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Lord Young of Norwood Green: My Lords, I thank my noble friend Lord Clarke for initiating this debate. Like him, I, too, declare an interest. I joined the GPO, as it was called in those days, in 1958 as a telecom apprentice, which is most of my background. But I can remember on one or two occasions sitting at the negotiating table opposite the noble Lord, Lord Dearing. So there is a strange sense of déjà vu—"all over again", as a football commentator once said. I also was the joint general secretary, together with a certain Mr Johnson who now is in charge of the Department of Trade and Industry. This is an interesting debate for me, but it is very important for the country.
Royal Mail is now entering the uncharted waters of a new, very challenging and competitive environment earlier than most of Europe, as we have heard many times in this debate. One might argue with my noble friend Lord O'Neill—he has come back now—about the nature of Royal Mail management. He accused it of being sclerotic: I hope that it does not have a fatal heart attack, although probably it needs to improve. You could argue about how full or how empty the glass is, but you cannot deny that over the past few years there has been a turnaround from a £1 million per day loss to a £537 million profit in 2004, which took place against a backdrop of 33,000 fewer workers. As my noble friend Lord Sawyer reminded us, change has taken place. There have been improvements, which we should acknowledge.
I listened carefully to my noble friend Lord O'Neill who talked about welcoming liberalisation and a realistic introduction, which is important. It needs to be realistic. There is a crucial debate between Postcomm, which has made an assessment of increases in the price of a stamp over the next few years and how much productivity achievement is possible—I do not know which is right—and the Post Office, which says that the price of a first-class stamp should increase from 30p to 39p over the next four years, and it still would be one of the lowest prices in Europe. I ask the Minister to look at that because it is part of the key to more investment.
The Post Office faces huge challenges. We have to resolve the pension deficit. The point has been made that even when looking at the full spectrum of Post Office workers, they are not necessarily the highest paid workers in the country by any means. Certainly, the final salary pension scheme was an attractive part of that package and needs to be sustained. One way or another, the Government, with the Post Office, have to find the solution to that problem.
As has already been said, in this competitive environment we face big challenges, which are not theoretical. There is a challenge in competition from Deutsche Post and TNT, which are serious competitors moving into this marketplace. As the noble Lord, Lord Dearing, graphically described, they are very well placed to do it. We need huge investment. It is sad that the Post Office now talks about the need to invest £2 billion. You might ask why that was not
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done many years ago and why it is so late in the day. The fact and the reality is that that has to be done. Ageing equipment has to be replaced through an investment in new technology. The Post Office has to fully engage all staff in the business in the next round of modernisation.
I agree with the noble Lord, Lord Cameron, and the noble Lord, Lord Dearing, who referred to the importance of sub-post offices and crown offices, and made the point that we probably need a debate on that. In relation to the offices, the integrity of mail is perhaps something that we tend to take for granted until it breaks down. Recently, in north London, there was a case of a Crown office being disposed of to a private company, which took a while to investigate. The private company has been registered for about only two weeks and had assets of about £2. Does the Minister feel that that is a satisfactory situation?
Just before Christmas, the management—if you could call it that—of an unlicensed company, Mail Logistics, made £2 million from just dumping mail, operating in an area which is completely unlicensed and unchecked by Postcomm. The directors were gaoled. I notice that they cannot be company directors for only one year, which seems a marginal punishment given the amount of mail they dumped and the millions of pounds that were involved.
I want to comment on the postal service as a whole. I remember a song many years ago by a Canadian singer, Joni Mitchell, with the words,
I sometimes think that that is the same for the Post Office and the universal service. We have a stupendous asset, which is the envy, probably, of the rest of the world. We have to be careful that we do not put it at risk. Some people might say that it is already at risk. So this next period is vital. I agree with my noble friend Lord Sawyer on the need to build a partnership approach and a new era in industrial relations in the Post Office. It has improved and it needs to improve further if it is to surmount the challenge of competition and new technology.
I do not know the perfect way forward. There appears to be two schemes on offer. My noble friend Lord Clarke informed us about profit sharing and my noble friend Lord Brooke told us about the advantages of the employee share ownership scheme. I agree with my noble friend Lord Sawyer that uncertainty does not help and is a distraction. There probably is not a perfect solution, but I concur with my noble friend Lord Clarke that the profit sharing and productivity scheme could be an alternative way forward. But the Government should encourage, with the Royal Mail, a consensus solution. The success of Royal Mail needs the partnership approach. It also needs a Government who are prepared to recognise the size of the challenge and, if necessary, to direct Postcomm.
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Baroness Prosser: My Lords, I, too, thank my noble friend Lord Clarke for setting down this subject for debate. Like others, I preface my comments with a declaration of interest. I am a non-executive director of Royal Mail Holdings board. Royal Mail Holdings is the parent company of, among others, Royal Mail letters, Parcel Force Worldwide, Post Office Ltd and General Logistics Systems, which is the Royal Mail's very successful European parcels business.
I should like to set out for your Lordships some of the issues which face Royal Mail and some of the ways in which these issues are being tackled. It is common knowledge to Members of this House—it has been mentioned already—that Royal Mail has gone from, in 2002, losing £1 million per day to, in 2005, recording a profit of £537 million. During that time, quality-of-service levels have improved dramatically with around 94 per cent of first-class mail arriving on the day after posting. Changes to logistics and transportation arrangements and the move to single-day delivery have bedded down. Our people have been rewarded for the extra effort that is demanded of them: the working week has decreased from six to five days and, in 2005, every employee received a share-in-success payment of £1,074. A total of £218 million was paid out by the group, making it one of the largest profit-share payments in UK corporate history.
The use by Royal Mail of temporary and casual staff has reduced dramatically. That action, together with our entitlement, which we vigorously pursue, to conduct criminal record checks on all job applicants enables us to have confidence in the maintenance of the mail's integrity. Industrial relations have improved with industrial action at its lowest for many years. I join with others in thanking my noble friend Lord Sawyer for his sterling and patient efforts in that regard.
However, significant challenges remain. We are constrained by the regulator while at the same time we face free market competition. We have a history of years of under-investment in machinery and infrastructure, Post Office Limited is financially a loss-making business, and our pension fund account deficit at £4 billion almost equals the annual income of a small nation. These are big and important issues which require careful and learned consideration if we are to maintain a public mail service with a high-quality, secure and reliable reputation. I will take the issues one at a time.
On 1 January 2006 the market was opened up to competition. The regulator lays upon us a duty to provide a universal service: deliveries to everyone, everywhere, every day. We heartily agree with the universal service obligation, but do not believe it should include as it does now some bulk mail services which are available only to business customers. Price rises are controlled by the regulator. Jolly good, some will say. But to put it in context, posting a letter in the UK is cheaper than most of the rest of Europe. In Italy, for example, it would cost the equivalent of £1.11. But prices should more nearly reflect costs and currently
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the only profit made from letters comes from business and bulk mail. If we are to have an even chance in the open market, we must invest and modernise. At the moment Royal Mail sorts only around 50 per cent of its mail automatically, as against 90 per cent by our competitors. We are looking at ways of electronically tagging the mail so that if something goes missing, we will know exactly where from. We have calculated that £2.2 billion of investment is required if we are to remain not only competitive, but also commercially viable in a fully liberalised market.
Now then, what about Post Office Limited? A great deal of heat is generated whenever the problems of the Post Office are raised—understandably so. For many people the Post Office has been a link to their income, their friends and neighbours, and a place seen as supportive and helpful. Following the loss of the benefits payments, business managers and employees alike have worked enormously hard to bring in new business. We are pushing on financial products, some of which are proving more successful than others. But the competition from high street banks not constrained by the requirement to support such a large branch network is very fierce. Post Office Limited currently has 14,402 branches while our competitors range between supporting 600 and 2,000.
Government actions threaten us on two fronts. The first is their proposal to set up 70 high street offices to vet and interview applicants for passports. This would dig into the £12 million net contribution this business currently brings in. Secondly, the Department for Work and Pensions has notified us that the current Post Office account card will cease when the contract ends in 2010-11. It is simply not possible to maintain the service politically demanded while at the same time being deprived of the wherewithal to underwrite the cost of that service.
Finally, while I am at the doom-and-gloom end of the subject, we have the pension account deficit. Our profitable period running up to 2005 enabled us to make a significant contribution to the pension fund, but the sums of money are so huge and the historical background so long that a political solution is required here. We do not want to close the scheme as so many others have done, but the figures speak for themselves and something has to give.
Despite these major challenges, I and my fellow board members remain upbeat about the future. Moving the company from an old-fashioned command and control style to one which is fit for 21st-century purpose is more than possible and is an exciting prospect. Indeed, from the point of view of the UK public it is essential that we meet this challenge. However, such a cultural shift will come about only with the commitment of the workforce—managers and workers alike. More training for all our people is essential, as is the creation of an atmosphere where everyone feels part of the action and where everyone feels respected and valued. We need to encourage more flexible patterns of working and to recognise the diverse needs of others. Part-time working must not be
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viewed as a less than full-time commitment and such opportunities would increase the participation of women who may have other responsibilities.
Such modernisation of the infrastructure and working relationships is essential to the future of Royal Mail. The sums of money required to set the ship on a steady course are anything but small, and we do not underestimate the difficulties. But we cannot stay as we are and thrive. New financial arrangements must be made which will enable the collective experience and commitment of the board to take the company forward.
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