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recognise that they are needed to fund improvements in quality of service and even after the increases, stamp prices will have risen by considerably less than inflation over the past five years. I know that there are some, however, like my hon. Friend, who feel that the only way to have a Post Office which is efficient and genuinely responsive to consumers' needs is to subject it to full competition. That was the burden of my hon. Friend's argument. He wanted to abolish its statutory monopoly for the conveyance of letters or to subject it to market disciplines by other means, such as privatisation.

I should say immediately about the monopoly of letter services in general, that the Government attach great importance to the continuation of a letter service which enables letters to be sent from anywhere to anywhere in the United Kingdom at the same reasonable tariff rate. In particular, we fully recognise the significance of such a facility for those living in isolated communities or wishing to communicate with them.

Post Office services throughout the world have traditionally been afforded the protection of a mail monopoly to help them to achieve the twin objectives of universal delivery at a uniform, affordable price. The extent of the letter monopoly varies from country to country, but it may be worth repeating the classic economic arguments for having one.

Other things being equal, there must be scale economies in letter conveyance, particularly in final delivery. It generally costs no more to empty a letter box containing 50 letters than one containing 100. If a postman must walk down one's garden path or climb the stairs to one's flat to deliver one letter, it will generally cost little more for him to do so with three. Consequently, removing letter traffic from the Post Office might not allow it to reduce its costs proportionately, and the average cost of conveying the letters remaining with the Post Office would tend to increase. The result would be either higher stamp charges or a bill for the taxpayer. Neither alternative is attractive. The consequences for the Post Office's costs would be exacerbated by the fact that anyone entering the letter market without obligations would naturally take the lower-cost traffic first.

Arguments about the monopoly are not all one way. We know from experience that the letter monopoly is certainly no panacea. It denies the consumer choice and represses innovation in the development of new types of service. It also protects the Post Office from outside influence, shelters it from the financial consequences of perhaps less-than-perfect organisation and productivity, and prevents direct external comparisons from being made.

It is worth remembering that the Post Office is already subject to some competition. The letter monopoly in the United Kingdom does not extend to letters for which less than £1 is charged. That allows competition for time-critical and value-added mail. There is no monopoly in the delivery of parcels.

Nonetheless, there is no doubt that increased direct competition in the letter market would be beneficial and that some of the financial pressures resulting from any loss of scale economies, or "cream skimming" as it is known, of low-cost traffic could be balanced, or perhaps exceeded, through improved Post Office efficiency. The challenge is to determine the manner in which and the degree to which competition should be introduced so that its benefits can

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be realised, while allowing the Post Office to continue to fulfil its obligations at a reasonable cost to its customers. Therefore, as the Government have made clear on many occasions, we keep and will continue to keep the options for introducing further competition under review to ensure that the needs of customers throughout the United Kingdom are met as fully as possible.

My hon. Friend mentioned counters. The Post Office operates the largest retail network in the country. It has over 20,000 post offices throughout the United Kingdom--considerably more outlets than any bank or building society and more per head of population than in France, Germany, Japan or the United States of America. That means that, in the United Kingdom, post offices are easily accessible to all but those in the remotest areas. In urban areas, the aim is to have offices distributed so that no one is more than a mile from a post office, and in rural areas no more than two miles.

Only a small proportion of offices--some 1,300 out of over 20, 000--are directly owned and operated by Post Office Counters. The vast majority of offices, about 19,300, are already sub-post offices, run under contract to Post Office Counters Ltd. by self-employed sub-postmasters and sub- postmistresses. That arrangement benefits both parties. The post office brings in regular customers to buy stamps, post parcels and collect benefits and pensions, providing potential customers for the sub-postmaster or mistress's private business. Overheads are shared between the two busineses. Sub and agency offices can therefore have significant advantages over directly run Crown offices.

In rural areas particularly, post offices also serve an important social function in their local communities. That was clearly recognised in the Act establishing the Post Office as a public corporation, which imposes on the Post Office a statutory duty to have regard to the social as well as industrial and commercial needs of the United Kingdom in exercising its powers. Because of that, changes in the network require careful consultation with the local community and the Post Office Users National Council as representatives of the customer.

In 1988, Post Office Counters began the process of restructuring its network, which I hope my hon. Friend welcomed, both to give a more cost- effective service and, like any retail network, to respond to movements in population and variations in shopping habits. As part of that process, it has converted about 170 Crown post offices, mostly smaller ones, to agencies. The Post Office is continuing that process. It has completed consultations on some 290 proposed conversions and begun consultations on a further 40. I shall be pressing it to move ahead with the process as quickly as possible. Before concluding, I will mention one topic of increasing importance to the Post Office and to private sector mail operators--developments in the European Community in the context of the single market. Towards the end of the year, the European Commission plans to publish a Green Paper on Community postal policy, which will be considered by the Council of Ministers before a period of public consultation, which is likely to continue into 1991. Once the consultative process has been completed, it will be for the Council of Ministers to decide on any changes that the Community may introduce.

The Commission, with the help of a senior officials group, has been collecting information and views from member states for several months. It is too early to

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speculate on its final proposals, but the United Kingdom takes the view that those who live in the Community should have access to a basic letter service at an affordable tariff--but beyond that, it believes that the Post Office should be subject to maximum competitive pressures. We believe that there is an important role for competition to play in increasing efficiency and improving services to the customer.

I have tried to do justice to the points raised by my hon. Friend. I hope that he accepts the balance of the

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arguments that we see--acknowledging the improvements that the Post Office has made to its services and looking forward to yet further improvements, while being sensitive to the needs of my hon. Friend's constituents and their natural desire to see an improvement in Post Office services. I hope also that my hon. Friend and the House recognise the continuing efforts being made by the Post Office's management and employees to do justice to the confidence shown in them by the House, the Government, and users of post office services throughout the land.

Question put and agreed to .

Adjourned accordingly at eighteen minutes to Two o'clock .

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