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6.34 pm

Mr. Edward Davey (Kingston and Surbiton): Before entering the House, I was a management consultant for Omega Partners, one of whose niche markets was providing specialist advice to international postal administrations. On election, I relinquished all financial links to the firm, but I have maintained my interest in international postal issues. During four years with Omega, I had the privilege of visiting about 30 post offices around the world from Correos de Chile to New Zealand Post. I met the director general of post in Taiwan and visited the privatised Singapore Post plc. I became a bit of an anorak on post offices, so hon. Members will be pleased that my time tonight is limited.

Of all the projects I was involved in, the most relevant to our debate was a study that I co-authored, commissioned by the United States Postal Service, entitled "A Strategic Review of Progressive Postal Administrations: Competition, Commercialisation and Deregulation". The study considered 10 post offices around the world, including those in the UK, Sweden, Australia, New Zealand, Germany, Canada and the Netherlands. It focused on issues such as the ownership and structure of postal administrations, their financial mandate, the extent of competition, the degree of managerial freedom and the ability of managers to set pay, borrow capital and form joint ventures free of

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Government control. It examined the key parameters for analysing how far a country's postal market is liberalised and the extent to which a company was established as a commercial organisation.

On 8 July, the Secretary of State for Trade and Industry told the House that his proposals would give the House new commercial freedoms. If that is what he seeks to do, he is redefining "commercial". Under his White Paper, postal managers will be forced to keep pay settlements within public sector constraints. They will be unable to borrow freely on capital markets and unable to form joint ventures without prior parliamentary approval. I am intrigued to know the commercial model on which the Secretary of State based those proposals.

The Secretary of State chose his words carefully on 8 July, saying:

He may have used the Antipodean and Nordic models for his proposals on ownership and structure, but he has ignored them with respect to commercialisation.

On borrowing powers, the Government propose to allow the Post Office to borrow £75 million a year without prior Government approval. Even for domestic concerns, that is a self-evidently inadequate amount for a company with a turnover of £7 billion. The much-needed project for a new sorting site at Feltham, which would serve my constituents, will cost £40 million--more than half of the Post Office's annual limit.

The fast-tracking of other requests--as in the German Parcel project--may improve on the status quo, but it keeps the Post Office inside Treasury public sector borrowing requirement constraints. In some years, that is likely to bite unnecessarily hard on the Post Office. When considered in the context of the borrowing powersof other genuinely commercial post offices, the Government's proposals look even more out of date. My study notes:

With no state guarantee for its borrowings, New Zealand Post pays the commercial rate. Its borrowings do not score against the public sector borrowing requirement, and it can operate as a commercial organisation.

Sweden Post has similar freedoms. Again I quote from my study:

Both New Zealand and Sweden Post have had a price to pay for their freedoms, namely significant deregulation. In both postal markets, there are significant private sector competitors, and their presence has forced the state postal companies to become more efficient and to manage their balance sheets commercially. But that is the proper combination of liberalisation and commercialisation.

If all this was simply about the retention of controls on borrowing, one could perhaps understand the logic of the Government's position; but the detail of the White Paper

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shows that the Government are giving the Post Office the worst of all possible deals. Page 56 states that

    "in order to ensure that the Post Office competes fairly with other postal operators in the private sector; and to reinforce commercial disciplines, the Post Office will borrow at a rate which is broadly comparable to the rate it would be charged in the market without an implicit or explicit Government guarantee."

The Post Office moves from controlled borrowings at a cheaper rate than a commercial company to controlled borrowings at commercially comparable rates. What nonsense. If the Post Office has to pay a commercial rate for borrowings, it should at least set its own borrowing limit.

Faced with such absurdities, the House might want to reflect on why the Post Office has not gained freer access to the capital markets. The reason is the Treasury, whose officials are so committed to privatisation that, if they do not get their way, they will secure a proposal that is designed to fail--in the hope that privatisation will be seen as the only way out. The Conservatives are right to say that the proposals are paving the way to privatisation; it will be a long and painful path, on which the UK's post offices will be badly damaged.

6.40 pm

Mr. Nick Gibb (Bognor Regis and Littlehampton): This has been a good debate, although, in his opening comments, the Secretary of State failed yet again to answer the important questions put to him by my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning). In an excellent speech, my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made it clear that the Government have either known about the problems with Horizon all along, and hence have misled the House in written answers, or they did not know that there was a problem, so they were not on top of their job. He is right.

My right hon. Friend is equally right to highlight the fact that the Government have not thought about the long-term consequences of their policies. The hon. Member for Ochil (Mr. O'Neill), who is the Chairman of the Select Committee on Trade and Industry, made the correct point that not only rural post offices, but those in some of the less accessible urban areas, are at risk. His proposed solution seems to be to, turn the network of sub-post offices into cyber cafes. However, he does realise that the Post Office faces the very real problem of survival in an internationally competitive world.

The hon. Member for Eastleigh (Mr. Chidgey) welcomed the sentiments of the White Paper and supported the proposals, but claimed that they lacked something or other to ensure that the Post Office would survive. That is typical of Liberal policy--wanting more of something without paying the price. The Liberals want more commercial freedom, but they oppose plc status because they cannot face up to the realities of Treasury rules. An independent, publicly owned corporation remains subject to state control, because it is still in the state sector.

The hon. Member for Derby, North (Mr. Laxton) exposes his wishful thinking in his belief that the Government's assurance not to privatise the Post Office in the foreseeable future means that they will not privatise it at all. My hon. Friend the Member for Christchurch (Mr. Chope) is correct to say that the system left by my

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right hon. Friend the Member for Hitchin and Harpenden would have guaranteed the survival of the sub-post office network. My hon. Friend is right not to be convinced by the Government's explanation of the failure of the Horizon project. The hon. Member for Chorley (Mr. Hoyle) wants to end the bickering and open a people's bank--perhaps we should leave that comment alone. My hon. Friend the Member for Banbury (Mr. Baldry) rightly said that the Post Office will remain subject to state control, despite a White Paper that refers to commercial freedom. He is also right to say that the Government's handling of the Horizon project is a scandal.

This has been an important debate. The House has assessed the Government's competence as guardian of the nation's post offices. The debate has shown how very unsafe the Post Office is in the hands of the Government. The Post Office White Paper fails to deliver the Post Office from the clutches of the public sector--a sector that is despised by one part of the Labour party and loved by another. Because of that division, which extends right to the top of the Labour party, the Government are failing to give the Post Office the freedom that Ministers know is right. Ministers know that that is right--or at least some of them know it--if the Post Office is to survive inthe new internationally competitive and changing environment that it faces.

Post offices are unsafe in the hands of the Government, because the Government's decision to abandon paying benefits through a swipe card over the counter at 19,000 private sector sub-post offices will put at risk the very survival of those post offices. It will threaten the communities of many rural towns, villages and hamlets. It is yet another attack by the Government on rural life, and yet another piece of incompetent computer project management by Ministers. That piece of Government incompetence will cost taxpayers £940 million--the equivalent of three new hospitals. It is a piece of incompetence that, by the Government's own admission, will result in £320 million of extra social security fraud.

As my right hon. Friend the Member for Hitchin and Harpenden rightly said, contracts of such complexity do not only have to be signed, they have to be managed as well. He told his officials that he wanted to hear bad news as well as good news, so that he could take early remedial action. That is what management is all about. Will the Minister tell the House why, after two years in office, he believes that the problems are not the current Government's fault, but that they must be someone else's fault--the previous Government's, or, in the words of the Chancellor, the fault of his officials?

There is a pattern of incompetence developing in the Government. We have seen it in the computerisation of the Passport Agency and in the Government's handling of gold sales, and we are now seeing it in the way in which they have mismanaged the Horizon project. I do not want to preach to the Government, because we hear enough preaching from them, but to be a successful Minister of the Crown, one has to do more than jet around the world, languish in five-star hotels, be driven in a Government Rover, or make speeches at conferences designed to push the latest focus group-tested soundbites. Being a Minister is about managing a Department or a policy area--it is

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about detail. It is about ensuring that decisions are made competently and for the long term, not for the short-term newspaper headlines.

We are simply not getting the proper level of competence from Ministers in the current Government. The problem is that the penalties for such incompetence are paid not by the man who appointed the Ministers in the first place, but by the people--by the small businesses trying to keep a rural sub-post office afloat; by the elderly and infirm who rely on their local post office; and by rural communities which, yet again, are suffering the consequences of a Government who have no conception of the harsh realities of rural living.

In the detail of the Post Office White Paper, we see even more incompetence. Not only is the Post Office unsafe in the Government's hands, but so too are the 4,000 private sector companies and businesses that already deliver parcels, express packages and letters. That is because the Government are not putting the Post Office fully into the private sector, with all the risks that come with being outside the cosy, protected world of the state sector. Instead, the Post Office will have huge unfair advantages over its competitors in the United Kingdom. Size, state protection and hidden subsidy will enable Post Office plc to undercut and crush small, entrepreneurial private sector British businesses, while the dead hand of state control will hinder its response to innovative and fierce competition from American and European privatised multinational postal services.

The White Paper speaks of ensuring that Post Office borrowings are at market rates of interest, and that it is not allowed to subsidise its non-monopoly services from its monopoly services, but what does that mean in practice? This year, Parcelforce made a £25 million loss, following a £14 million loss last year. No private sector parcel delivery company can survive year after year of multimillion pound losses, so if the losses continue, by definition, Parcelforce is being subsidised. What charge will be made to the non-monopoly divisions of the Post Office for the use of its fixed assets? Will the special traffic regulations for Post Office vans apply to the non-monopoly sector of the Post Office? If so, will that privilege be extended to the private sector?

Lending to the Post Office will come not from the private sector, but from the national loans fund, which is a part of government. Apart from the interest rate, how can the Post Office's competitors be sure that the other terms of such loans will be fair, including repayment periods? How can they be sure that the margin of several points above base that is applicable to most businesses in this country will apply to the Post Office? We need answers to those questions to be sure that the new arrangements will not be as damaging to the private sector's long-term viability as they are to the Post Office itself.

The Government's policy on the future of our post offices is in complete disarray because of incompetence and cowardice: the incompetence of Ministers who are unable effectively to manage the detail of a computerisation programme, the consequences of which will put at risk thousands of rural sub-post offices, and the cowardice of a Government failing to do what they know is right for the competitiveness of the Post Office. They should fully release it from the clutches of the state. The policy is being dictated by Labour party divisions

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rather than the imperatives of what is right. The Government are bad for postal services and bad for rural communities, and I urge the House to support the motion.

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