategic" and "partnership" are taken from the politicians' lexicon, and when the two terms appear together they are a particularly toxic combination. In fact, what we have is part-privatisation—an equity sale to a third party. A 30 per cent private stake in the service will be owned by foreign firms as outside partners. If there is a 30 per cent stake now, why should there not in time be perhaps a 100 per cent stake?

The opinion surveys show overwhelming public support for Royal Mail being kept wholly in public hands. This is seen as a guarantee of a nationwide universal service run for the public good, not for the sectional private interest. This was very much the view of that great man, Mr Herbert Morrison, the grandfather of my noble friend and architect of the post-war policy on public ownership. The principle enshrined in it was a cornerstone of the Warwick agreement with the trade unions. It was also enshrined in that historic document, the Labour Party manifesto. I think that these pledges should be honoured. It is a reason for much fundamental opposition within the Labour Party towards the Bill. The Bill consequently suffers although it deals properly and constructively with many other issues, including the pensions of postal workers. I suspect that once the Bill is removed from the rather tranquil atmosphere in this House—not to mention the empty Benches opposite that yawn at me—it will face much more difficulty in the Labour Party, particularly in another place. It might be helpful to address the issue here.

I have tried in these amendments to combine two important principles: first, that no part of Royal Mail should be place in private hands; and, secondly, that Royal Mail should nevertheless be free to attract the investment that it needs. We are therefore talking about investment, not the surrender of equity. Amendments 5, 7 and 8 are designed to remove the bits of the Bill that deal with the part-private ownership of Royal Mail. The phrase "publicly owned" leads to a good deal of confusion because the Bill says that "publicly owned" equals the public owning 51 per cent. That is an extension of language, as I understand it. I therefore suggest instead the phrase which the Government favour:

"owned in its entirety by the Crown".

That seems to me to remove any ambiguity.

Amendment 13 will enable Royal Mail nevertheless to accept private investment, with safeguards for the public interest. I have suggested a new Clause 4 on the financing of Royal Mail companies which will allow a Royal Mail company to accept private loans as long as it does not involve the transfer of any of the company's shares. I have set down a condition that,

"for a loan of £1 billion or less, the Secretary of State must have the consent of the Treasury"; and that for a loan of more than £1 billion, there should be an affirmative resolution in each House of Parliament. It may be said that that would happen anyway, but it is highly desirable to spell it out in full. In time, we will need another clause to amend the articles of association to change to £1 billion the limit that Royal Mail can raise. This would delete the requirement from the articles of association for the Secretary of State to give specific approval for it to borrow from other sources.

These amendments are intended to be constructive. They are probing amendments and I shall certainly be happy to withdraw them in time if the Government come forward with proposals that distinguish between investment on the one hand and equity and control on the other. Without some redefinition of this issue, constructive change and modernisation of Royal Mail, which we all seek, will not be achieved. I beg to move.

Photo of Lord Razzall Lord Razzall Spokesperson for Business, Enterprise and Regulatory Reform

I do not know whether the noble Lord, Lord Hunt of Wirral, will take the same view as I do on this amendment, but I certainly would not wish to intrude on the private grief among the Labour Benches. I look forward to the debate between those on the noble Lord's side and the Minister.

As the Minister knows—this is the same position taken by the noble Lord, Lord Hunt of Wirral—for some time we have been in favour of a minority stake in Royal Mail while leaving the Post Office 100 per cent owned by the public. You have only to read the Hooper report to understand the importance of a minority stake in Royal Mail but, as I said, on this amendment I do not really want to intrude any further on private grief.

As the noble Lord has degrouped his Amendment 13, which was grouped with our Amendment 94, I assume that we will deal with Amendment 94 when we get to it on 13 May or whenever we reach the end of what will undoubtedly be a lengthy discussion.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I support the mover of this amendment and want to underline one thing that he said towards the end of his speech. Many of us think that we are modernisers—we have been in the modernising business for a long time. The issue is whether the Hooper report as a whole is being a bit overambitious, and I shall give a couple of examples before I accept the Treasury doctrine. I say "Treasury doctrine" because a Treasury Minister in the Commons said that the Hooper report was sacrosanct and had to be accepted in its entirety. A similar case is treating this amendment in isolation. Many things need to be done to modernise the Post Office. We come down to the practical problems and, on this occasion, I ask my noble friend to reflect aloud so that his comments can be placed on the record in Hansard.

Let us take one example. On the parcels side, why would DHL and TNT not simply want to merge the business with their own parcels businesses? Why would they want to improve the competitive position of Royal Mail against TNT and DHL? If you were to raise that sort of proposition in the pub, everyone would say, "You must be joking". Would it work like that in practice? I have an old Australian friend with whom I play tennis, and donkeys' years ago he was an original partner in TNT. I asked him, "What's your view on all this?", and his response, which was almost word for word what I have just said, was, "Just like in Holland, with 30 per cent, after two years it would be more or less TNT", or what in Holland is now called the Dutch Post Office, which runs the worldwide TNT operation.

Of course, the question is whether a corporate partner can fit into the structure and do many of the things that Hooper wants to do without this ratcheting of equity. I will come on to this point later when I speak to Amendment 9. As we found in the Bullock report years ago, one problem with equity is that there is secrecy and confidentiality when it comes to giving information to and having proper consultation with workforces at every level. Those workforces need to be part of the modernisation process but people say that Stock Exchange rules make everything price-sensitive and they cannot really talk about it. As I said, that will come up later. Here, we are talking about part of a package that some of us are very sceptical about. We do not know whether we are trying to kill three or four birds with one stone, although two are very difficult when they are flung in different directions. I should like to put those questions to my noble friend.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 5:45 pm, 24th March 2009

I support the excellent speech that my noble friend Lord Morgan made in moving the amendment. He has saved me an awful lot of time because his analysis of where we are and what needs to be done was absolutely accurate. Like him, I hope that when the Bill gets to another part of this building, Labour Members of Parliament will start to remember their responsibilities to the electorate and continue with the programme that they put before the electorate at the last general election. I have used emotional words such as "betrayal" before and I shall not fall into that trap. I took note of the noble Lord, Lord Razzall, when he talked about Second Reading debates.

I am sorry; I should have declared an interest. I have practised this because I might be speaking once or twice during the passage of the Bill. My interest is simple: I was a postman; I had a number of jobs at the Post Office; and I ended up as the deputy general-secretary of the union and as a trustee of the pension fund, which I hasten to add was in great surplus when I left the board of trustees. My only financial interest is my pension. I have nothing from any other source. That is my interest and I hope that noble Lords will understand if I do not repeat it over the next few months. I hope that this debate will go on for months. I think that the noble Lord, Lord Razzall, said that it would take 33 days, and possibly it will last that long.

My noble friend Lord Morgan was, as I said, excellent in moving the amendment, and I thank him. For the sake of accuracy, with regard to the 12 wasted years mentioned earlier, some of my noble friends might like to consider the number of times over those years that I raised the question of Girobank. They might also like to look at the various references that have been made to the Post Office in a number of debates and, in particular, to the obscenity of Postcomm ripping off Royal Mail and the Post Office in general.

I have another reason for supporting these amendments. The Post Office is often symbolised with a Crown. As a postman, I was proud to wear that Crown, especially after I came out of the Army, where I had been wearing His Majesty's, and then Her Majesty's, Crown on my cap badge. That Crown symbolised worldwide integrity and efficiency, and therefore it means an awful lot to many postmen in the world. They were not wearing a badge like the ones on the shirts of overpaid footballers who kiss them when they score a goal; there was a pride in this badge. However, somewhere along the line, someone decided that the Crown was no longer a part of the badge. I bemoan that, although I may be the only one who does. There are people on these Benches who say that I am sentimental and that I must not go down memory lane, but I want the Bill to be amended and to make progress so as to ensure that we go back to the efficiency of the service of which I was proud when I wore that Crown.

I should also mention my interest in Amendments 11, 12, 27, 33 and so on, which all deal with ownership. In one amendment we say to leave out Clause 4(4), which would be unnecessary if the earlier amendments dealing with ownership were included in the Bill. It is a tidying up amendment.

Amendment 27 talks about the indirect ownership of companies. It states:

"Where

(a) the Crown owns (directly or indirectly) all of a company ("company A), and

(b) company A owns all of another company ("company B"), then company B shall be regarded as indirectly owned by the Crown".

You are very clever indeed if you can understand that. I am simply saying that the indirect ownership of companies must be transparent and spelt out in the final legislation. Amendment 97 deals with group ownership, where I suggest leaving out paragraph 7 of the schedule.

I say to my dear friends in the Committee that this is my first contribution to what I hope will be a long, long debate on the Bill. As was said at Second Reading, we will go through it line by line. If this question of ownership is put to a vote tonight—I do not suppose for one moment that it will be—I will march through the Lobby saying, "Keep our Post Office under the title of Crown ownership". I support the amendment.

Photo of Lord O'Neill of Clackmannan Lord O'Neill of Clackmannan Labour

At Second Reading I made some points that address some of these issues. This group of amendments recognises the need for investment, but it begs the question of who would lend money to the Royal Mail as it is presently being run. Would it be enough money to secure the investment and working capital that this organisation requires to keep its pension fund in good nick, and buy the equipment that it requires to take the drudgery out of much of the work required by the delivery part of the job? Would anybody be sufficiently confident that the existing multilayered system of management could introduce the kind of capital investment that we all recognise is required? None of the supporters of the amendment has addressed those questions.

I understand this business of the Crown in its entirety. It is quite simply a wrecking amendment. Its objective is to do away with the Government's part privatisation of the Post Office. It is a legitimate weapon of those who do not agree with the principle. But I wonder whether it is doing more than that. Maybe one of the supporters of the amendment could answer that along with the other questions that I put. Does it preclude the possibility of the Royal Mail entering into joint ventures with the mail services of other countries? Does it mean that the ability of the Royal Mail to think outside of the British box, as it were, would be a problem here? Would that be precluded as a possibility?

At present, the money is not available for Royal Mail to enter into joint ventures. I doubt whether the borrowing capability would have to be exercised, because there would not be many people prepared to lend the money. Certainly, if they were prepared to lend it, I am not sure on what time basis it would be made or what interest rates would be charged. If it were to be some kind of bond, these things would have to take place fairly quickly. I do not envisage the Government putting up the £1 billion. They would have to go to the private sector, which would not give the money.

At the end of the day, apart from the fact that the entirety amendment is a wrecking amendment, the other ones are just a waste of time because there will not be anybody there to lend the money. Therefore, there is no need to have that borrowing capability. There is not sufficient confidence in the existing or proposed management of Royal Mail to carry through the necessary changes that would facilitate the implementation of the investment programme that the Royal Mail so desperately requires.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My noble friend Lord O'Neill asked a question of the supporters of the amendment. We can all ask questions later of the Secretary of State. I have just glanced round and, so far as the supporters are concerned, there is no reason in our motives that there should not be—indeed, there should be—partners around the world. To return the compliment, the real question is why they think it is precluded. Do they think that it is precluded because of company law? My noble friend says it is precluded because of raising the money. But if we sell the family silver, to coin a phrase of Harold Macmillan's, that is capital. Are we talking about current expenditure?

I am pleased to hear the questions posed by my noble friend Lord O'Neill, because we are getting down to the nitty-gritty. What has been tantalising and frustrating so far is that we have not got down to the nitty-gritty. I should like to look at the different models. I should like my noble friend to invite some of us to discuss some of these models, because it raises the axiom and begs the question of whether we can even talk about these things without being accused of being dinosaurs. That is not a word yet appearing from the Secretary of State. I will acknowledge every word other than dinosaur, but it is interesting that my noble friend Lord O'Neill, as a supporter of the Bill in its entirety, I guess, has raised some interesting questions for the first time.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

I will be brief and do not wish to repeat all that has been said by my noble friend Lord O'Neill. I covered my view fairly clearly at Second Reading in support of the Bill. It was principally on two grounds—the nitty-gritty, to use the phrase of my noble friend Lord Lea. The first was investment and where it would come from. That is a fair question to put to the noble Lord, Lord Morgan. Does he believe that the money will be forthcoming? Anybody who has read the Hooper report will see the projected losses that are about to be approved and the failure to deliver in certain areas on performance.

My second point concerns management. Where is the assurance from the mover and the supporters of the amendment that the management can deliver? There is a world of difference between having plans to deliver and actually delivering the changes that are needed. The nitty-gritty behind the change that is being proposed is similar to the one that was the case with NATS when it became a PPP, which was to inject a different type of management style into the model that would deliver efficiency and effectiveness and defend the service and safety in the way that we would all expect. It is the same here. I would certainly support amendments for investment if we could be guaranteed that it would from the Government or there were others with the investment lined up, provided, at the end of the day, that it would be value for money. We need to know that the increase in performance that is required would be delivered—not promised in the programme but actually delivered. That is the question that I put to the noble Lord, Lord Morgan. What is the guarantee that anything would be any different in the future even if you are getting your hands on the money?

Photo of Lord Neill of Bladen Lord Neill of Bladen Crossbench

I believed that I was making exactly the same point about practicalities as the noble Lords, Lord Lea and Lord O'Neill. We must look at this realistically. I fear that I am approaching this as a lawyer. What guarantee is there that you will find a partner to participate on a loan basis? There is no empirical basis for that statement. If we amended the Bill in the way that is now sought it would tie the hand of the negotiators in an absolutely appalling manner. We need a much looser arrangement so that a strategic partnership can be achieved. That is the aim. But you have to trust your negotiators to do that in a manner that protects the interests of the state but that is commercially feasible.

Do not say now that it must be done by way of loan. If you are going to raise the question of loan, start asking yourself who is the big player who is going to bring in a sum of up to £1 billion, or perhaps more. What sort of commercial conditions will he want to put in his loan agreement? What sort of fetters is he going to want to put on the power and control vested in the board? They would be binding—I referred to case law on the previous occasion—if an agreement was made that the board would act in a particular way unless that was contrary to some provision in the statute. My plea today is not to tie the hands of the Secretary of State in an impossible manner at this early stage.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour 6:00 pm, 24th March 2009

I support what my noble friend Lord Morgan said when moving this amendment. I also support my noble friend Lord Taylor. At Second Reading, I supported noble Lords who spoke against privatisation. I am a former union official, and I said that I supported the union's position. I still feel that way about it. However, a number of points have been raised that have to be answered. One relates to the kind of private partner we are going to have and what sort of managerial experience he will bring. What is the business plan as far as he is concerned? We do not know whether he will have the necessary expertise to produce the managerial revolution that everybody wants to see within the Royal Mail. We have no idea about that. None of this is stated in the Bill. Therefore, I still support those who speak against privatisation. I do not think there is any proof that the private partnership envisaged in the Bill will produce the managerial revolution that everybody expects to see. I am not a fan of privatisation generally. I do not regard it as always the answer to efficiency problems. I still remain an opponent of the part-privatisation suggested in the Bill.

Photo of Lord Hoyle Lord Hoyle Labour

I did not think I would have to go over some of the points I made at Second Reading. However, my noble friend Lord O'Neill, whose words I always listen to with great attention, has forced me to do so. I pointed out that a lot of things have happened in Royal Mail over the past 10 years. Fifty thousand people have gone and half the money for modernisation, which my noble friend said was needed, has already been spent. The orders have been placed, and some of them are coming in. The modernisation is due to take place. Call centres have been closed. Why do we not allow that to take place and take time to see how successful that is?

My noble friend Lord Morgan was right when he said that 30 per cent could also be 49.5 per cent. The Bill may say 30 per cent now, but will they be coming back to Parliament because they want to increase it? I do not think they will. My noble friend Lady Turner is right to ask for the outline of a business plan because it could be far more far-reaching than the assurances we have had from the Secretary of State that it will be only 30 per cent at this stage. It will be a 30 per cent stake and a partnership, but what kind of partnership will it be?

If I look at TNT, which has been mentioned, it has not had liberalisation in its own market. It will happen this year. It is already starting to squeal and say that liberalisation will have a dire effect on it, and its profits are down by 20 per cent. It has said to the workforce that it must take a pay cut or be sacked. If that is the kind of industrial relations that will be brought in by this company, I can see only trouble and calamity ahead for the Royal Mail. In addition, TNT does not have a good record at keeping things and delivering them. We know about the child benefit records it lost. What will it bring to the partnership, if it is the partner? Where is it going to get the money? It does not have it on its balance sheet and will have to go to the bank for a loan. Why cannot the same thing apply to Royal Mail?

I wanted to put forward the question of a loan, so I asked the Library to find out the problems facing Royal Mail and the Treasury restrictions. I got a very interesting reply:

"Dear Lord Hoyle, Postal Services Bill Further our conversation earlier today, I have spoken to the Postal Services Bill team who advise me they are not able to comment before the Committee stage tomorrow on your query regarding the continued control by the Treasury over the Royal Mail".

Why can I not have that reply? Why can I not know what the restrictions are so that I can make the point here and ask for them to be lifted? Why the secrecy? What can we not be told before we have this debate? Can my noble friend give me the answer to that question?

My noble friend Lord O'Neill mentioned co-operation. Why should there not be co-operation between the various post offices? To suggest that Royal Mail is not in Europe at the moment is wrong. It is in Europe in a big way—the noble Lord shakes his head—in the parcel industry. One of the most successful elements of Royal Mail is the parcel company. One of the things I am concerned about in relation to TNT, as is Royal Mail, is that it might be interested in taking over the successful European parcel business, GLS. I have had a Written Question down for a while to ask about this. The view is that the partner being proposed will take it over, yet Royal Mail is depending on it for 50 per cent of its business in future years because that is where the growth lies. With modern communications, growth lies in the parcel industry, and that is in danger from the partnership being proposed.

Why are we going down this road at this moment? Why do we not let it settle and see whether the efficiency measures that are already in place and those that are to come are successful? If we are going to sell off part of the Royal Mail, in a recession is the worst possible time to do it. We will get the worst possible price if we go ahead now. That is another good reason why we should allow things to develop before we take up dogma. Dinosaurs have been mentioned. They might know the financial crisis in which we are taking over the banks and other things and be on the other side of those who are advocating that private must always be right and public must always be wrong. It is a dogma that is not proving successful worldwide at the moment.

I appeal to the Government not to be hasty but to think again, allow the dust to settle and see how the company is going. It is making a profit, which is likely to be more than £250 million in the current year. If it did not lose £100 million in access and, instead, made £100 million, it would be highly profitable, and then it would be acceptable to ask for a loan in the market. Remove the shackles and let the Post Office become a company that can go. I still do not know why—

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

We are all trying to get the same objective delivered at the end of the day; the defence of the universal service is certainly paramount to us. However, is my noble friend denying the projected loss for Royal Mail next year in figure 19 of the Hooper report? Present expectations are that the losses will be £52 million, £43 million in the following year, £86 million in the following year, and £96 million in the following year.

Photo of Lord Hoyle Lord Hoyle Labour

I read the Hooper report very carefully. Is my noble friend taking into account the loss of £100 million which Royal Mail is making at the moment under access arrangements? I am asking for a revision of that loss. It was mentioned that Ofcom might look at removing that loss. I am saying that Royal Mail could be £100 million better off, and I do not think that the figures cited by my noble friend take that into account.

Photo of Lord O'Neill of Clackmannan Lord O'Neill of Clackmannan Labour

Will my noble friend clear something up for us? Is the £100 million that has been lost through liberalisation clear profit or just £100 million of business? If it is £100 million of business, it is not profit; it represents only a bit of the turnover. To keep bandying about this figure of £100 million in these circumstances is somewhat less than accurate and helpful.

Photo of Lord Hoyle Lord Hoyle Labour

If I am being less than accurate, I am only citing the figures that Adam Crozier gave as chief executive of Royal Mail when the committee, of which my noble friend was previously the chairman, asked for them. He remarked that it had cost Royal Mail £100 million. I am saying that if that loss were removed, £100 million could go to the balance sheet. That is pretty plain for everyone here to see.

I hope that my noble friend Lord Mandelson will look at this again. I admire a lot of what has been said in the Hooper report, and I agree with it, but I do not agree that 30 per cent of Royal Mail—as I say, it could be more than that—should be sold. We should allow things to develop. Let us see how things go, because Royal Mail is losing on one thing but is very strong on the other—the parcel business—which would be lost with a public/private partnership. I think that it will be taken over. As I say, I have not had a reply to the questions that I have been asking, but I think it is possible for Royal Mail to be profitable if the shackles are removed. I see no reason why it should not be. It cannot go for a loan. I hope that my noble friend will give us some words of encouragement when he replies. I shall be very interested to hear what he has to say.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

I have no wish to delay the Secretary of State's response to the challenge that he has just received from his noble friend Lord Hoyle, but it is important that my party's position on this issue is set out very clearly. That will come as no surprise to the noble Lords on the Benches opposite who have tabled these amendments. I have listened with great interest to some distinguished contributions during the debate, but I have to say that we support the Secretary of State's intention to part-privatise Royal Mail Group Ltd and that we will support him in rejecting the amendment if it is put to a vote today or on Report.

I think that I covered at Second Reading many of the arguments behind our policy. We support the Hooper report in principle. The influx of private capital and expertise, especially at the management level, is necessary—it has long been so—to give Royal Mail the support and the impetus to revitalise a company that must overcome the challenges of market liberalisation and the rise of digital communication. It will not be an easy task, but I found Richard Hooper very persuasive when he said, although it is unfortunate that this should be under headline 13:

"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".

I agree.

We hope that a partially privatised Royal Mail will be able to seize the opportunities that new technology and the expansion of the parcel market offer, for example. That said, it is quite right that the policy should be challenged, as it has been, by the contributions that we have just heard. However, the Hooper review is an extremely useful document in bringing together in one analysis, which the Government have finally accepted, what so many of us have known for so long. The noble Lord, Lord O'Neill, took me to task before. I recall having a number of debates with him over the years. These go back even to when the Secretary of State and I used to run something called the British Youth Council and the noble Lord, Lord O'Neill, was chairman of the Scottish Union of Students. However, I do not want to look back—well, not that far back.

It is sad that the Government have done so little over the past 10 years to address the slow rate of modernisation and the inability to compete effectively with private sector providers, although I acknowledge what noble Lords have said about the past, particularly about Girobank. I remember Girobank, which I think had been Post Office Giro and became National Giro, National Girobank, Girobank and then the Alliance & Leicester Commercial Bank. There is still a need for that sort of service. I think that Girobank was the first organisation to offer a free banking service and telephone banking. I met the workforce on several occasions, and there is still a contribution to be made there.

Two years ago, however, the chairman of Postwatch submitted a proposal—it was called, rather dramatically, Project Neptune—which suggested a public/private partnership to supply the necessary equipment for fully automating mail centres. In contrast to what the Government are now suggesting, it did not involve any transfer of ownership to the private sector and, by the time it was rejected by the then Minister, it had established three private sector companies that would be willing to invest some £2 billion in Royal Mail in return for leasing and operating costs, with Royal Mail retaining any profits. I am certainly not suggesting that we bring that option back to the table—we are now long beyond that point—but it was very sad that it was not taken more seriously at the time.

With this Bill, the Government have now finally accepted that something needs to be done, and we are glad that they are implementing the report. I have asked a number of questions about the method by which they are doing it. We have alluded several times—I will not repeat myself—to the speed with which the Government are trying to go forward. A number of noble Lords have asked for the case to be set out quickly in Committee, which is why I very much look forward to hearing from the Secretary of State.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform 6:15 pm, 24th March 2009

In the first instance, I will respond to two specific questions. Other contributions have been wider and more general, and I shall come to them in a moment. My noble friend Lord O'Neill asked why the Government did not use Section 67 of the existing Postal Services Act to sell shares in Royal Mail Group Ltd. It is true that there are powers that allow for a joint venture, but it was not clear that Section 67 covered a partnership arrangement of the type being considered. The Government therefore decided that it would be better to give Parliament the opportunity to scrutinise proposals for any minority sale of shares to achieve a partnership through the passage of a Bill.

My noble friend Lord Hoyle asked a number of questions about TNT. It would be inappropriate for me to comment on speculation about potential bidders for the minority stake. TNT has publicly declared its interest, which I welcome, but we are conducting a fair competition to identify a suitable partner for Royal Mail. We will judge bids against the strict criteria set out in our previous policy statements.

If my noble friend Lord Hoyle really wants to liberate the Royal Mail from what he calls the shackles and the tyranny of the Treasury, the logical conclusion he would reach in pursuit of that end would be to privatise Royal Mail completely and take it out totally from the public sector. What better liberation could you imagine from the shackles and constraints imposed by the Treasury or anyone else than to remove it entirely from the public sector? I thought that that was exactly the logic he did not want to follow, and that he shared my view and that of the Government to keep the Royal Mail in the public sector.

Photo of Lord Hoyle Lord Hoyle Labour

I wish to keep it in the public sector as a separate company, but not to be shackled by the Treasury. A stand-alone company is quite simple and would be very much like other companies have been.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform

No scheme has been devised in similar circumstances for my noble friend to have his cake and eat it in the way that he has described. But perhaps he is even more ingenious than those who have previously addressed these issues.

This group of amendments relates to the provisions which deal with the public ownership of a Royal Mail company and go to the heart of the Hooper recommendations and the Bill itself. In his moving of the amendment, my noble friend Lord Morgan suggested that it would be much better all round if I simply adopted the approach of my grandfather—the architect, as my noble friend described him, of post-war nationalisation. I think that my noble friend, an eminent historian, should reflect on my grandfather's character and his approach to these matters. He was no dinosaur, if I may use that term for the first time. His very strong view was that when the facts change, so must the conclusions about those facts change. In other words, he was a pragmatist, a sort of dynamic moderniser and not a static one, whose pragmatic dynamism gave rise to his firm belief that socialism is what a Labour Government do. I think that all Members of the Committee would agree that that is a very dynamic definition indeed.

The amendments tabled by my noble friends remove the concept of "publicly owned" from the Bill. They go to the heart of what we are trying to achieve for Royal Mail under this legislation. Before turning to the specifics of the amendments, I therefore remind the House of the importance of a strategic partnership for the future of Royal Mail. As presently organised, managed and financed, the Royal Mail simply is not in a position to sustain its universal service indefinitely, which is why we are seeking changes through legislation.

As I made clear at Second Reading, the future of the Royal Mail, and therefore the future of the universal service, is under very real threat from the challenges of the digital age. None the less, despite those challenges, mail is still a critical part of our social fabric, our communication infrastructure and our economy. The Government are therefore fully committed to maintaining the universal service by means of a publicly owned Royal Mail fully restored to good health. Perhaps I may remind my noble friend Lord Morgan that that is what we said precisely in our last manifesto. That is what our policy, if implemented in full through this Bill, will achieve. I want to see Royal Mail modernised and made fit for its future purpose. Previous attempts by this Government and by previous Administrations to achieve this have failed. In spite of the best efforts of management, supported by vast amounts of government funding, modernisation has simply not happened in the way, on the scale and at the pace required in a fast-changing marketplace of the sort in which Royal Mail has to compete.

At Second Reading, a number of noble Lords commended Richard Hooper's excellent report on the postal sector, which is the basis for this legislation. His report clearly identified the constraints faced by Royal Mail. They include that the company has relatively little room for manoeuvre on pricing—the higher the prices, the quicker business will be driven away. Also, he said that industrial relations in the business were strained; I think we are all agreed that that is an understatement. He said that it has a very large and volatile pension deficit—indeed, it does—and it does not make the profits required to modernise its business and, crucially, to diversify, which I think is common ground. Opponents of this Bill, some of whom we have heard today, have simply not addressed these issues and constraints in their contributions with arguments or viable alternatives to what we are doing, which the House might reasonably have expected in their contributions to our discussions today and previously.

The Hooper review's final judgment was that the introduction of a strategic partner will bring the capital, experience and confidence needed to tackle these challenges. No one has been able to counter this conclusion with equal strength or argument. We agree with the review that this dynamic—the best route to accelerate modernisation, and to enable Royal Mail to diversify and expand its operations—is a partnership with a private sector company that has real expertise in transforming a postal or network business. Consultancy or contractorisation, as some have mentioned previously, is simply not an adequate basis for the sort of partnership that Royal Mail needs. A minority sale of shares is needed to give the partner a real stake in the business and a real motivation to generate the necessary drive and synergy to bring not only the opportunity for fresh capital into the company but the much-needed confidence, expertise and dynamic that this business needs if it is to turn around its finances and transform itself as a going concern.

Amendments which remove references to "publicly owned" and replace them with,

"owned in its entirety by the Crown", would effectively prohibit any sale of shares—even a minority of shares—in a Royal Mail company. I have made clear again why this is not desirable and why Royal Mail needs a strategic partner to help transform the business. The details of the partnership have yet to be negotiated. I therefore ask my noble friend Lady Turner to have a little more patience, if she would not mind. I am sure that that generosity will be extended to me. But it is clear that potential partners will be motivated and driven only if they have a real stake in the business, and we want them to have such a stake. As I have said, hiring in a consultancy—sort of McKinsey-style—or contracting out work, as if we are just talking about the transformation of a single operation somewhere in the country, would simply not begin to have the same effect or results. If these amendments were passed it would kill off the partnership arrangements and, in doing so, would threaten the future of the business and therefore the maintenance of the universal service provided by Royal Mail, which it is the intention of this legislation to sustain for the future.

Amendment 12 removes the duty on the Secretary of State to designate Royal Mail Group as a Royal Mail company before the current restrictions in the Postal Services Act can be removed. This duty was included in the Bill to give an assurance that Royal Mail Group Ltd would be designated and must therefore at all times be publicly owned. The amendment itself is arguably consequential on Amendment 97, but the provision in question provides an important additional protection that we would not wish to see removed.

As I have said previously, the Government are committed to a publicly owned Royal Mail, fully restored to good health, as our last manifesto made clear. In our view, partnership—a real, strategic and integrated partnership cemented through a minority share sale in Royal Mail Group—is the best way to deliver it. Amendments that remove our ability to achieve that would in effect sentence Royal Mail and its employees not to the status quo, because yet further decline would set in, but to inexorable decline and possibly worse. In my view, the employees of Royal Mail deserve better than a sentence of decline. They deserve a future that comes with Royal Mail's own use of technology and innovation, of it becoming a real player in a wider marketplace. I therefore ask my noble friend to withdraw his amendment.

Photo of Lord Morgan Lord Morgan Labour 6:30 pm, 24th March 2009

We have had an interesting debate and I am grateful to all those who have participated, and I thank my noble friends Lord Hoyle, Lady Turner, Lord Clarke and Lord Lea for their support. I notice that the Liberal Democrat spokesman has disappeared from his place. He might as well have disappeared earlier because his comments were totally vapid. He simply made jokes about private grief and did not address any of the issues. We did not hear "God gave the land to the people", and the contribution was nostalgic and unhelpful. However, the Minister was constructive and I am very grateful for his clear exposition.

There has been an assumption, including by my colleagues on these Benches, that an improvement in effective and efficient management necessarily means a change in share ownership, in the equity. I simply do not see the logic of that. I see no evidence that the kind of companies that have been mentioned would imply improvements in management. Indeed, my noble friend Lord O'Neill gave an interesting example in his remarks of a self-sustaining prophecy. You begin by giving an account of the finances of Royal Mail, which are hopeless and devastating, and then ask who on earth would lend money to it. The answer is obviously that no one would. It is a well known logical trick and it was recreated by my noble friend.

The main point is that we have drawn from my noble friend on the Front Bench a clear explanation of the rationale linking efficiency with a substantial and perhaps increasing degree of privatisation. I want to make only two comments because we have important debates following this one. First, contrary to what my noble friend said, this is not a wrecking amendment at all. I think that that was an abuse of language. The amendment is intended to be constructive—it is meant to enable us to get around the great impasse over privatisation which is and will cause problems as it attempts to release the Post Office from this difficulty. My second point is not a debating trick, but it concerns my noble friend's very distinguished grandfather. As my noble friend rightly said, he was a practical man. When he said that socialism is what a Labour Government do, the point was that he was distinguishing between public ownership and socialism; that is to say, public ownership is a technical and practical matter and not one of abstract doctrine. That is the spirit in which I have moved this amendment, in the spirit of Herbert Morrison, whom I greatly admire and have written about. I shall withdraw the amendment, but sufficient doubt has been raised to reconsider it on Report.

Amendment 5 withdrawn.

Amendments 6 to 8 not moved.

Clause 3 agreed.

Amendment 9

Moved by Lord Lea of Crondall

9: After Clause 3, insert the following new Clause—

"Membership of the Royal Mail board

The Royal Mail board shall comprise—

(a) Crown representation,

(b) workers' representation,

(c) corporate partners' representation."

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

In the amendment I have identified three key and well known stakeholders represented in successful board models operated in northern Europe. Responsibility to shareholders is regarded in the amendment, as in much of northern Europe, not as the sole criterion of a business's success. That works in northern Europe and this is a good opportunity to think how something like it might work here. Perhaps it is only due to a lack of imagination that we do not seem able to think through how to set up what I would describe as a social democratic model in this country. The debate about the corporate partner has already been held in part, and the three key stakeholders are the Crown, the corporate partner and the workforce.

The noble Lord, Lord Bradshaw, criticised the Network Rail model. I would simply say that that model of finance illustrates the fallacy of the doctrine of "there is no alternative to the raising of finance". I put this challenge to my noble friends on the Front Bench. Could they publish—on an independent basis, although it would be derived from DBERR and Treasury assessments—all the different models rather than simply say that there is no alternative or other model? If the whole of Hooper has to be accepted on the basis that it is a package deal and amendments are redundant or offensive, that makes us all redundant. There is no point in being here if that is the prior statement of the position. It has been put to us like that, so I am not being pedantic. I hope that we do not have to accept Hooper in its entirety as a magic solution. I hope we are not prevented from amending it in any way at all.

I see that there would be a business partner, but I want to say something about workers' representation. One of the issues in a normal Companies Act company is that one cannot simply spatchcock in workers' representation, because the only interest is that of the shareholders. There are ambiguities even in the Government's own model, and certainly there would be a new situation in the model I am proposing, particularly when it is linked with the other amendments we have been discussing. It would not be a typical Companies Act company. However, can my noble friend, who is highly skilled in these matters, tell us in what sense the Government's model is a typical Companies Act company, when clearly it is not? We ought to analyse this in a little more detail, and if invited, we would all be ready to discuss it and see if any fresh light can be thrown on it.

As far as board membership by the workforce is concerned, I used to think that I was a radical and a progressive in meeting the attitude seen in the trade union movement that you could not possibly have any form of partnership or worker representation because that would undermine confrontation through the single channel of collective bargaining. This is perhaps a field on which my noble friend cannot reflect without a caricature of the 1970s in her mind, but some of us used a great deal of our limited political capital to become heretics. We all have to be heretics at some stage in our lives, howled down for talking about something that is quite unrealistic. But we do not yet have a clear social democratic model of society to put before the British people. I say that because, given the world economic crisis, something new has to emerge from this chrysalis.

There was a progressive experiment in the 1970s in which my right honourable friend Alan Johnson, the Secretary of State for Health, was one of the worker members of the supervisory board set up at that time. It worked quite well. The only reason it did not get down nearer to grass-roots level is that it was in its early days when the plug was pulled by Mrs Thatcher.

I repeat: this model works quite well in northern Europe in different forms. It gives some metaphorical ownership to the workforce. That is far more relevant to the modernisation programme than the shares question, which I think is a big red herring. BT shares started off at £20 and are now £1, but this is nothing to do with that; this is to do with the fact that a number of workers' representatives are signing off the modernisation programme. It is simple in principle but what is happening at the moment is a bit of a contradiction. We are hearing that the union is useless; the workers are useless; industrial relations are useless; everything is useless—and yet the only magic wand is to bring in private equity and that will solve the problem of industrial relations. If I was in a pub and said that, people would say, "You must be joking".

We have to consider what kind of business model is most conducive to change and modernisation at the present time. The last thing we want is a climate of suspicion and insecurity and no information. But on the Government's model there will be no stock-exchange-sensitive information. Yet how can you have the workforce's full involvement in modernisation without providing information about, for example, the capital investment and the arithmetic on introducing automation? A new technology agreement, however it is arrived at, will crucially depend on information being shared. We have got to get beyond the stock exchange rules governing everything that happens. This is different from many other sectors of the economy.

The biggest resource of the Royal Mail by a mile is of course its workforce, but one point that has not been made is that we are talking here about productivity on established sites. We are talking not about greenfield sites—which I fully acknowledge DHL and TNT are experts in creating—but about sites and philosophies of industrial relations, industrial sociology or whatever you like to call it, which have been around for a long time. It is not a fashionable subject to talk about these days but I would be much happier if the Secretary of State and other Ministers occasionally acknowledged that this is a difficult nut to crack. It follows that if rapid change is to be the name of the game and is to be supported by the workforce, there has to be a partnership. You can have rapid change by running down the Post Office and doing unmentionable things to the workers' representatives, but no one is suggesting that. If we are to have some degree of ownership, in a metaphorical sense, and mutual understanding and resonance, we need this model of worker representation.

I fully acknowledge that anyone, including my noble friends on the Front Bench, could ask me how this would work, that would work and the other thing would work; but we are now at Committee stage and it is high time to expose not only the pros and cons of the financial models but the magic solutions which are supposed to transform industrial relations. I am very pleased that surveys have shown that something like this model could, given a fair wind, have the support of the workforce. It worked well in the 1970s when they were getting to grips with modernisation.

We have to remove the suspicion of the workforce that it will be 30 per cent now, 50 per cent later, and then it will be privatised and everything will be up for grabs. If we are to remove that suspicion, there will have to be a transformation of some of the structures that give workers an input. I trust that my noble friend will recognise that this is a constructive contribution. She perhaps will not say, "This is a good idea. We will accept it today", but new thinking has got to be given to improving workforce participation and solving the ownership problems, because they form two-thirds of the issues we are facing.

My noble friend Lord Brooke was quite right to quote the Hooper report, and obviously the issue of finance is important. But if you analyse the increasing loss, you have to take into account that there is a world recession and the ongoing problem of letters in Land's End and John O'Groats. I am not sure how the cross-subsidy relates to the government subsidy on guarantees of delivery, but we know that that is what the British people want. Indeed, put round the other way, have the Government now decided that they do not accept that that is what the British people want? I think the Government's position is that that is what the British people want but the only way to give them what they want is to sell the family silver to get some money, and then to bring in a private sector partner whose interest would ultimately be to merge it into their own business.

Obviously the board structure I am proposing is not like that. It is an idea whose time has come, and it is in favour of modernisation, not against it. I beg to move.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 6:45 pm, 24th March 2009

In listening to my noble friend speaking about the 1970s, I was reminded of an exciting experiment in industrial democracy within the Post Office which set up boards on which union representatives were members. It was not necessarily only union members because anyone could stand for election, but it was unlikely that anyone else would be elected. The key was that representatives were elected at a local level. In north-west London, where I come from, two of our people were on the local board and two people were elected at regional level. In fact, the noble Lord, Lord Sawyer, was a board member for the north-east region at the time and played a part. At national level, two officers were elected by ballots of the membership and they were accountable. Built into this experiment in industrial democracy were accountability and the need for the people who were placed on these boards by their trade unions or by the workforce to answer questions. Sometimes they were difficult questions for those people to answer. Sometimes they had information at the board meetings, at whatever level, that they had to convey to their colleagues, and it was not always understood. This came in after some people tried to copy the method from Deutsche Postgewerkschaft of workers' participation, which it described as "codetermination". The British experiment was supposed to build upon that.

As I say, there were problems, but the experiment opened lots of doors and windows to people realising that, given this responsibility, their friends were able to convey real concerns—in those days, mostly about productivity and the introduction of improved working methods when facing and cancelling tables were brought in. By and large, it worked. The tragedy is that after the election that the noble Baroness, Lady Thatcher, won, one of the first things she did was to abolish the experiment. That was sad. I just wanted to let the Committee know that there is not much new in this world. This method has been tried. My noble friend Lord Lea has suggested that we have worker representatives, and if this proposal ever sees the light of day, we should try to go back to the days when they were at all levels. That is a better conduit for understanding problems than megaphone diplomacy.

Photo of Lord Morgan Lord Morgan Labour

I have already detained the Committee a great deal today. I shall take, at most, one minute now. I have two small points to make in support of my noble friend Lord Lea's amendment. The first is that it indicates that those of us who have taken a critical view of some aspects of the Bill are not Luddites; our minds have moved on since the Tolpuddle martyrs, and we see this as an opportunity for remodelling the structure of management and the board in a constructive way so that something new can be done. It would be wrong to paint us as being totally negative and defensive—or, to use the analogy from the Darwinian world, "dinosaurs".

The other point is that, as a historian, it seems to me that this is a chance to reclaim one of the great lost opportunities of post-war Britain, the Bullock report of 1976-77, which was strongly supported at the time by the greatest living trade unionist, Jack Jones, and proposed a formal structure. I recall being told by the late Lord Callaghan how the people working on the Bullock report were sent to Germany and had a seminar with Chancellor Helmut Schmidt, who described how German economic performance had been improved by codetermination. This could be a chance to grasp what was a key missed opportunity to change the adversarial system of industrial relations in this country.

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills

The noble Lord, Lord Lea, raises an interesting point that adds to the debate we had on Amendment 4. As in so many areas, there is a great deal of confusion over how control of the privatised Royal Mail will be exercised. I would like to explore what influence the private sector minority partner will have.

I am sure that the Minister will inform your Lordships that details of what the partnership will look like are impossible to go into at this early stage, there being as yet—as the Secretary of State has assured us—no deal on the table to be discussed. Helpfully, though, when we discussed Amendments 4 and 10 he was at least able to confirm that the Government will specifically ensure representation for the private partner on the board. Anything else the Minister can tell us about the shape and detail of the partnership and its management would be helpful, particularly what sort of control the Government see the private sector having—control over modernisation presumably being something the Government expect to cede, because they have given it as a major reason for the whole exercise. How do the Government see this being structured and exercised?

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I am grateful to my noble friend Lord Lea. I was interested in the philosophical points that he raised about the social democratic model but, if I may, I will stick to discussing the amendments at hand and the more specific points that he made.

My noble friend asked for an independent review into alternative models. That is exactly what we did; we had the Hooper review, which consulted widely, considered alternative models for preserving the universal service while delivering modernisation, and came up with a package of measures to achieve those objectives.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I am sorry to ask my noble friend to give way, but it was in precisely this area that the analysis in the Hooper report was superficial and contradictory. Why say that the Hooper report is sacrosanct and we must accept it, as if it is a package that cannot be amended? A Treasury Minister in the House of Commons said, "You can't amend it because it's a package in every respect". I ask my noble friend to reread the Hooper report and say, if she were marking an examination paper, whether she would give the section on how management and the equity stake could magically transform industrial relations any more than a beta minus.

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I can certainly commit to rereading the Hooper report many times between now and Royal Assent, and indeed well into the negotiations of the strategic partnership. Richard Hooper considered the not-for-profit and not-for-dividend models and concluded that they were not appropriate for Royal Mail; they might have been more appropriate for more stable industries, such as water. Richard Hooper was clear about the risks that the Royal Mail was facing, which we have already discussed, with regard to e-mail substitution, the pension deficit and facing competition, and that there was significant structural change in the market. He concluded that what we had was correct.

The Royal Mail is currently a company governed by company law. It has a board that discharges its duty in the interests of the shareholders, and it will continue to remain a company under the Companies Act. It is in that situation that the fiduciary responsibility of a board member is to the company and its shareholders, not to any special interest group or stakeholders. Indeed, the issue that is discussed in the report, and that we have discussed, is having the appropriate set of directors with commercial expertise able to deal with the modernisation of a company facing the competition and liberalisation that this company does.

We recognise the central importance of the workforce in the future of the Royal Mail; indeed, that is what the transformation of the Royal Mail is going to be about. A change is certainly required in industrial relations and the climate of, to quote my noble friend, "suspicion and secrecy" that has sometimes invaded the company. The workers are the backbone of the company. We are not opposed to the employees' views being represented on the board if that would enhance the board's effectiveness in fulfilling its role, so long as it was able to fulfil its fiduciary responsibility where the company's interests in the round came first.

The Committee will be aware that the Royal Mail already has a much respected trade unionist on the board: my noble friend Lady Prosser. Prior to her appointment in 2004, trade union experience was provided by Derek Gladwin and John Lloyd. We also know that the partner will have a view on this and that board composition will be a matter for negotiation and will be reflected in the shareholder agreement.

Before we considered an amendment, we would have to be persuaded that another form of direct worker representation on the board would make a real difference to the transformation and modernisation of the Royal Mail and deliver the change that is necessary for the company. We do not believe that that case has been made. We would be obliged, therefore, if my noble friend could see his way to withdrawing the amendment.

The noble Lord, Lord De Mauley, asked about the shareholder agreement. I believe that this issue will be dealt with in Amendments 20, 21 and 22. Perhaps I may provide my answers then.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour 7:00 pm, 24th March 2009

I thank my noble friend for that reply, which has been very revealing. I was a member of the Bullock committee, which my noble friend Lord Morgan mentioned, and matters of accountability were looked at in great detail. I am very sorry that my noble friend Lady Vadera has simply repeated, parrot-fashion, what company law is at present; we all know what company law is at present. My noble friend has reiterated that, despite all the innovations and complexities, this is a Companies Act company. Responsibility is solely to the shareholders, if there are shareholders. My noble friend said that we have no responsibility to "interest groups", yet the workforce is 90 per cent of the value added. The Royal Mail is not a particularly highly capitalised company. It should be more capitalised—that is what we have been debating. But for the value added, the workforce, now to be described as an interest group and not part of the system—a system which is broken, according to some, including the Government—is a huge contradiction.

If any progress is to be made, this matter must be considered before Report. If it is not so considered, and the Bill proceeds to the House of Commons unamended, with nothing to show for this entire debate, there will be a train crash in the House of Commons as far as I can see.

I ask my noble friend to ensure that she does not repeat the word "philosophical". It is a philosophical question. I do not mind using the word about the social democratic model, but why do we have to go round in circles? The Government are saying that this is what the Companies Act says and this is a Companies Act company, so they cannot do what we say. The Government should change the law so that they can do what we say.

I have had no assurance on any of these matters. Now is the time to ask my noble friend and the officials at BERR to go away and think. On that basis, I shall be withdrawing my amendment.

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills

Before the noble Lord withdraws his amendment, I should like to ask the Minister a further question. She suggested that my questions would be tackled under the group containing Amendments 20, 21 and 22. Those amendments deal with reporting as the deal goes forward. I have asked about the situation now as regards the Government's intentions towards control, and I should be grateful for an answer.

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I am happy to provide the answer under this group of amendments. The Government are committed to ensuring that we have the controls over a Royal Mail company that the ownership of the majority of the shares brings. The noble Lord will be aware of the technical definition that determines control of the provision of more than half the voting shares or otherwise controlling more than half of shareholders' voting power. Clause 12 follows the definition and ensures that the Government will have the majority of the voting rights in Royal Mail. That would include the appointment of directors, amendments to articles and the issuing of shares to the company. However, as we believe that Royal Mail's board and management are best placed to run the company and should do so wherever possible without specific political interference, we have ensured that we have the types of controls that are essential to a shareholder.

The relationship and specific rights that would be granted to a partner will be as set out in the shareholders' agreement. My noble friend the Secretary of State has already suggested that that has not yet been negotiated and it is therefore difficult to have any specific discussion. However, it will reflect a partnership rather than a ceding of control. The Government will have greater control rights than the partner, as would be appropriate for a majority shareholder, but there will be, in key areas, shared responsibility with the partner.

We also need to ensure that the partner has sufficient rights to enable it to influence the decision-making process and to deliver the transformation that is required. That is the purpose of the exercise. We expect the partner to have these shared responsibilities, particularly in operational matters, and a meaningful say in the running of the company, as has been the point of having a strategic partner.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I am very grateful to my noble friend for giving way again, but I think that she has missed the point of the symmetry in the partnership model. How can we be asked to buy into symmetry in a partnership between equals, when all of a sudden only one of the partners has any sort of control on the board? I do not understand. I ask my noble friend to recognise the contradictions of her philosophical position, as she calls it, and then we can make some progress.

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I think that that is a clear and complete misrepresentation of what I have said. I said that the Government will have greater control rights than the partner. Indeed, I said that they would have the majority voting rights, which involves the majority rights in terms of the appointments of the directors to the board. I was then going on to explain that within that context, there are certain areas of shared responsibility with the partner. This will be a publicly owned company where the Government have majority shareholder rights; therefore they will have majority voting power and majority appointments rights on the board.

I was then going on to explain what other rights a minority shareholder might have as a partner. Obviously, the purpose of having a strategic partner was to enable it to help with the transformation of the business. Therefore, it was essential, in that context, for it to have certain—

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I hope that the Committee will forgive me for making one final intervention. This is revealing the ambiguity of the Hooper report, which uses the word "partnership" in two totally different contexts, with two totally different meanings. One minute my noble friend is talking about a partnership with a business and its accountability to shareholders with the majority accountability being to the public. But the second use of "partnership", which is by some sort of osmosis thought to be the same thing—it is a different thing altogether—means partnership with the workforce. The speeches relating to the Hooper report show that there are two types of partnership. This is a partnership between the management, for innovation, and the workforce. Why should the workforce not be an equal partner with these whizz-kids who are supposed to be helping to transform the company? I am not talking about partnership in an equity sense. Does my noble friend agree that the Hooper report used "partnership" to mean two quite different things?

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I was of course answering the question of the noble Lord, Lord De Mauley, about the partnership with the strategic partner. In that context, I was providing an answer about that partnership.

My noble friend has already made his points about workers' representation on the board. We have explained our position and I have said—clearly, I believe—that there is complete acknowledgement of the centrality of the workforce to Royal Mail, its transformation and its future. I say in the context of a previous intervention that it was not our intention to suggest that the employees were a special interest group; I was simply pointing out the requirements of a board director.

Perhaps I may finish my answer to the noble Lord, Lord De Mauley, about the influence of, and the partnership arrangement with, a strategic partner. The point of having a strategic partner is to assist Royal Mail in the transformation of the business. Therefore, it would be a shared responsibility and partnership in operational matters. The shareholder agreement will also set out the structure of the group, which reflects our policy of partnership but with the Government retaining ultimate control. We expect that the majority of board appointments will be made by the Government, including the chairman, and that the partner would appoint a minority of non-executive directors. As my noble friend the Secretary of State has already said, no such agreement has yet been negotiated with a partner, but I hope that my answer gives noble Lords a sense of the direction of travel.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I am very disappointed that two-thirds of the Minister's reply was to something which is not part of Amendment 9, which stands on its own and has been degrouped. Confusingly, a lot of other material is being replied to. I am talking about a partnership with the workforce. I invite my noble friend to correct herself in writing if she denies that "partnership" is used in the Hooper report in relation to partnership with the workforce. I shall not divide the Chamber on this occasion, but if no progress is made on Report, I probably shall.

Amendment 9 withdrawn.

Amendment 10 not moved.

Clause 4 : Meaning of "Royal Mail company"

Amendments 11 and 12 not moved.

Clause 4 agreed.

Amendment 13 not moved.

Amendment 14

Moved by Lord Hunt of Wirral

14: After Clause 4, insert the following new Clause—

"Report on impact of re-organisation

(1) Before any order under section 2(1) or 4(1) can be made, the original holding company shall publish a report setting out—

(a) the existing commercial relationship between its subsidiaries;

(b) the impact any reorganisation under this Part will have on this relationship.

(2) The Secretary of State shall lay a copy of the report before Parliament as soon as reasonably possible after its publication."

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

My amendment is prompted by concerns that the reorganisation envisaged by the Bill will lead to a weakening of the relationship between the Royal Mail Group and Post Office Limited. As many noble Lords will know, the current relationship is not just helpful but absolutely critical for the post office network. In fact, neither can exist without the other; that would be unthinkable. Neither organisation can flourish if the other is failing. Nor can one ever leech off the other. This relationship must be about symbiosis, partnership and balance. The inter-business agreement to handle Royal Mail letters provides one-third of the income of post offices. If this reorganisation fractures or even damages that relationship, we will undoubtedly have another round of closures very soon. I say that against the background of the Secretary of State assuring us that no closure will take place, which was surprising but very welcome indeed. However, I still await an answer to Amendment 14. Of course, I recognise that there is no reason why closures should take place. As I understand it, the Bill would open up the possibility for post offices to generate revenue from contracts with private postal service providers in addition to maintaining the existing agreement with Royal Mail.

Post offices still offer a unique physical network. Despite the many closures that have taken place, post offices continue to provide customer access throughout the United Kingdom. That potential should be exploited to the full. However, there is naturally some concern that reorganisation will undermine the security provided by what is, as I understand it, £356 million a year from Royal Mail. A neat diagram was helpfully sent out from the department yesterday which shows a continuing commercial relationship being maintained between the two. I look to the Minister to give us some more detail as to whether the Government expect this commercial relationship to be different from the current inter-company agreement and, if so, in what respect or respects. Has there been any discussion about whether the privatisation deal will contain any assurances about the renewal of the contract on current terms?

There are concerns among stakeholders, which have been expressed to a number of noble Lords, that greater mechanisation will reduce the amount of sorting work that Royal Mail pays post offices to do for it, particularly in rural areas. There is also concern that the end of the exclusive relationship between the two companies and the introduction of possibly unsupportive private management will lead to a reduction of the flat-rate payment that is presently made.

These concerns are not necessarily well founded. Better regulation, the lifting of the burden of the pension deficit and improved exploitation of growing markets such as parcels could all benefit post offices as much as they will help Royal Mail, but this cannot be known for sure. My amendment therefore seeks to ensure that proper thought is put into assessing the risks, possibilities and opportunities. If it is shown that the relationship will be put in genuine danger, steps can and should be taken to protect it before thousands more post offices are threatened with closure. I hope that we shall hear a positive response to these questions from the Minister. I beg to move.

Photo of Lord Hoyle Lord Hoyle Labour 7:15 pm, 24th March 2009

It is important that we look at the effect of any partnership on the companies. The noble Lord is right that the existing commercial partnership and relationship between the subsidiaries should be looked at. I said earlier that the future growth of Royal Mail lies in its parcel services. Its European arm has gone into Europe, particularly to Poland, and won orders. A rumour has been put about by one of the partners that it will take over the successful companies. The relationship between the companies should be set out as soon as possible. If a partner comes in, might it be able to take over one of Royal Mail's successful parcel companies lock, stock and barrel, thereby depriving it of the expansion that it desires?

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I welcome the amendment, not because I believe that it is necessary but because it provides a welcome opportunity to explain some of the proposals in detail. I say in response to the question of the noble Lord, Lord Hoyle, that the strategic partner is invited to look at Royal Mail Group Limited and not at any part separately. Therefore, it is not possible for it to take over separately another element of part of the group. I hope that that sufficiently reassures my noble friend Lord Hoyle on that subject.

I understand the concerns around the protection of the Post Office. The introduction of the strategic partner would have no impact on the relationship between the Post Office and Royal Mail, because this is a currently and contractual relationship, with Royal Mail using the post office network across the country and able to provide access to its products to the public through that network—for example, special delivery, airmail and stamps. On the other hand, the Post Office derives about 30 per cent of its revenue from that relationship. If anything, we believe that, as the noble Lord acknowledges, it improves the Post Office's ability to attract revenue from elsewhere. I therefore assure the noble Lord that the reorganisation will not lead to weakening the relationship between the Post Office and Royal Mail.

Royal Mail will remain publicly owned; that is on the face of the Bill. The partnership is a commercial partnership, and the Post Office will continue to offer Royal Mail services through its network. Income from Royal Mail is very important to the Post Office and to sub-postmasters; vital business derives from it, from consumers and small businesses.

The noble Lord asked about the post office network. The proposed regulatory regime allows Ofcom to oblige access to POL for other mail providers in certain circumstances. These changes being proposed provide new opportunities for the Post Office to focus on its own challenges and create a better and more vibrant future for its network. As noble Lords will be aware, we provide a subsidy of approximately £150 million a year to the Post Office. In this context, it is absolutely vital that we protect the taxpayers' interests as well, in particular to ensure that there are no leakages of that subsidy to Royal Mail—and even more so when there is a strategic partner.

The noble Lord asked about further details of the contractual relationship between the two businesses, which are commercially confidential. It covers the pricing of about 30 products, the details of which would be of great interest to the competitors of both the Post Office and Royal Mail alike and which it would be inappropriate to provide.

We hope that, in addition to the opportunities for further revenue that this Bill will provide the Post Office, we will strengthen the Post Office through creating a new board and its own non-executive chair, which will provide greater support to the Post Office's management team. There has been some concern in the past that the Post Office should have the commercial freedom to provide services to other postal companies; as I have said, Clauses 34 and 44, which will be debated after the Easter Recess, will provide the regulator with the powers to compel access to the post office network for other postal companies in certain circumstances.

I hope that noble Lords have found helpful the chart that was circulated to them. I am very happy to discuss it and to put it on the record, if there are any questions about the organisation of the chart.

Photo of Lord Hoyle Lord Hoyle Labour

Just to clarify what my noble friend said in reply to my question, am I right in thinking that the partnership would be with Royal Mail Group Limited? It is not Royal Mail Holdings but the Royal Mail Group. If that is the case, my fears are not abated; in fact, they are intensified, because that would mean that the profitable side—the parcel business—is within that. Therefore, we could be in the position I described of taking over the profitable side of Royal Mail.

Photo of Baroness Vadera Baroness Vadera Parliamentary Under-Secretary (Economic Competitiveness and Small Business), Department for Business, Enterprise & Regulatory Reform, Parliamentary Secretary (Economic Competitiveness and Small Business), Cabinet Office

I am a little unclear whether my noble friend is suggesting that the partnership should be with Royal Mail Holdings, which would then mean that the partner would own shares in Post Office Limited. I am sure that is not his intention.

Photo of Lord Hoyle Lord Hoyle Labour

I am sorry. I am sure that we are saying the same thing—I am not trying to be awkward. The partnership is coming in to help Royal Mail, and it will be the efficiency of the Royal Mail Group Limited that it will be looking at, which is on the chart. But the Royal Mail Group Limited contains not only letters, as it says on the chart, but the parcel division. I am very concerned that that is the growth area for the future and that it could be put in jeopardy if it is taken over by the partner.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills)

I am very concerned about all this. I thought that it was much clearer than I now think it is. When the opposition Benches put forward the idea that a report should be laid before Parliament by the Secretary of State so that we could clarify these things—in particular, the impact that any reorganisation under this part will have on the relationship—we were only asking for Parliament to be kept in touch with what was happening, so that we could discuss this and look at it again. So I would like to test the opinion of the Committee.

Division on Amendment 14

Contents 89; Not-Contents 115.

Amendment 14 disagreed.

Division number 1 Postal Services Bill [HL] — Committee (1st Day) (Continued)

Aye: 87 Members of the House of Lords

No: 113 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

House resumed. Committee to begin again not before 8.37 pm.