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Report (1st Day)

Postal Services Bill [HL] – in the House of Lords at 3:07 pm on 11th May 2009.

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Votes in this debate

Clause 1 : Post Office companies to be owned in their entirety by the Crown

Amendment 1

Moved by Lord Clarke of Hampstead

1: Clause 1, leave out Clause 1 and insert the following new Clause—

"Transfer of property etc.

(1) On such day as the Secretary of State may by order appoint, all the property, rights and liabilities to which the original holding company was entitled or subject immediately before that day shall be transferred so as to become by virtue of this section property, rights and liabilities of a company nominated for the purposes of this section by order of the Secretary of State.

(2) The Secretary of State may nominate for the purposes of this section any company formed under the Companies Act 2006 (c. 46) which is a company limited by guarantee with no share capital.

(3) The company shall at all times continue to be a company limited by guarantee with no share capital.

(4) An order nominating a company for the purpose of this section shall contain such provisions as to the appointment of directors, and their terms of office, and members of the company as the Secretary of State may consider appropriate.

(5) In this section—

(a) "the appointed day" means the day appointed under this section,

(b) "the original holding company" means the company that was nominated under section 62 of the Postal Services Act 2000 (c. 26) (transfer of property etc to nominated company), and

(c) "the Post Office company" means the company nominated for the purposes of this section."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 3:08 pm, 11th May 2009

My Lords, the first amendment in this rather large group deals with the ownership of Royal Mail and the vexed problem that people like me face on the question of its privatisation. Amendment 1 seeks to remove the Government's Clause 1 and replace it with the proposed new clause as printed on pages 1 and 2 of the Marshalled List. It would remove the distinction between the Post Office and Royal Mail companies and the differences in their ownership. It then provides for the transfer of all the property rights and liabilities of Royal Mail Holdings plc to a newly-formed company, limited by guarantee, which is to be nominated by the Secretary of State.

I have placed these amendments deliberately in the hope that our Government are both listening and learning and are prepared to rectify the serious mistake they are likely to make if they continue on their present journey. Growing numbers inside and outside this House, and in the other place, are against the Government's proposals for privatisation. This opposition is very soundly based and has been reinforced by evidence and events since the Bill was first introduced to the House.

Noble Lords will recall that the Government, without pause for reflection, and on the same day that the Hooper report was published, announced their support for all the recommendations of that report, including privatisation. This was, we were told, a coherent package of measures which had to be taken together. It was based on analysis that was supposed to demonstrate that the Royal Mail was both the least profitable and the least efficient of the European postal providers. On such a basis, radical surgery in the form of a strategic partner from the private sector was necessary. The industry is to be part-privatised, with just less than 50 per cent being offered to the partner.

December 16 seemed a day of great and clear purpose for the Government. How have the analysis and the proposals held up since that time? First, we have to note that the Bill departed from the strictures of Hooper, being a package from which no departure was allowed. The Bill includes a facility to establish a universal service support fund. I endorse that facility, and it has been endorsed by the people who work in the industry. Hooper explicitly rejected the establishment of such a fund, characterising it as counterproductive.

Despite Hooper's certainty that the Government and their advisers were less clear than Hooper that the only distortion to the postal industry was the public ownership of the Royal Mail, somewhere there was a nagging doubt—that the mistakes of Postcomm had been underplayed by Hooper in his final report; an impression that will be reinforced by rereading Hooper's earlier and superior report. That is the interim report, which mysteriously got changed after certain interventions by government people. Be that as it may, the Government allowed themselves this exception, despite Hooper insisting that his report could not be taken a la carte. I suggest that the Government should recognise their mistake in their hasty endorsement of the rest of Hooper, because everything since 16 December tells against the supposed integrity of Hooper's analysis.

For example, in April the Universal Postal Union published an important report: The global economic and financial crisis: Initial insights into its impact on the postal sector. That interesting report analyses the impact of the recession on all major postal operators in the world. In this sense, it is an important corrective to the Hooper report, which fails to suggest what impact the recession was having on Royal Mail and the mail market in general. In fact, Hooper's report tends to view declining mail volumes as essentially a result of e-substitution. However, the UPU report is notable for giving a context for changes in postal traffic and thus a greater explanation. It is clear that the postal industry, like other industries, is suffering from the impact of the recession. The report indicates that there has been a sharp decline in domestic letter traffic of an average of 5.9 per cent during the fourth quarter of 2008 compared to the previous year. Express activity suffered even more sharply, dropping by 7.9 per cent on the same year to year basis. Parcels traffic has suffered least from the crisis, displaying a strong resilience, despite the economic downturn, and saw a 1.1 per cent growth during the fourth quarter of last year.

What is very positive in the report is that it gives those figures an even broader context by comparing the position to that of the Great Depression in the 1930s. Of course, such comparisons are freely drawn by many commentators when trying to analyse the current recession and crisis in the financial sector. I am convinced that such a comparison is also helpful in understanding the real state of the postal industry today.

How does this comparison work in the postal sector? In the United States Postal Service, revenue declined by 12.3 per cent between 1931 and 1932. In Germany, letter postal volumes declined by 16.6 per cent between 1930 and 1931. In France, there was a 15.5 per cent drop in franking revenues between 1929 and 1930, leading to a 24.8 per cent drop in these revenues between 1931 and 1932. This allows us to see that, despite Hooper, there is a clear cyclical element at work in mail traffic variations in line with cyclical developments in the rest of the economy. We can therefore say that Hooper's report has failed to locate the problems facing the postal industry in the context of the international economic recession.

It would be a great mistake for the Government to ignore this new material and to assume that Hooper has the final word on future trends in traffic. It would certainly be foolish to fail to anticipate Royal Mail's contribution to the economic recovery. It may be said that this is interesting but not the most significant element of Hooper's analysis. We must then return to other elements, including the suggestion that Royal Mail is both the least profitable and the least efficient of European postal operators. I say that again, because if a lie is told, as somebody in fascist Germany in the 1930s said, and you repeat it, it will be believed. The suggestion that Royal Mail is both the least profitable and least efficient of the European postal operators is simply not true.

Last week, first quarter results were published by a number of European privatised postal operators. TNT saw a year-on-year drop of 58 per cent in operating profits. Posten, in Sweden, suffered a drop of nearly 50 per cent in operating earnings. Post Denmark saw its profits drop by 52 per cent. Deutsche Post has yet to publish its first quarter results, but in the last quarter of 2008 it reported a €3.16 billion loss. In comparison, Royal Mail has increased its profits in both quarters and is expected roughly to double its profits for the full year. So much for Royal Mail being the least profitable operator.

What has been demonstrated is that Royal Mail is weathering the recession better than its supposedly superior rivals. It was never the case that Hooper had made the definitive analysis that the Government saw there. I remind noble Lords of what the Business and Enterprise Committee of the other place wrote in its verdict on the Postal Services Bill on 1 April:

"We agree with two key aspects of the proposals. First, that the Government should take responsibility for the historic pensions deficit. Most of its liabilities stem from Royal Mail's time as a monopoly provider. It needs to be freed from them, as many of its European counterparts have already been freed. Moreover, pension fund members deserve to know that their pensions are secure. Second, we also agree that a new regulatory framework, in which postal services are viewed as part of a wider communications market, is entirely appropriate".

The report continues:

"However, we do not consider either the Independent Review or the Government has properly made the case that these two reforms, about which there is a broad consensus, can only be made as part of a package which includes the third reform, the involvement of a private sector equity partner in Royal Mail. Similarly, we are not persuaded that the provisions contained in the Bill allowing such a partnership are necessary or desirable".

Those are the words of a committee in the other place.

The report also indicates that the Government have been entirely unclear about the issue of investment, which undermines the suggestion that privatisation is necessary. The report also makes important contributions as to the lack of rationale regarding splitting Post Office Ltd and the Royal Mail Group. Nor have the Government indicated what the impact on competition will be if, as seems likely, the chosen partner is already active in the UK mail market. The report points out how completely unclear any partnership agreement would be in terms of further capital injections and actual control of the company. I endorse one of the final points in the summary, which says:

"We are left with the conclusion that either the Government has not fully thought through its position about future share sales, or that it has done so and is refusing to reveal its hand".

To date, the Government have not responded to this report. The opportunity exists for the Government to examine this important piece of work and to consider taking a step back before proceeding further with a Bill whose credibility has now been seriously weakened. My amendment offers a potential way forward for the Government, not to satisfy me or my emotional ties with the Post Office—I should have declared an interest but I am sure that most noble Lords know it by now—but as a way for the Government to disengage themselves from an argument that is not wanted by members of the Labour Party, members of the public or Members of Parliament down the other end. I want them to examine this important piece of work again and, I hope, the existing elements of the Bill which have been endorsed by the Business and Enterprise Committee and by the majority of opinion in this House.

We have made good progress in Committee in how we tackle the whole question of pensions and regulatory activities. However, I greatly fear that the Government do not yet recognise how unkind these past few months have been to Hooper's proposals. We recently had a statement from Deutsche Post. We remember Deutsche Post from the early days in December when everyone was flurrying around to get a grip on our wonderful, profitable post service. What does it say now? We have a statement that it has no intention of bidding for Royal Mail. It has been rattled by its recent results, which followed hard on the heels of DHL withdrawing from the North American inland express market with huge losses, so it is concentrating on putting its basic business right.

Surely there is a lesson for the Government here. Deutsche Post's statement means that, unless the Government inform us otherwise, there are only two potential partners interested in acquiring Royal Mail: the private equity firm CVC and, of course, the one that keeps cropping up and is likely to get the job if we ever let this go through, TNT. On the second day in Committee, the Secretary of State would not be drawn into commenting on TNT's suitability for partnership with Royal Mail. He said,

"we are undertaking a fair competition to identify a suitable partner for Royal Mail".—[Hansard, 31/3/09; col. 967.]

My question still is, and I put it today, whether the Government are now prepared to admit the failure of such a search. After all, if TNT is the sole suitable bidder, then the competition has indeed failed. Since 16 December, when the predators were circling like vultures, TNT has been involved in illegal acts including the falsification and backdating of documents. The company was forced to pay back £49 million to the Revenue, including unpaid tax penalties and interest. There were similar inquiries into its tax affairs with other EU countries, although we do not know whether they resulted in further payments or disciplinary action. The current chief executive of TNT, Mr Peter Bakker, was in post at the company at the time that those illegal acts were undertaken.

We have also learnt that the chief executive of Royal Mail, Adam Crozier, has accused TNT of trying to poach customers from Royal Mail's profitable European parcel subsidiary, General Logistics Systems. We know that Adam Crozier sent an e-mail to the Government about this, but have yet to learn whether the Government responded to that correspondence. I confess that I do not read the weekend papers, but others have told me since they came into this Building today that we have learnt a bit more about TNT.

TNT is now considering its position. When the £3 billion figure is cited, it makes this whole thing look even sorrier than it was to begin with. If we were going to sell off our birthright for £3 billion then, in the words of that great Conservative Prime Minister, Harold Macmillan, it would be like selling the family silver. It is not right to sell off such a profitable post office.

Since then, we have witnessed further evidence of the unsuitability of TNT as a strategic partner. Towards the end of April, the European Court of Justice ruled against a challenge by TNT to have Royal Mail's VAT exemption lifted. The European Court of Justice ruled that Royal Mail had an important obligation in the form of the universal service, and that, therefore, the role of TNT and Royal Mail were not comparable in the UK. So we see a potential partner with partnership skills that include trying to force Royal Mail to charge considerably more for its service. We have seen press reports that, in the potential negotiations, TNT insists upon guaranteed earnings from any future stake in Royal Mail. Presumably TNT expects the taxpayer to subsidise its acquisition of Royal Mail, as we have been subsidising its work through the downstream access ever since Postcomm made its original decisions on the tariffs to be charged.

I did not read it, but somebody I trust implicitly said that we have learnt from the Sunday Telegraph that TNT wants Royal Mail's profitable European parcels arm, GLS. Well, of course it does! Anybody with half a brain would see what it is up to. If something is profitable, they want it. We would be daft if we let them have it. Further, it is suggested that TNT's offer falls well short of the Government's anticipated £3 billion for a 30 per cent stake.

Finally, I read in the Library a report in yesterday's Observer that some of TNT's own bill investors are moving to reject the acquisition of Royal Mail. The paper says that Jan Keuppens, representing the firm Robeko, one of the top 15 shareholders, believes that TNT's management should focus on reversing the 58 per cent slide in its own profits reported last week. According to the article, Jan Keuppens said that,

"'buying a stake in Royal Mail would be a distraction ... They should not do it, unless they can agree a really good price and conditions. Many investors are saying that, even at a cheap price, TNT should not do a deal'".

This is the reality of the potential partner, TNT. Surely this should give the Government pause for thought. Yet it appears that the Government have yet to consider the value of examining an alternative. Last week, Compass published its pamphlet Modernisation by Consent. It is proposing the establishment of an alternative structure for Royal Mail, maintaining it in the public sector, while ensuring sufficient investment through the direct investment of profits raised. Unfortunately, the Government's response, identical to their immediate response to Hooper, was to reject it out of hand. Apparently this proposal is "a political fix". From where I am standing, the Government are in need of a few political fixes.

I have drawn up these amendments to demonstrate how the proposals raised in the Compass pamphlet could be introduced. I am not saying they are the last word, but they could be introduced. There is substantial room for further discussion, particularly on the type of governance that a company limited by guarantee with no share capital would require. Not only would such a move offer an alternative route to a successful Royal Mail in the public sector, it would also be popular, allowing Royal Mail, including the post office network, some stability, with new elements of accountability in governance possible.

Yesterday I noted in the Sunday Times, again from our lovely Library, that the most recent poll on Post Office privatisation indicated that a mere 20 per cent of those questioned were in favour. Sixty-nine per cent wanted the structure to remain the same or to be turned into a publicly owned, not-for-profit company. All those years that I have been involved in the Labour Party and listened to pollsters, there is always an inherent group in any polling that would oppose anything at all, but is 20 per cent any basis for moving towards the destruction of the wholly publicly owned Post Office?

I desperately want to see a fourth term for a Labour Government. That alone distinguishes me from some of the siren voices egging the Government on in this pursuit for privatisation. But all the published evidence is that privatisation of Royal Mail is deeply unpopular and will be hugely damaging to the Government's electoral prospects.

From our debates in Committee, we learnt that the current modernisation proposals for Royal Mail management are fully funded. Indeed, despite agreement being reached with the Government in the financial year 2006-07, management have yet to acquire or deploy the walk-sequencing machines.

I shall now go off the brief I prepared for myself. On the last day of Committee, this House was assured that it would get the details of what modernisation meant, the cost of the machines and their make, and where they would come from. This gives me the opportunity to repeat what I said in Committee. The Secretary of State said at Second Reading the machines were here and in wraps. There is nobody in this country who can tell you where those machines are—not a company that says it has supplied them. Again I ask: where are those machines? Where are the wrappings? How much did they cost? When were they ordered? What is the lead time in getting delivery?

We have also learnt that the Government assuming responsibility for the pension fund deficit results in the company having an additional £280 million capital per year for the next 14 years. If Ofcom ends this subsidy given to competitors via access arrangements, Royal Mail would have a further £100 million capital a year on top of the additional £280 million. This means that there is no financial imperative for privatisation, so perhaps privatisation is just a "political fix" after all.

We know that the time for a sale, even if it were the right thing to do, would not be now. The Compass Group recently demonstrated that a sale now would yield only 50 per cent of what would have been achieved a year ago. Therefore, for reasons of public need, the integrity of the industry and its workforce, and financial prudence, I urge the Government to forgo the policy of privatisation. There is an alternative: all that it needs is for the Government to display the will to take it and the will to carry out their own manifesto commitments. I beg to move.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills) 3:30 pm, 11th May 2009

My Lords, first, I declare my interest as set out in the Register—in particular, being a partner in the national commercial law firm of Beachcroft LLP.

As I have said twice before to noble Lords, we support the part-privatisation of Royal Mail, and I have to say to the noble Lord that we agree with the Hooper review. We hope that the Government will be successful in establishing an effective partnership deal between a private operator and Royal Mail. The Conservative Party believes that, if Royal Mail and the universal postal service are to survive, Royal Mail needs the capital and management initiative that privatisation will provide. Therefore, I have to say to the noble Lord that we do not support his amendments, although we understand the passion with which he speaks. Of course, we all know his long-standing interest in this issue but we do not agree with him and we will support the Government if he presses his amendment to a Division.

There has been a lot of press speculation over the past few days about what I have just said. I assure the Secretary of State that rumours that we will join forces with the Labour rebels when the Bill reaches another place are quite untrue. We have no intention of voting against reforms which we believe are desperately needed and which are also Royal Mail's best chance of a secure future.

The Conservatives have given every assurance possible. On 7 May in another place, my right honourable friend Kenneth Clarke reconfirmed his support for the principle of the part-privatisation of Royal Mail, and this weekend the Leader of the Opposition, my right honourable friend David Cameron, responded to the question of whether we would back the Government against the Labour Back-Benchers who oppose the Bill by saying:

"Yes, as long as the Government doesn't do something crazy ... and do a U-turn".

The Conservative Party position cannot be clearer. I recall one of my noble friends once saying:

"You turn if you want to".

The Conservative Party on this issue is not for turning. We will support the part-privatisation of Royal Mail and the establishment of an effective partnership deal with a private operator. My challenge to the Secretary of State is to be equally clear and rebuff the rumours that are flying around about the Government's intentions. Will he please give this House a guarantee that there will be no government U-turn on the Bill? We would not support any concession to the Labour rebels by the Prime Minister or the Secretary of State that would deny Royal Mail the possibility of a partnership deal.

Of course, the optimism shown by the noble Lord, Lord Clarke of Hampstead, and other Labour Back-Benchers is understandable because this is exactly what happened in 1998. I do not know whether the Secretary of State will remember that on 7 December 1998, when he was Secretary of State for Trade and Industry, he promised "radical reforms", which included the possibility of part-privatisation. I quote his words:

"I should make it clear"— this is more than 10 years ago—

"that we certainly do not rule out the possibility of introducing private shareholding into the Post Office—for example, through the sale of a minority stake in it".—[Hansard, Commons, 7/12/98; col. 21.]

Of course, all we got were 10 wasted years.

Conservative support for genuine reform was not enough to bolster the resolve of the Secretary of State then, but I hope that it will be more successful now. I hope that, in responding to these amendments, he will respond also to our clear message of support for part-privatisation with a clear commitment that he, the Prime Minister and the Government will not waver. He must not once again be bullied into half-hearted reforms that will fail to deliver. That is why I do not support these amendments.

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

My Lords, I was not going to speak on the amendment, but I was intrigued when I read—I was going to say the "order of service", but I am in the wrong place—the rules of debate on Report. I am not sure that the admonitions were aimed at the noble Lord, Lord Hunt, or indeed at me. However, as another principle of what we should do on Report—that we should not repeat Second Reading speeches—has been broken by the noble Lords, Lord Clarke and Lord Hunt, it behoves me to set out the Liberal Democrat position on the Bill. It is very clear: we agree with the noble Lord, Lord Hunt, that the amendments tabled by the noble Lord, Lord Clarke of Hampstead should not be supported. We agree that the Government should not make the concessions that he is asking for.

However, as the Minister is aware, there are two critical issues on which we require movement if we are to support the Bill, both of which will come up in later amendments that we have tabled. Depending on the Government's response, we will decide, here and in another place, whether to support the Bill. Our position is that we support the principle of what the noble Lord, Lord Clarke of Hampstead, calls part-privatisation; but we will not support the Bill unless the two critical amendments that we seek are adopted.

Photo of Lord Christopher Lord Christopher Labour

My Lords, perhaps I could ask the noble Lord, Lord Hunt, if his enthusiasm for this part-privatisation proposal is without any qualification. Is there no qualification in his mind as to the scale of it, or the price? Do we give the Royal Mail away?

Photo of Lord Tunnicliffe Lord Tunnicliffe Government Whip, Government Whip

My Lords, that is right. The noble Lord, Lord Hunt, had sat down. A short question of clarification was no longer possible.

Photo of Lord Hoyle Lord Hoyle Labour

My Lords, I am a little puzzled by that. I listened to my noble friend Lord Clarke making what I thought was an extremely reasoned appeal for moderation on the part of my noble friend the Secretary of State. He mentioned the efficiency of the Post Office, but he could also have made the point that we have all been talking about efficiency rather than price. Royal Mail has been portrayed as inefficient, which it untrue. We have one of the cheapest and most efficient postal services in Europe.

I want to go over some of what my noble friend said about TNT. When the Minister replied before, it appeared that TNT was extremely interested in taking a 30 per cent stake in Royal Mail. I warned then that what it was really interested in was General Logistics Systems, the European parcels system, which is the jewel in the crown. Now that that is out in the open, perhaps my noble friend will say whether the press reports that a condition of the bid was that TNT would have control of GLS were true. That would be extremely serious news for Royal Mail because one development of the fall in the number of letters was to be an extension of the parcel service, but that would not happen if GLS were part of TNT.

TNT's interest is waning because the financial position is worsening. I believe that its profits are 50 per cent down, so many of the shareholders are saying that, in the first instance, it must concentrate on putting its own house in order. I can only rely on the comments in the press. I know that my noble friend has said that he cannot discuss the details of any negotiations he may have had with interested parties. Once again, it is being said that £3 billion was asked for but my noble friend Lord Clarke said that that was a giveaway. I understand that the offer is less than £3 billion, which makes the situation even worse. Perhaps my noble friend will comment on the fact that the offer is nowhere near the £3 billion valuation, which I understand was the Government's figure.

Right now, Deutsche Post has fallen away and, if it is true that TNT is no longer very interested, the only remaining contender is CBC Capital, together with the Belgian post office. People do not appear to be queuing up to buy it and, when the market is at its lowest, it is the worst possible time to be offering it for sale. Apparently TNT is not prepared to offer anywhere near that price, which again is bad news for my noble friend the Secretary of State.

On the offer from the Opposition—surprise, surprise—I would like to see these unlikely partners marching together through the Division Lobby. I would be delighted to think that a manifesto proposal from the Labour Party is being defeated with Conservative support. That is not the kind of thing that I want written in the annals of the Labour Party. If we believe in something we should stand up for it. When we were talking about a planned programme of post office closures, we knew where the Liberals stood, but I did not know where the Conservatives stood. We shall come on to that. Perhaps the noble Lord opposite, who I know is always willing to reply, would reply in due course on that.

My noble friend will speak to Amendment 92 shortly, but my name is attached to it and, although I must allow him to make his case himself, I think it is a very modest proposal. I do not see why the Secretary of State could not accept it because all it does is put off Part 1, dealing with part privatisation, for three years and it asks for three conditions to be met. The first is,

"the full implementation of the Pay and Modernisation Agreement", and it asks that it be signed. Secondly, it asks that, within three years of the passing of the Act, that funds be made available to Royal Mail, either through a national loan plan or through private capital, to which I referred previously. Thirdly, within three years the pension scheme will have passed over to the Government and, if all these aspirations are met, it can only strengthen the position of Royal Mail.

The Hooper report has been referred to, but Royal Mail's financial position is different from what it was when the report was being prepared: all divisions are now profitable and will continue to make profit. It is going the right way and, with the removal of the yoke of the pension fund for which successive Governments were responsible, it will be in a far better position to go forward.

I hope that my noble friend will not listen to the siren voices on the Benches opposite offering their full support but listen to what we are saying. There are other ways of achieving our aims—for instance, by continuing with the manifesto promise and with modernisation. A new factor is the waning interest of the people who might come in to take over through part privatisation. I look forward to hearing from my noble friend, as always. I hope that he has listened to what we have had to say and will be able to offer us hope for the future.

Photo of Lord Christopher Lord Christopher Labour 3:45 pm, 11th May 2009

My Lords, it may be convenient if I speak to Amendments 91 and 92. My noble friend described them as modest amendments and I can live with that.

One of the things I learnt over the years I spent as a trade union official was that if you were not certain what to do, the best thing was to try to buy some time. Indeed, I will not name them but some Chancellors of the Exchequer found that a useful approach from time to time when they had a troublesome problem.

Everyone is in difficulty about one principal point of the Bill: that is, the issue of ownership. There are different schools of thought with different strengths behind them, but no one is quite certain whether part privatisation is the best way forward, whether the approach adopted for Railtrack or the BBC is the best way, or whether there might be considerable advantages in the status quo continuing, at least for a period.

My noble friend Lord Clarke has pointed out that the weekend polls showed only 20 per cent support for privatisation. I do not wish to spend time on that but public opinion in either direction could easily change if, for example, Royal Mail did not change and we were faced with significantly higher costs of postage. Such charges are not so readily accepted here as they are in European countries, including Holland, Belgium and France. However, on the other side, there would be a reaction if there were a significantly poorer delivery service, as is the case in mainland Europe.

My amendment offers a breathing space and a way through this difficulty. We should have one more shot at moving Royal Mail along under its present ownership, and three years is the best estimate that I have been able to obtain of the time it would take to complete the job. I do not accept that the present management has failed—that has been repeated over and over again—and I do not accept that its business plan has been lacking. Royal Mail is now profitable; it employs 50,000 fewer people than it did at the outset with only one compulsory redundancy; it is building new revenue streams and by 2012 parcels will represent 50 per cent of revenue and 75 per cent of profit. I hope that my noble friend the Secretary of State will at least reassure us that under no circumstances will the parcels business be part of any sale.

Royal Mail has achieved that in the face of unfair competition. It could not have done so had the Communication Workers Union been as uncooperative as it has been painted. For a start, there is a long Royal Mail pay and modernisation agreement which was agreed in 2007. It is worth reading the introduction to that agreement, which in one sense says it all. It states:

"In order for Royal Mail to thrive as a business and to ensure that it remains able to compete effectively it is recognised that change is going to have to happen and at a scale and pace never experienced before.

Both Royal Mail and the CWU are jointly committed to working together to deliver that change by agreement, continuing to protect jobs (in line with our commitment in MTSF)"— which I do not understand—

"and provide high-quality terms and conditions for all employees.

Both parties recognise that a fresh start is needed and are committed to moving away from the adversarial relationships that persist in too many parts of the business. This needs to be replaced by respect for different viewpoints and a determination to work together to find common sense solutions that are mutually beneficial. This agreement lays the basis for changing how we work to ensure a successful future for this business, its employees and how the business and the CWU will work together".

That was an extremely good start, and indeed it must have worked for a time, but somewhere along the way there must have been a stumble. Maybe it is a matter of—in the old, trite phrase—it takes two to tango. But I will come back to that. First, I would like to address one or two other aspects.

On 24 February, Mr Crozier, chief executive of Royal Mail, gave evidence to the House of Commons Business and Enterprise Committee. On pages 40 and 41, Roger Berry MP asked:

"Why does Royal Mail Group so passionately believe that a minority shareholding is necessary?".

Mr Crozier said:

"As part of Hooper we said that in our view it boiled down to three requirements: equity capital, the pension solution and the change in the way we were regulated and the fairness of it in the wider market".

Later, Mr Berry asked:

"To cut to the chase, you have referred to equity capital, not private equity capital".

Mr Crozier said:

"We did not in our submission", to which Mr Berry said:

"Exactly. Increased Government equity would be a possibility, would it not?", to which Mr Crozier replied:

"It is not for us to say from where it comes".

I fully understand why Royal Mail would prefer equity capital. It is cheaper than borrowing, although it is a paradox that private enterprise itself so often eschews equity, usually because it diminishes the value of the present shareholdings. I sense that private equity capital carries with it clear potential risks for Royal Mail's long-term future, a risk over which perhaps we would have little influence. It may well be significant that Royal Mail and Mr Crozier have never once raised the question of private equity capital.

As has been said, Deutsche Post does not seem to be at the table. TNT, which is always referred to, has an extremely bad reputation on trade unions and has recently announced a 5 per cent pay cut with certain threats attached. Its profits for the first quarter of this year have fallen by more than 50 per cent and its own unions have rejected the new pay agreement. The Financial Times updates what the noble Lord, Lord Clarke, said and has spoken to Robeco, one of the top 15 holders. Robeco told the Financial Times that the chances of doing a deal are small. The reasons given were price, relationships with government and unions.

I have grave doubts whether the Secretary of State will be able to strike a deal at 30 per cent, because one of the arguments advanced by one Robeco representative is that that would not give it sufficient power to bring about the change that is, in its opinion, required. I have mentioned the parcels issue, which is repeated in the Financial Times today. CVC is the remaining named applicant, though there may well be others we have not heard about. Has it got a record which provides us with what we need? It is a private equity company. Do private equity companies, and does CVC, invest for the long term? Am I right in saying that CVC has already sold off a large part of its mail investment? What future share sale or further buying rights would any private equity company seek?

Perhaps we, too, are overlooking the great differences between other European states and the United Kingdom in what, in this context, I will call downsizing legislation. EU experience, based on Eurogovernment requirements and Eurogovernmental financial contributions, will not be found in the United Kingdom. I wish my noble friend who was the general-secretary of the Confederation of Independent Trade Unions in Brussels was here, because he had to deal precisely with this issue when he was appointed essentially to run down his office. It took nearly two years. In one sense, this is easier, because the Government pick up a big proportion of the cost. But the benefits to workers make them more willing to go than they otherwise might be. There is nothing like it here at all. I ask the House to consider—to the extent that there is, inter alia, a union problem—whether it is really likely to help take Royal Mail forward if we parachute in a TNT or CVC Ross Kemp. I do not think so.

So where are we? Earlier in my contribution I suggested that one more shot at moving Royal Mail along under present management was worth while. Again, I am encouraged by some of the evidence given by Mr Crozier to the Commons committee, one short extract of which is worth repeating. He said:

"Do we need to find ways to improve it"— that is, the relationship—

"and bring people with us? Absolutely. When we look at it, what kind of expertise do we need going forward? Like all big companies, we need more and better project directors and in any situation like this people who are experienced at brining in the kind of technology that we are about to use. This is not a kind of NHS IT issue. The machinery and technology we need to bring in exists and works so the risk is not to do with the machinery and the kit itself; it is the management capability in installing it. Do we need increased numbers and better skills in HR? Yes, we do. We know that we need to improve and we have been doing it steadily over the past few years. Like any company, we need to bring in skills at all levels of the business".

I challenge whether we need to do that by selling off shares in the company. I am for allowing him to try and do what he said. This amendment provides that without losing the Government's goal if a last chance fails; rather it keeps semi-privatisation as a spur.

This is not just a challenge to Mr Crozier, although he needs to assess objectively how Royal Mail's management style could improve. I guess that he and his senior managers should also get round their staff a bit more, perhaps, on appropriate occasions, with corresponding levels from the UCW.

As an aside, when there were dreams about putting pay-as-you-earn on to computers, the board of the Inland Revenue and the union, the IRSF, moved the whole of Scotland's PAYE operation and the staff to East Kilbride by using the approach I have suggested, and there was no serious opposition. It can be done.

I suspect that the union in this case, the CWU, will have to reassure us that it is ready, able and willing to continue modernisation. That means not just the executive committee but branches and members as well.

I conclude with a personal thought for the Secretary of State. His grandfather, Lord Morrison of Lambeth, has been referred to previously in these debates. Despite the age gap, he was a good friend of mine. He gave me a copy of his autobiography, which I had a look at at the weekend. Herbert had several paragraphs on nationalisation, but this Bill is the other side of that coin. Herbert wrote:

"In all nationalisation schemes, there is a moral question as well as an economic one".

He explained that the Labour Party saw nationalisation as an end in itself and saw no need to carry out what we would call today a risk assessment. Have we carried out a risk assessment for this enterprise? If we have, I have not heard about it. I suggest that my noble friend the Secretary of State should reflect on his forebear's wisdom.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform 4:00 pm, 11th May 2009

My Lords, I thank my noble friend Lord Christopher for his references to my grandfather. Indeed I have reflected on the approach that he took to public ownership and I suppose that in a sense I continue in his tradition by sponsoring a Bill, which your Lordships are considering, that retains the Royal Mail in public ownership. So I am at least being consistent with my grandfather's views.

I shall, if I may, pick up just one or two points from the remarks made by one or two of my noble friends. I shall not be drawn on the references to TNT, as my noble friend Lord Clarke invited me to do, except to say that it gives a taste of what potential bidders are up against when they show an interest in this. However, I simply do not accept either the premise or the import of my noble friend's remarks—although whether TNT is a suitable bidder will remain to be seen.

On the specific question concerning GLS, I can say that the Government's focus is on finding the right strategic partner for Royal Mail to help it modernise its core business in the UK, not on selling GLS. My noble friend Lord Clarke argued that, contrary to everything that I have said during our debates in this House, it is the global recession which is responsible for the fall in mail volumes. I agree that economic conditions will have an impact on postal volumes, particularly courier services for businesses, but Hooper found in his analysis that the traditional link between letter volumes and GDP began to fall away in 2003. Volumes have been falling since then.

My noble friend also suggested that Royal Mail is now making more than its continental competitors. With respect, I think that he rather misses the point. Royal Mail's margins are less than 1 per cent for its letters business. Deutsche Post and TNT are facing tougher market conditions but they remain more profitable than Royal Mail, with profit margins of 12 per cent and 14 per cent respectively, and even with the declines in profit levels recently reported.

Before turning to the detail of these amendments—there are very many of them and I will ask the forbearance of the House if I respond with some substantial reasoned argument in the light of the case that has been made against the Bill—I should first remind the House of the objectives behind this legislation.

The legislation arises from the Hooper report commissioned by the Government in line with our 2005 manifesto and urged on us at the time, incidentally, by the CWU. The Hooper report was not specifically about ownership. At its heart was the universal postal service and how to maintain it. That drives the entire report from start to finish. Hooper found a Royal Mail which was critical to our country but which was labouring under several huge burdens, including the decline in the number of items sent through the post due to the shift to new technologies and a substantial and volatile pension deficit. While the company had a modernisation plan, in reality chronic industrial relations and obstruction at local branch level by the CWU, as the noble Lord, Lord Christopher, has mentioned, have meant modernisation is too slow and too often bogged down in a draining attrition between union and management.

Hooper made his recommendation about a strategic partnership to help drive essential change—the most controversial aspect of his report which was as a result of his analysis, not at the outset of it. He did not begin there. Of course some people find it easier to agree with the review's other parts—on pensions and regulation—than on the need for a strategic business partner, but Hooper was clear that all his proposals were a package to be taken in total not as individual parts.

The Government could have ignored Hooper's findings and his recommendations. We could have found the nearest shelf, cleared a space, commented on the interesting nature of the report, patted Mr Hooper on the back and moved on. That response is not exactly without precedent, but what would have been the result? The Royal Mail we knew was in decline, with the universal letters delivery service under threat, put into the "too difficult" box because the Government of the day did not have the courage or the energy to take on the task. In the Government's view that is simply not an alternative; it is a dereliction of duty. The Cabinet was not prepared to see that happen.

I might say, I did not seek this issue. Incidentally, I did not seek a quarrel with anyone. The subject came on to my watch after I returned to Government. Our postal service is too important, however, for me to accept the advice from one ardent critic of the Bill which was to leave well alone and "manage decline". Our postal service and the public demand better than that.

That is why we are discussing this package of change today. We cannot turn the clock back. We cannot wish away the internet, direct debit or any of the other liberating advances in technology that have freed up time for hard-pressed people. There is no going back. Life has changed. This is about a Royal Mail for the 21st century. There will be no managing decline sought by this Government if we can possibly do anything about it.

Our goal is to put a publicly owned Royal Mail on a clear and swift path to modernisation and in so doing to secure the future of the universal postal service. That was our 2005 manifesto commitment, which said—perhaps it is as well to quote from it:

"Our ambition is to see a publicly owned Royal Mail fully restored to good health, providing customers with an excellent service and its employees with rewarding employment".

In other words, there were two parts to our manifesto: commitment one, keeping Royal Mail in public ownership, which we are doing, and, secondly, to restore it to good health. Simply to leave it at public ownership without taking the further measures to restore it to good health would be irresponsible and an abdication by this Government in respect of our 2005 manifesto commitment.

As Hooper outlined, to deliver the modernisation it requires, Royal Mail needs commercial confidence to act freed from the perception of political interference and through constructive engagement with the workforce rather than the mutual suspicion that we have today; it needs expertise from a postal or other network operator with a sound commercial track record; and, finally, it needs access to fresh capital—hence the partnership approach for the company.

My noble friend Lord Clarke's amendments reject our and Hooper's partnership proposals and instead would provide for the dissolution of Royal Mail Holdings plc and its replacement with a company limited by guarantee. Perversely, my noble friend's suggestions remove the very important protections on future ownership of Royal Mail Group Ltd and Post Office Ltd enshrined in the Bill. In turning Royal Mail Holdings plc into a private company limited by guarantee, the amendments remove this company from public ownership and hence also remove Royal Mail Group Ltd and Post Office Ltd from public ownership. That is a rather surprising effect sought by my noble friend who, throughout, has been attached to 100 per cent public ownership. It is also counter to our key objective for the Royal Mail group of companies which is that they should remain publicly owned, with Post Office Ltd owned in its entirety by the Crown. I therefore could not support the amendments for that reason alone. However, there are other concerns.

Typically the company limited by guarantee structure is used for smallish charitable bodies and membership organisations. We have some limited experience in a commercial environment, in Network Rail and Glas Cymru—Welsh Water—which are the usual examples used to illustrate the alternative to the Hooper recommendations. Neither Network Rail nor Welsh Water, unlike the Royal Mail, is in the public sector. They are private companies, and monopolies with fairly stable demand; all their earnings are determined by economic regulators, not by the choices of individual customers. They are run on a "not for dividend" basis and are accountable to a board of stakeholder members rather than to shareholders. Both those businesses rely heavily on contracting out the actual provision of services—in the case of Welsh Water it is 100 per cent. That is hardly right for Royal Mail.

Whatever the merits of Network Rail and Welsh Water as a model for the railway and water network, I do not believe that the model would work in the increasingly competitive and fast-changing environment of the postal market. A successful Royal Mail needs a different model that addresses each of the issues. First, where does the needed investment come from? Funding for Welsh Water and Network Rail comes from regulated charges, government grants and external debt, but Royal Mail could not rely on these for its funding needs. Royal Mail is not a monopoly, but operates in a competitive market place. As Hooper made clear, it faces competition not just from the postal sector but from the broader communications market. It cannot meet its investment needs by hiking up prices. Customers would just switch, increasingly, to alternatives. And Royal Mail cannot tolerate more debt. Although it has an extensive property portfolio, its existing debt is already secured on this. There are no further assets to offer as collateral. However, the proceeds from a new private sector partner for Royal Mail would fund modernisation.

The second issue that needs to be addressed is where the necessary experience to drive modernisation would come from under the alternative model being proposed. There needs to be a major step change in Royal Mail's performance. Today's constraints on progress need to be countered by effective management and significant change in the industrial relations environment and union practices. To get this, we need the practical, corporate experience of transforming a network company that only a commercial partner could bring. Bringing in more consultants or changing one or two of the senior management will not suffice.

Thirdly, where would the impetus or the drive to modernise come from? I simply do not believe that a company limited by guarantee model would provide that impetus or that drive. Accountability to a group of stakeholders with disparate interests would not provide the strong and focused leadership that Royal Mail needs. That organisation needs to change and become more efficient, not stand still. "Stakeholders" would be no substitute for shareholders—the Government and a strategic partner—with capital at risk and a strong incentive to secure change. A company limited by guarantee model would depend instead on the regulator to drive change and improvement. Experience shows that effective regulation is vital but is not sufficient to drive necessary change in such a large and complex organisation.

My view is that this amendment's proposition is led by politics first and what is necessary for Royal Mail a distant second. We can all vote for all sorts of nice-sounding structures, but the bottom line is: do they offer a convincing chance of delivering the very urgent modernisation which a Royal Mail remaining in public ownership requires? I suggest that the answer is no. I accept that the thinking behind the amendment is not opposed to collaboration between Royal Mail and any outsiders, as such, but on what basis would such a partner enter the business or be incentivised to drive the modernisation that the company needs?

The reality is that only a partner with an equity stake in the business will be motivated to help deliver the change needed in the timeframe required, because the business's success would produce a return on its investment. I hope that your Lordships will understand why the Government, after due consideration and discussion last week that involved the Prime Minister, have concluded that the alternative approach outlined by the Bill's opponents is unworkable and does not meet the challenges that Royal Mail faces. The best course for the Royal Mail to take is the one that this legislation sets out, as soon as the Bill is enacted and can be subsequently implemented.

The Government's rejection of the other amendments in this group, which cover the commencement of Part 1 of the Bill, flows from the conclusion that we have reached and that I have now described. We cannot afford to take a wait-and-see approach by building in a three-year delay, as the amendments suggest; we have been waiting many years as it is. The evidence is clear that we must act as soon as market conditions and the bidding process allow. We want to see Royal Mail become a leader in the postal market, not spiral into decline. To do that, we must not build in any further delay.

Partnership offers a fresh start for Royal Mail. It is the best way to meet the requirements for transforming Royal Mail that Hooper highlighted and which the Government accept: commercial confidence, access to capital and experience of managing change. Action on pensions and regulation alone will not modernise the Royal Mail. That provides no incentive for Royal Mail to change or the external drive and push to make it happen. Only the full package of measures which the Government propose will deliver our objectives in full and secure the universal postal service. With all due respect for the sincerity of the amendment's mover and supporters, I call on my noble friend to withdraw the amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 4:15 pm, 11th May 2009

My Lords, how interesting those last few moments have been. Let us go back to the beginning, when the noble Lord, Lord Hunt, made it absolutely clear that we are discussing a Conservative Party policy. I am delighted that he still shows the same clear insight into the problem that he did in Committee. It is to his credit and that of the party he serves that they know what they are about; I wish that I could say the same for ours. The noble Lord, Lord Hunt, is looking for a guarantee of no U-turns. I do not know about those, but sometimes if you can make an argument that is better than the cobbled-together idea of selling off a valuable asset, it should be examined.

In the past few moments, we heard that last week the Prime Minister said that there was no alternative. That was before today's amendments. There we are; it is a closed mind and no doubt we have heard, "There is no alternative". People have said that in the past. It was known as "TINA" at the time: There Is No Alternative. The noble Lord, Lord Hunt, understands the attitude of people and the feelings of private shareholders.

As always, the noble Lord, Lord Razzall, is straight to the point and does not go round China to get to Chatham. He came straight out with it and gave us a little telling-off for making Second Reading speeches. When a number of amendments are grouped together like this, it is not possible to stick to one avenue of argument. The noble Lord said something that resonated with me as an old working-class socialist. He said that he does not think that we should be bullied. He also wants two commitments from the Government as we go through the rest of the Bill. I wish him the very best of luck. If they find favour with me, I will troop through the Lobby with anyone who seeks to protect our wonderful, valuable Post Office.

My noble friend Lord Hoyle gave voice to the problems of TNT once again and spoke about the clarification of the £3 billion. Throughout five days of Committee, Second Reading and today, we still do not know what they are talking about in terms of the money that they need. We know that what has been suggested was a sale to TNT, if the newspapers are correct; but I do not believe much in them anyway. My noble friend talked about the siren voices of the Opposition. That is what they are there for. That is their policy. You cannot blame the siren voice of someone seeing an opportunity to get their policy on the back of a Labour Government's proposal.

My noble friend Lord Christopher addressed the ownership question in his amendments towards the end of the group. He asked whether British people would stand for poorer deliveries. They have stood for them since the 2000 Act, haven't they? Who gets their mail at a reasonable time these days? Who gets their mail before they go to work? That does not happen any more. Under these proposals, if the Dutch operator comes in, it will be even later. We have heard a lot about dates and today, 11 May, I give noble Lords another forecast, which I made seven years ago. Mark my words, if this goes through, postal deliveries will get worse, they will be later and there will be erosion of the service that we provide, whether on collections, distribution or delivery.

My noble friend also mentioned modernisation. I did not mention the CWU/Royal Mail modernisation agreement. I will put it on the record, since it has been mentioned in the debate, that 50,000 jobs have gone since the infamous Postal Services Act 2000. In the past few moments, we heard again about inefficient management, where we will have to bring people in who have expertise. Expertise in what—sacking more people? The modernisation agreement has already penetrated more than 90 per cent of the whole of the operations of Royal Mail. To listen to some people today, you would think that Royal Mail has failed miserably. There are still more than two years of that agreement to run. I do not know whether it is too long an agreement, or whether it should have been shorter. I did not negotiate it, but the people who did so did a good job, and they honoured it. As my noble friend Lord Christopher said, 50,000 jobs disappeared—that is 50,000 duties and posts, but only one compulsory redundancy. Does that smack of obduracy, obstruction and difficulties? Or does it say that there was common-sense working to get this agreement through in various places? I am the first to admit that there are some areas where it is difficult for people to vote to lose their own jobs or to change their own jobs. That is not easy.

My noble friend Lord Christopher also mentioned differences in the European Union. I said so much in Committee to prove that this country of ours has a postal service as good as you will get anywhere, especially for the price. That is often forgotten. This is the cheapest country in Europe for post at the basic rate or the first step up. Some of the competitors that we hear about already have a monopoly for those letters posted at the basic rate.

The Secretary of State said that private companies are faced with these different proposals. He said that he would not be drawn on the references to TNT, but why not? Are the British people not entitled to know that that firm has a rotten record of industrial relations, a rotten record of increasing its postage and a record of reducing its service? Are the British people not entitled to know that that is the company some people want to get into bed with? It is not good enough and we should be able to say it. Later on someone mentioned one ardent critic—surely that is not referring to me. I do not suppose that TNT is worried about an ex-postman from Hampstead. It is more worried about the money that it will invest and the returns that it will get when it starts stripping the company that it wants to get hold of.

We did not receive a clear answer on GLS focus. The Government should tell us clearly that GLS, as a profitable parcel service that is serving Europe, with the possibility of expansion and greater profitability, should be a no-go area for any sale that might take place. It is not good enough to come here and say that we will be focused. It makes me very cross.

The global recession was mentioned. Hooper started in 2003 and in 2002 I was telling the Government that the main problem was the loss of revenue due to the unfair and biased regulator, which thankfully, later in the Bill, is being replaced by Ofcom. Not before time, Postcomm will get its marching orders, although not before the £100 million a year lost by the Post Office in the past 10 years on top of the money that had to be paid into the pension scheme.

It is easier to talk about pensions and regulations in the abstract. As a former trustee of the Royal Mail and Post Office BT schemes, I know exactly why the Government have the responsibility for any deficit. It is quite clear that the regulation that allowed them to take a pensions holiday for all those years was the same regulation that allowed them to suspend payments because they would be responsible for the deficit. I remember going to the lawyers on behalf of my colleagues to say that it was unfair. We were still paying 6 per cent of every member's money into a pension scheme and the employers were doing nothing.

We are told that the Government did not have the courage, but what courage is needed to renege on a conference decision? You just cock a snoot to those people who diligently went along to the policy forum of the party and sat down and argued the case at what is known as the Warwick agreement and understood that there would be a wholly publicly owned Post Office. It does not need courage.

We talked about bringing in other expertise, but I could rattle off a list of names of decent people who were got rid of by the Post Office—people such as Brian Thompson, Jerry Cope and Brian Roberts. They could not manage because political interference at the time would not allow them to manage as some people would have wanted them to. There were people who could have solved these problems and it is not good enough to blame union agreements and obduracy in a couple of areas for all the problems.

I am shocked that the Prime Minister could say last week that he rejects any alternative when there is a sensible alternative, although not necessarily mine. We will find out in a few moments whether it has any support. Certainly, my noble friend Lord Christopher has spent hours trying to understand how we can get out of this impasse—the Government have painted themselves into a corner. I have no pleasure in saying that I will divide this House, and I may be the only one. I think we have to have two.

Noble Lords:

Three.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

Does anybody want to volunteer with my noble friend Lord Hoyle and me, my Lords? I shall be proud to go through that Lobby. I do not want it on my conscience for the rest of my life, although I do not know how long that will be. I am not going to acquiesce to the bullying that is going on. I hope that some noble Lords—not necessarily a majority because party organisation is not like that—will see that we have a Post Office worth fighting for. Having served this nation well for 350 years, it deserves to remain in public ownership. I should like to test the opinion of the House.

Division on Amendment 1

Contents 25; Not-Contents 228.

Amendment 1 disagreed.

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

Aye: 23 Members of the House of Lords

No: 226 Members of the House of Lords

Nos: A-Z by last name

Tellers

Clause 2 : Meaning of "Post Office company"

Amendment 2 not moved.

Amendment 3

Moved by Lord Razzall

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

"Post Office board of directors

The Secretary of State must appoint a board of directors for each Post Office company."

Photo of Lord Razzall Lord Razzall Spokesperson for Business, Enterprise and Regulatory Reform 4:44 pm, 11th May 2009

My Lords, I shall speak also to Amendment 63 in this group. I apologise somewhat to the House for tabling Amendment 3 at this stage. I should probably have done so in Committee, but afterthought is a great thing. The amendment concerns a small point and I suspect that, when he responds, the Minister will give the answer set out on page 41 of the Government's response to the Select Committee report. There, they state clearly that there will be a new board for Post Office Ltd with a non-executive chair to provide a new level of support and challenge for the Post Office's management team.

When we reflected on the Bill following Committee, it seemed important to include in it the commitment that Post Office Ltd will have a separate board of directors. If a minority investment is to be brought into Royal Mail, it is important that Post Office Ltd has a separate management. The structure should be such that the minority shareholder should not be able to influence decisions made by Post Office Ltd, because under the reforms that the Government wish to bring in, Royal Mail and the Post Office will be separated structurally. As I said, perhaps I should have tabled this amendment in Committee but I should welcome the Minister's opinion on whether it is necessary for that requirement to be put into the Bill.

Amendment 63 is much more fundamental, and it goes to the heart of the remarks that I made during the interesting Second Reading-type debate that we had on the previous amendment. As the Minister is well aware, as a fundamental condition of our supporting the Bill, we require significant assurances that this is a one-off opportunity to secure the independence and financial security of the post office network for the foreseeable future. We debated this at great length in Committee, and we have slightly altered the amendment here. In Committee, we suggested a figure of £2 billion in order to try to flush out from the Government what investment they thought was necessary to produce a secure post office network, but we have not put in a fixed figure in this amendment. On the other hand, we feel that, if the Bill is passed, it is critical that it should contain significant assurances about the long-term future of the post office and sub-post office network. That is our reason for tabling Amendment 63 at this stage. I beg to move.

Photo of Lord Hoyle Lord Hoyle Labour

My Lords, without going into what we discussed previously, I agree with the amendment. Anything that gives the Post Office a secure future has my total support. We are talking here about the possibility of increasing the figures in the future and applying them to the areas of the country that are most in need.

When we previously debated this matter, I received an assurance from the Secretary of State about planned post office closures. However, we did not get Conservative support for that from the person speaking from the Opposition Front Bench. Are the Conservatives in favour of that position or not? When the noble Lord replies from the Conservative Front Bench, can we have an assurance that they join the rest of us in being against future post office closures? The Opposition have made a big case of saying that they support the Post Office and that they are against closures, but we have not heard from them here. We heard from the Secretary of State, who gave me that assurance, and that is why I did not table another amendment. He has repeated that assurance but, as I said, we have not heard anything about the position of the Opposition Benches. Therefore, I should like to know from whichever noble Lord is speaking from that Front Bench what their position is on future closures.

Photo of Baroness Byford Baroness Byford Conservative

My Lords, I will speak briefly on Amendment 24, to which my noble friend will respond shortly. I apologise for not taking part in the debates on the Bill. As noble Lords know, I have long been interested in the Post Office, and in particular in the post office network in rural areas. However, working on two Bills at once is a challenge.

The references in my noble friend's amendment to,

"the services the company's post offices may provide to the public under arrangements with a government department" and,

"any additional services the company's post office may provide to the public" underline my conviction that we need a secure post office network. Over the years, we have seen many closures. There were closures when we were in government, and there has been a horrendous number of closures since this Government have been in office.

Perhaps I may also raise with the Minister the future of postal card accounts. I have been fighting on this issue since 2000, when the Postal Services Bill went through. I am sorry if this matter was dealt with in Committee, but I could not be here. It is crucial in some areas for people to be able to access their benefits through the card account. I and many others believe that a lot of pressure has been put on individuals to receive their benefits in other ways, such as having them paid into a bank. As noble Lords know, this has had a huge effect on the profitability of sub-post offices.

I accept that it costs more to put business through the post office network; but it seems odd that we cannot find a system for the postal account that does not cost the amount quoted over the years of 99p per transaction. I understand that that is unacceptably high. I raise this because we have seen, and continue to see, many closures of rural post offices. At the same time, there are very few banks left in rural areas, so many people, particularly older members of the community and those with young children, find accessing their entitlements extremely difficult. I hope that the Minister will give me a reassuring answer about the Government's thinking on this.

More importantly, I hope that we will free up the Post Office to find new work: that is what the Bill is about. I cannot remember the figures, but the Post Office is one of the biggest providers of foreign currency to those who travel overseas. Local authorities also have big role to play in helping post offices to help themselves. It is difficult to be specific: I accept the comment of the noble Lord, Lord Hoyle, that none of us wants to see further closures. However, sadly in some places there will be further closures, and they will not necessarily be in rural areas; some of them will be in urban areas. The Government gave a commitment that there should be a post office accessible within three miles of every person. When we debated this previously in the House, we said that if you are elderly or pushing a child in a pram, three miles is actually six miles. These are practical issues.

I apologise to noble Lords for my intervention, but I am very concerned about the future of the Post Office card account, and hope that any new business will benefit not only the Post Office itself, but also those who use post offices, and particularly the most vulnerable users. I heartily support my noble friend's Amendment 24.

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

My Lords, I thank the noble Lord, Lord Razzall, for his amendment. It represents a real step towards addressing the concerns which we raised in Committee about the post office network. I shall also respond to the noble Lord, Lord Hoyle, and praise my noble friend Lady Byford who has a tremendous track record in fighting for the future of post offices, the Post Office card account and to secure the future of the post office network. I thank her for her contribution, not only in her support for Amendment 24 in my name and that of my noble friend Lord De Mauley, but also for making her point about the need to free up post offices to provide other services which are much needed in the community.

As was said in Committee, post offices were very under-represented in the Bill. As we pointed out in the previous debate, after some 10 years of neglect, Royal Mail is being dealt with and put on the path to success. I should like to see the same amount of attention and support given to post offices. We have had some useful assurances from the Secretary of State, in particular the promise that no more programmes of closures are being planned, which is very welcome. Quite enough damage has been done to the network already by this Government.

In Amendment 23 the Secretary of State has made a very welcome move to bring forward the need for annual reports on the post office network. That was not in the Bill but we all pressed for it. The way in which this is set out in Amendment 24 could be improved but, at last, we have post offices in the Bill.

The duty to report on the network is one which we on this side hope will keep the issue of closures alive. I say to the noble Lord, Lord Hoyle, that not only do I want to see the existing network maintained and improved, but ideally I should like to see many of the closures reversed. I am very happy to put that on the record. For that to happen much more attention needs to be paid to the matters that my noble friend and I have raised in Amendment 24.

Our amendment seeks to extend the reporting requirement to cover the services which post offices are liable to provide. In Committee, we had a number of questions about the future of what was called post bank. Since then, we have heard a number of important items. It may be that the Secretary of State will refer to that. I was particularly pleased to hear Alan Cook, the managing director of Post Office Ltd, when giving evidence to the Select Committee in the other place, announce details and disclosure of the plans for current accounts to be available in post offices. Apparently, full details have now been published so the Secretary of State might like to refer to that. That is exactly the kind of initiative which should be brought forward and which should continue in the future.

However, my amendment makes it clear that it is not just financial services which will ensure the long-term future of the post office network, but also the business which government departments are able to put the way of the Post Office. The report we are now talking about would be a very useful way of seeing whether the enthusiasm which the Secretary of State has said that the Government have for post offices leads to revenue being sent their way. The amendment in my name and that of my noble friend would ensure that there is some scrutiny of how the reorganisation of the Royal Mail group will affect the post offices. Even with a wealth of financial services and government business crossing their desks, post offices will, of course, always be about post. Any weakening of that relationship, especially when it leads to a reduction in the most secure and reliable of Post Office revenue, needs to be known about and acted on.

I was pleased that the Secretary of State fulfilled his commitment to this House to publish the Government's response to the Select Committee in the other place before we reached Report stage. It may have been a fine line—it was published today at 1 pm—but the House is grateful for that commitment being fulfilled and the response being published much earlier than would otherwise have been the case. That shows a tremendous amount of respect for this House and I am grateful to him for it. In that light, I hope he will accept my amendment.

On the amendments tabled by the noble Lord, Lord Razzall, I agree with the noble Lord, as I did in Committee, that it is very important that the Post Office company has its own board of directors. I would welcome any assurances that the Secretary of State can give on the Post Office's freedom from political interference in the future. I also agree that the Post Office network should be given the government support it needs, including, if possible, for the reopening of post offices that were shut down in the face of so much public opposition in recent years.

However, there must be no further delay to this Bill. It has already come several years later than we would have liked and Royal Mail needs sorting out immediately. Although I completely agree that many improvements could and should be made to government policy towards post offices, I do not agree with holding Royal Mail hostage as a method of getting them, as I am afraid Amendment 63 does. I therefore have much pleasure in urging on this Chamber Amendment 24.

Photo of Lord Hoyle Lord Hoyle Labour 5:00 pm, 11th May 2009

My Lords, the noble Lord's Government had a record of closing post offices, but the House has heard him say that he would like to see those reopened. We know where the Secretary of State stands on this—he said that he is not in favour of any more planned closures. I have not heard whether the noble Lord agrees with that. I would like a yes or a no answer from him on it.

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

My Lords, I do not think that the noble Lord's noble friend has said there will be no more closures. There may well be individual closures for all kinds of reasons but there is no more planned programmes of closure. I certainly agree that that should be the case and I am happy to put that on record. If the noble Lord reads carefully what I said, he will note that I went further and said that there should be a reopening of those post offices that have already been closed despite huge public opposition. It is about time we acted on that.

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

My Lords, I shall respond first to the noble Baroness, Lady Byford. The Government announced in November that the Post Office would be awarded the successor contract for the Post Office card account and that this will run from 2010 to 2015, with the possibility of a two-year extension beyond that. So the card account is now safely re-anchored and the Government do not encourage any failure to use it in smaller or rural post offices. The noble Baroness is right that the Post Office is the leading provider of foreign exchange in the UK. That goes to show that it has an untrumpeted role and record of achievement in this area which it is as well for us to recall from time to time.

This group of amendments covers a variety of important issues which need to be addressed individually. The requirement in Amendment 3 concerning the Post Office board is already met through the current Post Office board. Since Post Office Ltd was incorporated in 1987, it has been subject just like any other private limited company to company law requirements about the minimum number of directors it should have. Company legislation subject to detailed scrutiny in this House and the other place is the right place to define the appropriate corporate governance principles for companies, and Post Office Ltd's current board far exceeds statutory requirements. It has nine directors, including Donald Brydon, whom we recently appointed as interim chair. This amendment would not require nearly as extensive a board for the Post Office. It would, in a sense, mark a step back.

Nevertheless, we have committed to reconstitute this board with a full complement of non-executive directors, starting with the permanent appointment of a non-executive chairman. The new board will benefit from the operational expertise of the existing management and the combined wisdom and experience of the new non-executive appointees.

Amendment 63, concerning an investment fund, talks about opening up new post office branches where there is a defined need. This already happens. The access criteria that we have set ensure that all areas will continue to have reasonable access to post office services. At the end of March, 93.3 per cent of the total population across the UK were within one mile of their nearest post office outlet and 99.7 per cent were within three miles. There is also a criterion that prescribes access to post offices in each and every post code district. When the access criteria were introduced exactly two years ago, 18 postcode districts did not comply. The Post Office has systematically introduced new services in these 18 areas so that by 12 May there will be a service available in each of them. That is a remarkable achievement. However, this is an ever-evolving obligation for the Post Office. In some very remote communities the closure of a single branch can lead the Post Office to fail to comply with the access criteria. Post Office Ltd must, and does continue to remedy this in each case by finding ways to re-establish and maintain services in all areas.

On investment capital, as part of the discussions that we will shortly have with the Post Office regarding its next funding deal, we will consider the case for new investment in both Crown and sub-post offices to modernise and improve the quality of service for customers, for example by reducing queuing times. I hope that the noble Lord, Lord Razzall, will welcome that, because it is potentially a very important commitment which I discussed only last week with the National Federation of SubPostmasters. Such investment might help attract more business, strengthening the viability of individual branches. I hope that noble Lords will agree that it would not be appropriate to commit to a particular type of investment in isolation from considering the broader needs of the network.

This amendment also calls on us to put more government services through the network. Since Committee, there has been yet further evidence of the Government's commitment to the network, as the noble Lord, Lord Hunt, was kind enough to acknowledge. The Identity and Passport Service has announced that it is working with the Post Office to ensure that people can apply for new biometric passports and ID cards at their local branch.

On financial services, as I said, we need to think carefully about whether we are in danger of reinventing the wheel. On 21 April, Alan Cook, managing director of Post Office Ltd, told the Business and Enterprise Select Committee in another place that, in effect, a post bank already exists. As he set out, Post Office Ltd already offers an extensive range of financial services products: savings, insurance, mortgages, credit cards, and more than 1,400 free-to-use cash machines providing further access to cash across the network. The Post Office also supports work to increase financial inclusion by providing access to basic bank accounts from 17 different providers. The Post Office therefore plays a vital role providing access to financial services through its network of 11,500 branches.

We are keen for the Post Office to increase its financial services offering and to use its unrivalled network to put a wider range of services within reasonable reach of the whole population. So we are currently exploring new possibilities on financial services with the Post Office. As part of this, Alan Cook, the managing director, has said that it has an aspiration to expand its mortgage business and—as the noble Lord, Lord Razzall, said—to launch a current account which is available in every branch next year. The Post Office is also in discussion with the Association of British Credit Unions to see what opportunities there might be for the two organisations to work more closely together to increase financial inclusion.

Finally, we must also consider the wider effect that this amendment would have on Royal Mail's transformation. The amendment would prevent implementation of this Bill, and therefore the transformation of Royal Mail, until the Government made an order describing the detailed terms of its future investment in the Post Office. However, if we are unsuccessful in reversing the decline in Royal Mail's business, the Post Office's business will decline too. The two things are connected. It is in the interests of both Post Office Ltd and its network of post offices to see Royal Mail's finances turn round and its business transformed. Therefore, to hold up the transformation of the Royal Mail in the way that we are currently seeking—for the sake of the Government setting out even more clearly on top of what they have already stated and described as their investment plans and commitment to the Post Office—would have a detrimental effect on the Post Office itself and would not be desirable.

The Government have already provided funding of £3.5 billion to Royal Mail. In spite of this, the company has failed to transform fast or far enough adequately to respond to the ongoing digital revolution. The market within which Royal Mail operates has changed irrevocably and continues to evolve. Action—not to build in delay, as is conceived in this amendment—is needed now. It would be irresponsible of the Government to allow delays to the suite of measures needed to reform Royal Mail and secure the future of the universal postal service.

The Post Office's current comprehensive £1.7 billion funding deal lasts until March 2011. While discussions about the next funding deal will begin shortly, their completion should not hinder the drive to transform Royal Mail that this Bill would bring. The sooner these are implemented, the sooner Royal Mail will be modernised and the sooner the risks to the Post Office of Royal Mail declining in the mails market will be removed. Any delay would merely serve to threaten the sustainability of the network.

I turn to Amendments 23 and 24; first to the one that is in my name. I think that we are all in agreement that the post office plays a critical role in our communities; that post offices are vital in providing access to Royal Mail's postal services; and that the network has a wider social and economic role providing vital access to services throughout the UK, particularly for vulnerable consumers and small businesses. Given this, it is important that both the Government and Parliament receive robust information about the size, location and accessibility of the post office network. Amendment 23 will require Post Office Ltd to provide exactly that. This amendment goes further than the current information duty on Postcomm. There will be a statutory duty on Post Office Ltd to produce an annual report which must contain information about the accessibility of post offices to particular groups of consumers and any other information requested by the Secretary of State. The report must also be laid before Parliament.

I welcome the support from Age Concern, Help the Aged, the Federation of Small Businesses and the CWU for this amendment. I hope that the many noble Lords who have previously spoken on the importance of having such information available, will also support it.

I turn to the amendment of the noble Lords, Lord Hunt and Lord De Mauley. I agree that the report should also provide information about the critical services offered across the post office network. I would therefore like to consider the noble Lords' amendment in detail and shall come back to the House at Third Reading.

I therefore propose that my new clause should stand part of the Bill and ask the noble Lords not to press their amendment. For the reasons I outlined earlier, I also ask the noble Lords, Lord Razzall and Lord Cotter, not to press their amendments.

Photo of Lord Razzall Lord Razzall Spokesperson for Business, Enterprise and Regulatory Reform 5:15 pm, 11th May 2009

My Lords, the assurances that the Secretary of State has given me on Amendment 3 certainly satisfy me of the importance of the Post Office companies having separate boards of directors. I think that we have unanimity in your Lordships' House on that issue.

As far as our Amendment 63 is concerned, we have a bit of a difficulty. The noble Lord, Lord Hunt, is concerned about it, because he thinks that the Government have delayed for far too long in introducing the reforms that the Royal Mail needs and that this is therefore a distraction, holding back the amendments that are required for the Royal Mail. We think that that is exactly the point, because this is the moment at which we can pressurise Her Majesty's Government to ensure that there are commitments in the Bill for the post office network. It has been several months since the Secretary of State came to this House with his Statement on the post office network and, of course, he is a very busy man. I have no doubt that he is completely committed to trying to sort out what should happen to the Post Office, but I am sure that he could produce a list of 20 other things that he also has to sort out. We are nervous that if we do not force through some amendment of this nature at this time, the issue of how to deal with the Post Office will be kicked into the long grass in the way that the noble Lord, Lord Hunt, has accused the Government of kicking the Royal Mail into the long grass and not grasping the nettle—if that is not a terrible mixed metaphor. We feel that this is the moment for putting in the Bill a commitment as to what the Government are going to do about the post office network.

I accept that this may not be the best amendment, but we shall not get to voting on it—assuming we divide the House—until Wednesday. Therefore, it certainly is not too late for the Government to think whether there is some form of words that would satisfy us, because this is a fundamental point for these Benches. We feel that for far too long good words have been said about the Post Office—indeed, until the Secretary of State came into office, there were post office closures, but we accept his integrity and determination to do something about the post office network. If this is not the right form of words, let us try to find one. There is general feeling on these Benches that we ought to try to find something to put in the Bill to secure the future of the post office network. In the mean time, I am happy to withdraw Amendment 3.

Amendment 3 withdrawn.

Clause 3 : Royal Mail companies to be publicly owned

Amendment 4 not moved.

Clause 4 : Meaning of "Royal Mail company"

Amendment 5 not moved.

Clause 5 : Power to direct issue of certain securities

Amendment 6 not moved.

Clause 6 : Government investment in certain securities

Amendment 7 not moved.

Clause 7 : Transfer schemes

Amendments 8 to 12 not moved.

Clause 8 : Transfer of employees otherwise than under transfer scheme

Amendment 13 not moved.

Clause 9 : Taxation provisions relating to re-structuring

Amendment 14 not moved.

Amendment 15

Moved by Lord Hunt of Wirral

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

"Reporting provisions

Report on partnership deal: achievement of objectives

(1) Before issuing or disposing of any shares or rights in a Royal Mail company to a private partner, the Secretary of State shall lay before Parliament a report.

(2) A report under subsection (1) must give details of—

(a) the price offered by the private sector operator for a minority stake or partnership in a Royal Mail company;

(b) the ability of the private sector operator to finance the investment;

(c) the ability of the private sector operator to add value to Royal Mail as a whole by assisting in the transformation of Royal Mail's letters business and the modernisation of its network; and

(d) the capacity of the private sector operator to manage stakeholder issues successfully, including relations with trade unions."

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

My Lords, Amendment 15 seeks to impose another reporting requirement, this time on the partnership deal once it has been negotiated. It became clear in Committee that as regards the final shape of the deal, the Secretary of State is keen to keep as much flexibility as possible in the Bill. Although that is understandable, there is a clear need for the details to be made as transparent as possible and to be available as soon as possible, and for the appropriate people to be fully accountable for the way in which they have disposed of shares in a public asset.

The Secretary of State helpfully proposed in Committee that he would make a Statement to this House when the deal is concluded. We welcome that assurance. We hope, however, with this amendment to ensure that the debate such a Statement will undoubtedly trigger is as informed as possible. A Statement, while entirely appropriate for allowing this House the opportunity to question the Government on their actions, cannot contain the level of detail that we and the public need to know.

There is more to this deal than just the question of how much money was got for how many shares, although this will be one of the critical questions. For example, we have particular concerns over whether the private partner will be able to take the necessary decisions. The Secretary of State has been at great pains to reassure those sitting behind him that the Royal Mail will remain a publicly owned and controlled body. Unfortunately, he has done so much in that direction that we have concerns about whether the private partner will have any power at all to make politically unpopular decisions. Ambiguous words like "a meaningful say" and "shared responsibility" can mean very different things to different people.

As we will be making clear in a later debate today, we are also keen on the establishment of an employee share scheme. We would be extremely unhappy to find that the Government have negotiated away the possibility that one could be set up. I hope, therefore, that the Government will accept our amendment and will also take this opportunity to give this House any further information that the Minister can about what sort of deal the Government are working towards. I beg to move.

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

My Lords, this amendment looks to introduce requirements for Government to report to the House on the issue and disposal of shares or rights in the Royal Mail company and the ability of the private sector partner to meet certain selection criteria. As I said during debate in Committee, I recognise your Lordships' legitimate interest in any partnership deal and that you would wish to be assured, and rightly so, that Government are meeting the objectives they have set out for the transaction. I said that we would need to report to both Houses on the deal.

The transaction process is continuing and we remain committed to finding the right partner for this business and ensuring that any deal represents value for money for the taxpayer. I have already provided the House with details on our current intentions in relation to a partnership deal and committed to provide further updates throughout the passage of the Bill. I understand that noble Lords opposite remain keen, however, to have what further detail we can provide. The agreement with any partner will, as I have said, be subject to negotiation and will be covered by a legally binding agreement. I have already explained that this agreement will make clear what the buyer can do, for example on board appointments, and what it cannot do, for example by placing restrictions on sales of its shares.

Perhaps it might be helpful if I outline some of the other areas the agreements will cover. The shareholder agreement will set out those matters requiring shareholder consent. I previously mentioned the company's future business strategy but other areas are likely to include any acquisitions or disposals, future incentive schemes, future funding of the business, key executive appointments and dividend policy. The detail on the treatment of these issues will be subject to negotiation with any partner but, as I have already made clear, we expect the agreement to reflect that this is a partnership, giving the partner a real, genuine say in the running of the business—after all, otherwise what on earth would be the point. The agreement will ensure that there can be no perception of political interference in the operations of the company.

We have seen time and again, when management of the Royal Mail has sought to introduce modernising changes within the business, that the union has approached or politically invited the Government to intervene and operate in a way that, frankly, does not leave the management the proper freedom it needs in order to take the business forward. A partner would not accept that sort of practice, and neither would we.

The agreement would also cover transfer restrictions on the shares sold to a partner. For example, it will ensure that they are tied into the business for an appropriate period to meet our objectives for modernisation.

On the specifics of the amendment tabled by the noble Lord, Lord Hunt, given my commitments to be transparent about the deal, I wholeheartedly support the intention behind the amendment. However, I see two issues with this particular amendment. First, it would require the Secretary of State to report to Parliament before issuing or disposing of any shares or rights to a private partner. There are significant disadvantages to this approach, which could effectively act as a potential barrier to a deal being struck.

The noble Lord, Lord Blackwell, made an important point in Committee, which I believe is relevant here. He highlighted the differing role of Parliament versus the Executive. He said:

"There is a point at which the role of Parliament is to define objectives and give the Government permission to take a course of action ... in some of the things that we are asking to be brought back to Parliament, such as negotiation details and choice of partner ... we might be crossing the line by getting Parliament too involved in executive matters of judgment and discussions".—[Hansard, 31/3/09; col. 967.]

Therefore, while I have said that I agree that the Government should report to both Houses on any partnership deal, I believe that it is more appropriate that this should be after the Executive have done their job and a legally binding deal has been agreed with the partner. To erect a parliamentary barrier to any such agreement would operate as a powerful disincentive to any negotiating partner with which we are reaching an agreement, and I would not wish any reporting provision in the Bill to delay a deal being agreed and signed.

Secondly, the amendment sets out the criteria which we have outlined will be used to assess the current partnership proposal. But under this amendment, the obligation to report on these criteria would apply to any potential share sale. It would not necessarily follow that these same criteria would apply to any future sale of shares under the Bill. Therefore, while I support the intention behind this amendment, and indeed do not believe that the noble Lord and I are too far apart on the issue, I cannot support it as drafted. I am, though, happy to agree to consider a variation of the amendment and come back to the House at Third Reading. In the light of this I ask the noble Lord to withdraw his amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, before the Secretary of State sits down, he made a generalisation about political interference or lobbying. The suggestion was that people could go to the Government and get policies changed. Could we have one instance or example of where that has happened?

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

My Lords, the practice is so continuous that it would be invidious of me to select one example of what happens. I quite understand that when a workforce feels that it is being challenged or pushed to modernise or bring about change by the management, and feels that the management is being unreasonable or is not taking into consideration the workforce's or its union's views, the temptation is only too great and too obvious to go to the shareholder—the Government—and say, "Come on, give us a hand here, get the management to see things more our way or ask the management to delay this until they've consulted us". That is the sort of process that has inhibited change in the Royal Mail for too long and it really has to stop.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, perhaps my noble friend—I have slipped, haven't I?—perhaps the Secretary of State will answer the question and give one instance of the political pressure to which he refers. I have dealt for many years with Governments and Labour Party executives and I do not know of one instance where political pressure has been applied. If it is continuous and happening all the time, as the Secretary of State says, perhaps he will give us one, so we know what he is talking about.

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

My Lords, we have been given a lecture in the document that has been sent round as to what is supposed to happen on Report. Do the Government propose to stick to those rules, or not?

Photo of Lord Hoyle Lord Hoyle Labour

My Lords, before my noble friend sits down, may I ask him one question?

Photo of Lord Tunnicliffe Lord Tunnicliffe Government Whip, Government Whip

My Lords, I am afraid that my noble friend has sat down; we have to work to the rules of Report.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister (Business, Innovation and Skills) 5:30 pm, 11th May 2009

In that context, my Lords, may I thank the Secretary of State for his very persuasive response? I would like to consider it carefully and to respond positively to his suggestion that some improvement could well be made in seeking our joint objective. In those circumstances, I certainly beg leave to withdraw the amendment.

Amendment 15 withdrawn.

Schedule 2 : Taxation provisions relating to re-structuring etc

Amendment 16

Moved by Lord Tunnicliffe

16: Schedule 2, page 42, line 14, leave out paragraph 4 and insert—

"4 (1) This paragraph applies if—

(a) at any time, a company would otherwise be regarded (for the purposes of a provision listed in paragraph 1) as ceasing to be a member of a group, and

(b) immediately before and after that time, the company is a subsidiary of a Royal Mail company and is publicly owned.

(2) For the purposes of the provision—

(a) treat the company as continuing to be a member of the group, but

(b) if at any later time the company ceases to be publicly owned, treat the company as ceasing (at that time) to be a member of the group.

(3) References in this paragraph to a group have the same meaning as in the provision."

Photo of Lord Tunnicliffe Lord Tunnicliffe Government Whip, Government Whip

My Lords, Schedule 2 to the Bill contains tax provisions relating to a restructuring of the Royal Mail group of companies. This technical amendment changes paragraph 4 of that Schedule. It may be helpful if I explain the purpose of that paragraph before I turn to the detail of the amendment. The movement of assets between companies in the same group is generally tax-neutral under existing tax rules. However, anti-avoidance degrouping rules can cause a tax charge to arise when a company which received an asset is subsequently regarded as leaving the same tax group of companies.

As we have previously outlined, the introduction of a partner will require a reorganisation of the current group under Royal Mail Holdings. This restructuring and the subsequent sale of a minority stake in Royal Mail Group Ltd to a partner could result, for tax purposes, in Royal Mail Group Ltd or one of its subsidiaries being regarded as having left the tax group, hence triggering a tax charge. Paragraph 4 is intended to prevent a tax degrouping charge from arising in the case of a subsidiary of a Royal Mail company that is publicly owned. Royal Mail Group Ltd will remain publicly owned, unless primary legislation is introduced to change that. Subsidiaries of Royal Mail Group Ltd that are not themselves designated as Royal Mail companies could, in theory, cease to be publicly owned. We have no plans to do that but, should it occur, the subsidiary would be treated as leaving the tax group at that time.

Turning to the amendment, although the intention of paragraph 4 is relatively straightforward, the possible application is not. A range of possible scenarios could arise, depending on which subsidiaries are affected and the timing of asset transfers and degrouping events for tax purposes. We have now identified that although paragraph 4 as drafted delivers the appropriate tax treatment for the majority of those scenarios, it does not do so for all. Failure to address that could result in an unintended tax advantage for the subsidiary leaving the group and the buyer. We therefore seek to replace paragraph 4 with an amended version, ensuring that the appropriate tax treatment will apply in every case. I beg to move.

Amendment 16 agreed.

Amendment 17 not moved.

Clause 10 : Meaning of "owned in its entirety by the Crown" and "publicly owned"

Amendment 18

Moved by Lord Razzall

18: Clause 10, page 5, line 24, at end insert—

"( ) For the purposes of subsection (2) "publicly owned" includes any employee shared ownership trust whereby employees of each Royal Mail company own up to 25.5 per cent of such a company."

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

My Lords, as your Lordships will be aware, this is a critical amendment for the Liberal Democrat Benches and for our view of the Bill. We have long argued that one reform essential for Royal Mail Group Ltd is to introduce a significant element of employee ownership. We have talked about that as a John Lewis-type trust ownership, or co-operative organisation, and we are suggesting that at least 25.5 per cent of ownership of Royal Mail should be held by the employees. Since we started arguing this, three or four years ago, the decline in the success of the traditional capitalist structure demonstrates even more readily why this model of ownership would be good for the Royal Mail group.

The arguments that have been used against us, in no particular order, are, first, that the union does not want it—well, they wouldn't, would they? The second argument is that there is no evidence that the employees of Royal Mail Group Ltd want it, which is a dubious argument. The third is that were 25.5 per cent to be put into the shared ownership trust, leaving up to 49 per cent held by the private sector—TNT, or whichever partner is brought in—and only 25 per cent in the hands of the Treasury, then the organisation would no longer qualify as a public sector one. We do not accept that argument, because it would be easy to amend the legislation to ensure that that would not be the case. We have argued this long before the Bill came to your Lordships' House; we argued it in Committee, and I do not wish to argue it again at length. I beg to move.

Photo of Lord Hoyle Lord Hoyle Labour

My Lords, will the noble Lord explain one thing to me? He talked about the John Lewis trust. I understand that if you leave John Lewis, you are not able to have the shares; they have to remain behind. What concerns me about employee ownership is that when the bus companies went into being owned by employees, as soon as a good offer came from Stagecoach they were quite prepared to sell them. That rather defeated the objective of an employee-owned company or employee shares. I am interested in how the noble Lord would safeguard against that.

Photo of Lord Tunnicliffe Lord Tunnicliffe Government Whip, Government Whip

My Lords, if the noble Lord has just made a point then the noble Lord, Lord Razzall, can refer to it in his summing-up. It is not appropriate that he should be asked a question.

Photo of Lord Hoyle Lord Hoyle Labour

My Lords, I do not mind if the noble Lord, Lord Razzall, does it in his summing-up. All I am asking is that he gives an answer to the point I have raised.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, can the noble Lord who moved the amendment confirm that a savings scheme already exists where a bonus is banked for people who are part of it? It was part of the pay and modernisation agreement that I mentioned earlier. Perhaps the noble Lord, Lord Razzall, is not aware that that had the full co-operation of the unions involved—not just the CWU, but others.

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

My Lords, how pleased I am that the Secretary of State has tabled Amendment 22, which we are discussing with Amendment 18; it refers directly to an employee share scheme. I also thank the noble Lord, Lord Razzall, for speaking in support of Amendment 18. As both noble Lords will know, we raised the question of employee share ownership schemes in Committee. The amendment tabled by the Government gives us some reassurance, but does not go as far as we would like.

On these Benches, we feel that employee share schemes are one of the most effective ways of engaging employees in the development and success of their employer. By being encouraged to take a stake in the overall profitability of the company, employees are able to share the benefits of Royal Mail's transformation. However, on this matter I do not see quite eye to eye with the noble Lord, Lord Razzall, and his colleagues. Their preferred type of employee share scheme is not ours. I feel strongly that the incentives and benefits are best enjoyed when the scheme involves ordinary, fully transferable shares. Past examples of employees' enthusiasm, when offered the chance to take up a proper share in their employer, support our view.

The noble Lord, Lord Clarke of Hampstead, has just raised, as I understood it, the existence of Colleague Share. The existence of that need not present an insuperable obstacle. Given its popularity, I cannot imagine that members would pass up the chance to upgrade their phantom shares into real ones; that is what I mean.

Having said all that, the amendment does not go as far as we would like, although it is a welcome reassurance for Royal Mail employees to realise that the Government have not totally closed off all chances for them to buy into the future of their company. Sadly, it does not promise that the Government will actively support such a scheme. That is a pity, and I hope that the private partner will be much more enthusiastic about pursuing such a worthwhile route.

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

My Lords, as the Secretary of State said in Committee, the Government believe that Royal Mail's employees should be incentivised to deliver modernisation in the business and improved performance. As I said in Committee, Royal Mail's workers are the backbone of the company, so where those employees contribute to business success, they should rightly share in the benefits it delivers. There was broad agreement across the House on this point, suggesting that employees should receive a stake in Royal Mail as part of the partnership proposals that we are currently considering.

As the Secretary of State has explained, the Government believe that it is vital that the workforce has a serious stake in Royal Mail's success, and that is why we have the existing Colleague Share scheme. That runs from 2007 to 2012 and includes for each worker up to £1,600 in profit-related bonuses payable over the life of the plan—half of which has already been paid—plus up to £3,700 for the "capital" value of the shares payable in 2011 and 2012. This could give each employee up to £5,300 in total. The noble Lord, Lord Hunt, pointed out that this could be swapped from phantom shares into real shares but, because this would not be a listed company, the net effect of its transferability would be exactly the same, so we do not believe that it would make any significant difference.

We will not at any point entertain changes to the existing incentive arrangements that would be to the detriment of the workers. The company has commitments which it will have to keep. But we do wish to discuss the future of the existing incentive arrangements and any alternatives with any partner before reaching a view on what best incentivises performance and delivers value for money going forwards in the modernisation plan. This might be continuation with the current scheme, or the introduction of new arrangements that offer better returns to workers, company and shareholders alike, whether through an employee share scheme or otherwise. Whichever route is chosen, the goal has to be a strong workforce with a stake in the company's success.

The Government therefore believe that it is very important that this legislation allows for an employee share scheme to be introduced. There was some confusion in Committee about whether this was the case. The new clause introduced by Amendment 22 makes it clear that the establishment of an employee share scheme for Royal Mail employees is permissible under the provisions of the Bill. However, it also importantly ensures that any scheme must not breach the requirements in Part 1 of the Bill that the Crown must own, directly or indirectly, more than half of the company. Amendment 18 would make it possible under legislation for the Government to control less than half of the shares in Royal Mail. This is not something that can be dealt with by amending this legislation, as the noble Lord, Lord Razzall, suggested. The classification of the company, whether it is public or private, is determined independently and not by legislation. Amendment 18 would therefore stop the company from being publicly owned, which is not something that the Government are willing to countenance.

Given that the existing Colleague Share scheme is only part-way through and that our discussions with potential partners are ongoing, now is not the time to debate or commit to the precise nature of future incentive arrangements. That is why the Government's amendment is permissive without being prescriptive. I ask the noble Lord to withdraw his amendment.

Photo of Lord Razzall Lord Razzall Spokesperson for Business, Enterprise and Regulatory Reform 5:45 pm, 11th May 2009

My Lords, I thank the noble Baroness for her response. I will turn to the remarks made by the noble Lord, Lord Hoyle. Of course we understand that we do not wish to put in place a structure under which individuals can sell their shares to Stagecoach, for example. The model that we are trying to persuade noble Lords to adopt is what I would describe as the John Lewis model. I now realise that I thought that it was an issue of semantics between us, the Conservative Party and the Government. It is not; it is an issue of principle. We are not talking about an employee share scheme. An employee share scheme is where individual members of staff are given incentives to participate in the ownership of the business. We are actually talking about a very radically different approach, which is a John Lewis-type employee ownership trust.

I do not believe that it will make the slightest different to a TNT or a Deutsche Post or anyone else when they conduct their negotiations with the Government whether 25.5 per cent is owned by the employees and the rest by the Treasury, or whether 51 per cent is owned by the Treasury. We are not talking about an employee share scheme, where of course they will have an interest, as any minority shareholder coming into an organisation is concerned, as to what proportion of the profits of the business are being allocated to an employee share scheme. Of course they have an interest in that; but that is not what we are talking about. We are talking about the principle of a shared ownership trust. This is fundamental to the arguments that we on our Benches have made long before this Bill was introduced. I suspect that I do not have support from the other parties, but I feel that it is important on this issue of principle to test the opinion of the House.

Division on Amendment 18

Contents 59; Not-Contents 131.

Amendment 18 disagreed.

Division number 2 Postal Services Bill [HL] — Report (1st Day)

Aye: 57 Members of the House of Lords

No: 129 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 19 not moved.

Clause 11 : Indirect ownership of companies

Amendment 20 not moved.

Clause 12 : Ownership of a company

Amendment 21 not moved.

Amendment 22

Moved by Lord Mandelson

22: After Clause 12, insert the following new Clause—

"Employee share schemes

The requirement that a Royal Mail company be publicly owned does not prevent the establishment of an employee share scheme provided the Crown continues to own (directly or indirectly) more than half of the company."

Amendment 22 agreed.

Amendment 23

Moved by Lord Mandelson

23: After Clause 12, insert the following new Clause—

"Annual report on post office network

(1) A Post Office company must send to the Secretary of State each year a report on its network of post offices.

(2) The report must give details of—

(a) the number and location of the company's post offices, and

(b) their accessibility to users of postal and other services.

(3) The report must, in particular, provide information about the accessibility of the company's post offices to—

(a) individuals living in rural areas,

(b) individuals living in urban areas,

(c) small businesses,

(d) disadvantaged individuals, individuals with low incomes and individuals with disabilities, and

(e) individuals who are elderly.

(4) The report must contain such other information as the Secretary of State may from time to time require.

(5) The Secretary of State must lay a copy of the report before Parliament.

(6) References in this section to a company's post offices (or network of post offices) are to those post offices (whether or not owned or operated by the company) that the company is engaged in providing."

Amendment 24 (to Amendment 23) not moved.

Amendment 23 agreed.

Clause 14 : Interpretation of Part 1

Amendments 25 to 31 not moved.

Clause 15 : Introduction

Amendment 32

Moved by Lord McKenzie of Luton

32: Clause 15, page 8, line 1, leave out subsection (2) and insert—

"(2) For the purposes of the definition of "qualifying accrued rights"—

(a) references to pensions or other benefits (including future benefits) do not include money purchase benefits within the meaning given by section 181 of the Pension Schemes Act 1993 (c. 48) but, subject to that, do include benefits attributable to additional voluntary contributions, and

(b) references to a right include a pension credit right within the meaning given by section 124(1) of the Pensions Act 1995 (c. 26)."

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 5:56 pm, 11th May 2009

My Lords, the Government are proposing this amendment in response to an amendment tabled by my noble friend Lord Clarke of Hampstead during discussions of the Bill in Committee. It clarifies on the face of the Bill the proposed treatment of benefits built up within the Royal Mail pension plan through additional voluntary contributions or AVCs.

As I explained during that earlier debate, members of the scheme can at present make additional contributions in order to increase their provision for retirement. They can do this either through contributions for the purchase of "added years" of reckonable service, which are invested with the Royal Mail pension plan's main assets, or by investing in a range of pooled investment vehicles as part of a "money purchase" arrangement, separately from the main assets of the scheme.

The amendment reflects the Government's policy intention as I set out in responding to my noble friend's earlier amendment. Where AVCs have been paid prior to the qualifying time for the purchase of added years, it is right that the additional service already bought before the qualifying time should transfer to government with the other qualifying accrued rights. That is because the purchase of "added years" relates closely to the defined benefit provisions in the main scheme, and carries many of the same risks in terms of longevity and investment returns.

In contrast, the investments related to money purchase benefits do not have these same characteristics. The assets falling into this category—which totalled £84 million in respect of additional voluntary contributions as at March 2008—are held separately from the main assets of the scheme. The intention, reflected in the amendment, is that they should not be included within the scope of the qualifying accrued rights to be transferred to the new public service scheme, and should therefore remain with the Royal Mail pension plan, as is the case at present.

In addition to money purchase AVC-type arrangements within the RMPP, there is a small number of other categories of money purchase benefit that may apply to a limited number of members. These include transfers in from other schemes, where these include benefits provided on a money purchase basis, and special employer contributions for certain members of the scheme. In these cases, the Government consider that such money purchase benefits should be treated consistently, according to the principles I have set out in relation to AVCs. This is why the amendment refers to money purchase benefits in general.

For members entitled to money purchase benefits, this amendment means that the responsibility for paying those benefits will continue to rest with the administrators of the Royal Mail Pension Plan, as at present. Given that the Government are already planning for the close co-ordination of the administration of the new public service scheme with that of the Royal Mail Pension Plan, we are satisfied that the effect of the change should be as seamless as possible for members. I stress that members' total benefits, comprising both payments in relation to their core defined benefit entitlements, and money purchase benefits, will not be adversely affected by this amendment, and will continue to be covered by the protection set out in Clause 19.

I hope that this explanation is helpful in setting out the purpose of the amendment. I would like to thank my noble friend Lord Clarke for raising the issue originally. I beg to move.

Amendment 32 agreed.

Amendment 33

Moved by Lord Clarke of Hampstead

33: Clause 15, page 8, line 11, at end insert—

"(4) For the purposes of sections 16 and 17(2), references to the RMPP include references to any occupational pension scheme sponsored by the original holding company to provide relevant pension benefits for senior executives, and the terms "qualifying member of the RMPP" and "qualifying accrued rights" shall be construed accordingly.

(5) For the purposes of subsection (4) "relevant pension benefits" are benefits payable to or in respect of people on their retirement, on having reached a particular age or on termination of service in employment, other than money purchase benefits within the meaning of section 181 of the Pension Schemes Act 1993 (c. 48) (general interpretation)."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 6:00 pm, 11th May 2009

My Lords, if I had been quicker into the Chamber for the last one I would have got up and welcomed the Government's help in changing what was there in the beginning. Amendment 33 deals with senior executive staff. Royal Mail sponsors three occupational pension schemes other than the RMPP. First, there is the Royal Mail Retirement Savings Plan, which is the full name of the defined contributions scheme that was created when RMPP was closed to new employees in April 2008. As a defined contribution scheme, it can never have a deficit. We may have strong views about the decision to close RMPP and to set up a defined contributions scheme for new employees, but there is no need for it to become involved in any restructuring of the Royal Mail.

Secondly, there is the Royal Mail Senior Executive Pension Plan. This is a defined benefits scheme. The regulatory impact assessment said that there are no plans to change it, but no explanation is given. My noble friend, Lord McKenzie, said the same thing on 20 April, col. 1281 of Hansard, but did not explain why. The valuation of the senior executive scheme, as at 31 March 2006, showed that it had a deficit of £43 million. It costs £5 million each year to pay off the deficit. The cost of providing the scale of benefits in the senior executive scheme for future service, ignoring any question of the deficit, is 48.2 per cent of pensionable pay.

I ask the Minister, why is it being treated differently from the RMPP? Its deficit is also a millstone around the neck of Royal Mail, and it ought to be dealt with in the same way. My amendment would mean that if a new public sector scheme is created under Clause 16, the qualifying accrued rights of the senior executive scheme will be transferred to it, just like the RMPP. If there is to be no new public sector scheme, and instead the qualifying accrued rights of the RMPP are transferred to a new government-sponsored section of the RMPP under Clause 17, the past service deficit of the senior executive scheme will be transferred into the new government section, just like the deficit in the RMPP.

Administrative savings could be made if the schemes were amalgamated so that the assets and liabilities of the senior executive scheme were transferred into the RMPP. There would be one fewer firm of actuaries, one fewer firm of solicitors and accountants, all of which cost money, and it would be much more sensible to be under one scheme. More importantly, it would also be seen as fairer to the ordinary members of the RMPP if the senior executives were earning their pensions on the same scale as the ordinary members. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, in response to the points raised by my noble friend Lord Clarke, the Government cannot accept the amendment proposed by him. I hope that my comments will set out clearly the reasons for this. I understand that, in part, my noble friend is probing the position. I revisit the rationale for the measures set out in Part 2. They provide the Government with powers that, subject to conclusion of a partnership agreement for Royal Mail and to state-aid clearance from the European Commission, we intend to use to take responsibility for the historic pension liabilities within the Royal Mail Pension Plan that relate to benefits accrued by members of the plan prior to 16 December 2008.

The Government's view is that such action, taken as part of a package of measures including partnership and a new regulatory regime, is essential in ensuring that Royal Mail can modernise its operations and respond successfully to the challenges of a rapidly changing market. It must also be balanced against the interests of taxpayers, for whom the implications are significant, and of members of the scheme who may be affected.

In relation to the Royal Mail Senior Executive Pension Plan, the Government are clear that there is no convincing value-for-money case for equivalent action to that proposed for the RMPP. As Richard Hooper's report set out, it is the size of the RMPP's liabilities relative to the size of Royal Mail's business that is at the core of the issue in relation to pensions faced by the company and the postal market more generally. Given that the total liabilities of the Senior Executive Pension Plan are around 1 per cent of the liabilities of the RMPP, the same arguments cannot be applied to the Senior Executive Plan.

Accordingly, in policy and value-for-money terms, the Government's view is that there is no equivalent argument for intervention in relation to the Senior Executive Pension Plan. This fact is based not on the relative pay, status, or role of members of the plan. It is based on the relative size of the plan compared to the RMPP, and the risks this presents to the Government's proposals in relation to the modernisation of Royal Mail through a strategic partnership.

In relation to the interests of members, it has been suggested that members of the Royal Mail Senior Executive Pension Plan will somehow be worse off as a result of the proposals set out in the Bill. I do not accept that proposition. There is nothing in the Government's proposals that will adversely affect members of the plan. For both the RMPP and the Senior Executive Pension Plan, the Government are not proposing any changes, whether enhancements or reductions, to the individual pension entitlements of members of either scheme, for either past or future service.

The Senior Executive Pension Plan has, since April 2008, been closed to new members, with future benefits being accrued on the basis of career average-related earnings, rather than final salary. These changes are in line with those made to the RMPP. Importantly, this will reduce the future cost to Royal Mail as the sponsoring employer. Further, Royal Mail will, by virtue of the Government's proposals on pensions and in relation to the measures set out in the other parts of the Bill, be in a much better position to meet its obligations to both schemes. In the unlikely event of Royal Mail's insolvency, members of the Senior Executive Pension Plan would be entitled to protection from the Pension Protection Fund, as is the case now.

Both of these facts are relevant in reassuring members about the Government's broader proposals. I hope, on that basis, that my noble friend will feel able to withdraw his amendment. The amendment, should it be accepted, and we are not able to do so, does not say anything about assets transferring, only liabilities. Of course, if the Clause 17 route were adopted, it would not provide for the sectionalisation of the scheme to take account of the Clause 17 provisions. I hope that also for those added reasons, my noble friend will not press his amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, my noble friend has made a good fist of trying to justify something that is pretty hard to justify in the eyes of those in the pension plans. I noted again this argument about the Government's view that Royal Mail can modernise its operations. What on earth has that got to do with fairness within a pension scheme? We still have not had any real details of the modernisation but that is another subject. When discussions between not just the union of the pension scheme members but the trustees take place on the structure of their pension scheme, it is difficult to argue that they can have two schemes: one that appears to favour senior management and one that is good enough for the rank and file workers.

I understand what my noble friend has said. Obviously, I will take that away. I do not know whether there will be an opportunity in the future but, on the basis of fairness, the Government should be looking at a scheme that treats all of the employees, from the chairman of the board down to the newest member of the pension scheme, the same. On that basis, I beg leave to withdraw the amendment.

Amendment 33 withdrawn.

Clause 16 : Transfer of qualifying accrued rights to new public scheme

Amendment 34

Moved by Lord Clarke of Hampstead

34: Clause 16, page 8 line 17, at end insert—

"( ) The new public scheme shall be a public service pension scheme within the meaning of section 1 of the Pension Schemes Act 1993 (c. 48) (categories of pension schemes), notwithstanding that it is not established by a person employing qualifying members."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, the new public scheme, dealt with in Amendments 34 and 35, should be a public service pension scheme within the meaning of Section 1 of the Pension Schemes Act 1993, notwithstanding the fact that it was not established by a person employing qualifying members.

Amendments 34 and 35 are about strengthening the protection for members in the new public scheme. In previous debates, my noble friend Lord McKenzie has said that there is no reason in principle why the new scheme cannot operate on a pay-as-you-go basis, just like some of the major public sector schemes such as those of the Civil Service and the National Health Service. The Minister said:

"The interests of members are reflected through statutory protection for benefits, and through other stakeholder consultation arrangements as part of the broader governance of the scheme".

He also said that the governance of the new scheme would follow the model used in other public schemes. He stated:

"Given the nature of the liabilities that will be transferred to the new scheme, and the protection for members provided through the Bill and in the related secondary legislation, the Government regard the established model for governance of public service schemes as the most appropriate model to be applied". —[Hansard, 20/4/09; col. 1284.]

However, members of the other public sector schemes, such as the Civil Service and NHS schemes, have some of the rights and protections of members of private sector trust-based schemes. For instance, they have the automatic right to the disclosure of information. That is because they fall within the statutory definition of a "public service pension scheme". Some generally applicable legislation applies to public service pension schemes, such as the disclosure of information regulations, and some does not, such as Section 67 of the Pensions Act 1995, which was much discussed in Committee and will not apply to the new scheme any more than it applies to, for instance, the Civil Service or NHS schemes.

The new statutory scheme is neither fish nor fowl. It will clearly not be a trust-based scheme but it does not fall within the definition of a public service pension scheme like the NHS or Civil Service schemes because it has not been set up by an employer. The purpose of Amendment 34 is to bring the new scheme within the statutory definition in Section 1 of the Pension Schemes Act 1993. That would mean that, just as my noble friend Lord McKenzie indicated, it would be subject to the same protections and rights as other public schemes.

Secondly, although my noble friend Lord McKenzie said that the new scheme would follow the established model for the governance of public service schemes, there is, in fact, no such single model. Each scheme has a slightly different arrangement. For local government and NHS schemes, for instance, there is a statutory obligation to consult trade unions and employers before any amendments are made, but the power to amend is in the hands of the relevant Secretary of State. That protection is contained within primary legislation: the Superannuation Act 1972. For the Armed Forces pension scheme, by contrast, there is no statutory obligation to consult in the primary legislation although, in practice, there is a consultative committee.

We said on numerous occasions in Committee that we want to see a protection of the accrued rights transferred to the new scheme. I am danger of trespassing upon the next amendment so, for the moment, I simply beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 6:15 pm, 11th May 2009

My Lords, in responding to the points raised in my noble friend's speech, I will begin by addressing some key definitions. My noble friend and I are not far apart in what he seeks to achieve through the amendment, but the Government believe that it is unnecessary.

In the relevant legislation, "public service pension schemes" fall within the broader category of "occupational pension schemes". As a group, they benefit from certain exemptions from requirements in pensions legislation—my noble friend referred to this—that apply to occupational pension schemes in general, where those requirements relate to trust-based schemes operating on a funded basis. The relevant schemes are not, in general, designated as public service pension schemes in the legislation under which they are established. Rather, they qualify as public service pension schemes by virtue of the fact that they meet the requirements set out in the Pension Schemes Act 1993. The new scheme that the Government propose to establish under Clause 16 will share many of the features common to other public service pension schemes—indeed it, too, will satisfy the key requirements of the definition of public service schemes as set out in the 1993 Act. That is the sense in which I previously described it as a "public service pension scheme". Having established these key definitional points, I will explain why the Government consider that the amendment would not in practice deliver any beneficial effect over and above the Government's existing proposals.

Clause 16(4) has the effect that the scheme will be capable of being treated as an occupational pension scheme for the purposes of the relevant legislation. These purposes will be set out in secondary legislation, following consultation with the RMPP trustees. As I have just mentioned, it is this treatment as an occupational pension scheme that is the key in terms of the application to the scheme of wider requirements set out in pensions legislation. Designation as a public service pension scheme, as in the amendment, does not have the same effect. In the application of the exemptions I have described earlier, the effect of Clause 16(4) is that, once the new scheme is treated as an occupational pension scheme, it will benefit from the relevant exemptions that apply to similar public service pension schemes. The route to what my noble friend wishes to achieve is therefore through the operation of Clause 16(4). The amendment does not add substantively to the existing provisions in the Bill.

I should add that, in accordance with the requirements set out under Clause 24, the Government will consult with the trustees of the RMPP on the details of the order made establishing the new public service scheme, which is expected to specify which of the requirements that would normally apply to an occupational pension scheme should apply to the new scheme. The mechanism proposed by the Government explicitly allows for this consultation with the trustees, rather than imposing the specific requirements in the primary legislation.

I hope that there is a broad degree of consensus among Members of this House on the outcomes we seek. I hope that my noble friend is satisfied that I have been able to demonstrate why the Government's approach already achieves that goal, perhaps in a way that is better suited to the circumstances of the scheme, and accordingly that he will feel able to withdraw the amendment.

It may help if I say to my noble friend in relation to the general requirements under pensions legislation that apply to the new scheme as an occupational scheme, which of those we believe should apply. Obviously, this would have to flow from discussions with the trustees, but it is likely, for example, that it will include the provisions that apply to other public service pension schemes relating to matters such as disclosure of information to scheme members, dispute resolution and assignment of pensions. I hope that has given my noble friend a flavour of what is intended.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, more than a flavour. The record of this short debate should make clear what Clause 16(4) actually means in terms of,

"treating a new public scheme as an occupational pension scheme", and all that goes with an occupational pension scheme—that is, the right of consultation. If I was a difficult person, I would be arguing that it needed a trustee's agreement, rather than just being consulted, but I think enough has been said. There is very little between us. I shall look at what has been said. I am sure that the trustees of both the existing scheme and the new scheme will be heartened to know that the occupational pension scheme general terms of consultation will apply. I beg leave to withdraw the amendment.

Amendment 34 withdrawn.

Amendment 35

Moved by Lord Clarke of Hampstead

35: Clause 16, page 8, line 40, at end insert—

"(8) Before making any order under this section the Secretary of State shall consult with persons appearing to the Secretary of State to represent persons likely to be affected by the proposed order.

(9) No order under this section shall make any provision which would have effect of reducing the amount of any pension, allowance or gratuity, in so far as that amount is directly or indirectly referable to rights which have accrued (whether by virtue of service rendered, contributions paid or any other thing done) before the coming into operation of the order, unless the persons consulted in accordance with subsection (8) have agreed to the inclusion of that provision."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

The wording of this amendment is taken from Sections 1 and 2 of the Superannuation Act 1972. These relate to Civil Service pensions—I used to be a member of that scheme, many years ago, when we had a real Post Office. There is a statutory obligation to consult the Council of Civil Service Unions in the case of Civil Service schemes and an obligation to obtain their consent before any adverse change is made to rights that are calculated on the basis of past service.

Given that the new scheme will hold only past service rights, the protection that members have from adverse changes ought to be protection requiring the active consent of their representatives, as in the Civil Service, rather than an obligation to consult. That is why we have suggested the Civil Service model. There should be an obligation to consult the trades unions before any amendments are made. That is the starting point in all private sector schemes, as well as in the public sector. The obligation is contained in primary legislation for other schemes and ought to be contained in this Bill.

In Committee, I mentioned several times the role of trustees and the tripartite arrangements between the employer, the unions and the trustees. They have survived the test of time and some of the agreements have lasted for so many years because of this consultation and agreement procedure. This amendment should attract the support of the Government. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, in responding to this amendment, I should like once again to address some of the concerns that have been raised in relation to consultation with members and protection for members' accrued rights. I recognise that these are very important issues.

In terms of protection for members' accrued rights within the new public service scheme, noble Lords may recall the discussion in Committee of the relevant provisions in Clause 19(6). These provide that the new scheme can be amended only in a way that would or might adversely affect accrued rights if prescribed steps are taken to obtain the consent of members or, alternatively, if the scheme is amended "in the prescribed way".

It is correct to say that the detail of Clause 19(6) does differ from some other public service pension schemes. However, I mentioned previously Section 3(1) of the Armed Forces (Pensions and Compensation) Act 2004 which adopted a similar approach to that proposed in this Bill. Given the requirement in Clause 19(6) for member consent in certain circumstances, it seems to me that the benefit of the amendment proposed is quite difficult to discern. Indeed, in effectively over-ruling the ability under Clause 19(6)(b) to make prescribed amendments without consent, subsection (9) of the amendment could adversely affect the ability to make changes in future that other trustees and employers can make in relation to other occupational pension schemes, such as the RMPP.

In the past, these changes have included expanding the class of person who may receive death benefits to include same-sex partners and changes to ensure compliance with tax legislation. We cannot rule out the possibility that there could be an unforeseen need for comparable amendments to the new scheme in future.

Moreover, there is a general point of principle that underpins the Government's intended approach. The measures set out in Clause 19(6) are intended to operate in a similar way to the protection that members of the RMPP currently have under Section 67 of the Pensions Act 1995. Consistent with the Government's overall approach to the establishment of the new scheme, the Government believe that for this Bill it is appropriate for these provisions to reflect as closely as possible the protection for members that currently applies under the RMPP, rather than introduce a slightly different model as would be the case if this amendment were adopted.

In relation to the proposed new subsection (8), I recognise the strength of feeling on the issue of consultation and communication with members that was expressed in this House during our earlier debates. I previously set out the importance that the Government attach to consultation in relation to the key order-making powers under Part 2 of the Bill, including orders made establishing a new scheme under Clause 16. This is reflected in the specific requirement to consult the RMPP trustees set out under Clause 24 and, more broadly, in our practical programme of engagement with trustees, with Royal Mail and with representatives of both current employees and RMPP pensioners that is already well-established. That engagement is now focused on planning the programme of work that will be required to implement the measures set out in Part 2 of the Bill and on ensuring that members of the RMPP are kept informed of key developments as appropriate and that any concerns or questions raised can be addressed.

Turning to subsection (8) of the proposed amendment, I would point out that the trustee body currently includes five member-nominated representatives, including one pensioner nominated trustee. To introduce a separate requirement for formal consultation with representatives of affected members would, in terms of the provisions set out in the Bill, duplicate the role of the trustees in discussing proposals for establishing the new scheme, while adding little in a practical sense to the process of engagement that is already underway.

In relation to consultation on changes to the new public service scheme going forward, I should also explain that once established, unlike many other public service schemes, the new scheme will contain only past accrued rights and that those rights already have a strong degree of legal protection. This means that the scope of any changes will in future be limited, not least because questions regarding future benefit accruals will not arise. Nevertheless, I can confirm that the Government intend to explore appropriate consultative arrangements, analogous to those that already exist in other public service schemes, to provide a forum in which issues in relation to ongoing administration of the new scheme that are raised by members and their representatives can be resolved, and to ensure that communications with members concerning changes are effectively communicated. The scope of these consultative arrangements has yet to be determined but experience with other schemes suggests that they are flexible and effective in addressing a wide range of issues that may be of concern.

I do hope that on the basis of these assurances, which are as strong as I can possibly give, and on the evidence of the consultative activity that is already underway, some of that emanating from the points that my noble friend has raised, he will feel able to withdraw the amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, perhaps noble Lords can think back to just over an hour ago when there was an accusation of interference at government level. I want them to bear that in mind when we talk about any amendments to the pension scheme. As the Bill is drafted, the Secretary of State has supreme powers with regard to amending benefits and issues relating to the pension scheme. I hope that the House will understand—

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 6:30 pm, 11th May 2009

My Lords, perhaps my noble friend will permit me to intervene—I am conscious that we are on Report and that we need to be mindful of the procedure. The Secretary of State does not have supreme power in relation to the benefits. Order-making powers have to follow consultation with the trustees in relation to splitting the scheme. We will be coming on to a later amendment that deals with this matter. There are provisions regarding the Secretary of State if a section of the RMPP is used for the new public service scheme; otherwise, he does not have any role in the ongoing running of the RMPP. That would be a matter for the company and the trustees. In relation to the new scheme, the Secretary of State's powers are significantly constrained by the protections in Clause 19(6), and I press my noble friend to bear in mind that very important point. I know that he and his colleagues are concerned about this but I believe that there are substantial protections in this legislation.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I am grateful to my noble friend for that further elucidation. However, I hark back to the fact that the history of the current Post Office pension schemes can be found in the Principal Civil Service Pension Scheme. The cardinal points of that scheme were the consultation and the rights of co-determination. I had a quick look at the Bill and, although I hate to disagree with my noble friend, there are references in it to the Secretary of State being able to make decisions. One is in Clause 23, headed "Information".

I shall not make a meal of this because I think that my noble friend Lord McKenzie has again done enough in putting on the record the fact that there is a requirement for people to sit down and discuss these matters. There may not always be deficits; the schemes may go back into surplus, and that sort of thing must be borne in mind, taking into account these requirements and the aspirations of the people in the scheme. However, once again, I am very pleased with what we have on the record, and I thank the Minister for his reply. I beg leave to withdraw the amendment.

Amendment 35 withdrawn.

Clause 17 : Division of the RMPP into different sections

Amendment 36

Moved by Lord McKenzie of Luton

36: Clause 17, page 9, line 4, at end insert—

"(1A) If no order has been made under section 16 establishing a new public scheme, an order under this section may create a section of the RMPP in respect of qualifying accrued rights (a "qualifying section of the RMPP")."

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, I shall speak also to the other government amendments in this group.

The Government are proposing these amendments in response to questions raised in Committee regarding the scope of the powers provided at Clause 17. In explaining the purpose and effect of Amendment 36, perhaps I may start by recapping the Government's policy intention behind the powers in this clause.

Clause 17, particularly subsection (1), allows the Secretary of State, by order, to divide the existing Royal Mail pension plan into different sections. It allows for different participating employers to be in the different sections, and for assets and liabilities in the RMPP to be divided between the different sections. This power is required because the Government intend that the strategic partnership will not include Post Office Ltd, which will remain 100 per cent in public ownership. As a result of the associated restructuring of Royal Mail Group, the Royal Mail pension plan will need to be divided so that there is a section for Post Office employees and another for Royal Mail Group employees. These sections will contain rights built up after the cut-off date for the transfer of liabilities to the Government. Post Office Ltd and Royal Mail Group will each be responsible for its own section.

In addition, however, Clause 17 provides the Government with a power to create further sections separate from the sections containing the ongoing pension liabilities of Post Office Ltd and Royal Mail Group. This power could, in the context of a partnership agreement for Royal Mail, be used to create a section that contained qualifying accrued rights, defined in Clause 15. A section created for this purpose would operate on a similar basis to the public service scheme created under Clause 16 and would not hold any assets. Benefits would be funded directly by the Government as they fell due, as provided for in subsection (2).

As explained in Committee, the existence of this power is purely a contingency measure should, for whatever reason, the Government's preferred option—that is, the transfer of the qualifying accrued rights to a new public service scheme under Clause 16—prove impossible. Creating a new section for qualifying accrued rights would be quicker than creating a separate scheme under Clause 16, and there might be circumstances where this additional flexibility was advantageous. In the debate in Committee, I sought to explain that the powers in subsections (2) to (5) of Clause 17 were intended to relate only to the establishment of the new subsection for qualifying accrued rights.

The amendment that the Government now propose concerns the use of the powers contained in Clause 17 in the scenario that I have just described. The proposed new Section (1A) makes it clear that the creation of a section to contain the qualifying accrued rights—a,

"qualifying section of the RMPP"— is limited to circumstances in which there has been no prior order to create a new scheme under Clause 16.

The amendment also addresses the concern expressed in our earlier debate that, putting aside the Government's policy intention, the detailed provisions in Clause 17 could in principle provide the Secretary of State with powers to intervene in matters that were legitimately the concern of the trustees, including the new sections of the Royal Mail pension plan relating to Post Office Ltd and Royal Mail Group employees. By making it clear that the relevant powers can be exercised only,

"in respect of a qualifying section of the RMPP", the amendment specifically excludes that possibility.

I hope that that explanation is helpful in setting out the purpose of the amendment, and I commend it to the House. I beg to move.

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

My Lords, I thank the Minister for tabling these amendments in response to our concerns about what we considered to be the unclear drafting of this clause. I agree that the changes make it much clearer that the Secretary of State's powers to interfere in the ongoing RMPP will be used only as a plan B if the Government's preferred scheme fails, and I welcome that clarification.

Amendment 36 agreed.

Amendments 37 to 42

Moved by Lord McKenzie of Luton

37: Clause 17, page 9, line 5, after "provision" insert "in respect of a qualifying section of the RMPP"

38: Clause 17, page 9, line 10, after "provision" insert "in respect of a qualifying section of the RMPP"

39: Clause 17, page 9, line 18, leave out "which may be exercised" and insert "in so far as it is exercisable"

40: Clause 17, page 9, line 21, at end insert "in so far as it is exercisable in relation to qualifying accrued rights"

41: Clause 17, page 9, line 23, after "that" insert ", in any case where there is a qualifying section of the RMPP,"

42: Clause 17, page 9, line 26, after "order" insert "in respect of a qualifying section of the RMPP"

Amendments 37 to 42 agreed.

Amendment 43

Moved by Lord Clarke of Hampstead

43: Clause 17, leave out Clause 17

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I shall just check the groupings list as there has been a change. I believe that Amendments 44 to 46 and 48 are also in this group. They all deal with the possibility of using the RMPP as a vehicle for guaranteeing the qualifying accrued rights, which the Secretary of State has said will be guaranteed by the state. They revolve around Clause 17, which will allow the Secretary of State to sectionalise the RMPP, to create a section that will provide for qualifying accrued rights, to amend the RMPP to fit the arrangements that he wants to make after consulting the RMPP trustees but without getting their consent, and to veto any amendment or exercise of discretion in the RMPP.

The Secretary of State has made it plain that the Clause 17 mechanism, if it can be called that, is very much a back-up to be used only if a new public scheme is not set up using the alternative Clause 16 mechanism. However, nowhere is there an explanation of why a back-up power is needed at all. The regulatory impact assessment makes a compelling case for operating the scheme, whatever form it is to take, on an unfunded basis. First and foremost, the reason given is the volatility inherent in a funded model, and the point is made in paragraph 20 of the regulatory impact assessment that a 1 per cent fall in investment returns could double the scale of the deficit.

Models suggested as alternatives in the regulatory impact assessment are as follows. Model A is:

"One off payment from Government to the scheme to make good any deficit; but no further changes to the distribution of assets and liabilities in the scheme".

In model B:

"Relevant liabilities and assets are transferred to a separate scheme (or a separate section of the existing scheme), with Government issuing a guarantee in respect of those liabilities, and assuming the role of the sponsoring employer—including making payments to the scheme to make good any deficit.

In model C:

"Relevant liabilities are transferred to Government and met through the establishment of a new, pay-as-you-go public sector scheme. Assets transferred to government are in due course sold over a number of years"

That comes from the pensions appendix to paragraph 20 of the RIS.

We are dealing with models B and C; model A has been discounted. Model C supposes an unfunded pay-as-you-go scheme outside the RMPP—that is the Clause 16 mechanism. Model B supposes a funded new scheme or section of the RMPP. There is no model D—an unfunded section of the RMPP. However, that is just what Clause 17 is.

The regulatory impact assessment continues with an interesting explanation of "moral hazard", which it defines as the risk that occurs where perverse incentives exist so that one party is incentivised to act in a way which other parties would consider to be inappropriate. It explores the moral hazard that would exist if a trustee of the RMPP were to invest in assets supplied by the Secretary of State. Here we have a different sort of moral hazard—the risk that the trustee would be forced to act in a certain manner because the Secretary of State was sponsoring an unfunded section. The point is that the RMPP and the RMPP trustee should be allowed to go forward without any interference from the Secretary of State.

Clearly, some amendments to the RMPP will be needed if liabilities are transferred to a new public scheme. Members' entitlements to their saved benefits should be removed from the RMPP if they are being assumed by the new public scheme; otherwise, members of the scheme would have a double entitlement. However, that should be the extent of any amendment that the Secretary of State has any interest in.

If the Royal Mail is broken up into a number of different companies—which we sincerely hope will not happen—a sectionalised scheme would possibly be necessary. However, the power to amend the RMPP is already in the rules of the RMPP. It can be exercised by the trustee and the Royal Mail. There is no need for the Secretary of State to be able to force his way through after "consulting" the trustee under Clause 24, but failing to obtain their consent.

Amendment 43 says simply that the Clause 17 mechanism should not exist. It is not referred to in the regulatory impact assessment, and the need for a back-up mechanism has not been explained at any stage. Unless and until it is, Clause 17 should simply be removed from the Bill.

Amendment 44 deals with the power to amend the RMPP. As I have said, we accept that an amendment power is necessary to remove entitlements from the RMPP that are being transferred to the new public scheme; otherwise there would be double entitlements. However, if Clause 18 is going to enable the cancelling of entitlements under the RMPP, the trustee has a moral—if not legal—obligation to ensure that what is being removed goes no further than what is required. Trustees will also have views about how the scheme should go forward. They will have to manage it in a way that is administratively workable after the qualifying accrued rights have been removed. The amendment would insert a requirement for trustee consent.

Amendment 46 is consequential: it deletes the reference to Clause 17. Amendment 51 is also consequential. Reference to a new public sector scheme is unnecessary. If the representatives of members have to be consulted and agree to any adverse changes, then if any amendment is made to the RMPP that adversely affects rights under the RMPP, the trustees of the scheme will have to obey the law and obtain individual consents. The RMPP is subject to Section 67 of the Pensions Act 1995, even if the new public scheme, like every other public service scheme, is not.

Subsection (6) is still required, however, in case, by a side wind, an amendment to the RMPP has a detrimental effect on qualifying accrued rights that are to be provided under the new public scheme and the RMPP. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 6:45 pm, 11th May 2009

My Lords, I start by expressing some difficulty: I thought that we were going to have a revised grouping. However, I will attempt to respond. I think that we are dealing with Amendments 43, 44, 45, 46 and 48.

As we have just discussed, Clause 17 has two main functions. One is to allow the Secretary of State, by order, to sectionalise the RMPP so that it has different sections for Royal Mail Group and Post Office employees. This would ensure that pension assets and liabilities relating to Post Office Ltd are completely separate from those relating to Royal Mail Group.

The second function of Clause 17 is to provide for the possibility of a government-sponsored section containing qualifying accrued rights. This, as I have mentioned, is purely a contingency measure should it not be possible to set up and transfer qualifying accrued rights into a new public service scheme.

The amendments that the Government tabled earlier on Clause 17 aim to clarify that we have no intention of playing an ongoing role in the RMPP, except in respect of the fall-back case of a government-sponsored section containing qualifying accrued rights. Future matters relating purely to Royal Mail Group and Post Office Ltd sections are a matter solely for the trustees and the company.

Amendment 43 would remove Clause 17. If this is in response to concerns that the intended use of powers in Clause 17 was unclear, I hope that my noble friend has found the earlier government amendments helpful in clarifying our intentions. If Clause 17 were removed altogether, the Government would have no power to sponsor a section containing qualifying accrued rights. They would not be able to make payments to the trustees to pay benefits as they fall due. Nor could they make payments to cover any discretionary payments. Although the option of a government-sponsored section containing qualifying accrued rights is only a contingency measure, it is a necessary precaution should it not be possible to transfer qualifying accrued rights into a new public service scheme. Thus we are unable to accept Amendment 43—or Amendment 48, which appears to be consequential.

The removal of Clause 17 does not necessarily exclude the possibility of sectionalising the RMPP into different Royal Mail Group and Post Office Ltd sections. This might still be achieved through the power to make amendments to the RMPP under Clause 18; but crucially, Amendment 44 would require the agreement of the trustees.

Amendment 44 goes wider than just requiring the trustees' formal agreement to sectionalisation. It would require trustee agreement to any amendments to the RMPP in connection with Clauses 16 or 17. This is not necessary for two reasons. First, scheme members are already protected by the protections set out in Clause 19. These protections are an integral part of the Government's proposals, and there is no possibility of an order being made under Clause 18 that would have a material adverse effect on relevant pensions provisions contained in the RMPP.

Secondly, Clause 24 already requires the Government to consult the trustees; the Government are working closely with them to ensure that the pension changes are effected as smoothly as possible. It is therefore unclear what extra protection Amendment 44 would provide. Nor do the Government think it appropriate to place a responsibility on the trustees of the RMPP to make a decision in relation to an order proposed by the Secretary of State. As I set out in Committee, we consider that the ultimate decision on the detail of an order laid by the Government must rest with the appropriate Secretary of State.

Finally, Amendments 45 and 46 would broaden the scope of the Secretary of State's power to amend the RMPP, which currently can be exercised only in connection with an order made under Clauses 16 or 17. We do not think that this is necessary or desirable.

The Bill has strong protections for members, and requirements to consult the trustees. Given the issues that I have mentioned, I ask my noble friend to withdraw his amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, as I said, I will withdraw it. The grouping of these amendments has not only confused the Minister but confused me, as I have had to scrabble through my notes. I am sure that the record of this exchange will show exactly what my noble friend has said—it is always accurate—and I can see that there is some merit in Clause 17. I would still like to push the House to go for the word "agreement", but I am if nothing else a realist and know it is unlikely that I will get much support at this time of night for something which is clearly arguable. Under the circumstances, I beg leave to withdraw the amendment.

Amendment 43 withdrawn.

Clause 18 : Amendments of the RMPP

Amendments 44 to 46 not moved.

Amendment 47

Moved by Lord Clarke of Hampstead

47: Clause 18, page 9, line 38, at end insert—

"(4) No order may be made under this section unless the qualifying accrued rights and the rights to future benefits under the RMPP of every qualifying member of the RMPP are the same after the making of the order as they were before it was made.

(5) For the purposes of subsection (4), the rights of a qualifying member of the RMPP include the rights of that member that are contingent upon the retirement of the member in the event of his retirement on the grounds of redundancy or ill-health."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, Amendment 47 deals with the protection of members' rights under the RMPP. As we have said before in these debates, the power to amend the RMPP needs to go no further than dissecting out the rights that will be transferred to the new public scheme. At the end of the exercise members should have the same rights as they had immediately before the order under Section 16 was made.

I have some concerns about the nature of some rights or expectations under the pension scheme. They relate to the entitlement of members in certain events which cannot be anticipated. If a member currently has to retire early because of his or her health or if he or she is made to leave because of redundancy, the RMPP provides a pension. That is very common in pension schemes. Until that person's health breaks down or until he or she is made redundant it might not be clear that he or she has an entitlement to ill-health or redundancy terms.

The second part of Amendment 47 makes it plain that the division of the RMPP into qualifying accrued rights and other rights would not affect the position. It does not say that a member would have a right to a pension in any particular circumstance; it just says that the division will not change the picture.

Amendment 49 is also consequential. If accepted, subsection (3) would read,

"'The relevant pensions provision' means the provision for the payment of pensions or other benefits which is contained in the RMPP and includes the rights of members that are contingent upon the retirement of a member in the event of his retirement on the grounds of redundancy or ill-health".

Early retirement and loss of job for all sorts of reasons are pretty basic matters in pension schemes. If the Government do not feel able to accept these words, I would have thought they could come back with some assurances on the spirit of the pension scheme, not simply from the Civil Service days or from public sector schemes but in relation to looking after people who through no fault of their own have to take early retirement. I hope the Government will look closely at this in order to give workers the assurances they require; so that when they go about their daily business, they are able to say, "At least if I get knocked over or bitten badly by a dog and it stops me working"—it does happen—"there is provision within the RMPP to make sure I do not lose out". I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, I can give my noble friend the assurance that he seeks and we do not need to change the wording of the Bill. This group of amendments is focused on the protections that members of the RMPP are afforded in Part 2 of the Bill. Amendment 47, proposed by my noble friend, covers the topic of member protection and how it applies to any changes made by the Secretary of State to the ongoing RMPP under Clause 18. The creation of the new public service scheme and the creation of a new section in the RMPP will both require consequential amendments to the RMPP. The power to make these changes is set out in Clause 18. This power is necessary to ensure that the overarching requirement of protecting scheme members against adverse treatment can be fully met.

However, the power to make amendments to the RMPP is subject to a number of important restrictions. First, the Secretary of State can make an order under Clause 18 to make appropriate amendments to the RMPP only if it is in connection with an order to create a new public service scheme, to transfer rights to the new scheme under Clause 16, or to divide the RMPP into sections under Clause 17. In addition, any such order under Clause 18 to amend the RMPP is also subject to the member-protection test set out in Clause 19(2). This requires that when exercising the power in Clause 18, the Secretary of State must ensure that the "relevant pensions provision" in respect of each person is in all material respects at least as good immediately after the exercise of the power as it was immediately before.

The word "material" is used because the RMPP is set up under trust while the new scheme will be a statutory arrangement and we expect that this may require some differences in the way in which benefits are determined or provided. However, the intention is that the value of members' benefits will be no different.

The definition of "relevant pensions provision" is set out in subsection (3). The definition is deliberately wide to capture the payment of both pensions and other benefits to which members are entitled. This would include a member's right to continue to accrue future benefits on the current basis and any contingent rights, including any rights to receive benefits in the event of redundancy or ill-health. I agree with my noble friend on the importance of having those facilities. The Secretary of State cannot use the power in Clause 18 to change the way in which future benefits accrue in the RMPP or to remove a member's right to receive particular benefits in the event of ill-health.

Amendment 49 also deals with the definition in subsection (3) of the "relevant pensions provision". Again, I can assure my noble friend that the contingent rights in his proposed amendment are already covered in the existing wording set out in the Bill.

In summary, therefore, I would like to provide assurance that any amendment made by the Secretary of State to the RMPP is subject to robust restrictions designed to protect members. Any amendments need to be appropriate in connection with an order made under Clauses 16 or 17 and also need to comply with the significant member protection set out in the Bill. Therefore, I ask my noble friend to withdraw his amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I am suitably reassured and I happily withdraw the amendment.

Amendment 47 withdrawn.

Clause 19 : Protection against adverse treatment

Amendments 48 and 49 not moved.

Amendment 50

Moved by Lord Clarke of Hampstead

50: Clause 19, page 10, line 8, leave out subsections (4) and (5)

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, Amendment 50 is in two parts. The first was an issue discussed in Committee in relation to subsection (4). This subsection would allow the Secretary of State to override any commitment if, in his view, another domestic or European legal requirement said it was not necessary. That is the job of the courts. If the Secretary of State has any doubt in his mind whether what he is proposing is lawful, he needs to clarify his thinking before bringing the Bill before Parliament.

The other part would delete subsection (5) because it is not necessary. If the new public scheme guarantees qualifying accrued rights and leaves RMPP rights well alone, there is no need for a provision which says that the form of any scheme should be designed or operated in a particular way.

Amendment 51 also is consequential. The need for a reference to the new public sector scheme is unnecessary if the representatives of members have to be consulted and have to agree to any adverse changes. If any amendment is made to the RMPP which adversely affects the rights under the scheme, then the trustee of the RMPP will have to obey the ordinary law and obtain individual consents. The RMPP is subject to Section 67 of the Pensions Act 1995 even if the new public scheme, like every other public service scheme, is not. Subsection (6) is still required just in case, by a side wind, an amendment to the RMPP has a detrimental effect on the qualifying accrued rights—the words I used a little while ago. It is very straightforward and I hope the Minister will give some comfort on these amendments. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 7:00 pm, 11th May 2009

My Lords, as my noble friend Lord Clarke has explained, this group of amendments is also focused on the member protection set out in Part 2. Amendment 50 would remove subsections (4) and (5) and it may be helpful if I recap the purpose of these subsections and their importance in relation to Part 2 of the Bill.

Subsection (4) makes it clear that Clause 19 does not require the Secretary of State to include any provisions in the new government scheme which would be incompatible with any obligations under UK or EU law such as tax requirements or EU anti-discrimination requirements. It is clearly important that the Government act lawfully in setting up the new government scheme. As we work through the detailed drafting of the secondary legislation setting up the new scheme it is possible that some provisions may not be strictly compatible with, for example, the requirements for registration of a new scheme for tax purposes under the Finance Act 2004. We expect any such issues covered by subsection (4) to be of a technical nature rather than to have an impact on members' benefits. Nevertheless, we will need to maintain sufficient flexibility to ensure that the new scheme complies with UK and EU legislation. I should say to my noble friend that it is nothing more sinister than just making sure at a technical level. It would not be until all the fine detail was worked through technically that one would know that there was proper compliance.

The purpose of subsection (5) is to make it clear that although Clause 19 is designed to protect the accrued rights of members, it is not intended to require the new government scheme to be set-up or run in any particular way. For example, the new government scheme will be set up under legislation, not under a trust deed. Nor is it designed to constrain the future operation of the ongoing Royal Mail plan, which is a matter for the company and RMPP trustees going forward and is already governed by existing pensions legislation.

Removing subsection (5) would constrain how the new government scheme could be set up and operated. As a result, this would limit the Government's ability to balance their objectives of protecting the universal postal service, protecting members of the pension scheme and protecting the interests of taxpayers, for example, from the investment risk in a funded scheme. Accordingly, I ask my noble friend not to press that amendment.

Amendment 51 relates to Clause 19(6), which restricts the Secretary of State's ability to make changes to the new public service scheme. Under the proposed amendment, this restriction would be amended and this would seriously compromise the member protection measures included in Part 2. The proposed amendment applies the provision to the RMPP rather than to the new scheme. As I covered in the last group of proposed amendments, there are already a number of restrictions on the Secretary of State's ability to make changes to the RMPP. Amendments made to the RMPP other than under Part 2—that is, amendments made using the scheme amendment power—will continue to be subject to restrictions in the scheme rules and in pensions legislation more generally, in particular in Section 67 of the Pensions Act 1995.

In summary, subsection (6) is a critical element of the member protection set out in Clause 19 and specifically limits the powers of the Secretary of State in relation to the new scheme. Given this and the constraints already in place on any changes to the RMPP, either under Part 2 of the Bill or by the sponsoring employer going forward, I would ask my noble friend to withdraw the amendment.

It might be helpful to put on the record an example of where the tax issues might impact on the considerations that we need to undertake. Under the Finance Act 2004, certain payments provided for under pension schemes became unauthorised payments and subject to tax penalties. These included, for example, the payment of more than 25 per cent of a member's pension benefit as a cash lump sum and paying a pension to a member before age 55. However, the Finance Act 2004 contained transitional relief provisions giving trustees the discretion to continue to make such payments to or in respect of members to whom those provisions apply as at 6 April 2006. The transitional relief period continues until April 2011, at which point such payments will become unauthorised payments if made to members. Therefore, by virtue of the exercise of the power under Clause 22 of the Bill, the Finance Act 2004 will apply to the new scheme.

However, as the new scheme was not in existence on 6 April 2006, the transitional relief provisions will not apply to it. If payments such as those set out above are mirrored under the new scheme, they will be unauthorised payments and disadvantageous tax consequences will apply for members. It may therefore be necessary for the new scheme benefits to differ slightly from those under the RMPP to the extent necessary to avoid being unauthorised payments and subject to a tax penalty. This is one of the specific reasons why Clause 19(4) is considered necessary. I put that on the record as a concrete example of the kind of situation it is intended to cover.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I am grateful to my noble friend for the example he has just given. The last thing I want to do is put at risk any of the benefits that might accrue to members. If there is a danger of that, then I have no hesitation in seeking leave to withdraw the amendment.

Amendment 50 withdrawn.

Amendment 51 not moved.

Clause 20 : Transfer of assets of the RMPP

Amendments 52 to 54 not moved.

Clause 21 : Restriction on power to transfer assets

Amendment 55

Moved by Lord Clarke of Hampstead

55: Clause 21, page 11, line 7, at end insert—

"( ) For the purposes of subsection (1), the liabilities of the RMPP in respect of pensions and other benefits shall be calculated and verified by the actuary appointed by the trustee of the RMPP under section 47 of the Pensions Act 1995 (c. 26), on the assumption that they will be discharged by the purchase of annuities of the kind described in section 74(3)(c) of that Act (discharge of liabilities; annuity purchase)."

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, Amendment 55 deals with the division of the investments of the RMPP when the new public scheme takes responsibility for the past liabilities of RMPP. If it is taking part of RMPP's liabilities, it is common sense that it should take part of its investments, otherwise the RMPP is free from liabilities worth £29.5 billion and has an enormous surplus. The issue is what share of the assets is appropriate.

When we discussed this in Committee, my noble friend Lord McKenzie said:

"The Government have stated their intention that when transferring assets and liabilities from the Royal Mail pension plan, sufficient assets will be left to cover its liabilities. In calculating those liabilities, the Government will work with the trustees to find an appropriate valuation basis that delivers value for money without putting members' accrued benefits at risk. The details of the valuation will be set out in secondary legislation".—[Hansard, 20/4/09; col. 1291.]

The issue here concerns the word "sufficient". What does it mean? Four matters need to be dealt with. First, what exactly is meant by "sufficient"? In Committee, the noble Lord, Lord Skelmersdale, asked whether the deficit would be measured on the basis of FRS 17. I had to go away and find out what on earth he was talking about, but I understand now that FRS 17—which means financial reporting standard 17—is used for accounting for pension scheme deficits in a company's own accounts. My noble friend Lord McKenzie said in Committee that FRS 17 was,

"a bit of a separate issue".—[Hansard, 31/3/09; col. 999.]

I agree. This is an accounting convention that does not measure the cost of the scheme.

My noble friend also said that the measurement would be made on the basis of the "technical provisions", leading the casual observer to think that RMPP and the new companies that will sponsor it will be left with enough money to cover the liabilities of the RMPP on the same sound and "technical" basis. That is what the regulatory impact assessment hints at. The RMPP will have assets of £3 billion and liabilities of £3 billion, and therefore it will have enough to make ends meet. That is taken from table 2 in the pensions appendix to the regulatory impact assessment.

The technical provisions basis means something very specific however: it is an assessment made by the scheme's trustee acting on the advice of its own actuary. He or she can take a more optimistic or more pessimistic view of life depending on the likelihood that the employer will still be around to meet the liabilities if the assumptions on which the evaluations have been made turn out to be wrong. The £3 billion figure comes from the assumptions that were used in the 2006 evaluation, when the sole sponsor was Royal Mail Group. Noble Lords can take their own view on whether the current Royal Mail Group could ever realistically become insolvent in the sense that it goes into administration and abandons its pension scheme. However pessimistic one may be about that, the prospect of the new Royal Mail going into administration when there is no possibility of further support because Europe would forbid it—I ask my noble friend to note that there is a question about what Europe would allow—must be increased. The real point is not about optimism or pessimism but the futility of measuring a deficit on the basis of "technical provisions", as if that were some magical benchmark. It is not. It depends on the assumptions that the actuary makes. The £3 billion figure is out of date and based on a different world.

The second issue is more technical. In any ongoing assessment of a pension scheme—any assessment where there is a viable employer—liabilities are assessed on the assumption that pensions will be tied to final pensionable pay. As we know, that will not be the case here. The RMPP is not just picking up liabilities for pensions earned after the date of separation; it is picking up the cost of the salary link for the past service liabilities that the Government are assuming. An ordinary technical provision basis omits that link altogether. The £3 billion of liability going forward, as assumed in the regulatory impact assessment, is short of the mark. The RMPP will have a deficit from day one.

The third issue follows on from that. One benchmark is largely free from actuarial assumption, which is the measure that a private sector trustee would use in a situation just like this. If a new employer were to branch out into the unknown, taking on past liabilities of any nature on trust, it would want to know that it was being paid enough to meet the liabilities, come what may. There is a pension scheme measurement for this. It is the cost of buying liabilities on the insurance market. Actuaries call it the buyout basis; it is the risk-free option.

It is important to recognise the scale of the differences we are talking about. At the 2006 valuation, the RMPP had technical provisions to meet 86.7 per cent of its liabilities. That is a substantial deficit in anyone's book. On a buyout basis, however, the technical provisions would have met only 64.2 per cent. The deficit is more than twice as big. If anyone thinks that the RMPP will be fully funded post-privatisation because the scheme is sufficient to meet its "technical provisions", they are wrong. The RMPP will still have a serious deficit and the scale of the theoretical actuarial deficit depends on the optimism or pessimism of the actuary. That is my fourth point. Who makes the assessment? My noble friend Lord McKenzie said in Committee that,

"the Government intend to hire an appropriately qualified actuary, but we do not believe that it is necessary to put this on the face of the Bill".—[Hansard, 20/4/09; col. 1287.]

I think that it is necessary to put it on the face of the Bill. Actuaries disagree with each other if they are paid to do so. It is no good pretending. In many cases they do what they are paid for. The actuary who is paid to look after the interests of the members of the RMPP going forward is the actuary appointed by the trustee. He or she should attempt to reach an agreement with whichever actuary is appointed by the Government. If there is a disagreement involving handing over many billions of pounds of pension savings by members of the RMPP the actuary appointed by the trustee ought to be given the final word.

Amendment No. 55 addresses all these issues. It states that the division should be assessed in the same way that it would be in a commercial transaction; the trustee of the scheme that is being divided would insist that the scheme as it goes forward is left with sufficient assets that could buy out all of its liabilities if it had to in the short term; and the trustee is handing over the security of real assets in exchange for the unknown future strength of the new employer to meet its future liabilities. Any division of the assets would have to be agreed by the trustee acting on the advice of its own actuary, not an actuary appointed by the Government. Let the actuaries try to agree by all means, but if the trustee is handing over its own money it must be given the right to say how much. I beg to move.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government) 7:15 pm, 11th May 2009

My Lords, I shall start with one or two immediate responses to my noble friend. He said that the term "technical provisions" is not a magical benchmark, and I agree with that. I should make it clear in relation to the funding of the salary link that the liability estimate of £3 billion staying with the RMPP includes the estimated value of the salary link, so it is covered in the assets staying with the RMPP.

Amendments 55, 56 and 57 relate to Clause 21, as my noble friend has just outlined. The clause is an important feature of the member protection in Part 2 of the Bill. It restricts the Secretary of State's ability to make an order to transfer assets from the RMPP under Clause 20. The restriction is that the ratio of assets to liabilities in the RMPP is no worse immediately after the transfer of assets and liabilities than it was immediately before the transfer. A specific calculation is being undertaken. The restriction applies to all sections of the RMPP, including new sections for Post Office employees and Royal Mail Group employees.

I do not believe that it was intended from what my noble friend said, but Amendment 55 requires that for the purposes of Clause 21 the liabilities are measured on a buyout basis—that is, the most cautious basis for funding pension liabilities, often used to assess the cost of winding up a pension scheme. In addition the amendment requires that the RMPP scheme actuary is responsible for determining the liabilities, and as a result the assets remaining with the ongoing scheme. Amendment 56 has the same purpose but in the scenario where the Government create a section of the RMPP to hold qualifying accrued rights.

Measuring the liabilities on a buyout basis rather than using other assumptions, such as the assumptions used by the trustees at the most recent full actuarial valuation in March 2006, would have two effects on Clause 21. First, the measured value of the liabilities of the RMPP immediately before the transfer would be higher, and so the ratio of assets to liabilities would be lower. This would mean that under Clause 21 the Secretary of State could leave the RMPP with a lower ratio of assets to liabilities. Secondly, however, the measured value of the liabilities of the RMPP immediately after the transfer would also be higher on a buyout basis. As a result the assets remaining with the RMPP would need to cover a greater value of liability but, as noted, the Secretary of State could leave the RMPP with a lower ratio of assets to liabilities. Broadly these two effects would cancel each other out, and so in practice the amendment would have little effect on the operation of Clause 21.

The Government have stated their intention that when transferring assets and liabilities from the RMPP, sufficient assets will be left to cover its liabilities. The Government will appoint a suitably qualified person to calculate the liabilities in the scheme. However, they intend to engage with the trustees and their actuarial advisers to find an appropriate valuation basis that delivers value for money without putting members' accrued benefits at risk. I think that that is the core of what my noble friend is seeking and that is what we intend to do. The details of the valuation will be set out in secondary legislation. State aid approval will be required to leave the RMPP with sufficient assets to cover its liabilities. It is not appropriate, therefore, to include a requirement to that effect in the Bill.

The thrust of my noble friend's amendment was to seek to establish that the RMPP should be fully funded at the end of the exercise on the buyout basis. The RMPP and its sponsoring employers will be in a significantly improved position by virtue of the measures in the Bill and it would be perverse to argue in this context that the trustees need full funding on a buyout basis to protect members going forward. Nor is it desirable to specify a particular funding basis for the purposes of Clause 21. In addition to the state aid issues I have just described, leaving the scheme fully funded on a buyout basis could involve a large cost to the Government and the taxpayer but provide members with little extra protection. Indeed, it could also provide an incentive for the company to wind up the scheme. The Government have no intention of doing that.

Although the Government are confident that it will be possible for state aid approval to be obtained, they cannot prejudge the Commission's detailed decision or rule out the possibility of modification to the proposals. That is why the Bill is not written in those terms. But there is protection written on the face of the Bill in the way that I have just outlined. As a result, I ask my noble friend Lord Clarke not to press the amendments.

Amendment 57 would remove subsection (3). This subsection deals with the scenario where the Government have created a section of the RMPP to hold qualifying accrued rights under Clause 17. Subsection (3) states that, for the purposes of calculating the ratio of assets to liabilities described earlier, any liabilities in a government section holding qualifying accrued rights should not be taken into account. This is because those liabilities would now be supported directly by Government and not by the remaining assets in the RMPP. Although the option of a government-sponsored section containing qualifying accrued rights is only a contingency measure, it is a necessary precaution, should it not be possible to transfer qualifying accrued rights into a new public service scheme, as we discussed earlier. Accordingly, again, I ask my noble friend to consider not pressing his amendment.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, before my noble friend sits down, can I get something clarified? Obviously, I am happy with much of what my noble friend said, but at the end of my contribution earlier, I talked about the independence of the actuary. Can there be a mechanism that says that the choice of actuary can be discussed between the parties on appointment? One of the problems of actuarial assessments, quinquennial or otherwise, is that people and companies change and it is nice to have someone who knows what they are looking at. Can my noble friend assure me that there will be an understanding between the Secretary of State's department and the trustees on the appointment of the independent actuary?

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, the intention is that the Government will appoint a suitably qualified person and also that they will engage with the trustees and their actuarial advisers. So there will be two sets of advisers engaged on this, one of which will be the trustees' advisers. Obviously, it is for the trustees to appoint who they wish. I imagine that they would wish to use actuaries who are familiar with the scheme. I hope that is helpful to my noble friend.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I thank my noble friend for that further comment but, as I said earlier, people deliver what they are paid to do. Anybody who has dealt with accountants and charitable funds knows that you get the advice that you pay for. I do not want to be too suspicious, but I have heard enough. It is on the record that there will be this consultation and the possibility of coming to an agreement, but if you have two actuaries, you are going to get two figures.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Parliamentary Under-Secretary, Department for Work and Pensions, Parliamentary Under-Secretary (Department for Work and Pensions) (also in the Department for Communities and Local Government)

My Lords, I agree with my noble friend on many things but I disagree on this and stress the purity of accountants—a profession of which I am a member.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I had no doubt my noble friend would say that. I was going to say quite a lot more about state aid and competition, which obviously have to be considered in this line of events. I hope that, before this Bill goes to the other end, somebody will clarify whether we are going to get the commission's authority to go ahead. In the mean time, I beg leave to withdraw the amendment.

Amendment 55 withdrawn.

Amendments 56 and 57 not moved.

Clause 29 : The universal post service

Amendment 58

Moved by Lord Hunt of Wirral

58: Clause 29, page 14, line 32, at end insert—

"( ) The following postal services may not be designated as part of a universal postal service under subsection (1)—

(a) the conveyance of letters of members of a document exchange from a departure facility for that exchange to an arrival facility for another document exchange by persons who are not members of either exchange, and the collection and delivery by such persons for that purpose of letters delivered to the departure facility concerned,

(b) the conveyance of an overseas letter out of the United Kingdom (except when provided by the designated universal provider), and

(c) (except when provided by the designated universal provider) the conveyance of a letter—

(i) which is conveyed in consideration of a payment of not less than £1 made by or on behalf of the person for whom it is conveyed, or

(ii) which weighs not less than 350g.

( ) In this section—

"arrival facility", in relation to a document exchange, means any box, receptacle or other facility associated with that exchange which is provided for the receipt of letters from members of another document exchange which are conveyed to the facility from a departure facility for that other exchange for collection by members of the first exchange,

"departure facility", in relation to a document exchange, means any box, receptacle or other facility associated with that exchange which is provided for the collection of letters of members of that exchange which are delivered to the facility by those members for conveyance to an arrival facility for another document exchange for collection by members of that other exchange,

"document exchange" means a system involving at least three members for the exchange of letters between members of the system,

"overseas letter" means a letter which is directed to a specific person or address outside the United Kingdom."

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

My Lords, these amendments are similar to ones I tabled in Committee and make very much the same point. I have, of course, carefully read the Minister's response to my amendments in Committee and I am grateful to him for the subsequent letter on the matter, which contained a great deal of useful information about the Government's thinking and expectations of Ofcom.

Unfortunately, I am still concerned. The Government's defence of the current drafting rests on the safeguards in the Bill that Ofcom should be proportionate, non-discriminatory, et cetera, coupled with their other requirements to seek to be deregulatory and so on. That is all well and good and I am sure that Ofcom genuinely intends to apply these conditions only when appropriate. The fact remains, however, that Ofcom and the Government are insisting that power be given now for future regulation of the services I have specified in my amendments. The very insistence that such regulation be possible is precisely what is causing me concern. In Committee, the Minister specifically referenced the possibility that services such as "document exchange" might be regulated in the future. Essentially, my argument boils down to the simple premise that if there is genuinely no intention dramatically to increase the scope of regulation to burden private-sector companies providing services that many question are even covered by the term "post", why is every indication being given that these amendments are being resisted?

If the Government and Ofcom genuinely intend to reduce the amount of regulation out there, not by merely spreading it more widely and thinly, but instead by lighter as well as narrower regulation, I would contend that my amendments would be an easy and harmless way of providing legal certainty and immense reassurance to the many companies concerned by this part. If the Government are, as their responses would unfortunately suggest, not currently intending to regulate these sectors, but are pretty relaxed at the idea that it might happen in the future, we have a serious problem.

Many of these services were set up specifically to provide an unregulated alternative. Their very reason for existing, and the basis of their commercial success, is that they are not the universal postal service. They are as irrelevant to the Royal Mail's continuing provision of the postal services this country needs as is the question of whether post offices continue to sell pick 'n' mix—something I personally regret is no longer very common, but certainly not something I wish the Government or a regulator to get themselves involved in.

There has been considerable debate about how and where exemptions might be inserted and I am very open to persuasion on this matter. My Amendments 58 and 61 are focused on the clauses where the universal service and the services considered within its scope are defined. This is because I am deeply troubled by the idea that Ofcom could eventually decide that users' needs justify, or even require, broad regulation. I remember, when I had responsibility, that regulation always seemed to be a wonderful option. I know that many of us have had experience of the Health and Safety Commission. The idea of being able to step in and sort out all the alleged problems is a very tempting one, but that temptation—and I am talking about areas other than health and safety—is exactly what has led to the most enormous mountain of red tape currently suffocating businesses right across this country. My instinct was, therefore, to cut off that possibility as early as possible and to not even allow Ofcom to entertain the idea of regulating these services. However, I know the Secretary of State and his colleague Ministers feel that the market assessment should be as broad-based as possible in order to result in the most accurate picture of the sector on which to make regulatory decisions. I can see their point, although I do not entirely agree. I would be happy with inserting these exemptions into Clause 27, where it could be made absolutely, unquestionably clear that there is no possibility of the conditions—apart from consumer protection, the essential condition—being imposed on these services. I just hope the Secretary of State and his Ministers have thought a little further on these points and may be announcing to the House tonight that they accept them. I beg to move.

Photo of Lord Mandelson Lord Mandelson Secretary of State, Department for Business, Enterprise & Regulatory Reform, Secretary of State for Business, Enterprise and Regulatory Reform 7:30 pm, 11th May 2009

My Lords, my response to the noble Lord will probably test my powers of persuasion. It is quite a challenge, but I am up for it. The amendments seek to limit Ofcom's powers to regulate in respect of services which do not currently require a licence. The amendments are not necessary and may in future even be damaging to securing the provision of the universal postal service. On that basis, I shall seek to persuade the noble Lord to think again.

Protecting the universal service is what this Bill is all about. We need to give Ofcom the best tools available to help it to do that now and in the future. It is vital that we do not tie Ofcom's hands. I appreciate that there is a concern that some postal operators might be regulated in future where previously they were not. I reassure noble Lords straightaway and in the strongest terms that Ofcom will not regulate everything within the potential scope of regulation—there is a clear distinction there. I make it absolutely clear that Ofcom will regulate only where it is proportionate and justified. In practice, from what is already known about the courier and parcels market in particular, it is highly unlikely that Ofcom will materially increase the burden of regulation.

We do not expect Ofcom to regulate services not currently required to have a licence for the foreseeable future, except to the extent required by the directive. The directive requires us to ensure that operators have complaints systems and other consumer protection measures. However, operators tell us that they have these systems in place in any event because the market requires it. It is likely therefore that they will already be complying with any consumer protection measures and, as such, there will be no added burden for them.

The amendments are unnecessary also because exceptions to the regulatory regime are redundant under a system of general authorisations. Moving, as we are proposing, from a system of licensing to one of general authorisations means that it is no longer an offence to convey a letter without a licence. As such, it is not necessary to list services which are exceptions to the regime.

On the specific questions of excluding from the scope of the universal service,

"the conveyance of an overseas letter out of the United Kingdom", of a letter in consideration of £1 or more, or of a letter weighing 350 grammes and over, the postal services directive requires that the universal postal service covers both national and cross-border services, and that the universal service extends to postal packages of up to at least 10 kilograms, which will almost certainly be priced above £1. To prescribe that the conveyance of such letters is within the scope of the universal service when undertaken by the designated universal service provider but outside the scope when provided by any other operator simply lacks logic, and introduces an undesirable element of regulatory confusion.

The proposed restriction on Ofcom's powers may damage the proportionate regulation of the postal market by hindering the collection of robust evidence about the market on which to build the new regulatory regime. The postal services market is going through a period of significant change, and we cannot predict with any certainty how it will be structured in the future. Ofcom's strategic market reviews will perform a vital function in ensuring that regulation is appropriate, timely and evidence-based. It is essential that the new regime be evidence-based. As Hooper pointed out, no review of the sectors within the postal market has ever been carried out in the way now proposed. With the changes facing the industry today, it is paramount that there is the best possible evidence on which decisions on the regulatory regime should be based. For certain sectors of the postal market to be outside the remit of that review makes no sense. Ofcom and all those with an interest in the market need the strategic review to be as comprehensive as it can be. Excluding certain services, as proposed by the amendment— namely, those within a document exchange, letters weighing 350 grammes or more or costing £1 or more—could significantly restrict the ability of Ofcom fully to understand the postal market and to regulate accordingly.

It is true that this means that some postal operators currently outside the scope of regulation could conceivably be regulated under the new regime. We understand that for some companies this means that they have less certainty about regulation. We recognise those concerns but consider this as a transitional issue which will be resolved as soon as Ofcom has completed its market review and can consult on its proposals.

It is important that the valid concerns of postal operators are balanced against the importance of Ofcom being able to keep the whole market under review. It would not make sense, therefore, to prejudice or anticipate the reviews that are going to be undertaken by excluding certain things from their purview at this stage. Given the changes that the market is experiencing, this is particularly important. We cannot foresee exactly how the markets will change and evolve. It would not make sense to attempt to try to do so for the purposes of this legislation. It would be quite wrong to take a decision that would prejudice Ofcom's ability to take necessary but targeted steps to secure the universal service. We just do not have that kind of scientific certainty about the market and how it is changing.

I repeat my earlier assurance that we do not expect Ofcom to extend the scope of regulation to include the services referred to in the noble Lord's amendment in the foreseeable future, except so far as required by the directive. Ofcom will regulate only where necessary for specific purposes, the most important of which is to secure the provision of the universal postal service. Ofcom already has a legal duty to reduce unnecessary burdens on the areas that it regulates and a duty to promote self-regulation. We expect and anticipate that Ofcom will fulfil that remit. Reducing unnecessary burdens and promoting self-regulation are as important a part of Ofcom's remit as any other.

To be clear, we are not expecting the active scope of regulation to increase. We expect the new regime instead to be much better targeted. On the back of this assurance and explanation, I invite the noble Lord, Lord Hunt, to withdraw his amendment. I hope that in the light of what I have said he will be prepared to do so.

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

My Lords, I am grateful to the Secretary of State for his response, but I hope that when he reads it in Hansard he will see that it has left the position even more confused than it was before. He is the Secretary of State for Business, Enterprise and Regulatory Reform. What we are presented with here is an area which is at the present time unregulated. We are therefore considering whether we should give power to a regulator to regulate this very market in the future. In seeking this extension, the Secretary of State has sought refuge in saying, first, that it is most unlikely to come about and that noble Lords and the other place should not therefore worry about it. Well, we are worried that there will be an extension, and that we will see greater regulation in future.

I had thought that the Minister stood for deregulation. However, we have not heard very much about the deregulatory environment in which we now are and where we are supposed to be reducing the burden on business of regulation. Here we have some viable businesses which are not regulated which are now, as he has conceded, worried that there is a big question mark over the future. Although I must have time to carefully consider what he has said this evening and I must consult carefully with those who are most affected by this, I think they will be even more worried and that therefore this is a matter to which we will have to return at Third Reading. I will have to consider first all that he has said tonight, which he says goes further than he went before in reassuring this unregulated market. In the mean time, I beg leave to withdraw my amendment.

Amendment 58 withdrawn.

Sitting suspended.