Community Postal Services

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Mr. Johnson: The hon. Gentleman raises a subject that is close to my heart. I think that the Royal Mail decided about 15 years ago that mail of up to 20 g rather than 60 g going to any EU country would be charged at the domestic first-class tariff. It took that decision in the spirit of encouraging harmonisation and for the good of the EU, on the basis that people would be moving between countries. There was no obligation on the Royal Mail to take that action, and only six other member states did the same. The Royal Mail incurred a loss: there were no profits in the decision, which was an example of geographical cross-subsidy, and it abandoned the system when four of the initial six states left the arrangement.

Something called the Reimbursement of External Mail System (Services) raises the issue of terminal dues. A decision was taken to try to tackle re-mailing, whereby countries sent mail out to have it posted back at lower rates. A different terminal dues process was proposed to tackle that, which made it impossible in any case for the Royal Mail to pursue the principle that I have described. We should not therefore blame it for those changes. Indeed, the Royal Mail laboured with the system for many years after other countries had deserted it. That led to a tariff increase, because there was a heavy cross-subsidy under the former system.

That has implications for what we are discussing only inasmuch as the quality of service between EU countries was meant to improve under the 1997 directive, so that 86 per cent. of mail posted to other EU countries would arrive within two working days. That level has been hit, so the quality of service has improved. On the tariffs that are applied, there is no possibility of returning to the system that I certainly appreciated and which I think the hon. Gentleman and the British public also appreciated. Under the REIMS II terminal dues process, that would be a mission impossible for the Royal Mail. In fact, doing so would cost it millions of pounds and make it less competitive.

Mr. Darvill: Presumably, the step-by-step approach exists so that there will not be too adverse an impact on universal provision. In the event of the proposals going through and there being an adverse effect greater than that envisaged, would the further introduction of liberalisation from 2007 onwards be impeded? Could we hold back or perhaps even reverse decisions if there were too adverse an impact?

Mr. Johnson: My hon. Friend makes an important point. As Richard Nixon said, once the toothpaste is out of the tube, it is very difficult to get it back in again. With a universal service at a uniform tariff, we cannot go in any direction other than down. We cannot go down, find that we have made a mistake and then try to bring it up again. Companies have been set up on the basis that they do not need a licence because they are operating outside the licensed area in UK domestic terms. To have to tell them, ``Oh sorry, we've made a mistake and you now need a licence'' is the disaster scenario that we are all seeking to avoid. That is why we have to be sure that at every step along the route, which may be to full liberalisation, we protect the universal service at uniform tariff. We made provision for that in the Postal Services Bill. The chief objective of PostComm is not to encourage competition—that is its second objective—but to protect the universal service at uniform tariff. We can do that only by ensuring that we are never in the position of having to suggest increasing the reserved area limit.

Mr. Richard Page (South-West Hertfordshire): Will the Minister clarify one point? He told my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) that when the price of a stamp was the same throughout Europe, it cost the Royal Mail money. It gave the impression that the philanthropic Royal Mail was operating to the general benefit and good of everyone. However, I thought that the deal with the rest of Euroland earned the Royal Mail about £40 million to £45 million a year, simply because of the odd arrangement whereby the country that collected the letter took the majority of the value of the stamp and the country it went to had to deliver it for a tiny piece. As everyone knows, the expense is in the delivery, not the collection. The Royal Mail would have liked to continue with the arrangement, but the other countries were pulling the plug on it.

Mr. Johnson: As the hon. Gentleman knows from his previous ministerial experience, terminal dues are a horrendously complicated area. He raises two different points. The domestic tariff of 25p that applied to anywhere else in the European Union resulted in a loss for the UK. There was no question about that; it was done for philanthropic purposes. The Royal Mail has done many such things because of its concern to provide a good public service.

Terminal dues changed from being a weight-based system to a cost-based system. The hon. Gentleman is right; under the old weight-based system, the number of items received from another country would be weighed and an amount would be returned for the cost of delivering them. The system was imprecise and riddled with problems.

We have now moved to a cost-based system for terminal dues. The UK Post Office pays the Italian Post Office the cost of delivering post from the UK to Italy. I am not sure whether that was beneficial, as the UK is a net exporter of mail. I cannot recall—perhaps I will receive a first-class letter before the end of the debate to tell me—whether that was beneficial. I seem to recall that it was not. Countries such as Ireland gained from that, but countries such as the UK did not because our costs were much lower. The cost of delivering Italian mail in the UK was much lower. We still have the lowest rates by any definition in Europe. The Italian Post Office had its mail delivered at low cost. The cost of our mail as net exporters to Italy was much higher. I will check on that point. There are two separate issues. I am sure that the hon. Gentleman would give credit where it is due to the Post Office for operating that system in the EU for so many years.

Mr. Page: I thank the Minister for his answer. He is right; I was putting the two together. It is sometimes difficult when doing deals to split the two. Does he accept that the percentage of the standard letter rate in this country was greater and retained more than the delivery costs? As he will know from his own vivid experience, it costs more to deliver than to collect. I pay tribute to the Royal Mail, whose efficiencies then were such that it put the others involved to shame and we were benefiting to the tune of £40 million to £45 million.

Mr. Johnson: I accept those points. The cost of delivery is four times greater than the cost of processing and dispatching. The hon. Gentleman makes an important point.

Miss McIntosh: May I take the Minister back to the Swedish model? [Laughter.] As I am half-Danish I know that there is a great similarity between Swedes and Danes. Will he assure the Committee that during their short remaining time in office, the Government will not impose VAT on the activities of the postal service? He might draw some comfort from the fact that Sweden is more deeply rural than even the part of the United Kingdom that I represent, or Scotland and the outer isles. This country would not encounter, to the same degree, the difficulties that are encountered by Sweden and Finland.

Mr. Johnson: I am happy to be taken back to the Swedish model. I confirm that we will not impose VAT on stamps. We are opposed to that and, in the many more years that we will be in government, we will reject that. However, it might be different if the services were privatised. The VAT condition is based on certain public sector rules, but that is another matter.

Finland and Sweden are completely different countries. The point that the hon. Lady made—I have made it many times myself—is that one cannot look at another country's model and say that it should be replicated here. Countries such as Sweden and Finland have completely different geographical spreads and centres of population, and their postal services do not deliver on Saturdays, collect on Sundays or provide two deliveries a day.

Miss McIntosh: I have a particular interest in the subject. I followed the course of the directive, from its inception to its adoption, through the European Parliament Committee on Regional Policy, Transport and Tourism. Returning to the British model, if the directive is to be a success and if a future Government of any persuasion were to privatise or partially privatise the Post Office, it would be particularly important, in applying the directive and liberalising the services, to beef up the rural network. I was privy to a briefing from the Leeds regional directors who are responsible for the North Yorkshire network. I was impressed by the Post Office's elaborately planned network for cities, towns and urban and suburban parts of the network, but there are huge gaps in the rural network. Will the Minister seek to plug those gaps at the earliest opportunity? The rural network is simply not elaborate enough, and a spate of rural post offices have closed or are under threat of closure because sub-postmistresses are retiring.

Mr. Johnson: The hon. Lady mentioned the Post Office network. Future privatisation of the Post Office is hypothetical in the sense that we certainly have no plans to privatise it. The Opposition's manifesto will be interesting; I presume that they plan to privatise the Post Office. Our view is that the rural network would be jeopardised by such a move. It has always been the most fragile part of the Post Office network and is cross-subsidised to the tune of £30 million, in that rural sub-postmasters receive up to eight times as much per transaction as sub-postmasters in urban offices do. The National Federation of Sub-Postmasters might say that they are personally cross-subsidising it, but that situation has existed for many years. It is a recognition that the rural network will never be cost-effective or financially viable purely on the provision of services—anyone associated with the Post Office would agree—but it is absolutely crucial to the social fabric of the country.

I shall resist the temptation to go into more detail about issues on which we have exchanged views on many occasions, because they are not entirely relevant to the directive. However, I think that there is cross-party consensus on the value of the rural Post Office network. There might be differences about how we continue to protect it, but I believe that the hon. Member for Vale of York (Miss McIntosh) and everyone else are determined to try to protect it.

We announced some ideas recently; for example, we asked why incoming sub-postmasters of any post office with a turnover of more than £14,000 were charged 25 per cent. of their first year expected salary up front. I do not know why, but that was introduced in 1989. We have just abolished it at a cost of £8 million to £9 million. It militated against people coming into the business, which is the problem that the hon. Lady rightly identified; attracting new people to the network.

I shall resist the temptation to continue, as the Whip will start kicking my leg if I go on any further.

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