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Dr. Cable: I shall be happy to do so later, but first I want to expand on what I have said.
As I understand it, the essential reason for the original proposal to cut the monopoly, and for Conservative Members' promotion of it, is the need for more competition. That is fine on one level, but there is already a great deal of competition with the Post Office. For instance, the massive proliferation of e-mail services has led to an enormous amount of competition, and telephony, faxes and so forth produce day-to-day competition. The Post Office has a monopoly in the statutory sense, but not in the market sense. A question that must be asked, especially by economists like me who believe in the market, is whether competition is always desirable.
Mr. Christopher Fraser (Mid-Dorset and North Poole):
Yes.
Dr. Cable:
No, it is not. It is usually desirable, but there are instances in which it is not, and this is one of them. There are two practical reasons for that. The first relates to the universal service obligation. The Post Office operates through cross-subsidy. If some of its profitable business is taken out of the cross-subsidy arrangements, what happens? Either the universal service obligation must be abandoned or diluted--I do not know whether Conservative Members are arguing for that--or the element of cross-subsidy must be found in some other way, and the profitable parts of the Post Office must be
Mr. Gibb:
Has the hon. Gentleman read the Government's response to the Select Committee report, published on 23 November? It states, on page 11, the Government's belief that
Dr. Cable:
I do not have a great deal of confidence in the Government's judgment in this regard, because they have vacillated so much. One reason why they were wrong to make that statement is that one of the basic drivers, as it were, behind the Post Office is economy of scale. If the hon. Gentleman examined the regulatory arrangements governing Post Offices in countries such as the United States and Germany, which have big postal systems, he would discover that the marginal cost of a postal operation is about 60 per cent. of the average. Taking a bit of business away will increase the average cost of the remainder. There are very good reasons for not forcing the pace of liberalisation of the Post Office when that would reduce business and lose economies of scale in Post Office operations.
Mr. Fabricant:
Will the hon. Gentleman give way on that point?
Dr. Cable:
On that point, I am happy to give way.
Mr. Fabricant:
The hon. Gentleman mentioned marginal costs. Can he confirm the points that he made by telling us what proportion of Post Office business is under the value of 50p per item?
Dr. Cable:
I cannot give the hon. Gentleman a figure off the cuff.
Mr. Fabricant:
I am asking about marginal costs.
Dr. Cable:
We are talking about marginal costs to the system as a whole, as the hon. Gentleman knows perfectly well. The example that I am citing is not based on a particular section of a business, or on a particular point in time. The figure is accepted to the extent that it has been built into the system of regulation in the United States. It is a general principle that would apply under the new system of Post Office regulation that the Government propose. It is a general rule, not simply an anecdote that I have plucked from the air, and I think it something that the hon. Gentleman can understand.
The Government have already inflicted considerable damage by failing to understand the way in which monopoly networks such as the railway system operate, and they propose to do the same to the Post Office. There is an argument for having a gradual, slow process of liberalisation to which the Post Office system can adapt. Indeed, that has already happened. Because of inflation over the past two decades, the £1 monopoly has already lost 50 per cent. of its value.
Inflation is a liberalising force. I know that it happened rather faster when the Conservatives were in government; the process of liberalisation through inflation has now slowed down. I refer, of course, to the Governments of the 1970s. However, the basic point is correct. Liberalisation is occurring through inflation.
There is an argument for faster liberalisation, provided that what is happening is clearly signalled to the Post Office so that it can prepare. That is why the context of the whole discussion needs to be made clearer.
As we all recognise, the fundamental problem with the Post Office is that it is shortly to sustain some financial blows. One is the loss of the benefits business. The other is that it will have to finance its all-automation system at a cost of £100 million. Inflicting the loss of another£100 million of business at this time is scarcely helpful to the modernisation of the system.
The central problem of the Post Office is that, far from being a loss-making nationalised industry of the old type, it contributes to a ludicrous extent to the national Exchequer. If hon. Members look at the Post Office accounts for the past five years, they will find that it has been paying roughly 75 per cent. of its net profits to the Treasury, partly through corporation tax, partly through the financial levy. That is a crass way to run a system. Inflicting a sudden, once-and-for-all loss of business through the reduction of the monopoly merely serves to compound the problem.
The Government are introducing Post Office legislation. We will deal with that in a complex Bill shortly. It will set our Post Office regulatory framework. That is the occasion on which to examine the speed at which liberalisation should happen.
Mr. Bob Laxton (Derby, North):
Reference has been made to my contribution on the issue and to the fact that, along with a number of Labour Members, I prayed against the order that was laid. Why was that? Quite simply, I felt at the time, as did my colleagues, that the Government had got it wrong. Why was that?
The Select Committee on Trade and Industry took a considerable amount of evidence on the issue. A number of us really cared about some of the matters that concentrated the mind of the Conservative party when it was in government: it was particularly concerned about the threat to rural post offices. Taking an almost pre-emptive strike at the monopoly could have some impact on the profitability of the Post Office and there could be subsequent consequences for rural post offices in particular. The Select Committee was spot on when it concluded that, if a regulator were to be appointed under the changes to the Post Office following the White Paper, the task of assessing the economics of the relevant proposals should be handed to him or her.
My personal view is that all post office businesses in Europe should reduce progressively their monopoly in postal services. If we do not go down that road, national
postal companies such as Deutsche Post, which is rapidly gobbling up postal organisations throughout Europe, and the Dutch post office, TNT, will take advantage. TNT's monopoly will come into effect on 1 January and, surprise, surprise, when we recently met its representatives in the Netherlands, they said that they were disappointed that Europe was not following the company's lead and that it should be a trail blazer.
Mr. Elfyn Llwyd (Meirionnydd Nant Conwy):
I should like to make only one or two points, as I am well aware of the time.
The hon. Member for Ochil (Mr. O'Neill) said he thought that the Government had changed their mind because of the report from the Select Committee on Trade and Industry. With the greatest respect, the Select Committee on Welsh Affairs has presented four reports--some of which were published as long as four or five months ago--but has not received a reply to them. I therefore wonder whether the Trade and Industry report was the reason for the Government's change of mind. If it was, good luck to the hon. Gentleman and his Committee.
Regardless of whether the Government have made a U-turn, I fully support the Government's policy. I have been very concerned, for example, about loss of the monopoly, the 5 or 6 per cent. loss of business, and the damaging prospect of automatic credit transfer. In Wales, ACT is likely to see off about 55 per cent. of rural post offices. We tamper with the monopoly at our peril.
Despite market forces and the need to liberalise, if the monopoly is ended, cherry-picking will inevitably result. In some parts of my constituency, postmen travel 10 or even 12 miles to deliver one letter. If so-called liberalisation is instituted, I do not know what will happen to families who depend on those postmen or what type of service they will be able to expect. The universal service obligation is extremely important, and one can but hope that it will be embedded in any future move to liberalise--or whatever one chooses to call it--the postal service.
I am therefore pleased that the Government have rethought the matter. The hon. Member for Ochil described that as a U-turn--perhaps it is; I do not know--but, whatever it is, I am pleased that it has happened. The postal service has the confidence of the people of the United Kingdom, and the Government will tamper with its monopoly at their peril. The public are squarely behind the postal service.
As hon. Members have said, we need to consider the possibility of directing less of the levy to central Government. Such a change may be one way--I know not--of ensuring a better future for the Post Office. It is one option that should be considered.
"the current monopoly is higher than is justified by the need to fund the universal service obligation."
A pound is too high, and even 50p would not jeopardise the universal service obligation.
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