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7.4 pm
Dr. Vincent Cable (Twickenham): First, Mr. Deputy Speaker, I must make my excuses as I shall not be in the Chamber for the winding-up speeches. The Government and the Rugby Football Union propose to convert the Twickenham ground into a world-standard athletics stadium. There are hundreds--perhaps--thousands of people in a public hall waiting to hear what I am going to do about that. [Hon. Members: "Stop it."] That is good advice.
The Bill has some positive elements. I subscribe to the idea of greater commercial freedom, on which there are some limited provisions. There is some advance in making more explicit the public service obligation. The strengthening of the consumer protection element--through the consumer council--is positive.
However, there is a large negative aspect. As the debate has progressed, it has become painfully evident that there is a large gap--the doubt surrounding the whole Post Office network. Although the Minister is working hard on the development of ideas about subsidies and alternative forms of payment, most of us are far from satisfied as to how those will work.
I shall concentrate on another aspect of the Bill--what has been called the hybrid system of ownership, and how that will work. In principle, it must be right that the Post Office will be given much greater commercial freedom--in order to face more competition and to cope with e-commerce and technological change. However, I am concerned about the limits.
The borrowing limit of £75 million a year is small when it is set against the challenges facing the Post Office. The managing director said that he wants to raise about £3 billion, over eight years, for acquisitions and major investments. Simple arithmetic suggests that only 20 per cent. of that could come from annual Government borrowing--even if it were fully used.
How is the money to be raised? The Post Office could come back to Parliament, but most of us would find it difficult to imagine being called back during the summer recess to make a quick decision over a major business acquisition. That would not be a suitable means to deal with such a matter.
In practice, the money will have to be raised from the capital markets. In that case, the balance sheet and the cash flow of the Post Office will have to be healthy. I am worried that the underlying financial position of the Post Office is weak. The Government have made a useful concession through the major advance of lifting the Treasury payment and replacing it with a dividend. Assuming that profits continue at their present rates, that would be a gain of about £125 million a year. Of course, the Post Office has to earn the profits, but that measure would provide a positive flow into the organisation and it is to be welcomed.
However, on the other side of the account is the £400 million loss from automated credit transfers--a matter that has been raised many times. Furthermore, if the regulator presses ahead with the imposition of reductions in reserved business--the reduction of the monopoly from £1 to 50p, as the Government proposed some time ago--the loss has been estimated at about £100 million. We could debate the amount, but it will be another loss.
The Post Office will lose the £100 million that it would have received from the Horizon project. There is then the problem of gilts, which are on the assets side of the balance sheet at present. After financial restructuring, the Post Office will lose the £110 million interest income from those gilts. I may have misunderstood that matter; perhaps the gilts can be deployed in other, more profitable ways. However, my understanding is that, with restructuring, that money will be lost to the Post Office. That is a substantial loss of income.
Yesterday, I was told that a large hole had been discovered in the Post Office pension fund; that amounts to a substantial sum--£500 million. That hole will have to be filled over the next 10 years. It is difficult to understand why the pension fund is in that position when equity markets are booming. However, if that information is correct, the Post Office will have to find an additional £50 million a year to plug that hole.
Mr. Letwin:
I am surprised that the hon. Gentleman is surprised. Is he not aware of the Government's £5 billion raid on pension funds through the advance corporation tax dividend tax credit system, and is he not aware that that may be one of the major causes?
Dr. Cable:
It may be a contributory factor, but I understand that the position is considerably worse than was expected even by the actuaries looking at the impact of advance corporation tax. I should be grateful if the Minister would confirm how serious the problem is and tell us how it will be dealt with. If we add up these various losses of income, we are talking about £600 million or £700 million, which accounts for almost all the profits of the Post Office. If that is true, the benefits of the dividend payment will not be realised, and it is a substantial loss to the Post Office. The Post Office will be in a much weaker position from the point of view both of income and of its balance sheet.
If that happens, what will be the consequences? One of the consequences, which we have been discussing at length, would be the emergence of considerable pressures to cut unprofitable parts of the network. Another consequence, which is already evident, would be that the Post Office would be forced to raise its prices. If it raises its prices, it has the universal service obligation, and inevitably prices will have to rise in the competitive parts of the business. The Post Office will lose business; demand will fall. We are already witnessing a decline in demand for many of the letter services. That will aggravate a vicious spiral within the Post Office commercial operations.
The question that I wish to pose is: how secure is the financial position of the Post Office? The Government are taking what is, in those circumstances, the fairly high-risk strategy of pushing the Post Office into the capital markets with its plc status. There may well be ways of reversing that process, and I may have added to the story elements that are not valid, but I should be grateful for reassurance. It is important that we have that.
It is important that we also have some reassurance that the management team that will meet this challenge is composed of people who can handle what is potentially a very difficult financial position.
It slightly worries me that I have never heard any discussion, on the future of the Post Office, about how to treat its one major asset--its door-to-door delivery service--as an asset rather than an obligation. It is not a parliamentarian's job to tell the Post Office how to do its business, but it seems to me that, in a world of e-commerce, in which there will be an enormous amount of logistic business, with goods being delivered to doors, the Post Office, with its system of storages, its lorries and so on, has a tremendous advantage. However, I have seen no statement of a vision about how the Post Office intends to move into that market. It would be reassuring, especially given the question-marks hanging over Post Office financing, to know how that long-term business future is to be secured.
Mr. Letwin:
The hon. Gentleman is making some serious points. Does he agree that one of the problems with the Government's rather muddled approach is the fact that the Post Office is being sent to the capital markets but not the equity markets, and that the flexibility that the equity markets would offer under privatisation will not be available to it to make up the deficiencies that he is bringing to light?
Dr. Cable:
That is factually correct and there are two ways of dealing with the hybrid situation. One is to advance towards privatisation; there are genuine problems with that and I am not advocating it. The other is to explore in much more depth the option that has been canvassed within the Government, given the current status of the Post Office--to try to turn the public corporation into a genuinely independent entity with much more of a commercial capacity to operate. It is a hybrid situation; one could go one way or the other. There is the BBC direction--the independent publicly owned corporation--or the privatisation route. Obviously, Conservatives will advocate privatisation, but I should like to hear a proper debate of the other option, which gets us away from the weaknesses of the hybrid solution.
I shall now briefly discuss the network problems, which have been mentioned. The right hon. Member for Hitchin and Harpenden (Mr. Lilley), the former Secretary of State, spoke to that subject very well. When we last debated the Post Office, some of us were accused of scaremongering when we said that a very large number of post office branches might close.
I was struck by a quotation from the managing director of the Post Office in the press on 30 January, to the effect that, unless the branch network could be subsidised, he would expect up to 8,000 branches to have to close. That was not an alarmist politician; that was someone running the system. As the former Secretary of State pointed out, branches are already closing. He quoted the possibility of 500 closures during this financial year. There have already been 329 in the first nine months of this year.
Mr. Mike Hancock (Portsmouth, South):
May I draw to the attention of my hon. Friend and the House the position in my constituency, which is one of the most densely populated in the country, with 89,000 electors living in a very small area? There are 22 sub-post offices, of which 15 depend for 50 per cent. of their business on benefit payments in one form or another. All of them are doomed to extinction, with no chance of diversifying because they are already in competition in the high streets in Portsmouth, South.
May I also raise with my hon. Friend the fact that the right hon. Member--
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