MR JOHN HUTTON MP

22 OCTOBER 2007

  Q40  Chairman: Secretary of State, I will share with you the letter of March 2007 from the Royal Mail Pension Plan Chair of the Trustee, Jane Newell, which does include a caveat which says, "The Trustee will write later this year in connection with the recently announced Royal Mail consultation on pensions". To be fair, it does say that, but the tone of the letter is overwhelmingly reassuring.

  Mr Hutton: From the Chair of the Trustee?

  Q41  Chairman: Yes. I will share this letter with you. I would take it as meaning, "Your pensions are not going to change much".

  Mr Hutton: Again, I think it might be important to be clear what we are talking about. It may well have been the case, and I need to check this too, that the Chair of the Trustee of the pension scheme was talking about whether there would be any need for scheme regulations as a result of any changes to the fundamental package of the pension offer that the Royal Mail were providing to their staff. I have met the Chair of the Trustee and she said to me that she still was not clear whether, even taking into account the changes that were being proposed, that would necessitate a change in the scheme regulations. This is a matter for the Trustee to reflect on and I do not have that letter in front of me so I do not want to argue the toss about that; I am not in a position to do that. I do not think it is a matter of dispute, Chairman, that on 8 February the Royal Mail management themselves said that they were looking at pension reform and would be bringing forward proposals in that regard. I really do not think that is a matter of dispute and I can set out the details of the 8 February announcement, if you like, in due course. The second point that Roger made, and I think this is more fundamental, with respect, is this question about trust. The organisation is facing some very aggressive competition, I should welcome that competition; it is the best way to drive up innovation and service improvement. I welcome that and I think the Royal Mail does too; it should do, but if it is going to really thrive in this more competitive market place a fundamental pre-condition for that will be that everyone in the organisation shares the challenge and they trust each other to deliver it. Of course, it is going to be much harder to make these changes if there is an absence of trust in the organisation. Trust might well have been affected by all of these debates and problems in the last few months and the industrial action; it is fairly clear it probably has, but the focus now, I would respectfully suggest, now I think we are closer to getting this agreement ratified, is to try if we can to put that behind us and focus on the challenge ahead because it is a big challenge. If we go on raking over the coals then I do not think the organisation is going to be best placed to rise to the challenge it faces from its competitors.

  Q42  Roger Berry: Yes, everyone, I think, hopes the matter is now resolved. The sad thing about select committees is that we exist to rake over the coals. My points about perceptions and management style and so forth have been made; they are on the record. They are issues that clearly do need to be addressed, as you rightly say, because at the end of the day an organisation will only thrive if there is trust between management and the workforce and that is critical.

  Mr Hutton: Very quickly, Chairman, before you move on to something else, there is the opportunity in the agreement for people to build, hopefully, a stronger basis of trust going forward. One of the working groups that will be set up post the agreement, if it is ratified, will be to look at future industrial relations within the Royal Mail. Clearly that needs to be done and I think that is going to be very welcome.

  Q43  Mr Weir: I am very glad to hear that because one of the things that seemed to happen during the dispute was that some of the statements from management were almost throwing petrol on the flames; it appeared like that to outsiders. Do you believe the tone adopted by Royal Mail management was helpful during the dispute? You have just said that there will be a working group looking at this. Do you think that Royal Mail management have to perhaps look more closely at what they are saying to their workforce when they are in negotiation or dispute, given what has happened here?

  Mr Hutton: Do you have any specific examples for me to consider about throwing petrol on the fire?

  Mr Weir: I remember the case when Adam Crozier made a statement about workmen, and I cannot remember the exact words, which I believe led to some wildcat strikes.

  Chairman: Can I just come in? There was a sense for me, and perhaps it was just my impression and I formed it wrongly, that in some sense management was trying to demonise the union for practices that had been freely offered by management a few years earlier, or in some cases even insisted upon, for example, flexibility in sorting centres. The basic jobs of sorting, delivering and driving, they used to enjoy mixing and matching them. In the early nineties the then management took that away and said, "We insist you are one or the other", and then there was a sense that they were being blamed by current management for saying, "But that's what you said we had to do 15 years ago". It is that sense of workers being demonised for practices management either freely offered or insisted on in the past.

  Q44  Mr Weir: And referring to the Spanish practices, I think, that there were at the time and being unable to come up with a list of the 92 that they claimed went on in the Royal Mail.

  Mr Hutton: I have not seen any statement made by Royal Mail management that demonises the staff at the Royal Mail. If you feel that there are statements that demonise staff at the Royal Mail I would very much like to see them. I think what management was trying to do was point out the need for change in the union position.

  Q45  Chairman: But they got it wrong in the past. They should have said, "We should not have offered you that and we need to change it", not, "It is your fault for doing it". It should have been, "Sorry".

  Mr Hutton: I personally have a lot of sympathy with that particular point of view.

  Chairman: There is a letter I have got here from July 2003. I do not see many letters from Mr Leighton to his staff, but Roger rather kindly referred to it as his inimical style, and it almost literally begins, "I got into trouble last time for writing to you direct ... telling it straight. Well tough, that's how we do things around here now". I just do not think that is the way a grown-up writes to a workforce, frankly. That is four years ago, to be fair.

  Q46  Roger Berry: Not unless it has had the desired effect.

  Mr Hutton: Chairman, Allan Leighton is the Chairman of Royal Mail. He is clearly free to write to staff in whatever terms he wants to, but, of course, there are consequences if the style and tone misfire. I do not personally feel that if that is the limit of the quotation that can reasonably be described as demonising Royal Mail staff, with great respect.

  Q47  Chairman: It just all adds up to a picture that is slowly emerging of the attitude to the way industrial relations are conducted.

  Mr Hutton: Look: he has to put the argument in the way he thinks is best. That is his job as Chairman.

  Q48  Chairman: It clearly was not best. They had a big dispute.

  Mr Hutton: Yes, but I doubt personally whether the dispute really was down to those two sentences in a letter of July 2003.

  Chairman: No. To be fair, I do not think that is right as well.

  Q49  Mr Wright: What I want to say on this particular point is that where we were talking about pouring petrol on the flames was when Royal Mail provided the Daily Telegraph with a list of 12 of the 92 Spanish practices in the middle of a dispute. To supply the newspaper in the middle of negotiations with some of the details of the negotiations that were going on I think was certainly unhelpful at that particular time. I just think that sort of thing would not be helpful in any dispute, however long it had gone on, and would certainly be saying, "These are the outdated customs and practices", albeit they were customs and practices that no doubt were negotiated and were given freely at that particular time. I believe that if they want to make these changes it should be through negotiations on a one-to-one basis and not through a third party, especially through the media. In that particular case it did not help them out, and okay, it was probably at the beginning of October, but I think at that particular time it was more sensitive than anything. Obviously, I am very pleased that the matter has been resolved now but I really do not think what we should be party to is using the power of the media, if you like, to say, if we want to demonise or put it clearly, "These are the working practices". To be perfectly honest, these should have been negotiations behind closed doors between the union and the management to say, "These are the issues that we need to address", and not put the details out to the general public and say, "Look: this is Royal Mail. This is what we are defending here". That was not the way to do it.

  Mr Hutton: You might be right, but maybe it was not just the Royal Mail that was trying to get out into the public consciousness what the dispute was about. I do not think you can say it was just the Royal Mail management that were trying to communicate to the public about what this dispute was about. The Communication Workers' Union were doing so as well and I have to say from my perspective I did not feel that it was inappropriate for the Royal Mail to make those comments. I do not feel it was inappropriate for the Communication Workers' Union to stand up and say, "Look: this is what we think the dispute is about and this is what we are fighting for". I think it is very unlikely that a dispute that has gone for as long as this, and for several months involving quite extensive industrial action, was ever going to remain an entirely secret process which the public were going to be excluded from. The public had every right to know, if I am being honest, what this dispute was about. Of course, you can argue about the impact on the negotiations and so on, but I think if you were to look at the events, when did things actually start to come together and reach an agreement? It was from the early part of October when you are describing the Royal Mail's intervention as being profoundly unhelpful. I would just respectfully say that it was not just one side that was trying to get its point across to the public.

  Chairman: I want to move on to the future, which is also very important.

  Q50  Mr Bone: I am glad, Chairman, we have got to the bottom of this matter. It is obviously all the fault of the European Union because it is Spanish practices. Seriously, you have heard the criticisms from Mr Berry, Mr Weir and Mr Wright about the management. When the dispute is finally signed and sealed are you going to call the management in and say, "You landed me with a complete disaster. You embarrassed the Government. You made us look incompetent, you made us look as if we could not run our own postal service. You have got to do a lot better or you are fired"? Are you going to say that to them or are you going to just do nothing?

  Mr Hutton: The business has got to do much better and that is the responsibility ultimately of management. Of course, there will be consequences for the management team if the business does not improve. We have made significant amounts of investment available on commercial terms, predicated on the assumption that there is a proper return, and management ultimately holds the buck. If the taxpayer is not getting a proper deal then, of course, there will be a need for change in the Royal Mail, but I am not going to sit here today, Chairman, and negotiate over senior management's jobs in the Royal Mail. I am not going to get involved in personalities or in anything specific because I think would be quite improper at this point.

  Q51  Mr Bone: But you must be concerned. As a government minister you cannot be happy with the Royal Mail going on strike.

  Mr Hutton: No, I am not.

  Q52  Mr Bone: You must be concerned. Something went wrong and you have got to—

  Mr Hutton: Of course.

  Mr Binley: Just very quickly on this point, I am sorry that you have been hammered, and I think you have been hammered unfairly because it is not your fault, quite frankly.

  Mr Bone: Oh, I do not know.

  Mr Binley: No, I do not think it is. The Secretary of State has only been in the job for a very short time and the management have been there for quite a long time. There is no doubt, talking to my postal workers, that they feel that the way they have been spoken to over a lengthy period of time is totally unacceptable. I am a businessman. I have been around for a very long time in business. When a postal worker said, "This is not a fair-minded businessman. It is a business bully we are dealing with", I have to take some note. I recognise you cannot negotiate in this meeting but at some stage somebody has to tell the man that style is important in terms of industrial relations and I wonder if you might think about doing that, and I do not expect an answer, but for the good of our Post Office you need to.

  Q53  Chairman: You can take that as rhetorical if you like. Secretary of State.

  Mr Hutton: I think I do need to respond to one point that Brian is making. I do not accept the criticism that the Royal Mail has acted like a bully boy in this case; I do not. I think they started negotiations in March and negotiations lasted a very considerable period of time. The fact that they did not reach an agreement I think cannot fairly or exclusively be laid at the door of management. I just think that is an unreasonable analysis. I think it is a flawed analysis and I think it does not take into account the complexity of the package of changes that the management were trying to get through the business in a short period of time to meet the challenge of competition as they see it. Yes, people can do things better. Are there lessons to learn? I am sure there are, and that is why one of the things that will be done jointly between management and union is looking forward at how industrial relations should be done in the Royal Mail. I welcome that. I think that is necessary. You cannot go through this type of experience in a company and think that everything is fine. Things are not fine in the Royal Mail, that is palpably obvious, and I think what both union and management must do, because there are two sides to this and the two of them have to work together, is find a sensible way to put this behind them and get on with the job. I do believe that there are grounds for optimism for the Royal Mail but they are going to have to pull their finger out, all of them, and try and respond to the challenge of a changing market place if the taxpayer is going to be confident that it is ever going to get a return on the huge investment that we have put into this organisation.

  Q54  Mr Hoyle: You have given us a lot of reassurances. Can you give us another reassurance; that we are going to retain the ownership of the Royal Mail?

  Mr Hutton: We are not looking at the issue of ownership.

  Chairman: What I will do is interrupt there and ask Tony Wright to ask his question. It may flow from those points.

  Q55  Mr Wright: In respect of the dispute we know that it will do some damage. People will look for other deliverers and the service that they provide. Have you made any assessment of the damage to Royal Mail's reputation and future prospects?

  Mr Hutton: We have not made a quantitative analysis of that. I think it would be quite difficult to do there. There is no doubt at all that there has been economic damage done to the Royal Mail. I think we will probably all only understand the damage over the next few weeks and months. Will it have lost some customers? I think pretty certainly it has done, business customers in particular, and it is going to have to work flat out to restore its reputation which has been pretty badly tarnished by this whole sorry state of affairs.

  Q56  Mr Wright: You mentioned earlier setting up a working party to look at this. Will part of that working party look at examining the plans for the future of the Royal Mail?

  Mr Hutton: The working party that I referred to, we are not setting up. The Union and the Royal Mail management are setting it up. This is something that has been encompassed within the terms of this agreement that has recently been ratified by the Executive. There is commitment in my party's manifesto to do during this Parliament a review of the liberalisation rules as they affect postal services and I think we will now need to reflect on how quickly we can get that review under way now that, hopefully, the industrial dispute is over. I think it would be wrong to have done this during the dispute; I think it might have created certain tensions which we could have done without, but I think we should now consider very quickly how we can proceed with this. Just going back to the point about Europe, because I know Peter made it, I would have thought in this case and in this sector you would be celebrating the contribution that the European Union has made because it has been through pressure in Europe that we have now got to a situation where across the European Union we will have a proper liberalised market for postal services, and it will be happening.

  Q57  Mr Bone: I actually said that there have been a number of colleagues appalled at liberalisation—

  Mr Hutton: There has been, yes, but we have got agreement now, and I think you cannot possibly say—

  Q58  Mr Hoyle: Why did we liberalise in front of Europe?

  Mr Hutton: Exactly.

  Q59  Chairman: Can we come back to Lindsay's question? Privatisation of the Royal Mail—on or off the agenda?

  Mr Hutton: It is not on the agenda. We are not looking at that at the moment.