Community Postal Services

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Mr. Johnson: There are variations across Europe, but we were ahead of the game. If we use the criterion of weight—things become complicated when we begin talking about price—we have a £1 monopoly limit, which, in effect, equates to 350 g. That limit was already established when Holland and Germany had monopoly limits of 500 g. Germany has reduced its limit to 200 g. Most other countries still have a monopoly limit above ours, although in the Netherlands it will drop to 100 g in July.

The hon. Gentleman makes an important point about other considerations that may be brought into play, such as, in the Belgian example, the complicating factors of shape and size. Some European countries have placed direct mail outside the reserved area. However, the definition of direct mail in some countries is very different from ours and it limits the amount of mail excluded. Standard mail is cheaper in the United Kingdom than in the rest of Europe. Our monopoly structure is less complicated, being based simply on price, and at 60 g our first step is higher than in most European countries. The existing variation is one of the problems in striving for further harmonisation in 2003.

Miss Smith: According to the European Union document, the estimated burden of providing a universal service is only about 5 per cent. of the revenues of the universal service providers, but would not that figure change after full liberalisation, because universal service providers would have most of the best business creamed off? What is my hon. Friend's view on a possible compensation fund? I do not like the idea, but I am interested in his opinion.

Mr. Johnson: My hon. Friend, who knows a thing or two about those issues, hits on the complex question of how we should determine the value of the universal service at uniform tariff and how postal providers would be affected by its removal. Several pieces of analysis have been done and PostComm, which is welcome to the task, is analysing them all.

A study by the university of Toulouse suggests that the effects would be considerable. The Post Office says that the universal service obligation costs between £25 million and £30 million a year, but that covers only its obligation to deliver to every address, which competitors would not have to do. How zonal pricing would affect the ability to provide a uniform tariff, or what that uniform tariff would be if the cream were skimmed from some of the easier areas, is the subject of much discussion, varied advice and analysis. That question has dogged the debate for the past 10 years, and we need a thorough analysis of the situation, which we hope that PostComm will provide.

We are not taken with the notion of a compensation fund, not least because we do not regulate postal operators outside the licensed area, so the other 4,000 carriers are not regulated, nor should they be. The idea of a compensation fund is based on regulation of the whole industry. That is complicated and burdensome, and we do not think that it would work. The current system, in which there is a reserved area, is far simpler, wherever we decide that the reserved area should be. If, in future, we are sufficiently confident that a reserved area is unnecessary, we should abandon it completely, but a compensation scheme would not work and we have made our views on that clear in Europe.

Miss McIntosh: In 1997, the European Parliament was not keen on the proposal, but does the Minister accept that, following the previous elections and considering the Parliament's new composition, it might take a more favourable view of the directive?

Mr. Johnson: Well, it has not. The European Parliament expressed the view that we should move towards 150 g, which would constitute a 57 per cent. reduction in the monopoly area. We could do that in 2003 and there is wide consensus on it. However, the European Parliament does not see the value of setting an end-date of 2007 and believes that we should proceed more cautiously in implementing the Commission's proposal for a timetable. It made several other points, including one about outgoing, cross-border mail. That is de facto liberalised anyway, which makes the job more difficult. Nevertheless, that is a matter for co-determination with the European Parliament, and its views will be central.

Mr. Darvill: The regulatory impact assessments in the documents seem to concentrate on the universal provider, but will the Government or PostComm consider the wider impact on small businesses, for example? There is universal provision, but the level of that provision is relevant. It may be less than in the past and such a reduction could have an impact on small businesses, especially in remote and rural areas. Has any detailed study on that been carried out?

Mr. Johnson: Only insofar as the uniform tariff helps businesses operating in rural and remote areas. That is a central feature of what is called the Rowland Hill principle, which was created in the United Kingdom and exported worldwide. There are also concerns about the service provided. For example, many of those countries that believe that we should go further on liberalisation do not have two deliveries a day and/or do not deliver on Saturdays. That would obviously affect small businesses, because the two-delivery system is supposed to provide them with their first post by 9.30 am. Those are important considerations, but, as the regulatory impact assessment states, it is difficult to gauge the direct financial effects of the proposals, although we believe that a move to 150 g would not jeopardise any of those features.

Mr. Loughton: Will the Minister comment on the effect of new technologies on the number of items that the Post Office handles? E-mail usage generates more Post Office handling, as goods are delivered through e-commerce, but ordinary ``paperwork'' is presumably handled over the internet rather than through the post. What is the trend, in terms of Post Office volume? Does one form of mail cancel out another? Which part of the Post Office market is most threatened—if there is a threat—by the proposals?

Mr. Johnson: There are opportunities rather than threats. In spite of being predicted for many years, threats to postal services have not really bitten. For example, the delivery of packets, which cannot, by definition, be sent over the internet, has increased. There are opportunities for the Post Office to get involved in internet shopping; a Europe-wide 2 to 3 per cent. increase in volume over the next five years is predicted. However, new technologies may have an impact on the amount of mail of up to 60 g being sent. In that respect, e-mail is similar to fax; when it was introduced, people followed up the fax with a hard copy, which they have largely ceased to do. No one follows up an e-mail message by sending a hard copy through the post.

The Post Office might be the best organisation to ask for an analysis of the shifting perception of such threats. Our approach is to ensure that the effect on changing volumes in the postal market caused by the internet and e-mail services is taken into account before we can be confident about reducing the reserved area as suggested by the Commission.

Mr. Darvill: How will the Post Office cope with changes in information and communications technology and with liberalisation? Presumably, significant additional investment will be needed if it is to compete in a broader European market. Is my hon. Friend assured that such investment will be made available so that the Post Office is geared up to cope with the changes?

Mr. Johnson: We changed the basis on which the Post Office had to operate. The amount paid under the external financing limit was what the Chancellor, whatever his political persuasion, decided that he needed to fill the gap before the Red Book was published. The Post Office had to give back £1 billion in three years under that innocuous system, but it now follows the recommendation made by the Trade and Industry Committee in 1995 that the dividend should be 40 per cent. of post-tax profit, which is the kind of dividend that one would expect any company to pay its shareholders. That gives more money to reinvest in the business. Other measures in the Postal Services Act 2000 provide the Post Office with the ability to invest for all the challenges that it will face in the coming years.

Miss McIntosh: Can the Minister throw a little more light on the position of the Swedish presidency? I understand that Sweden and Finland have a more liberal system than the directors even purport to achieve. I believe that in city areas, especially Stockholm, where there is greater competition, tariffs have come down. Can he confirm or deny that?

Mr. Johnson: The Swedes are keen to resolve the issue by the end of their six-month presidency and the matter is likely to be discussed in June. The Swedish and Finnish post offices, which are still publicly owned, have a far more liberalised approach and they have effectively abandoned reserved areas. The effects are more complicated and, as I said in response to a previous question, consumer bodies in Sweden are anxious about worsening services. Tariffs have increased, because VAT has been placed on postal services, and we would expect zonal pricing to benefit city centres, because they are the easy part of the network. A company called Citymail has been variously in the public and private sectors, but is now owned by the British Post Office. I believe that rates have reduced for city-centre residents, but Swedish consumer groups might say that that has been at the expense of people who live in more remote areas.

Mr. Loughton: Why did the cost of sending a standard-weight letter to EU countries recently increase by almost 25 per cent., whereas it had always been pitched at the same rate as a first-class stamp inland here? Was the rate mutually adjusted throughout the EU and are there implications for what we are discussing today?

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