Second Reading (Continued)

Postal Services Bill – in the House of Lords at 4:06 pm on 16th February 2011.

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Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 4:06 pm, 16th February 2011

My Lords, I can tell the House and my noble friend on the Front Bench that I very much welcome this Bill. I welcome the decision to separate Post Office Ltd from the Royal Mail; I welcome the prospect of Post Office Ltd becoming a mutual; I welcome the decision to privatise the Royal Mail; and I welcome the decision to transfer the regulation from Postcomm to Ofcom. However, as will become apparent, I am a bit concerned about the future of the competition which currently operates in the handling and sorting of letter mail. It seems to me that the Bill risks converting the Royal Mail from a state-owned business into a legislatively-protected privatised monopoly and, if that is right, I cannot believe that that is in the full interests of users.

I speak with the experience behind me of having been the Minister who launched the process that led to the privatisation of British Telecom nearly 30 years ago. We had British Telecom as a nationalised monopoly and it became apparent that there was no way that it was going to raise the capital that it needed to finance its expansion and research, and all the rest. Therefore, we eventually privatised it. That was met with almost foreseeable opposition, particularly from the staff, who thought that it was almost the end of the world. The fact of the matter is that when it was privatised the staff happily not only took their free shares-of which there was a large tranche-but went into the market and bought the shares. I therefore take with some circumspection the opposition of the unions to the privatisation of the Post Office. I will return to the parallels in a moment, if I may.

Competition in the mail market was introduced in 2004. There is little doubt that that has led to more customer choice and to prices being lower than they otherwise would have been. It has certainly led to a slowing down of the reduction in volumes. As a number of speakers have mentioned, one of the really key issues here is the growth of e-commerce and e-communication. The introduction of competition has also led, particularly for businesses, to reduced postal bills. That has been to the advantage of customers. Above all, it has led to a considerable spur for Royal Mail to come to grips with a long legacy of inefficiency and the refusal to modernise systems to improve its service to customers.

It is also right to say-this has been established by independent research-that it has led to a significant boost to the UK economy. We have heard echoes of that in the debate. Royal Mail has argued and continues to argue that competition is a major cause of its woes. It is not competition from competitors that is reducing Royal Mail volumes; overwhelmingly, it is competition from e-commerce. As a user of e-mail with now limited outgoing mail, I entirely understand that. The figures that I have been shown suggest that for every £10 of reduction in the volume handled by Royal Mail, £9 is due to e-commerce-e-mail and so on-and only £1 to competitors. Furthermore, contrary to the arguments that one hears from Royal Mail, it does not subsidise its commercial competitors. This argument was also voiced by the noble Lord, Lord Low, and there were hints of it in the speech of the noble Lord, Lord Tunnicliffe. On the contrary, commercial competitors have to negotiate a price for the last mile of delivery so that their products can be handled by Royal Mail. It is a negotiated price, which is backed up by the legislative provision in the earlier Act for the right to access.

Therefore, the House may ask why I am concerned. I start from my firm belief that there needs to be a robust competitive framework in this as in other businesses and that it needs to be firmly at the heart of the Bill. I should have thought that the great majority of people would accept that. However, when one looks at the Bill itself and some of its details, to which we will want to come back at a later stage, there seems to be a marked shift away from the principle of competitive access to the Royal Mail that was inherent in the 2000 Act.

At this point I return to my experience of the privatisation of BT. BT was a natural monopoly-an almost total monopoly in line telecommunications. Therefore, regulation of prices was essential to protect the public. The formula of RPI minus X was developed and formed a central feature of that regulation. However, the second requirement was that there had to be access to the market for competitors, and that it had to be guaranteed. I stress that one cannot draw parallels too closely between Royal Mail and British Telecom but one result was the huge growth in telecommunications, including the growth of the mobile telephony system.

I was the Minister who refused to allow BT to become an operator of a mobile system, simply to make sure that there was competition. I heard the former chairman of Vodafone tell a meeting that his company was worth around £80 billion at that time. Someone asked him what he ascribed that to. He said, "It was the refusal of the Government to allow BT to become a mobile operator". When I asked him when I would get my share I am afraid there was not a very happy answer.

However, that process was so effective in ensuring competition that in the end it was possible to dispense with the price controls on BT. There you have the example of a nationalised monopoly that turned initially into a privatised monopoly, subject to regulation but with free access to competitors, and then into a very viable system. No one wants to return to the previous monopoly. Very few people argue that Royal Mail should stay a state monopoly. We have not really heard that argument as we had the previous Bill introduced by the noble Lord, Lord Mandelson. I look forward to his speech.

However, far from encouraging more competition, this Bill seems to be dealing with the matter the other way round. There appears to be a good deal of pressure on the Government to limit and hamper the competition, as I am sure there was on the previous Government. Indeed, it may have led to the previous Bill being abandoned in another place. The CWU and Royal Mail have certainly tried to hamper the competition. I think that this has been partly driven by the recognition that the Royal Mail has found it extremely difficult to secure agreement to the necessary modernisation. One thinks particularly of the final stage of electronic sorting which happens in every other country but is still not happening in this country. I suspect also-I hope that my noble friend can reassure me on this-that there is a very natural desire on the part of the shareholder executive in BIS to maximise the price that it will get for the sale of Royal Mail by restricting the competition. That is what it looks like but perhaps my noble friend can reassure me that that plays no part whatever in the Government's modernisation.

Nevertheless, the fact remains that some of the provisions in the Bill, especially Clause 37, which gives Ofcom, the new regulator, power to impose conditions on access to Royal Mail as the universal service provider, seem to be aimed more at restricting the access rights of competitors than protecting the consumer. I shall explain very simply how that works. Under the 2000 Act, Ofcom-it was then Postcomm-could not impose a USP access condition unless it appeared to it that the condition was appropriate for one or more of three purposes: promoting efficiency; promoting competition; and conferring benefits on the users. However, this Bill says that all three purposes have to apply, not just one of three. To gain access to the Post Office network, a competitor has to satisfy each of the purposes relating to efficiency, competition and benefits. In my noble friend's speech from the Front Bench, I caught a hint that that was intentional. I therefore ask: can the Bill be said at the same time to be promoting competition; and if not, why not?

Clause 43 deals with the proposed universal service compensation fund. Perhaps it will be necessary to use that in the last resort but it most certainly must not be used simply to shield Royal Mail from the necessity of getting rid of its inefficiencies. Those are details to be discussed in Committee but I make a strong plea that the Bill should not risk losing the gains which have come since 2000 from the introduction of a competitive regime. It should not give the regulator powers that could materially prejudice the position of competitors.

With many others, I warmly welcome the prospect that Royal Mail should be able to operate in the private sector as a successful and profitable business, but it must be competing strongly and fairly. It must be right, from the point of view of mail users and the industry as a whole, not to risk the advances that have been made over the past 10 years.

Photo of Lord Christopher Lord Christopher Labour 4:20 pm, 16th February 2011

My Lords, I certainly do not come to this Bill with particular hostility: it is easier to consider than the previous one. I suspect that that is due largely to the passage of time, and perhaps some lessons were learnt. I apologise to the noble Baroness on the Front Bench. Due to the excitement this morning I missed the first six or seven minutes of her introductory speech.

My concern is the problem of unintended consequences. I am lucky enough to live next to a farm that is approached by a road which is about three-quarters of a mile long. The local farmer is constantly called out because people's sat-navs have directed them up that road. Come rain or shine, they get caught in the mud and snow. I am anxious that the Bill should not be a sat-nav and that we should try to ensure that it produces what we and the electorate really want.

The trailblazer in the privatisation of post offices was the Netherlands-although I find it easier to say Holland. That process began in 1989 when that country's Government began to sell its post office in tranches, and by 1995 they had lost their majority control. There have been several changes in name of the Netherlands post-all prefaced by "Royal", of course. It was called PTT Post, TPG Post and is now called TNT Post. It is run by the multinational company TNT. What has happened since then? These are the problems that I want to ensure we avoid. One of the issues is minor in a sense, but I suspect that it is also quite a populist one. That country's red post boxes have become orange. I do not recommend that we change the colour of ours. We should make sure that it does not happen here, but I am not sure that such a provision should be in the Bill. We have similar problems with telephone boxes.

In the Netherlands, 90 per cent of the post offices have closed. I shall return to that issue later; as a Member on the Cross Benches has already mentioned, it is a key issue in the Bill. Post boxes in the Netherlands are now emptied only once a day. Ours are emptied certainly twice and perhaps three times a day. In the Netherlands there are considerable complaints about lost post. To some extent, we have similar complaints here. TNT has not been prepared to recognise some of these problems in the way that we would expect. On lost post, TNT is quoted as saying, "As a company we are not in a position to deliver the post on time, particularly on Saturdays or Mondays". The Netherlands allowed competition. New firms are paying low wages that have markedly impacted on TNT's profits. TNT is proceeding with a policy of employing part-timers and franchisees in order to reduce the working hours of its staff to three days a week. If we want to proceed with a different service from that, we may have to provide some form of continuing subsidy.

The managing director of TNT, Peter Kunz, said that the universal service obligation-this may have been referred to earlier-was,

"a kind of Jurassic Park and we should get rid of it".

Do we want this here? I do not think so and, as I said earlier, my concern is that the Bill and the Act should ensure that this sort of thing does not happen.

I am not sure that the noble Lord, Lord Razzall, who is not in his place, was correct to say that Royal Mail was still making losses. If he did not say that, I am happy to be corrected. It may be making net losses, but it is certainly making a gross profit and the difference, if there is one, is the cost of maintaining the pension fund, which we know is being dealt with in the Bill.

I have no faith in golden shares or any of these things. We must ensure that the universal service obligation is effectively protected in perpetuity, because that is what the British people wish.

On the issue of regulation, according to the Post Office-or rather, Royal Mail; like lots of people, I see them as one-an effective subsidy of £160 million is being given to competitors who are cherry-picking what they want and requiring Royal Mail to deliver the rest. We must meet the objective of a level playing field, especially on price and across all postal business-this is not limited to letters.

I turn to the issue of shares to employees. I saw this with BT which, with respect to the noble Lord, Lord Jenkin, was a significantly different case from this. As the chairman of a modest investment company, I was faced with a dilemma by the then investment manager, who asked, "What do we do about the BT share offer?". It was opposed by the TUC and the union. There I was, with a different hat on and different responsibilities. I said, "You'd better buy them. The worst that can happen is that they sack me". Of course, they did not. The shares opened the next day at a significant profit and within weeks or months, all the shares given to the employees of BT were sold. I hope that, when this happens, in whatever form, we will ensure that the shares are held in a trustee fashion to benefit the working people, and not individually, because I assure the House that they will not keep them. There will be a significant change in that respect.

I see this as a bit of a comparator for British Rail. I am not arguing about scale or making a political point; it is water under the bridge and one would not do it today in the way that it was done. People were skimming off profit. A good deal was sold off during the exercise, and significant sums were pocketed by the ex-employees who had acquired it. There is also a continuing subsidy to the railways. As I meant to say slightly earlier, I do not expect answers from the noble Baroness to all the points that I have raised today because, with respect, I would much prefer more considered answers. However, I would be grateful if the noble Earl, Lord Attlee, who has responsibility for the Department for Transport, would let us know what has been paid to the railways in the form of subsidy since they were privatised. I think that most of us would be very surprised at the scale of the figure. I hope that my point will become clear as I go on.

The Bill must include clarity on the arrangements for the sale, or whatever else it may be. It must state its nature and limitations. The Bill is negative; there is no indication that there are limitations. I find it much easier to say who may not buy it than who might. I do not think that the queue to buy it is any longer now than it was in the days of the noble Lord, Lord Mandelson.

We must ensure that no asset-stripping occurs. Reference was made by, I think, the noble Lord, Lord Razzall, to the investment by Deutsche Post. That investment has been made in the parcels business-the one thing that is clearly growing and making profits in Royal Mail. If you sold Royal Mail to me, I would want to see how much capital profit I could make out of selling the parcels side of the business. I believe that these things have to be preserved in the totality of the business. What is the timescale of the sale? I am worried about it being done with some urgency, as I do not see the need for that.

I understand, informally, that a valuation of the business has been made. I have not seen anything about it but it is essential that we do see it. The coalition is about openness. I believe that the public, never mind your Lordships' House, are entitled to know the valuation of what the Government are seeking to sell. What are the scale and scope of the valuation? Does it, for example, include land and building assets? When was it done and who did it? We know none of these things. If a valuation is not needed for any other reason, one is needed if Royal Mail is seriously going to be split from the Post Office, because assets owned by Royal Mail will go to Post Office Ltd. Therefore, I hope that we shall have some openness on this and that the details will be published so that the world can know exactly what we are seeking to sell.

With regard to post offices, the Crown offices are a complication. They are already in the position of securing a significant benefit from the subsidy that the Government have made available to post offices. A table has been produced by Post Office Ltd in relation to the different sorts of post offices. One huge group-local post offices-could by no stretch of the imagination be continued, either because of the government subsidy required to maintain them as things stand, or because post masters and mistresses will be unable to make sufficient income from them. Many of us love and support our local post offices but a typical local post office could lose 65 to 75 per cent of its income as things stand under the Bill. Thirty-seven per cent of their business comes from Royal Mail. Notwithstanding the need for competition and profitability, it seems to me that somehow or other we need to sustain that sort of business. Therefore, what is the hurry?

I am unclear, as I am sure is the noble Baroness, exactly what mutualisation of the Post Office means in practice. It is one thing to set up a mutual to run a building society or whatever, but dealing with 50,000 post offices owned in different ways is very much more complex. I think that we should have clarity on that before we decide that it is a road to go down. I do not wish Ministers to come back here saying, "Our intentions were good. We meant to do it, but". That would be unsatisfactory on an issue of this importance to Britain.

Mr Hooper has already answered one of the questions that appeared in his first report about the capacity of Royal Mail to provide the skilled management required. He said that that has been done with the appointment of Miss Moya Greene.

We are left with two inescapable issues, one of which is achieving capital. Questions have already been asked about how much they want, when they want it and how might it otherwise be obtained. A lot of questions need answering before we can comfortably go ahead with this Bill as it stands. I ask the Government to think carefully before Committee stage. It would be unfortunate if we were to face a raft of amendments when common sense tells us that some of these things should be dealt with beforehand.

The point of my question to the noble Earl, Lord Attlee, was about the social value of the Post Office and Royal Mail network-no one argues with this-which has been put at more than £2 billion. We either want to ensure that that continues or we want to throw up our hands and say that it has nothing to do with us. I echo the noble Lord, Lord Empey, in this. I thought that his contribution was most helpful. We must try to get this Bill right. If we do not get it right, another generation will say, "They got it wrong". Looking back 10 or 20 years, we can see other privatisations which we would all have wished to see done a little differently. We must not have an early cheap sale, with people walking away with money.

Perhaps I may offer a blue-sky solution to this: take time to think hard about a Post Office bank. I draw your attention to Northern Rock, which is now a bank. It is ripe for something to happen to it. What would be better, what would be more popular in this country than converting Northern Rock into a Post Office bank with a sort of holder-trustee role for the Royal Mail and Post Office network? I hope that the Government will think about that.

Photo of Lord Mandelson Lord Mandelson Labour 4:37 pm, 16th February 2011

My Lords, first, I extend my welcome to the noble Lord, Lord Empey. I knew him well. We worked closely together when I was Secretary of State for Northern Ireland. Judging by his maiden speech this afternoon, I believe he will make a very distinctive contribution to this House. I am also looking forward to the maiden speech of the noble Lord, Lord Dobbs. I was just talking to him outside the Chamber when a colleague of his came up and hailed us both as "the men of fiction". I am not quite sure what he meant by that.

Some things never change. This Bill is a bit like the repeat of a bad dream with its unhappy ending. The noble Lord, Lord Razzall, who is not in his place, referred to the scars that I bear. I can assure the House that I bear them fairly lightly, but it is noteworthy that the scars, such as they are, were inflicted not by this House but by another.

Yet again we are debating the Royal Mail and the structure and regulation needed to secure the universal postal service which the public demand but which-this is the crucial factor-we all depend on much less because of digitalisation. We are debating the same, broadly unchanged, Royal Mail which can and should perform like a modern logistics company but which retains too many of the characteristics of a government department. There is nothing wrong with government departments-I miss them greatly-but they are not commercial organisations, which the Royal Mail needs to be.

The Royal Mail needs a settled existence, which is why I cannot go along with my noble friend Lord Christopher in suggesting that we should drag our feet for a longer indefinite time. To create such uncertainty for the Royal Mail would be a tremendous disservice to it as an organisation and to its customers. No, it needs a settled existence, but one different from the structure and the regulatory framework in which it is currently operating. That is why the previous Labour Government introduced their legislation, which shared the same aims and objectives as the Bill-indeed, I notice that many of the clauses are similar-albeit with one significant difference: we proposed to keep the Royal Mail in overall public ownership.

Others before me have described how digital communications have transformed the Royal Mail's world and its market. That does not need further elaboration from me. That means that the Royal Mail has to reinvent itself. It must rationalise and modernise, as almost every other postal service among developed countries has done. It must harness all the new technology available to it to adjust its cost base and show real enterprise and innovation in the services it provides.

The Royal Mail has started to do that, but is it really capable in its present form of changing in the way, to the extent and at the speed that is needed? My answer to that is no; the answer of the coalition Government is no; and the answer of the previous Labour Government was also no. It is just too unprepared, too unfit. It does not have the right commercial structure to operate it. It has a single company union, which is, frankly, too remote from the wider world. It has relations between management and workforce that must be further substantially improved to enable change to take place at a faster pace. The company has a single client regulator that is not only overly constraining, in my view-I will come back to that-but insufficiently versed in the wider digital world. It is dependent on state aid, which is, frankly, slow and inadequate for what it needs to do.

For all those reasons, the Government have no alternative-just as we found when we were in office-but to bring forward a Bill that enables a fresh start to be made. I am very sorry that Labour MPs came under considerable union pressure to derail the previous Bill. The CWU succeeded in its aim, which was regrettable for this reason above all. In defeating our Bill, the CWU paved the way for the Bill that we are debating today. Quite literally, the CWU has, through its actions, become the midwife of the Royal Mail's privatisation.

Photo of Lord Brookman Lord Brookman Labour

I thank the noble Lord for allowing me to make a comment. I know the leadership of the post office workers' union-I have worked with them at the TUC for many years-and I do not acknowledge the picture that the noble Lord has painted of the Luddite trade unionists who work on behalf of Post Office and Royal Mail workers. They are good people doing their best for ordinary working people.

Photo of Lord Mandelson Lord Mandelson Labour

I rather regret that my noble friend used the word Luddite in relation to the employees of the Royal Mail. I did not use that term, and I very much regret that it should be so misapplied, as he has misapplied it, to the overwhelming mass of employees of the Royal Mail who know that they need to embrace change but, I fear, did not and do not have the leadership of the union to enable them to do so in the way that they need and wish to.

The task now is to make sure that the new Bill secures the Royal Mail's future and the viability of its business model, underpins the universal letter delivery service that the public requires and relies on and sustains the relationship between the Royal Mail and the nationwide post office network. This needs to be got right in this Bill. These goals are chiefly dependent not on the Royal Mail's ownership but on the new legislative framework of regulation which the company will operate within. I have no doubt this needs extensive rethinking. I say this frankly: Labour did not get the Royal Mail's regulatory regime right early on when we introduced legislation, and that is why we proposed extensive reform in our Bill.

In my view, the priority for debate and amendment in this House should concern chiefly the clauses of the new Bill concerning future regulation. This is the nub of the issue and where the greatest and most detailed examination needs to take place because we need regulation that enables Royal Mail to compete without both hands tied behind its back. This means regulation which recognises the unique role of the Royal Mail as the universal service provider and its need to be profitable in delivering the service. It must also provide the basis for attracting much-needed new capital to the company and experienced management who can provide skill and expertise.

I accept that it is at least arguable that under Labour's original legislative proposal for a strategic partner in a minority position in the company, it might have been hard to attract the required capital and management strength, and that, from this minority position, it might have been too difficult to bring about the necessary change to turn round the company. In any case, this is history. What I cannot accept, though, is that a so-called foreign presence in the ownership of the Royal Mail is somehow treacherous or bound to lead to disaster, as we have heard expressed again and again in the other House. Deutsche Post and TNT in the Netherlands have shareholders from across the world, including Britain, and international alliances between Europe's postal operators will be widespread in the future. We do not have a nationality test for investment in Britain. The previous Labour Government were implacably opposed to such a thing, notwithstanding the wider review of take-over rules that I initiated. We are successful in Britain at attracting inward investment. In former utilities, we now have EDF, RWE and E.On, for example, and many people's jobs in Britain depend on that investment and that ownership. So let us not have false, little-Englander sentiments injected into the debate.

Our examination of the Bill should focus instead on the detail of the new system of regulation, on which I hope the Government will be open to argument and persuasion. However, we cannot let this moment, an opportunity for reform, end in failure again. Royal Mail, once reformed, will then need stability and to be allowed to get on with its job, and in that context I welcome the fact that from Labour's Front Bench we have not heard a commitment to renationalise the Royal Mail should it pass out of state ownership. This is sensible. As with gas, water and electricity in the 1980s and 1990s, Labour moved from a position of flat-out opposition to change, to a decision not to renationalise, to an embrace of these utilities performing well in the commercial sector. I suspect that history will repeat itself should privatisation be achieved.

My last observation is only that there is probably a wider moral to the Royal Mail saga: that when difficult issues come along, we cannot just run away from them. There is a Labour way to change things, and for us that meant bringing in a new partner but in minority ownership. When that Labour way does not happen or is stopped, the issue does not go away. It comes back, sometimes with a solution in a less palatable form than we originally wanted. That is exactly what has happened here, just as the then Prime Minister and I warned would happen if our reform and our Bill did not go ahead. I am only sorry that our warnings fell on deaf ears at the time.

Photo of Lord Dobbs Lord Dobbs Conservative 4:51 pm, 16th February 2011

My Lords, I rise on a somewhat nervous knee to address this House. The warmth of the welcome that newcomers receive here is well known, and I am immensely grateful for it. I have had the honour of being introduced here by two of my longest-standing friends in politics. I advised the noble Lord, Lord Hunt of Wirral, at the very start of his parliamentary career 35 years ago, and he is now returning that favour with his characteristic gentleness and humour. As for the noble Lord, Lord Tebbit, I have been a friend of his and his very special wife Margaret for almost as long. I began working closely with him at a time when he was referred to in another place as a semi-house trained polecat, and I was described as his baby-faced hit-man. Time changes many things. I am unsure whether that polecat has yet morphed into a pussycat, but the baby face has, I fear, melted into middle age. I am fortunate to have many friends of long standing in this place, but I would like to mention one in particular. I have been a colleague and friend of the noble Lord, Lord Sharkey, for a quarter of a century. Today we sit on different Benches, but when we started here together he was kind enough to send me a simple message: "Brothers in arms again". Those words sum up beautifully the very special spirit of this House.

I crave one further indulgence, if I may, to say how superb has been the support given to me by the staff, particularly the Doorkeepers, whom even now stand at the ends of the Chamber like my own Praetorian Guard, discouraging both invader and deserter alike. When I first heard from the Prime Minister that he wished to take the surprising risk of sending me here, I was standing in the queue at my local post office in the beautiful Wiltshire village of Wylye, which, like post offices in almost all rural areas, has faced the whirlwind in recent years. On a crowded afternoon such as this, it is not necessary for me to spell out in detail the ferocious impact that the closure of rural post offices has had on the central fabric of village life; the noble Lord, Lord Empey, and many others here this afternoon have already done that. I therefore applaud wholeheartedly the Government's initiative in deciding to invest additional money in the post office network and, among the many other things in this Bill, their determination to sustain the rural post office network. Yet the additional funds, as generous as they are, will not be a panacea. Many rural post offices are hanging on by their fingertips. They still face immense challenges, and they deserve better than they have been given in recent years. In 2007, Post Office Ltd announced a massive closure programme. Many local communities were not properly consulted. I had plenty of experience of that failure myself and Consumer Focus, the statutory body for the post office consumers, concluded that communications from the public during this period were treated as nothing more than a necessary evil. Rural post offices are far too important for such a process to be repeated.

In welcoming this Bill, may I draw one point to the attention of my noble friend Lady Wilcox and offer one suggestion? The point is this: Post Office Ltd statistics suggest that we still have more than 11,000 post offices in this country. That is not correct. More than 800 of that total are not really post offices at all, but what might better be termed "postal outlets"; part of what is called the outreach programme. Many of them are former post offices that have been redesignated as outreach partners. They lack any real security. In the case of Wylye, for instance, we had a post office one day and an outreach partner the next. It offered almost identical services; the same personnel, the same premises and the same hours-even the same post box. The difference was that the income the shopkeeper received for this work had dropped by more than two-thirds. There is no longer any pension; no sickness pay; no holiday entitlement. In many rural areas, far from the post office subsidising the shopkeeper, it is the shopkeeper who is now subsidising the post office.

They do this because of their sense of civic duty-a desire to carry on serving the community. In that, they truly are the big society come to life. Yet, the goodwill on which many rural postal outlets survive is evaporating and one day will run out. Close the post office or outreach service and we will be forced to watch the disappearance of all the other associated services-many of which are entirely unpaid but are the sinews of village life.

I would ask my noble friend if she would take to heart the very different nature of these outreach services and keep a close eye on them. They are desperately vulnerable and the current reporting requirements contained in this Bill may not be adequate for that job. It would be futile to insist that there be no further closures-sometimes circumstances will dictate-but perhaps I may encourage her to consider the following. When a rural post office or outreach service is facing closure, a minimum of 16 weeks' notice should be given to the local community-particularly parish councils-so that it can have sufficient time to come up with an alternative solution that might keep the postal outlet open and keep alive the host of other vital associated services. Rural communities are incredibly resilient. They can be very inventive. They should be given the chance to show what they can do to help themselves.

Post Office Ltd's own code of practice talks of a six-week consultation period, but its record of consultation is not good. Six weeks is not enough-not when so much is at stake. I would ask my noble friend Lady Wilcox to strike a blow for the rural big society and help strengthen village life in this way.

The red eye of the digital clock is staring at me, warning me that I must not overstay my welcome. Winston Churchill used to talk about having, "so much more still to do, and so little time to do it". I believe he was talking about alcohol, but they are wise words for anyone making their maiden speech. I thank you for your patience. I look forward with tremendous anticipation to finding my place here among you, as a keen and enthusiastic supporter of this Government, if never quite their slave; and, most of all, as a patient, wholehearted and faithful servant of this House.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 4:59 pm, 16th February 2011

My Lords, we have heard a brilliant maiden speech. Comparatively few of us follow in the steps of the great people of the past in creating phrases that become quoted and are everyday phrases in our lives, such as those coined by my noble friend. I was thinking:

"You might very well think that. I couldn't possibly comment".

However, I know that we are all thinking what an outstanding speech that was-and I am the one who can comment on it, and I will. It was 35 years ago that the now noble Lord appeared in my life-I am reminded of the radio programme: "35 years!"; it seemed an age. I am not sure why the Guardian coined the phrase "baby-faced hit-man", but this personality came into the by-election in Wirral to write my speeches, coin my phrases and take over the campaign, and suddenly I was transported into the other place with the largest Conservative majority anywhere in the UK, so I have known for some considerable time of his outstanding speech-writing and famed organisational skills.

As my noble friend Lord Tebbit knows too, my noble friend Lord Dobbs has gone on to be a successful chief of staff but, in particular, a superb writer of-I think-17 novels now. We got a sense of that in the speech that we just heard, and he is now a valued Member of this House. If I am allowed another phrase of his, I shall say that he has just given us a remarkably effective demonstration of his being the epitome of elegant elocution; the last word was slightly different in House of Cards. I am sure that we will hear many great speeches from him. Today was the first in what I hope will be a long line of effective contributions, for which we thank him.

I declare the interests shown in the register, particularly my being a partner in the national commercial law firm of Beachcroft, where I have in fact been a partner for 42 years. I pay tribute to the speech from the noble Lord, Lord Mandelson, my former close working colleague in the British Youth Council. It was a remarkable insight into what we are debating. Having heard the other, very effective maiden speech from the noble Lord, Lord Empey, I say what a debate we are having.

I suppose that we are a fortnight late for Groundhog Day; noble Lords may remember the film starring Bill Murray, in which the leading character was doomed to relive the same day again and again. As my noble friend Lord Razzall said earlier, this debate has a remarkably similar feel to it to many others that we have had. Of course, we had the Second Reading of a Postal Services Bill on Tuesday 10 March 2009. On that occasion all the Front Benches were in favour of it and, after some process, the Bill was improved. The three main recommendations of Richard Hooper in his excellent first report-private sector capital, pension reform and regulatory reform-were not only accepted but embraced by this House. The title of that report, Modernise or Decline, could not have been more apposite. Sadly those dissident voices that were heard from time to time, particularly in the other place, eventually won the day, despite the best efforts of the noble Lord, Lord Mandelson. For once, the noble Lord's powers failed him. It was one of the few occasions on which a Bill with overwhelming all-party support was withdrawn. Now, almost two years on, we are here again.

So what has changed? As the noble Lord and other speakers have pointed out, we now find the Royal Mail in a financial situation that has deteriorated further. Its core market is declining at an even faster rate than predicted, and a dangerous chasm is opening up. The accounting deficit on the pension scheme has more than doubled and, to quote Sir Richard Hooper's latest report,

"doing nothing is not a tenable option ... without serious action, Royal Mail will not survive in its current form".

I could not agree more.

It is no exaggeration to say that unless the serious structural problems are urgently addressed, the future of the universal postal service, or UPS, could be in serious jeopardy, which would be unacceptable. Despite its declining core postal market, the Royal Mail remains the only entity that can preserve the UPS. As Richard Hooper rightly observed in that second report on the future of the Royal Mail, commissioned by my colleagues in the coalition Government, the UPS,

"is part of the country's social and economic glue".

There has been a further development, which is acknowledged in the second Hooper report; namely, that the Royal Mail has changed in a positive direction its management. The need for private capital has intensified, but the need for private sector expertise has now been addressed. New management has brought with it a completely revised and revived sense of mission. I compliment Moya Greene, the chief executive, and her team on having achieved just that. The need now is not for some kind of hybrid, collaborative arrangement with external investors and expertise from the private sector, because Royal Mail possesses the necessary expertise. This new Bill, which I warmly welcome, offers privatisation rather than public/private partnership and is entirely fit for purpose.

I am also delighted that Ministers in the department have heeded calls to involve employees in the sale. The Conservative and Liberal Democrat parties have long agreed that a degree of co-ownership and employee involvement is essential in privatisations such as this. We supported the noble Lord's Bill, but he may recall that we pressed him to be more explicit in ensuring that widening employee share ownership was an objective of the legislation. How to engage employees in an exercise of this kind is of critical importance, and balance must be achieved in a number of respects. Above all, as several speakers in this debate have pointed out, employees must be offered a genuine and meaningful stake in the new enterprise, but managers must retain the power to manage. An important firm such as this must never be vulnerable to being held to ransom by an unrepresentative cabal of activists, be they employees or whoever else.

The coalition agreement commits the Government to the following:

"We will seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership".

As my noble friend has just pointed out, the Royal Mail will become part of the big society. The details of this will be worked out by us all in Committee, but, in principle, it must be the best way forward. Many of us, of course, have had a hand in the privatisations of the past. I was the junior Minister given the responsibility of taking through the legislation to privatise British Gas. I confess to the House, privately, that I was never aware that the uncle of my boss, the late Lord Walker of Worcester, was actually Sid. So in appealing for Sid, I had not realised that I was appealing not only to the wide world. However, it became a successful privatisation in the spirit that my noble friend then always dreamed of. There is no need to reinvent the wheel and I am sure that my noble friend and her ministerial colleagues will draw upon the considerable expertise that is available and at her disposal in this House.

However, I stress that time is not on the side of Royal Mail. It was the height of irresponsibility for the previous Government to take up so much important parliamentary time with this legislation only to abandon it. We were never quite sure why it was abandoned but it seems to have been on the grounds of political expediency. It is very much to the credit of Vince Cable, Ed Davey and my noble friend the Minister, strongly supported by their Conservative colleagues, that they now seek to succeed where Labour lost its nerve and so signally failed.

The urgent need to address the secular decline of Royal Mail was first identified in the 1990s by the Major Government and then, through a parliamentary Statement, on 17 December 1998 by the Labour Government. We have wasted enough time. The time has surely come to give to the Royal Mail the opportunity that it craves, not only to survive but to flourish. I hope that all sides of the House will see that, by giving the Bill our constructive support, it could be on the statute book by the summer. Then, and only then, will the Royal Mail be transformed into the success story that it deserves to be.

Photo of Baroness Kennedy of The Shaws Baroness Kennedy of The Shaws Labour 5:12 pm, 16th February 2011

My Lords, I, too, add my warm congratulations to our two maiden speakers, the noble Lords, Lord Empey and Lord Dobbs, who undoubtedly will add to the riches of this House. It is wonderful to have them here.

The Post Office plays a special role in our society. It is one of the best known and respected institutions and is vital not only to our economic life but to our social and community life. It regularly delivers to every address in this country-on average 75 million letters every working day of the year-and the nationwide network of post offices is visited each week by the equivalent of half the population. If noble Lords are reeling at the statistics, so did I.

I applaud efforts to modernise a resource which is so precious. I, too, want it to work ever more efficiently and effectively in our contemporary world, where there is an increasing reliance on electronic communications, on the one hand, and, on the other, a burgeoning of online shopping which increases package delivery. The Post Office needs to evolve new ways of working; it needs to be better at business. Technological advances should be absorbed and the local post office should be strengthened as a source of community cohesion.

I say immediately that there are pluses in the Bill. I, too, support the way in which the Government seek to deal with the pension deficit. I, too, am in favour of the transfer of regulation to Ofcom, although I would like to play a part in the detail of the regulations. I also welcome the idea of employee share ownership, as long as it is not just icing to make palatable a privatisation which may, in many ways, be distasteful.

However, I am alarmed at the route the Government are taking, and I am not alone. Polling has shown that the public do not want to see the privatisation of Royal Mail. They see it as the turning of a public service into a private monopoly. This is regardless of political party-it was interesting to see from the polling that members of the Conservative Party were just as concerned as members of other parties. A majority see this policy as a threat to the six-day delivery service and they suspect that private providers will not want to subsidise unprofitable parts of the universal delivery system. They believe that privatisation will lead to higher prices. The experience of the privatisation of other services, from rail to gas, supports their suspicion.

The noble Lord, Lord Empey, made an important point that, to the public, the Post Office and the Royal Mail are all one-the public fear that, despite promises that are being made by the Government, their local post office will be put at risk of closure. I know the Government have promised that there will be few closures of major post offices and they have made a commitment to maintaining 4,000 large post offices and 2,000 smaller outlets operating out of local shops. However, analysts have shown that the restructuring of the post office network through setting up mutuals will probably deprive post offices of, certainly, at least a third of their income unless other ways are found of filling that. I am very happy at the idea of mutuals-I like the John Lewis Partnership idea-but sub-postmasters who run sub-post offices out of retail shops, after discussion among retailers, have expressed concern that, without new business, the mutual concept will not make economic sense.

It was very entertaining to listen to the noble Lord, Lord Mandelson, rebuke the unions, Labour MPs and others who rejected his own Bill. However, what he seemed to forget was that a much more imaginative, radical and exciting proposal was made around the same time by the think tank Compass, which proposed that the Royal Mail be turned into an independent company, based on the structure that was created ultimately for Network Rail. A restructured Royal Mail and Post Office, operating as a not-for-profit company, would have the ability to borrow and to invest in new technology without affecting government borrowing limits. Creating such a not-for-profit company would have also put a halt to the ridiculous business of separating out the Royal Mail from the Post Office. However, as the noble Lord, Lord Tunnicliffe, has said, this is a classic case of selling off that which is profitable to the private sector but holding in national ownership that which is non-profitable. You privatise the money-making element and let the taxpayer carry the cost of that which is risky.

I did not hear the noble Lord, Lord Mandelson, mention the inadequacy of the management of the Post Office when he was criticising the current regime. The managers are, in many ways, lacking in entrepreneurial spirit, overpaid and part of the problem. I hope that the new man who is coming in to lead will make the changes necessary-

Photo of Baroness Kennedy of The Shaws Baroness Kennedy of The Shaws Labour

It is a woman, is it? Well I am sure that will be better. If it is a woman then it is bound to be an improvement.

All I can say is that, while there has been criticism of the unions, there seems to have been insignificant criticism of those who managed. When Compass came up with the proposals for a not-for-profit company, it was argued that the unions would have to come on board; that they would have to be willing to enter into a new and real partnership with new management, with the public and with Government; and that they would have to agree to new technology and abandon old practices in sorting offices. I am sure they could have been won round to that proposal, but sadly the Government opted for the sell-off that is in this Bill.

I have sat through many debates in this House in which noble Lords have expressed concerns about the destruction of communities and I have listened as they talked about the glue that holds society together. The social value of post offices cannot be underestimated, yet here we are with an opportunity to modernise the Post Office and Royal Mail in ways that strengthen those ties but we have baulked at taking that more radical way forward. A sense of community is reinforced by citizens in an area sharing certain resources whatever their social background-the local library, the primary school and the post office. A modern post office should be reinvented, as we have heard others say, as the shop window of local and central government as well as the provider of postal services.

When I chaired the Power report, one recommendation that we made was that there should be the creation of local democracy hubs as centres of information and advice about the working of our polity. Those hubs provide the public with the right channels for complaint or provide an opportunity to contribute ideas to good governance; they are a place to find out about local initiatives, and are where voter registration could take place. There is no reason why the Post Office could not take on that kind of role. It would also be the locus for passport and licence application and the local centre for pension and other social entitlements. All this could be added to the remit of large post offices, making them the interface between government and the citizen. They could house offshoots of Citizens Advice, providing advice on debt and advice on small legal problems. If communication is your raison d'être, why not introduce some computer terminals so that those who have no computers at home, including the elderly and disadvantaged, can send e-mails. With the assistance of someone in the post office, they would be able to use the new technology for which they do not yet have the skills. Post offices should be the centre of high street community life, as well as fulfilling the functions mentioned by the noble Lord, Lord Dobbs, in outreaching rural areas.

The big disappointment in this Bill is the failure to use the post office as the site of the people's bank. I heard laughter when that point was made by the noble Lord, Lord Christopher, but whole sections of the public want only simple high street banking, with none of the high-risk casino components that put savings and mortgages at risk. They want banks like the old Trustee Savings Bank and the National Girobank, which were put out of business by the banking industry. A people's bank could be all that many citizens want and, in addition, could lend like credit unions to poor but prudent citizens in need of small loans to keep them from the loan sharks. Those people's banks could even be a way of exploring micro-financing in some communities, so that small groups of neighbours can come together to support each other's borrowing to establish small, self-sustaining businesses. We see it working in other parts of the world and, in fact, being tried out in my home city, where the Grameen banking system is being used to help people set up in businesses that do such things as hairdressing, laundry systems, ironing services and clothing alterations. Those are small things that keep families together and help to sustain them.

If the big society has meaning, this Bill should really be rethought to encompass some of the ideas that are around, of which the Government have taken no account. I know that they have put a lot on their own plate, but this piece of policy could benefit from a great deal further thinking. I know that I will be going into battle with the coalition Government on the privatisation aspect of the Bill but, on the reinvention of the post offices, I hope that with others around this House I can make a more constructive contribution and help to see ways in which to revitalise the post office system.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Labour 5:23 pm, 16th February 2011

My Lords, I add my congratulations to the noble Lords, Lord Empey and Lord Dobbs, on their excellent maiden speeches. I have had the pleasure of speaking to the noble Lord, Lord Dobbs, and I am sure that I will shortly have the pleasure of speaking to the noble Lord, Lord Empey. I look forward to their contributions in times ahead.

I have a number of comments to make on the Government's proposals in this Bill. I have no issue with the injection of private capital or private finance into the Royal Mail. Noble Lords will be aware of the proposals made by the previous Government. As noble Lords have said, there are a number of similarities in the two Bills. I want to see a successful Post Office and Royal Mail. However, I am not clear about the employee share ownership scheme and hope that the Minister will be able to talk further about this when she responds. How will the shares be distributed, what can employees do with them and what are the benefits of the proposals?

I hope that during the passage of the Bill through this House we will explore the issue of protecting the name "Royal Mail". I am sure that the Minister will say that there is no need to worry about that and that any new owner would be daft to change the name. Well, people do daft things all the time. I recall the short-lived Consignia, whose rebrand was reversed in haste in 2002. I am pleased that the Government are not proposing the sale of Post Office Counters.

At this point, I declare an interest as a member of the Co-operative Party and a big supporter of mutuals. The possibility of the Post Office moving to mutual status at some point in the future is interesting. Again, we need to explore that further as this Bill progresses through the House. It could be a welcome part of the solution to the problems of the Post Office. I know that the Minister is aware of my support for the development of credit unions in this country; we have had a conversation outside the Chamber and I recently asked her an Oral Question on that subject. I am very supportive of the link-up between the Post Office and credit unions. By developing the credit union back office, millions of people would gain access to credit union services at any post office in the country.

I contend-and I think that many noble Lords would agree with me-that the big society is in some trouble. We have again had a relaunch from the Prime Minister. It could be said that this would be a good example of the big society, as I understand it. I suggest to your Lordships that the passage of this Bill is an ideal opportunity to explore these proposals further. It is certainly one of the growth areas that the noble Baroness referred to when she opened the debate.

I am pleased with what the Minister said about protecting post offices and that there will be no further closures; I made a careful note of that. I am particularly pleased that noble Lords on all sides of the House recognise the central position of post offices in supporting communities. In any link-up, the Post Office needs to be successful both in rural communities and, just as importantly, in deprived communities in our towns and cities, as it is central to community life. I welcome the proposals to deal with the Royal Mail pension fund, as I do those to transfer the regulator's obligations to Ofcom.

In concluding, I concur very much with the remarks made by the noble Lord, Lord Low of Dalston, about the universal postal service obligations and the Minister's remarks that the Bill will benefit greatly from consideration by your Lordships' House. I hope that we will be able to suggest amendments that will improve the Bill and that those amendments will be considered carefully and in some cases accepted before further proposals are brought back on Third Reading.

Photo of Baroness Howe of Idlicote Baroness Howe of Idlicote Crossbench 5:27 pm, 16th February 2011

My Lords, I, too, congratulate the noble Lords, Lord Empey and Lord Dobbs, on their quite excellent maiden speeches. I also start by thanking the noble Baroness, Lady Wilcox, for the excellent way in which she introduced this government Bill. It is clear that the Bill is welcome in a number of ways; equally, it is clear that all of us share a number of concerns about how the future will work out for this service-this serious piece of national infrastructure, as the noble Lord, Lord Empey, put it so well-particularly for one of our nation's most cherished institutions, the Post Office.

The Post Office is clearly valuable to all of us but it is uniquely placed to cater for vulnerable and deprived groups. It is also the largest retail network of its kind in the country, with more branches than the major high street banks combined. It has also gone above and beyond its statutory obligations to ensure that it provides accessibility and additional services for those that require them. This is especially true for their disabled and elderly customers.

The Post Office has recently conducted access audits across the whole of the branch network. A temporary team of 50 managers visited over 850 branches and talked with sub-postmasters about their plans to improve accessibility within their outlets. I enjoyed listening to the noble Baroness, Lady Kennedy of The Shaws, about the potential of her further ideas for how they could be even better used. Part of the audit showed that impressive information was gathered about accessibility and facilities, such as low payment counters, induction loops, alternative language availability and other services. Of course improvements are required but the erosion of this valuable network would be disastrous for those who rely on such services. Today I will consider how any deterioration in the network's strength might best be prevented.

First, the Bill is a welcome attempt to address the dire situation facing our universal postal service-Royal Mail and the Post Office. Let us be in no doubt that the future of the two companies, though structurally separate, will be entwined after the passage of the Bill, thankfully. The Bill goes a long way to addressing the problems Sir Richard Hooper identified in the immediate crises facing these companies, as many people have referred to. Perhaps most importantly, it alleviates the crushing burden of the £10 billion historic pension deficit. This alone costs the company around £300 million a year, so that is a most welcome development. It also allows Royal Mail to continue on the long and sometimes tortuous path of modernisation-although at a faster pace, I hope.

Secondly, a healthy, vigorous Royal Mail is critical. I am sure your Lordships will be united in wishing to see the business look to the future with greater financial certainty and a substantial investment to meet the needs of rapidly changing consumer demands. Only by modernising and meeting the needs of modern consumers can Royal Mail generate the income to meet properly its universal service obligations. In turn, this should enable it to operate a commercially productive relationship with the Post Office long into the future.

Thirdly, the Bill attempts to address the regulatory landscape in which postal services operate, which the noble Lord, Lord Mandelson, and others have mentioned. There is wide agreement that the current framework has failed. However, I have my doubts as to whether the Bill does enough to provide change in this area. There is a bizarre situation, which others have mentioned, whereby the taxpayer and domestic mail users subsidise private companies to the tune of around £160 million a year through privileged access to the Royal Mail network. I am sure all noble Lords would like assurances that such a scenario does not continue. Again, if the bleeding of funds away from Royal Mail through such regulation continues, it will adversely affect its ability to put business through the Post Office.

I have spoken in support of the Bill as it stands, but what is of concern to those of us seeking to protect the national network of post offices is how little is included on the future of Post Office Ltd. The Bill makes provision for a possible mutualisation of the Post Office. Like others, I welcome that idea but how this will happen is unclear and very much a matter for the Government of the day, whenever that day comes. I believe the Minister for Postal Services has also stated in another place that this will be very much on the horizon some time after 2014. What is of concern to parliamentarians seeking to protect the post office network is the extent to which its future will be at the whim of the policy of the Government of that time, and not subject to the legislation before us.

The present Government have committed to a £1.34 billion funding package to transform the network, which is, of course, very welcome, as, indeed, is the commitment to maintain the network at its current level with no further programme of closures. Nevertheless, when Ministers are trying to tighten the reins on public expenditure, the level of government business being put through the Post Office becomes even more crucial. Until very recently, such business was the most important source of revenue for sub-postmasters. It also raised footfall through their branches and made their ancillary businesses viable. However, as we have all heard, government business has declined dramatically over recent years. Indeed, in 2008, the Government very nearly took away the contract for the Post Office card account-a critical source of revenue-but for the last-minute intervention by worried senior Cabinet Ministers at that time.

The current Government have promised to make the Post Office the "front office for government". What I, your Lordships, sub-postmasters, consumers, and many other interested parties would, I am sure, like to hear are specific proposals and commitments on how this can be achieved, and when. Therefore, I look forward to hearing detailed assurances from the Minister when she replies.

Photo of Baroness Wheatcroft Baroness Wheatcroft Conservative 5:36 pm, 16th February 2011

My Lords, first, I welcome the maiden speeches that we have heard from the noble Lords, Lord Empey and Lord Dobbs. As a newcomer to this place myself, I am delighted to be in such illustrious company.

The Royal Mail is something that the British public hold in high esteem. It is not to be meddled with without great consideration. Many of your Lordships will have chosen to forget that unfortunate episode when, in a silly quest for change, the Royal Mail and post offices were subsumed into Consignia. That expensive exercise was later summed up by the BBC as:

"Nine letters that spelled fiasco".

Consignia did not last long; new management tossed it on the pyre of corporate nonsense. As Ecclesiastes says:

"A good name is better than precious ointment", and, despite its occasional problems, the Royal Mail undoubtedly retains a good name because it delivers a remarkable service.

However, the need for change in the business is pressing. The Bill enables that change. It seeks to separate Royal Mail from the network of post offices. They are separate businesses with a trading relationship that we are assured will remain. However, guarantees of that, at least for the medium term, might be appropriate. The current chairman of Royal Mail has given his absolute assurance of that continuing relationship, and there is every reason why we should trust Donald Brydon. However, as part of our review of the regulatory framework, we might, for the benefit of post offices, seek something stronger. Even the best chairmen do not last for long in corporate Britain.

I wish to make two points, one on each of the organisations which will emerge. The first concerns the crucial proposal that the Royal Mail should be sold entirely. Its need for a new life freed from the constraints of the public sector is clear. There is a future for Royal Mail despite declining volumes. Direct marketing may be junk mail to some of us but is potential revenue for Royal Mail, so is much that is purchased via e-commerce, the business which has taken over from mail order. The picture is not all gloomy.

The universal service obligation must be maintained but we have to be realistic about this. The Bill gives Ofcom the right to review the sustainability of that obligation. It needs to be measured against genuine demand. A recent survey found-admittedly by a narrow majority-that individuals and small businesses would consider a move to a five days a week service if reliability could be upheld. We should remember the outcry at the loss of the second daily delivery. I contributed to that outcry. Some said that it would be impossible to live without that second delivery. Life went on and business did not, on the whole, suffer.

My plea now is that we should aim to float the company through an IPO, rather than to sell it to a corporate bidder, almost certainly from another country. That is not because I echo the "little Englander" views that the noble Lord, Lord Mandelson, said were far too prevalent these days, but we need to try once more to create the share-owning democracy that was part of the ambition of the noble Baroness, Lady Thatcher. We have heard reference to the successful flotation of BT. What happened afterwards was not entirely wonderful but was nevertheless part of obtaining a bigger shareholding base in this country.

Yet, since the success of those early privatisations, the proportion of UK-listed shares owned by individuals here has been on a downward trend. From a height of 54 per cent, it had by 2006 sunk to 13 per cent, and the most recent figures from the Office for National Statistics put the proportion at just 10 per cent. The Bill makes provision for employees to become shareholders, but as we heard from the noble Lord, Lord Christopher, employee shareholders do not always hang on to the stock. A solid core of private investors, however, makes for good corporate governance. These people invest for the long term and take an interest in the company far more than institutional shareholders. Private shareholders turn up at annual meetings and ask questions. Institutional investors are too often the absentee landlords of British business.

An army of "Sids" subscribing to shares in Royal Mail would not be able to turn back the tide of correspondence migrating from letters to e-mails, but they might make a difference. They would see the merit in doing business with the company they owned. They might decide to send greeting cards through the post, rather than merely pressing the button on that abhorrence, the e-card, which is a poor replacement for an enticing envelope arriving through the letter box. For that and for more fundamental reasons, I hope that as the sale of Royal Mail approaches the possibility of an IPO will be top of the list of favoured options. I know that the Government's position is that the sale is open to all comers, but an IPO would get my vote.

My second point relates to the post office network, which this Bill promises will not be sold, although it could be mutualised. Like the noble Lord, Lord Christopher, I should like to hear more details of the proposed mutualisation. Nevertheless, as we have heard, post offices remain a remarkable retail business, each week serving more than 21 million customers. That puts the organisation on a par with Tesco. The Post Office is a trusted brand. Compare that with the banks. The annual trust barometer recently published by Edelman showed that the UK's trust in banks had fallen to just 16 per cent-a 30-point reduction over three years. Hence, I agree with those who this afternoon, led by the noble Baroness, Lady Kennedy, have said that the Post Office is, and should be, an alternative bank. Noble Lords may recall Girobank, launched in the 1960s, but it was not properly nourished and was eventually sold in 1990. Today's climate would surely be more welcoming to such a venture.

The Banking Commission, when it reports later this year, will undoubtedly highlight the need for greater competition in banking. The Post Office could provide it. That is not a novel thought. The previous Government came up with the name, the "People's Bank", although that may have overtones with which some noble Lords do not feel entirely comfortable. However, the concept of building up the Post Office as a trusted bank is surely worth pursuing. It already offers mortgages and credit cards. Some might argue that as a major owner of bank shares, the Government would not wish to encourage more competition in the marketplace-but competition is required and it is coming. The Post Office is surely well placed to provide it. I take this opportunity to add my voice to those asking the Minister to look again at the possibility of building up the banking business of the post office network.

Photo of Baroness Drake Baroness Drake Labour 5:44 pm, 16th February 2011

My Lords, I, too, congratulate the noble Lords, Lord Empey and Lord Dobbs, on their maiden speeches. Perhaps I should advise the House that I represented telecom workers, including those in BT, and following union mergers became an employee of the CWU as deputy general secretary of its telecommunications sector.

I am concerned about the regulatory framework within which a privatised Royal Mail will operate and the implications for investment in the company and for the universal service obligation. There is a broad view that the regulation of Royal Mail has been harsh. That is clearly Moya Greene's view. Richard Hooper stated in his report that he was,

"struck by the depth and range of disagreements between Royal Mail and Postcomm. Even the most basic facts are disputed".

He also concluded in his updated review that,

"The overall burden of regulation should be reduced".

The compulsory regime of access to Royal Mail's network, particularly downstream access-local delivery in the last mile-results in Royal Mail subsidising its competitors. As my noble friend Lord Christopher and the noble Baroness, Lady Howe, said, Royal Mail makes an average loss of 2.5p on every letter that it delivers on behalf of a competitor. The subsidy is of the order of £160 million a year.

Richard Hooper, in his evidence to a committee in the other place, commented:

"Cherry-picking is a big issue ... It basically means that somebody comes in and starts delivering two days a week to Liverpool, Birmingham, Manchester, Edinburgh, Glasgow and Cardiff, and then expects the rest of his or her mail to be delivered by Royal Mail to all the nasty places that cost lots more money".

I am advised that Royal Mail has now lost 60 per cent of the upstream bulk mail market to competition in this way, and the figure keeps rising. It is also subjected to significant price regulation even in the most competitive parts of its market. That regulation has an asymmetrical feel about it. It will not sustain a viable business model; it will not secure major capital investment; and it will not deliver the requisite universal service.

It is clear that a truly universal national service that ensures delivery at affordable prices and meets the country's social and economic needs requires cross-subsidisation. If Royal Mail ceases to be a publicly owned body and becomes a private company, there will be a need for considerable confidence that the Government are giving to Ofcom both the instruction and the power to prevent cherry-picking damaging the universal delivery service, levels of investment and the viability of Royal Mail itself. If the conditions set by the regulator for competitors' access to Royal Mail's network disadvantage the company, a private buyer will struggle to see a business model that is in their commercial interest, and will certainly be reluctant to make the significant levels of investment necessary to deliver modernisation, develop new digital businesses and get the company to best in class.

Market conditions for postal service operators are challenging because of the growth of e-substitution and digital media, as any potential buyer will know. The regulatory settlement must allow the owners of Royal Mail to succeed commercially and bring capital and investment to the company in a manner that meets the needs of the users and sustains the universal service. Ofcom has a good reputation, but experience teaches us-the evidence is there-that regulators do not always get it right, and certainly not first time, when they set the terms and price for network access. This can undermine the level of capital investment in the major network provider. Equally, determining the definition of universal access and service requirements and the extent of the cross-subsidy can be greatly contested, particularly in changing and challenging market conditions, and the citizen's national strategic interest can be lost in that debate.

In postal services it is important that the response to this challenge-because that challenge will be there and Ofcom will have to address it-is not to reduce the extent of the universal service and the products delivered. In fact, in our e-commerce world there is a powerful case for strengthening the obligation. If the new regulatory regime is to place postal regulation within the broader context of the communications market, it is important to remember that for many small businesses, certainly in rural and remoter communities, a universal postal service is as important as broadband access to their ability to participate nationally and internationally in an e-commerce world. The statistics confirm, for example, that internet sales are a growth area in the mail market, with internet shopping estimated to be worth £60 billion a year.

If the Bill does not unequivocally secure a meaningful universal service for all communities across all geographies in the country, many will be disenfranchised from areas of the mainstream-whether that is a cluster or hub of companies in Cornwall or the Highlands or a grandmother receiving a birthday card at her door. More than 10 years ago, I and many others argued passionately for universal access to broadband when regulators and civil servants were saying that such a proposition was unachievable; now, the debate is about speed and the need for universal access is simply taken as a given. Many people and companies cannot universally engage in e-commerce without the logistical back-up of an efficient and affordable universal delivery service.

The Bill sets the primary duty of Ofcom in relation to postal services as securing the provision of the universal postal service, but it also gives the regulator the authority to review what it considers must be provided by such a service. The Bill potentially weakens the universal service obligation. For example, it allows Ofcom to assess the financial burden of the universal service on Royal Mail and to make recommendations on how to alleviate that burden, which could include a recommendation that the minimum requirements in the Bill be reduced.

Indeed, Ofcom is directed to review the minimum requirements within 18 months of the passage of the Bill, which coincides with the time period over which the Government are looking to make a sale. A private company interested in acquiring Royal Mail will act in its own commercial interests and may well seek to push for a narrower definition of requirements or resist a lock-in to the post office network. Governments keen to secure a buyer will be under pressure to maximise freedom for the purchaser. A great deal is left to regulation. There is a real risk that the rigour of a regulatory review in the interest of the citizen and the consumer will be a casualty of the forces of political pragmatism, for whom the necessity of achieving a sale will be paramount.

The House of Lords Delegated Powers and Regulatory Reform Committee, while recognising that many of the delegated powers in this Bill are the same as those in the earlier Bill from the previous Government, drew to the attention of this House that the Bill gives a significant power to the Secretary of State to alter the minimum requirements for a universal postal service. This indicates that parliamentary oversight of changes to the requirements should be strengthened, and certainly that Ofcom's review under Clause 33 should be laid before Parliament in a report. This, I believe, would be consistent with the recommendations in the 2008 Hooper report.

In conclusion, I have stressed what I believe to be both the economic and the social value of maintaining a universal delivery service. However, I certainly do not have in mind Charles I-not known for his willingness to be accountable to Parliament-who, my historian husband assures me, used his Royal Mail officials to regularly open and illegally copy diplomatic mail from the French.

Photo of Lord Cotter Lord Cotter Liberal Democrat 5:54 pm, 16th February 2011

My Lords, I am glad to be able to welcome the Postal Services Bill here today. I also welcome the two excellent maiden speeches given by the noble Lords, Lord Empey and Lord Dobbs. When I heard the speeches of the noble Lords, Lord Mandelson and Lord Hunt, I had a sense of déjà vu, which the noble Lord, Lord De Mauley, might share. I hope that on this occasion we shall see a successful conclusion to our deliberations. I apologise to the Minister for not being present for a few minutes at the beginning of the debate. I heard most of her words and shall read the rest in Hansard.

As has already been made clear, everyone expects that some action has to be taken to improve the current situation with the Royal Mail and the Post Office. The Bill addresses that and is designed to improve the current problems that the services face. It is also important to note that the Bill takes a major step forward in committing to at least 10 per cent of share ownership by the employees. That will ensure that there is not a total privatisation. The unsuccessful Bill introduced by the previous Government did not contain such a provision for shared ownership.

It is important that the Post Office diversifies and opens up its services by encouraging new initiatives. Those will include post offices in rural areas perhaps, developing services tailored to customers' needs or providing a one-stop shop for government services in inner-city areas by offering services such as the verification of documents and the processing of benefit payments. I know that there are many other ideas about how to use the Post Office in the future. I welcome the fact that the present Government have committed funds to support this process. We must encourage an entrepreneurial spirit to ensure the Bill's success and generate innovative ideas.

It is a pity that the post bank initiative has not been carried forward in the Bill, as there is room for alternative systems in light of the banking crisis. I ask the Minister to clarify any role that a post bank or similar could have in the future. It is certainly very useful that the consumer can access the big banks' services through post offices, but it will be good if other initiatives can come forward. Recently there has been quite a lot of talk about the expansion of credit unions, for example. The noble Baroness, Lady Kennedy, and the noble Lord, Lord Christopher, spoke about that aspect of the future for the Post Office. Where you have local post offices, it is very important indeed that people feel that they can use them in some form as a bank.

Coming from a small business perspective, I know that the Royal Mail and the Post Office have played an integral part in the running of businesses on a day-to-day basis. Like many others, I welcome the fact that the Bill reinforces the universal service, which ensures that small business's needs are listened to and considered. Some 77 per cent of small businesses say that they use the Post Office to send their parcels to their clients and customers. It is so important that this Bill will be part of the process to ensure that we get good delivery of the mail and a good service locally for businesses and people in all parts of the country.

Mutualisation has been mentioned, and I know that that will be developed when we discuss the Bill in Committee. It is another very important aspect of the Bill in terms of the changes that we can and should make. I welcome the Bill. I believe that it lays down the necessary framework to ensure the future success of the Royal Mail and the Post Office.

Photo of Lord Rowe-Beddoe Lord Rowe-Beddoe Crossbench 5:59 pm, 16th February 2011

My Lords, I support the Bill, which, in principle, I welcome warmly, as indeed I supported in principle a Bill on similar matters which the then Government introduced in 2009. The Bill has in many respects cured certain significant defects in the 2009 version.

Before I go further, I welcome and thank my noble friend Lord Empey and the noble Lord, Lord Dobbs, for their excellent contribution to our proceedings this afternoon.

As many noble Lords have said, there is much probing to be done as well as the tabling of amendments at later stages to ensure that the sale of Royal Mail achieves optimum value for the taxpayer, on the one hand; and, on the other, that it secures a universal postal service which is appropriately enshrined in statute. At the same time, increasing flexibility on pricing, and hence on margins, is needed over substantial parts of the current business which are controlled by the regulator. I refer to large packets and large parcels, for example, which have already been mentioned, which, as often as not, are contracted to third parties who finally utilise the distribution network of the Royal Mail at subsidised prices.

Responsibility for the universal postal service within a private entity must receive greater protection than the Bill provides. Accountability to Parliament needs to be strengthened, and your Lordships may also wish to consider a requirement for primary legislation before any changes to the service can be made.

I welcome the proposal to allocate equity to employees, and I am very pleased to note the considerable improvement in labour relations within the Royal Mail since the arrival of new management. Longer periods between the review of the universal postal service must also be considered both to assist the attractiveness to a purchaser and to provide greater confidence to the public and to Post Office Ltd.

I turn briefly, therefore, to the part of the Bill dealing with the transfer and establishment of the Post Office company. Assurances have been given in the Department for Business, Innovation and Skills document CM 7946 of October 2010. On page 3, it provides six government commitments. I draw your Lordships attention to the statement:

"We are clear that there will be no further programme of Post Office closures".

I suggest that we will need to understand the precise definition of the word "programme".

I echo what some of your Lordships have already said this afternoon. Some provisions of the Bill are too short-term for either the new company, Royal Mail or Post Office Ltd to have confidence in their respective business plans. They need an interbusiness agreement of a longer duration than that in the Bill. Whereas I appreciate, as the noble Lord, Lord Razzall, said, that such matters should be more properly negotiated commercially between the two parties, it is the duration of that agreement that gives me concern. I believe that that is crucial to stability for both parties and for the public. Indeed, the duration of any further amended agreements should be considered.

I hope that the Government will consider strengthening their commitment to maintaining the current number of post offices. In her introduction, the Minister referred to certain "myths". Within the current stable of our post offices, I understand that there is some confusion about definition. For example, of the current number up for sale, how many are being blighted by the uncertainty about an interbusiness agreement? How many of those up for sale are classified as "long-term temporary closures"? In regard to Crown offices, am I right in understanding that the guarantee for them expires at the end of this year?

Finally, I am sure that we are all relieved that the pension deficit will be removed. However, perhaps the Government will at some stage inform us of what is planned for the assets of the pension fund, which I understand are estimated at around £26 billion.

Photo of Lord Selsdon Lord Selsdon Conservative 6:05 pm, 16th February 2011

My Lords, I think that I have to admit that I am standing here today only because of the Post Office. As a hereditary Peer, I have to recognise that a peerage was conferred on our family probably entirely because my grandfather was Postmaster-General, although I was later elected here. It is strange that you should have an affection for things that your ancestors have done. Before this debate, rather than going to the Library again and reading all the regular documentation, I read through the 365 entries in Hansard where my grandfather, as the longest serving Postmaster-General in history, had to deal with things. I looked first and foremost at Postmasters-General. They all had a charter. What it said was:

"We do by these Presents give and grant unto the said"- in my case-

"Sir William Mitchell-Thomson full power and authorities to execute all the powers of any Act now in force or which shall hereafter be in force".

In my grandfather's case, I do not think that it was ever rescinded, so I have to feel that I may have some legal obligation to take the powers offered by this Bill. I will probably look at that with an international lawyer. However, today I shall be supporting not the Government-because, quite frankly, of this strange coalition agreement; I have considered forming a Select Committee to scrutinise the coalition agreement-but my noble friend Lady Wilcox, for whom I have great admiration. She is without doubt the best person to be in charge in this event.

As my noble friend will know, the greatest number of questions asked of my grandfather related to post offices in Cornwall: why there were not three deliveries a day, why there should not be more post offices, why a letter posted in Padstow should not arrive in Tre-something beginning with T-within so many hours. So I had a look and thought, what is the change now that we are introducing a Bill? First, however, I should say that this has been the best debate that I have listened to for a long time. I wish that all the other stuff that has happened over the past few days had been put down at the bottom of the pile. I was the one who also supported the Isle of Wight, which also should have more post offices.

I have had dealings in the communications world-and do not forget that the Postmaster-General was in charge of absolutely every form of communication, including the telephones, the cables under the Atlantic and so on. I think that we should bring back the role of Postmaster-General. Perhaps I would apply. Perhaps the Minister can tell me who the current Postmaster-General is. Is he part of BIS? All the names get changed. All these mnemonics that I cannot understand should go out of the window. The thing about modern technology is that Cornwall, Wylye or anywhere else, even Egypt, is only a button-press away. Distances no longer apply if you are using the latest technology. You therefore have to say on the one hand, is it not wonderful that Royal Mail still has a good image for security, trust and confidence? Is it not wonderful that each post office sub-postmaster also has an image and a reputation? All they are lacking is turnover and facilities. You have to look at what could be done. What could be done has already been suggested today, but the real opportunity lies not in following the path but in looking anew. Of course you have to deal with the £9 billion pension deficit, but practically every company in the land has ended up with enormous, great pension deficits. You have to wipe things out and to some extent to start again. The worry about that word "privatisation"-I hate every word that ends in -ation-is that it is the wrong image, the wrong thought.

The Post Office and everything that goes with it is a public service, no matter who owns it. It is an essential part of any institution. Without it, you can have revolution; communication is everything. I was trying to think of how we could change it around another way. I thought: let us look at what starts new businesses. We used to call them enterprise zones. Perhaps every post operation should be an enterprise zone. Perhaps the tax allowance system should apply in every regional area. That could provide benefits. Perhaps those who invest in it could do so tax free with pension money.

I had all sorts of thoughts about communication. I am secretary to the Parliamentary Space Committee, and I rang up a few of my friends and said, "I want two satellites that will provide instant communication for all the sub-post offices and post offices around the country". The reply was: "No problem, my dear friend. It's easy". They could have a little station in each of their operations, where old Mrs So and So who wants to be able to talk to her grandchildren can go in, press a button and there it is, without having to sub-contract or to try to learn some of the modern communication systems that we have here.

Your Lordships are pretty advanced in a way; perhaps 50 per cent of you know how to use the internet properly. The Government make an automatic assumption. You press a button and you have sent out a document showing the Prime Minister shaking hands in a coloured environment, but you find that the time to download it is not there. "Am I meant to vote?". You do not understand. You then watch people trying to use their new system without knowing whether it is proper or correct. It is somehow an educational problem.

For me, the post office structure is a simple matter. It has an unknown value; you cannot put a capital value on it. If you privatise it, you move very quickly around the historical route. You find that various investment banks suggest to foreign investors that here is a reliable cash flow that can be used to hypothecate certain debt so that they can come in and buy the business out of the country's own money, probably disposing of it at some sort of profit at a later date. These are what you often call financial instruments, but most of the privatisations in this country have ended up in foreign ownership. That might not matter, but most foreign ownership, with the exception of the United States, is not English-language anyway.

We have the great advantage that the English language is spoken by 3 billion people around the world. We should look at our postal system's ability to communicate directly. Historically, it was part of the empire. We should not forget that the Postmaster-General was also responsible for laying the cables that went off across the Atlantic and to Australia. We had that technology, and in microtechnology and robotics, and particularly in space, we are one of those very advanced nations.

I commend the Bill but not its details. I commend the Minister because I know that she is one of those people who will fight her way through any of the obstacles that come up. If noble Lords have nothing better to do one day, I will arrange for them to have direct internet access to all the great speeches made by Postmasters-General over time.

We have too much direct mail and undesired communication. I have calculated how many tonnes and the cost of what we have to throw away. We worry, too, about our identity. We are buying more and more shredders to put our names and addresses into so that no one can send us things. All I would say is that this is a worrying aspect, because security is critical and Royal Mail probably has an image that could stand that security.

I end by referring to a question that was put to my grandfather, the Postmaster-General:

"whether he proposes to take any action to stop the sending of moneylenders' circulars by post?".

The reply was:

"Under existing legislation I am not in a position to stop such circulars in the post. A Bill for amending the law so as to prohibit the sending of unsolicited circulars of the kind has been before the House".-[Hansard, Commons, 16/12/1925; col. 1455W.]

That was in 1925.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat 6:14 pm, 16th February 2011

My Lords, it is intimidating to follow a Lord who has the postal services in his DNA, but I am delighted today to be able to welcome this Bill. Like, I suspect, many in this House who hugely value the whole range of services provided by Royal Mail and the post offices, I have watched with dismay over the last decade as the Post Office and the Royal Mail seemed to go into a slow death spiral, watched over by a Government unable or unwilling to intervene. I commend the Government and Ed Davey, the Minister in the other House, for their courage in tackling what was always regarded as a step too far. Matters have been left to the point that the Royal Mail and the Post Office have been left in an utterly precarious financial situation such that action is vital and urgent.

So many remarks have been made on the floor of this House-it has been a comprehensive debate-that I will confine myself to commenting on three particular areas. First, on the post office network, I understand that the Government have committed themselves not to have a new closure programme. I want to ask whether they agree that it is necessary to reopen or re-establish post offices in some areas-I am not talking wholesale-given that 7,000 post offices have been closed over the past decade.

In the early years of the closure programme, very little attention was paid to the impact on coverage, on need or on the service provided in the community because of where other post offices were located. In effect, as we know, sub-postmasters who were willing to close were offered a bounty-of about £40,000 on average, I think-which was taken by people who were close to retirement or who had a buyer for the premises. The consequence was random closures across the country.

For example, in my old constituency of Richmond Park, the most deprived ward of all-the Ham ward-lost all its sub-post offices in that period, so there is now not a single post office in the entire ward. I remember very clearly a meeting with senior officials from Post Office Counters who proudly produced a map and pointed to a post office in nearby Teddington, which they explained people in Ham could go to. However, they failed to recognise that the blue line separating Ham and Teddington was the River Thames. While I greatly admire the citizens of Ham, their ability to walk on water is extremely limited. That kind of nonsense was repeated, and elderly and vulnerable communities now have no post office service as a consequence.

There have frequently been discussions around the needs of rural communities, as we have heard again today, but I remind the House and the Government that these issues can apply just as much to urban and suburban communities. If a post office cannot be reopened, the kind of project that is being discussed-of integrating post office services into, say, shops or other kinds of enterprises-should be just as available in urban and suburban areas as is beginning to be the case in rural areas. I put down a marker on that issue.

The second issue I would like to address very quickly-this is now switching over to the Royal Mail side-is that of regulation. On this, I can be very brief because the noble Lord, Lord Low of Dalston, who left just before I got to my feet but who is respected by all for his wisdom, clearly raised some of these issues. Many of us are concerned that, historically, the regulator has in effect required Royal Mail to subsidise its competitors in the bulk sorting business in the way that it has set the headroom price for delivering letters over the last mile, which of course is done only by Royal Mail. That is one example of where regulation has had the effect of undermining the financial viability of the universal service provider. All of us, I believe, see that as a situation that cannot continue.

I am very positive about the shift of regulatory responsibility to Ofcom, which has a much broader commercial experience, but it will be novel for Ofcom to regulate a business in which the underlying activity is in decline. Therefore, there are some real questions around that.

I very much recognise that one task of the regulator is to protect the consumer and to keep prices as low as possible, but the financial viability of the universal service provider has got to be a significant and major consideration. While that is mentioned in the Bill, there is some scope to discuss how we might strengthen the regulator's role in the Bill. That might be particularly urgent given the importance of engaging new investors as early as possible and given that uncertainty is the enemy of new investment. To be able to engage with new investors to make sure that money can be brought to Royal Mail as early as possible to achieve the modernisation that we all want, we have to make sure that regulatory uncertainty is constrained as much as possible. Again, that was an issue that I wanted to underscore and bring to the attention of the House.

My last set of issues is around what I think is a lost opportunity. A number of people have spoken of their regret that nothing in the Bill brings forward a Post Office bank. We now recognise that the post office has a community importance, which will be supported financially by the Government, but that role has not been used to fill a gap that exists in our financial services. Members of this House will be well aware that everybody has the right to a basic bank account, but most banks on the high street provide that facility on sufferance. Such facilities are currently extremely limited and do not seek to draw individuals who are in more vulnerable financial circumstances into genuine financial inclusion. That role could be picked up by the Post Office.

Ed Davey, the Minister, has talked about the importance of using the Post Office to link much more with credit unions. ABCUL, which is in effect a trade group for the credit unions, has been positive about that. If that moves forward, individuals will be able to join a credit union through their post office and perhaps have a small line of credit with a credit union that they could then access through the post office, and there would be some services. That would be beneficial. However, the credit union world in the UK is highly fragmented, with extensive services in one area and none in another. In each neck of the woods, credit unions are different in how they are constructed, in what they offer and in their remit. Therefore, what has been suggested is hardly a comprehensive solution.

A post bank could offer a much more comprehensive solution. Consumer Focus has done some good work-I commend it to the House-in both consulting and reporting on that option. I understand the difficulties because of the relationship with the Bank of Ireland, but we should pursue this. Consumer Focus comes to the conclusion that at least 1 million people who are financially excluded could be included through a Post Office bank. The Post Office is an institution that people trust, and that trust is worth a great deal. Also, a post bank could have the kinds of accounts that no major bank would ever consider, such as adapted versions of accounts that allow people on low incomes to do direct debits. That would let people access the best rates for electricity, gas or other services, from which they are currently excluded because, as noble Lords will know, basic bank accounts offer no direct debit capability.

There is a whole range of options that the Post Office could offer because of its trust, its customer base and its reach, if we wanted to bring new financial services into it. Financial inclusion was an important issue for the last Government-I assume that it is still for the Labour Party-and it is certainly important for my party and, I understand, for the coalition. Here is an opportunity to pursue that goal, so I hope that the Government will consider it seriously. During this period of change, I hope that this opportunity will not be lost.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour 6:24 pm, 16th February 2011

My Lords, I congratulate the noble Lords, Lord Empey and Lord Dobbs, on their excellent maiden speeches and look forward to listening to them again in the not-too-distant future.

I was one of those who spoke strongly in favour of the Labour Government's 2009 Bill, notwithstanding my trade union background. I did so principally because of my experience in working with the NATS public/private partnership-to which I shall return in a moment-but also because the Hooper report demanded that action needed to be taken if all the things that we treasured about the Royal Mail and the post office network were not to be gravely put at risk in the future.

I supported that Bill for several reasons. First, it would have provided much needed private capital investment. Secondly, it proposed to change the regulatory regime. Thirdly, it would have safeguarded the universal service obligation, which is potentially under threat. Fourthly, it would have safeguarded the staff's pension fund and other entitlements. Fifthly, it would have speeded up modernisation-with capital coming in, as well as new management, which would have injected new approaches. Additionally, there was the opportunity for providing what I felt was a potentially greater chance for more employee involvement and participation than had previously been the case. I bow here to the noble Lord, Lord Hunt, and acknowledge that he was at the forefront of pressing for changes in that regard-indeed, our proposals were modest by comparison with what is before us now.

Those were the overall issues that I looked to be addressed in the 2009 Bill. When I try to make an assessment of the new Bill before us, I see that much of that is being delivered in one way or another. There are concerns in a number of areas where people want further reassurances, on safeguards for the universal service obligation and so on, but I anticipate that, as we take the Bill through its stages in this House, we will move a lot closer to a good deal of agreement on those outstanding issues.

However, one topic which still disturbs me and on which I will pose a number of questions is the difference between what we were seeking in 2009 and what is now on offer before us. In 2009, a part-privatisation, or PPP, was proposed; now we have what I understand will be a straightforward, 100 per cent privatisation. I have not as yet heard the case made for going 100 per cent rather than having a partial privatisation. I looked at the Liberal Democrats' manifesto when they went to the country. They were elected on the basis that they would go for a mutual and would look for a 49 per cent stake remaining with the state. I looked at the Conservatives' manifesto when they went to the country. They said nothing on this-quite wisely, since the nasty party, as it is alleged to be by some people, does not go around offering possible privatisations when general elections are coming up. In the Labour Party, we have heard some different views expressed today. As I see it, my Front Bench are broadly as open-minded and as willing to embrace change as they were in 2009. I am not sure, however, that we are convinced that we should go all the way with 100 per cent privatisation.

In 2009, we would have kept the Royal Mail and the Post Office structure as a British business. It was interesting to hear the noble Baroness, Lady Wheatcroft, who I am sorry is not in her place but who made a very radical speech for the Benches from which she comes, touch on the importance of where organisations fit into society, what communities are like and what needs to be done to try to get communities back together again.

I do not think that it is being a little Englander to take this perspective, so I take issue with the noble Lord, Lord Mandelson, on this. I am a European at heart-probably not as much as he is-but I am also interested in what other Europeans do and how they look after themselves, their communities and their businesses. We find that very few of them run at the front with the liberalisation as we do in this country and offer themselves openly for anybody to come and take them over. Among the population at large, there is an increasing resentment at the way in which the political classes sort things out and ignore their views in a given area. We have to be cautious about this.

I return to the subject of NATS, a PPP for which full privatisation is contemplated. NATS has had all the freedom it needed to raise all the capital it wanted; it has brought in people from the private sector to run the show and has been run entirely without the Government interfering in its operations. NATS even has an element of overseas money invested in it. CAA has 4 or 5 per cent of the shares but, as that is now a Spanish company, NATS is not wholly British owned. If NATS, a strategic part of safeguarding this country, was fully privatised, it could possibly end up in the hands of people overseas. If we go that way, I would bet any money that the German air traffic service will take over the British air traffic service. What an irony that would be. I say no more than that.

On Royal Mail, I want to ask my friend the Minister-we are very friendly, and we have exchanges on a number of issues-this question. What will be the difference between going for a public/private partnership, in which the majority of shares go into the private sector and the Government hold 25 per cent-a golden share-and going all the way with a 100 per cent privatisation? The papers are almost encouraging foreign money to come in and take over Royal Mail. That is seen as inward investment and something to be encouraged. What is the difference? I listened to my noble friend Lord Hunt and to my noble friend Lord Mandelson, who described what had changed in his mind between 2009 and now, but I did not hear the total case of why we had been unable to bring in money on the kind of scale that was needed to keep Royal Mail going. He did not say that, because he did not get far enough down the road.

The British public need to be persuaded because a policy is being pursued on which no one has legitimate backing from the public at large. No party went to the country with a manifesto proposing what is now before us. We should recognise the ill feeling that people in certain quarters have towards what is happening with some companies and utilities which, bit by bit, have now been taken over by foreign companies.

CAA is a typical example. Having bought as much as it could of this country's airports, CAA has over-reached itself and now has to meet phenomenal interest payments and cut corners wherever it can to ensure that its profits are sustained. We saw the results of this before Christmas when Heathrow did not have the equipment it needed to keep this country running its business. Why? If the Government still had a small stake in CAA, they would have been in a position to say, "This will not happen again". Indeed, they would have been in a position to say, "This should not have happened in the first instance". That is the kind of approach we should be looking for with the development of these companies. Can the Minister set out carefully the real raison d'être for why a PPP of the kind I am talking about is not appropriate?

If there is privatisation, will subsidies continue to be paid to Royal Mail plc in the future in the way in which we continue to subsidise many utilities which have been privatised? Again, many people feel very unhappy about what is going into these privatised utilities, especially when they see the profits that are being made by them.

On the sale of shares, I shall try to be as helpful and as constructive as possible. I give the Government support for their effort to try to get greater staff involvement, perhaps by selling shares to them at a discounted rate. Whichever way they decide to tackle this issue, I await with interest to see the approach they adopt to the share ownership scheme. A number of options are open but, as yet, their approach is unclear. However, in general terms, I welcome it.

There may be some merit in the Government contemplating serious discussions in an area where, on occasions, there has been great difficulty in moving forward, to see whether they can persuade the CWU to have a stake in the new company. If so, the question is whether they could fund that entirely on their own or whether the Government might make an offer to go in partnership with it into this private limited company, or even offer shares at a discounted rate as with employees. We need a new initiative on that front. Simply bringing in new management with new money may not necessarily resolve some of the problems of the past, even though many people believe it will change it overnight. We need to have a change of attitude within the union too, if we can persuade it, to get it more involved and playing a bigger part, which would lead to growth rather than the continuing diminishment of the operation.

Photo of Lord Sawyer Lord Sawyer Labour 6:36 pm, 16th February 2011

My Lords, I also begin by congratulating the noble Lords, Lord Empey and Lord Dobbs, on their very good maiden speeches. They were delightful to listen to and I look forward to hearing much more from them in the future.

There was an inevitability about some kind of privatisation of the Royal Mail because, given that the previous Labour Government were intent on that, it was not unexpected that this Government would follow suit. I remember when Patricia Hewitt was the Secretary of State at the DTI, she got very close to a deal with TNT for privatisation, but a small number of factors-including, sadly, the then not very satisfactory industrial relations-prevented TNT from taking it forward. Some kind of privatisation was always going to be on the cards and I guess this Bill in some form will go through.

My noble friend Lord Mandelson then took on the next Bill for the Labour Government. He was thwarted by the votes in the House of Commons and certainly laid some of the blame-if that is the right word-on the CWU and its lobbying. However, the CWU had an absolute right to lobby and members of the Parliamentary Labour Party would claim their independent judgment when making their own political decisions. I am sorry that the noble Lord, Lord Mandelson, is not in his place to hear me say that.

I am slightly disappointed about the Government's decision simply to dust down the Hooper report with some added modifications. I was hoping, based on the Liberal manifesto, that we might see a wider look at how we might own-or who might own-the Royal Mail. I was also, to be honest, quite interested in the things that David Cameron has said about ownership and different forms of ownership and about the involvement of charities and not-for-profit organisations. Perhaps between the synchronisation of those two points of view we might have had a slightly different approach, which Members have spoken of this afternoon-for example the not-for-profit approach of the kind that was suggested by the noble Baroness, Lady Kennedy, in her speech. Nevertheless, time is very important and the business has to modernise and go forward. Maybe there has not been time for that longer consideration.

One of the things that disturbs me most of all is this idea that the Royal Mail should be separated from the Post Office completely, and that the Royal Mail should be sold to a private buyer and the Post Office should perhaps be some kind of a mutual. In the medium to long term, this could have very serious consequences because they would become very different kinds of organisation. Although there is an intention in the Bill to make sure that they co-operate for a period of time, if you think several years ahead, the Royal Mail could be owned by a very aggressive private company, which might or might not be British-we do not know-but the Post Office could be a very British mutual with mutual values. The standards that would be held very dearly inside both those businesses would be very different.

There is a little bit of a problem on the government benches in that they have little or no experience of what it means to run a mutual. I was for many years, although I am no longer, the director of a big mutual, and I can tell you that your job is to guard the mutual ethos. You are looking for trading partners who are going to think, act and behave in the same way that you do. If you are faced with a multinational company that has very different standards and approaches-as may well be the case-towards investment, to where it invests its pension funds, to how it treats its staff and to who it trades with, you could be in some difficulty trying to get those two organisations to work together in five or 10 years' time. You need to think not just about what is happening today but what it might be like with a fully privatised Royal Mail and a fully mutualised Post Office. That is something that we need to think about.

I have listened to both Moya Greene and Paula Vennells, the respective chief executives of both businesses, on platforms saying that they support the idea of separation. However, I personally did not feel that their answers to questions were really wholehearted, or that their total support was there for the idea. I hope that Ministers might be able to look at this again and possibly think about keeping both parts of the business together, perhaps even in some kind of mutual or not-for-profit ownership.

On the privatisation of Royal Mail, I accept that we need to keep modernising and going forward. I do not know whether that is possible with the present ownership, but I would like to think that it is. I have read extensively about Moya Greene's contribution. I have never had the pleasure of meeting her, but she has a tremendous reputation and she seems to have done a really good job. Of course, her board of directors is almost totally out of the private sector and has massive private sector business experience. I do not know what you would expect the board to look like in a privatised company, but it might not look very different from the one that we have now.

My view on where to go with the privatisation of Royal Mail remains open. I would like to see Royal Mail remain in the public sector. I am impressed by the modernisation agreement that the unions and management have been able to agree. They are going forward, and some of the processing that they are doing now is some of the best in the world. Industrial relations have improved, with people working together. There is not as yet a satisfactory answer to how to access capital. Noble Lords have said that that may be possible under different forms of ownership, but I would need to be convinced that any model that was not in the private sector to some extent had the ability to access the capital that it needs to go forward. I certainly hope to think and learn more about that as the Bill makes its way through Parliament.

My final point is on culture change, which is something I have always been interested in with regard to the Royal Mail. I had an opportunity to work with both sides on that for some time. Regardless of whether Royal Mail or the Post Office are public or private, the good industrial relations are to be welcomed, but the real question is whether the control and command management that dominated the industry has really changed. Has Moya Greene got hold of that and made significant progress? I do not know the answer-nobody does-but I hope that that is happening. It is fundamentally important, wherever the business ends up, that we continue to build trust between the people who work in the industry and those who manage it and that the two sides work together on problems. That is something that has not happened in the past, which has often frustrated the management. Ways need to be found in which people can work together and sort out problems jointly. If we do that, we will make the right progress.

Lots of noble Lords have talked about the share ownership issue. The noble Lord, Lord Brooke of Alverthorpe, has greater knowledge and experience of it than I have. His point about engaging with the union and seeing whether we can get the unions on board with some kind of scheme is a very good one and well worth taking on board. We must not write off the union or think of it as a backward-looking organisation. I tried to persuade the union, as did others, that it should come to an agreement with the Labour Government on the last attempt at privatisation, but it chose not to do that. That was the union's business. In a funny sort of way, the union is more open to reaching an agreement now than it was with the Labour Government in power. There is a certain irony about that, but I think that it is true. Also, if you are going to offer shares to the workforce, you should ask the workforce whether it wants the shares. It is untenable to give people shares when they have never been asked whether they want them. There should be some kind of mechanism for doing that, along with talking to the trade union.

I have listened to noble Lords with business experience in this Chamber and the politicians who have spent a lot of time trying to remedy the wrongs, and a lot of emphasis is placed on capital and modernisation. However, the postal service is about engaging with people; it is massively a people business. We must not lose sight of the fact that, no matter what we say about things, it is people who really matter. Capital, the commercial aspect and discipline are all very important, but at the end of the day it is a people business and we must ensure that we never lose sight of that.

Photo of Viscount Tenby Viscount Tenby Crossbench 6:45 pm, 16th February 2011

My Lords, we have been blessed with two excellent maiden speeches today-I say that even though I am breaking the unwritten rule by mentioning them. There is safety in numbers, probably.

Considering the amount of discussion there has been about our postal services over past years, it is perhaps surprising how this Bill was almost unchanged during its passage through the other place. I suggest that this, in part, reflects the fact that all sides accept the need for fundamental change to present arrangements and because of the parlous state of Royal Mail finances. With all these historic institutions, ranging from the Post Office to the railways, I am often struck by the disparity between the people at the sharp end-postman, ticket clerks and the like-and the executives further up the chain. I firmly believe that the front-line staff which these organisations have are a priceless asset and I pay tribute to them today.

Time is short, so I will confine myself to one aspect of the Bill today. That is the effect that these proposals might well have on what is by far the largest group in the Post Office retail chain, namely: the 6,000 or so sub-post offices, which form such an important part in the life of rural communities. Indeed, if there has been one central vein throughout this excellent debate, it has been the emphasis on the social importance of such an organisation. These franchises-for that is in effect what they are-cater for an often elderly population which relies on them for a whole host of postal, financial and administrative services ranging from insurance to the purchase of car tax. Those facilities are there, on the doorstep, for the many unable to get into neighbouring towns regularly and, it should be added, for the many unable to access these necessities via the internet. Incredible as it may seem, there are some like that.

The Government have already stated-and I applaud them for it-that they will not engage in any compulsory closures within the network. I especially welcome that news in view of the estimated 5,000 closures in recent years. Yet there is such a thing as death by a thousand cuts. Take away the ability to pay one's car tax or, say, to remove the opportunity to send a package over a certain weight and one is relentlessly chipping away at the already extremely slender profit margins that such businesses have to put up with.

For the year 2011-12, the Government have promised a grant of £180 million but I wonder whether the Minister can tell me what percentage of that figure is swallowed up by the flagship or Crown offices where, as I am sure she will agree, the social benefit is considerably less than that generated by the sub-post office network. She will not have the answer to that and I apologise for bowling it at her tonight but, since I am in the mood, perhaps I might ask the Minister a further question. A considerable sum has been earmarked to reform the current network. Can she confirm that this reform includes the conversion of as much as two-thirds of the network into Post Office Local and basic and outreach facilities?

It is all very well to promise an end to the closure programme but, on reduced incomes-some have calculated the reduction to be as much as 75 per cent-many sub-post office franchisees will regretfully decide that they are unable to carry on. The possibility of future mutualisation, perhaps based in some way on the John Lewis profile, has received a cautious welcome across the board. Yet whatever the final solution, what surely cannot be denied is that the 6,000 Post Office local outlets should be adequately represented-I stress, adequately, not by a token representative-on any Post Office board. I would welcome the Minister's assurance that the Government fully accept this vital requirement. After all, many franchise holders have considerable entrepreneurial skills that are not always replicated in the higher echelons of the Post Office itself, even though I am sure that other attributes are present in abundance. It would be folly not to take advantage of that readily available asset.

There are many important matters to discuss and settle in this Bill. I am aware of that but I make no apology for concentrating on this one point. In times past the Conservative Party has emphasised its pride in and devotion to the rural economy and the countryside. This emphasis on the community is a worthy feature of Liberal traditions as well. I can think of no better way of affirming these values than by helping to ensure that small communities throughout the length and breadth of this country retain their village shops and services. I ask the Government, through this Bill, to be sensitive and imaginative in dealing with these needs.

Photo of Lord Cope of Berkeley Lord Cope of Berkeley Conservative 6:50 pm, 16th February 2011

My Lords, I will not begin by congratulating the two maiden speakers. It is a written rule in the Companion that that should be done only by the speakers following the maiden speakers and by the Front Bench. It was extremely effectively done by the noble Lords, Lord Low and Lord Hunt, respectively, so I shall reserve my congratulations to the maiden speakers for outside the Chamber.

I support this Bill and the changes that are proposed for Royal Mail, the pension fund and so on. My concern, like that of the noble Viscount, Lord Tenby, is about the post office aspects of the Bill, particularly for the sub-postmasters-the archetypal small business people in our country. We need them to flourish for all the reasons that the noble Viscount touched on and which others spoke about earlier in the debate. It is not obvious from the report and accounts of the Royal Mail holding company but sub-post offices-not the Crown offices that we often think about-are, by different measures, the largest part of the Post Office. The two types of business are, in some respects, in direct competition.

I live in the beautiful city of Bath. Not long ago, the Post Office drew a circle that centred on the Crown office in the middle of the city and compulsorily closed all the sub-post offices within that circle. The result is that now we all have to queue at the Crown office. I am glad to say that the Crown office has installed a sophisticated electronic queueing system, which is a great help. I am very thankful for that but the wrong decision was made earlier. Fortunately, the Minister repeated the coalition Government's pledge to maintain the network. It is a most important pledge, to which I am certain they will be held by many people, not only me.

One important point is that a Crown office can lose money and still keep going, whereas a sub-postmaster who cannot make money will see his business collapse and close. He loses not only his job but his own money and investment, and his staff also lose their jobs. Sub-postmasters cannot keep going if they are not flourishing. Sub-post offices are not the poor relations of the Crown offices; they are the real engine of the Post Office itself. They are the part that works financially and, incidentally, the part that is popular with the public.

I said that the annual report and accounts do not distinguish between the contributions of the two types of post office, but I understand that about 80 per cent or 85 per cent of the Post Office's turnover comes from the sub-post offices, of which there are around 11,000. The rest comes from the 373 Crown offices. It is clear that the Crown offices collectively make the loss that the Post Office has suffered in the past year or two-or longer than that-and the sub-post offices make a profit over and above what is retained by the sub-postmasters as their income.

We all know, as has been said several times this afternoon in various forms, that the way forward for both Crown offices and sub-post offices lies in new types of business, particularly government business-the government front door, as it were-and financial and banking business, which my noble friend Lady Wheatcroft and others have spoken about. This should in my view be available to all types of post office. More flexible franchising arrangements are desirable. Some pilots are being run of what I understand is called the Post Office Local model. That is a fairly ridiculous name as all sub-post offices are local, but I let that pass. The terms of the new franchises are said to be very restrictive. Post offices should in my view-they are not, apparently-be allowed to have more flexible opening hours. Why should all sub-post offices not be allowed to open and close when they and their customers wish them to do so? Not all offices at present offer all post office services. That is fine; I understand that. The vast majority run alongside a shop offering far more than the things a Crown office will offer, from cornflakes to whatever they like. The decision about whether a particular office should offer a particular service on the terms that are allowed to it is for the sub-postmaster concerned in my view, just as it is his or her decision whether to offer to sell every other type of product in the shop part of the business.

All this is the background, as it were, to the post office aspects of the Bill. The Bill provides in Clause 4 and the related clauses a framework for the mutualisation of the Post Office. I support employee involvement in general, including share ownership. However, as the noble Lord, Lord Christopher, indicated, the sub-postmasters and their staff are not in a comparable position to the employees of the Post Office in the Crown offices and in the headquarters and the regional offices, and the same arrangements will not be applicable to both groups of people. I believe that the Post Office has some 5,000 staff in total. There are twice as many sub-postmasters and sub-postmistresses and each employs their own staff. They may employ four or five members of staff, depending on the size of the office. They are not employees of the Post Office and it would not be right to provide for employee participation without providing for the participation of the franchisees comprising sub-postmasters and their staff who far outnumber the Post Office employees and who actually generate the profits.

I find it difficult to see how you can mutualise through a share scheme on the lines of the BT scheme-that was mentioned earlier, particularly in connection with the Royal Mail, where different considerations apply-in respect of the Post Office. How can you equate someone who has a job in the Post Office with someone who has their own business, is responsible for the staff they employ, has invested their own money and money they have borrowed, and for whom, in most cases, post office business is only part-admittedly, a vital part in many cases-of the service that they provide to the public? How do you measure what value of shares to give to one compared with the other? What about the staff of the sub-post offices? They are doing the same job as the Crown office staff; they are serving behind a post office counter. Will they get the same treatment under the mutual arrangements whether they are standing behind a Crown office counter or a sub-post office counter? It is difficult to see how you can work out a share scheme which will be fair in all these circumstances. That, of course, has led to the idea of a Post Office trust above the Post Office board, owning the shares of the Post Office itself, if that is the way it is arranged, with the duty of ensuring that the whole enterprise flourishes and that the interests of Post Office customers, staff, franchisees and the sub-postmasters and their staff are properly balanced.

The Bill does not settle these matters and I am by no means suggesting that it should. I have been a legislator for more than 35 years so I understand the limits of legislation and how much harm can be done by trying to cover all the eventualities in detail, trying to anticipate trends in a fast-moving world and, above all, by its unintended consequences. Legislation in a field such as this should provide an enduring framework within which detailed arrangements can be made and, if necessary, varied over years to come. However, I am concerned to ensure that the Bill enables the sort of solution that I have been speaking about, through some sort of trust, and we will look further at that.

I welcome the Bill and urge the Minister to do her best, as I am sure she will, to ensure that sub-post offices and their staff are treated well in all this. They are, in a wider sense, part of the decentralisation of power and services that is part of our much wider aims for this country.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour 7:00 pm, 16th February 2011

My Lords, I welcome the opportunity to participate in the Second Reading of the Bill. I am a former trade union official and therefore have some sympathy with the views of the CWU, the Communication Workers Union.

At the time the previous Bill was debated, it was reported that labour relations were at a low level. However, that does not now appear to be the case. The business transformation agreement between the union and Royal Mail means that agreed modernisation is proceeding. The pensions deficit issue has also apparently been resolved. All this is contrary to the claim of my noble friend Lord Mandelson this afternoon that the union is not giving effective leadership to its members.

The Hooper report, which was under discussion at the time of the previous Bill, has been updated. The union informs me that what now remains is the need for Royal Mail to access capital for investment. It is said that this is needed to maintain and sustain the universal postal service. The Government believe that this can be done only if Royal Mail is privatised-hence the provision in the Bill for Royal Mail shares to be sold off, apparently without any remaining shares left to the Government. The union disputes the Government's view. It believes that the problem of capital could be addressed if the Royal Mail remained in the public sector, whether through commercial loans from the Government or through Royal Mail having access to borrowing from the financial markets. I understand that one organisation, not a union, has suggested that Royal Mail could be turned into a not-for-profit company like the BBC or Network Rail, as was suggested by my noble friend Lord Kennedy.

The union disputes the Government's claim that the universal service operation, which everyone is anxious to maintain, is secured by the formulation in the Bill. The union cites a number of examples in which the USO is being undermined and weakened, including the introduction of criteria that base the USO on commercial, rather than service, provision. The union says that the need for stability and coherence is key. It cites the need for a five-year guarantee before the Ofcom review and a 10-year guarantee for Royal Mail as a single universal service provider. It is possible to examine these issues further in Committee.

A number of issues arise concerning accountability and transparency. The Bill makes it clear that the Secretary of State will make arrangements for the sale of the Royal Mail and then make a report to Parliament after the decision has been taken by the Secretary of State. What about an independent valuation? This has been raised by a number of noble Lords. Surely this is of concern to Parliament as a whole, not just to the Secretary of State.

The Bill separates Royal Mail and Post Office Ltd, which stays within the public sector. The disposal of assets is therefore important and of concern to Parliament generally. There are no restrictions on the time within which the sale takes place. The Government want that to happen in 2012. What happens if the market conditions are not then favourable? There should be provision for the Government to relegislate if a suitable sale cannot be made within a prescribed period. These should be matters for Parliament.

Another important issue is the continuing relationship between Royal Mail and Post Office Ltd. How will the Government ensure that Royal Mail products, currently worth 37 per cent of POL income, will continue to be offered through Post Office Ltd? Apparently there has been debate about the inter-business agreement, but so far the Government have refused any amendment to the Bill that would guarantee a continued relationship between a privatised Royal Mail and a publicly owned POL. As I said, these are some issues that we will explore further in Committee.

The situation is changing. More people use e-mail. I do myself. I do not like my computer much, but I use e-mail rather than typing a letter and posting it in the way that I used to. Nevertheless, the mail service is highly regarded and it is still a requirement that we should continue with it. Many of us have doubts-I do myself-about whether privatisation is the right way forward. Is it always true that privatisation is more efficient? I sometimes doubt it, and I speak as a consumer who is elderly and disabled and who has a lot of complaints about the service I receive from some of our privatised services.

Issues relating to the Bill had been raised with me by people who know the service and understand the people who work in it. Therefore, I hope that we will have the opportunity to raise these matters in Committee, because the people who have made these points to me know what they are talking about.

Photo of Lord Whitty Lord Whitty Labour 7:06 pm, 16th February 2011

My Lords, I start by declaring a past interest. When the last Bill was before us-indeed, until last December-I was chair of Consumer Focus, the statutory representative of domestic and small business consumers of postal services. Its role is threatened by another piece of legislation before this House, namely the Public Bodies Bill. However, I am now free to speak without that encumbrance.

I fear that, as the debate has shown, the Bill raises more questions than it fully answers. I constructed my speech in the form of questions. I realise that, as I am the last speaker, this is a little unfair on the Minister. Nevertheless, I will proceed and assume that she will reply in writing to things that she cannot pick up immediately.

First, I will make it clear where I stand on the main points. I welcome the strong determination to defend the USO through the process, although I am slightly concerned about its long-term future. I welcome the change of regulator, but again I have some questions about that. I accept the inevitability of sorting out the pensions issue in the way that is proposed, and I broadly welcome the unravelling of the Post Office network from that of Royal Mail-although that, too, raises a number of questions.

On the issue of privatisation, I will be honest with the House, as ever. My former organisation retains a neutral stance. I was always intellectually sceptical and emotionally opposed. However, it is probably going to happen. I have some questions about ownership. What will be the impact and what kind of privatisation are we engaging in? What kind of owner do we envisage for the Royal Mail in a few years' time?

I will start with the Post Office network, which is dear to many of our communities, rural and suburban. It is vital that the Post Office continues to exist. Individuals see it as part of the universal service provision and we need to continue to guarantee a postal service on the Royal Mail side that is the same in the further reaches of County Fermanagh or the remotest bay of the Western Isles as it is in the centre of London or Birmingham. However, the Post Office network also needs to fulfil a role for all sorts of communities.

Disentangling the Post Office and the Royal Mail may give greater clarity to their roles, but we need some indication from the Government of what they intend to do with the network. There are 11,500 branches at present. As the noble Lord, Lord Cope, has just said, the intention to reduce some of those branches to Post Office Local, together with the severe restrictions, makes the commitment to maintaining the network at roughly its present size not quite what it seems. In any case, that commitment is for the short term, and we need to know what the Government intend for the Post Office network in the longer term.

A number of questions arise in addition to that. Is the Crown network to be treated differently from the sub-post office network? What happens after the £1.4 million subsidy over the next few years disappears from the network? Do the Government envisage a continuation of any subsidy for the Post Office network or are they going to leave it entirely to the market? What moves are afoot-others have made this point-to redirect or encourage other government departments to provide their services via the Post Office network? Many of them, from the DWP to the Inland Revenue and the DVLA, have been withdrawn over the past few decades. If the commitment of the Minister's colleague, Ed Davey, to make the Post Office network the front office of government is to be fulfilled, then all government departments, as well as local government, need to be encouraged to put more of their business through that front office.

I ask the Minister, as others have done, why the Government have apparently abandoned the proposals, which were some way down the line under the previous Government, to develop some sort of post office-based banking system. As the noble Baroness, Lady Kramer, underlined, it would do much to help the problem of financial exclusion in this country-a cause of very real deprivation for a large number of people. I think that such a banking system could be made commercially viable, as the noble Lord, Lord Cotter, implied.

In terms of representation of consumers, will Consumer Focus, or its successor in the citizens advice bureaux, and the Consumer Council for Northern Ireland remain spokespeople for the network as well as for consumer interests in Royal Mail?

I am not against mutualisation of the Post Office network, although it is very complicated. For employees and the franchisees-the sub-postmasters-it may hold an attraction but the Government are also talking about wider interests being represented in a mutual set-up. I think that it will be some time down the line before we can translate the whole of the Post Office network into a viable mutual organisation. Nevertheless, I think that we should provide for it and I agree that those provisions should be in the Bill.

The key questions regarding the network are: what is its relationship with Royal Mail as we go down the line and what is the future of the interbusiness agreement? More than a third of the Post Office network's business is tied up with Royal Mail. If that were to be withdrawn or substantially modified, the economic pressures would mean that the network at its present size, and probably at significantly less than its present size, would no longer be viable. Therefore, we need greater clarification on the future of the interbusiness agreement and on the Government's claim that they can sustain the principles of that agreement only for a short period because of the legal situation. I have never seen that legal situation completely spelled out; nor have I seen an explanation of why the interbank agreement or some modification of it cannot be committed to for some considerable time. If that were guaranteed and if the Post Office network were able to provide more government services and develop new services itself, then a Post Office network with a thriving business in every corner of the land would be a possibility.

I move on to the regulatory framework. I support the transfer to Ofcom, partly because the old system was daft, as my noble friend Lord Mandelson effectively said. A single technology regulator was always a bit of an oddity. The minutiae of the regulatory approach by Postcomm made it the wrong approach, and it is certainly the wrong approach in the world into which we are now moving. Ofcom has a number of advantages. It has experience as a regulator in multiple industries and, in particular, it has experience of the communications industry, which is a far bigger competitor to the Post Office than are the other postal services.

The Bill leaves a lot for Ofcom to sort out. In some ways I have faith in Ofcom doing that in a sensible way, but I think that more needs to be on the face of the Bill in the form of benchmarks.

One of my concerns is that much of the present regulation of Royal Mail is, in effect, delivered via the conditions of the licensing system. If the licensing system is removed, as it will be, more traditional forms of regulation will have to cover this. The Bill says only that Ofcom may do many of these things, whereas, under the licensing condition, the Royal Mail had to do these things. There are arguments about whether it should be only the Royal Mail or whether there are some issues that we could take out of regulation entirely. Some of those are currently specified, and Ofcom's new rules will have to cover them as a requirement rather than as an option. They include issues of consumer protection and complaints-handling services, which are still pretty bad in the Royal Mail. More than 13 per cent of small businesses have a complaint about the Royal Mail, and at the end of the complaints process three-quarters of them are still unsatisfied. It is not a great record. We need to lean more heavily on them, and as a result we probably need to provide, in a stipulating statute or regulation, for access to the ADR system via the ombudsman.

We also need to recognise the role of Consumer Focus-or, eventually, of citizens advice and the Consumer Council for Northern Ireland-as the voice of consumers. That role will require some financing. Standards of mail integrity and reliability are also important. Many of the complaints and problems relate to lost or tampered-with parcels. By and large, Royal Mail has a good, positive reputation in this area. However, that needs to be retained, and we need to require the Royal Mail to provide information to the regulator and consumer interests.

Other aspects of regulation need to be considered, including the claim by the Royal Mail and the union that subsidies to their competitors effectively amount to £160 million a year. Do the Government intend that those requirements should disappear? As for the USO in total, perhaps the Minister can explain why the designation of the Royal Mail as the USO provider appears to last for only a very short time, particularly given that the Government presumably intend that, within that time, the ownership should change. The uncertainty about the future requirements of the USO will undoubtedly have an effect on the enthusiasm of any potential buyer to pick it up. The USO is clearly important. I am not saying that the terms of the USO are absolutely set in stone and should never change, but I agree with my noble friend Lady Drake that if there is to be a significant change in the terms of the USO, either in the products covered or the level of service required, then that should come back in some form to Parliament before it is agreed, simply as a regulatory matter. Those are the kinds of questions that I would like the Minister to answer, if not tonight then at a future date.

I have a couple of things to say on the ownership issue. The modernisation programme needs both money and more effective management than we have seen. We are in a more benign era in the sense that the business transformation agreement has been reached between the union and the management and the modernisation programme seems to be more under way now than it appeared to be a couple of years ago. On the money side, however, it is not entirely clear why we are looking for substantial sums from the private sector; or, more accurately, it is not clear whether we are looking for substantial sums or for an improvement in the management side. It was clearer in the previous Bill, and clear in the Hooper report, that the main aim of bringing private capital into the Royal Mail was to improve the management and to bring in people with logistical expertise. That is why it went for a strategic partnership as the preferred option.

It is not so clear here. When we move from 80-odd per cent to 100 per cent, we change the nature of the ownership in any case. It is not clear whether the Government envisage a sovereign fund, a hedge fund or an international competitor, as has been suggested, taking over the lot; whether we will have a range of people investing in Royal Mail; or whether we are primarily concerned with a strategic partnership with someone who knows something about the business and its competitor businesses, which the logic of the previous Government's approach demanded.

Royal Mail will have some more money available, but it still needs substantially more money from the market. I accept that. Is the motivation for privatisation to maximise the money, or is it to maximise the expertise and management improvement? I am not clear on that, and I do not think that the British public are clear. Their attitude to the privatisation process will vary if, in a few years' time, Royal Mail is owned by the Sheikh of Abu Dhabi, some hedge fund-or has gone to a share option on the Stock Exchange, in the light of previous privatisations, such as that of British Gas, which was quite popular-or whether it will be run by TNT or DHL. There will be a difference of attitude among the workers, the consumers and competitor businesses to Royal Mail once we know the answer to that.

Those may be my prejudices on privatisation, but I counsel the Government that they need a clear answer to that. When the Bill gets through the House and they engage in the process of seeking buyers, they need to be clear what they are doing; and they need to communicate it to the British people.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills) 7:21 pm, 16th February 2011

My Lords, first, I thank the Minister for her contribution in introducing the Bill. As my noble friend Lord Whitty said, it may raise more questions than it answers; it certainly raises several questions, which I shall endeavour to go through.

Before I commence on that, I congratulate the noble Lords, Lord Dobbs and Lord Empey, on their maiden speeches. I shall make some comments on the content later. I declare a lifelong interest as someone who was initially employed in 1958 by the GPO, as it was known in those days, and went on eventually to become the joint general-secretary of what is now the Communication Workers Union, with an esteemed colleague of mine in the other place-to whit, one Alan Johnson-and my noble friend Lady Drake, who spent many a happy hour with me negotiating with British Telecom and the Government of the day on privatisation.

We probably experienced every aspect of privatisation in all its phases, in all its successes and failures. It did not always go as well as the noble Lord, Lord Jenkin, tells us. I cannot resist saying that BT was a company that went from being totally self-financing to, in less than 10 years, attracting a debt of £30 billion. That is quite an achievement. Perhaps if the company had listened to the union in 1989, it might have invested its money more wisely. Why do I say that? Because we recommended that it fibre-up every household in the country in a programme which we called Network of the Future. It told us that that was overly ambitious and that it would cost £15 billion. If we tot up how much it has spent on the network since then, I think that it would have been a good investment. Instead of talking about superfast broadband everywhere, we would have had it.

I want to focus on what is fundamentally important in the Bill. Several noble Lords have referred to the huge history of Royal Mail, so I do not need to go into that. Everybody in this House recognises that Royal Mail and the Post Office face a huge challenge in today's technological environment. That challenge will not go away, so we need to look at ways of ensuring that we can preserve the essential nature of these organisations. Clearly, that lies in, first, the universal service obligation, which everybody seems to value, and the post office network. Along with challenge, there are some growth areas, such as fulfilment mail and internet shopping deliveries. We recognise that Royal Mail as a business needs fundamental modernisation if we are to keep the universal service obligation and the six-days-a-week delivery service that lies at the foundation of our postal system.

There are some areas with which we can agree. The Minister attempted to say that the Bill is much the same as the one proposed by the previous Government, but in one specific area it clearly is not because it contrasts with Labour's Bill in 2009, which would have kept a majority stake in public ownership. Clause 3 of our Bill explicitly stated that:

"Each Royal Mail company must at all times be publicly owned".

Labour envisaged that any private partner would be looking at ownership of something like a third, and on no account would more than 49 per cent go into private ownership. I refute the idea that this is just a small change in legislation. A lot of the concerns and questions that have arisen during this fascinating debate are because we are talking about a privatised environment which starts to throw up uncertainties about the continuation of the universal service obligation as we know it and the relationship between the Post Office business and Royal Mail.

I could not help smiling when I listened to the noble Lord, Lord Razzall, because an opinion poll from YouGov showed that 56 per cent of Lib Dems were opposed to privatisation, 50 per cent think the service will deteriorate and 74 per cent think that prices will go up. That does not seem an overwhelming mandate. That was reflected at the last Lib Dem conference, where there was a lot of questioning about privatisation. Dr Pugh, the Lib Dem MP for Southport, said that there was a distinct danger that what they were presenting could look a bit like privatising the profits and nationalising the losses, which would be even more acute if the end result failed to be a Royal Mail system that the country was comfortable with for the next 20 to 30 years. There does not seem to be an overwhelming endorsement by the public at large, and the figures for Conservative voters show that they do not show any great enthusiasm for privatisation per se.

There are definitely some areas that we have in common and that we support in the Bill, such as the Government taking on the historic pension deficit. Similarly, it is right to move regulation from Postcomm, which does not have a sparkling record in its regulatory decisions, to Ofcom and to regulate mail services in the wider context of communication technologies. However, regulation is about more than the heading on the notepaper or the address of the building. It is also right to put it at the heart of the regulatory system for the maintenance of the universal service obligation. This Bill, like Labour's Bill, has a reserve power for a levy to support the universal service. Interestingly, in his report Richard Hooper was sceptical about the need for this, seeing it, perhaps, as an excuse for modernisation not to proceed. We felt it was right to take such a power to ensure the maintenance of the universal service in the future. The concern goes much wider than us. The National Federation of Sub-Postmasters believes that if Royal Mail is to be privatised, as a strategic UK company it should, interestingly, remain in British ownership. It has a lot more concern about ensuring that its businesses stay viable in the future.

There are areas of agreement, and I will comment on the employee share ownership scheme. We proposed something similar, so it would be surprising if we suddenly performed a volte face on this. It contains a provision, which we welcome, to hold at least 10 per cent of equity in Royal Mail in the future. That is, we have to acknowledge, one of the largest holdings, but we will probe a lot more how the shares will be distributed, what employees will be able to do with them, and what real benefits share ownership in the scheme will bring. There have been plenty of other comments on share ownership throughout this debate.

I will focus a bit on the threat to the link between Royal Mail and Post Office Ltd, which has exercised so many noble Lords throughout this debate. Currently, Royal Mail and Post Office Ltd are linked to part of the same state-owned business, and as a result of the internal business agreement Royal Mail is required to take all its post office services from Post Office Ltd. The Government imply that a privatised Royal Mail would still use Post Office Ltd to provide its counter services, and it has been suggested that the post offices might be protected by the terms of the internal business agreement until 2014-15. However, as it is not a commercially binding agreement, this is not necessarily the case, and in selling off Royal Mail the Minister's priority understandably will be the sale price.

Potential purchasers will want to reduce the number of outlets that they are required to use so that they can reduce costs. They will be looking for terms that might require as few post offices as possible. Once the internal business agreement ceases to apply to Royal Mail, Royal Mail will be free to use any partner to supply post offices. A third of Post Office Limited revenue comes from Royal Mail. Without this revenue, Post Office Limited will be unable to keep many post offices open.

Again, not only opposition Front-Benchers are expressing this concern. This concern has been echoed in all parties in this House, and I hope that the Minister will address it. I think it was the noble Baroness, Lady Wheatcroft, who interestingly said that despite the Minister's assurances the chairman of Royal Mail was absolutely determined that this inter-business agreement should remain. I heard exactly the same kind of comments from Moya Greene. That might well be, but chairmen come and go, and so do CEOs, so that is by no means a sufficient guarantee. The House certainly needs more than that if it is going to feel satisfied in that respect. The Government need to answer questions about how they can make a privatised Royal Mail honour that current business agreement, how they will respond to potential purchasers who do not want to be tied to this agreement, and how they can influence what happens to the agreement after 2014.

An obligation to provide fewer access points for counter services would make Royal Mail more attractive for prospective purchasers. Some might say that more post office closures might make a better sale price for Royal Mail. A number of noble Lords have commented on mutualisation and on the need to have more detail and clarity about whether mutualisation would be a successful formula. I congratulate my noble friend Lord Tunnicliffe on raising a number of key issues-for instance, what happens to the proceeds of the sale or the Ofcom review of the universal service obligation after only 18 months. I do not need to repeat those.

I pay tribute to the contribution of the noble Lord, Lord Empey. He made the point about the public not distinguishing between Royal Mail and the Post Office, saying that he saw this as important as broadband. That was an important and interesting assessment. He also referred to the 18 month review of the universal service obligation and- I hope I am not paraphrasing-the undercurrent of uncertainty and cherry-picking by competition.

I also pay tribute to the noble Lord, Lord Low, who always gives us something to think about in his contributions. He talked about the current impact of competition on Royal Mail; the subsidy of 2.5 pence per item and the £160 million loss. He, again, referred to the review of the universal service obligation. I hope that the Minister is going to address his comments on the use of the post offices by the disabled community and the 9 million items for the Articles for the Blind Scheme. If she cannot pick up all these questions in her contribution, I hope that she will certainly return to them.

I am limited by time so I will not be able to pick up all the comments that were made by noble Lords. I have a slight disagreement with my noble friend Lord Mandelson, my previous boss when he was Secretary of State. I think this is a fundamentally different Bill to the one that we introduced, for the arguments that I have previously put forward.

I know that my union has not always been the most co-operative. My attitude towards the union-which has got me into a significant amount of trouble over the years-is not necessarily to agree with everything that it says, but to try to give it honest, candid advice about what I feel is in the best interests of the industry and, eventually, the long-term interests of the members. Since we came through that long and difficult strike and the transformation agreement was reached with Royal Mail, there has been a change. The modernisation programme is now going ahead. I remind people, including the noble Lord, Lord Hunt of Wirral, who talked about the union in certain terms, that the Hooper report was just as critical of management as it was of the unions. Sometimes the assessment is not balanced. I am trying to be impartial; I am not saying that it was all management's fault, but it has not had the greatest track record. The current management seems to be getting off to a much better start.

The union's co-operation with modernisation is something we should acknowledge. It has enabled that programme to go forward. And, in relation to my noble friend Lord Sawyer, the best example I have seen of Royal Mail management is its World Class Mail which you can see if you go to Gatwick. It is an interesting example of management and the work force working together very well.

I am conscious of time, so I am going to bring my contribution to a close. I must compliment my noble friend Lady Drake, who gave in her usual manner a very penetrating and forensic analysis of the impact of regulation and some of the questions that need answering-instead of just expecting that Ofcom will necessarily do the right thing-and pointing out the impact of not getting regulation right.

Privatisation of itself will not necessarily be the magic cure-all or answer to this. The organisation is complex and needs to carry out a huge amount of further modernisation. I think that it was my noble friend Lord Sawyer who pointed out the importance of cultural change and ensuring trust between management and the workforce. When things go wrong in privatisation, usually the people at the top seem to escape quite well financially provided for; it is the workers-to use the phrase that emanated from the First World War, the poor bloody infantry-who suffer. I hope that we can look forward to continuing a probing and penetrating analysis in Committee of what we see as the shortcomings of the Bill, and I look forward to the response from the Minister.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 7:40 pm, 16th February 2011

My Lords, we have had an excellent and informative debate and I thank all noble Lords for their contributions. It is my pleasure and privilege from the Front Bench to congratulate the two maiden speakers on their speeches; I will refer to some of the questions that they asked later. The debate has been worthy of this House's reputation as the revising House and I look forward to the rigorous scrutiny that the Bill will receive over the coming weeks.

When I made my opening remarks I reminded your Lordships of the context for action. It is sometimes easy to let that slip our minds as we focus on the detail of specific policies or clauses, but I stress that the Royal Mail is facing an enormous challenge. The letters market is in structural decline, with volumes falling ever faster. Royal Mail urgently needs to modernise and increase efficiency. The company is weighed down by a huge and unsustainable pension deficit, and the regulatory framework is no longer fit for purpose. Action is urgently needed to address those issues. First, Royal Mail needs access to private sector capital and commercial disciplines. Secondly, it needs to be relieved of its historic pension deficit. Thirdly, the regulatory framework needs fundamental reform. That threefold package of measures is urgently required if we are to secure the future of the universal postal service. As Richard Hooper said in his update report:

"If all these policies are implemented without further delay, and Royal Mail modernises to best in class with management, workforce and unions working together, then despite the very real market difficulties the company has a healthy future".

Let me begin with the Post Office, which has played a key part in today's debate. I am sure that your Lordships need no reminding that Royal Mail and the Post Office are very different businesses facing different challenges. However, as many noble Lords have emphasised, they are both cornerstones of our society, and the Bill will benefit them both. We have heard concerns over the future of the post office network. Noble Lords are worried that post offices will lose business from Royal Mail or from the Government. I would like to provide reassurance on that point. The Government are absolutely committed to the post office network. It provides an enormously good service, as I have said many times before. The post office network is a unique national asset.

The noble Lord, Lord Dobbs, raised the important issue of rural post offices and the outreach services that have replaced them in a few areas. Outreach services were introduced following the last Government's closure programme, to mitigate the impact of large closures. They offer more than simply access to mail-access to cash, pensions, benefits and many other services. Many communities highly value their outreach services and in some cases their introduction has brought in services that were not available at the post office that they replaced.

Both the noble Baroness, Lady Kennedy of The Shaws, and the noble Lord, Lord Kennedy of Southwark, spoke of the importance of getting new business into the post office. I agree wholeheartedly. As the Government set out in our policy statement on the post office published last November, we want it to be the front office for government. That would make it the natural place for citizens to access face-to-face government services, with an important role in supporting the delivery of online services-for example, through identity verification and check-and-send services.

The noble Baronesses, Lady Wheatcroft, Lady Kennedy and Lady Kramer, raised the issue of the Post Office bank. I can inform the House that we have looked at the case for a Post Office bank, but, in this financial climate, it is just not a viable option. The Post Office has an important role to play in making financial services accessible. It already provides a wide range of financial services, including savings, credit cards and mortgages. On top of this, thanks to the Royal Bank of Scotland's recent commitment, almost 80 per cent of current accounts are now accessible at post offices.

The noble Viscount, Lord Tenby, asked about the extent of the rollout of the Post Office Local model. As we set out in our policy statement published last November, we envisage that, over the next four years, around 2,000 small sub-post offices out of a total of nearly 12,000 will transfer to the local model, with the major implementation starting in 2014.

The noble Lord, Lord Cope, and the noble Viscount, Lord Tenby, raised the issue of losses in the Crown post office network. The Crown network is losing £55 million a year. This is not acceptable. Post Office Ltd is committed to eradicating these losses over the next four years. This will be facilitated by the Government's investment of £1.34 billion in the post office network announced last year.

The noble Lord, Lord Whitty, raised a number of questions about the future long-term viability of the post office network. A number of the clarifications that he sought can be found in the Government's November 2010 policy paper, Securing the Post Office Network in the Digital Age. He asked in particular about subsidy beyond 2015. I confirm that, while we believe that these measures will help to reduce the subsidy substantially over time, there will almost certainly remain a need for a residual level of subsidy to maintain those branches which could never be profitable, such as those in remote rural areas, but which serve a valuable social purpose.

I am trying to answer as many questions asked by noble Lords as I can. It will make my speech slightly disjointed, but it will hopefully mean that I bring everybody on board.

The noble Lord, Lord Young, asked about the relationship between the Royal Mail and the Post Office and the inter-business agreement. I can make it clear that the inter-business agreement between Royal Mail and the Post Office is a legally binding contract. The Royal Mail and the Post Office will of course continue to work closely together. The post office network of more than 11,500 branches dwarfs any other retail network in the country and offers unrivalled access to communities the length and breadth of the UK. I echo my noble friend Lord Razzall in saying that it is inconceivable that Royal Mail would not want to take advantage of the post office network. The chairman of Royal Mail has given a commitment to Parliament that, before any sale involving Royal Mail, the companies will put in place between them a new commercial contract that will run for as long as legally possible. That is a strong commitment, but the Government have gone further. We said in another place, and I repeat it today, that we shall ensure that the companies are held to the commitment that has been made by the chairman of the Royal Mail.

The noble Baroness, Lady Howe, and the noble Lord, Lord Sawyer, raised interesting points regarding the potential for a mutually owned Post Office. I reassure noble Lords that a mutualised Post Office is not a step towards a privatised Post Office. The Bill is quite clear that Post Office Ltd may be owned only by the Government or by a mutual organisation that acts for the public benefit. The design of a Post Office mutual must put the views of sub-postmasters, employees, business partners and customers first. That is why we have asked Co-operative UK to look at this proposal in detail and propose options for how a mutualised Post Office might work. It is due to report to Ministers in the spring of this year. I reassure noble Lords that, before any changes to the network are made, there would be a full public consultation.

We heard from several noble Lords the case for the privatisation of the Royal Mail. Here, the noble Lord, Lord Mandelson, spoke from his own experience and of Royal Mail's need for a settled existence. I wholeheartedly agree with that.

The noble Lord, Lord Selsdon, asked what has become of the Postmaster-General. I am very sorry to inform him that the position was abolished some years ago under the Post Office Act 1969. The last post-holder was John Stonehouse. The responsibilities of the Postmaster-General have been divided between the Secretary of State for Culture, Media and Sport, who is responsible for telecoms, and the Secretary of State for Business, Innovation and Skills, who is responsible for postal affairs.

Why private capital? Royal Mail urgently needs access to fast, flexible capital, and this must come from the private sector. The reasons for this are threefold. First, government is simply not a fast and flexible provider of capital; there are so many competing priorities for public funds and any government funding must, of course, be subject to European Union state aid approval from Brussels, which can be lengthy. Secondly, private sector capital will bring with it commercial disciplines that will benefit the company. Finally, the spectre of government interference in commercial decisions must be removed.

On privatisation, the noble Lord, Lord Tunnicliffe, said that the case has not been made for full privatisation, as did the noble Lord, Lord Brooke. The noble Lord, Lord Christopher, was concerned about how and when we would sell Royal Mail. I hope that the noble Lord will be reassured by Clause 2, which requires the Secretary of State to report to Parliament when he has decided to undertake a sale. This report must include details of the type of transaction and the timescale for undertaking it.

As we have heard, the extent of private sector investment is one of the key areas of difference between this Bill and the Bill put forward to this House by the previous Government. The Opposition prefer partial privatisation, which was the approach that they took in their Bill, but a partial privatisation model did not and will not solve the problems that Royal Mail faces. It places too many restrictions on the deal and takes away the flexibility to get the best outcome for the company and the taxpayer. We see no reason why the Government should retain a stake in Royal Mail in the long term, but we will retain the flexibility to ensure that we can negotiate the best deal for Royal Mail and for the taxpayer. Public ownership has not helped Royal Mail to move with the times and to make the changes that it needed to succeed. That is why we need a different approach if we are to safeguard the six-day, one-price-goes-anywhere, universal postal service.

The noble Lord, Lord Tunnicliffe, asked about privatisation and raised concerns that Royal Mail should remain in public ownership on the basis that this is the only way to guarantee the provision of the universal postal service. I fear that some noble Lords may be confusing effective regulation with government intervention. The universal postal service is protected by Parliament through legislation; it is not protected through the Government's ownership of Royal Mail. The Government are committed to protecting the universal postal services.

As I have mentioned, employee shares are a new innovation. I am delighted to say that they are supported by my noble friend Lord Hunt, who knows all about Post Office Bills, and by my noble friend Lord Cotter. A commitment to employee shares was not a feature of the previous Postal Services Bill but it is an important addition to this legislation. I am pleased that it has support from all sides of the House. The noble Lord, Lord Sawyer, joined the noble Lord, Lord Brooke, in ideas that he will no doubt develop in Committee. The noble Lord, Lord Brooke, used to chair the employee share trust for NATS. He has valuable experience to bring and I look forward to hearing him in Committee.

It is not only the commitment to an employee share scheme that will benefit members of the Royal Mail workforce. Members of the Royal Mail pension plan are rightly concerned about whether their pensions are safe. The pension deficit is a huge and unsustainable burden on the company and is dragging Royal Mail down. I repeat: the proposals in Part 2 of the Bill represent a positive outcome for members of the plan, who can take comfort that their hard-earned benefits will be protected and that Royal Mail, going forward, will be better able to deliver the USO once relieved of this burden.

The noble Baroness, Lady Turner, said the pensions deficit has already been solved. Unfortunately, it remains very real-the scheme deficit stands at more than £8 billion today. As Hooper made clear, the deficit must be addressed in order to facilitate an injection of private capital. The noble Lord, Lord Rowe-Beddoe, asked what would happen to the assets of the pension scheme. The cash transferred to Government will be transferred to the Consolidated Fund, gilts to the Debt Management Office and the remaining assets-stocks, property, et cetera-will be transferred to a newly created government fund. They will then be sold in a measured fashion, with cash proceeds from disposals going to the Consolidated Fund. Alongside these assets, the Government will also of course be taking on the corresponding debt and much, much larger liabilities. We will be entirely transparent about the effect of these transfers throughout the government accounts.

Finally, let me turn to regulation and the universal postal services. This is a key part of the Bill; I want to address the universal postal service because noble Lords have expressed concern that it is at risk or will be downgraded. I am afraid that Richard Hooper has made it clear that we cannot do nothing-the universal service is already under threat and that is why we must take urgent action. The purpose of the Bill is to secure the future of the universal service. The Government are committed to the existing service-six days a week collection and delivery of letters, at uniform and affordable prices, for all the United Kingdom's 28 million addresses. This is at the heart of our legislation. We have no intention of downgrading the minimum requirements of the universal service. This Bill puts in place new protections to safeguard the level of the universal service-protections not in the current regime or in the previous Government's Bill. Crucially, this Bill gives both Houses of Parliament a say in whether the universal service can be amended in the future.

The noble Lords, Lord Tunnicliffe and Lord Low, were worried that this Bill will allow the universal service to be reviewed and downgraded in 18 months' time. I am happy to reassure them that this is completely untrue. There is no small print allowing this. What I believe they were referring to is the requirement that within 18 months of Part 3 of the Bill coming into force, Ofcom must have conducted a market review to ensure that the services offered as part of the universal service reflect user needs. These are set out in statute and the review cannot recommend a downgrade of the minimum requirements after 18 months.

Some noble Lords questioned whether the Royal Mail will be left facing too much regulation under the Bill. As Government, it is our role to strike the right balance between protecting the universal postal service and promoting competition in the sector. Our position is clear: competition is beneficial but not where it undermines the universal postal service. Ofcom, the new regulator, will have the regulatory tools it needs to ensure that this balance is protected. The noble Lord, Lord Jenkin, was concerned on the other hand that the Government were easing competition on the Royal Mail in order to increase its value. I assure my noble friend that this is not the case. We have two objectives: first, to secure the future of the universal service; and secondly, to secure the future of Royal Mail as the only company capable of providing that service.

The noble Lord, Lord Low, raised concerns that the needs of disabled and blind or partially sighted people would be neglected under the Bill. I will try to reassure the noble Lord. Clause 30 includes services to blind or partially sighted people as a minimum requirement, ensuring that they will be part of the universal service. This was not the case in the 2009 Bill. Furthermore, the Communications Act 2003 gives Ofcom a general duty under Section 3 ensuring that it must take account of the needs of persons with disabilities when carrying out their functions. The noble Lord, Lord Empey, and the noble Baroness, Lady Drake, were concerned that competitors would cherry-pick profitable areas of the market. I hope that I can reassure them that the Bill gives Ofcom the ability to put conditions on other operators to ensure that there is fair and effective competition in the market.

The noble Lord, Lord Whitty, argued that the Bill should not leave it to Ofcom's discretion to impose certain conditions and should mandate that it does so. The Government believe that we should impose regulation only when it is necessary, and that it must be flexible enough to respond to the changing needs of the market. We believe that the Bill strikes the right balance between ensuring that proper protections and safeguards are in place while freeing the sector from unnecessary and burdensome regulation. The Bill allows Ofcom the discretion to utilise regulation in the way that it considers most appropriate to meet its statutory duties, which include having regard to the needs of consumers. Placing on Ofcom statutory requirements to use its regulatory tools in any and every circumstance is inappropriate and at odds with the thrust of the new regulatory framework that we seek to establish.

In conclusion, I thank noble Lords again for today's debate. It is clear that these issues need urgent action. The fact was emphasised by my colleague Edward Davey, the Minister for Postal Affairs, when he sent this Bill to us from the other place, and it has been emphasised by Richard Hooper, the independent expert commissioned by both the previous Government and the present one to review the sector. We have covered many issues today and I have no doubt that we will cover many more over the coming weeks. I am heartened that there is much on which we can agree, and I am looking forward to scrutinising, and no doubt improving, this Bill with your Lordships' help. I am confident that we will work together to ensure that this Bill is the best that it possibly can be for Royal Mail, its employees and for all users of the universal postal service. I commend it to the House.

Bill read a second time.

Sitting suspended.