Committee (3rd Day)

Postal Services Bill – in the House of Lords at 3:36 pm on 16th March 2011.

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Relevant document: 9th Report from the Delegated Powers Committee.

Clause 3 : Employee share scheme

Amendment 18

Moved by Lord Tunnicliffe

18: Clause 3, page 2, line 23, leave out from "reduced" to end of line 33 and insert "from 100%, the proportion of the company owned by or on behalf of the employee share scheme shall be at least 20% of the proportion of the company that is not owned by the Crown.

( ) The arrangements must ensure that an equal dividend is paid from earnings to all participants in the trust."

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence) 3:37 pm, 16th March 2011

My Lords, we welcome the principle contained in this Bill which earmarks some of the shares for employees in the event that Royal Mail is sold. Introducing the Second Reading of the Bill, the Minister said:

"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".-[Hansard, 16/2/11; col. 776.]

I am advised that during the debate on the 2009 Bill-I say I am advised because, although I sat through the many hours of the debate, it is now but a fading memory-we accepted representations from noble Lords, including the noble Lord, Lord Hunt of Wirral, to make provision for employee shares within the plans contained in that Bill. Of course, under the 2009 Bill, the Royal Mail would have been in public ownership, so when we said we would allow for employee shares, we were able to do so without a specific clause in the Bill at that time. Since we are all in favour of employee shareholdings in Royal Mail in principle, let me now turn to the amendment.

The benefits of employee share schemes have been widely recognised. They can include motivating employees to become more productive, helping to align the employees' interests with those of shareholders, remunerating employees in a tax-efficient way, increasing loyalty and reducing staff turnover. Of course, employee share schemes cannot do all that on their own; they have to be part of a wider approach to good industrial relations. Employee shares will not be welcome if they are felt to be a sop, to come at the expense of pay or to be a substitute for the usual channels of interaction among management, unions and staff.

The government position is that at least 10 per cent of the shares of Royal Mail should be put into an employee share scheme. That is why our amendment proposes that 20 per cent of the company be made available for such a scheme. We know that any privatisation of Royal Mail will inevitably entail a lot of change and upheaval. Its success will rely heavily on the good will of the workforce and on improved industrial relations-and on those relations remaining improved. It would therefore be appropriate to give a greater proportion of the company's shares to the workforce. Since this Bill is designed to achieve complete privatisation, with the Government having no direct say after the date of transfer, it is important to pin down in legislation how things are going to work. We accept the principle of employee shares, but employees need to know a lot more about exactly how the scheme would work.

First, we would like to clarify things by our suggestion that the proportion should be larger than 10 per cent. I will listen with interest to the proposal from my noble friend Lord Clarke about 25 per cent and to the Minister's response to that-there may be complexities about 25 per cent that we will have to consider. However, we certainly urge the Government to provide for a 20 per cent share. We need to understand whether employees would really have to wait until the last Crown share is sold before being able to apply for any employee shares. We need to know what mechanism is going to be there to prevent shares going to employees one day and being sold within a year or two. If the purpose were to have employees feeling that they have a stake in the company, what long-term purpose would be served by passing shares swiftly through the hands of employees and back out to private institutions or hedge funds, even if the employees make a casual profit from the transactions?

We need to be clear that shares would be held on an equal basis with equal voting rights for each shareholder and an equal distribution of dividend. Would some shareholders be more equal than others? Will employees be able to act cohesively to influence the strategic direction of the company to some extent, albeit from a minority position? We would like to have greater certainty about eligibility criteria: who would be entitled to shares or share options and what would it mean in practice? Last, but not least, what proportion of costs would be borne by whom?

There is still much we would like to know about the scheme. Over the past 20 years in the industrialised world, there has been a significant increase in the proportion of employees who own shares in their own firms. This has happened in the UK, other European Union countries and the USA. By 2004, one-fifth of British workplaces had share ownership schemes, covering one-third of all private sector employees, encouraged by tax allowances. In evidence to the Public Bill Committee in another place, Carole Leslie, policy director of the Employee Ownership Association, said:

"I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company so that they do feel that it is theirs-they do feel that that ownership, if you like, is real and it is not a token".-[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 71.]

George Thomson, general secretary of the National Federation of SubPostmasters, said to the same committee that,

"if Royal Mail Group is privatised, I think there is a case for the postmen and the staff to own 20% of Royal Mail Group; for that to be mutualised as a concept so you do not sell your shares when you leave the company but leave them behind; and for the CWU to be on the board of the new Royal Mail Group. So I see it not just for Post Office Ltd. I see it as let's do it right within Royal Mail Group. If it is going to be privatised to bring in private capital, there is a case for making it 20% of the shares, which are not sold on".-[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 29.]

An employee share scheme can take many different forms. We believe that it is best if we look at the possibilities now rather than leave it until the Bill becomes an Act, while there is time to design a scheme that will work best for Royal Mail.

The Bill implies some form of trust. However, it is unclear whether these shares would be held in trust, with a percentage of the dividend being paid out annually to each employee, or whether there would be a pot of shares to be handed out to individual employees as shareholders. If there is an offer of shares to employees of Royal Mail, how will this be made most attractive to employees? Will there be an offering along the lines of two or three for the price of one? Perhaps there should be multiple pots of shares for employee benefits, with one pot in the form of a share incentive programme or save-as-you-earn scheme to take advantage of the tax incentives. A further pot of shares could be set up for training, bursaries and so on, which could be held in trust. These rewards could also be linked to transformational targets.

It goes without saying that any structure proposed for the future Royal Mail must be stable, if it is to be genuinely for the good of its customers and its employees. Any change in the status of the ownership of Royal Mail should provide an ideal opportunity for setting up a scheme. I beg to move.

Photo of Lord Cotter Lord Cotter Liberal Democrat

My Lords, in one sense I welcome the amendment. Speaking for these Benches and, I think, for the Government as well, I think there is no harm in the Postal Services Bill emphasising the importance of shared ownership. The issue has already been rehearsed, but I welcome the fact that it is being raised again. However, it is not necessary to say that 20 per cent or 25 per cent share ownership should be required. We on these Benches, and I think the Government as a whole, are determined to ensure that as many shares as possible are distributed.

Another issue that I feel strongly about, which I am glad is being rehearsed again-and on which I am sure the Minister will respond, as she has done previously-is that share ownership and the input of the employees into postal services are very important. I know that the Minister has accepted that already, and we on these Benches also think that it is very important.

There is no harm in having a discussion on these issues, but being specific about more than 10 per cent could be counterproductive. Much as we would hope that share ownership will be quite high, we want to ensure that a purchaser feels able to have a level of control of the company that the purchaser considers sufficient and appropriate. I would urge the Government to provide as many shares as possible for the postal services employees. In that sense I welcome the amendment, but we should not be prescriptive beyond the 10 per cent that we have said already. I look forward to the Minister's response on the various questions when the time comes.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, I declare my usual interest as a former postman. As all Members of this House will know, I am bitterly opposed to the whole idea of selling off Royal Mail in part or whole. I have a dream; I live in hope that the Deputy Prime Minister will wake up one day, have a fit of conscience and resign from the Government, the coalition will fall and we will not have the Bill at all. However, being a realist, I suppose I have to accept that we have got past that stage and we now have to look at share ownership and the protection of employee shareholders. That is my interest.

If the Bill is to proceed, the shares have to be subject to a reasonable code of conduct that does not permit what happened to some members of my union when BT was privatised. I will come back to the vast quantities of shares and share options that were given to the people at the top of BT.

Issuing shares could be a beneficial move-notwithstanding my reservations about the whole thing-but it could have unintended consequences. Workers at Royal Mail will want to know that their shares are not allocated at the expense of their pay and conditions. Receiving shares does not constitute much of a choice if you cannot get a reasonable cost of living increase when circumstances allow. Employees will want to know that their shares will not cut across their other chosen and established means of engagement within the company. They will also want to know that the company is being put on a sound footing for the future. That depends on the regulatory and other frameworks that this Bill and the Government set for Royal Mail in the future. Employee shares would hold little attraction if they turned out to be merely an anvil around the neck of employees as the ship sinks slowly under the water. I hope that during these debates we will receive genuine assurances on these points.

In speaking in favour of Amendment 18, I put my noble friend's mind at rest in that he will not hear me waxing on about the 25 per cent figure as I do not intend to move the relevant amendment. I will try very hard to convince the Committee that 20 per cent is the right figure. I support most of the points made by my noble friend who moved Amendment 18.

First, if there are to be employee shares, I support the case for employee shareholdings to be held in trust. That is very important. I hope that the Government will not dogmatically reject that idea. If the pattern of the past is followed, employee shares will disappear like ice in a Turkish bath-they will go. They will no longer be owned by employees but will be available on the market for people to buy up. If you have your basic pay and some shares and you are under pressure to pay a domestic bill, you are tempted to dispose of the shares. If that happens, I believe that they should be disposed of back into the employee shareholding trust. I hope that the Government will take that matter into account.

Secondly, I agree that it is quite wrong for the Bill to propose issuing the first employee share only when every single Crown share has been disposed of. That would be unfair and illogical. I understand that 10 per cent is not the maximum proportion of employee shares that have been permitted in a privatisation. A whole string of bus companies were sold 100 per cent to employees. I do not suggest that the 100 per cent figure should apply in this case, but why restrict it to 10 per cent? I believe that the noble Lord, Lord Cotter, talked about the widest possible issuing of shares to staff, or allowing them to purchase them. That is very important. Unfortunately, most of the companies to which I have referred went the same way as the other privatisations, with 10 per cent or fewer employee shares, and they tended to dwindle away over time. What is the case for a bigger share? I do not pretend to be an expert on anything, but we should listen to people such as Carole Leslie, policy director at the Employee Ownership Association, who told the Public Bill Committee in the other place:

"I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company".-[Official Report, Commons, Postal Services Bill Committee, 9/11/2010; col. 71.]

We have not yet dealt with the representation of employee shareholders, although I am sure we will do so later in our consideration of the Bill.

The general secretary of the National Federation of Sub-Postmasters told the same committee that if Royal Mail Group was privatised, there was a case for its employees to own 20 per cent of the group. That assertion supports the amendment of my noble friend.

Peter Stocks, managing director of the Baxi Partnership, which grew out of a manufacturing company and now advises on employee ownership, also gave evidence to the same Committee. He stated:

"I think that 10% is quite low and I think that there is a danger that if it is just shares and there isn't a participation culture that goes with it, it won't change a lot. We see real results in companies where the whole of the company feel that they have a sense of ownership. They feel that they participate in decisions. They discuss decisions and when they make a decision they stick with it. It was interesting watching some of our members through the recession. Employee-owned companies are affected the same as everybody else. They would have gone through an awful lot of agony about how you manage through different times but, because those decisions were made in a very participative way"- by staff and management looking at the issue together-

"once the decisions were made they were stuck to, and bought into, by everybody. Our members have gone through the recession in a very resilient way and I think that is down to the way you manage the company".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; cols. 71-72.]

Let us hope that when the Government get their way with the sale there will be a company with a similar philosophy on these issues.

The staff of Royal Mail-who are mainly postmen and postwomen, but there are many others also-are dedicated people. That has been proved throughout its 350-year history. If those who remain, following the loss of 60,000 jobs in the past couple of years, are to experience the anxiety of a traumatic change of ownership of their company-I cannot get my mind around "company", because the Post Office is the Post Office and Royal Mail is Royal Mail-and if they are to be invited to take a shareholding in their company, it should be done in a way that is fair and reasonable to them and that gives them the prospect of a real say in the success of their company.

Immediate employment is not the only issue at stake for Royal Mail staff; they also need a final guarantee that they will be able to pay their rent or mortgage. They have a big stake. Working for Royal Mail is the means whereby their children can be educated and have better prospects in life, and they use their hard-earned income for a better life. As I said on Monday, postal workers may not always see eye to eye with management, but they are always acutely aware that a viable and successful Royal Mail is in their own interests.

Employee shareholdings have been encouraged by tax allowances; £900 million a year is spent on tax relief for employee share schemes, according to the Employee Ownership Association. However, 50 per cent of that tax relief is on discretionary rather than all-employee schemes. Therefore, 50 per cent of the tax relief is going to 3 per cent of employee shareholders. The EOA says that this is poorly directed tax relief. I should add that it is grossly unfair.

When British Telecom was sold, and it was promised that a golden share would be retained by the Government, those at the top of BT held thousands of share options, although I do not know the exact figure. Any examination of BT's annual accounts will show how many share options were given to them.

We should be very careful how we treat this exercise, and there is a good case for equality. A 20 per cent shareholding should be distributed on an equal basis to all employees. This would turn the Government's plan from a progressive proposal to a truly radical one. It would give employees a real sense that they had a say in the direction of the company and a stake in its success. It would stand a better chance of realising the worthy aspirations that Ministers have expressed in stating the case for employee shares. I look forward to hearing the Minister's reply. In the mean time, I support the amendment.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat 4:00 pm, 16th March 2011

My Lords, I will make a couple of comments. I very much support the employee ownership proposed in this Bill, which is a great improvement on the Bill that did not complete its progress through the previous Parliament, because it includes employee ownership and because the amount of ownership proposed is very substantial. The Government have more details on that than I do. For people working in Royal Mail, there are two issues of great concern. One is that they should be part-owners in a way that this share ownership will allow them to be, in order both to have a voice and to benefit from the profits that will flow from their efforts and from the future success of the company. It is also very important that there should be the maximum possible investment in the future of Royal Mail. Those two issues have to be balanced.

By expanding the number of shares that will be distributed to employees, the ownership potential for a private partner is reduced, which will reduce his, her or their willingness to put additional money into Royal Mail. I caution that there is a balance to be achieved here. Ten per cent is enough to provide a real voice and real reward, but potentially up to 90 per cent going out in some form to the private market is a real guarantee that the purchaser, whoever they are, will have to put in serious and large investment to make sure that this the company is very successful in future. That is surely what employees want, too.

The noble Lords, Lord Clarke and Lord Tunnicliffe, raised many issues that underscored the complexities of trying to set up share ownership for employees in an effective way. The more I heard about all those complexities, such as how shares should be distributed between employees, the more it struck me that the Bill is not the place to set up a structure such as that. It is good to have a discussion in this House, but with so many tax and legal issues there is a need for consultation and much greater involvement by many parties, including potential private partners as well as employees. We would be trying to make the Bill do too much by accepting these amendments, as well as some of those that we will debate later.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, I thank the noble Lords, Lord Tunnicliffe and Lord Clarke, for tabling their amendments, and also thank my noble friends for their contributions. I should perhaps declare an interest; my wife owns and jointly runs a web-based mail order company that uses Royal Mail to deliver its products.

I am delighted that the noble Lords, Lord Tunnicliffe and Lord Clarke, agree with the Government about the attractions of the establishment of an employee share scheme. I say that in the most welcoming and genuine sense. We all agree that this key feature of the Bill will help to improve employee engagement and the culture of the company. We should not lose sight of the fact that the overriding purpose of the Bill is to safeguard the universal service and to secure the future of Royal Mail. A key means of doing that will be by introducing private capital. In deciding on the size of the stake that should go to employees, as my noble friend Lady Kramer said, the Government have had to balance giving a meaningful stake to employees with the imperative of ensuring the private sector investment that the company needs. This is a matter of judgment.

I will put in context the commitment that we are making through Clause 3. The minimum 10 per cent share requirement in the Bill is the largest statutory employee share scheme of any major privatisation. The share is unprecedented, and there is no doubt that it is meaningful. Most major privatisations did not even refer to employee shares in their respective Bills. Furthermore, the share schemes that eventuated offered smaller stakes: 5 per cent in the case of BT and British Gas, and less than that for the other utilities of electricity and water. Only Rolls Royce and BA came close, at 10 per cent and 9.5 per cent respectively. However, we are committed to at least 10 per cent.

I share with my noble friend Lady Kramer experience of advising companies in similar situations. I did that for nearly 20 years, and my experience convinced me that a requirement that employees should own at least 20 per cent, or even 25 per cent, of the shares in the company, as the amendments suggest, would jeopardise getting the investment that the company needs simply by virtue of the substantial size of that stake. We therefore unfortunately cannot accept the increases to the size of the employee share scheme proposed by these amendments. I hope that noble Lords will accept that what is offered is offered in good faith, and that to commit to more would prejudice our ability to achieve a sale.

The requirement to pay equal dividends to all participants of the scheme certainly has attractions. However, Clause 3 is designed to maintain as much flexibility as possible to design the right scheme. We would be ill advised to set in stone the form of an employee share scheme until we have more certainty on the form of the private sector investment. Furthermore, there are other equally sensible methods for determining the allocation of shares and therefore dividend payments. An example of another equally sensible method is length of service, for example. I therefore urge noble Lords not to restrict options at this stage.

The noble Lords, Lord Tunnicliffe and Lord Clarke, asked about the specific route to be followed. The noble Lord, Lord Tunnicliffe, helpfully compared, for example, share trusts against individual ownership. This subject will come up again in subsequent debates on amendments. In brief, some of the benefits of share trusts are that they can be structured to last indefinitely. Depending on their design, they would always keep the capital value of the shares within the trust. Against that, this may not be the appropriate form of scheme to motivate individuals, and we will assess the merits of a share trust and other designs at the appropriate time. Individual ownership clearly offers individuals the opportunity to build up a share pot while they are employed in the business, which they can benefit from when they retire or move on. Individual shares can also be better for employees, in that they offer a greater sense of ownership and can be more tax efficient. The noble Lord, Lord Tunnicliffe, suggested other options, which I found very helpful. This emphasises why it is important at this stage that we keep our options open.

The noble Lord, Lord Tunnicliffe, specifically pointed out some risks of going down the route of issuing shares to employees. As I have said, the exact form of the scheme is still being developed and will be likely to be dependent on the form of the private sector investment. If the share scheme allows for individual ownership of shares by employees, we will obviously explore the most appropriate way of encouraging employees to keep their shares for the long term. Many of the tax efficiencies associated with those schemes relate to a certain holding period, which could be incorporated into the scheme rules. Noble Lords should not assume that employees will automatically sell their shares. In its written evidence to the other place, ifs ProShare noted that two-thirds of BT employees retained their shares rather than selling them off.

The noble Lord, Lord Tunnicliffe, was concerned that there is no guarantee in the Bill that employees will get any shares until the Government have sold their entire holding. Employee shares are an integral part of our policy for Royal Mail, and we have committed to ensuring that there are shares within the scheme at the same time as private capital is introduced. This is the strongest legislative commitment of any major privatisation. The exact sequence of events in such a large and complex sale is difficult to predict at this stage. This means that we need to maintain a degree of flexibility about precisely when during the process the scheme is set up, so as not to complicate that process even further.

The noble Lord, Lord Tunnicliffe, quoted Employee Ownership Association evidence to the Commons Public Bill Committee, saying that 10 per cent was not enough. I might give another quote from evidence to that committee. Alexy Armitage of ifs ProShare said:

"Although they might not hold as much as 10 per cent, or more than that, they like the fact that they own shares in their company and they see that as a benefit and a worthwhile thing to do".-[Official Report, Commons, Postal Services Bill Committee; 9/11/10; col. 71.]

That is at all levels, not just executives; it goes right through those organisations.

The noble Lord, Lord Clarke, was concerned about how to ensure that management does not get all the shares. I think that was the nub of his concern. He makes a very important point. As I have said, it is too early to get into the specifics, but we imagine that management will be able to benefit from the share scheme as well as other employees. However, the point is to incentivise employees and to give most of the shares to management would simply destroy that purpose; that is absolutely not the intent.

The future ownership of Royal Mail, by both private investors and its employees, will be inextricably linked. Within the important boundaries set by Clause 3, the exact size and form of the scheme will, therefore, be informed by the type and detail of the transaction. It is very important that we keep our options open, for the reasons mentioned by the noble Lord, Lord Tunnicliffe, among other things. I assure noble Lords who have taken part in this debate that their suggestions will be taken into account. I, therefore, ask the noble Lord to withdraw the amendment.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence)

My Lords, I thank all those who have taken part in this important debate and the noble Lord, Lord Cotter, for his general support. I hope that his influence will be, as I think I heard him say, that as many shares as possible go to employees. I accept that this debate is about balance and we are obviously putting our finger on a particular balance. I certainly hope that the eventual situation is closer to our position than the minimum.

I thank my noble friend Lord Clarke of Hampstead for his contribution. I hope that the Government will look back at previous privatisations because they have not been universally successful in properly engaging employees through share ownership schemes. His other point, which supplements my own point, is important: that this must not be seen as in place of a proper relationship between employees, trade unions and the new company but must complement it and make the whole relationship stronger and more meaningful. He referred to the trust solution, and the closer we are to a trust solution than an individual-ownership solution the more comfortable we would be. We hope that the Government are thinking in that way.

The noble Baroness, Lady Kramer, said that this was a great improvement on the previous Government's contribution. I am sorry that the noble Lord, Lord Hunt of Wirral, is not here to assure me that my recollection and research are correct, but my understanding of our debate is that we took the point on employee share ownership but because our Bill did not have a 100 per cent sale, it left within our discretion an ability to award shares-fairly late in the Bill we were persuaded of that situation-and therefore our advice was that we could bring that forward without the need for a specific clause.

The noble Baroness made the point that there must be a balance between the new owners and the employees, which I take on board-I think it is the same point as the Minister made. However, she said that it would be wrong to introduce too much complexity into the Bill. My reading of the situation is that this will be quite a lengthy process, and we are seeking as much clarity as possible in this area, because we want to create confidence in the workforce. The more that can be done to create that confidence, the better the outcome.

I welcome the Minister's general agreement with the direction. We seem to be at one on this. He made the point about it being a sufficient proportion to attract private capital. I recognise the weight of his argument but we take a different judgment in this amendment: that 80 per cent is sufficient. It is interesting that he mentioned as the two largest cases Rolls-Royce and British Airways. I should declare an interest in claiming that BA was a success, as I spent 20 years of my life preparing it. I was not there when it happened but still, never mind-you cannot win them all. Rolls-Royce is probably one of the most brilliantly successful companies in the world and it had one of the largest, so I hope that this will come out at more than 10 per cent in the end.

Finally, I sincerely thank the Minister for and congratulate him on his response to our specific questions. Having been, in the memorable and not too distant past, in his position and trying to summon up bits of paper from the Box, I admire his performance but recognise the limitations of such a situation. We asked a number of specific questions. I would be grateful if he could reflect on those in Hansard, just as we will reflect on his response, to see whether it would be sensible to write a fairly comprehensive letter for the record on this whole issue-since we are about to come on to another couple of its areas-of how far the Government are able to go in creating the atmosphere for employees to feel confident about this as we go through the Bill.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip) 4:15 pm, 16th March 2011

If it helps the noble Lord, I can say that that is a helpful suggestion.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence)

Thank you very much. With that response, I beg leave to withdraw.

Amendment 18 withdrawn.

Amendment 19 not moved.

Amendment 20

Moved by Lord Tunnicliffe

20: Clause 3, page 2, line 29, at end insert-

"( ) Any employee share scheme will be entitled to have at least one representative from the scheme on the board of any company operating the scheme."

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence)

My Lords, we have just debated the merits of having an employee share scheme, for which there seemed to be general support on all sides of the Committee. We previously debated the merits of there being an employee representative directly appointed to the board of Royal Mail. That, too, garnered some support around your Lordships' House-I particularly recall the powerful speech by the noble Lord, Lord Cotter. However, despite warm words for the principle by the Minister, on that occasion at least, she refused to incorporate any provision in the Bill on this matter.

The amendment proposes that the employee share scheme should be entitled,

"to have at least one representative from the scheme on the board of any company operating the scheme".

That person might be an employee or an agent or expert or other representative chosen by the employee share scheme to represent its interests appropriately on the board of Royal Mail. As we have heard, one of the main purposes of an employee share scheme is to secure a greater identification and involvement of the workforce with the company. Given that the employee share scheme, most probably constituted under a trust deed, is the embodiment of this, it would seem a very sensible proposition to cement the relationship by affording the trust representation at the highest level of decision making in the company.

Postal workers already have a major stake in the company, as their livelihoods depend upon its viability. They are what my noble friend Lord Myners called "high-conviction" stakeholders-the sort of people who should make up the shareholder representation on the board-because, as well as being employees of the company, they have a cash stake in its success. I understand that where these schemes have worked successfully, an example being a Norwegian airline, employees go around switching lights off in offices and storerooms where they are not needed. That is the sort of personal involvement we would want to see.

Employee shareholders with a minimum of 10 per cent shares in what would be one of the country's major private companies-a privatised Royal Mail-should be encouraged to take part in the work of the board of the Royal Mail. Postal workers have over many decades secured comprehensive negotiating rights on matters of national and local significance. This has meant that people in the workforce have some influence over their own working lives. They have made the workplace a better, safer, more amenable and rewarding place. Royal Mail management, for its part, fully accepts that the workforce has a say in workplace relationships. Sometimes there are conflicts but in most cases these are resolved by the usual pattern of industrial relations that has been established in the industry. The modernisation agreement in March last year has improved relations and allowed the company to go forward positively.

If there is to be an employee share scheme-and undoubtedly there will be one with the enthusiasm for it in all parts of the House-it is only right that it should be introduced with employee involvement and an employee voice. Placing a member on the board to represent the employee share scheme would be a benefit to both the workforce and the employer. Of course, one representative on the board would not be able to outvote the rest of the board, but that representative could ensure that he represents the viewpoint of the employee share scheme and the employees when a decision is debated and voted on in the new company. The workforce would see that there was someone who reflected the experiences and concerns at the highest level and the employer could have an immediate expression of the wider, long-term concerns of the workforce. I beg to move.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour

I support the amendment, which is rather similar to something that I put forward in a previous sitting in Committee. I got the impression then that there was general agreement on all sides of the House that staff representation is a good thing that everyone could support. Everybody seems to agree that the involvement and commitment of the staff are very necessary, indeed essential, for the new company to make progress and for the future of Royal Mail. For that reason, it is necessary to state clearly in the Bill that staff representation is essential. Indeed, rather than just "at least one representative", I would suggest that it will probably be necessary to have more than one representative, but staff representation will certainly be necessary for the success of the scheme and of the company. Therefore, I hope very much that the general agreement around this idea commends it to the Government. If they do not accept this wording, I hope that they will accept something very similar before the Bill leaves this House.

Photo of Viscount Eccles Viscount Eccles Conservative

My Lords, I do not think that any of us could possibly disagree with the thinking behind the remarks of the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Turner. However, I am back with my noble friend Lady Kramer in questioning whether it would be sensible to include such a provision in the Bill. The problem is that we are faced with an enormous quantum of uncertainty about what will happen to Royal Mail and the Post Office when the Bill is enacted. If we were to accept the amendment, we would be piling one uncertainty on top of another. There may well be a share scheme and an entirely separate agreement between the board and the principal shareholder-which is quite likely to be the outcome-as to what the representation on the board should be. That might indeed include employees. Whether they should be people who are also on a trust holding shares on behalf of the employees, if such a trust were formed, is a matter for speculation. While nobody can quarrel with some of the thinking behind this amendment, and indeed some other amendments, it is very difficult to believe that it would be sensible at this stage to put the matter on the face of the Bill.

Photo of Baroness Donaghy Baroness Donaghy Labour

My Lords, I was pleased to see the role that ACAS played in helping the company and the union come together to draw up the modernisation agreement in March 2010. That was a culmination of many years' work and has received praise from the chief executive of Royal Mail, Moya Greene, as well as from Richard Hooper, Ministers, the Opposition and the trade union involved.

Making Royal Mail into a private company is bound to cause anxiety and create disruption for employees and management alike. In those circumstances, measures to improve the atmosphere of co-operation and cohesion are to be welcomed. The proposal for employee shares, if gone about in the right way, could help that process. Assurance on the issue of pension rights, continuity of employment and recognition rights would also be helpful. The proposal for employee shareholders to have representation on the company board is interesting and enlightened. I hope that the Government will consider it seriously.

Deutsche Post has been held up as a shining example of a postal service company. Richard Hooper showered the company with praise for its modern attitude, heavy investment in up-to-date technology and overall efficiency. I readily acknowledge that Deutsche Post, although 20 per cent of the company is owned by a state-owned bank, has been passed from public ownership to private control, but it has a statutory duty to maintain a certain number of post offices. My point is that Deutsche Post has not one, two or three but 10 employee representatives on its supervisory board. If it is good enough for Deutsche Post-a shining example of a modern, go-getting privatised post operator-and for Post Danmark and many other European companies, to have employee representation on the board, why would it be so bad to cater for employee representation on the board in the Government's plans to privatise Royal Mail?

The noble Baroness, Lady Kramer-in a debate on a previous amendment-and the noble Viscount, Lord Eccles, questioned the need to include so much in the Bill. Building trust is an important element in this process. Positive statements from the Government at this stage would give an indication of their intent. Keeping all options open, as has been urged from the government Benches, will not give the reassurance required. I very much support Amendment 20.

Photo of Baroness Wall of New Barnet Baroness Wall of New Barnet Labour

I, too, support the amendment. In my experience, where employees have a stake in the business-such as being shareholders-the greater the influence they have in that business, the bigger the responsibility they take. It is a win-win situation. The presence of employees on the board means that they react differently. The evidence from when that has happened where I have been involved as a trade union official is that their ownership of the business and its success has been reinforced. The whole workforce engages in the business as a result of that recognition.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat

This discussion is expressing general agreement, as the noble Viscount, Lord Eccles, said, that it would be advantageous to have employees represented. I think that the noble Baroness, Lady Donaghy, hit the problem on the head. I am sure that she states accurately that Deutsche Post employees are on the advisory board. Under a European structure, that is exactly where you want them because that board influences policy, but it is not the board that we would recognise under British law. There are so many complexities that I do not know how we could possibly write an appropriate clause that could sit in this Bill and yet work under the six or eight potential structures and options that may arise. Therefore, although this discussion may be crucial for expressing the intention of this House, and, hopefully, of the Government, I cannot see any way that we could encode it so that it would make any sense on the face of the Bill. That is one of the problems we face when we start getting into so much detail.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 4:30 pm, 16th March 2011

My Lords, when the Government consider the arguments we have heard about what should or should not be on the face of the Bill, will they take time to look back in history at the industrial democracy experiment that put Post Office workers-it was the Post Office then and not just Royal Mail-on local, regional and national boards? Representatives, for instance from London as in my own experience, were a conduit in decision making on very important issues like modification or improvement of services and the early days of mechanisation. That gave comfort to people. At regional level the situation was even better, but at national level not only were there two representatives-I will not name them now-on the board, but they were accountable to the rest of the workforce. The point I am making is that those people gave their time as board members-and they included women-without any share ownership. They were pleased to be part of the decision making and the understanding of why certain decisions had to be made. This was introduced in 1975, and that is why I am advising my friends on the other side to look at the history. It was only a matter of weeks after the change of Government in 1979 that the then Prime Minister-the noble Baroness who is a member of this House-decided that the scheme should be abandoned. We got the feeling then that boards were not the place for working people. I think what we have heard today shows that there are places for working people on boards.

I understand the complexities about putting things on the face of the Bill, but I believe it could be done and any prospective owner would welcome the chance of getting people in the position where they could be that vital link between the people doing the work and those who get the profit at the end of it.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

I understand why the noble Viscount, Lord Eccles, should be concerned about the uncertainty, but the one thing we know is that whoever buys this company will know perfectly well-it will be on the face of the Bill-that 10 per cent of the shares will be owned by the employees. That is definite, and similarly-I will be speaking later in subsequent amendments about how this might be handled-if a trust fund is established, the most appropriate way in which that would be contained within the new structure of the company would be to put an employee representing the trust directly on the board.

I see no great difficulty in drafting words to that effect, which should be considered in the light of previous experience. When we dealt with the campaign against NATS being formed back in 2001-I will also speak about that later-it would have been highly advantageous and beneficial had there been more on the face of the Bill than proved to be the case at that time. I am sure that would have convinced many of the employees about what was going to happen and the way things would go.

The success or failure of this venture, whoever buys it, is going to depend primarily on the employees' contribution to the way the company will operate-and, yes, on capital too. That means that the new owners will have to manage the company in a way that, up to the last two years, we have not seen for a good many years within the Royal Mail. They will know broadly what they are taking on board, and I am sure that they would be very anxious to motivate and involve the employees as far as they can. Therefore, I do not see any great problem in finding a form of words to ensure that we have at least one representative.

Times are a-changing and I am surprised that there is a lack of radical approach, particularly from my noble friends on the Lib Dem Benches, on these issues. We have a recently commissioned report from my noble friend Lord Davies of Abersoch about the desperate need for more women non-executive directors on boards. There is also a desperate need to have the workforce better represented in many companies than we currently have, particularly people who are low paid by comparison with those on the board with substantial incomes accruing from companies. These changes will come as night follows day, so I hope that the Government will be bold and will be prepared to look at this proposal very favourably.

Photo of Baroness Howe of Idlicote Baroness Howe of Idlicote Crossbench

Having listened to all the debate on this issue, I must admit that I have a great deal of sympathy with what is behind the amendment. I also think that times have changed considerably. The atmosphere for putting workers of both sexes on a board was rather different and there was total hostility. I understand the Government's difficulty about putting this in the Bill, but it would be helpful if the Minister would go away and think about a possible wording that would reassure everyone on this matter. For the well-being of those who are involved, it is important that they are represented-whatever the form, or in whosever hands, the Royal Mail ends up in.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, I thank the noble Lord, Lord Tunnicliffe, for moving his amendment and all noble Lords who have contributed to this debate. While the idea of an employee share scheme representative on the board may well have merits, it is for Royal Mail and its shareholders to decide how it will structure its board, just like any other company would. Thanks to this Bill, Royal Mail's shareholders will include its employees in the future.

The noble Lord, Lord Clarke, spoke from his experience of the vital importance of effective employee engagement and communication. The Government wholeheartedly agree with him on that. The employee's shareholding is not the only way to create that engagement. I understand that there are a number of initiatives that Royal Mail is following at the moment which also contribute helpfully to that-for example, the world class mail initiative.

As we have already discussed, in the debate on Amendment 4 on Monday, we ask noble Lords to accept that it is not appropriate to impose the composition of a company's board through legislation. In fact, I am not aware of a single precedent where such an imposition has been made by statute. Furthermore, if this amendment were passed, it would mean that in the future a fully independent Royal Mail, which had no government shareholding, would be obliged to request new legislation if the company or the employee share scheme were ever to want to change the way its views were represented to the board.

I am grateful to the noble Baroness, Lady Donaghy, for her recognition that the scheme will enhance the modernisation agreement concepts regarding fostering better relations between the company and its employees. She raised the fact of employee representation on the boards of some European companies. Of course, my noble friend Lady Kramer is absolutely right that their corporate structures are very different to the typical United Kingdom board structure. The noble Baroness also gently questioned the Government's commitment to the concept. Perhaps I may tactfully say to her that, as the noble Lord, Lord Tunnicliffe, admitted in the debate on the previous amendment, the previous Government had to be pushed quite hard even to agree to contemplate an employee share scheme in the 2009 Bill; we are embracing this concept wholeheartedly.

Richard Hooper's reports for both this and the previous Government stated clearly that Royal Mail must be freed of the "spectre of political intervention". I ask noble Lords to accept that specifying the composition of the board in statute will not help with achieving this objective. I would therefore ask the noble Lord to withdraw his amendment.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence)

My Lords, I thank all noble Lords who have participated in this debate, and I thank my noble friend Lady Turner for reminding us how modest this amendment is in providing for only "at least one representative".

As so often happens, the noble Viscount, Lord Eccles, probably lighted upon the essence of the debate, which is the extent to which such a provision should be on the face of the Bill. It is about whether there is uncertainty for the new owner or not. We disagree on that point. We want the new owner to know that there is going to be at least one employee representative on the board-I have to admit that we want to discourage an owner who would have difficulty with that. We want to take away the uncertainty so that, when Government are negotiating for either a trade sale or some other form of disposal, the new owner cannot resile from this provision. We believe that any owner who would have difficulty with it would not be good for the interests of the Royal Mail in the long term.

My noble friend Lady Donaghy, whose chairmanship of ACAS was so important to a period of change in that direction, pointed out that, while the European structures are different, nevertheless the acceptance of significant board-level presence is part of their legal structure. There is significant employee representation, and large, successful European companies manage with that. Under the structure of our company law, the only way we can sensibly introduce such a requirement into the new structure is by including a provision about who should be on the board. It is a change of attitude, but we are living in a changing world.

I concur with my noble friend Lord Clarke of Hampstead that there was an important initiative in the 1970s on moving towards industrial democracy. I was involved in that on one side of the fence, many of my noble friends were on the other side, and we were starting to make some progress. In many ways I wish we had built on this so that we might not be having this debate now. We would probably be taking the involvement of the workforce for granted in the management of major companies, whether in the private or public sector, because we would have had years of experience of it working. I think that this is the time to set this down.

When I was on the government Benches, I always got a sense from my civil servants that, when they had run out of ideas, they scribbled on a piece of paper "Not appropriate". Another one that they would come up with was, "It is unprecedented". Of course, all law is about setting precedents, and we think that this is an occasion when this chance should be seized.

Clearly, I am not going to press the amendment today. We will read the Minister's words with great care, but we may come back to the issue because I think it is an important marker of the style and the character of company that we hope Royal Mail will become. With that, I beg leave to withdraw the amendment.

Amendment 20 withdrawn.

Amendment 21

Moved by Lord Tunnicliffe

21: Clause 3, page 2, line 32, leave out "or include"

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence) 4:45 pm, 16th March 2011

My Lords, this repeats an amendment already discussed in the Public Bill Committee of the other place, because we still do not really understand why the Bill is drafted as it is, so in that sense this is essentially a probing amendment. The current draft gives rise to concerns that the employee share scheme could be designed for people other than employees of Royal Mail. Do that on a wide scale and all the benefits of introducing such a scheme, which we have been through in previous discussions, will be dissipated. Of course we accept the narrow definition in the Bill of the employees of Royal Mail only, which could exclude former employees, but who else do the Government have in mind by the use of the term "or include"? Could it be other public servants, customers or competitors? Surely the scheme has to be centred on and be for the benefit of the employees of Royal Mail, whoever it is owned by.

The fault-line here, as in so many issues raised by this side of the Committee-some with the support of other Benches-is that the answer is, "It will be all right on the night. Royal Mail is going to be sold to a wonderful company with all the virtues and none of the faults of big business". I hope I will be forgiven for saying that, at the end of the day, it will be an average company because in the long term we are all average. We feel that this is the time for the Government to give a more specific response to this probing amendment in order to allay our fears. I look forward to hearing what the Minister has to say and I beg to move.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, as the noble Lord, Lord Tunnicliffe, has explained, Amendment 21 relates to the scope of the employee share scheme. The words "or include", which through his amendment he seeks to remove, allow the employee share scheme to encompass those employees of Royal Mail who work for its subsidiaries, even if those subsidiaries do not fall strictly within the definition of a Royal Mail company in Clause 2. Royal Mail has a number of subsidiaries that do not themselves directly provide the universal service, but would nevertheless be considered to be part of the overall company infrastructure and play an essential role. An example would be Royal Mail Estates Ltd, which oversees Royal Mail's property portfolio. It is clearly our intent that those who work for any Royal Mail company be able to be part of the employee share scheme, but without the words "or include" in subsection (4), there would be significant legal doubt over whether the Government could extend employee shares to the employees of other group companies not strictly falling within the definition of a Royal Mail company.

We do not wish to create a situation where some staff in the group are barred by statute from being members of the employee share scheme. It would mean that they would not have the same incentives to engage with the business they work for and share in its future success. I do not believe that that is what the noble Lord, Lord Tunnicliffe, wants, and I therefore ask him to withdraw his amendment.

Photo of Lord Tunnicliffe Lord Tunnicliffe Opposition Deputy Chief Whip (Lords), Shadow Spokesperson (Defence)

My Lords, it would be unprecedented for someone to rise from these Benches and say that they were wholly satisfied with the answer, and therefore I will not set that dangerous precedent. I will say that I like what I have heard, and I will study the noble Lord's words with great care, but in the mean time I beg leave to withdraw the amendment.

Amendment 21 withdrawn.

Amendment 21ZA

Moved by Lord Brooke of Alverthorpe

21ZA: Clause 3, page 2, line 33, at end insert "which satisfies the conditions specified in subsection (5)"

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

My Lords, I shall speak also to Amendment 21ZB. They are tabled in the name of my noble friend Lady Dean of Thornton-le-Fylde, who regrettably and unavoidably cannot be here today. She sends her apologies. My noble friend is currently a partnership director of National Air Traffic Services. Had she been here, she would have been able to give us the benefit of her current experience and no doubt update us on the prospects facing NATS employees, who may be moving towards 100 per cent privatisation in due course. As many noble Lords know, I was previously a partnership director of NATS, so both of us have some experience of a reasonably successfully scheme for handling employee share ownership.

There are a variety of ways in which shares can end up in the hands of employees when privatisations take place. Since the first in 1982, when 90 per cent of the shares in British Aerospace eventually went to employees, there has been a range of offerings-nine or 10 privatisations. The majority were done through institutional public offerings in which employees picked up individual shares and as owners of shares were no different from people in the market. In 2001, when the public/private partnership for NATS was formed, we saw a novel approach adopted. It involved only 5 per cent of the shares. As is often the case when we come to legislation, there is an untold story. It is that had the unions been more willing to participate in planning for the change in 2001, they would have ended up with 10 per cent of the shares rather than the 5 per cent that was eventually the case. When reference is made to the Labour Government not offering shares in the Bill introduced by my noble friend Lord Mandelson, I suspect that had it had a different reception in the other place there is a distinct possibility that shares would have been on offer to the employees, probably in excess of the 10 per cent currently being considered by the Government. I hope that when we look at the 10 per cent and the way the offering is structured we use those untold stories usefully.

These amendments are, to a degree, based on the experience that the noble Baroness, Lady Dean, and I have had in running the trust scheme within NATS. A direct offering to employees could happen with an IPO, so that the shares disappear all over the place afterwards. It is difficult to conclude that employees have been greatly motivated by what has happened with previous share offerings, although I would not deny that entirely. This amendment seeks to engage the employees more with the company. Paragraph (a) proposes that all shares should be held for the benefit of employees in a trust. I know that this may not be entirely acceptable to all the employees. Some of them might want to get their hands on the shares and to dispose of them at the appropriate point. However, I believe that in the best interests of the company and its employees it would be far better if they are retained in a trust holding, so that while employees are working with Royal Mail they get a return on the investment of those shares during the period they hold them.

Paragraph (b) states that,

"a dividend of equal amount shall be paid in respect of each share held by or for the benefit of any employee".

The argument behind this is that all employees should be treated the same whether they are a postman or the CEO. There should not be differentiation in the way that shares are allocated. An equal dividend should be paid out in equal shares on an equal footing.

We then move on to Paragraph (d). In the NATS scheme, the shares are evaluated each year by an independent company because they are not on the market. The shares have changed in value over the years while they are being held by an individual. When employees then come up to retirement, they know what the value of their share is at the end point, and they then get the money in lieu of their shares, which then go back into the trust. The 5 per cent stake that the employees have within NATS is maintained at 5 per cent on a continuing basis, and the employees maintain their continuing interest in the company. Similarly, this amendment is seeking to establish an arrangement whereby they would not cash them in and sell them to other people but the shares would be retained within the company. When they left the company, the shares would then go back into the trust and be reallocated to new employees who would be joining the company in subsequent years.

The Government already have plenty of experience with such a model in the light of what has happened since 2001 with NATS. I hope, as I mentioned earlier, that we might reach a better arrangement, whereby a representative or representatives of those employees with the shares would find their way to have more influence in the company than they might under the present arrangement with NATS, but that is not covered in this part of the amendment. I hope that the Government are going to be prepared-in the light of the experience with NATS-to look at this very favourably indeed. The amendments are intended to be constructive, not destructive. I hope we might find ways in which we could put more in the Bill than we did when we dealt with the NATS PPP float, where it would have given greater confidence to the employees about the way in which it was going. I believe it would be helpful to anybody who is prospectively looking to purchase the company.

As an aside, for those people concerned-and I am one of them-that Royal Mail may eventually end up in foreign ownership, in the way that so many of our privatised utilities have over the years, this in a sense could be seen as a form of a golden share in retaining a significant British interest in it too, as the employees would be based in Britain. I see the noble Lord, Lord De Mauley, is going to respond-he responded with great comforts on Amendments 18 and 19, although a little less so on Amendment 20. I hope when he comes to respond to Amendments 21ZA and 21ZB he will revert back to what he did previously and be very comforting.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, the amendment is extremely constructive. However, I have a concern, which is the one echoed by my noble friend Lady Kramer. For those of us who argued long and hard during the last Bill for an employee share structure-which was resisted by the then Government-I am worried that we should be too prescriptive at present as to the form that the employee share scheme should take. Those of us who have had experience in the private sector in employee share schemes know that there are a lot of ways to skin that particular cat-this may well be one of them, but, having fought and won the battle to get at least 10 per cent held by an employee share scheme, I am worried that we will overcomplicate the Bill.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, a number of noble Lords have drawn attention to the umpteen privatisations of the 1980s and 1990s which contained an element of employee shareholding. However, time after time, the shares held initially by employees found their way into the hands of institutional or speculative shareholders. They may have started out as employee shares but they did not stay as employee shares for long. What can be done about this? I do not intend to reiterate the very cogent points made by my noble friend Lord Brooke in relation to the experience of the National Air Traffic Services scheme. However, I will respond to the point made by the noble Lord, Lord Razzall, about being too prescriptive. If there are viable alternatives, no doubt the Minister will deal with that in his reply, and I await it with interest.

The amendment proposes that all shares held for the benefit of employees would be held in trust. That may be difficult to accept for some employees who would rather be able to cash in the shares; I speak from my BT experience. I will not go into the details of that, but certainly a lot of cashing in went on at the time.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

No. Sorry to disappoint the noble Lord; I see that he is returning to his previous night's form. There needs to be some return on the investment that the employee can anticipate.

The amendment proposes that a dividend of equal amount would be paid in respect of each share held by or for the benefit of any employee. When paying a dividend, it is important that all shares are equal and everyone is on an even footing, regardless of where they are in the company. That is an important principle.

The amendment proposes that no employee eligible to receive shares under the scheme would be permitted under the rules of the scheme to dispose of those shares to any other person. If we are serious about a stake in the company being held by employees, that is an important point. To prevent seepage turning into a flood of shares out of the scheme, as we have seen in the past, it is important to ring-fence the shares in the proposed scheme.

The amendment proposes that, on leaving employment, shares held by employees could be disposed of only by way of a transfer for consideration to the trust. It is fair that employees who leave employment and leave the scheme would be able to capitalise on their shareholding-that is one of the incentives of the scheme. To maintain the integrity of the scheme, though, they should dispose of the share back into the scheme.

The amendment proposes that the consideration payable under paragraph (d) would be an amount equal to what the market value of the shares would have been. To achieve a fair result for departing employees, a fair price for the share would be established in the absence of an open market. That would not be very difficult if other shares in the company were being traded. If this is not the perfect formulation of our ideas or improvements could be made, I hope that the Minister will take this away, give it serious thought and come back with an improved proposal to meet the same objectives.

It is a shame that the noble Lord, Lord Hunt, is not in his seat. In a wistful diversion down memory lane last week he reminded us of the "Tell Sid" campaign, conducted to boost interest in the privatisation of British Gas. We were told that Sid was the name of an uncle of the late Lord Walker of Worcester, who was the Secretary of State responsible for the sale. It is a bit ironic that the British Gas share advertisements featured a series of people so anxious to alert Sid to the share flotation that one of them was a postman who got knocked off his bike in the excitement. The mind boggles. If the postmen or postwomen of Britain are to be induced to fall over in the excitement at 100 per cent privatisation of Royal Mail-somehow I doubt it-perhaps the Government should address some of the questions raised in this amendment. They are serious; they make a constructive contribution and improvements so that a good idea becomes a very good scheme. I support the amendment.

Photo of Lord Christopher Lord Christopher Labour

My Lords, I apologise for having been diverted to another meeting. There are two issues that concern me on which I would be grateful if there were some comment. There is an assumption that there will be a market in these shares, and I am not at all clear that that will necessarily be the case. If there is not, how is it proposed to deal with that situation?

I may have missed the point on the other issue. Assuming that something like the amendment goes through, we have an employee share scheme of this nature and shares are sold back, will we reach a position where all the shares are in the hands of this trust, or whatever it may be called? How will we deal with that situation?

Photo of Viscount Eccles Viscount Eccles Conservative

My Lords, both the possibilities outlined by the noble Lord, Lord Christopher, could indeed happen. Again, that reinforces the difficulty of Parliament setting down conditions that will need to be thought through in circumstances that may be very different from those that we in this Committee envisage.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, Amendments 21ZA and 21ZB relate essentially to the design of the employee share scheme. As the noble Lord, Lord Brooke of Alverthorpe, explained, their broad thrust would be to ensure that shares are placed within an employee share trust. His proposal is helpful and constructive. I thank him and, in her absence, the noble Baroness, Lady Dean, for raising the issue. I know that they both have a wealth of experience in this area.

As the noble Lord explained, an employee share trust certainly has attractions, particularly for its ability to deliver the Government's objective to ensure a long-standing employee stake in Royal Mail. The Minister for Postal Services has been clear in the other place that he sees these attractions; certainly, he does not discount the matter. However, like my noble friend Lord Razzall, we believe that it is important to keep options open on the design of the scheme until we have reached a firm decision on the form of the transaction. After all, individual share ownership has its own merits, giving the employees a very real sense of ownership.

As I have said, the design of the scheme will in part depend on the type of sale we undertake. For example, individual share ownership could be more appropriate if Royal Mail were floated. In that case, the question of the noble Lord, Lord Christopher, is answered because there would be a public market in the shares. It could also make sense-I think that the noble Lord, Lord Tunnicliffe, touched on this earlier-to have some combination of a trust and individually held shares. I spoke about this area more generally at some length in the debate on Amendments 18 and 19, as I did about the risks of recipients cashing in their shares early, and I am sure that noble Lords would prefer me not to repeat myself.

As I said when we discussed Amendments 18 and 19, paying equal dividends to each employee is a laudable objective. However, there are other sensible methods of allocating shares, and therefore dividends, to employees. I mentioned that in some schemes shares are allocated depending on length of service.

As regards restricting the sale of shares to anyone but an employee share trust, I can again understand the noble Lord's concerns to ensure that the employees' stake cannot be diluted by shares being sold to third parties. However, again this would place an undesirable restriction on the design of the scheme and would prevent us allocating shares to individual employees, if we thought that was appropriate at the time.

As I said earlier, it is in fact very unusual for a Government to commit themselves to an employee share scheme on the face of legislation. For example, I believe that-the noble Lord, Lord Brooke, will correct me if I am wrong-there is no similar commitment in the Transport Act 2000 to create the NATS employee share trust. I hope that all noble Lords welcome this upfront commitment to employee shares at Royal Mail but accept that it would not make sense to go even further and prescribe the particular detail of the scheme in legislation. For these reasons, I ask the noble Lord to withdraw the amendment.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

My Lords, I am grateful to all who have contributed to the debate. I am grateful to the noble Lord, Lord Razzall, for contributing but not for what he said. I am grateful to the noble Lord, Lord Young, for his support. I say to the noble Lord, Lord Christopher, and the noble Viscount, Lord Eccles, that I accept the Minister's view that in many respects the form of the transaction will determine the structure of the offering to employees. However, as I said, I do not think that we will get an IPO. I believe that in earlier debates, the noble Viscount, Lord Eccles, said that he would be very surprised if we did, in which case we are talking about a different kind of structure whereby we sell direct to a company or group of companies, which in turn could create the trust advocated in these amendments. In the event that no market could be used as the yardstick for determining what the dividend or the annual growth in the value of shares should be-although one hopes that they will grow in value-we could turn to a mechanism based on the experience of using independent valuations of what NATS shares would fetch if they were put on the open market.

I recognise that there are problems with being too precise in advance, but, as I have said previously, the more that could be put in the Bill, the more encouraging and supportive it will be to staff who will go into this with disquiet and anxieties. It would also be better for prospective purchasers to know what they are buying into and plan accordingly. However, the Minister's response has provided more comfort than I perhaps anticipated, given his earlier response to Amendment 19. I beg leave to withdraw the amendment.

Amendment 21ZA withdrawn.

Amendment 21ZB not moved.

Clause 3 agreed.

Clause 4 : Restrictions on issue and transfer of shares and share rights in a Post Office company etc

Amendment 21A

Moved by Lord Whitty

21A: Clause 4, page 2, line 36, at end insert-

"( ) No disposal of the Crown's interest in a Post Office company may be made before-

(a) the Secretary of State commissions and publishes an independent assessment of-

(i) the current financial position of that Post Office company; and

(ii) the projected financial position of that Post Office company in the subsequent reporting period; and

(b) the Post Office company is profitable for two successive financial years, excluding payments from government for services of general social and economic interest."

Photo of Lord Whitty Lord Whitty Labour

My Lords, I support the other amendments in the group. We move on to the future of Post Office Ltd. After debating the potential conditions for a minority mutual share in Royal Mail, we are now talking about the possibility of the complete mutualisation of Post Office Ltd, or sub-companies thereof.

In many respects, that is an entirely different proposition, because more than 90 per cent of the outlets of the post office network are already owned by small businesses. It is not clear how the Government intend to mutualise the overall arrangements. I take for my text the useful publication, Securing the Post Office Network in the Digital Age, produced by the noble Baroness's department. It refers in general terms to the Government's belief that,

"a mutually-owned Post Office Ltd could be ideally suited for the economic and social role that the Post Office network provides".

The report also talks about the possibility of basing the mutual on a combination of employees, communities and franchisees-sub-postmistresses and sub-postmasters. However, it is clear from the text that the Government do not have a clue how this will be delivered and are therefore, rightly, seeking advice from Co-operatives UK and other bodies that are experienced in mutualisation.

Given the premise of the Bill-as noble Lords will know, my basic instincts are in roughly the same territory as that of my noble friend Lord Clarke of Hampstead-and given that Royal Mail is to be privatised, and Post Office Ltd and Royal Mail are to be separated, we should explore the prospect of potential mutualisation in that area. However, in order to achieve a mutualised Post Office Ltd, we need to ensure that there is a viable, sustainable and profitable post office network. Although the Government in this document and in other pronouncements have indicated their commitment to that, it is built on somewhat feeble ground.

I quote from the final paragraph of the report, which states:

"We are committed to the future of the Post Office network. It is uniquely important to communities across the country but is on a worrying trajectory of decline. As we have set out in this policy statement, we are dedicated to turning the Post Office around. This will involve a major refresh of the network and its products, and the Post Office turning the size of its network to its advantage".

That, as an introduction to a prospectus, is not hugely upbeat. It suggests that there are a number of question marks over the future of the network, some of which we have touched on in earlier debates, and some of which arise from other aspects of government policy.

The Government claim that they are committed to preserving the current network, more or less. However, there are at least four aspects of government policy that undermine that commitment. The Post Office potentially has a fantastic national network and is a very good front office of government in almost every community. It can provide a range of financial and other services and can be a major part of the logistical network for post, parcels and digital services. However, at the moment there are a number of question marks over it. Only last week, for example, we saw a continuation of the regrettable trend, admittedly started under the previous Government, of taking away government business from the Post Office network; I refer to the decision of the DWP to take a major benefits contract away from the Post Office. That is another blow to the sustainability of the network resulting directly from a government decision.

As we heard in the debate the other night, there is an almost incomprehensible reluctance on the part of the Government to commit themselves to a long-term inter-business agreement between Royal Mail and the Post Office network within the new structure. As I said then, I am not committed to the IBA being in exactly the form it is now. Clearly there are legal difficulties, to which the Government have referred. However, unless there is a stable relationship between Royal Mail and the Post Office network, another substantial part of the potential income of the network will begin to look extraordinarily uncertain.

In addition, we have had the rather lukewarm response of the Government to proposals for the Post Office to extend its services. In particular, I am surprised that the Government so precipitously rejected what we were working towards under the previous Government-and which was greatly supported by my former organisation, Consumer Focus-namely, the extension of Post Office financial services, and in particular the provision of those services to people who are outside the main banking system. We have seen positive moves towards being able to use the Post Office in the mainstream banking system: RBS recently signed up to that. Now one can access the majority of major high street banks via the Post Office. The problem with the financial services market is that roughly 20 per cent of the population are excluded from it; they do not have basic banking facilities and do not have access, physically and in terms of credit, to those financial services. The Post Office could very simply bridge that gap at a point that would be close to most families.

I am surprised that the Government have abandoned that proposition. There have been more encouraging words about providing additional services, but it is very strange that they have closed the door on the provision of a banking service. Another Commonwealth country, New Zealand, has made a recent and spectacular success of using the Post Office as a banking system throughout the country. We should look at such examples for this country.

Therefore, there are dark clouds over the future of the network. Noble Lords will recognise that that means there is some uncertainty as to whether we could successfully mutualise the network and Post Office Ltd. In the same document, the Government indicated that for a mutualised Post Office Ltd to be successful, it must be able to build on solid foundations, and that mutualisation will be an option only if the network is financially viable. It is not specified how it can be made viable, how the assessment will be made or how the conditions of financial viability will be determined.

The amendment proposes an independent assessment of the financial position of Post Office Ltd, including its future commercial viability. It proposes also that, before we moved to mutualisation, whatever that may mean, we would need to have seen two years of profitable operation of Post Office Ltd prior to the decision in principle being taken. That is exclusive of the subsidy which the Government have for the next few years committed to the Post Office network. There is no commitment beyond that, and therefore any assessment of financial viability would have to be on the basis of excluding the government subsidy. Both the assessment of the network's viability and of the proven profitability of that network would have to be established before mutualisation could go ahead.

I am not opposed to the mutualisation of Post Office Ltd. I can see many major advantages, not least to consumers and vulnerable consumers, particularly in rural areas and the outer suburbs. I am not at all opposed to the Government's concept, given the premise of the Bill. However, in order for it to work we need to have established, effectively and robustly, that there is a viable company and a viable network.

I hope that the amendment would provide the means whereby we made that assessment, and would make it clear in the Bill that such an assessment needed to be made before we took the next step. I beg to move.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I support my noble friend Lord Whitty. He has made a powerful speech not only on the merits of mutualisation, which are largely supported in principle by Her Majesty's Government, but on the real difficulties of moving to it with any great speed at present.

I have a guilt complex about mutualisation because in the 1990s I was a non-executive director of the Woolwich Building Society, a splendid body with advertisements which many people remember to this day; "I'm with the Woolwich", they said. I am afraid that I was one of those who followed the lead given by the executive directors, who I of course realise were going to benefit directly as a result. The building society gave up its position as a building society and became a limited company. Not long after that, it was taken over by one of the four leading banks. So, as I said, I have a guilt complex, which has led me-I hope not too far in the opposite direction-to be generally in favour of the idea of mutuality.

I was unable to take part at Second Reading, but I notice that, in principle, there were several voices favouring the creation of a mutual to run the post office network, including the noble Baroness, Lady Wheatcroft, from the Conservative Benches, who is not in her seat today, and others. We all know that the Secretary of State, Dr Vince Cable, had indicated even before our Second Reading that the Post Office was "ideally suited" to the co-operative style of structure, where employees-sub-postmasters, sub-postmistresses -and individuals in communities would all have a greater say in how post offices are run.

When the National Federation of Sub-Postmasters spokesman, Mr George Thomson, addressed the Public Bill Committee in another place on 9 November last, he was "very supportive" of the concept of mutualisation of the post office network and particularly attracted, he said, by the John Lewis model. "However", he added, expressing it rather more strongly than my noble friend Lord Whitty, the Post Office,

"has to be worth mutualising".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 29.]

He then expressed great doubt that it was because it was, he said, a "basket case" at the moment.

At Second Reading, Peers who favoured mutualisation were just as doubtful, although their language about the immediate prospects might have been less extreme. My noble friend Lady Kennedy of The Shaws, who had another meeting this afternoon but who hoped to be in the Chamber for these discussions, said that mutualisation would not now make "economic sense".

As my noble friend Lord Whitty has said, Co-operatives UK has been asked by the Government to consider the options. Will they go for a producer co-operative along the lines of John Lewis, which I have already mentioned, or a consumer co-operative like the Co-op shops, or will it be some form of hybrid? The intention behind this amendment is to unravel that over a period of time and come up with a suitable solution, but I am sure, like the many who spoke on this subject at Second Reading, that my noble friend Lord Whitty is just as much in favour, in principle, of a mutual set up as they were.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, I shall speak to Amendments 21C and 22ZA to 22ZD, and comment on the other amendments in the group, Amendments 21A and 22. This is a large group of amendments and I ask the Committee to bear with me.

Generally, this Bill pumps questions on issues of accountability, considering the enormous step that it proposes for one of our most cherished institutions and the number of vague answers that we have to questions about the sale of Royal Mail and the future of the post office network. With proposals relating to the disposal of shares in Royal Mail, to the nationalisation of the pension scheme, to the regulatory regime and to the mutualisation of Post Office Ltd, greater accountability to Parliament should be built into the Bill before it receives Royal Assent.

The Bill instructs the Secretary of State to lay a report before Parliament once he has taken a final decision on the transfer of the Post Office Counters business to a mutual body. Once again, there is no promise of an oral Statement, no debate, no chance to amend and no vote. These amendments offer the House an opportunity to scrutinise the Government's later proposals in detail, including their plans for mutualisation. Several years may elapse between the Bill receiving Royal Assent and the transfer to a mutual organisation, but it is important that Parliament is able to scrutinise and approve the proposal when it comes into effect. Are we being denied the opportunity to scrutinise fully because to do so might cause real difficulties for the Government, or will the cold forensic light of parliamentary scrutiny undermine the foundations on which this Bill was laid?

We will not know the answer to that unless Parliament is able to consider future important actions and their implications more fully. So many questions remain unanswered. We are asked to take a leap in the dark about how Royal Mail will be sold, about what sort of Royal Mail will emerge in the private sector, and about what obligation a privatised Royal Mail will be under to utilise the post office network. A great deal of concern has already been expressed about the nature and continuity of an inter-business agreement. In the case before us, of Post Office Ltd, we are also asked to take a leap in the dark about the type of mutual body or range of mutual bodies that might end up owning our post office network.

What will the rules be? What will be the extent of the mutual? Who will be eligible to be a member? Are all to be equal or will some be more equal than others? How will the board be constituted? Could the mutual sell off assets? Could the owner sell on to another mutual, such as a building society, store group or a mutual set up for that purpose? Could mutualisation end in disintegration? How will a mutually owned Post Office ensure that it is on a sound commercial footing? What tests would a potential owner have to pass?

It might be far fetched, but what is to stop Rupert Murdoch's family or someone else associated with a communications company setting up a mutual body as a vehicle for running the Post Office? Is the Minister setting a timescale by which the Government intend to complete the mutualisation process, or is this an open-ended process? Who will be accountable for the success of the Post Office when it is in mutual hands? There is a provision for an annual report, but what about a Secretary of State annual report? I hope that the Minister will take the opportunity to make clear whether the Secretary of State will be responsible and, if he will not be, who will be? What are the safeguards to prevent a mutually owned Post Office Ltd from suffering commercial decline or even catastrophic financial collapse?

Will the Government remain the lender of last resort should a mutualised company go into bankruptcy? Will the borrowings of a mutualised company continue to count against the Government's borrowing requirement? Will a mutualised business be given full commercial freedom, including the freedom to borrow capital on the markets? Will any mutualisation plan include a detailed business plan for the long-term relationship between Post Office Ltd and the Government in respect of the services that it provides for various departments, including the DfT and the DWP? I must admit that the recent decision on awarding the green girocheques contract leaves us more concerned rather than less, despite the Government's protestations that they are committed to future government services being provided by the Post Office. Does Royal Assent for the Bill mean that Parliament has no further role in scrutinising the proposal, even if it is delayed for some years?

These amendments seek to ensure that if the Bill goes on to receive Royal Assent, the Minister will at least be required to return to the House to seek approval for the next step that he wishes to take on the Government's plans for mutualisation. That is very important, as the Bill is significant. Its provisions will have a major impact on users of the postal service, and even more so for the employees and agents of Post Office Ltd. It will also have a significant impact on the Exchequer. Such a proposal surely deserves closer scrutiny.

We accept that the process of establishing a mutual will take time and that an appropriate mutualisation structure will need to be agreed. An external organisation might operate that structure or the employees, managers and agents of Post Office Ltd might run the mutual. Then there is the process of negotiation with the employees and managers, who will be asked to agree the terms of the transfer to a new status. The Government cannot possibly be in a position to share with Parliament the mechanics of that arrangement now, so it is essential that Parliament is able to look at this once again and approve the final arrangements.

A transfer to mutual ownership of this kind is extremely rare. It is possible, for example, that the new mutual organisation will be entirely new to the Post Office. It may be in the form of a mutual structure yet know little about postal service matters. That in itself would not necessarily debar such an organisation from owning the Post Office as a mutual, but Parliament will want to be assured that the right organisation has been appointed to run that body and that those who are affected by the outcome have been consulted. Equally, both Houses will want to be assured that the new entity has a robust business plan. As my noble friend Lord Borrie pointed out, the finances of Post Office Ltd are somewhat precarious. Its commercial relationship with Royal Mail is being threatened, as is the value of its work with its other principal customer-the Government.

The business is reliant on subsidy to maintain its network of post offices. From the outside, the prognosis is not good. My noble friend Lord Borrie has already quoted from the evidence that George Thomson, the general secretary of the National Federation of Sub-Postmasters, gave to the Public Bill Committee on 9 November. He pointed out that the federation has been working on the mutualisation concept for over two years, saying,

"we are very supportive of the Post Office eventually becoming a mutual company".

He went on to describe its financial status, which I will not repeat as my noble friend Lord Borrie has already detailed his rather graphic language. The general secretary went on to say that,

"there is a lot of work to be done before the funding package really kicks in in April 2012"- that is, the Government's funding package-

"because we have 18 months of sub-postmasters being up against very strong headwinds to survive and keep their office alive in the community".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 29.]

That was the evidence of the National Federation of Sub-Postmasters: in favour of mutual ownership but really fearful of the financial stability of the Post Office going forward.

In those circumstances, a robust business plan, as proposed in Amendment 22ZD, is an essential aspect of any organisation seeking a change of ownership. Parliament must be able to consider the non-confidential aspects of that plan. Amendment 22, in the name of my noble friend Lord Kennedy, asks that the report be made after a period of no more than two years, which is surely a reasonable request. Amendment 22ZA requests that the approval be sought,

"before any transfer is made", not after the horse has bolted, while Amendment 22ZB specifies that the "preferred purchasers", if any, should be identified. The latter also calls for the report to be supplemented by an oral statement and an order,

"subject to the affirmative resolution procedure".

Amendment 22ZC would require that the report is subject to a vote in both Houses of Parliament, and Amendment 22ZD would require a sustainable business plan for the Post Office company to be set out to secure a viable future.

I particularly commend the amendment moved by my noble friend Lord Whitty because it would require an independent assessment of the current financial position and projected position of the Post Office company. It would also require that the Post Office company had been profitable for two successive years, excluding payments from government for services of general, social and economic interest. In other words, it needs to walk before it can run.

This wide range of amendments would insert a greater degree of accountability at the point when the Government decide to hand over the Crown's interest in a Post Office company to a mutual of some sort. The mutualisation proposal in the Bill is radical and far-reaching. That does not mean that there is opposition to the proposal, which we support in principle. This is about the magnitude of the decision and the importance of the post office network and the affection with which it is held throughout this country, and the Bill does not provide enough detail. We acknowledge that it is difficult for the Government to set out at this point exactly how mutualisation will work. Nevertheless, the amendments would ensure that if the Bill receives Royal Assent, at least the Minister will be required to return to the House and seek approval for the next step that the Government wish to take in respect of plans for Post Office mutualisation.

Photo of Lord Cameron of Dillington Lord Cameron of Dillington Crossbench 5:30 pm, 16th March 2011

My Lords, the profitability of post offices, touched on by the noble Lord, Lord Whitty, and the need for a sustainable business plan, as set out in the last amendment, is important to me. It will come as no surprise that I come at this from the perspective of rural post offices, and it is here that I wish to probe the Government's plans. Amendment 22ZD, on a sustainable business plan, seems to me the best place to raise all my questions. Although I considered spattering them into a whole series of amendments that we have yet to come to, I hope that your Lordships will allow me to put them all under this one umbrella.

Rural post offices are a key thread in the web of rural communities. If you can imagine a web on an old barn door, you cut a key thread and the web collapses. It is the village shop that is the key, but the post office represents the cornerstone of viability to that shop as it can greatly increase the footfall in these shops. Research shows that it can increase the footfall by 15 per cent or more. Quite apart from the invaluable services that local shops provide-particularly to those in rural areas without transport, which includes the very old, the young and the poor-it is the footfall in those shops that is the key benefit to the community. It is a place where old Mrs Jones can meet up with the young Master Smith. That seems a strange request, but the old and the young have different groupings in rural villages and it is really important for the sustainability of that community that there is a cross-fertilisation between the groups within it. That can only happen in a village shop.

I am keen to probe the Government on how they intend to keep the current network of rural post offices profitable and the sort of sustainable business plan they have to ensure that they can keep to the promise that they made in the November document, referred to by the noble Lord, Lord Whitty, which states:

"We will maintain the network at around its current size".

That document sets out how the new flexible service will attract new customers, and claims that it has already done under the new post office local programme. I have my doubts that this will be enough in the long run to give the much needed boost of confidence to potential sub-postmasters to pick up the gauntlet to invest in a new business in a rural area that will probably give a very limited return, that requires a huge degree of skill in accounting, stocktaking and people skills and that involves very long hours. Somehow this vital job needs to be made more attractive. A post bank, as mentioned by noble Lord, Lord Whitty, would be a sure way to give that confidence. I endorse all his words on the subject, especially with reference to the huge success of such a scheme in New Zealand. A firm commitment in this area would give confidence to potential sub-postmasters.

How are the Government going to ensure, in that crucial plank of their sustainability plan, that government departments will deliver their services through post offices? There is no way in which that will happen if there is a cheaper route. Once the £1.34 billion that the Government are putting in has run out, in four years' time post offices will once again start to close. I suspect that most of those closures will be in rural areas. The noble Lord, Lord Whitty, has already referred to the DWP's reluctance to use post offices and to its closing down the contract on the green giros, which brought about £15 million per annum into the post office chain.

The trouble is that the DWP and other departments will always follow the cheapest route. Of course, the cheapest route might be the internet. It is not necessarily cheaper for a lot of people, because it ignores the cost of owning a computer and accessing the training if you happen not to be part of the computer age. Some people in remote rural villages find that difficult. As an aside, I put in a plea, vis-à-vis long-term sustainability, that the Government use part of the £1.34 billion to equip post offices, where necessary, as mini-internet cafes and to pay sub-postmasters to help the digitally excluded in rural areas to access government services via the internet. That would be a helpful service for the Government to invest in.

It is typical that where post offices are most threatened-in remote rural areas-internet broadband connections are all too often non-existent. To put it the other way around, post offices are essential in the delivery of services where no broadband exists.

My question remains: how will the Government persuade their departments to use the Post Office? Local government services are another possibility, but under the current cuts and financial stringency how can the Government twist enough arms to make local authorities deliver through post offices as opposed to the cheaper option of using their sparse and increasingly rare local authority offices? I say that that is the cheaper option, but it is not really cheaper; it is certainly not cheaper to the consumer, who has to pay increased transport costs to get to the outlet. We should bear in mind that all too often the consumers who want to access those facilities are those who can least afford such costs.

All the recent trends in this area seem to be for the Government to reduce their use of post offices for the delivery of government services. What are the Government going to do to reverse that trend? How will they maintain the network at its current size? Do they have a sustainable business plan? I hope that the noble Baroness will be able to answer me.

While we are discussing Clause 4 and the possible mutualisation of the Post Office, do the Government intend in the near future to introduce a majority of sub-postmasters on to the board of Post Office Ltd as a trial run to see whether sub-postmasters running the Post Office company helps? I think it would. I realise that that is a bit of a googly to throw at the Minister, so I would be happy for her to answer that question in writing.

Photo of Baroness Donaghy Baroness Donaghy Labour

My Lords, in supporting the amendments, I want to deal with the potential political fallout of getting it wrong. The Government gave a reassurance in an earlier debate that there would be no programme of closures. We all know that you do not need a programme to have a continuing and worrying number of post office closures. The Government may well succeed in being hard-headed-and, dare I say, hard-hearted-about the role of employees and in their business-first approach to Royal Mail. However, when it comes to the Post Office, the potential fallout is another matter. There was a huge loss of good will for the previous Government, my Government, because of the number of post office closures. As noble Lords know, 900 post offices are up for sale, and a significant proportion would not be considered financially viable unless there was an inter-business agreement with teeth. It might sound strange coming from me, but I would like to praise the Daily Mail's post office campaign, which has been one of the most effective for any political party in its dedication and coverage.

I do not think we should underestimate the amount of political capital which will be used up by any Government who fail to ensure a successful future for the Post Office. It may be more valued by the older person, but it is the older person who votes. So in supporting these amendments, we are looking for an assurance from the Government that whatever pattern falls out-whether it is a mutualisation or whatever-a very strong effort will be made to have an inter-business agreement which protects the future for sub-postmasters and for as many post offices as possible.

Photo of Lord Razzall Lord Razzall Liberal Democrat 5:45 pm, 16th March 2011

The noble Lords, Lord Whitty, Lord Cameron and Lord Young, have raised some extremely relevant and interesting points on this important issue, and I find myself very split. The noble Lord, Lord Whitty, confined his remarks primarily to Amendment 21A, and I find that difficult to accept as somebody who, as the noble Baroness will be aware, has argued strongly for the mutualisation of the Post Office. I am concerned that we should put in the Bill-it is exactly the same argument we had on the previous provisions-restrictions that would be likely to slow down the mutualisation of the Post Office. I am sure the noble Baroness will deal with that in her remarks.

Everything that the noble Lord, Lord Cameron, says is entirely correct. I know, as does the noble Baroness, that the Ministers in her department are convinced that they will have a package that will provide financial security for the Post Office. Whether there is a constraint of coming out with detail before the Budget or before it is finalised I do not know, but I think that before this Bill is passed, it would be extremely helpful if noble Lords could be made aware in more detail of the exact package that the Minister's colleagues in the department are confident could secure the future of the Post Office.

I hope that the Minister will reflect on the remarks of the noble Lord, Lord Young, because these are extremely important issues. Having made the point endlessly in debates on Bills in opposition about the importance of Parliament sanctioning important decisions, I think the principle is important that, before any significant mutualisation of the Post Office takes place, Parliament needs to have a final say. I hope the noble Baroness will take that point back for consideration.

Photo of Baroness Howe of Idlicote Baroness Howe of Idlicote Crossbench

My Lords, I sympathise with these amendments. They reflect a number of concerns that those of us who spoke at Second Reading raised. I was certainly one of those as far as mutualisation was concerned. I had a great deal of sympathy, too, for the concept of banking in local post offices, but that has clearly been firmly ruled out by the Government. That does not mean, however, that they should not be thinking of ways in which they could satisfy the concerns. There should be some return to Parliament for an assurance that the route down which the Government are going will be in the best interests of those concerned. I thought the comments made by my noble friend Lord Cameron about rural areas were extremely important. The post offices are important for the sustainability of those local areas.

I hope that when the Minister replies she will feel able to give more assurance than we have had so far on this issue. I commend the amount of money available and the way in which the Government have thought through this Bill in order for it to be sustainable for the future. However, despite all the money-we will no doubt hear details after the Budget of other ways in which the Post Office and postal services will be helped-it would be in everyone's interest if the Minister could say that there will be a hard look at reassurance on some of the many important points that have been made in this group of amendments.

Photo of The Archbishop of York The Archbishop of York Bishop

My Lords, under Amendment 21A, one of the greatest regrets about the manufacturing base of this country is that companies in the public interest were disposed of without the kind of assurance that is being asked for here. If we look at steel, coal-mining and our car manufacturing bases, public interest in those companies was disposed of in the hope that the people who took them on would make them more viable, but when they took them over they explained that these businesses were not viable. Before we knew where we were our car manufacturing base and our steel industry were not about any more.

It worries me that if you get rid of any public interest-in the case of the Post Office, it is the Crown's interest-before you are quite certain that whatever company is created will be viable at least through some financial times, you will be in real difficulty. It would be very easy for whoever takes these organisations on to say "By the way, when we looked at the books, they were not what we thought they were". Then someone else buys it and takes it on, and before you know where you are the Royal Mail and those other places are not about.

Although it is difficult to put it in the Bill, the assurance that this amendment seeks is absolutely necessary. As long as there still is Crown interest in the Post Office, there is a chance that we may do it properly. As soon as that goes-before there is the assurance sought in this amendment-I am afraid that we may end up with what happened to British Steel, coal-mining and the car industry.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills

My Lords, here we are on day three eventually at the issue of the Post Office and all the concerns that have been expressed today. The noble Lord, Lord Whitty, raised a number on the future of the post office network, as did the noble Lord, Lord Cameron, the noble Baroness, Lady Howe, and the most reverend Primate. These will be covered by a number of amendments that follow and I ask noble Lords if I may respond to those points in those debates.

On the future relationship between the Royal Mail and the Post Office, I hope that my commitment to the noble Lord on Monday to consider his amendment to include information on that relationship in the Clause 2 report provides him with some comfort. This group of amendments relates to the circumstances in which the Secretary of State can transfer his interest in the Post Office to a relevant mutual and the information which should be furnished to Parliament in connection with that transfer. This Government believe that mutualisation of the Post Office could be ideally suited to the particular economic and social role it plays up and down the country. We understand that sub-postmasters, sub-postmistresses and other stakeholders would highly value the opportunity to have more of a say in how this well loved institution is run.

We envisage that a mutual Post Office Ltd could allow communities to tailor services to their needs and give those who know the Post Office best a greater stake in the future of the institution that they value so dearly. Indeed, the many community-run post offices across the country demonstrate that this can work. Clause 7, which we will discuss in due course, ensures that any mutual must act for the public benefit. No Post Office mutual will exist solely for the financial benefit of its members.

Clauses 4 and 7 work together to set clear parameters within which a transfer to mutual ownership could be made, but they do not oblige such a transfer to be made. That is because developing the appropriate model for a mutual Post Office must not come from the top down.

Amendments 21A and 22ZD seek to ensure that Post Office Ltd is on a secure financial footing before any move to a mutual model may be made. The network must of course be on a secure financial footing before any move to a mutual model is made. Indeed, it would not be in the interest of any Post Office Ltd stakeholders to take on the running of a company that was not in a suitable position to sustain itself. Nor indeed would the Government consider handing over control of the Post Office if they were not satisfied that the company could flourish in the absence of the levels of subsidy that are currently provided.

The £1.34 billion in funding that we are providing to the network over the next few years will do more than just guarantee that at least 11,500 post offices will remain working. It will ensure that the network can be modernised, offer an improved customer experience and so be in a better position to compete for new business. We believe that the Post Office could be in a financial position that would allow for the possibility of mutualisation by the end of this Parliament. I hope that goes some way to answering the question put by the noble Baroness, Lady Donaghy. This funding will ensure that the Post Office services across the United Kingdom on which so many people rely, particularly the most vulnerable in our communities, are protected exactly as the noble Lord, Lord Cameron, so eloquently explained is needed.

Whether or not this move to a mutual structure happens, we envisage that the Government would still need to provide a small amount of subsidy to ensure that offices remain open where they might not otherwise survive, such as in rural or deprived urban areas; yet Amendment 21A would not permit a mutual to operate in these circumstances.

However, it is important that there is transparency about improvement in the financial position of the Post Office, as, for example, the noble Lord, Lord Whitty, seeks under his amendment. That is why this Bill introduces, at paragraph 17 of Schedule 12, a new requirement that the annual accounts of the Post Office be laid before Parliament every year.

We aspire to a vibrant and flourishing Post Office in the future, which does not simply rely on government handouts, but which can provide a wide range of services across a nationwide network. The markets in which the Post Office operates are highly competitive. It would not be in the interests of the Post Office, the future members of the mutual or the Government if the business plan being relied on to continue fostering that vibrant and flourishing Post Office were published, as envisaged by Amendment 22ZD.

I turn to Amendments 21C, 22ZA, 22ZB and 22ZC. These amendments all seek to require a further parliamentary approval process prior to any transfer of the Secretary of State's interest in the Post Office to a relevant mutual. Amendments 21C and 22ZB do this as stand-alone amendments, while Amendments 22ZA and 22ZC combine to the same effect.

Clause 5 introduces an important means by which Parliament can hold the Secretary of State to account for a decision to move towards a mutual ownership model for the Post Office. However, we do not believe it would be appropriate for Parliament to have a veto right over any subsequent move to mutual ownership that is within the statutory parameters being debated today. The reason is that developing the appropriate model for a mutual Post Office must not come from the top down. I am grateful to the noble Lord, Lord Borrie, for his observations. He may be interested to know that, subject of course to the strict statutory parameters set out in Clause 7, the interests of all of the Post Office's stakeholders-for example, sub-postmasters, staff, business partners and customers-must come first.

Co-operatives UK, the national trade body for co-operatives, is talking to those stakeholders and will shortly report to Ministers on some potential options for a mutually owned Post Office, and before any final decision is taken by the Secretary of State, there would of course also be a public consultation. But since, at the conclusion of that process, the ultimate decision to transfer the Post Office to a relevant mutual will rest with the Secretary of State, Parliament must be informed swiftly and in appropriate detail of the decision. Clause 5 sets out those requirements. It specifies the details that must be included in the report and also requires the Secretary of State to lay it before Parliament as soon as reasonably practicable after he has made the relevant direction or authorisation.

I should like to set out in a little detail what is meant by "as soon as reasonably practicable", which I hope will address the concern of the noble Lord, Lord Kennedy. The Government's position is that it would not be acceptable for a report to be laid before Parliament as late as two years after the Secretary of State has made the relevant direction or approval, as Amendment 22 envisages. It is important that there is sufficient flexibility in the legislation to provide time for the report to be compiled or to deal with parliamentary recess timings, but the Government envisage that "as soon as reasonably practicable" would certainly be no more than a few weeks after the Secretary of State's direction or approval. We would expect it to be perfectly possible in practice for a report to be laid on the same day as the direction or approval is made.

The noble Lord, Lord Young, asked a number of detailed questions about the operation of a mutual Post Office. As I have said, the mutual needs to develop from the ground up, and therefore we will not determine all the answers today. The Government have made it clear throughout that there will be a full public consultation before any move to a mutual. I also take on board the comments of my noble friend Lord Razzall, who has encouraged me to take as seriously as I would have done the important questions put by the noble Lord, Lord Young. I can answer some of those questions now, if that would be helpful.

The noble Lord asked whether mutualisation is the first step towards the privatisation of the Post Office. Mutualisation is absolutely not that first step. Our legislation makes it clear that the Post Office will not be for sale and can be owned only by the Government or a mutual that fulfils strict criteria. A mutual will be unable to sell its shares in the Post Office and there will be restrictions on disposals of Post Office assets. It is worth remembering that the vast majority of post offices-97 per cent-are already privately owned businesses being run by sub-postmasters. Our legislation could allow this group of people to be part of a mutual Post Office Ltd, giving them a greater say in how the national business is run. As I have said, we believe that a mutually owned Post Office could be ideally suited to the particular commercial and social functions that the post office network provides up and down the country.

In answer to the noble Lord's question about who will monitor whether the Post Office continues to be run for the public benefit, the Secretary of State will have to be satisfied that the mutual is set up to act for the public benefit both now and in the future by promoting the use by the public of post office services. He must also be satisfied that disposals of property or rights that would be inconsistent with the purpose will be prevented. Safeguards will be built into the mutual's governance structures to ensure that this is the case, and under Clause 11 Post Office Ltd will be obliged to provide a detailed annual network report to Parliament, irrespective of whether it is owned by the Government or by a mutual.

The noble Lord also asked how we will ensure in practice that a mutual structure represents the public interest in the post office network and is accountable to Parliament. The Government will ensure that a mutually owned Post Office represents the public interest in the network and acts for the benefit of the public. Clause 7 ensures this, and before making any move to a mutual structure, we would conduct consultations so that the public can have their say, both as customers and as taxpayers, about how this should best be done. The Bill also imposes clear requirements for the structure of any mutualised Post Office, including on the ownership and disposal of shares. It requires a post office network report to be laid in Parliament each year, detailing the number and location of post offices, the services offered and the accessibility of the network. This will be the case whether the Post Office is mutualised or not.

The noble Lord, Lord Young, put other questions to me which, as I have said, may be answered as we go through later amendments. However, I will write to him and, if he feels it appropriate, I will make sure that those answers are placed in the Library. I am sorry to have spoken for so long on this major group of amendments, but it comes right at the beginning of our talks about the Post Office. I am grateful to all noble Lords who have spoken to these amendments. I ask them to be patient and listen to the responses that we will make to other amendments that are to follow. I hope that I have provided sufficient reassurances for the noble Lord to feel able to withdraw his amendment.

Photo of Lord Whitty Lord Whitty Labour 6:00 pm, 16th March 2011

My Lords, I am grateful to the noble Baroness for some of the reassurances she has given, which were the basis for tabling the amendments in the first place. I am also grateful to all noble Lords who have indicated that they too need some reassurance to the effect that mutualisation will not be pursued until there is a clear and robust Post Office Ltd or Post Office network if not absolutely in place, at least in prospect. I thank particularly my noble friend Lord Young for the complementary amendments which, in addition to the assessments that I have proposed, would require a report to Parliament and a parliamentary process. I shall come back to that in a moment.

I say to the noble Baroness and the noble Lord, Lord Razzall, that I am not attempting to slow the process down. I think that it will take time to get to a position whereby we are able to mutualise, and some of what she said indicates that. Nor am I am not trying to restrict flexibility because I recognise that a range of different options is available, some of which may not be a single option because different parts of the network may be dealt with differently. As I say, I am not trying to be restrictive in this respect. However, there are some deep worries. As the noble Lord, Lord Cameron, indicated, there are particular worries in rural areas. The other areas that are particularly an issue are what I would call the remoter suburbs, those areas between the inner city and Surrey or Cheshire, where again the post office is an important focus and social element for those who are somewhat cut off from the economic and social mainstream. There are substantial parts of the country where the post office is a major institution, and there are anxieties. That has been demonstrated through reactions to the reduction in the number of post offices over the past few years. As my noble friend Lady Donaghy indicated, it has become a social and political issue.

The Minister said that we do not want to institute a parliamentary veto here. I think that when the Bill is considered in another place, she will find that Members of Parliament from all political parties may not want to regard it as a veto, but they will want a pretty strong reassurance that the time is right for mutualisation to take place, and therefore a report to Parliament along the lines proposed in the amendments tabled by my noble friend Lord Young is necessary.

Obviously I will not press the amendment tonight, but the problem is that the noble Baroness has to be completely convincing. The noble Lord, Lord Razzall, slightly mysteriously referred to a package that he hopes Ministers will come forward with. I have some inkling about that in relation to the Ministers in the noble Baroness's department, Ed Davey and Vince Cable, and, indeed, the noble Baroness herself. I am not attempting to split the coalition-not tonight anyway-but there is a different sort of split between Ministers in BIS, who I think are genuinely committed to the future of the Royal Mail and the post office network, and other departments which are not prepared to make any sacrifices in relation to the network. As the noble Lord, Lord Cameron, and other noble Lords said, we have just had yet another example-we had some significant ones under the previous Government-of a department taking a silo view of what is in its most cost-effective interest helping to destroy the interests of government and society as a whole, particularly in rural and underprivileged areas. I think the split is not between Ministers or parties but between different Whitehall departments. We need to get some coherence there in parallel with setting up the terms of the mutualisation. We need greater clarity that the Government as a whole are behind the objective of making the post office network work. Only at that point can we clearly be reassured that this mutualisation is likely to work.

I think the main points have registered with Ministers, and I suspect these debates will go on in another place. Ministers in the noble Baroness's department will need to ensure that the network that they envisage over the next few years will be robust, will be sustainable for a long period of time and will meet the social and economic needs of a large proportion of our population. If they can do that, God speed to mutualisation. I beg leave to withdraw the amendment.

Amendment 21A withdrawn.

Amendment 21B

Moved by Lord Stevenson of Balmacara

21B: Clause 4, page 3, line 2, at end insert-

"( ) Before making any direction under subsection (2), the Secretary of State shall give full consideration to the creation of a Post Bank and shall, following consultation with relevant persons, lay a report before Parliament."

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport)

My Lords, in earlier contributions many noble Lords, particularly the noble Lord, Lord Cameron of Dillington, expressed concern at the removal of government services from the post office. Particular concern has been expressed over the recent loss of the green giro account to PayPoint, which took away another source of business from the post office.

The post office network is a unique national resource. It has as many social and community functions as it has business activities. It is woven into the fabric of all our lives. Communities, businesses and individuals all depend on it, and I believe it should be protected and grown. I welcome the Government's commitment that there will be no closure programme for post offices, but we are seeing the loss of many hundreds of post offices across the country. It is therefore paramount that we take action to ensure that there are no further closures of post offices by looking to build and strengthen the business.

We suggest "a cunning plan". A post bank based on the post office is in many people's view one of the best ways of strengthening the post office by building up and extending its current financial services and thus securing the future of the network. As both bank and post office branches have closed in many local communities, particularly the poorest, many people and small businesses have seen their direct access to postal services and essential financial services disappear. Establishing a post bank would ensure the provision of financial services based on a return to basic banking principles under which bankers are situated in and understand their local community and its needs. With its network of branches throughout the country and the high levels of trust that it enjoys, the post office is ideally placed to house a post bank. The proposal also builds on the central idea that post offices are there in great numbers, and it seems sensible to build on what we have rather than to think of other ways to use the service.

A post bank would hugely increase post office custom and would enable the Government to increase the work they pass to the post office. It would enable the post office to build up its business profitably. It would also enable the Post Office card account to be embedded in a trusted bank and would thus remove the threat that it could again be put out to tender. The post bank would be an economic driver, lending at small margins and supporting local enterprise in local communities. The current banking crisis surely provides an opportunity for a radical redesign of retail banking, including combating financial exclusion and creating an accessible and trusted banking system.

One way of doing this would be to put in place a universal banking obligation, similar to the universal service obligation placed on Royal Mail, to create a post bank in the model of the post office with statutory obligations to provide a service. A post bank would allow every local post office to offer current accounts, access to credit and direct debit facilities and to expand its present savings capacity. It would not be shareholder driven and would be able to act in the best interests of local communities and local businesses. It would be localism in action.

As I alluded to a moment ago, the new post bank could address the problem of financial exclusion. Commercial banks have physically retreated from large tracts of the country, leaving people badly served. There are 3 million people in the UK without a bank account, and that figure is still rising as the banking crisis has increased the number of those who have difficulty accessing banking services, especially if they need mortgages, loans or overdrafts. People without access to financial services effectively pay an unfair premium for basic services. I declare an interest as chair of the Foundation for Credit Counselling, which helps nearly 350,000 people a year deal with problems from their credit card use. Many of them are paying high rates of interest for basic services. The establishment of a post bank would be an essential safeguard for the future of the post office network and would hugely increase post office custom. It would enable the Government to increase the work they pass to the post office.

I shall talk a little about the role a post bank could play with small businesses. As many noble Lords have argued, the UK economy relies on small businesses which, in turn, rely on the post office and its efficient, affordable and local service. A post bank would safeguard the post office network and offer more extensive services for small businesses. A recent Federation of Small Businesses survey, which received responses from about 5,500 small businesses, revealed that 38 per cent thought that a post bank based on the post office network was a good idea and that they would consider banking with such a bank. Many respondents also said that they wholeheartedly support the idea, regardless of whether they would use it as a banking service. Clearly, measures that will prevent future post office closures are welcomed by the small business community, as many small businesses rely on local post offices for mail services. The survey showed that 79 per cent of respondents use the post office for their mail services and 88 per cent use stamped mail rather than metered mail. They make the journey to the post office regularly to purchase stamps, and they have parcels weighed and franked. It is an important part of what they do. If small businesses could also access a wider range of financial services at the post office, they could deal with many more errands in one visit, saving them valuable time.

A post bank would reconnect banking with local economies and would liaise with other financial bodies, including credit unions and community development financial institutions. There is growing expertise in the credit union and CDFI sector about how best to service the needs of financially excluded households. Credit unions and CDFIs have been evolving sensitive responses to the financial needs of lower-income households. These sectors of the market involve higher credit risks, higher transaction costs and a high level of professional skill in budgeting and money-management service. A post bank would support these initiatives very well.

There are many international examples of successful post banks. Many of Post Office Ltd's overseas equivalents have developed comprehensive banking services to offset the loss of other traditional services. These have made substantial contributions to the viability of those national post office networks. Even if they are not exactly like-for-like comparisons, they are useful examples of what could happen. The French postal service, La Poste, launched its bank in January 2006, and by 2007 it had over 11 million postal banking accounts and accounted for nearly a quarter of La Poste's turnover. The Italian postal service, Poste Italiane, launched BancoPosta in 2000, and by 2002 Poste Italiane showed a net profit for the first time in 50 years. This turnaround is largely attributable to the business generated by BancoPosta and has led to an expansion of the Italian post office network, which now stands at over 14,000 post offices in a country of very similar size to the UK. In Germany, Deutsche Post's Postbank, although it has recently suffered problems, remains the largest German retail bank by customer numbers, with 14.5 million users, and Germany's largest issuer of credit and debit cards. Banking transactions account for 39 per cent of business over German post office counters.

I remind the House that the Liberal Democrats 2010 manifesto states, on page 54, that they will,

"Improve access to banking for all with a PostBank, revenues from which will also help to secure the future of the Post Office".

On page 83, it states that they will:

"End the post office closure programme to keep post offices open in rural areas where they're the lynchpin of community life, improve access to banking and help secure the future of the Post Office through a PostBank".

To conclude, I have outlined how a successful post bank would offer real, long-term financial security to individuals and businesses and provide a vital role for the post office in accordance with the high esteem in which it continues to be held by the British people. At a time when the Government are creating a green investment bank to deliver funds for clean energy and low-carbon projects and a big society bank to help social enterprise, why not complete the hat trick and create a post bank that will help safeguard the post office network while also delivering a reliable banking service to people who need it most? I beg to move.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour 6:15 pm, 16th March 2011

I rise to support my noble friend in respect of this amendment. It is very important to accept that post offices have an important social role. One of the social roles they perform is that they are a point of access for-often not very well paid-people, including elderly people, who do not use banks because they do not know how to use them, are too concerned about them or are anyway not interested in speculative investment. Some people simply want somewhere safe to put their savings so that the savings are readily available when they need them, and they know that the savings are going to be safe because they trust the Post Office.

For those reasons, along with the excellent case made by my noble friend on the Front Bench, the Government really ought to look very seriously at what is proposed here. I am sure it would be popular with a very large number of the less well paid members of the public. People want to have somewhere safe where they can put their savings. We are hoping that people will save more and we have been saying for a long time that people are not saving enough. Well, some people do save, but they do not always know where to put their savings or where to go for financial advice or assistance. This would be an excellent idea, so I hope the Government will be prepared to accept what has been suggested in this amendment.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat

My Lords, I have long been a fan of the equivalent of a post bank-as you know, it was Liberal Democrat policy. All of the arguments were made very strongly about the advantages that a post bank would bring to the financially excluded and those who are looking more for vanilla banking as well as to improving access for small businesses. It is hard to do anything other than come up with a list of absolute positives for a post bank.

Obviously, my colleagues in the other place were very eager to seize the opportunity for a post bank as part of the restructuring of Royal Mail, but then they came across the contract between the Post Office and the Bank of Ireland-although I do not know how much they know about it because obviously the contract will be confidential. However, I notice that the three names down on this amendment are those of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, and-I am sorry if I get their histories slightly wrong-I think it must have been on their watch that the contract with the Bank of Ireland was signed. That contract hidebounds the Post Office and makes it virtually impossible for it to provide the kind of comprehensive service and range of financial services without buying out that contract. Without breaching any confidentiality, perhaps they could tell us how many hundreds of millions of pounds would have to be paid to Bank of Ireland to buy out the contract so that a post bank could be put in place. I do not have access to that information, but perhaps, having been on the watch when that contract was originally put in place, they could give us a sensible estimate of what that amount of money could be. I am rather afraid it is such a large sum that it would have been difficult even in a time of prosperity and exceedingly difficult in a time of deficit. I greatly regret that.

I am glad that we had some discussion-there will be other opportunities-about bringing on board the credit unions. This House will be well aware that the Minister, Ed Davey, and others are committed to financing the technical platform that would make it possible for the post office to be used as the face of the credit unions. Credit unions are far more fragmented than a coherent bank would be, but they at least that would open up the opportunity. I will also have a few words later to say about at least providing access to current accounts in the various high street banks. I wonder if they would give us an indication of what they think the cost would be for the Government to buy out that Bank of Ireland contract to make this very attractive proposition possible.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

The noble Lord, Lord Stevenson, said he had "a cunning plan". Well, I wish it was cunning-it is not original. In fact, it was the Conservative Government of the 1970s that abandoned National Girobank. I was one of those who agitated for many years for the creation of Girobank. By copying the arrangements in the Netherlands, it was possible to introduce a simple banking system that brought cheque books and bank accounts to many thousands of people who never thought they would have a bank account. I mention National Girobank because one day, when I get enough money, I am going to ask a student or someone to do the proper research on what happened to our people's bank, as it was in those days.

As I said in the debates on the previous Postal Services Bill a couple of years ago, that only one paper in this country covered the story of what I considered the give-away of a national asset. Reference has been made to the shock that you get when you find you have got to buy out a contract, but if you had the figures on what happened at Girobank, you would start to worry even more. I know this because when it was announced that it was going to be abolished-and it was really abolished because it was so successful-Co-operative Bank, Unity Trust and a consortium of trade unions got together to try to buy the bank when it was put up for sale. First, they were told, "You need £200 million to buy Girobank". That was the easy bit, because that was gathered together. Then the rules were changed, and Girobank was to be sold only to an established finance house-which the consortium was not-but the consortium established itself as a finance house. Then they were told, "You cannot buy it unless you have an alternative computer system that will be there if this system goes down". So the dice were quite loaded from the start. The £200 million that was mentioned at the time of the sale of Girobank actually paled into insignificance, because the actual figure-I am quoting from memory as I have no notes here-was £118 million when it was sold to the Alliance & Leicester. The Alliance & Leicester obviously grabbed it because, at the time, there were thousands of people waiting to open an account with National Girobank. Political dogma said, "This has got to stop. It's too successful and we're going to do away with it".

What has happened since? Alliance & Leicester of course has been swallowed up by Santander. If anybody thinks that the service they are getting from Santander is anything like what they got from National Giro in the beginning, and to some extent with the Alliance & Leicester, they are dreaming, because the rapacious way in which these banks work frightens me.

There is a demand for a people's bank, so I welcome the comments from the noble Baroness, Lady Kramer. I ought to declare another interest: I am a member of the St Albans District Credit Union. During my years as a councillor in Camden, I saw what happened when people were at the mercy of loan-sharks, when people were threatened on their doorsteps with an extortionate amount of interest week on week. Of course there is a chance to get a link between the growth of credit unions and a people's bank-or post bank, post office bank or Royal Mail or whatever-but the important thing to is to have a simple banking system, which allows people to have confidence in where they are putting their money. At the back of it all, despite all my criticism of what has gone on in the last few years, I still believe in the brand name of the Post Office. The Post Office has a good reputation and I hope that the Minister and her colleagues will go into one of those dusty offices, pick up the box file that says National Girobank and check what I have said about the way it was virtually given away. Incidentally, the punchline was that, within two years of trading, Alliance & Leicester cleared the amount that it paid for the bank.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, I shall respond to the noble Baroness's request for information. It was a substantial sum. I am not saying that to be evasive; I cannot remember the precise amount. The only thing that I would say about our arrangement with the Bank of Ireland was that it enabled a large amount of business to be generated. We should not forget that aspect of it. As an original member of Girobank when it was first formed, I concur absolutely with the regretful history of its sad demise that my noble friend Lord Clarke has recounted. For a period we had a successful people's bank, which unfortunately disappeared as the result of another privatisation.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 6:30 pm, 16th March 2011

I thank the noble Lord, Lord Stevenson, for tabling this amendment. The Government are clear that the wide range of financial services that the Post Office offers-personal loans, credit cards and savings products, for example-are an important part of its total product suite. The Government made clear in the coalition agreement that we would look at the case for developing new sources of revenue for the Post Office, including the creation of a post office bank. We have looked at the different options and arguments for such a bank very carefully and have come to the conclusion that, particularly in the financial climate that we are experiencing, it is just not a viable option. My noble friend Lady Kramer spoke further on this and gave us her views, and I think that she felt the same.

Setting up and capitalising a new bank would be very expensive as well as creating a much more volatile and risky balance sheet for the company. Instead, we are committed to ensuring that the Post Office continues to offer wide access to existing banking facilities. For that reason, we were extremely pleased that in November last year the Royal Bank of Scotland reached agreement with the Post Office to allow RBS customers, including NatWest customers, access to their current and business accounts at the post office. That will mean that almost 80 per cent of all current account holders will be able to withdraw money free of charge at the post office, while many can also pay money in and check their balances.

In response to points raised by the noble Lord, Lord Stevenson, on financial inclusion, supported by the noble Baroness, Lady Turner, the Post Office already offers a range of services to help people on lower incomes, including the Post Office card account and the ability to access all basic bank accounts.

The noble Lord, Lord Clarke of Hampstead, will be heartened to know that we are extremely supportive of a stronger link-up between the Post Office and credit unions. Recent announcements by the Department of Work and Pensions on credit union funding open up excellent opportunities for the Post Office to provide access to credit union services to many more people. This builds on existing co-operation between the two sectors, which is already strong. Maintaining the large branch network and increasing access to bank accounts at the post office, as I have said, is an important step towards financial inclusion.

Financial services are clearly an area with significant potential for growth. As I have said, though, the creation of a post bank would not be in the best interests of the post office network. Instead, we strongly believe that funding for the Post Office will be best spent modernising and maintaining the network. The funding that we have provided to the network will mean that the Post Office is better placed to compete for new business.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I may have misheard the Minister, but did I hear her say that all these desirable things are dependent on the maintenance of a wide network? Is it part of the Government's guarantee that that wide network will be there?

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills

Yes, that wide network will be there.

We strongly believe that funding for the Post Office will be best spent modernising and maintaining the network. The funding that we have provided to the network will mean that the Post Office is better placed to compete for new business and to further develop its offer to both local and national government, in its ambition to become a front office for the Government. As part of this strategy, we will of course also support the Post Office in expanding its financial services offering, but at this time we believe that that is best done by offering access to the existing high street banks through the post office network.

The noble Lord, Lord Stevenson, asked a number of further questions on credit unions. It would be best for me to deal with those concerns when we discuss credit unions specifically in the later amendment under Clause 11. I hope that it is possible at the moment for the noble Lord to withdraw his amendment.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport)

I thank the Minister for her reply. I suspect that I made a mistake in trying to bring a touch of levity to the debate by quoting "Blackadder"-it was picked up by only a couple of people, one of whom used it to beat me over the head with. I suppose that that is the risk of quoting Blackadder, who seemed to have a singularly unsuccessful way of making his plans come to fruition. I should probably never use that again, so I will not.

We are delighted that the Minister has confirmed that she has looked so hard at the question of a post bank-given the coalition agreement, it would have been rather hard not to do so. I am surprised, given the way that the coalition agreement seems to permeate so much of the business in this House, that my proposal has not been given more of a favourable wind, but there we are. It got a lot of support in the speeches that my noble friends and others on both sides of the House made, and I still think that it is a good idea.

My amendment was an attempt to express the frustration that came out in the intervention that the Minister took. In some senses, we seem to be underplaying the capacity of the existing network to do so much more for society. These post office branches exist. In most cases they are active, vibrant places. People use them-I quoted the figures in my address. We need a complete rethink about the way in which the Government do business. We should take the post office network and use it to achieve more than it is currently capable of doing, given the single use that we are making of it.

How do we save our declining post offices? We use the brilliant brand. We use the securely established places that these post offices inhabit in wonderful locations, with huge footfall, in every part of our country. They are used and valued by people but we do not use them properly to achieve the further output of government. They are places that people go to for their services. People use them for transactions and pick up more information to learn-

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills

If the noble Lord will bear with me, I must intervene. We do believe that there is an exciting future, so much so that we are supporting 11,500 post offices. The previous Government closed them, but we are not closing any.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport)

I am afraid that the Minister did not quite get my point; I was in the middle of a wonderful peroration which, had she heard it to the end, would have made it clear.

I am talking not about post offices qua post offices but about post offices as an engine for doing more for the whole of Government. That is what I am trying to argue the case for. The post bank would therefore be one of a number of things that, if it were located in post offices, used and built on, would be able to sustain the network and perhaps to build back to the numbers that we want to see. However, given that this is not the time to make that sort of speech or to make these sorts of arrangements and that the amendment is framed very narrowly, I beg leave to withdraw the amendment.

Amendment 21B withdrawn.

Amendment 21C not moved.

Amendment 21D

Moved by Lord Young of Norwood Green

21D: Clause 4, page 3, line 8, after "of" insert "any part of"

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, I shall also speak to Amendment 21E. By nature these are somewhat technical probing amendments to see whether there is a loophole in the disposal of "any part". That is the basis of those amendments. I am trying to set the world record for brevity in moving an amendment. I look forward to the Minister's reply.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills

My Lords, Amendments 21D and 21E refer to the circumstances in which a relevant mutual could dispose of its interest in the Post Office. I understand that these are probing amendments.

Clause 4(4) makes clear that the only people who can own an interest in the Post Office are relevant mutuals, the Secretary of State, the Treasury, a nominee of either the Secretary of State or the Treasury or a company that is wholly owned by the Crown. The clarification envisaged by Amendment 21D is not required to achieve this.

Amendment 21E seeks to ensure that any disposal made by a relevant mutual would be a disposal of its entire interest in the Post Office. While in practice we would expect only one relevant mutual to own the Post Office at any one time, we believe this amendment to be unnecessarily restrictive. For example, there may be circumstances in which different stakeholder groups form separate corporate bodies, each taking an interest in the Post Office. Provided the Secretary of State was satisfied that each body met the conditions set by Clause 7, it would seem overly restrictive to rule out the possibility.

We will debate Clause 7 shortly, but I shall briefly summarise the strict safeguards that are put in place under it. The Secretary of State must be satisfied that the conditions in Clause 7(2) to 7(4) will continue to be met before there can be any transfer to a Post Office mutual. Those conditions ensure that the Post Office mutual must continue to act for the public benefit by promoting the use by the public of Post Office services, that its members have a clear interest in it so doing, and that disposals that might jeopardise that will be prevented.

I hope that I have sufficiently reassured the noble Lord, and I ask him to withdraw the amendment.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, I thank the Minister for her reply. I will certainly reflect on those measured words. In those circumstances, I beg leave to withdraw the amendment.

Amendment 21D withdrawn.

Amendment 21E not moved.

Clause 4 agreed.

Clause 5 : Report on transfer of interest in a Post Office company to a relevant mutual

Amendments 22 to 22ZD not moved.

Clause 5 agreed.

Clause 6 agreed.

Clause 7 : Meaning of "relevant mutual"

Amendment 22ZE

Moved by Lord Stevenson of Balmacara

22ZE: Clause 7, page 4, line 15, leave out "C" and insert "D"

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport)

My Lords, this amendment seeks to embed employee involvement in the operation of a mutualised Post Office by including representatives from the workforce, particularly the sub-postmasters, on the board of the mutualised entity. We on these Benches are not opposed to the principle of the mutualisation of the Post Office, but for that mutualisation to work effectively for those running the business it is logical for them to have a direct say in the operational management of the business at board level.

Mutualisation is not a new concept; its origins date back to the establishment of the Co-operative movement in the 19th century, which has many facets and is still going strong today. We on these Benches all support the Co-operative endeavour and can trace the roots of the Labour Party to it, but surprisingly, and somewhat disappointingly, mutuality is still not a particularly common concept today. The John Lewis Partnership is considered to be an outstanding example of how a mutualised business can operate. In that respect, the John Lewis Partnership is admirable, but there are very few other mutualised entities of a similar size to the one which the Government propose in this Bill. Indeed, in the financial services sector, where there is a history of mutualisation, the tide has rather been flowing the other way and only a few building societies have survived as mutuals. I understand that the Government's mutuals task force is looking at how government can stimulate the transfer of assets of NHS bodies and local government to mutual status.

Understandably, public sector workers have been hesitant to jump into new and untested structures. Recently, the Trades Union Congress claimed that a ballot at a south-east Sussex PCT showed that 90 per cent of staff were opposed to being "spun out" as a mutual-those are their words. The TUC stated with regard to that case:

"The moves towards mutuals are being driven by management rather than bottom-up. That makes a nonsense of the model because it relies on a buy-in from staff. You can't force mutuals".

Now there is potentially a new kid on the block-the Post Office. It is indeed an interesting idea and there is clearly an opportunity to establish that business as a thriving mutual. All of us want the Post Office network to prosper, and, we hope, one day be free of subsidy, but at a level that provides coverage for the whole of the UK. I understand that the Minister has said that the minimum number of Post Office branches required to sustain a universal obligation is 11,500; indeed, she said that only a few minutes ago. We welcome that and look forward to receiving more detail about how that number is to be sustained. That is an important point to make in respect of this amendment. While we welcome the mutualisation of the Post Office network, we want to understand in more detail how this might work in practice.

In one respect mutualisation might be a straightforward share of any profits made among the members of the mutual, primarily its workforce. That is a common form of mutualisation, particularly in the Co-op, but given that the Post Office network relies on a significant subsidy that far exceeds its profits at present, such concepts as profit share might not appeal to the workforce if it means sacrificing their collective bargaining rights. Perhaps in this case a more attractive mutualisation model will be one that extends the participation of the workforce in the day-to-day running of the business beyond simply being the passive recipients of profit share schemes. That kind of model may also assist organisations such as the TUC to overcome their scepticism.

The logic is equally strong for the participation of a sub-postmaster representative on the board. After all, sub-postmasters run their own businesses. They know what works and what does not. There is disquiet among members of the postmasters' federation about this Bill-a disquiet reinforced by the decision by the DWP to announce the cancellation of the green giro contract during the passage of this Bill.

As I have suggested, mutualisation can take a number of forms. My own party when in government looked at industrial democracy concepts for the Post Office way back in the 1970s and the party opposite did the same in the 1980s. Both those schemes ultimately came to nothing because quite simply employees in such businesses are always loath to give up their collective bargaining rights. Who can blame them? Therefore, in order to make the offer of mutualisation more attractive we would expect to see the Government bring through a package of measures that give the employees, managers and agents of the Post Office a real and genuine say in how the business is run. That should include direct participation on the board of Post Office Ltd.

The amendment is not prescriptive; it would leave the decision on who is elected or appointed, and how they are elected or appointed, to the employees and sub-postmasters to decide. The employees, for example, might decide to nominate an outside expert or elect one of their own trade union officials. That is a matter for them to decide. The board would benefit significantly from the input of two people directly representing the interests of the core of the workforce, and that would make the prospect of mutualisation more attractive to those who may be hesitant to embrace the concept of democratic ownership. I beg to move.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 6:45 pm, 16th March 2011

My Lords, I thank the noble Lord, Lord Stevenson, for this amendment. The Government are very keen to see sub-postmasters, sub-postmistresses and staff of Post Office Ltd-the very people who know the network best-involved in the running of the business. That is why this Bill contains provisions that enable the mutualisation of Post Office Ltd.

We believe that mutualisation could help to ensure that sub-postmasters, sub-postmistresses, staff and communities could in the future all have a say in how the Post Office is run. Co-operatives UK is seeking the views of the Post Office's major stakeholders and will soon report back to my department on proposals for a mutual Post Office. The work that Co-operatives UK is carrying out seeks to address questions such as who the members of a mutual might be and which stakeholders should play key roles in how the Post Office is run in the future. A mutual Post Office must be established with the best interests of the company, the sub-postmasters and sub-postmistresses and the wider public, who are its customers at heart. It must be allowed to develop organically, with the willingness and participation of its members. We believe that it simply would not work if government imposed a rigid top-down structure.

Indeed, it is by no means clear at this stage that the selection of sub-postmaster and sub-postmistress and employee representatives to the board by election would necessarily be the best option for the Post Office network. There is an obvious reason for this; the mutual has not been designed yet, so we cannot know its governance structure. Enshrining its governance in legislation now and then trying to develop the mutual within these requirements goes completely against our commitment to ensuring that the mutual is developed by the people who know it best.

The Government strongly believe that the Post Office and its key stakeholders should be allowed to form their own mutual governance structure as appropriate. In the light of this, and in view of the work that is being carried out on the mutualisation of the Post Office, I hope that the noble Lord will feel able to withdraw the amendment.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport)

I thank the Minister for her positive remarks. I am certainly interested in seeing Co-operatives UK's report because that will obviously help us to progress this debate. I have little further to say. There are dangers in not specifying a little more what the Government really want out of mutualisation, but I accept that it is early days and that there is plenty of time for that. I beg leave to withdraw the amendment.

Amendment 22ZE withdrawn.

Amendment 22ZF not moved.

Clause 7 agreed.

Clause 8 : Transfer schemes

Amendment 22ZG not moved.

Clause 8 agreed.

Schedule 1 agreed.

Clauses 9 and 10 agreed.

Amendment 22A

Moved by Lord Whitty

22A: After Clause 10, insert the following new Clause-

"Counter access to postal, government and other services

(1) For the purpose of ensuring continued universal counter access through a Post Office company to services specified in subsection (2), the location and geographical distribution of counter access points shall be governed by the following access criteria-

(a) 99.7% of the total population shall be located no more than 3 miles from a counter access point;

(b) 93.2% of the total population shall be located no more than 1 mile from a counter access point;

(c) 99.8% of the total population in deprived urban areas shall be located no more than 1 mile from a counter access point;

(d) 99.1% of the total population in urban areas shall be located no more than 1 mile from a counter access point;

(e) 99.2% of the total population in rural areas shall be located no more than 3 miles from a counter access point; and

(f) in each postcode district, 95% of the population in that postcode district shall be located within 6 miles of a counter access point.

(2) The access criteria specified in subsection (1) relate to, but are not limited to, the provision of counter access to the following services-

(a) postal collection and delivery services as specified by the universal postal service order;

(b) postal service products;

(c) processing social benefit and tax credit payments;

(d) processing of national identity and licensing scheme applications;

(e) payment facilities for essential utility services;

(f) cash and banking facilities; and

(g) government savings instruments.

(3) Within six months of the commencement of this Act, the Secretary of State shall determine and publish-

(a) the process by which the number of counter access points to services specified in subsection (2) and access criteria specified in subsection (1) shall be reviewed;

(b) the frequency at which the number of counter access points to services specified in subsection (2) and access criteria specified in subsection (1) shall be reviewed.

(4) In undertaking a review described in subsection (3), the Secretary of State shall consult-

(a) the Post Office company;

(b) bodies able to represent the interests of consumers using counter access to the services outlined in subsection (2); and

(c) such other persons as the Secretary of State considers it appropriate to consult.

(5) Following a review established under subsections (3) and (4), the Secretary of State may by order amend the access criteria specified in subsection (1).

(6) The power in subsection (5) to amend the access criteria in subsection (1) shall be subject to the procedure in section (Super-affirmative procedure)."

Photo of Lord Whitty Lord Whitty Labour

My Lords, we have reached this amendment slightly quicker than I had thought we would. Although the amendment looks complicated, it is, in essence, an amendment to probe how the Government intend to fulfil the commitment made in the paper to which I previously referred-and to which the noble Baroness referred twice-that they will maintain a network of approximately the present size. The noble Baroness stated that even more precisely in her reply to my noble friend Lord Lea.

I have tabled the amendment from the perspective that my previous organisation, Consumer Focus, and its predecessor, Postwatch, have been through two alleged rationalisations of the post office network, the first of which was based on no objective criteria at all. It worked from where sub-postmasters were finding it difficult to maintain a post office, were retiring, or had some other reason for not wanting to continue. The second round of rationalisation worked on substantial and clear issues of access that were specified in crude distance terms, but nevertheless gave rationality to the assessment of whether one post office or another should change.

I must say, having inherited this situation at three-quarters of the way through, that I found it difficult for a consumer organisation to be forced to choose between the post offices in any particular town. Nevertheless, the criteria against which we operated- access to post offices among different populations, distance to travel to a post office, and so on-are reproduced in the paper from which I quoted earlier, but which I unfortunately gave to Hansard for verification. However, the document includes a table that sets out the current criteria.

My concerns are twofold. Those criteria would arithmetically allow for a network that is significantly smaller, particularly in towns and suburbs, than the current network, and I therefore need to square the assurance given by the Government that they are looking for, and are in effect subsidising for the next few years a network at its current size, with the fact that theoretically, using the same criteria, they could reduce it to a size of between 7,000 and 8,000. I hope that the Government reaffirm their commitment to retaining a network of the current size.

The calculations in proposed new subsection (1) in the amendment, according to my former colleagues in Consumer Focus-I did not do the arithmetic-would sustain a network of roughly the present size. In other words, the first four criteria are considerably more stringent than those used in the previous round of rationalisation and specified in the Government's document on the future of the network. This would not mean that every post office would need to remain open. There would obviously be temporary closures and what the Post Office somewhat euphemistically calls business-as-usual closures. There would also be movements of sites within particular areas. However, one would arrive at roughly the same number of post offices, were these criteria to be followed.

It would be interesting to know whether the Government intend to tighten up the criteria or to add different criteria that would produce figures similar to those in the amendment, or whether their commitment to the current size of the network is irrespective of particular criteria because they envisage that the moves they claim to be making to improve the volume of post offices' business-to sustain and inculcate a different sense of purpose through mutualisation-will mean that we will end up with a network of roughly the current size.

I see that the noble Lord, Lord Skelmersdale, is once more in his place. When we were discussing the IBA, he raised a pertinent question as to whether any failure to commit to the IBA-and, I would add, to direct other government work to the post office network; an earlier debate today demonstrated that we were moving away from that-threatens the Government's commitment to the size of the network. There is a circle to be squared, and I am not entirely clear how the Government intend to square it.

One option would be to reassure consumers, sub-postmasters and the staff of the post office network that the criteria would be tighter. Another option would be a more detailed way of reassessing those criteria. In fact, proposed new subsections (3) to (6) in the amendment would allow the Government systematically to assess the criteria of access and the nature of services provided.

Another dimension that has been mentioned is that part of Post Office Ltd's plan is to reduce the range of services provided in some post offices. There was the experiment of Post Office essentials outlets that provided a reduced range of services. Some have worked and some have not. That is not necessarily entirely consistent with the government commitment to maintain the network broadly as it is, but it may mean that different gradations of post office outlets appear within the total. It would also be useful to know about that.

Although I do not expect the Government to accept the amendment, it gives them options in adopting criteria that would sustain more or less the present network or having a process whereby they redefined the criteria for access and the services provided. It would be useful to know what the Government's strategy was in this respect. Obviously, we take great heart from the reassurance that the present network will remain in place, but the question of how that will happen and how we square that with certain other developments that were referred to earlier remains. I will be interested to hear the Minister's comments. I beg to move.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, I speak to my noble friend Lord Whitty's "omnibus" amendment and to Amendments 22C and 22E.

They all seek to introduce new clauses to strengthen access criteria to prevent the further erosion of the post office network, to ensure the provision of a wide range of services at all post office branches, and to ensure a fair distribution of the Post Office's proposed new main post offices.

Amendment 22A writes into the Bill the current level of access to post offices in the UK. As part of the 2007 changes to the Post Office network that included an investment of £1.7 billion and incorporated the Network Change Programme, resulting in the closure of 2,500 post offices, the Government introduced a series of distance-based access criteria. These remain applicable but are not included in Royal Mail's licence and are not set out in law. The minimum access criteria introduced by the previous Government state that 99 per cent of the total UK population should be within three miles of their nearest post office; 90 per cent of the population should be within one mile; 99 per cent of the total population in deprived urban areas across the UK should be within one mile; 95 per cent of the total urban population across the UK should be within one mile; 95 per cent of the total rural population across the UK should be within three miles; and 95 per cent of the population of the postcode district should be within six miles.

The current post office network of 11,905 offices exceeds the Government's minimum access criteria. Post Office Ltd has stated that a network of 7,500 post offices would be consistent with these criteria. We believe that the criteria are insufficient on two counts. First, they do not guarantee to keep the network at its current size. The Government have stated that they wish to retain their network of 11,500 post offices. In his evidence to the Postal Services Bill Committee late last year, the Minister, Ed Davey, stated that,

"we have made a legal agreement with Post Office Ltd and provided funds so that, over the next four years, there will be 11,500 post offices in the UK".-[Official Report, Commons, Postal Services Bill Committee, 11/11/10; col. 132.]

This commitment would be better strengthened by introducing minimum access criteria that guarantee the network at its current size, rather than maintaining the current access criteria that could allow for a further 4,000 closures.

As a result of the current distribution, 99.7 per cent of the total UK population is within three miles of their nearest post office; 93.2 per cent of the population is within one mile; 99.8 per cent of the total population in deprived urban areas across the UK is within one mile; 99.1 per cent of the total urban population across the UK is within one mile; 99.2 per cent of the total rural population across the UK is within three miles; and 95 per cent of the population of the postcode district is within six miles. Amendment 22A calls for this level of access to be enshrined in the Bill. The amendment goes further in strengthening access requirements that have their origins in the 2007 Network Change Programme measures by putting them into law for the first time.

The amendment goes on to strengthen the Bill by ensuring minimum levels of service provision at post offices. These will require not just the provision of postal services but access to social benefit and tax credit processing, national identity and licensing schemes processing, payment for essential utility bills, cash and banking services and access to government savings products. This does not constitute a requirement for all post offices to provide all post office services, but it does mean that a core range of services must be available at all post offices. This is important for the viability of those offices and to ensure universal access to the core government and postal services that are so important to communities across the country, particularly those in urban deprived and rural communities.

The amendment requires the Government to establish the number of post offices that is consistent with the minimum access requirements and to decide on the frequency with which this shall be reviewed. They must undertake this work in consultation with the Post Office and with representatives of relevant consumer groups. These access criteria can be reviewed by the Secretary of State and changes can be recommended, but ultimately it is for Parliament to decide through a super-affirmative procedure.

Amendment 22C calls for further strengthening of the access criteria to reflect the Government's proposed new model for the post office network. In November, the Government announced a funding package of £1.34 billion: a combination of investment and subsidy for the network until 2015. This includes just under £500 million that has been designated for "network modernisation". The November BIS paper on the post office network states that the funding will allow Post Office Ltd to do more than simply ensure the status quo: indeed, it is envisaged that there will be a fundamental change to this. The paper proposes two key strands of the network. The Government have asked Post Office Ltd to have, by the end of the current Parliament, about 4,000 main post offices in town and city centres, and to have converted about 2,000 sub-post offices to the "local" model. This last commitment gives cause for concern. The local model is also referred to as "Post Office Essentials" because it offers a slimmed-down provision of services. These are likely to be offered over the counter of other shops, not necessarily through dedicated post offices.

While the Government have provided little detail on the model, David Smith, the managing director of the Post Office, wrote to the MP for St Austell and Newquay on 13 July 2010. The letter is available in the House of Commons Library. He stated that products not offered as part of the essentials package are,

"cheque deposits, Moneygram, non-automated bill payments, manual cash deposits and withdrawals, travel insurance, European Health Insurance, philatelic items, Post Office financial services, some NS&I products and phonecards".

Alongside this, it is already the case that a range of products and services is available only in specified post offices. These include motor vehicle licence renewals, passport check-and-send services and the online lottery. The new identity and passport machines are also limited to certain branches, and it is likely that any expansion of government or financial services will be restricted to certain branches. The Government have claimed that the remaining branches will provide 86 per cent of post office services, though there is no way to verify how this has been determined. Crucially, no figure has been given for the percentage of revenue or business that sub-post offices currently have. This model sees a loss of core payment and sub-postmasters estimate that a conversion to the essentials model will reduce their revenue by around 60 per cent. Surely that figure is worrying for the future of sub-post offices.

The local model has the clear potential to impact on the terms on which sub-postmasters operate sub-post offices and on the terms and working arrangements of their staff. The changed physical working arrangements in the open-plan office envisaged by the pilot also carry implications for the safety and well-being of staff members. These must be taken fully into consideration. The range of services on offer under the pilot is restricted to core services, which means that customers needing to access more time-consuming or complex transactions will need to go to a main post office.

The report does not envisage restrictions being imposed on which services may be regarded as core by a local post office, and which may be dispensed with. Therefore, the local model has the potential to threaten the existence of the universal postal service by concentrating an increasing number of services in main post offices. Over time, this would mean that a higher percentage of the population would have to travel further to access the full range of post office services. The problem is likely to be particularly acute in rural areas where the distance to a main post office is likely to be greater.

It is also clear that a network of 4,000 main post offices and 2,000 new locals would leave more than 5,500 branches untouched. However, the BIS paper states that under POL's commercial strategy the local model,

"will become the mainstay of the smaller post offices over time".

This would mean a fundamental change to the current network; I hope that the Minister will address this key point.

Amendment 22C calls for the development of access criteria to ensure an even distribution of main post offices across the country in order to maintain fair access and to ensure that communities are not disadvantaged by the network changes planned by the Government. Amendment 22E inserts another new clause that calls on the Secretary of State to review the range of services that will be offered by post offices, including services for the collection of vehicle excise duty and facilities for purchasing television licences. It also calls on the Secretary of State to lay before Parliament, at least once a year, a report on what services should be provided by post offices.

In conclusion, I urge support for Amendments 22A, 22C and 22E in order to prevent any further erosion in the post office network, in terms of both size and levels of service provision.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 7:00 pm, 16th March 2011

My Lords, these amendments seek to strengthen the current access criteria so that they match current post office network coverage, and to enshrine them in legislation, as well as to provide mechanisms to review these criteria. They also seek to specify the services which should be provided across the network and in which locations a full range of services is to be provided.

On Amendment 22A in the name of the noble Lord, Lord Whitty, the Government are committed to maintaining a nationwide post office network. The Post Office is required to provide a network of at least 11,500 branches. This is a legally binding commitment to a minimum number of post offices. The Government have made a commitment that there will be no programme of post office closures.

Post Office Ltd is also legally obliged to ensure that precisely the same access criteria introduced by the previous Government are maintained. The previous Government, of course, had the opportunity to put these criteria into legislation in their 2009 Postal Services Bill, but they did not see the need to do so. Indeed, during debate on the 2009 Bill, the noble Lord, Lord Tunnicliffe, observed that the access criteria were "very stringent". By legally obliging the Post Office to maintain these criteria in return for the £1.34 billon of funding over the duration of the spending review period, this Government have introduced another safeguard to ensure that these stringent access criteria will still be met. In fact, Post Office Ltd continues to exceed these criteria. Last year's report by Postcomm on the post office network, from which I believe the criteria in this amendment are derived, demonstrates this fact.

The amendment seeks to press the metaphorical pause button, to prevent any changes in the post office network from today's position. However, this is unrealistic; 97 per cent of post offices are privately owned and operated, and there will always be changes in the network where, for example, sub-postmasters retire or move on to pastures new. It is not through regulation that we will save the post office network. To ensure that the Post Office has a vibrant future, it must be allowed to develop, to modernise and to evolve. It must focus on its customers, reaching out to new customers and winning back those who have drifted away. Major modernisation is needed in order to address the underlying economics of the network. That is what our £1.34 billion funding package will achieve.

The noble Lord, Lord Young, raised the issue of the new Post Office local model. I will come back to that in detail later this evening during the debate on Amendment 24EA in the name of the noble and gallant Lord, Lord Bramall, which will be moved by the noble Viscount, Lord Tenby.

The Post Office's access criteria are the strongest that we know of in Europe, when you consider our safeguards for rural, urban and urban deprived areas. In Germany, for example, the requirement is for a post office every 80 square kilometres, whereas we mandate that 95 per cent of the rural population must be within three miles of the nearest post office. The £1.34 billion that we are providing will ensure that our network continues to thrive in the future.

Subsection (2) of the proposed new clause in the amendment of the noble Lord, Lord Whitty, seeks to ensure that certain services are provided across the network. Let me reassure the noble Lord that the Government are absolutely committed to maintaining the network, and supporting Post Office Ltd as it seeks to win new business from government and other sources. The Post Office is determined to become a front office for government, by developing and applying services in a number of ways. There is continued progress on this agenda. For example, the Department for Work and Pensions has recently announced plans for three new pilots, opportunities to support the universal credit reforms, and funding set aside for credit unions that will increase opportunities for the Post Office to deliver credit union services to many more people.

An important part of restructuring the network will be for the Post Office to ensure that services are tailored to meet the needs of its customers up and down the country. We cannot, and should not, expect the Post Office to provide all its 170 services at all branches across the entire network, as this amendment seeks to achieve. In smaller branches, for example, it makes far better commercial sense for sub-postmasters and sub-postmisstresses to focus on the key services that most people need to use, most of the time. Of course, the services offered by the Post Office on behalf of local authorities may differ from area to area. Amendment 22C, in the names of the noble Lords, Lord Young, Lord Stevenson and Lord Tunnicliffe, does indeed take this fact into account. That amendment seeks a register of access criteria to be issued by the Secretary of State setting out the minimum location and geographical distribution of post offices which provide the full range of services provided by post offices.

As I have just pointed out, Post Office Ltd must ensure that services are tailored to meet the demands of its customers. It must also negotiate its contracts on a commercial basis with a range of different clients. We want the Post Office to be able to provide the best possible service to the widest possible range of customers. We do not think that fettering its ability to agree the appropriate level of network coverage to the service would best serve that goal.

The best people to develop new services, or improvements to existing ones, are the staff and management of Post Office Ltd. That applies whether we are talking about mail services, telephony, financial services or services on behalf of a range of central and local government institutions. They are the people with the appropriate commercial expertise and experience, and who know the Post Office's customers best. That is why the Post Office is set up to be at arm's length from government rather than run from an office in Whitehall.

The Post Office is run by a management team with extensive commercial experience under the effective leadership of Paula Vennells, the Post Office's managing director. Paula became managing director in April 2010, before which she spent three years as the Post Office's network director and chief operating officer, having previously been commercial director of Whitbread plc. Her blend of skills and experience give her a powerful focus on the Post Office's unique social purpose and the commercial challenges it faces. On separation from Royal Mail, Paula Vennells will be the chief executive of a Post Office board bolstered by the appointment of a new chairman, a process which is under way. These reasons are why it is also appropriate for the Post Office itself to report annually on the range of services provided at its post offices, as required by Clause 11, rather than a report being produced by the Secretary of State, as would be required by Amendment 22E.

One particular example of where Post Office Ltd has been flexible in negotiating contracts is through its relationship with the DVLA for car licensing services. Post Office Ltd works with the DVLA to decide the broad national distribution of branches which should offer this service in order to ensure that there is good national accessibility for a customer group which, by definition, is mobile. The DVLA limits the number of post office branches which provide its services to ensure that delivery of the service is cost-effective. Were the service to be extended to all branches, there would be a significant loss of income to those branches currently offering the service and this could adversely affect their viability.

I reassure your Lordships again that the Government are committed to being a responsible owner of Post Office Ltd. We are fully aware of the value of the post office network, of the social and economic role it plays, and of its key importance to communities up and down the country. That is why we have made a commitment that there will be no programme of closures on our watch. There will continue to be at least 11,500 post offices across the network and our funding will enable the Post Office to do much more than simply maintain the status quo.

However, the Post Office must be allowed to be flexible and to respond to the needs of both its clients and its customers, or we will see the network wither rather than thrive. With these reassurances, I ask the noble Lord to consider withdrawing his amendment.

Photo of Lord Whitty Lord Whitty Labour 7:15 pm, 16th March 2011

My Lords, I am extremely grateful to the noble Baroness for giving such a detailed answer, including a good number of commitments, which are reassuring. I think she overcharacterised this amendment as too rigid. It does not say that every post office should have the whole range of services, nor does it say that the access criteria can never be altered. By this amendment, I was trying to establish whether the commitment to the 11,500 post offices is an absolute commitment or whether there is some headroom in the criteria. The noble Baroness has made it absolutely clear on several occasions tonight that the commitment is to a network of 11,500, although that is not to say that one or two might change location and quite a few might change the services that they offer and the sub-postmaster or mistress who runs them might change. You need that flexibility.

My remaining anxiety is that, although I recognise that different levels of post office would have different gradations of services, we have to allow some flexibility and some change over time as the market develops, particularly in the growth businesses. It is also important that there is some criterion for the distance to main post offices which cover the whole range of services. I think the noble Baroness said that in addition to the general criteria in relation to post office outlets, there would be some criteria about the maximum distance that people were from a main post office, or a post office-different terms are used-which offered pretty much the whole range of services. If she said that, that is more reassurance.

We have a number of things on the record, including the Government's very clear commitment to the size of the network. I hope that within that there is not a serious diminution in the range of services which a large part of the network offers, and I certainly hope that the distance to main post offices is taken up. Subject to that, I shall be happy to withdraw the amendment at this stage.

Amendment 22A withdrawn.

Amendment 22B

Moved by Lord Young of Norwood Green

22B: After Clause 10, insert the following new Clause-

"Closure of post offices

(1) Where any company or any other person proposes to close a post office, it shall at the earliest opportunity begin consulting representatives of the employees affected and community and other groups with an interest in the proposed closure, including consultation on that company or person's plans for alternative provision of services provided by the post office.

(2) No decision to close may be made within the period of six weeks from the start of the consultation required by subsection (1).

(3) No decision to close a post office in a rural or a deprived urban area or an outreach service shall be taken within 16 weeks of the start of the consultation required by subsection (1)."

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills)

My Lords, as all noble Lords will be aware, post offices continue to provide a lifeline to residents in rural and urban deprived areas not only through access to postal services, but also as the shopfront for government services, as a means of benefit collection, and often as the only source of cash withdrawal in an area.

Amendment 22B aims to ensure that proper consultation procedures are followed when a post office closure is considered. It is not intended to prevent all post office closures; it simply aims to strengthen the opportunity for stakeholders to have input into the consultation process. It also provides for a longer consultation process for potential closures in rural and urban deprived areas. Rural and urban deprived areas clearly suffer disproportionately when a post office closes. Post offices have closed in vast numbers in recent years, both through formal closure programmes and through natural wastage when sub-postmasters close their businesses and post offices are not replaced.

Over the past 10 years, the post office network has declined from 17,845 in 2000-01 to 11,905 in 2009-10. This is, in large part, due to two major closure programmes, the Urban Network Reinvention programme from 2003 to 2005 and the Network Change programme from 2007 to 2009. Between them, these programmes resulted in the closure of 4,854 post offices. That means that more than 1,000 post offices have closed outside of those programmes as sub-postmasters leave, often because their post offices have ceased to be viable, and the Post Office is unable or unwilling to provide a replacement.

Approximately 11 per cent of the post office network is in urban-deprived areas. As Consumer Focus clearly states:

"Urban offices play an even more important role in urban deprived areas, particularly as they provide free access to cash, plus pensions and benefit payments".

The 2003-04 Urban Network Reinvention programme was an attempt by Post Office Ltd to reduce the size of the network with a view to developing a more commercially viable network. It further hoped to manage the so far unplanned decline in network size that was arising from sub-postmasters' decisions to close their businesses. At the time of the programme, there were serious concerns over the fate of post offices in urban deprived areas. The Government stated that they would not close post offices in urban deprived areas unless there was another branch within half a mile or unless there were exceptional circumstances to justify the closure.

The Post Office was heavily criticised at the time due to its lack of adequate consultation. As the then Trade and Industry Committee concluded in its report on the programme:

"Post Office Ltd and Postwatch paid insufficient attention to the need to ensure that adequate consultation procedures were in place before the network reinvention programme began. Although improvements have subsequently been made, and while we understand that sub-postmasters could appreciate a speedy conclusion to consultations over the future of their branches, we think that it is vital that all stakeholders should be given the time and opportunity to present their views on closure proposals. A twelve week consultation period would have satisfied this requirement. It was inconsistent of the Government to allow a company of which it is the sole shareholder to ignore guidelines for consultation which it encourages other organisations to follow".

Equally, the 2007-09 Network Change programme was an attempt to reduce the size of the network with a view to making it economically viable. Over an 18-month period, more than 2,500 post offices were closed and a further 500 were replaced by outreach services. Outreach services provide postal services to communities where a post office is not deemed to be viable. These are often in the form of a mobile post office, a van which visits communities at certain designated times each week and provides a core range of post office services. There are now 772 outreach services in the UK, making up 6 per cent of the post office network.

The Network Change programme was also heavily criticised due to the difficulty stakeholders had in influencing closure decisions. Research into the programme by Consumer Focus found that,

"consumers were not convinced by the UK Government's reasons for the closure programme. Furthermore, they were very unhappy with the nature of area consultations on closures, as there was little scope to alter decisions and Post Office Ltd had not been seen to respond to concerns raised".

The Post Office's code of practice for the Network Change programme closure consultations included a six-week consultation process. Many stakeholders felt that the consultation processes were inadequate. This was, in large part, because the criteria for closures and the decision to close 2,500 post offices had already been made prior to the consultation process. This meant that opportunities for preventing individual closures were very limited.

Post offices are still closing every week. More than 150 post offices closed on a long-term temporary basis in 2010 alone. There is no guarantee that they will reopen and many are likely to stay closed indefinitely. As Consumer Focus has said:

"Since the last programme of post office closures finished we have continued to see a dwindling in the overall number of branches".

According to the National Federation of Sub-Postmasters, 900 post offices, an unusually high number, are currently up for sale. Many sub-postmasters are retiring or leaving the business because of the low levels of revenue generated in sub-post offices and the Post Office is struggling to find alternative premises and service providers.

It is vital that adequate protections are in place to protect rural and urban deprived communities from these closures. I urge support for Amendment 22B which ensures consultation ahead of any post office closure, planned or unplanned, and provides additional protection to rural and urban deprived post offices. I beg to move.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills

My Lords, I thank the noble Lord, Lord Young, for his Amendment 22B. An annual report on the Post Office network laid before Parliament is an important means of achieving transparency around the Post Office network. The statutory requirement in Clause 11 to lay such a report before Parliament already goes further than the current requirement in the Postal Services Act 2000, which requires only information about the number and location of post offices and their accessibility. Neither Government nor Post Office Ltd can ensure that no post offices close during the reporting period, nor can they ensure that there is always time to carry out a consultation before an office closes. For example, a sub-postmaster or sub-postmistress may retire or move away, or the premises may be damaged by fire or flooding. After all, 97 per cent of post offices are privately owned and privately operated businesses.

Other than in exceptional circumstances, Post Office Ltd will always seek to maintain service provision including outreach or community options. If permanent closure without any replacement is proposed, the Post Office must undertake a local consultation in line with the code of practice agreed with Consumer Focus. Indeed, that code has recently been updated and now includes a number of significant benefits for consumers with specific protections which will require Post Office Ltd to keep local representatives better informed in cases where the branch does not reopen for a significant period. It will, for example, allow consumers to use a telephone helpline to find out about temporary breaks in service and, for the first time, see Post Office Ltd notifying those customers who respond to consultations with substantive comments of the relevant decisions made following the consultation.

Post Office Ltd will now, as a matter of fact, also contact local and parish councillors about proposed service changes to provision in the area. That will be an important means of putting local communities in the driving seat, empowering them to work more closely with the Post Office to develop services which respond to local needs and priorities. In view of these reassurances regarding the number of post offices that must be maintained and the information included in the report, as well as the revised code of practice, I hope that the noble Lord, Lord Young, will feel able to withdraw his amendment.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills) 7:30 pm, 16th March 2011

My Lords, I welcome some of the assurances that the Minister gave. Unless I missed it, she did not address the period of consultation but perhaps she can address that in writing. There may also be an opportunity in a further contribution. In the circumstances, I will obviously take into account what she has said and, for the time being, I beg leave to withdraw the amendment.

Amendment 22B withdrawn.

Amendment 22C not moved.

Schedule 2 agreed.

House resumed. Committee to begin again not before 8.32 pm.