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Mr. Cook: I shall certainly put down the interest in a debate on science as something for us to consider when the opportunity arises. I welcome what my hon. Friend says in praise of the speeches by my right hon. Friends the Prime Minister and the Chancellor of the Exchequer. I always welcome the opportunity to support and agree with as many speeches as possible by my Cabinet colleagues.

As my hon. Friend underlines, there is a commitment to science at a high level in the Government. We certainly want to ensure that we maintain the strong, excellent and necessary infrastructure that we have in science teaching and research in this country.

13 Jun 2002 : Column 1016

Consignia

1.21 pm

The Secretary of State for Trade and Industry (Ms Patricia Hewitt): I should like to draw the attention of the House to my declaration of interests contained in the register.

With permission, Mr. Speaker, I shall make a statement to the House on postal services in Britain. This morning, Allan Leighton, the chairman of Consignia, announced the second phase of the company's restructuring plans. He announced that the Royal Mail would save £350 million a year by moving to a single delivery at a consistent time, six days a week, and that those plans would result in a further 17,000 redundancies over the next three years. He said:

"The underlying loss from operations . . . graphically shows why we need to restructure the company and embark on a three-year renewal programme to restore profitability".

Thousands of postmen and women now face an anxious and difficult time. These are very painful decisions for the work force, who have shown their commitment to serving the public and who have often been frustrated and angered by poor management and failure to invest in better ways of working. Allan Leighton has made it clear that the company aims to achieve the reduction in jobs on the basis of voluntary redundancy and by offering alternative jobs within the company. Early indications from the Parcelforce restructuring, which I reported to the House on 25 March, suggest that that can be achieved. We will, of course, do everything that we can through Jobcentre Plus and other agencies to help people who leave the Royal Mail to get new jobs as quickly as possible.

The need for radical action is underlined by the company's financial results for the last financial year, published today, in which it announces a £1.1 billion pre-tax loss. Much of that loss comprises exceptional costs from restructuring, but the company made an underlying loss of £318 million on its day-to-day operations.

Central to the programme to restore the Royal Mail's business to profit, and to improve customer service and efficiency, is the reorganisation of mail deliveries that Allan Leighton announced today. The Communication Workers Union has said that it, too, supports the ending of the second delivery.

Twenty years ago, 15 per cent. of all mail arrived by the second delivery; today it is just 4 per cent. But that 4 per cent. of mail accounts for 20 per cent. of delivery costs and 30 per cent. of delivery time. Most other European countries, with far higher postal prices, make only a single delivery each day and none of them has a target of delivering before 9.30 am.

In future, customers who regularly receive 20 or more items of mail a day will get their delivery between 7 am and 9 am. That will include people working from home as well as businesses. All other customers will receive their mail by lunchtime. These changes will mean that 1 million more first-class letters every week should arrive on time. The changes will also mean that within a six-day delivery system, postmen and women will be able to work a five-day, instead of a six-day, week.

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Let me put Consignia's announcement into context. This morning, Allan Leighton said:

"These losses did not happen overnight. Unresolved issues and problems stretching back for up to a decade are reflected in these results".

When this Government came to office in 1997, we immediately took steps to fulfil our manifesto commitment to give the Post Office what management and unions had long been arguing for—greater commercial freedom. The Postal Services Act 2000 completed that process, creating a public limited company and giving it the freedom to borrow for growth investment. We cut the dividend to normal commercial levels and announced the appointment of a new finance director in October 2000.

In April 2001, Lord Sawyer was appointed to look at deep-rooted industrial relations problems in Royal Mail. This year, we strengthened management further by appointing a new chairman, Allan Leighton, and securing a new chief executive for the Post Office network.

Greater commercial freedom is the right policy, but in exercising those new freedoms, decisions were made that, with the benefit of hindsight, we can now see were wrong. In his announcement, Allan Leighton said:

"management mistakes have been made over a number of years".

The company decided, for example, to expand internationally, a strategy that was supported by many distinguished observers, including the Select Committee on Trade and Industry. But other European postal operators were already ahead of the game, and in the meantime, disastrously, Consignia lost control of its costs at home. Costs went on rising at a time when revenue growth was slowing. In 2001, the growth of mail volume, at 3 per cent., was half that of 1999.

The financial results published today show that, over the past year, overall turnover grew by 3.6 per cent., but that was outstripped by a 4.8 per cent. rise in costs. The result is that the company is now running at an underlying loss of £1.2 million a day. Those losses cannot continue, and over the next three years, under the renewal plan, the losses will be eliminated and the company returned to profit.

I can also inform the House that the company announced this morning that the group chief executive, John Roberts, will retire later this year once his successor has been appointed. The search for his successor will begin immediately.

Let me stress that today's announcement, like the Parcelforce restructuring, is not the result of any decision by the regulator. Both announcements are about stemming the losses and creating an efficient company. Today's announcement would have been made whatever the decision by Postcomm. However, I would like to put on record the fact that I welcome the announcement by Postcomm a few weeks ago about the adjustments to the timing of its proposals for market opening, the change in the definition of bulk mail and the decision to monitor the market closely to ensure that the universal service, its first statutory objective, is not put at risk. In reaching its decision, it is clear that Postcomm has listened to the many representations made by hon. Members as well as by other stakeholders, including the CWU. The challenge now for Consignia is to improve the quality and reliability of its services, so that it can keep its customers rather than losing market share.

13 Jun 2002 : Column 1018

Let me deal next with the financial issues associated with today's announcement. I have agreed a package of measures to put the company on the right financial footing to enable it to deliver this renewal programme.

Consignia plc has reserves on its balance sheet of £1.8 billion, which represents accumulated past dividends and cash generated by the business. These are more commonly referred to as the gilts. We now propose that the £1.8 billion of gilts will be held by the group holding company as reserves while the business is being turned around. Those reserves will be available to back the investment required in the mails business to implement the renewal programme and to support the nationwide network of post offices, subject, where necessary, to the relevant state aid clearances.

As I explained to the House on 25 March, the Government have agreed to forgo the projected dividend for 2001–02, releasing an additional £64 million for the company. I told the House then:

"A decision on dividends for other years . . . will be taken in the context of the strategic plan."—[Official Report, 25 March 2002; Vol. 382, c. 571.]

I can tell the House today that the company will be allowed to retain the notional dividends for the previous year, as part of the overall £1.8 billion of reserves.

In addition, in case there is any doubt, I can confirm that the Government do not expect to take cash out of the business by way of future dividends during the three years of the renewal plan.

As part of the decision on the gilts, we have agreed to fund the Post Office network's historic losses. David Mills, the new chief executive of the Post Office, is working up a strategic plan for the network that will look at new ways of increasing revenues from commercial activities. As we informed the House on 26 April, we have also committed up to £210 million for compensation for sub-postmasters in the urban networks who are planning to leave the business, and for investment to improve urban post offices. The House will have a further opportunity to debate this when state aid clearance is granted.

I welcome today's announcement by the company that it intends to change its corporate name to Royal Mail Group by the end of this year. I can inform the House that Her Majesty the Queen has agreed in principle to this name change. I do not think that any of us will mourn the disappearance of the name Consignia.

Allan Leighton and his colleagues have shown that they are willing to make the very tough decisions that are needed to turn the company round. But the company is now set on a course for renewal and recovery. It will not be easy, as today's announcement shows, but it is essential if we are to have a Royal Mail that the work force can be proud of and that delivers the service that customers deserve.

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