| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Lord De Mauley: My Lords, I thank and congratulate the noble Lord, Lord Clarke of Hampstead, for initiating this timely debate, which follows the House of Commons Trade and Industry Committee report on Royal Mail after liberalisation. I pay tribute to the management and work force of Royal Mail, who work hard in a difficult industry to provide a service to every citizen of our country. We are not easy to satisfy, and their contributions should not be underestimated. Together they are to be congratulated on, among other achievements, the Mail Centre Efficiency Initiative and on a recent dramatic improvement in industrial relations.
However, Royal Mail faces a uniquely difficult period. Liberalisation of its market is being forced on it at a time when it is in almost the direst financial situation imaginable. On a net asset base of about £2 billion, it estimates that it has a deficit on its pension fund, according to the committee's report, of £4 billion, or about £70 for every member of our country's population, and that it needs more than £2 billion to modernise its infrastructure to enable it to face its post-liberalisation competitors. Will the Minister give us the Government's views on the estimate regarding the investment required in infrastructure by management, and can he explain the Government's own plans regarding the funding for that?
As for the pension fund deficit, I mentioned a figure of £4 billion, which was given by Royal Mail's management in evidence to the committee. However, at 31 March 2003, the deficit had been reported as £2.5 billion. Could the Minister explain how such a huge difference arose, incurred over a relatively short period, which it is hard to believe happened only because of a change of accounting standard? Given that it is hard to imagine that management will be able without the shareholders' support to develop a viable plan to eliminate that deficit and to fund the capital investment required, could he also explain the Government's plans on that? We note that dividends have been waived since 1999. It would be interesting to know from the Treasury's perspective to what extent the dividends waived have been replaced by the additional annual tax revenue from the pension fund following removal of ACT for pensions.
12 Jan 2006 : Column 309
Royal Mail made a loss on operations of £110 million last year. Although it is apparent that this is being turned around, the committee's report refers to suggestions that price control be reopened as a way of increasing profit, to help tackle the pension fund deficit. In that this would presumably mean an increase in the price of a postage stamp, would it not represent commercial suicide in view of liberalisation, which would simply lead to a loss of business to competitors, exacerbated by falling volumes? The current annual funding of £150 million provided by Government is due to end in 2008. What are the Government's intentions to fill that particular gap?
We are told there is evidence that the approach of liberalisation created an incentive for efficiencies and improvements in quality of service. Doubtless this is true, but surely suggesting that the value of such improvements in the short term will make a material impression on the mountain of funding required to put the business on a sound footing is just a trifle optimistic. The Government's plan appears to be to resolve the current funding crisis over a period of many years out of retained profits, by which time a good number of the employees will presumably be expecting to draw their pensions. Furthermore, competitors will have reaped the advantage that Royal Mail's antiquated sorting technology has given them. In short, it will be too little, too late.
The final elimination of Royal Mail's monopoly for packages under 50 grams in weight apparently took place at the start of this month, three years earlier than required by the EU directive, as the noble Lord, Lord Clarke, has mentioned. The committee was rightly sceptical about the reasons, saying:
"we regard Postcomm's choice of dates for the move to full liberalisation in the UK postal services market to be an untimely one".
We are told that business post is subsidising private post to the tune of 8p for second-class post and 5p for first-class post. Given that a high proportion of business users can reclaim VAT, Royal Mail's VAT exemption, combined with the fact that it is anyway the more lucrative part of the business, might be expected to mean that business post will be the area where competitors focus their attack. Will this result either in price control being lifted dramatically on private post, as Royal Mail is forced to rely on it as an increased proportion of its overall under-50-gram business; or, especially given the concerns I have just expressed, that competition will restrict scope for this, with the universal service obligation being jeopardised?
As the noble Lord mentioned, concerns have been voiced by the magazine industry, first, that Postcomm's recommendation to remove Royal Mail's second-class and magazine delivery service from price control from 1 April will effectively expose the magazine industry to ransom by what is likely to remain, in this area at least, a monopoly nationwide delivery service; and, secondly, that what is termed "pricing in proportion", representing a move from weight-based to size-based pricing, recently approved by Postcomm, may lead to cost increases of up
12 Jan 2006 : Column 310
to 50 per cent for some magazine titles, which might not be mitigated by the so-called "mitigation scheme" put in place by Royal Mail because the thresholds have been set too high. Will the Minister comment on these points?
The universal service obligation is a vital part of Royal Mail's service to the nation. The latest annual report says that Royal Mail is making losses of over £200 million on nearly 90 per cent of its price-controlled volumes, which it has to provide under the universal service obligation. However, the committee's report says:
"Royal Mail later confirmed that in 2004/05 profits from the universal service area were in the region of £400 million".
How are these two statements reconciled?
The national network of post office branches contains about 14,500 post offices, of which about 8,000 are rural branches. It is widely accepted on all political sides that the network of post offices provides a valuable service to the community, especially in deprived areas where its value is measured in more than mere financial terms. This network has been savagely and, some have suggested, rather thoughtlessly cut. There were over 18,000 post offices as recently as 5 years ago. There are serious concerns about rural closures. Concerns have also been raised by the CWU about the urban closure programme; about the suitability of the companies to whom certain offices, especially in north-west London, will be franchised; and about the transparency of the franchising process as a whole. How can the Minister comfort us that it has been undertaken with due care and attention?
There are periodically reports of proposals to issue shares to employees. Can the Minister tell us where these plans have got to, and what percentage of the equity is being considered for the giveaway? The committee reports that the explanations offered to it were,
"far from complete and no coherent process for how these shares would be transferred or traded has been given".
If a plan exists, that would appear to be inappropriately evasive.
Once again, I thank the noble Lord, Lord Clarke of Hampstead, for initiating this debate and I look forward to the Minister's responses to the points that I and he have raised and to those which other noble Lords will raise.
Noon
Lord Cameron of Dillington: My Lords, as has just been mentioned, one of the areas where there are the strongest concerns amongst ordinary people about the future of the post office is in rural Britain.
In many of our villages and market towns, post offices are an essential part of the fabric of the local community. They are seen as a trusted source of advice on, and provision of, a whole range of government services. Apart from anything else they provide the crucial access to cash and banking services for those who are financially excluded or for those who still depend on the post office for their benefits or pensions.
12 Jan 2006 : Column 311
Furthermore, they produce a significant economic boost to their community. Countryside Agency research has shown that a shop attached to a post office can on average expect to receive a 25 per cent higher turnover as a direct result of the post office being there. Meanwhile, neighbouring shops get a 15 per cent boost to their turnover because of the footfall created by post offices.
However, a village post office and shop does more than provide vital services for locals. They often represent the only focal point for day-to-day social intercourse within a community. While the church and village hall—if they exist—obviously host specific occasions, these are often narrow in their appeal: the young go to discos, for instance, while the old might go to whist drives. But it is only in the local post office and shop that old Mrs Smith can meet and chat to young Master Jones in an unstructured but secure setting. The fact that old Mrs Smith and young Master Jones might both be without transport and are therefore totally dependent on the post office and its shop also helps bind them together.
Country people feel very strongly about their post offices. I asked a lot of people at the last Countryside March if there was any reason apart from hunting that had brought them to London, and post office closures was the most frequent answer. Indeed, it was soon after this that the Government introduced their £150 million per annum support that is now due to last until 2008. At the same time the Post Office introduced its commitment to prevent avoidable rural post office closures. Unfortunately, this latter commitment is due to lapse in March this year. However, neither of these two lifelines has prevented rural post offices closing, but they have slowed the annual closure rate down from 360 per annum five years ago, to 97 last year. So we should not delude ourselves. For the foreseeable future rural post offices will continue to close and this closure rate will almost certainly accelerate when the £150 million per annum ends in 2008. No one could expect such a large sum to continue after that.
Postcomm research has found that almost all rural post office branches cost more to run than the revenue they bring in. Those that do not are in the larger towns. However, the benefits to local people in 80 per cent of rural branches are greater than their costs, even if those branches are making a loss for Post Office Ltd. This, of course, means that in 20 per cent of branches—that is, some 1,100 post offices—the benefits to locals do not outweigh the costs of operating them. It is likely that these branches will not survive in the long run unless the local communities can galvanise some local self-help.
Meanwhile, in the UK, Post Office Ltd is using its window of opportunity, and the extra funding it is getting, very well it seems to me. It has created a rural strategy team to help run and measure a whole range of pilot schemes to show others how it is possible to sustain the rural network. For example, it has a "core and outreach" scheme which is running several satellite operations involving a sub-postmaster from a larger village going out to surrounding settlements, for
12 Jan 2006 : Column 312
a few hours a week, and offering all the services of the core branch. He can do this by using a village hall, pub or even a church.
In other instances, mobile post offices have been used. For example, the Cumbria mobile travels around 500 miles a week serving 36 isolated communities. Post offices have also combined with other services to reduce fixed costs. For instance, in Dyfed and Norfolk they have combined with the local police force. In Cornwall, where over 25 per cent of wage earners are self-employed, Post Office Ltd has combined with Business Link to offer business support services along with normal post office services. In the "pub is the hub" initiative you can now find a post office, a village shop and even Internet café facilities and training in pubs. Post offices can also now be found in almost any type of shop, including in one case a fish and chip shop, but also elsewhere in hotels, churches, libraries, tea rooms or even the opticians; and long may it continue.
In conclusion I would like to make the following points. First, rural post offices fulfil a valuable social and economic role and should continue to receive government support, albeit at a reduced rate, after 2008. It is the most vulnerable members of our communities who will be affected by any future rationalisation, such as older people, those without access to a car, the unemployed and those on a low income. Postcomm research on post office networks abroad showed that many countries find it necessary to adopt special approaches to secure postal and other services in rural areas. Secondly, the current commitment to prevent avoidable rural post office closures is due to lapse in March 2006. I suggest that this should not happen until a strategy for the future of the rural network has been fully developed and publicly consulted on, so that there is a plan to go forward based on sensible criteria. This criteria could be related to population size, distance from other outlets or where particularly vulnerable groups predominate; but we must have a plan before we pull the rug.
Thirdly, the provision of postal services should continue to be encouraged alongside other services in rural areas, and post office regulations must remain flexible to accommodate that. Government funding and support should continue to encourage a climate for such entrepreneurial activity by giving business rate relief, pump-priming capital grants and, crucially, sponsoring advisers and consultants to help entrepreneurs and rural communities. Communities need to be able to develop the range of services that best suit them. Many successful and long-lasting community post offices already exist, assisted by the Rural Shops Alliance and the Plunkett Foundation, among others. Those organisations will continue to need help.
Fourthly, it was no surprise to me, looking at the research in other countries, that the main strategy adopted in most of them has been to develop banking and financial services. One of the main problems with rural post offices recently has been the muddled signals given out about the availability of card accounts and
12 Jan 2006 : Column 313
other financial services. There was never any real commitment from Government to promote that service. Customers and sub-postmasters were given conflicting signals. Some postmasters were told to tell their clients that card accounts were not available; others were told the opposite. As a result it has not been a success, and a great opportunity has been lost. However, it is not too late. Every UK post office should be able to provide financial services such as bank accounts, bill payment, savings accounts, insurance, business banking, money transfer, bureaux de change and cash machines—and maybe even credit cards, loans and investment services. All those things happen to varying degrees abroad, and there are after all more post offices in our countryside than all the banks and building societies put together. The Government have recognised the importance of the rural post office network, but they need to see it through to the end with that little bit of extra commitment if the money already spent is not to be wasted.
12.09 pm
| Next Section | Back to Table of Contents | Lords Hansard Home Page |