Royal Mail

Peter Luff (Mid-Worcestershire) (Con): It is a pleasure to follow the right hon. Member for Leicester, West (Ms Hewitt), who made a characteristically thoughtful and well informed contribution, which was marred only by one brief lapse into partisanship; although I speak as Chair of the Select Committee on Business and Enterprise, I hope I speak for the whole House when I say that we all support the universal service obligation.

My Committee is in the middle of two relevant inquiries into this subject. One deals with the Hooper review and mail services—we are having a further evidence session next week with Royal Mail and Postcomm—and the other one, to which the Minister referred in his opening remarks, deals with the future of the post office network. I urge hon. Members from all parts of the House to give us their views about the options for sustaining the future of that network. All this means that my hands are a bit tied in this debate—I have no reports from my Committee on which to rely, so I must be slightly restrained in the expression of some of my views.

It is important to acknowledge, as this debate has, the huge range of problems facing Royal Mail in particular, as opposed to Post Office Ltd. They include: poor industrial relations; the growth of electronic communications and the recession, which together mean declining mail volumes in the UK—those volumes declined by 2.5 per cent. last year and are projected to decline by 4.5 per cent. this year and by 8 per cent. next year; and a failure to invest over at least two decades—my argument with the Government amendment is that it singles out the Conservative party for attack, but this Government also bear some responsibility for the failure to invest—which needs to be addressed now.

Further problems include: a very rapid growth in competition for business bulk mail—it has perhaps been more rapid than Postcomm recognised, although it has not surprised me; serious doubts about the effectiveness of the regulator, which, let us not forget, thought, during the recent price review, that mail volumes would grow; conflict between the twin regulatory objectives of the universal service obligation and competition—I welcome the fact that the Government amendment talks about the USO in such clear terms, because that gives guidance to the new regulator; a massive pension deficit, to which reference has been regularly made; and problems, which have not been mentioned today, over pricing of the competitors’ access headroom arrangements—the so-called final mile. If I had the time, I would explain to the House how that actively disincentivises efficiency gains by Royal Mail group.

Of course, that leads to the most urgent need, which is for capital and expertise in order for the organisation to modernise and compete. I think that all in this House
accept—I hope we do—the Hooper review’s principal conclusion that the status quo is not tenable. That brings us to the three crucial issues in the review—pensions, the partner and Postcomm. There is a vital fourth one—the need to secure better industrial relations in the company. I shall not talk about it today, but it is an overriding issue that must be taken into consideration.

I have reservations about the proposed merger of Postcomm with Ofcom, but I accept the logic and it is probably the right thing to do. The Committee will look at the merger carefully, because there is a serious risk of regulatory overload on Ofcom. It is already charged with the complex issue of telecommunications regulation, although in Europe most regulators share postal services and telecommunications responsibilities. Ofcom also has the whole broadcasting arena to deal with, which often takes up a lot of time. Jonathan Ross can trump some important strategic issues concerning how the other aspects of Ofcom’s work should be regulated.

The Government have a problem with regulators generally. They tend to describe regulators as independent and delegate too many policy decisions to them. The regulators must be economic regulators, and the Government must set the policy framework, which is why I welcome the statement about the universal service obligation in the Government’s amendment. We must be clear that Ofcom, when it becomes the postal services regulator, should not be required to take too many public policy decisions, which should be the preserve of Ministers.

Broadly speaking, the regulatory aspects will not be too controversial. The pension deficit, however, raises more difficult questions. The Government want to enter into a hugely expensive commitment, which will be a huge commitment for the taxpayer in the long term. I am trying to get to the bottom of why the pension problem is so bad for Royal Mail group. I suspect that the real explanation is that it is an exemplar of the bigger, hidden problems throughout the public sector. Because Royal Mail is a trading company and has to be transparent about its pension fund, it has to explain the issues with it, but I suspect that similar issues lurk all over the public sector and Royal Mail’s problems are not that unusual. Of course, any transfer of the pension deficit to the Exchequer will be subject to EU state aid scrutiny. The precedents are reasonably encouraging—there are different pension arrangements in France, but when La Poste transferred its pension deficit to the state, it did receive clearance, albeit in slightly different circumstances. One very important point about the transfer of the pension deficit is that any settlement must be reflected in the price paid by a new partner or partners for a stake in the company free from that debt.

I turn now to the crucial question of the partner. Is it just a matter of ideology—public good, private bad? I confess that my preference is for commercial activity to be undertaken by the private sector, but hard questions have to be asked. If the strategic partner is an existing mail operator, is the loss of competition in the market a price worth paying? Does the doctrine of unripe time apply? It does not seem an especially good time to hand over capital raising to the private sector. By the way, if a 30 per cent. private stake in RBS means that it is a private company, how does a 30 per cent. private stake in Royal Mail make it a public one? I have some intellectual difficulty with that.

Hooper says that a partner is needed for three reasons—capital, expertise and political stability. The Committee will need evidence for that claim, and especially for why all three objectives can be delivered only by the one mechanism of introducing a private sector partner. On the first—capital—the state is providing capital at present and we have discussed that with the Minister. It is provided on commercial terms, as it has to be, but—as he explained—it has not had EU state aid clearance yet. Big questions would be asked about any further applications for capital from Royal Mail group, and they might not receive favourable answers.

The second reason is expertise. I thought that Allan Leighton and Adam Crozier were brought in to provide expertise. The right hon. Member for Leicester, West (Ms Hewitt) suggested that expertise was needed throughout the organisation, and that may be the explanation. In the past, the Government have sought to address the expertise question by bringing it in from the private sector.

On political stability, I understand the point that having an arrangement with a private sector partner locks the Treasury into a new, fairer way of treating Royal Mail. Richard Hooper made a great deal of that point in giving evidence to the Committee a few weeks ago. But is there another way of achieving that political stability, which the company clearly needs and has not had for far too long?

My instincts are with Hooper, but I understand the concerns that have been expressed. The Government have to produce compelling, evidence-based reasons for the approach. Royal Mail will be an attractive business without a pension deficit, with a more intelligent regulator—people are critical of Postcomm—and with the USO to give it market dominance. So if it is a bad time to raise capital, it is also a bad time to price an asset such as Royal Mail when it is freed from all its obligations in this new world. I hope that the price will at least include an earn-out over several years, to ensure that the taxpayer’s interests are properly looked after. On a happier note, however, we must not forget that a 70 per cent. holding should still mean a flow of dividends back to the Treasury for a very long time.

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