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Mr. Jim Cunningham (Coventry, South): On the record of the Conservative Government, will my right hon. Friend clear up the matter of the Horizon project? To listen to the Opposition, one would think that they were going to find a solution, although, in fact, the project was a consultant's gravy train. Let us nail their lie.

Ms Hewitt: I shall come back to Horizon, which was another botched procurement by the Conservatives. The position that we inherited in 1997 was as follows: more than a decade of underinvestment, 3,500 post offices closed, ministerial micro-management because of a refusal to give commercial freedom, hundreds of thousands of days lost to industrial action, and the Royal Mail left behind in an increasingly competitive world. So we acted. We immediately gave the Post Office greater

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freedom to borrow and invest. As I said, we cut the dividend from 90 per cent. under the Conservatives to 40 per cent. In the Postal Services Act 2000, we put the universal service obligation into law for the first time. We put in place a new regulator with a duty to safeguard universal service. We created a strong new voice for postal consumers and we gave the Post Office the commercial freedom for which management and unions had been asking for years.

Reform and investment go hand in hand. We have reformed the legal framework. We have also invested £450 million to computerise the post office network and earmarked another £270 million for it. We have been strengthening the management of the company, which many of my hon. Friends welcome. There are new non-executive directors for the board, including Allan Leighton, and new executive appointments, including a new finance director. We are continuing to strengthen the company's management through the open recruitment of a new chairman and a new chief executive for the post office network business.

Let us be clear about the enormous challenges ahead. The company is losing money. Its costs are continuing to rise, just as they did in the 1980s and 1990s, while the growth in mail on which it used to depend continues to slow, not least because of e-mail. Some 6,000 other firms now operate in the distribution business outside the regulated letter market. Greater competition will become a feature of the regulated part of the sector as the Postal Services Commission begins to exercise its powers and new European legislation comes into force.

Mr. David Drew (Stroud): Will my right hon. Friend assure me that any licensed operator will pay the full relative cost to the regulator that Consignia has to pay? That is a key element in ensuring a level playing field when there is competition.

Ms Hewitt: The regulator is taking that into account in deciding on the new framework for competition.

There are enormous changes. Consignia is talking to its customers and work force. It has made no firm proposals to change the way in which the post is delivered. It is a great pity that the hon. Member for Maldon and East Chelmsford and other hon. Members keep quoting utterly ill-founded press reports. Any changes that the company wants to make will need the approval of the Postal Services Commission, the regulator, and Postwatch, the consumer body.

However, we know, and the hon. Gentleman said, that the company is not delivering consistently for its customers, who are our constituents. People in the company are working hard and in many parts of the country they are meeting—indeed, exceeding—their targets, but in far too many places customers cannot count on reliable mail delivery. That is because of long-standing industrial relations problems that should have been sorted out when the company was financially strong and the Conservative party should have given it the support and the chance to change.

If hon. Members look at the report produced last year by my noble Friend Lord Sawyer, commissioned, with our support, by the company and the union, they will find it easy to understand how fundamental industrial relations are to the company's future. There are many areas, such

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as my city of Leicester, where management and unions work effectively in partnership, and the customers get a good service as a result. However, in other mail centres, such as those in many parts of London and in Liverpool, the management culture is Victorian. Lord Sawyer's report mentions staff in the sorting offices having to put up their hands before they are allowed to go to the toilet. Such a management culture should not be tolerated in the 21st century. As Lord Sawyer put it, there are mail centres where

That cannot go on.

I have described the tough challenges that the company faces from the changing market and increasing competition. Management and staff cannot afford to make things worse for the customer and for themselves by failing to find a way to work together. It is clear that the best way to improve pay and conditions for postal workers is to create a real partnership and to make the company more efficient and more effective.

For years, management and the unions begged the Conservative Government for commercial freedom. Now, with a Labour Government, they have it. It is time for them to listen to each other and to find a way to provide more reliable services to their customers. They cannot take for granted the loyalty of those customers, and they certainly cannot expect taxpayers to keep bailing out a loss-making company.

Mr. George Osborne: Will the Secretary of State make it clear that if there is a postal strike, she and her Government will absolutely condemn it?

Ms Hewitt: Management and the unions are in talks and are working with ACAS. I have made it crystal clear that I hope very much that they will resolve the matter so that there will be no industrial action.

Mr. Connarty: On a related point, and in contrast to the inflammatory approach of the Opposition, may I ask my right hon. Friend to confirm that a study of industrial relations in the Post Office delivery section and other sections since last August—in fact, since Lord Sawyer did his good work—shows that there has been little industrial action and lost time, and every effort is being made to secure a settlement with ACAS?

Ms Hewitt: My hon. Friend is right: the immediate impact of the Sawyer report was indeed to improve matters. I very much hope, as indeed does my hon. Friend, that the improvement will continue.

Geraint Davies: My right hon. Friend may not know of the proposal to close the post office in East Croydon or that, as the area has a massive public transport interchange and many people pass the post office when it is closed in the mornings and evenings, the unions say that they are willing to work flexibly outside the normal hours and, indeed, consider staff reductions. Does she

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agree that such a partnership approach, taken in the knowledge of commercial reality, is what we need if we are to have a vibrant Post Office?

Ms Hewitt: I certainly do not know the details of the situation in the East Croydon office, but I entirely agree with my hon. Friend's general point.

Mr. Edward Leigh (Gainsborough): Before the right hon. Lady leaves the subject of post, will she say a word about the report published last week by the National Audit Office? Will she comment on the tensions underlined by the report between the desire of us all to increase competition with the help of Postcomm, the equally strong desire to maintain the universal service obligation and the inevitable fact that companies wanting to compete with Consignia will want to cherry-pick from the profitable business sector, leaving Consignia to fulfil the universal service obligation, particularly in rural areas?

Ms Hewitt: It is precisely because of the importance that we place on the universal service obligation that we made its maintenance the No. 1 duty of the new postal services regulator. As the NAO report also says, rightly, competition will not only benefit customers but encourage Consignia itself to improve its services and offer its customers greater choice and reliability.

I turn now to the post office network. We inherited a post office network that, just like the mail business and the parcels business, had been weakened and undermined in the Conservative years. Again, unlike the Conservatives, we are doing something about it. This afternoon, the hon. Member for Maldon and East Chelmsford was, once again, talking down the post office network. Just last week, Colin Baker, the general secretary of the National Federation of Sub-Postmasters, dismissed as "rubbish" recent newspaper reports of widespread post office closures. Those are precisely the reports on which the hon. Gentleman relied. Colin Baker said:

He went on to say:

He must have had an advance copy of the hon. Gentleman's speech.

Angus Robertson (Moray): On the concerns of sub-postmasters, may I raise a point made to me by my local sub-postmaster in Fochabers, Mr. Paul McBain? He estimates that the introduction of the automated credit transfer scheme will cut his business by between 50 and 80 per cent. Will the Secretary of State take this opportunity to announce what she will do to reassure my constituent and many others that their post offices will not become unprofitable and go out of business?

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