Report (1st Day)

Postal Services Bill – in the House of Lords at 3:37 pm on 4th May 2011.

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Amendment 1

Moved by Lord Lea of Crondall

1: Before Clause 2, insert the following new Clause-

"Restriction on disposal of shares in a Royal Mail company by Initial Public Offering

A relevant disposal by an Initial Public Offering may only issue or transfer shares representing no more than 30% of the value of a Royal Mail company within the period of one year after this section comes into force."

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour 3:38 pm, 4th May 2011

My Lords, if the Bill reaches the statute book in its present form, in a year or so we will almost certainly have a repeat of the public interest being prejudiced by the modalities of the sale by merchant banks, as has happened some times before. However, as all noble Lords are surely aware, Conservative Governments have form on the modalities of sales of public assets-in effect, selling the family silver on the cheap. As Harold Macmillan remarked, you can only do that once. How do we then protect the public interest?

During the debate in Committee on the sale of Royal Mail, whenever noble Lords sought to ensure that value for money for the taxpayer would be achieved if Royal Mail is sold, the response came that it would be foolhardy to reveal a valuation, because once the bidders got to hear of it they would never exceed it. One could of course imagine arrangements whereby an independent valuation was obtained and not published for the world to see. It could even be shared on a strictly confidential basis with, for example, members of the Public Accounts Committee. However, that is not the main point. As these arguments flew back and forth, I realised that in some noble Lords' minds was a fixed picture of a set of competing companies bidding to buy Royal Mail as though it were a valuable silver cream jug at Christie's-in other words, what is known as a trade sale.

However, I ask noble Lords to consider the scenario that the company will be put up for sale in an IPO-an initial public offering or a sale of shares to the public. From Richard Hooper's 2010 report, this certainly seems to be a possibility that he has in mind. However, after that report and in our previous debate on 14 March, the noble Lord, Lord Razzall, who I am glad to see in his place, declared that,

"anybody who thinks, in the Royal Mail's current circumstances, that there can be an IPO, is living in a total fantasy world".-[Hansard, 14/3/11; col. 102.]

Richard Hooper and Ministers, however, have repeatedly included that option. In his most recent report Richard Hooper stated that,

"there are now greater options for introducing private sector capital and disciplines. It does not have to be a sale to a partner. The much needed equity capital could, for example, be raised by means of an IPO (Initial Public Offering), turning Royal Mail into a publicly listed company. The company's need for cash, and the timing of that need, will influence the choice of preferred option".

More recently, in oral evidence to the Public Bill Committee in another place, he said:

"There are various ways of getting private sector capital. One is a trade buyer and another is a private equity player".

He went on:

"There could, of course, be an initial public offering".-[Official Report, Commons, Postal Services Bill Committee, 11/11/10; col. 109.]

Coalition colleagues are also open to an IPO. At Second Reading the Conservative noble Baroness, Lady Wheatcroft, in a well considered contribution, stated:

"I hope that as the sale of Royal Mail approaches the possibility of an IPO will be top of the list of favoured options. I know that the Government's position is that the sale is open to all comers, but an IPO would get my vote".-[Hansard, 16/2/11; col. 743.]

In the BIS document, Delivering for the Future: A Universal Mail Service and Community Post Offices in the Digital Age, published in October 2010, paragraph 2.6 states:

"We will retain flexibility so that we can negotiate the best possible outcome, including keeping options open as to whether a trade sale or initial public offering is more appropriate".

Let us consider the possibility of an initial public offering. There is a very strong case that shows that in the heyday of privatisations in the 1980s and 1990s, privatised companies were consistently sold at too low a price. For British Airways, British Gas and British Telecom alone, the undervaluation on the first day of trading amounted to more than £2 billion. Indeed, it has been estimated that for 1986 alone the average share issue premium on major share issues was 7 per cent, but on privatisation issues the average premium on the first day of trading was 77 per cent.

One case illustrates the point very well. British Telecom shares were sold in three tranches. It was difficult to establish a correct sale price. There had not been a market by which to establish a clear and correct opening share price, as there will be for Royal Mail if its sale comes about. After the first tranche of shares was sold, the share price rose. Over the course of a year, the BT shares increased in value by 84 per cent. Several factors could conceivably have caused that increase, very sharp though it was. All share prices could have been rising, or there could have been an improvement in the company's prospects, but what if I tell noble Lords that on the day after the original flotation anyone who had bought the shares at the offer price saw the value of those shares increase by some 90 per cent in 24 hours? The obvious conclusion is that a higher price could have been achieved for the taxpayer-in other words, the shares were underpriced and the taxpayer was short-changed. Fortunately, not all the shares had been put on the market on that fateful day.

Having regard to that experience, with the second tranche there was still an increase the next day but it was 5 per cent, rising to 22 per cent a year later. In the third and final tranche, the shares rose by just 5 per cent the next day and were still just 5 per cent higher a year later, so the pricing was much closer to the right level and the taxpayer was saved a very large sum. That is not surprising as the offer price in the new tranches could be judged against an existing traded price of shares from the original tranche. Therefore, this amendment proposes that in the event of the sale of Royal Mail by means of an IPO or general sale of shares, the sale should be phased in tranches, with no more than 30 per cent being sold before 31 July 2012 and no other shares being disposed of before 31 July 2013.

In conclusion, it is now plain as a pikestaff that the Government will remove all guarantees of universal service obligations in order to sell off Royal Mail at a high price. Secondly, if we miss the opportunity to amend this Bill, there will be no robust interbusiness agreement for the throughput of Post Office Counters-that links this part of the Bill with the next part; some people do not seem to comprehend that relationship-with all the devastating effects that that will have on thousands of post offices and their customers in towns and villages through closures that will in effect be forced on them. It is not a case of the Government holding a smoking gun, but that is in effect what will happen, as we shall discuss later today. I beg to move.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour 3:45 pm, 4th May 2011

My Lords, I rise to support my noble friend's amendment. As he rightly says, the new clause that he is presenting to the House would set a restriction on the sale of shares in an initial public offering to 30 per cent of the value of an RM company within the first year of the clause coming into force. The text of the Bill places no constraints at all on what the Secretary of State may do. It is true that he has to report to Parliament, but that is after the decision has been taken. No constraints at all are placed on what he may or may not do. That is unfortunate because we are talking about what is after all a major public institution, and it is very important to ensure that it is not underpriced. It is important to avoid a scandal whereby a valuable part of our national infrastructure is underpriced. My noble friend has set this out in detail. The new clause would be an important addition to the Bill. We need to ensure that some constraints are put on what the Secretary of State may do when, and if, the Bill eventually becomes law.

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

My Lords, I support the amendment in the name of my noble friend Lord Lea of Crondall. It provides for the disposal of shares to take place in tranches or batches, rather than all at once. The Government have not set a clear timetable for the sale, and they have not explained whether there will be a general sale of shares to the public, an IPO, a restricted sale to certain categories of buyer, or a trade sale by auction to a single buyer, such as a private equity firm or postal competitor, which may raise competition issues. The Government have not explained whether they would sell the whole company at once, with all the risks of selling cheaply, or whether they would be prepared to sell in tranches.

There is a huge amount of evidence, of which we have heard some details from my noble friend Lord Lea, that when privatisations have taken place, the value for which the businesses were sold was too low. That has been most clearly demonstrated when a general sale of shares has taken place and the shares traded. It is easy to see what price they traded at and how that compared with the original sale price. If there is a big gap and the original sale price is much lower, it indicates that shares should have been sold at a higher price. The taxpayer has lost out and someone has made a successful profit as a result.

A number of examples were given by my noble friend Lord Lea. I should also mention other sales. The sale of Associated British Ports was 35 times oversubscribed and the share price rose by 23 per cent on the first day of trading. Amersham International sold for £71 million and the share price rose 32 per cent on the first day of trading. As early as 16 May 1984, the Public Accounts Committee, in its 17th report, expressed concern at stock in public corporations being sold, in the words of the committee,

"at an immediate substantial premium creating windfall gains for the investor at public expense".

That is what we should be concerned about. The report recommended considering sales in tranches, as was normal practice in the sale of large quantities of government bonds. Selling by tranches worked in a number of cases. For example, in the case of National Power, the share price rose by 22 per cent a day after the first tranche sale but only 4 per cent after the second tranche was sold. There was a similar situation during the sale of Powergen, whose shares rose by only 3 per cent in the second-tranche offer.

The amendment proposes that shares representing no more than 30 per cent of the value of the business can be transferred in the first year after the Act comes into force. I hope that the Minister can give us a reasonable assurance that serious consideration will be given to the danger of a sale that does not take place in tranches, and that the Government will be prepared to address this issue. I look forward to her response.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I apologise for not rising quickly enough for my noble friend on the Front Bench to notice that I wished to speak. I do so now because my noble friend Lord Lea of Crondall made a practical, reasonable and strong case for his amendment. We are not at this stage of the Bill discussing or arguing about whether there should be a sale of Royal Mail. We are discussing the practicalities of such as sale. We were all around in some way or another during the 1980s and 1990s, and there is no doubt that when industries were privatised, they were often sold off under value. That has been well recognised after the event, if it was not adequately recognised as being likely before the event.

The practical purposes of the amendment are to ensure that we have an initial public offering, an IPO, of the shares, and that they will be offered in tranches. My noble friend is not rigidly proposing any particular dates or percentages, but in any amendment he tables he must put forward something that is reasonably clear. If an improvement can be made on that, there is no doubt that he would be willing to accept it. However, he wants, and we all should want, a practical procedure for ensuring that the public does not get an undervalue. There is to be a sale. Let the public have a good return on that sale, and that is what the amendment is all about.

Photo of Lord Razzall Lord Razzall Liberal Democrat

I stand by the point that I made in Committee: in the current climate, it would be extremely unlikely that there would be an IPO for the Royal Mail.

The noble Lord, Lord Lea of Crondall, demonstrates another reason why that is highly unlikely. The fundamental difference between this and the privatisations to which he and his colleagues referred in the 1980s and 1990s is an ideological belief on behalf of the then Conservative Government that those industries were better held not by the taxpayer but by public shareholders. In those circumstances, there was clearly an interest in creating an aftermarket, so that as many individual shareholders-in the case of BT, it was a huge number of individual shareholders-should have an incentive to buy shares and then make a profit. The reason why that would not apply in this case is that the fundamental reason for the transaction would be to get resources into the Royal Mail. In those circumstances, the Government would not have an interest in creating the sort of aftermarket that the noble Lord, Lord Lea, fears. The significant interest of the Government would be to maximise the financial return for the Royal Mail, because the whole purpose of this is to get investment into Royal Mail, not to provide a windfall for shareholders.

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

My Lords, Amendment 1 would restrict the number of shares that can be sold in an initial public offering-an IPO-to 30 per cent of the value of shares, and imposes a time limit for the sale of one year from the new clause coming into force.

First, the Government believe that Royal Mail needs an injection of private sector capital to meet its needs in a fast-changing postal market. Unlike the previous Government, we do not believe that there should be any barriers in legislation to prevent a disposal of a majority of the shares. The Government's objective in disposing of shares in Royal Mail is to secure the future of the company and to secure the best value for the taxpayer. To achieve that, the Government must have flexibility on when to sell shares and how much should be sold.

The noble Lord, Lord Lea, is concerned that previous privatisations have resulted in the taxpayer losing out through undervaluation; the noble Baroness, Lady Turner, spoke in support of his concerns. Noble Lords have a great deal of knowledge of previous privatisations; it is one of the great assets of your Lordships' House. I cannot answer for why they were done as they were, or what were the objectives of those privatisations. I am absolutely clear that our intention will be to secure the best deal for the company and the taxpayer consistent with our objectives. We will ensure that whatever form private sector investment takes in this instance, it will be with those objectives in mind. I thank the noble Lord, Lord Razzall, for his clarifying statement on that.

As I said in Committee, the Bill would allow the sale of a minority of shares in Royal Mail, and a sale by means of an IPO, if either or both were decided to be the best route to achieve our objectives. We do not, however, believe that there should be a time limit on the sale. The Government must have the flexibility to choose the right time to dispose of shares to ensure that we can get the best result for Royal Mail and the taxpayer.

The noble Lords, Lord Lea, Lord Young and Lord Borrie, also asked how Royal Mail will be valued. If I may, I will come back to those issues when we discuss Amendment 3, which directly addresses that point. Arbitrary deadlines in legislation would mean that the process might be rushed through, which is not the best way to conduct what would be a significant commercial transaction. I do not believe, therefore, that Amendment 1 would be in the interests of either Royal Mail or the taxpayer, and I would therefore hope that, following my explanation, the noble Lord will feel able to withdraw his amendment.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

I thank the noble Baroness for her courteous reply. I am obviously very pleased to have heard the three contributions from these Benches but I want to pick up on the point made by the noble Lord, Lord Razzall.

Of course, nothing is exactly the same as it was 20 or 30 years ago but it remains the case that the only way that the Government can get a very high price is to say that there will be no universal service obligation. I do not know whether the noble Lord, Lord Razzall, and others would generally agree with that, but clearly the less you guarantee a universal service obligation, the more you can get, whether through an initial public offering, Deutsche Post or anything else. Furthermore, we are still waiting to see the guarantees on the inter-business agreement.

The public interest-that is, the public in cities, towns and villages-is at risk, as is, by the way, the workers, and if I say "by the way, the workers", noble Lords will know where I am coming from. Later in our debates on the Bill we may hear something more specific and concrete from the noble Baroness in terms of commitments on the universal service obligation or the inter-business agreement. That is the context in which we are talking. As regards arbitrary deadlines, I am not the first person to mention dates with regard to the Bill. Indeed, it is self-evident that you have to mesh what we are talking about today with all the other dates that are flying around.

I do not think that noble Lords should be denied the opportunity to express their opinion on this question and I therefore wish to test the feeling of the House.

Division on Amendment 1

Contents 155; Not-Contents 227.

Amendment 1 disagreed.

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

Aye: 153 Members of the House of Lords

No: 225 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 2

Moved by Lord Young of Norwood Green

2: Before Clause 2, insert the following new Clause-

"Royal Mail companies to be publicly owned

(1) Each Royal Mail company must at all times be publicly owned.

(2) Accordingly-

(a) any issue or transfer of shares in a company will have no effect if it would cause a Royal Mail company to cease to be publicly owned, and

(b) any issue or transfer of share rights to a person will have no effect if the acquisition by the person of the shares to which the share rights relate would cause a Royal Mail company to cease to be publicly owned."

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills) 4:16 pm, 4th May 2011

My Lords, in rising to move this amendment I cannot help reflecting that last Friday the vast majority of the nation was enthralled by the marriage of Prince William to Kate Middleton, now the Duke and Duchess of Cambridge. Even those who have doubts about royalty as an institution could not help but wish the young couple well. One of the ways in which the nation celebrated the wedding was through a series of special stamps featuring the royal couple during their engagement, and now I understand that stamps are to be issued featuring the wedding itself. What a fitting way to celebrate this royal occasion, through commemorative stamps issued by Royal Mail-and I stress Royal Mail. It is royal because it was founded by the monarch more than 350 years ago; opened to the public during the reign of Charles I, it has operated as a public service ever since. The Bill before us marks a momentous and historic change-it is an iconic Bill.

In Clause 1 the Government have made it clear that they propose to sell off 100 per cent of Royal Mail, albeit with up to 10 per cent of shares held by employees. The Royal Mail Group has an annual revenue of some £9 billion. Royal Mail itself has an annual turnover of some £6.5 billion and employs more than 155,000 staff. That is impressive. However, this privatisation represents something more: the sale of one of the nation's oldest and most cherished enterprises.

The Royal Mail is a great public institution that has a fine history in the development of the culture, social cohesion and economic strength of this nation, and that still today provides a vital public service. We should not underestimate the importance of a trusted, secure and relatively efficient means of common communication for our economic and social development as a nation. Indeed, it became a template copied around the world. The penny post introduced by Rowland Hill was arguably as vital to this country's development as the railway or the electricity grid. It was an early information superhighway-a social network, in fact, ahead of its time.

As for the modern day, Richard Hooper described Royal Mail and the service it provides as,

"part of our economic and social glue" that binds communities together. I think that he was absolutely right. Many Members of this House have praised the work of Royal Mail and the social value of the country's 11,900 local post offices, but let us also remember that despite the fact that we send fewer letters than we used to, in common with people in developed countries around the world, Royal Mail still delivers some 70 million letters a day to the 28 million homes and businesses of the United Kingdom. The 100 per cent sale of one of our greatest and most cherished national institutions is therefore a momentous step by any standard. I am sure that the whole House appreciates that regardless of whether they support the move.

Referring to the Postal Services Bill in 2009, the noble Lord, Lord Hunt, said that all those on the Front Benches were in favour of it. Indeed they were. However, I remind noble Lords that the Bill before the House at that time did not propose 100 per cent privatisation of Royal Mail. Indeed, it was remarked at the time that no one was proposing 100 per cent privatisation. The Bill stated explicitly that each Royal Mail company must be publicly owned, which meant that it must be in overall public ownership.

The Postal Services Act 2000, still in force today, permits joint ventures between Royal Mail and private companies. Though the 2009 Bill envisaged a minority private-sector partner, majority ownership would remain within the public sector. Neither the 2000 Act nor the 2009 Bill permitted 100 per cent privatisation, which the Bill before us today proposes. The amendment that we have tabled reinserts the original intent of the 2009 Bill that each Royal Mail company should remain in overall public ownership, with the majority of the company in public ownership. As the noble Lord, Lord Hunt, observed, all the Front Benches at the time, and indeed the Liberal Democrats, supported that proposition. At the time, there was broad consensus that Royal Mail should remain in overall public ownership, with the possibility of a joint venture or a minority private sector partner but, I repeat, not 100 per cent privatisation of Royal Mail.

We might find a clue in the 2010 general election manifestos of the two parties that came together to form the coalition Government. If you searched in the Conservative or Liberal Democrat manifestos of 2010 for the privatisation proposals in the Postal Services Bill, you would search in vain. Even the coalition agreement speaks cryptically of introducing private capital into Royal Mail, but does not say that that would mean 100 per cent privatisation. There was no Green Paper or White Paper to pave the way for this Bill, but our debates on Royal Mail have been usefully informed by two reports produced by Richard Hooper's panel in May and December 2008 and by him, sitting alone this time, being asked by the current Government to review his work in 2010.

We all recognise the technological, social and competitive pressures on postal operators in modern times, including new ways of communicating. Last year, Royal Mail experienced a drop of 7 per cent in letter volume. Other operators taking advantage of liberalisation and of what are now regarded as generous terms for access to Royal Mail networks have been taking over upstream business faster than expected. Royal Mail's competitors have already won more than 60 per cent of the upstream, pre-sorted bulk-mail market and deliver their customer's mail into the Royal Mail system for final delivery. The pace of technological change continues apace through e-mail, web-based advertising, text messaging, mobile phones and all the other means we have of communicating with each other. Other developed countries are facing the same issues. The worldwide postal market is expected to decline by 25 per cent to 40 per cent over the next five years. The problems with the pension fund, which had their origin in the 13-year pension holiday until 2001, have been recounted.

There was therefore a consensus that action needed to be taken. Just over two years ago, in December 2008, Richard Hooper's report entitled Modernise or Decline recommended a series of proposals, including dealing with the pension deficit and changes to regulation. He called for two major changes in the structure of Royal Mail: the injection of private capital and the involvement of private sector management. However, he rejected full privatisation, declaring:

"This option would only be appropriate and feasible if modernisation had been completed".

He concluded:

"In short, we believe that partnership is the only approach which can deliver Royal Mail's ... universal service".

At that time, there was a wide degree of consensus in this House about the nature of the action that needed to be taken. Royal Mail needed to be transformed to become more efficient and competitive, and that transformation would need new management and vastly improved industrial relations. There was agreement that regulatory oversight should be by Ofcom dealing with the wider world of communications rather than by a body restricted to the postal sector only. There was consensus that access pricing needed to be addressed, which is still a live issue.

Richard Hooper's 2010 report also identified a need for private sector capital, but was markedly more confident about the quality of existing management and the capacity for change, given the changes that had already taken place. It states that:

"The specific need for corporate experience is reduced today".

He praised the progress that had been made by Royal Mail's management and by the CWU in adopting a ground-breaking modernisation agreement, which is proceeding and has done significantly well.

The chief executive of Royal Mail, Moya Greene, giving evidence to the Public Bill Committee in another place on 9 November, said:

"I look at what Royal Mail has been able to do in just two short years, when they finally got access to capital, and it has been amazing. We have been able to consolidate 10 mail centres. We have been able to introduce innovations, such as 47,000 new PDAs"- hand-held personal digital assistants to help with tracking and tracing postal items-

"for all of our letter carriers. We have been able to introduce 10 new world-class mail sites. I invite you all to come and visit them-they are now being recognised internationally as some of the best mail processing centres in the world".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 8.]

Hooper maintained his stance on those issues, but he came up with a different recommendation on the future of Royal Mail in proposing a 100 per cent sale. There are a number of elements in this Bill that we would broadly support, including employee share ownership. The possible mutualisation of the post office network deserves positive examination. We agree with the recommendation of Sir Richard Hooper, this Government and others that the historic pension fund deficit must be dealt with. We agree that regulation should move to Ofcom, but we fundamentally disagree with the 100 per cent privatisation of Royal Mail.

Although Richard Hooper recommended the 100 per cent sale of Royal Mail in his 2010 report, he seemed less sure in giving oral evidence recently. On 11 November 2010 he said:

"The important point I want to make is that private sector capital is needed in this business-it is needed urgently, it was needed two years ago and it is needed now. Whether it is a minority or majority shareholding, I would prefer to leave that to the political process".-[Official Report, Commons, Postal Services Bill Committee, 11/11/10; col. 108.]

We probably endorse that view, but it is an interesting shift from that previous rather firm statement.

The debate over whether to privatise Royal Mail is about what kind of postal service the public want. We all want a strong, universal, six-deliveries-a-week, one-price-goes-anywhere service and a network of post offices at the heart of our communities. The universal postal service is a public service of vital infrastructure that supports the entire UK economy. Though the postal market might be changing, it remains central to businesses in the UK.

A survey by the Federation of Small Businesses conducted by ICM found that 84 per cent of small businesses use Royal Mail to despatch parcels and express items; 88 per cent of small businesses send post every day; and 59 per cent deliver goods and services by mail. Clearly it is a vital part of our business community. If we are to deliver on growth in those local communities and encourage small businesses and entrepreneurial activity, the Post Office will be at the heart of that success. There are many similarities between the Bill that we proposed in 2009 and the Bill before us today, but there are also glaring differences. Moving from overall public ownership to 100 per cent privatisation of Royal Mail makes a massive difference. All that has been cast aside by the Government.

Our Bill was a proposal for partnership. This Bill is a proposal for privatisation. We were in favour of employee shares, but in a different context. It is interesting that the majority of incumbent postal operators in western economies remain publicly owned. The United States, Canada, Australia, France, Italy, Spain, Switzerland, Ireland, Finland, Israel, Japan and Norway have all retained fully publicly-owned postal services, so this is a big and fundamental change. Some would say that it is a bit of a leap in the dark.

Richard Hooper's underlying point, which I do not fundamentally contest, is that additional access to capital is necessary, and that capital might well need to be private capital. However, that is not the same as making a case for the total privatisation of Royal Mail, which is what the Government are doing. Government members need to justify and validate that stance.

Royal Mail already has a substantial modernisation programme that is worth some £2 billion. It has reached an agreement with the workforce to implement modernisation, which everyone giving evidence to the Bill Committee in another place confirmed was an important landmark agreement and, as I have said, is making substantial and significant progress. Royal Mail's modernisation programme is fully funded and expects to make normal profit levels by the end of the programme in 2012-13. Furthermore, it will benefit from the Government's proposed action on pensions and hopefully from changes to regulation, which will provide a more substantial buffer during the current difficult economic climate.

We also need to look at the consequences of 100 per cent privatisation. It is at the heart of our concerns about the future of the universal postal service and the future of the nation's post office network. The danger with a totally privatised Royal Mail is that a private company will not necessarily want to invest in a business that is burdened by a costly universal service. Such a company might lobby the regulator and the Secretary of State to reduce the level of the universal service. Noble Lords might recall that Pieter Kunz, the managing director of TNT, said that the universal service obligation was,

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

Clause 30 sets out the terms of the universal postal service obligation, which include the requirement to collect and deliver mail six days a week at one price anywhere in the country. The USO has other elements, including packet delivery, letter and packet collection, affordable and uniform tariffs, registered and insured items, legislative petitions and addresses. It also includes, as we agreed during the course of the last Bill, services for the blind and partially sighted. We know from the contributions of the noble Lord, Lord Low, how much they are valued, but this Bill, particularly in Clause 33, proceeds to provide for changes to the level of the universal service. Later we will look at the ways in which this Bill might deliberately or inadvertently open the door to the diminution of the universal service.

Ministers have helpfully pointed out that the review that Ofcom will be obliged to conduct within 18 months is a market review rather than a review of the universal service itself. I am sure that the House would appreciate an elaboration of what limits will apply to that market review. However, it is clear that Ofcom may initiate, or be required by the Secretary of State to conduct, a review of the universal service obligation under Clause 33. This could begin at any time-18, 12 or even six months after the Bill becomes law. After that, the Secretary of State could by an order subject to the affirmative procedure instigate a reduction in the universal service. Ministers protest that they have no intention of reducing it, and I have no reason to doubt their good intentions, but if the Bill itself permits such a diminution, a future Minister might decide to use it to that effect. We will propose amendments that would give effect to the Minister's stated wish to maintain the universal service at its current level.

My point here is that the move to 100 per cent privatisation magnifies these concerns for the future. There are, of course, Members of this House who can trace their family tree back 350 years, but very few companies can do so. Royal Mail is the honourable exception. It is because of the move to 100 per cent privatisation that Part 4 has been drawn up to deal with potential bankruptcy and the administration of Royal Mail, something that was unthinkable under the 2009 Bill-and if anyone believes that it is an entirely remote possibility, I simply draw attention to the fact that the privatised Railtrack found its way into administration.

What is more, in following the relentless logic of insecurity, the Bill provides for Ofcom to strip Royal Mail of its position as the universal service provider and give it to any other private company. The Bill could commence this process after three years. We are relieved that the Government have seen sense and decided at least to make that impossible for 10 years.

The third major threat posed by 100 per cent privatisation is the threat to the national post office network. The elephant in the room is that nothing in this Bill will require a privatised Royal Mail to utilise the post office network to the same extent as now, and let us remember that Royal Mail generates a significant one-third of post office business. This Bill will sever the link between Royal Mail and post offices in a way that has never happened before in our history. Indeed, the National Federation of Sub-Postmasters has stated that we would be the only country in the world to separate completely its post office network from its primary mail service. That is a huge risk, especially to the future of the post office network.

We know that the Government do not wish to see the demise of the post office network, and the subsidy will continue until at least 2014. Post Office Ltd is under an obligation to have 11,500 outlets open in that year, but Ministers have admitted they cannot ultimately stop the closure of sub-post offices if sub-postmasters do not see a viable business or cannot sell it on when they retire. The fact is that if a privatised Royal Mail, or a different company charged by Ofcom with meeting the universal service, were to pull the plug, probably after 2015, many local post offices would be in severe difficulty.

We have approached this Bill in a constructive way. We have sought to strengthen the safeguards of the universal service and to make regulation fairer. We have argued the case for greater public accountability and have pressed for guarantees on the future of the post office network. We strongly support modernisation and we are not opposed to the injection of private capital, but we feel obliged, as we consider the initial clauses of this Bill, to point out the significant difference of opinion on the fundamental question of overall majority ownership of Royal Mail and the risks that come with 100 per cent privatisation. I beg to move.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative 4:30 pm, 4th May 2011

My Lords, it was interesting to hear how the opposition Front Bench justifies the amendment. The noble Lord, Lord Young of Norwood Green, has not disappointed us. It took him 18 minutes to do it, but he has done it and he has made the case that he said. However, I think he is wrong and I shall explain briefly why.

During the debate on the previous amendment there was a question about what the objective was, for instance, of the privatisation of British Telecom, which I mentioned briefly at Second Reading because I was the Secretary of State who published the White Paper and put the Bill before Parliament. The objective there was absolutely clear: the chairman of British Telecom, Sir George Jefferson, came to me early on after I had become the industry's Secretary and said, "We are not going to be able to develop this business without access to a great deal more capital investment"-and he mentioned very large figures indeed. I had previously been the Chief Secretary to the Treasury and I said, "You do not think you are going to get it from the Treasury, do you?". He said, "We need it". I said, "The only way you are going to get it is for 51 per cent, at least, of shares in the BT company to be in the private sector". He was quickly persuaded that that was an overwhelming argument for privatisation and we moved ahead from that.

It is exactly the same with Royal Mail-it needs capital for investment. I have discussed this with Moya Greene, the chief executive of Royal Mail, and she is very clear that we cannot develop this business unless we have a greater introduction of new capital. She is very clear, too, that this has got to come from the private sector. The amendment requires that a Royal Mail company shall at all times be in the public sector. I do not know whether the noble Lord, Lord Young, recognises that, if it is, it cannot then borrow without the borrowing going on to the public sector borrowing requirement-and that, in the present circumstances, would be totally impossible. British Telecom, by becoming 51 per cent privately owned in its initial stages, was immediately able to go to the market and borrow money without having to bother the Treasury at all. For that reason, the majority of shares being in the private sector was an integral part of the process of getting new capital into British Telecom.

Exactly the same applies to Royal Mail. If the majority of Royal Mail is going to remain in the public sector, as the amendment requires, then the Government can say farewell to any suggestion that they will be able to raise substantial capital sums from the market. It will be difficult enough to sell the company anyway, but to require that a majority of shares should remain in the public sector is a complete nonsense. I listened carefully to what the noble Lord, Lord Young, said. He marshalled his arguments, as he always does, with considerable skill but they were totally unconvincing. If he decides to call a Division on the amendment, I hope my noble friend will advise the House that we should vote against it.

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

My Lords, Amendment 2 seeks to keep the Royal Mail in public ownership and reflects the position set out in the previous Government's Postal Services Bill, which this House considered in 2009. As I said earlier in response to Amendment 1, the difference between the position of this Government and the previous Government is that we do not believe it is necessary for the Government to retain overall ownership of Royal Mail. Public ownership has not helped Royal Mail to move with the times and to make the changes that it needed to succeed. That is why we need a different approach if we are to safeguard the universal postal service, and that is what we are committed to doing.

The noble Lord, Lord Young, questioned the Government's mandate for the Bill. The Liberal Democrat manifesto was explicit about the need for private sector investment and employee shares. The coalition agreement was explicit that:

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

The Bill does exactly what we said we would do. There are several reasons why we should not seek to retain Royal Mail in public ownership. I covered these at length in Committee but, to summarise: first, the Government cannot provide capital fast enough and any funding we provide has to be cleared by the EU under state aid rules. My noble friend Lord Jenkin of Roding spoke most eloquently from his past experience in support of that. Secondly, limiting a sale to only a minority of Royal Mail's shares will reduce our ability to attract the best future owners for the company.

The noble Lord, Lord Young, asked about the provision to amend the minimum requirements of the USO in Clause 33. Again, I will come to those issues when we discuss his Amendments 65 and 66. I ask the noble Lord to withdraw his amendment.

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

My Lords, I listened carefully to what the noble Lord, Lord Jenkin, said. I remember that occasion well, given my interests at the time and the continuing interest which I declared on a previous occasion. As I said, we do not seek to oppose the injection of private capital. Interestingly, there was almost unanimous support for the 2009 Bill, which applied the same formula that I applied to the House today. I hear the points made by the Minister on private sector investment but it is not quite true that it said "100 per cent privatisation" in either the coalition agreement or Liberal Democrat manifesto; I noticed that those were not the words that she used. I stick by my original assertion that this is new territory. It is an important and fundamental decision and one on which we should test the opinion of the House.

Division on Amendment 2

Contents 165; Not-Contents 218.

Amendment 2 disagreed.

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

Aye: 163 Members of the House of Lords

No: 216 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Clause 2 : Report on decision to dispose of shares in a Royal Mail company etc

Amendment 3

Moved by Lord Young of Norwood Green

3: Clause 2, page 1, line 15, at end insert-

"( ) Before making a decision referred to in subsection (1), the Secretary of State shall lay before Parliament a report setting out how the value of the shares in the Royal Mail Group to be disposed of has been assessed, and shall make available to the Public Accounts Committee of the House of Commons an independent overall valuation of the business."

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Shadow Spokesperson (Business, Innovation and Skills) 4:56 pm, 4th May 2011

My Lords, before I get on to this amendment, one problem with quoting when you have the author of the report in the Room is the danger of being corrected. I feel that I owe an apology to Richard Hooper, who said to me that he studiously avoided mentioning 100 per cent privatisation in his more recent report, for which error I humbly apologise. I wanted to put the record straight-before I see him in court.

The ability of Governments to value a utility accurately at the point of its privatisation is mixed. The first two large privatisations of the 1980s, British Gas and British Telecom, saw the share values of those businesses rise quickly following privatisation. That was of course the objective then; privatisation had to achieve legitimacy and the Government of the time was about creating a shareholder democracy. However, our economic needs now dictate that the Government cannot be so generous towards shareholders if privatisation goes ahead in the form of a share sale. They should set a share price for Royal Mail that properly reflects its valuation. As the noble Lord, Lord Lea, said in Committee-he reiterated this view in today's debate-the public have on many occasions not got a particularly good deal out of privatisations.

Ministers have been coy about the value of Royal Mail. Estimates have ranged from £700 million to £7 billion but the managers and employees who stand to gain 10 per cent of the value of the business will be particularly keen to know whether the upper or lower ends of the estimates are correct. They will want to know that the Government have undertaken a forensic and accurate valuation of the business prior to putting it up for sale. In Committee, my noble friend Lord Stevenson made a strong case for Parliament to receive a report on the valuation of Royal Mail. We believe that it is wrong to ask Parliament to give approval for the disposal of Royal Mail while denying it the powers to scrutinise the effectiveness with which the Executive go about their tasks in this regard.

Amendment 3 seeks an independent valuation of Royal Mail to be made available to the Public Accounts Committee prior to any sale of the business. Such a valuation can be received and scrutinised by that committee in full commercial confidence. The PAC and other committees regularly receive restricted or confidential briefing. Parliament has a long tradition of receiving evidence in confidence. If necessary, the PAC could call the Minister to give evidence in camera but any parliamentary body tasked with ensuring good governance in this area would want to be reassured that an effective valuation of the business has taken place. That would include an assessment of its assets and liabilities, along with the proposed regulatory regime and how that would impact on its future prospects.

The coalition Government make a strong case for transparency in government. We are able to access limitless information about government and local government spending. Freedom of information laws and parliamentary questions and debates are all there to oil the wheels of our democracy. As another great historic public institution sadly shrugs off the blanket of public ownership, it is only right that the people who once owned it are allowed to know how the Government have come to their conclusions of the value of that business.

There is support for this from across the political spectrum. The TaxPayers' Alliance and the Communication Workers Union-two unlikely political bedfellows-support the need for an independent valuation. The noble Baroness, Lady Kramer, said in Committee:

"I agree that ... when public entities have been sold ... there has often been an anxiety to achieve a sale quickly. I think that Governments have sometimes been seduced by investment bankers who would like a cheap, easy deal"- and a profitable one at that-

"rather than trying to ensure that they get the maximum for the seller-in this case, the public. I hope that those lessons can be learnt. I agree that internal due diligence is critical".-[Hansard, 8/3/11; col. 1546.]

Those are wise words.

Some or all of Royal Mail may be passed on to shareholders. When that happens, in many respects the accountability for running that business will pass from the Minister's hands. However, until we reach that point, the Minister remains accountable to Parliament for what he does in respect of Royal Mail. This share disposal and the complex processes that lead up to it fall firmly within that remit of accountability. It would be wrong for Parliament to have to force the hand of the Minister on this matter at a later date. Accountability post sale is no accountability at all. Once the sale has taken place, if the Minister has made a mistake it will be nigh on impossible to rectify. By providing Parliament with an independent valuation in advance of the sale, we can deal with any issues that might arise at the appropriate time. I beg to move.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 5:00 pm, 4th May 2011

My Lords, Amendments 3 and 13 seek to place additional reporting requirements on the Secretary of State, while Amendment 5 would introduce additional parliamentary procedures before there can be a disposal of shares in a Royal Mail company.

Amendment 3 would require the Secretary of State to report to Parliament how the value will be assessed, and to make available to the Public Accounts Committee of the other place an independent valuation of the business. As we debated in Committee, there are incredible sensitivities about revealing the estimated value of Royal Mail shares prior to a commercial negotiation. We would be giving the whip hand to the potential investor. This does not make commercial sense and would greatly reduce the potential for getting the best value for the taxpayer from any future transaction. The Government will work with their advisers to consider the potential value of Royal Mail so that they can properly assess bids from buyers. Before a sale, the accounting officer for the Department for Business would need to scrutinise any future transaction to ensure that it represented value for money for the taxpayer.

I reiterate what I said in Committee: we would expect that, after a sale had completed, both the National Audit Office and the Public Accounts Committee in the other place will wish to review the sale process. They would both provide their own independent view to Parliament on whether the Government had achieved value for money for the taxpayer. This is completely in line with the reporting requirements for previous sales of government assets.

Amendment 5 would require that the Secretary of State made an Oral Statement and that an order was laid that was subject to the affirmative resolution procedure before there could be a relevant disposal of shares in a Royal Mail company. As I said in Committee, further parliamentary procedures should not be required before there can be a disposal of shares in Royal Mail. The disposal of shares, as set out in the Bill, has been debated fully in both the other place and this House. The Opposition's Postal Services Bill of 2009 did not include a requirement for additional parliamentary procedures before there could be a disposal of shares. As they said at the time, such a requirement would cause uncertainty for potential investors. That uncertainty is the same whether we are selling a majority or a minority stake. I said in Committee that I fully agreed that an Oral Statement might be appropriate for the first sale of shares. We will discuss with the House authorities the appropriate format for such reports at the relevant times.

I turn to the last amendment in this group, Amendment 13. The purpose of Clause 2 is to ensure that Parliament has transparency about the way in which shares or share rights in Royal Mail that reduce the proportion owned by the Crown are disposed of. The amendment would require reporting on any subsequent disposal of shares by the original purchaser. I do not consider that such a reporting requirement is appropriate. I know of no precedent for this type of "open-ended" reporting in any previous privatisation. The Companies Act requires that a private company has to disclose a full list of its shareholders on incorporation and then with the first annual return to Companies House following incorporation. It then has to provide such a list every third annual return after a full list has been provided. Information on ownership of Royal Mail will, therefore, continue to be publicly available.

As with discussions we had in Committee on other aspects of the Bill, I see no reason to impose more onerous reporting requirements on a privately owned Royal Mail than those that are currently imposed on privately owned companies. Clause 2 does, of course, continue to apply to any disposals of shares by the Secretary of State himself after the initial sale. The crucial issue, however, is not ownership but securing the future of Royal Mail, and in doing so securing the future of the universal postal service. Regardless of who owns the company, it would still be the universal postal service provider in the United Kingdom. It will still need to comply with any conditions issued by Ofcom in the universal postal service order to be made under Clause 29 of the Bill. The purchaser would, therefore, be fully aware of the obligations that the company it is purchasing must deliver.

The initial conditions in the universal postal service order will follow those currently set out in the licence issued to Royal Mail by Postcomm. Condition 12(5) of that licence requires Royal Mail to notify the regulator if there is any change of control in the company. It will be for Ofcom to decide whether to impose similar conditions in the future as part of delivering its overall duty to secure the future of the universal service. With these reassurances, I ask the noble Lord 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 have listened carefully to what the Minister said and I welcome her assurance regarding the Oral Statement. That represents some progress, but we still feel that she has not fully addressed our concerns about the presale valuation and the ability to report to the Public Accounts Committee in confidence. We will reflect on the situation, but in the light of what has been said I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

Amendment 4

Moved by Lord Stevenson of Balmacara

4: Clause 2, page 2, line 1, leave out subsection (2) and insert-

"( ) A disposal of the Crown's interest in a Royal Mail company will not be authorised until the Secretary of State has secured a written contract from the proposed purchaser that at least one representative of employees within Royal Mail or its successors will sit on the board of the new body."

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

My Lords, we discussed the issue of a representative of employees serving on the board of Royal Mail in Committee and it received support from across the Chamber. The noble Lord, Lord Cotter, from the Liberal Democrat Back Benches, drew on his experience as managing director of a manufacturing company. He said on 8 March at col. 1553 of Hansard:

"It is crucial that employees have not only shares but a real voice in one way or the other. Without that, so many companies fail. We want the new conglomerate to succeed, to go forward and to bring its employees with it, as opposed to management and employees being at each other's throats as has sometimes been the case in the past".

My noble friend Lord Myners pointed out that the shareholders in a privatised Royal Mail,

"-whether it is a large corporation, perhaps based overseas, or is floated on the stock market with a large number of investors-will nevertheless individually have a very modest interest in the company ... few ... will own more than 1 per cent of the company; they will have diversified their risk through portfolio construction. The employees cannot do that; they will have what investors would call a high-conviction portfolio, with all their money invested in a single share and all their employment in one place of work. It is surely right that people who exhibit such a high conviction to a company should have some voice in the leadership and management of the business".-[Hansard, 8/3/11; cols. 1553-55.]

Postal workers already have a major stake in the company, and their livelihoods are dependent on its viability. This is more than just an issue of immediate employment, because postal staff invest their livelihoods and pensions in the company. We will suggest later under Clause 3 that they should be able to invest in trust-owned employee shareholdings in the company. Surely it is not too much to ask that they have a seat at the board table for their chosen representatives.

What do we see when we look across the channel? Employee representation is commonplace. In fact, some of the companies that are held up as shining examples of privatised postal services have employee representatives on their boards. The Minister for Postal Services, in Committee in another place, stated:

"I have never been opposed to the idea of employee representatives being on boards, or on board committees".-[Official Report, Commons, Postal Services Bill Committee, 23/11/10; col. 325.]

We invite the Minister here to go one step further and make provision in the Bill for this good idea. Failure to introduce representation of postal workers would risk missing a real opportunity to create trust and confidence for the long term. I beg to move.

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

My Lords, I shall speak to my Amendment 11 in the group. Like other amendments, it requires the Secretary of State to lay a report before Parliament detailing his decision to dispose of shares in a Royal Mail company. This must be done within a reasonable and practicable time, as we have discussed. My amendment seeks to strengthen the reporting requirements of Clause 2 and to make sure that Parliament has the opportunity to scrutinise the training and skills agenda of the newly privatised Royal Mail.

Royal Mail has a strong and well established culture of training and development, supported by comprehensive agreements with its union, the CWU. The business is committed to modern engineering apprenticeships through the 2010 business transformation agreement that underpins the current process of modernisation. An illustration of how that takes place and the level of that commitment is that last year the company was involved with 300 core apprentices and 200 advanced apprentices. That is a record about which the Minister will share my enthusiasm.

The Government have been vocal, today and previously, in their support for apprenticeships. In the Budget they announced 50,000 new apprenticeship places at a cost of £180 million. This support should ensure no erosion of current positions and opportunities in Royal Mail. I am sure that the noble Baroness would agree that it would be very disappointing if any of the positive and evolving culture of training in Royal Mail disappeared or diminished.

The Government's vision is hugely important and has led Royal Mail in many ways. The impact of privatisation and the short-term cost-cutting agenda makes some people worried that the private shareholder may not bring the commitment that I mentioned. Royal Mail's strong culture in training and skills development is underpinned by a range of robust agreements between the union and the business to ensure effective training for new starters, ongoing training and up-skilling, in line with the introduction of new equipment.

A culture of training and development at Royal Mail is crucial, as it is in many organisations. The noble Baroness will know that most businesses benefit and progress with a culture that encourages apprenticeships and skills improvement at all levels. My worry, and the worry of many people, is that short-term cost savings may need to be made by a reduction in investment in training and development. That would be detrimental to the future success of the business.

Royal Mail and its union, the CWU, have worked hard to introduce a comprehensive training framework that is available to all employees. When employees join the business, they are supported by an induction programme through which they are guided over a 13-week period. This involves induction days, and on-the-job and off-the-job training. This leads to a culture of encouraging further advancement into apprenticeships. Royal Mail embraces and continues many other schemes.

I want to make the quick point that, having grabbed hold of the culture that my Government and now this Government are pursuing and have pursued in apprenticeships, we must at all costs ensure that any sell-off of Royal Mail will in no way be detrimental to the business. A number of young people in Royal Mail are benefiting from that. The whole status of the business is dependent on that skill level being supported. I hope that the noble Baroness will assure me and the House that she is well and truly committed to that and that it will be enshrined in how Royal Mail moves forward.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour 5:15 pm, 4th May 2011

I shall speak to Amendment 36 standing in my name, dealing with trade union recognition. Again, I declare my interest: 65 years ago this month, I joined the then UPW and I am still a member in the retired members' section.

My amendment directs the Secretary of State to ensure that in any relevant disposal there will be a guarantee that existing rights of workforce recognition are maintained. That is very important, and I very much hope that the Government will see the benefit of the amendment.

I shall make two main points. First, the workforce, by its own efforts, has unionised the industry to such an extent that recognition of the union was achieved more than a century ago, when the Fawcett Association became the Union of Post Office Workers, founded in Finsbury Circus. Long before the existence of recognition rights, postal workers came to agreement with the employers and, behind them, the Government, on the existence of workforce trade unions. This has shaped employment relations in the industry. Both workforce and management have seen the benefit of organised bargaining and representation. We are now looking at a Royal Mail and its staff who have a mature attitude to industrial relations. Both parties know of each other's interests and concerns and are usually able to reach accommodation.

Despite the media caricatures, the reality is that organised industrial relations have created ways of working which make the industry productive and safe. Every day, many thousands of hurdles, small and large, are overcome by timely recourse to the recognised framework of industrial relations in the industry. Both management and union representatives know that the job gets done better if the workforce is convinced that it is being done in a right and fair way.

The media are interested only when those relationships break down. They turn an ordinary little conflict in the sorting office or a pillar box into a massive federal case, as the Americans would say. They love that. The media will attack unions just for the sake of it. The reality is that countless efforts by management and union reps ensure that, every day, smooth running of the industry takes place.

The first theme of the amendment is to ensure that the hard-won legal recognition of union organisation is protected in any share disposal. Recognition has been won not just as a legal right; it has been established by the efforts of generations of postal workers and managers. Any new owner must begin by recognising that they are buying into an organised workforce.

As an aside from the comments that I have drafted, I have one recollection. After the Second World War, when the Control Commission of Germany was setting up Germany's new industry on the basis of industrial democracy, it was the British TUC and the UPW, as it then was, who took part in helping that country rebuild itself. As we know, that led to worker participation on boards, which was the subject of the lead amendment.

Being unionised does not mean being unproductive. On the contrary, many studies demonstrate that unionised workforces are productive. If any new owner may be in doubt, the Secretary of State should be obliged to dispel that doubt, as a new owner must learn to live with a unionised workforce.

My second point is that bargaining is a natural part of recognition and relationships. It may be argued that under TUPE the transfer of the workforce will carry across existing terms and conditions. That is true but it is insufficient. It is an organised workforce that will address any new employer with the expectation of its bargaining rights remaining intact too. This is not just about what is currently earned or currently an entitlement, such as annual leave, allowances and so on; it is also about the right of the workforce to address its future conditions with the confidence that it can resolve its problems through negotiations. The past couple of years have shown that after a long period of unhappiness these changes can be negotiated.

Any new employer that buys into Royal Mail on the assumption that it will simply impose its vision, priorities or methods on the workforce will be in for a rude awakening. I do not say that with any sense of a threat, but people who have given their lives to the industry will not just roll over while their conditions are reduced and made much more difficult. The workforce expects any changes to be negotiated, and that is why the amendment is necessary. It is not a conflict-ridden process; on the contrary, the only cost in the vast majority of agreements has been the time and patience of management and union reps. Such rights are valued greatly by the workforce.

Postal workers know that the industry is constantly changing. As a postal worker, I have had to recognise that. Being in attendance at this funeral of our great Royal Mail over the next few hours does not give me any happiness but I have had to come to terms with it. The vast majority of workers have understood that it is constantly changing and that working arrangements and conditions also change, but that is on the understanding that postal workers will buy into the changes by helping to shape them.

We expect the Secretary of State to be entirely clear with a new owner of Royal Mail that recognition of the workforce and its union involves a negotiated and bargained framework for employment relations in the workplace. This fact of life will have to be addressed. It is best that we make this clear in the legislation to any potential investor or buyer of the industry, and carrying this amendment would do exactly that.

Photo of Earl Attlee Earl Attlee Lords Spokesperson (Department for Transport), Lord in Waiting (HM Household) (Whip)

My Lords, this group of amendments covers matters relating to the employees of Royal Mail, without whom of course there would not be a Royal Mail. These matters are employee representation on the board, union recognition and employee training.

I thank the noble Lords, Lord Kennedy, Lord Clarke and Lord Christopher, for tabling Amendments 4 and 10 relating to employee representation on the board of Royal Mail or any new successor body. I say this because, when we debated similar amendments tabled in Committee, it was clear to me that your Lordships had concerns about my response. These amendments give me the welcome opportunity to provide more clarity about the Government's position on this issue.

First, I should make it clear that the Government do not have any fundamental or philosophical objections to employee representation on the boards of companies, but we do believe that the make-up of any company's board should remain the responsibility of the company and its shareholders.

As many of your Lordships said in Committee and again today, employees will have a pivotal role in the future of Royal Mail, and there needs to be continual and meaningful interaction between the workforce and the management. In the CWU and Unite, the employees of Royal Mail have strong, active and effective unions. The business transformation agreement reached in March 2010 laid the groundwork for a new relationship between the management and the CWU. This was a ground-breaking achievement and, as recognised by the noble Baroness, we do not want to see the improvements set back.

I have looked back at whether the Postal Services Bill 2009 contained provisions requiring an employee representative on the board. It did not. In fact, the previous Government rejected such amendments to that Bill. The noble Baroness, Lady Vadera, said in Committee debates on the Bill that the Government would have to be persuaded that direct worker representation on the board,

"would make a real difference to the transformation and modernisation of the Royal Mail and deliver the change that is necessary for the company".

She said that the Government,

"do not believe that that case has been made".-[Hansard, 24/3/09; col. 612.]

While this Government have no objections to an employee representative being on the board of Royal Mail, we do not see that it should be a requirement laid down in statute. I do not believe that there is any precedent for this in any previous privatisation. Under the Bill, the employees will have a shareholding of at least 10 per cent. Whether there should be an employee representative on the board is a matter for the company and its shareholders, not something to be laid down in statute.

The noble Lord, Lord Stevenson, referred to the clear example given in Committee by the noble Lord, Lord Myners, of why large shareholders should not have a representative on a company's board. The noble Lord, Lord Myners, told us that it is quite customary for a body of investors which has a large shareholding, as will the employees under our Bill, to seek board representation. He gave the example of News International and the BSkyB board, but the lesson to draw from this example is that it was a decision taken by the company and was a circumstance of the size of News International's shareholding. It was not a mandatory requirement. I do not see why Royal Mail should be treated differently from other companies in this regard.

The noble Lord, Lord Stevenson, spoke also about the experience in Europe. There is a mixed picture there. Some member states have mandatory requirements for employee representation on boards in certain circumstances, but the majority do not. The Government consider that placing such a requirement on Royal Mail, when it is not a requirement on companies generally in the UK, is not appropriate. The wider issue of employee representation on boards is best discussed in the context of company law and not this Bill.

Amendment 11 would place a duty on the Secretary of State to report on Royal Mail's intended policies on training, apprenticeships and skills once a decision has been taken to dispose of shares in Royal Mail. I thank the noble Baroness, Lady Wall of New Barnet, for raising these vital issues. I know that she brings considerable experience to this debate through her work on the sector skills council and her contribution to the All-Party Group on Further Education, Skills and Lifelong Learning. The Government absolutely recognise the importance of training and believe that skills are key to economic competitiveness. Apprenticeships are our preferred vocational route for people of all ages to gain the skills they need to succeed and progress in their careers and for employers to build a workforce with the motivation and expertise they need to compete globally. We are committed not only to increasing the number and range of apprenticeships on offer but also to improving their quality. We want apprenticeships to become the gold standard for workplace training. We are determined to take real action to improve and expand the apprenticeships programme and create more apprenticeship opportunities than ever before.

It has been recognised throughout the debates on this Bill that the workforce is vital to the success of Royal Mail. The company is introducing new working practices and new technology as it adapts to developments in the postal market. It is clear that, to make the modernisation of the company a success, it will need to ensure that its workforce is properly trained and has the right skills, as pointed out by the noble Baroness.

Royal Mail recognises the importance of training, which is reflected throughout the business transformation agreement between the Royal Mail and the CWU. I have no reason to believe that the new owners of Royal Mail would take a different approach given the importance of the workforce. Why would it? The noble Baroness suggested that cost pressures might be an issue, but surely a business of this size must look to the long term and not take short-term decisions. If it did, it could adversely affect its own share price, sending entirely the wrong signals to the market.

I turn specifically to the amendment. It is highly unlikely that the Secretary of State would be in a position to say anything about the future policies of Royal Mail on training, apprenticeships and skills at the time of the report required by Clause 2. The report is triggered by a decision to undertake a sale of shares and must state the kind of disposal that will be undertaken, together with the timescale. The new owners would, therefore, not be known at the time of the report. What we do know, however, is that thanks to the Bill, Royal Mail's employees will be shareholders in the company and will have a minimum of 10 per cent of the shareholding as part of the privatisation process. Obviously, the employee shareholders will have an interest in future training in the company. Therefore, it is not necessary to include in the Bill the reporting requirement proposed by the amendment. No such reporting requirements exist in relation to other companies and there is no compelling reason to single out Royal Mail. I hope that, after the general comments I have made about the Government's policy on apprenticeships, the noble Baroness will not press her amendment.

Amendment 36, in the name of the noble Lord, Lord Clarke, places a duty on the Secretary of State to ensure that employees' existing rights of recognition are maintained. We debated in Committee a very similar amendment in the name of the noble Lord, Lord Young. As I said then, the Government welcome the positive changes in the relationship between Royal Mail's management and the Communication Workers Union since the signing of the business transformation agreement in March last year. We encourage both sides to continue to work together in this improved way.

The representation of employees at Royal Mail by the Communication Workers Union and Unite is recognised in voluntary agreements between the unions and the company's management. Such voluntary agreements are common, and it is good practice for the employer to take full account of the views of employees when deciding to recognise, or continue to recognise, a union. The fact that union membership remains relatively high in Royal Mail suggests that most staff support union recognition, and I have no reason to believe that any new owner would seek to change any such agreements-provided, of course, that that is what employees want. As I said in Committee, I do not believe that it would be appropriate for there to be a specific duty on the Secretary of State to guarantee these arrangements at Royal Mail. This is primarily a matter for the employer and the trade unions concerned.

The noble Lord, Lord Clarke, reminded us that we helped to set up the German trade union system at the end of the Second World War. It was pointed out to me during my training at Swiss Industries what a successful way this was to set up trade unions. This piece of history has been a positive lesson to me all my working life. Trade unionism can be very positive.

The amendments in this group have given us the opportunity to discuss important issues relating to employees of Royal Mail. For the reasons that I have given, it is not necessary to include in the Bill the provisions set out in the amendments. I therefore ask the noble Baroness and noble Lords not to press their amendments.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Shadow Spokesperson (Culture, Media and Sport) 5:30 pm, 4th May 2011

I thank the Minister for his comments. I agree that these debates have allowed us to touch on important issues that affect not just Royal Mail but the wider world of work and how Governments should relate to that. I also thank my noble friends Lady Wall and Lord Clarke for their contributions. The Minister responded positively to their speeches, but unfortunately has not been sufficiently moved to incorporate the amendments in the Bill. Perhaps we can come back to them at a later stage.

The issue raised in Amendment 4 is whether, at the point of transition from its present position as a wholly owned subsidiary of government, Royal Mail should be imbued with many attributes that will allow it to sustain and carry on its work. As I understand it, the Minister is very positive about the need for employees to be engaged at all levels in the work of companies, but believes that the responsibility for that must lie with the company and not the Government. We on this side of the House believe that the change from a wholly owned subsidiary to a 100 per cent private company changes the nature of the debate.

History is with us all the time in this debate. It is important to bear in mind that Royal Mail is a public service. It is a company in all but practical separation from the Government, but it is also a public service, and I think that those who work in it believe that that is what drives their motivation and allows them to engage with the public interest more widely than any ordinary employee would do. It also allows them to have high levels of staff retention and works to ensure that their productivity is high. These are public servants in the true sense of the phrase and the change that the Government wish to make-to sell them and their company to a private sector operation-will of course make that completely different. They may or may not be right; time will tell. However, I think that the Government are missing a great opportunity by not building into the new arrangements something of the past and the history of the public service which it represents.

I believe, and I think that many noble Lords on this side would support the view, that company law has perhaps not kept up with the needs of the modern employment world. It does not play well to the idea to which the Minister referred in terms of how companies operate in relation to staff, and it is perhaps not the right place to look for better employee engagement on this. The Government have the option of leaving a mark on the new, privatised Royal Mail. They could do so by a simple amendment-accepting what we have said in this amendment-but they have not done so. The warm words which we have heard are encouraging to those who will read them but they do not lead us to permanent change. I therefore think that we should test the opinion of the House.

Division on Amendment 4

Contents 175; Not-Contents 198.

Amendment 4 disagreed.

Division number 3 Postal Services Bill — Report (1st Day)

Aye: 173 Members of the House of Lords

No: 196 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 5 not moved.

Amendment 6

Moved by Baroness Wilcox

6: Clause 2, page 2, line 5, at end insert ", and

(c) the objective intended to be achieved by the undertaking of it.

(3A) The report must-

(a) contain information about the expected commercial relationship, after the proposed disposal, between the Royal Mail company in question and any Post Office company, and

(b) if the proposed disposal would result in shares or share rights being owned by or on behalf of an employee share scheme for the first time, give details of the scheme.

In paragraph (b) "employee share scheme" has the meaning given by section 3."

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 5:48 pm, 4th May 2011

Amendment 6 is intended to increase transparency in relation to any future disposal of shares in Royal Mail, as well as to provide further information on the commercial relationship between Royal Mail and Post Office Ltd. At the same time I will speak to Amendment 7 in the name of the noble Lord, Lord Whitty, and Amendment 8 in the names of the noble Lords, Lord Clarke and Lord Christopher. I hope that Amendment 6 will ease the concerns expressed by many noble Lords in Committee and provide further reassurance that the Secretary of State will be open and transparent about decisions taken on the future of these two businesses. The amendment relates to the report which will be laid by the Secretary of State before Parliament once he has made the decision to undertake a disposal of shares in Royal Mail.

Amendment 6 serves three purposes. First, it clarifies that the Clause 2 report must state the objective intended to be achieved by the share disposal. Secondly, it will ensure that when shares are proposed to be put into the employee share scheme for the first time, the report must include details of the scheme. Thirdly, it will ensure that the report includes information on the ongoing relationship between Royal Mail and Post Office Ltd after any disposal.

Perhaps I may take these in turn. In terms of objectives, I said in Committee that the Government's overarching objectives from the disposal of shares is to secure the future of the universal service and to ensure that we negotiate the best deal for both Royal Mail and the taxpayer. However, I appreciate that Parliament will want confirmation of these objectives once a decision has been taken to dispose of shares. This amendment will ensure that this is included in the report to Parliament made under Clause 2.

Moving on to employee shares, we understand the concerns of both Houses about the sort of scheme that will be put in place for employees, and I would remind noble Lords that the Bill already makes the strongest statutory commitment to an employee share scheme of any major privatisation. This commitment has been strengthened further by the Minister for Employment Relations, Consumer and Postal Affairs, who put on record in the other place that shares would be put into the scheme at the same time as the first disposal of shares. This commitment was repeated by my noble friend Lord De Mauley in Committee in this House. It is too early to commit to a particular scheme structure as this will depend on factors that are as yet undecided, such as the type of sale, but we have considered how we can provide additional comfort to both Houses. As the amendment sets out, we propose to place a specific duty on the Secretary of State to report on the details of the employee share scheme when shares are proposed to be put into it for the first time.

Finally, the amendment also ensures that the report will include details of the ongoing commercial relationship between Royal Mail and Post Office Ltd after the proposed disposal of shares in Royal Mail. We hope that this amendment will address the concerns expressed by several noble Lords in Committee, in particular the noble Lord, Lord Whitty, and his colleagues on the Front Bench. It will also work in tandem with Amendment 50, which we will discuss later, to ensure that information on the relationship between the Post Office and Royal Mail continues to be publicised in the Post Office's annual report, as required under Clause 11.

Perhaps it will be helpful if I provide a little more detail about what we expect the reporting requirement will provide in practice. We envisage that the details published will be akin to those which a listed company might provide in relation to a material contract when issuing a prospectus offering shares to the public. This provides a fine balance between ensuring that the public-in that example, potential investors-have sufficient information and making sure that no commercially damaging information is inadvertently disclosed. In practice, the information is likely to include much of that which the noble Lord, Lord Whitty, seeks to include in Amendment 7. The contract has yet to be finalised. It does not need to be finalised until the two companies are formally separated prior to completion of a Royal Mail transaction, but negotiations are under way and we would expect a new contract to be ready to be signed by next spring.

Noble Lords will already be aware that Royal Mail and the Post Office management have committed that the contract will be for the longest legally permissible duration. I would hope that this could be for the 10-year period that noble Lords opposite have sought, but the final duration will depend upon interlinked factors such as volume commitments or exclusivity arrangements. Since the contract has yet to be finalised, the specific details required under Amendment 7 are impractical. For example, it would most likely be impossible to provide accurate annual total contract values to the Post Office as these are likely to depend on the volume of mail and parcels handled over Post Office counters during the relevant years. That is certainly the basis of the current arrangement.

I turn now to Amendment 8, which would require the Secretary of State to include in the report that he has to make under Clause 2 a risk assessment of the proposed disposal and information on due diligence made of the purchaser, along with a comprehensive analysis of the due diligence work. As I have said before, the Government's intention is that a sale of shares will help to secure the future of Royal Mail, and this in turn will help the company to continue to provide the universal postal service. We will, of course, assess the risks and carry out appropriate due diligence as part of that process. The report in Clause 2 is required when the Secretary of State has made a decision to undertake the disposal of shares in Royal Mail, and the report must include details of the kind of disposal. The process of a disposal is unlikely to have begun and so the information set out in the amendment would not be available at the time of the report.

As I said in response to Amendment 5, we expect that after a sale had completed both the National Audit Office and the Public Accounts Committee in the other place will wish to review the sale process. They would look at the process that was conducted prior to a sale, including the risk assessments and the due diligence. This is recognised as standard parliamentary process to assess whether the Government have achieved value for money for the taxpayer. I certainly expect that process-that is, the work of the NAO and the PAC-to cover work undertaken by the Department for Business to assess the financial and other risks associated with the buyer because they can directly impact, in the longer term, the taxpayer. We do not believe that Amendment 8 reflects the nature of the reporting requirement in Clause 2, which is to report when a decision is taken to undertake a disposal-not on subsequent activities prior to a sale. We also believe that there are existing parliamentary processes in place to scrutinise risk assessments and any due diligence that has been undertaken.

With the assurances that I have given to the House about what the Secretary of State will intend to include in a Clause 2 report, I hope that the noble Lord, Lord Whitty, and the noble Lords, Lord Clarke and Lord Christopher, will feel able to withdraw their amendments at the appropriate time. I beg to move.

Amendment 7 (to Amendment 6)

Moved by Lord Whitty

7: Clause 2, line 6, after "company" insert "in relation to-

"(i) the minimum contract length for the commercial relationship;

(ii) the details of any contractual break period that may be exercised by any party who enters into the commercial relationship;

(iii) the total value of the contract to the Post Office company for the services provided under the terms of the commercial relationship for each year that the contract runs"

Photo of Lord Whitty Lord Whitty Labour

My Lords, I am grateful to the noble Baroness for both tabling the amendment in her name-particularly the new subsection (3A)(a)-and for the additional information that she has given today. I am not sure, however, whether that goes far enough to meet the anxieties.

As noble Lords will be aware, the interbusiness agreement is absolutely essential for the future operation of both the Royal Mail part of the unravelled company and, particularly, for the post office network, which is my concern. It is therefore important that when the Secretary of State reports to Parliament on the basis of the procedure, the terms of the agreement between the two parts of Royal Mail are clear, understood and give a robust and sustainable basis for both parts to continue. It will also, of course, have a significant effect on the value of both parts of the set-up-the value to investors in the Royal Mail part and the value to the taxpayer and the community of the network.

The specifics in my amendment to the government amendment would require part of the report to set down the minimum contract length. I know that the Government have said that they wish it to be the maximum that is legally possible, but we have never had a proper explanation of why they feel that there is a serious legal constraint on the length of the contract. It is therefore important that, at the point at which the contract is concluded and the report comes back to Parliament, the terms of the contract are spelt out and that any legal reasons for those terms are likewise spelt out. In terms of the risk that both parts of the organisation take in their new form, there is the issue of which party and in what circumstances can break that contract.

Some of these points have been raised with the noble Baroness's officials. Until this evening, we had had no real, clear assurance that they would all be covered. The noble Baroness's words today go some way towards that, but I was rather alarmed that she said that the report would be the equivalent of a material contract when a company sought investment. That is the wrong concept to be pursuing here. That provision is an assurance of due diligence, or whatever, to a potential investor, and that is part of what we are trying to do here. The report to Parliament is about the effect, in Parliament's view, of the proposed changes and therefore what the public interest is in those changes, both in terms of getting an official Royal Mail delivery mechanism and in maintaining a robust and sustainable network of at least the size that the Government say they are committed to. On both fronts, it will be necessary to see the details of the form of those business agreements before the House.

It is important that we continue to press the Government for more information on what will be included in the Secretary of State's report. Clearly the Minister tonight is not able to say that because the contract is still under negotiation. I do not expect the details to be in the legislation, but I would expect them to be in the report before Parliament. Despite the additional information which the noble Baroness has given us this evening, I do not believe that we are absolutely clear yet that there will be sufficient requirement to spell out those details in the report. I will consider later whether to press the amendment, but for the moment and for the purposes of the debate, I beg to move.

Photo of Lord Christopher Lord Christopher Labour 6:00 pm, 4th May 2011

My Lords, I rise to move Amendment 8. I did not move Amendment 13 because, frankly, I was confused by the way in which the Order Paper came through, but it seems that the essential issues are the same. References have been made to the value of this company and the lack of knowledge of that value. It is certainly not BT or British Gas. The closest I can come to previous privatisation operations is British Rail, which I think at least one Conservative spokesman in the past has said might have been carried out more felicitously. It is still being heavily subsidised. As to value, the only thing I know for certain is that it is not a Glencore, which is valued at the moment at some £34 billion. There are going to be considerable problems in achieving a proper valuation of this company.

The problem with the Bill is that we do not really know what we are addressing. We do not know what the Government will do-I am not sure that the Government know that for sure. There are three options: the sale; the mutual, on which we are waiting a report from the Co-operative Society; and the prospect of an IPO. My purpose is not to divide on this but to persuade the Minister that there are still some safeguards that need to be put into the Bill. It is not good enough as it is, when we are dealing with post that is so close to the public, to sell it, wash our hands of it and leave it all to a regulator. We are here in this goldfish bowl of the House of Lords, yet outside things are happening that are bound to make people uneasy about what might happen to Royal Mail if it is sold off to A, B or C under whatever terms. I have sought in my amendment to tighten up what due diligence means, to widen it beyond finance and to look much more carefully at exactly how a buyer has conducted itself and its business history.

We all remember Ford, which bought Volvo, Jaguar and Kwik-Fit. At the end of the day, Kwik-Fit was sold to a private equity house, CVC, at the third of the price that Ford paid for it. Stagecoach bought the American company Coach USA for £1.2 billion, which almost made Stagecoach broke. Closer to present times, Southern Cross, which is the largest provider of care homes in the country-it has 31,000 homes-was owned by Blackstone, an American private equity company. It ensured massive expansion on the basis of sales and leaseback. In the valuation of Royal Mail, I understand that most if not all its sites and buildings have already been sold and are back on leaseback. Some 17.5 per cent of the shares of National Express are owned by the hedge fund Elliott. It is now actively seeking changes in the board, which has been interpreted as a move to make sure that National Express comes on the market. We need something that ensures not just the prima facie suitability of an initial buyer but the opportunity, if things are sold off-for example Parcelforce, which seems to be Royal Mail's one growing asset-for the Government to ensure that whatever happens is right and proper.

I mentioned the Netherlands at Second Reading. Four companies now handle the Netherlands' mail. The people of that country can expect to receive mail delivered from these four companies. There is the half-orange post, which is owned by TNT. It delivers six days a week. There is the blue post, a company called Sandd-an acronym for the "sort and delivery" postal service. It delivers two days a week. There is the yellow company, Selekt, jointly owned by Deutsche Post and DHL, which delivers twice a week. That company is interesting because it has never made a profit and is now, it hopes, going to be sold. It is run by home workers, who sort and deliver at and from their homes. The legal low limit for pay in the Netherlands is between £8 and £9 an hour, but this company is very careful to ensure that none of its workers reaches that figure and that they are kept on a monthly basis below the rate that is required by the Netherlands Government of £580 a month. They are seeking now to sell it to Sandd.

The fourth company is called half-orange, which is owned by TNT, and it calls once a week. Again, that is interesting, because there we have TNT competing with itself. Why? Because it is using not full-time post staff but casual labour. This is not something that is happening in a third world country. It simply carries the somewhat dogmatic belief that we can privatise and get competition and that it always works best. I do not think we want to risk anything like what has happened in the Netherlands happening in this country. If the Government do not make it clear in the Bill that the likes of this will not be tolerated and that that is provided for in the Bill, I will think there is something seriously wrong with the Bill-and if things go the wrong way, we will know exactly who is responsible for that.

We are seeking to sell the service at a very bad time in economic terms. There is no queue out there of people saying, "Let me buy the Post Office", so I hope the Minister will think hard about what has been said, not just by me but by others, and will try to ensure that the Government come back at the final Reading with some proposals that comfort us and the British people that this is not being sold off just for fun but is something that we are trying to ensure is properly financed and properly run in Britain.

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

My Lords, we welcome the amendment moved by the noble Baroness, Lady Wilcox, and believe that it is a step in the right direction. The question is whether it goes far enough in that direction. We welcome the Government's acceptance of the kind of information that ought to be made available before Royal Mail is sold. We have already stated that there are still many unanswered questions about the disposal-the timetable, the qualification of the future owner, the nature of the sale, how value for money will be secured, the danger of asset-stripping, safeguards for the universal service, and safeguards for the post office network. Yet the scope that is being given to the Secretary of State to make the sale is still very large indeed, with only a factual report to Parliament.

There is a significant improvement in the scale of information that is being offered, but it is certainly not the whole answer. I listened carefully but I did not quite get the assurance given on the nature of the contract between Royal Mail and the Post Office. I would welcome the Minister, in responding, clarifying the point that she made about next spring, when this contract is likely to be signed, and saying how strong the guarantee is on the 10-year period. Is it still just a hope, and are there still likely to be legal barriers to the 10-year period being a part of the contract?

I want to speak to Amendments 7 and 8. The House will be aware that we have consistently put the case for a long-term agreement between Royal Mail and the Post Office, to run from point of sale. We have proposed a 10-year duration. As my noble friend Lord Whitty said, it is certainly not an academic issue; it is a matter of commercial survival. The Government's assurances are an improvement but still fall short of the commitment that we seek. I have no doubt that we will continue to return to this issue until we get a satisfactory assurance.

My noble friend Lord Whitty's amendment provides a useful elaboration of the information that we seek, including the contract length, any contractual break period and the total value of the contract to Post Office Limited. We urgently support his amendment and urge the House to do so.

Amendment 8 seeks further guarantees, and important ones, on the risk assessment of the proposed disposal of Royal Mail. My noble friend Lord Christopher rightly seeks confirmation that due diligence of the prospective buyer has been undertaken. These are sensible steps to take before such an important transaction, and I thought that his graphic and interesting description of the Netherlands postal system was an important contribution to this debate.

Once again, we support this amendment.

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

My Lords, I rise to respond to the noble Lords, Lord Whitty, Lord Christopher and Lord Young, on my amendment and the other two amendments. In response to the concerns expressed by the noble Lord, Lord Whitty, about the details to be provided in the Clause 2 report, I reiterate some of the sentiments I mentioned earlier. The information that we propose to include in the report includes much of the information that the noble Lord seeks in his Amendment 7. I would hope that the contract's duration would be for the 10 years that many noble Lords are seeking, but the longest legally permissible duration will depend on other factors, such as volume commitments, which must be commercially negotiated between the companies. Finally, we must not require in Clause 2 the disclosure of information that might inadvertently damage the commercial interests of either business. That would damage the commercial sustainability of the post office network, which I am sure is not the noble Lord's intention.

The noble Lord, Lord Christopher, raised a number of important points about how the postal service is provided in the Netherlands. I believe that these are consequences of the regulatory framework in the Netherlands, not of the ownership of its postal companies, but we will come to those matters when we debate Part 3 of the Bill, and I hope I will be able to provide him with further reassurance then.

The noble Lord, Lord Young, asked me to clarify what I said about the timing of a new contract between Royal Mail and the Post Office. As I said, negotiations are under way, and we expect a new contract to be ready to be signed by next spring. I hope that with those reassurances the noble Lord feels that he can withdraw his amendment.

Photo of Lord Whitty Lord Whitty Labour

My Lords, I appreciate that the noble Baroness has gone some considerable way. However, from what she just said it is clear that the information that the Government envisage in the report is on potential investors and the financial viability of both halves. There is a bigger public interest issue here. The post office network, which is so dear to many of our communities, depends on this agreement for one-third of its income. Unless this Bill spells out that part of the report to Parliament will cover something like the details that I have in my amendment, I do not think that the Government will be bound to provide a sufficient report on which Parliament can judge. Therefore, I would like to test the opinion of the House.

Division on Amendment 7.

Contents 137; Not-Contents 191.

Amendment 7 (to Amendment 6) disagreed.

Division number 4 Postal Services Bill — Report (1st Day)

Aye: 135 Members of the House of Lords

No: 189 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Amendment 8 (to Amendment 6) not moved.

Amendment 6 agreed.

Amendment 9

Moved by Lord Kennedy of Southwark

9: Clause 2, page 2, line 5, at end insert ", and

( ) how the name "Royal Mail" will be protected and used by the universal postal service provider"

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Labour 6:31 pm, 4th May 2011

My Lords, this is a similar amendment to one that I tabled in Committee. I was not convinced by the Minister's response then and said I would bring it back. I hope that the Minister has had time to reflect on this. As I said before, people do silly things all the time and doing nothing is, in my opinion, unwise. This amendment would only require the Secretary of State to report on how the name "Royal Mail" will be protected. If the noble Baroness is not minded to accept the amendment, can she explain how we avert another Consignia debacle? Saying that this is such a well-known and recognisable brand name that no new owner would ever consider getting rid of it just does not stack up-Consignia proved that. Future owners may decide to change the name to some other well-known name and Royal Mail as a brand would be lost. That, I contend, would be a matter of much regret. I beg to move.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

My Lords, I listened to the noble Lord with some interest, but I should have thought that, if ever a brand name would be of immense value to anyone who bought the business afterwards, it is that of Royal Mail. I hope that I am not being indiscreet but when I discussed privatising Royal Mail while I was in the Department of Industry in 1981, I was told brusquely, "It's royal-we can't touch it", so it has been delayed for my noble friends to bring to the point now which I would really have liked to have seen a long time ago.

Photo of Lord Boswell of Aynho Lord Boswell of Aynho Conservative

My Lords, perhaps I may comment first on the amendment which has just been moved by the noble Lord, Lord Kennedy of Southwark. We all have an interest in the continuation of the proud name "Royal Mail", which honours those who have worked in that service over 300 years. All of us here should respect that, not only those who are historians or antiquarians. At this point, perhaps I had better declare my interest in archives and my involvement with the all-party group, of which the House may be aware. However, if the noble Lord looks forward to the proposed new clause in government Amendment 54, which has been grouped with this amendment for convenience, we might have a more substantive discussion. I look forward to the Minister's comments on that amendment, on which I shall speak in a moment.

I make no apology for wanting to see that this is got right because it is not necessary to be a fan of TS Eliot's poetry-although I am one-to understand that the past is very much part of the present and the future and that it should not be possible, in a mechanistic way as it were, to unpick them or to take no notice of them. It is really important that the heritage and pride which have gone with that name and its tradition are celebrated and maintained, not least because it is a matter of obvious sensitivity in relation to the monarchy. We do not need to speak about that in detail but the monarch's head appears on our postage stamps and her title attaches to our postal service. We hope that will continue.

However, as I said in Committee, any of us who have been to see the Royal Mail's museum and archive, which is the subject of the government's proposed new clause tabled in Amendment 54, will know the richness of what is there. There is complexity and fascination in how designs were considered, modified and put into circulation and that is all part of the tradition which should go with this. It is important that we make these commercial changes-I am not resiling from that-and that we do not spend unreasonable money on resourcing the past, however important it is. I said in Committee that there were some concerns about the resources available for the existing archive.

I thoroughly welcome the proposed new clause in Amendment 54 which is really, if I may say so, a considerable tribute to the noble Lord, Lord Clarke of Hampstead, to his colleague, the noble Lord, Lord Christopher, to my noble friend Lord Brooke of Sutton Mandeville and, modestly, I hope, to the little contribution that I made on a warm early April afternoon when we first discussed this in Committee. We raised it with the Minister, who said that she would go and think about it. She has clearly done so and we should give her a good measure of credit for that.

The proposed new clause which the Minister intends to bring forward in the Government's name is promising. For a start, it is prescriptive as to duty in that the Royal Mail company will have to send a report, which she will have to consider. That report will have to come to Parliament and anyone who has been here for any length of time is aware that that provides a channel for questions, an opportunity for expressions of dissatisfaction and so forth. Yet it does not inhibit the company in the nature and form of what it does, which is the right approach. If we sat there saying, "This is what we will do with the archive and this is the precise specification of the new and successor arrangements", we might live to regret that and not be able to deliver it, so flexibility is desirable.

However, because these things tend to be forgotten-unless I am under a misconception; if so, my noble friend the Minister will no doubt disabuse me-it is also probably right to record that in creating this new duty, which goes beyond the existing obligation of Royal Mail, there will be obligations in relation to the archive and what we call the state process of the business. The opportunity to retain postal material and the obligation to report on what is being done is a new and welcome duty. However, we are substantially talking about a concern, which we should never forget when the ownership of public assets is moving from the public to the private sector either in whole or in part, to impose the right kind of traditions and conditions to ensure that the element of public service is not overlooked and that a great archive's future is adequately secured.

Finally, the Government have been wise in not being too precise on the nature of this by providing, in effect, an ongoing and if necessary contingent liability on successor organisations. I do not particularly mind who owns the archive, provided that it is available publicly as a jewel in the crown and an asset that is on display, that it is adequately resourced and that we may long continue to celebrate it despite the ownership changes which are taking place under the Bill.

Photo of Lord Clarke of Hampstead Lord Clarke of Hampstead Labour

My Lords, first, I thank sincerely the Minister and her team for producing Amendment 54. I am touched by how this has been done, which satisfies to a great extent concerns that have been in my mind ever since privatisation was first mentioned-I think that was in 1970-something. Amendment 55 may appear to be going over the top a bit but any report dealing with sold-off public assets should have some reference in the accounting procedure to the donations received in cash or in kind by the museum, so that people can keep a track of what has come in and what is going out.

Before I sit down, I should say that I have slipped up, as I should have mentioned in an earlier discussion the wonderful GPO film unit, which is another one that seems to have slipped off the edge. Anybody who wants to see how the GPO prepared for the Second World War-for maintaining its services during that period-should go to the archives, where the DVDs are on sale. They really are worth watching. Again, I thank the Minister for her courtesy.

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

My Lords, I also support Amendment 9 in the name of my noble friend Lord Kennedy. It asks that the report should include information about how the name of Royal Mail is to be protected and used by the universal postal service provider. I listened with interest to the noble Lord, Lord Jenkin, when he mentioned the value of the brand. We should remind ourselves that it was not that many years ago that the dreaded Consignia reared its head. Nobody understood why such an appalling name was chosen. It received no public understanding or acclaim, but no doubt the consultancy did quite well out of it. There is a bit of previous in this respect, which is why my noble friend Lord Kennedy was absolutely right to draw this aspect to our attention.

I will deal also with Amendment 54. As others have said, the House will agree that we owe a debt to my noble friends Lord Clarke and Lord Christopher, who deserve enormous credit for persuading the Government to bring forward this amendment, which will require the Post Office to tell us in an annual report how these collections are being looked after. I also pay tribute to the enthusiasm of the noble Lord, Lord Boswell, in his support for this. He made the point about ensuring that the collection is on public display and adequately resourced. While we welcome the amendment, producing a report is not the same as making sure that the heritage is taken care of. However, it will certainly concentrate minds and provide a degree of transparency that was not in the original Bill. Again, I congratulate my noble friends Lord Christopher and Lord Clarke, and the Government for listening to their case, which we welcome.

We also support Amendment 55, which would improve the government amendment by requiring that the report include details of donations, both in money and in kind, from Royal Mail to the British postal museum and the Royal Mail archive. I hope that the Government feel able to take another positive step in this direction by supporting the amendment.

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

My Lords, I will respond to the amendment of the noble Lord, Lord Kennedy, and then move on to Amendment 54 and also respond to Amendment 55 at the same time.

I said in Committee that I fully appreciate the sentiment behind the amendment of the noble Lord, Lord Kennedy, and understand why he seeks reassurance that the Royal Mail name will be preserved. However, the name of the company that delivers the universal postal service should be a commercial decision for that company and its shareholders. As the noble Lord, Lord Kennedy, said in Committee, Royal Mail is a great brand name. My noble friends Lord Jenkin of Roding and Lord Boswell have agreed. The commercial reality is that any owner will see this name as an asset. It is instantly recognisable in the United Kingdom in relation to the provision of the universal postal service. As a brand it is up there with Coca-Cola and McDonald's-brands and goods that your Lordships might not necessarily purchase but will no doubt recognise.

I have heard what has been said about companies doing daft things. I agree that this can happen, but it is very rare for any company completely to abandon its leading brand. For example, there has been much discussion of the decision by the Post Office Corporation in 2001 to change its name to Consignia once its operations were transferred to a public limited company. With hindsight, all involved-Parliament and the general public-saw this as a poor decision. However, even in this situation the brand name Royal Mail was not abandoned, nor was Parcelforce or the Post Office. These brand names continued to be used in all customer-facing operations, regardless of the name of the top company. A similar example is Centrica's continued use of the brand name British Gas. To all intents and purposes, the public-facing side of the business in the United Kingdom is British Gas. This can be seen in its advertisements in newspapers and on television. I have listened carefully to the points raised in the debate today but I am not persuaded that it is necessary to include in primary legislation a requirement for a company to be called a particular name after a privatisation. This would not be good use of the legislative process.

I turn now to Amendments 54 and 55. The noble Lords, Lord Clarke and Lord Christopher, tabled amendments in Committee about the preservation of the Royal Mail archive and museum collection once there has been a disposal of shares in the company. My noble friends Lords Brooke and Lord Boswell also spoke eloquently in support of these important issues. In response to those amendments, I explained that it was not appropriate for the Bill to place duties on a Royal Mail company that would be in excess of duties placed on publicly owned companies, and that I fully expected Royal Mail-regardless of its future ownership structure-to continue to recognise the importance of its heritage as part of its commercial brand. I also said that a privatised Royal Mail should be proud of its history and use it to its advantage in an open and transparent way.

The intention behind Amendment 54 is to ensure that Royal Mail must be open and transparent about its activities with regard to the archive and the museum. It will not be able to shuffle them off into a dark corner. It requires Royal Mail to report to the Secretary of State annually on its activities. The Secretary of State will be required to lay this report before Parliament. We recognise that Post Office Ltd, while separate from Royal Mail, will have something to contribute to the report. This is why the amendment also requires Royal Mail to consult with Post Office Ltd when preparing the report.

Photo of Lord Brooke of Sutton Mandeville Lord Brooke of Sutton Mandeville Conservative 6:45 pm, 4th May 2011

The following line is not totally transparent:

"Before preparing the report, the company must consult any Post Office company".

Consultation can take a wide variety of forms. Could the Minister give your Lordships' House some idea of what kind of consultation she envisages?

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

I will get a note and come back to that. I will continue with my point for the moment. Amendment 55, tabled by the noble Lords, Lord Clarke and Lord Christopher, would amend Amendment 54 to require the Royal Mail company's report to include details of financial support, both in cash and in kind, for the museum collection and its archive. In tabling Amendment 54 we have not been prescriptive about what should or should not be included in the report. As I have said, we fully expect a Royal Mail company to continue to recognise the importance of its heritage. How it chooses to support the museum and archive will be a matter for the company. However, any support that it gives to the museum and archive will be an intrinsic part of its activities, and it follows that the report will include these details. It is not, therefore, necessary specifically to include this requirement in the new clause.

The Government want to see the heritage of Royal Mail preserved. Amendment 54 provides the right balance and places a sufficient spotlight on Royal Mail's activities to ensure that the Government and Parliament have the opportunity to scrutinise those activities, and for Royal Mail to demonstrate its ongoing commitment to its heritage. I hope that your Lordships will be able to support Amendment 54. I ask the noble Lords, in view of the reassurances that I have given, kindly to withdraw Amendment 9 and not to move Amendment 55.

Photo of Lord Kennedy of Southwark Lord Kennedy of Southwark Labour

My Lords, I thank all noble Lords who have spoken in the debate. I also thank the Minister for her response, although it was disappointing. My amendment does not seek to affect the disposal of Royal Mail; it merely seeks to protect the name. I will not press the amendment to a vote, but the Government have taken an unnecessary and risky decision. I hope that they are right, but if they are proved to be wrong a tragedy will result which could so easily have been avoided. I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

Amendments 10 to 14 not moved.

Amendment 15

Moved by Lord Rogan

15: Clause 2, page 2, line 19, at end insert-

"( ) The Secretary of State shall submit a report to the Scottish Parliament, the National Assembly for Wales and the Northern Ireland Assembly setting out the impact of the proposals in Scotland, Wales and Northern Ireland respectively, including the effect on post offices, small and medium-sized businesses, rural communities, pensioners and people with disabilities."

Photo of Lord Rogan Lord Rogan UUP

My Lords, I wish to move Amendment 15 standing in my name and that of the noble Lord, Lord Laird. This amendment seeks to ensure that there is adequate consultation with the devolved Governments, small and medium-sized businesses, rural communities, pensioners and people with disabilities prior to the disposal of shares in Royal Mail. In light of the news I read this morning that 9,000 post offices could close under the current proposals, this amendment seems all the more important and pertinent.

As the Bill progressed through the House, noble Lords from Scotland, Wales and Northern Ireland have been keen to ensure that it protects the current level of postal services in those nations. We have sought, and received assurances from the Minister, that consultation will take place with service-user groups prior to any changes being made to the universal service obligation. This is most welcome. I now ask the Minister to ensure that that same sensible process is undertaken for largely the same reasons prior to the disposal of shares in Royal Mail.

In Committee, the Minister referred to Sections 3 and 7 of the Communications Act, which gives Ofcom a duty to have regard to a specified range of groups when carrying out any of its functions. In particular, Ofcom must have regard to the needs of four user groups: persons with disabilities; the elderly; those on low incomes; and the devolved Administrations. This amendment refers to matters that I believe fall outside Sections 3 and 7. It relates to the need for consultation to take place with the devolved Administrations as soon as is practical after the Minister has taken the decision to dispose of shares in Royal Mail.

I am somewhat bemused that Clause 2 does not already contain this provision. Noble Lords on all sides of the House have been keen to ensure that this privatisation does not result in services being cut back in remote rural areas. I believe that noble Lords are equally keen to ensure that what we broadly call "vulnerable service users" do not see their postal services denuded. Let us be clear: this legislation is not without controversy. I believe that it will benefit from a far greater sense of legitimacy if Ministers are able to report on their intentions to the devolved Administrations and key service user groups as the Government undertake a share disposal in Royal Mail.

The postal services are not devolved matters for logical reasons, as my noble friend Lord Empey so eloquently put it in a previous debate. Royal Mail is a part of our national infrastructure which is highly valued by the British public. I would not want to see the type and quality of postal services that we receive differ from one area of the United Kingdom to the next. It is precisely because this is not a devolved matter that I believe the Government must go that extra mile and ensure that their intentions in respect of privatisation are communicated to the devolved Administrations.

As many noble Lords have explained in Committee, small businesses in Scotland, Wales and Northern Ireland are particularly reliant on Royal Mail services and it would seem sensible that this user group is consulted prior to disposal, particularly in the current economic climate. Other key service user groups, such as people living in rural communities, pensioners and disabled people in the devolved Administrations could be affected by the sale of Royal Mail, and as a result deserve to be consulted prior to Royal Mail moving from the public to the private sector.

This amendment, and others similar to it, that were moved during Committee reflect deeper concerns about the impact that privatisation of Royal Mail will have on services in our communities, particularly in rural areas of Scotland, Wales and Northern Ireland. Noble Lords set out in Committee a number of worries they have about the lack of a commitment from the Government to use this Bill to ensure that postal services are continued at a level users currently enjoy, and that no one user group is impacted on negatively.

We are equally concerned that plans to privatise Royal Mail will be forced on the devolved areas without a meaningful consultation with the devolved Administrations. There is real concern about the consequences of Royal Mail privatisation on service users in Scotland, Wales and Northern Ireland. Failure to consult specifically in these areas will lessen the credibility and legitimacy of the privatisation-a potential problem that is easily rectified by Ministers agreeing to the terms of this amendment.

I trust that your Lordships will be able to support this well intentioned amendment, which aims to increase the legitimacy of this legislation and ensure that the Government's plan to privatise is fully communicated through the proper channels to those who most rely on Royal Mail services.

Photo of Lord Low of Dalston Lord Low of Dalston Crossbench

My Lords, I apologise to the House for missing my cue at the beginning of this group but I should like to speak briefly to my Amendment 14, which is in this group. It seeks to ensure that service-user groups are consulted before Royal Mail is sold off and would require the Secretary of State to bring a report to Parliament setting out how the universal service provider will maintain the minimum requirements contained in the universal postal service obligation. Before I do that, I want to say a word about the debate we had on this issue on the second day in Committee on 14 March. In that debate, the noble Lord, Lord Razzall-I am not sure whether he is in his place today-whom the Minister described as having all the subtlety of an air raid, said:

"If we are to preserve the reputation of this House for knowing the facts and having expertise, we really must not say things that are not true ... I said earlier, it is more expensive for the Royal Mail to deliver to Norwood Green or Hampstead than to maintain the service to the Orkneys and Shetland ... if we are to be the serious House that knows the facts, we should take that on board".-[Hansard, 14/3/11; cols. 113-14.]

Having a concern for the truth which is at least as great as that of the noble Lord, Lord Razzall, I undertook to follow up the matter and come back to it on Report, if it was necessary to set the record straight. The Minister helpfully sent us a note on the subject and I have also taken the matter up with the Royal Mail. From this it appears that the cost of delivering the universal service in urban areas other than London is approximately 11 per cent lower per postal item than the average cost across the country as a whole. The cost of delivering the universal service in rural areas is approximately 11 per cent higher per postal item than the average cost across the country as a whole. However, the cost of delivering the universal service in London is an anomaly at approximately 10 per cent higher per postal item than the average cost across the country as a whole, largely due to higher wage rates in London.

From this it is apparent that the cost of delivering to London and rural areas is roughly the same and far higher than the cost of delivering to other urban and suburban areas. Royal Mail comments that, other than in London, delivery of an item to an urban area is on average 22 per cent less costly than delivery to a rural area. I reiterate that the claim of the noble Lord, Lord Razzall, that it is more expensive to deliver to Hampstead and Norwood Green than to Shetland and the Orkneys is not quite correct. I have actually toned down what Royal Mail said. As Shetland and the Orkneys are more remote than the average rural area, delivery costs substantially more per item than it does in London-more than double. It is not clear where the noble Lord was getting his figures from. He was probably comparing wage rates that are higher in London; and he was probably not comparing like with like. Myriad other costs are involved in delivering to places such as Shetland and the Orkneys. I hope that that is now clear and that we can put that matter behind us.

Amendment 14 would oblige the Secretary of State to consult service-user groups before Royal Mail was sold off, and would require him to lay a report before Parliament setting out how the universal service provider will maintain the minimum requirements in the universal postal service obligation. Among user groups that it would be appropriate to consult, the amendment instances small businesses, pensioners, people with disabilities and people in rural and remote areas. However, as was said in the debate on Amendment 24N in Committee, I am sure that the list is not exhaustive.

Amendment 14 is a re-run of Amendment 16, debated in Committee on 14 March. On that occasion, I described in detail why it was important to consult all those groups and I do not propose to do that again. However, when withdrawing my amendment in Committee, I said:

"The Delegated Powers and Regulatory Reform Committee has pointed out that the Secretary of State has a power"- under Clause 33(5)-

"to alter the minimum requirements of the universal postal service. Without following the conclusions of the Ofcom review, this is, as the committee pointed out, a significant power for the Secretary of State to have. It would not be unreasonable for the Secretary of State to be obliged to consult the groups that we have mentioned in the amendment before having the opportunity to exercise that power".-[Hansard, 14/3/11; col. 122.]

I said that I would read the record carefully and I have noted the words of the noble Baroness in her response to a similar amendment, then Amendment 24N, requiring Ofcom to consult an identical range of user interests when conducting a review of the minimum requirements contained in the universal postal service obligation. The noble Viscount, Lord Tenby, kindly moved that amendment for me in Committee on 6 April, when I was out of the country. At col. 1785, the noble Baroness said that the Bill should be read alongside Section 3 of the Communications Act 2003, which already requires Ofcom to have regard to a similar range of groups when carrying out any of its functions.

Looking again at the remarks of the noble Baroness in response to concerns voiced in Committee by the noble Baroness, Lady Kramer, on 14 March at cols. 119-120, I detected an assurance that when performing its duties under the Bill, Ofcom's general duties in the Communications Act 2003 would apply. If she can confirm this, and that Ofcom will have to report annually to the Secretary of State on its activities, including those in relation to provision of the universal service, and that the Secretary of State is required to lay that report before each House of Parliament, it may be possible not to move my amendment.

Photo of Lord Empey Lord Empey UUP 7:00 pm, 4th May 2011

My Lords, I should like to speak briefly. I am sure that the Minister in her response will argue that the amendment is not required because the main purpose of the Bill is to ensure the survival of the universal service obligation. However, the amendment indicates the level of concern in rural and remote areas that somehow, once the service is passed into the hands of the private sector, other things may happen. I hope that the Minister will again attempt to allay those concerns, which I know are real.

I said in my previous remarks in this House that many people regard the Royal Mail as a piece of national infrastructure. It is in that context that people, particularly those in remote areas who are already disadvantaged, fear-perhaps irrationally, but I nevertheless assure the noble Baroness that their fears are genuine-that somehow, despite the intentions of the Bill, things will ultimately change. I hope that that is not the case, but perhaps I may assure her that these concerns are genuine, and I hope that in her response she can give comfort to those of us who have these anxieties.

Photo of Lord Whitty Lord Whitty Labour

My Lords, I support the amendment in the names of the noble Lords, Lord Rogan and Lord Laird. The Minister will be well aware of my past engagement with Consumer Focus, the statutory body for postal services, which operates as separate entities in Scotland, Northern Ireland and Wales. It has become apparent, when assessing the needs of domestic consumers of postal services and post offices, and also those of small businesses in using those services, that there are somewhat different considerations relating to the firm commitment to the network and the universal service, particularly in rural areas and in those countries.

In Northern Ireland, there are particular issues relating to the north and the south, to An Post, and to getting mail across the sea. While preserving the universal service, the body of the post office and the body of Royal Mail as parts of our United Kingdom national infrastructure, it is important that we recognise that any dilution of the service or differential treatment of the parts of the United Kingdom would be particularly detrimental to those countries. It is therefore important that the devolved Administrations are fully involved in any changes.

Perhaps I may gently say to the noble Baroness that it has been obvious that her department in Whitehall has not always been the best when consulting devolved Administrations on a whole range of issues, including this one. The department is getting better, but acceptance of at least the principle of the amendment would be appreciated and would help the Government's approach. It would meet the fears of many businesses and individuals in those countries, particularly in rural areas and small towns.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, I was not going to intervene, but because the noble Lord, Lord Low of Dalston, raised the point I made in Committee, we should put on the record that after the noble Baroness looked into this point she wrote to both of us and said that we were actually both right. As the noble Lord indicated, the cost of delivering items of mail in London is more or less the same as the cost in rural areas, and is significantly greater than the cost in other United Kingdom cities. The point that I was trying to make, obviously inelegantly, was that if I was really worried about what would happen I would worry about London. It is not only that the cost of delivery in London is greater, but London is such a huge element in the costs of Royal Mail, which has huge overheads, any third party looking at the overall cost of the Royal Mail-rather than looking at the Orkneys and Shetland-will have to look at the costs in London. It is Hackney that ought to worry, rather than the Orkneys and Shetland. That was the point I was trying to make.

Photo of Lord Low of Dalston Lord Low of Dalston Crossbench

If it is truth that we are concerned with, as a serious House concerned about its reputation, it is not correct to say that it is more expensive to deliver to Norwood Green and Hampstead than to the Orkneys and Shetland.

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

I hesitate to interfere in what is obviously an important battle of words; perhaps the Minister will take on the mantle of responding to ensure that we have equity at the end of this debate.

I shall speak to the substance of the amendments in the names of the noble Lords, Lord Low and Lord Rogan. The sale of Royal Mail and the separation of the post office network is a momentous event and is bound to cause concern and have genuine repercussions on the universal service and on the post office network, as we have heard and will continue to hear during debates on Report. We are very pleased by the stress that the Government are placing on retaining the universal service. There has not been a sitting in which we have discussed the Bill without that provision being at the heart of the remarks that have been made; we welcome that.

I pay tribute to the noble Lord, Lord Low, whose representations led the then Government to incorporate a service to blind and partially sighted customers into the universal service minimum requirement and to put it in the 2009 Bill. Nine million items a year are sent free of charge through the Articles for the Blind service, and the Bill carries through that decision, a move which will be welcomed on all sides of the House.

That experience illustrates the value of proper consultation to improve results and help people to feel part of the decision rather than the victims of one. It can be argued that there is a general duty on Ofcom to take into account the interests of vulnerable groups, but the amendments would require-just at the time it is needed-proper consultation with user groups, including small business, pensioners, people with disabilities and people in rural areas. People with a disability are more likely to use mail services as a means of communication. Disabled people visit the post office to post mail more than the average. Equally, other groups who I mentioned in that list need to be consulted, and the amendments would ensure that.

The other amendment deals with concerns in those parts of the UK which would be most vulnerable to any reduction in the USO or the post office network. Scotland, Wales and Northern Ireland certainly feel more at risk than other parts of the UK.

I am not sure whether Ministers have had the chance to read the current edition of the London Review of Books and, in particular, the article by James Meek entitled "In the Sorting Office". It is an extremely good tour d'horizon of some of the problems facing modern post services. He spends some time describing his experiences visiting the Netherlands and the operations being carried on there, some of which were mentioned by my noble friend Lord Christopher.

In particular, I draw attention to the points Mr Meek made in the article about when he visited rural parts of the United Kingdom. Muck is a Scottish island two and a half miles south of Skye. The article states:

"There are 12 households on Muck, and they get mail when and if the ferry arrives from Mallaig ... Bad weather can cut the ferries down to one a week in winter. There have also been times-it happened the other day"- when one puts a first-class letter on the early ferry and it reaches London the next morning. So they get a very variable service. The problem is that Muck now has a satellite dish for broadband internet. You can even, if you are lucky, catch a mobile signal in some parts of the island, if the wind is in the right direction-I added that last bit, but it is true.

"Nowadays email's so important for communication that the post is getting less and less important", says one islander:

"I'm afraid the Royal Mail's in a losing battle".

The article goes on to draw something to the wider public's attention which I had not known, which is that Jersey,

"has just announced it is abandoning Saturday deliveries in an attempt to staunch the flow of red on its balance sheet".

I think that Jersey is still a part of the United Kingdom, although it is obviously a separate entity, so we are in danger of some dilution of the USO.

We will return to the question of the USO and how we will protect it. We know that the Government are on our side, but I think that there are measures that might strengthen that protection. The amendments are about consultation to make sure that user groups, including small businesses, pensioners, people with disabilities and people in remote and rural areas, are consulted, and I urge the Government to accept them.

Photo of Baroness Wilcox Baroness Wilcox The Parliamentary Under-Secretary of State for Business, Innovation and Skills 7:15 pm, 4th May 2011

I turn first to Amendment 14. As I said earlier, Ofcom will be required to report annually to the Secretary of State on its activities, including the provision of the universal service, and the Secretary of State is required to lay this report before each House of Parliament.

In performing all its duties-those in this Bill and those in the Communications Act 2003-Ofcom must have regard to various areas and groups as set out in Section 3(4) of the 2003 Act. These include: the needs of persons with disabilities, of the elderly and of those on low incomes; the opinions of consumers in relevant markets and of members of the public generally; and the different interests of persons in the different parts of the United Kingdom, of the different ethnic communities within the United Kingdom and of persons living in rural and in urban areas.

That list covers all the groups set out in the amendment tabled by the noble Lord, Lord Low, and I hope that he will be reassured by that. As I said in Committee, those requirements on the performance of Ofcom's duties will apply to all future regulation of the postal sector. That is far more enduring than a snapshot assessment at the time of a sale.

The noble Lord, Lord Low, mentioned the power in Clause 33 to amend the minimum requirements of the universal service. We will come to that power when we discuss amendments to Part 3, but I know now that the power in Clause 33 is subject to the affirmative procedure.

On Amendment 15 in the name of the noble Lords, Lord Rogan and Lord Laird, to which the noble Lord, Lord Rogan, spoke this evening, I reiterate what I said in response to a similar amendment laid by the noble Lord, Lord Touhig, in Committee. The overarching objective of the Bill is to secure the universal postal service in the United Kingdom. It is about securing a postal service that is available to all in the United Kingdom and delivers to all addresses in the United Kingdom.

As I said in Committee, the Government have already produced an impact assessment on the Bill's proposals. The assessment considered the impact of the proposals on all parts of the United Kingdom, together with the impact on small firms, rural communities and disadvantaged groups.

As I said earlier, Ofcom will report annually on its activities, including ensuring the provision of the universal service throughout the United Kingdom. In addition, we expect Royal Mail to continue to report on its quality of service performance, broken down by postcode area, so that there continues to be transparency about the provision of the universal postal service to all parts of the United Kingdom.

With regard to post offices, the Government recognise the need for accessibility by specific groups. The report by a Post Office company required by Clause 11 must include information about that. Clause 11 also requires that the Secretary of State give a copy of the report to Ministers in the devolved Administrations, as well as, of course, laying the report before this Parliament.

The information that is already in the public domain and that which will be provided as a result of the Bill will provide long-term transparency on the protection of the universal postal service and the accessibility of post offices throughout the UK. Those reports and the activities of the regulator will, as I have explained, take into account the needs of disadvantaged groups and those in rural areas.

I hope that, with these reassurances, the noble Lord will withdraw his amendment.

Photo of Lord Rogan Lord Rogan UUP

My Lords, I thank those Members who have spoken to my amendment. I have listened to the Minister and thank her for her remarks. I beg leave to withdraw the amendment.

Amendment 15 withdrawn.

Clause 3: Employee share scheme

Amendment 16

Moved by Lord Stevenson of Balmacara

16: Clause 3, page 2, line 25, leave out from "reduced" to end of line 35 and insert "from 100%, the proportion of the company owned by or on behalf of the employee share scheme shall be at least 15% of the proportion of the company that is now owned by the Crown"

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

My Lords, the amendments make the case for employee shares being held as a trust and for employees to have a voice on the board in the light of the employee share scheme being established. We agree that that should be in the Bill because we have heard a lot of Ministers' warm words for employees, but we need more assurances.

The benefits of employee share schemes, which were rehearsed to some extent in Committee, are widely recognised. They can include motivating employees to become more productive, helping to align 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 that on their own. They have to be part of a wider approach to good industrial relations. Employee shares will not be welcomed if they are felt to be a sop, to be at the expense of pay or a substitute for the usual channels of interaction between management, unions and staff.

However, given the more generalised benefits of such schemes and the very significant efforts made by current employees to implement the modernisation programme within Royal Mail, it seems appropriate to reward that effort by making available an increased proportion of the company for an employee share scheme. Carole Leslie of the Employee Ownership Association spoke of the benefits of such a scheme in evidence to the Public Bill Committee in another place. She said:

"The benefits for the Royal Mail in considering employee ownership would be giving employees who work in that organisation a real stake in the company, a real interest in delivering an excellent service to the customers and service users, finding ... the right way to solve problems. They look at it not as something that is done to them, but as something they own and have a bit of control and influence over. They also have the information to use that influence wisely. A huge benefit is what I see".-[Official Report, Commons, Postal Services Bill Committee, 9/11/10; col. 76.]

If we accept the principle of employee shares, we are still short of detail. The Government have said that there will be a scheme but they have not said exactly what it will be. Having said that, we welcome two important concessions that the Government have made. First, we have pressed for greater detail about the scheme and are therefore pleased that the Government have brought forward an amendment so that, before the disposal of Royal Mail takes place, there will be a report to Parliament setting out the detail of the proposals for an employee share scheme.

Secondly, in Committee we pointed out that the Bill as it stands requires employee shares to be offered only when the last Crown share in Royal Mail has been sold. We argued the case for a trigger that kicks in when the first shares are sold. I think I heard the Minister suggest that that might indeed be acceptable to the Government, in which case we welcome that as well. However, whenever it is, we think that the Government should make some employee shares available when the first disposal is made.

The amendment proposes that shares should be held in trust for the benefit of employees, as we think that that is the right way to settle this matter. We now understand that this would be difficult for some employees to accept, as they would expect to be able to cash in the shares if they were taking them up, but we do not think that that is the right way forward to build in long-term value in the company. We believe that, for example, on leaving employment, shares held by employees should be disposed of only by way of transfer for consideration through the trust. It is obviously fair that employees who leave employment and leave a scheme should be able to capitalise on their shareholding, particularly if there has been capital growth. That is a scheme incentive. However, to maintain the integrity of the scheme as a whole, the disposals should go back into the scheme.

The amendment also calls for representation on the board for the employee share scheme once it is established. I have already made the arguments in favour of generalised employee representation but I think that they acquire additional merit when it is seen that some 15 per cent, we hope-but certainly 10 per cent under the Government's proposals-of the shares will be available to be held by the employees of Royal Mail. This means that they should as of right have a chance to have a collective voice at the highest level, and we think that that should be stated in the Bill. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, having sat through what I would describe as "Lord Mandelson's Bill" under the previous Government, I am absolutely delighted at the Labour Party's conversion on the road to Damascus regarding their commitment to employee participation here. The noble Baroness would not be surprised if I indicated that, were the Government minded to go from 10 to 15 per cent, I could not be more delighted. However, whether she can persuade the Treasury of that, I have my doubts.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

My Lords, I support my noble friend Lord Stevenson. I do not think that there has been any conversion on the part of the Labour Party. I was an employee when NATS was a PPP. I was an employee share representative acting on behalf of the employees and I was a partnership director. It is true that the employees had 5 per cent of the shares, which is less than what is on offer at the moment, but the Labour Government's policy was to try to develop more employee involvement than there had been in the past. I suspect that, had they stayed the course with the previous Bill, we might have seen the emergence of something like that. There were certainly plenty of private discussions about the possibilities. Indeed, prior to the Bill being presented, some of us had conversations with Royal Mail about the prospects of creating a trust for employee shares, and we tried to be quite innovative in our approach. Some of us identified that one of the major issues facing postal employees was problems over home ownership. If we created employee shares within the company, while those shares would not be on the open market but would be kept within the trust, why could an arrangement not be created whereby the share ownership was offset against support from building societies to assist employees in purchasing or part-purchasing their homes? Royal Mail looked into that at one stage. Therefore, I welcome what the Government are trying to do. Perhaps the Minister, with all her powers of persuasion, can get round the Treasury and convince it that it should move from 10 to 15 per cent.

It has been pointed out to me that this offer is the biggest ever to be made during the course of a privatisation. I believe that if we check the records to see what happened with the bus industry, where deregulation and privatisation took place on a great scale around the country, we will find that many employees and managers had the opportunity to purchase shares in many of the bus companies in the country. Indeed, in some instances, they took them over 100 per cent, some of them also being put into trusts and some into ESOPs. Therefore, I believe that there is a precedent for offering a level of ownership higher than 10 per cent. I suggest that the Minister has a look at the bus industry if she needs some supporting evidence for her arguments in persuading the Treasury to go beyond the 10 per cent offer.

Secondly, I believe that there should be a trust, although I shall not repeat all the arguments that have been made before. There is a natural temptation for some people to get their hands on the shares and perhaps to dispose of them fairly quickly, as we have seen happen in several privatisations, but I believe that a trust provides a means for an employee to be more permanently committed to the company and to the welfare and profitability of the company in the long term. I hope that the Government will come forward with proposals on a trust.

Thirdly, that leads me to the final point made by my noble friend Lord Stevenson concerning representation on the board. I hope that shares will be issued on the basis of equality, regardless of people's grades within the company, so that the managing director will get no more shares than a postal worker. Equally, I hope that, if there are instances in which votes have to take place within the trust, each vote will carry the same weight and value. In particular, an opportunity should be created-probably for the first time; certainly my Government did not do it-for there to be an employee director on the company that would be created under the privatisation proposals to represent the interests of the employees' shares.

This is a chance for the Government to be progressive and to effect some changes in a new way. I see that on 7 June Mr Francis Maude is to speak to a gathering on employee ownership in the Strangers' Dining Room in the other place. Perhaps he will float what the Government have in mind regarding further changes in the nature of ownership within the public service, with a greater push for employees to have a greater stake in the ventures in which they are involved. This could be linked up with what is happening in Royal Mail.

Photo of Lord Brougham and Vaux Lord Brougham and Vaux Deputy Chairman of Committees, Deputy Speaker (Lords)

My Lords, I should have announced that, if this amendment is agreed to, I cannot call Amendment 17 due to pre-emption.

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip) 7:30 pm, 4th May 2011

My Lords, I again say that I am grateful to noble Lords on the opposition Front Bench who agree with us on the establishment of an employee share scheme. I think that we all agree that this is a key feature of the Bill and will help improve employee engagement and the culture of the company.

However, we should not lose sight of the fact that the overriding purpose of the Bill is to safeguard the universal service and secure the future of Royal Mail. A key means of doing that is enabling the introduction of private capital. In a previous debate, the noble Lord, Lord Tunnicliffe, stated that the Government should strike the right balance between employee shares and attracting private capital. He also said that we should learn lessons from previous privatisations. Yet, through their Amendments 16 and 17, noble Lords seem to suggest that we have not gone far enough.

So let me put in context the commitment we are already making through Clause 3. The minimum 10 per cent share requirement in this Bill is the largest statutory employee share scheme of any major privatisation. There is no doubt that it is a meaningful share, but one which, in our judgment, will not harm our ability to attract private capital. As I have said previously, most major privatisations did not even refer to employee shares in their respective Bills. Furthermore, the eventual share schemes in those past privatisations offered generally 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, but I reiterate that we are committed to at least 10 per cent. The noble Lord, Lord Brooke, referred to the bus companies. We of course looked at them, but they were generally very much smaller companies. We consider that a stake of at least 10 per cent already strikes the right balance between a meaningful stake and attracting private capital.

Amendment 16 would also require that the shares be allocated to employees on a pro-rated basis in line with the reduction of the Government's shareholding. The Bill already allows for that and, as the noble Lord, Lord Stevenson, mentioned, the Government have committed to place shares into the scheme simultaneously with the first sale of its shares.

In Amendment 18, noble Lords have sought to specify the design of the scheme such that it is structured as a share trust. As I said during our debate in Committee on a similar amendment in the name of the noble Baroness, Lady Dean-ably spoken to by the noble Lord, Lord Brooke of Alverthorpe, in her absence-an employee share trust certainly has its attractions, particularly its ability to deliver the Government's objective to ensure a long-standing employee stake in Royal Mail. The Minister for Postal Services, too, has been clear that he sees many attractions to establishing such a trust. However, it is important to keep options open on the design of the scheme at this stage. Individual share ownership also has its merits, giving employees a very real sense of ownership through their share certificates.

The design of the scheme will in part depend on the type of sale we undertake. For example, individual share ownership could be appropriate if Royal Mail were floated on a stock market. There are circumstances where it could also make sense to have some combination of a trust and individually held shares. The noble Lord, Lord Tunnicliffe, suggested in our debates in Committee that perhaps some shares could be used for training or bursaries. Again, there could be merits in such ideas. However, until we have reached a firm decision on the form of a transaction, it would be unwise to set in stone the form of the employee share scheme. However, I remind your Lordships that government Amendment 6, which we debated a little while ago and your Lordships accepted, requiring us to give details of the scheme when we put shares into it for the first time, will provide the House with further assurance about its proposed design at the appropriate time.

Finally, Amendment 18 returns to the issue of having an employee representative on the board. As my noble friend said when responding to Amendment 10, while the idea may well have some merits, it is for Royal Mail and its shareholders to determine whether the board should include an employee representative. Thanks to this Bill, Royal Mail's shareholders will of course include its employees in the future.

The future ownership of Royal Mail, by both private investors and its employees, inextricably links them. Within the important boundaries set by Clause 3, the exact size and form of the scheme should therefore be informed by the type of transaction and the circumstances at the time of sale. I ask noble Lords to accept that it is imperative that we keep our options open. I therefore ask them not to press their respective amendments.

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

My Lords, I thank the noble Lord, Lord Razzall, for his support for the amendment, and my noble friend Lord Brooke for sharing again his experience of working in this operation. We can laugh about it even if we cannot always agree on the absolute detail of what the figures mean. My noble friend Lord Brooke said that this was an opportunity for the Government to show themselves to be progressive in these matters, a theme which has run through most of our debate today. I am grateful to have had confirmation that the Government feel that the employee share scheme should be pushed forward and supported. We are pleased to have had confirmation that shares will be available from the first tranche.

The Minister said that the Government were minded to go for a trust but were not quite sure. There will be a point where they have to come down on one side of the fence or the other. We can see the argument for keeping options open-we are not so daft as not to-but what the purchaser is going to get needs to be clear. I would have thought that any purchaser who wanted to put a very large stake into Royal Mail would want to know that it is a well run and productive corporation and will do the job in which they are investing. That must require them to have good employee relationships, and we have argued-I think that the Minister agrees-that there is a case for ensuring that the employees' involvement is proper, appropriate and at the level which will mean that we will get a well run and productive firm.

We have argued for greater than 10 per cent-I got a sense of some support from the noble Lord, Lord Razzall, on that. I do not think that the Minister is minded to go that way and he produced a long list of previous privatisations. But it is the future. Why not boldly go where others have not gone and take it up to 15 per cent, and then reflect on that? However, I shall withdraw the amendment.

Amendment 16 withdrawn.

Amendments 17 and 18 not moved.

Consideration on Report adjourned until not before 8.37 pm.