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Session 2000-01
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Delegated Legislation Committee Debates

Draft Postal Services Act 2000 (Determination of Turnover for Penalties) and (Consequential Modifications No. 1) Order 2001

Second Standing Committee on Delegated Legislation

Monday 19 March 2001

[Mr. Bowen Wells in the Chair]

Draft Postal Services Act 2000 (Determination of Turnover for Penalties) Order 2001

4.30 pm

The Minister for Competitiveness (Mr. Alan Johnson): I beg to move,

    That the Committee has considered the draft Postal Services Act 2000 (Determination of Turnover for Penalties) Order 2001.

The Chairman: With this we may discuss the draft Postal Services Act 2000 (Consequential Modifications No. 1) Order 2001.

Mr. Johnson: The orders put in place the final planks of the new postal services legislation and bring to fruition our programme of Post Office reform. The Postal Services Act 2000 will change the nature of the Post Office by transforming it from a statutory authority to a plc that is owned by the Government. That will underline the greater commercial freedom that we have given it to enable it to compete more effectively in a changing communications market, which fulfils the promise that we made on coming to office four years ago.

The new Post Office will be better able to provide the efficient postal services that we need to support the business and social life of the nation. At the same time, the current postal monopoly will be replaced by a licensed area to be regulated by a new independent body. The changes will fundamentally alter the postal services market in Britain and pave the way for greater competition and higher standards of service to consumers throughout the country. The Post Office company will no longer receive its authority for the delivery of post from a statutory right, but from a licence issued by an independent regulator. That regulator—the Postal Services Commission, or Postcomm, as it calls itself—has a primary duty to ensure that the universal service obligation, the delivery of post to every address in the United Kingdom at a uniform tariff, is maintained.

Postcomm also has the option to license other companies to operate in the licensed area—subject, of course, to the overriding duty to maintain the universal postal service. It could even designate other postal operators as providers of the universal service or parts of the universal service where currently the Post Office is the only designated universal service provider.

The consequential modifications order, though extensive and in parts highly technical, is based on the simple premise of updating existing legislation to take account of the new regime established under the Postal Services Act. The Post Office and its functions and services are referred to in many Acts and statutory instruments. The order makes changes in such legislation to the references to the Post Office and its services to reflect the change in the market and the creation of the new company.

Typically, references in other legislation to ``Post Office'' are changed to ``universal service provider'' or ``postal operator''. The first expression is used when it is appropriate to restrict the provision to a licensed operator, which is under an obligation to provide or contribute to the nationwide postal service. The more general expression ``postal operator'' is used when there is no need for such a restriction. Other expressions that are being updated include ``postmaster'' and ``through the post office''. Definitions under the old Post Office legislation, such as ``postal packet'', which are now defined in the Postal Services Act, have also been updated.

The order makes the transitional, saving and supplementary provisions that are required to ensure that there is a smooth transition from the previous regime to the new one. It is a practical and necessary step towards the greater commercial freedom for the Post Office and the greater choice and service for the consumer that we all desire. It is essential to ensure that the existing legislation that refers to postal terms will operate effectively under the new regime. I commend the consequential modifications order to the Committee.

On the penalties order, we must remember that the regulator, Postcomm, is responsible for granting licences to operate in the licensed area and can include certain conditions in a licence. When Postcomm is satisfied that a licence holder has contravened or is contravening any condition of its licence, it may impose a penalty of up to 10 per cent. of turnover. The order specifies the manner of determining the turnover of a licence holder for the purposes of ascertaining the maximum penalty. That is an important step towards giving Postcomm teeth to police the new regime successfully. Postcomm will determine the actual penalty that will be imposed, in the light of the circumstances of the contravention.

The purpose of the Act was to create a strong and independent regulatory regime, which is why it was not prescriptive for fines. However, the limitation was introduced in view of support for giving a stated limit on penalties, which was strongly expressed last summer during the passage of the Act and the Utilities Act 2000.

The policy behind the order has been developed to be fair and so that an undue burden will not be placed on licence holders. A consultation document on the proposed approach was published and placed on the Department of Trade and Industry website on 19 December 2000, while interested parties were notified simultaneously. The Department is grateful for the responses that it received.

The key matters in the order are the period to which the penalty should relate, and the businesses that will be covered. The period that has been chosen is the financial year preceding the date on which Postcomm gives notice of a proposed penalty. If there is no preceding financial year, the turnover of the current financial year, up to the date on which Postcomm gives notice of a proposed penalty, will be annualised.

The order also provides for multi-year penalties. If a contravention continues for more that one year, but less than two years, the relevant turnover will be the annual turnover multiplied by two. If it continues for more than two years, the relevant turnover will be the annual turnover multiplied by three.

The annual turnover will be derived from services that the licence holder is authorised to provide under the licence. A number of alternative definitions were considered and ruled out, because they could have led to unfair treatment or encouraged artificial organisational structures. That is especially relevant to the postal services market, which is only partly regulated. For example, we considered that it would be inappropriate to impose a penalty for breaches of a licence condition that is in proportion to the whole of a company's business, as that company may have substantial postal business for which a licence is not required, or substantial non-postal business. It would not be fair for two licence holders that do similar quantities of business to face vastly different penalties because one has substantial other business.

The order specifies how to determine the turnover of a licence holder and ascertain the maximum penalty in a fair and pragmatic way. I commend both orders to the Committee.

4.37 pm

Mr. Richard Page (South-West Hertfordshire): The Minister knows that several hon. Members on this Committee served on the Postal Services Bill, which is now an Act. The official Opposition were constructive and endeavoured to encourage the Government when we thought that the proposals were on the right track, and tabled amendments when we thought that the Bill was not as effective as it might be.

We welcome the Act, which turns the Post Office—now Consignia—into a public limited company. That is a positive step, especially because the Minister has referred to the opportunity of introducing forms of competition in the whole of the postal service. It is right that the new arrangements should be controlled to ensure that all conditions, such as universal service, are maintained where necessary.

We have difficulty with the fact that the consequential modifications order contains 144 articles and two schedules, which is a bit rich coming from a Government who claim to want to reduce the burdens of regulation. The Minister will say that there is no need to worry as all the modifications are consequential. However, in his preamble, he used the phrase ``highly technical''. Perhaps he regrets saying that, but he is correct: there are highly technical aspects to the changes and it will be impossible, given the time available, to examine the potential impact of all of them.

Why, in article 27 of the consequential modifications order, which concerns Drainage Rates (Appeals) Regulations 1970, is the word ``provider'' not followed by the phrase

    ``within the meaning of the Postal Services Act 2000''?

That is not a trick question. I am innocently curious. That phrase is employed everywhere but in that article. I offer that question to the Minister as an example of the fingertip examination that the Opposition have applied to the matter.

We are dealing with the changes without knowing the terms of the licence. That is a concern. It is unclear whether the consequential modifications will have any impact on the licence. Will the changes be taken into account, or will the opposite be the case? It would have been sensible to have considered everything together.

It is apparent that the people who drew up the penalties order have never run businesses, because a 10 per cent. fine on turnover is draconian. The imposition of such a fine could drive businesses out of any form of postal activity. The Minister said that that would not happen. Why, then, is that level of penalty slipped in in the explanatory note? Perhaps that will be prayed in aid when something happens.

Our officials usually gold-plate to the nth degree, but they have not done that in a couple of places here. Article 2(1) of the penalties order states that

    ``the turnover of a licence holder shall be the licence holder's annual turnover.''

Does that refer to the turnover within the activity that is licensed, or to the total turnover of the business?

Article 2(2) states:

    ``Where the Commission is satisfied that a licence holder has contravened any condition of the licence for a period which is greater than 1 year but less than 2 years, the turnover shall be the annual turnover multiplied by 2.''

What is the annual turnover? Is it the first-year turnover, or is it part of the second-year turnover multiplied by the relevant fraction to reach the total before the two figures are added together and divided by two? If the market was growing, so that the first-year turnover was £1 million and the second-year turnover is likely to be £2 million, but only part of the year has passed, will the penalty amount to 10 per cent. of £1 million, or 10 per cent. of £1 million plus a proportion of the second year's turnover? The same point applies to the three-year calculation referred to in article 2(3), although I appreciate that the percentage difference will decrease as more years are added.

I am concerned about the almost casual inclusion of 10 per cent. Businesses vary. I know of companies that would be distraught if they failed to make 10 per cent. There would be examinations and inquiries about the appallingly low return on the companies' activities. However, I know of other organisations and operations—the oil industry, for example—that work on fractions of a penny on billions of gallons of turnover. In their case, a 10 per cent. penalty would drive them straight out of business.

If the Minister cannot satisfy us on those points, I shall ask the official Opposition—joined, perhaps, by the Liberal party—to vote against the penalties order. The consequential one is so long and complex that it is difficult to make a judgment, but I accept that it is merely consequential and does not fundamentally change the law.

4.46 pm


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