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Mr. John Whittingdale (Maldon and East Chelmsford): I thank the Secretary of State for giving me good notice of the statement that she has just delivered. However, does she agree that the figures that have been announced by the Post Office today are truly shocking?

Three years ago, the Post Office was making annual profits of about £500 million. The then Secretary of State was boasting that it had a golden future in the public

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sector and that it was set to become a major global player. Instead, its performance has steadily deteriorated, morale and industrial relations have plummeted and it is now losing, by its own admission, £1.2 million every trading day. Yet this disastrous collapse has occurred during a period when the Post Office still has a monopoly in its core business, and when the volume of mail has gone on rising every year. It is an extraordinary achievement to have turned a highly successful business into a financial disaster, when turnover has gone on rising and it is protected from any competition.

As the right hon. Lady says, part of the blame lies with weak management. It lies also with militant trade unions. Ultimately, however, responsibility must rest with the Government, who remain the sole shareholder in the Post Office and who have been interfering in its management on a daily basis. Yet in her statement there was no acceptance of any blame on the part of the Government. Instead, as usual, she tried to suggest that somehow the fault all lay with the last Conservative Government. Will she at least accept that her Government must take some responsibility for this disaster and express some regret?

The measures that have been announced by the Post Office today are undoubtedly necessary. They will not have come as a surprise to the work force, who learned before Christmas that up to 30,000 redundancies were in prospect. At the time, we were told that that was speculative arithmetic. We now know that that forecast was entirely accurate, although we welcome the fact that it has been stated that it is intended to achieve the redundancies by voluntary means.

The Secretary of State said that the cost is to be met by utilising the money invested in gilts by the Post Office over many years. However, until now, that money was regarded as a payment to the Treasury under the requirements of the negative external finance limit. Will the right hon. Lady confirm that in essence the Government are giving the money back to the Post Office? Will she confirm also that that will require clearance by the European Commission under the provision for state aid?

I turn to the other elements of the restructuring proposals. The Secretary of State did not even mention that the Post Office has applied for a price increase in the cost of first and second-class mail. Will she give an indication of the Government's attitude towards that application? Is she satisfied that the Post Office will not simply try to increase its prices in the area in which it still has a monopoly to subsidise its heavily loss-making operations in areas where it is subject to competition?

The Secretary of State said that the changes would mean that in future up to 1 million more first-class letters should now arrive on time. I have to say that that is not much of an accomplishment if the target time for delivery is to be moved from 9 am to lunchtime.

The Post Office has sought to justify its decision to drop the second delivery on the ground that it accounts for just 4 per cent. of the mail, but 20 per cent. of its costs. Will the Secretary of State acknowledge the fears of some small firms, many of which operate from home, that rely on the post for their cash flow and orders and are worried that the decision may lead to a significant drop in the standard of service that they receive and add

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a significant extra cost? Will she ensure that people who are concerned that they may not qualify for the protection and additional priority given to those who receive 20 items of mail a day have some capacity to apply to the Post Office for priority treatment?

The Secretary of State made brief reference to the regulator's proposals to open the postal market to competition, which is clearly a crucial factor in the Post Office's long-term prospects. I welcome the fact that the Government have resisted pressure from Labour Back Benchers to abandon the commitment to introduce competition and that the revised timetable issued by Postcomm involves only a slightly longer delay before full liberalisation takes place.

Does the Secretary of State agree that liberalisation offers considerable additional opportunities to the Post Office, including new sources of revenue, by allowing other operators access to its delivery network? However, if that is to be achieved, it is vital that sensible network access charges are agreed, so does she share my regret that the Post Office has so far been unwilling to negotiate realistically with those who wish to set up competing services? Does she agree that if there is to be true competition, it should be on an equal basis, which requires the issue of VAT to be addressed? Does she accept that, under the present arrangement, the Post Office has a 17.5 per cent. cost advantage over its competitors for about half its business, which acts as a barrier to the development of fair competition?

What are the Government's long-term intentions for the Post Office? When the Postal Services Act 2000 was passed, we were assured that it would remain a fully state-owned corporation, yet we now know that just a short time afterwards, negotiations were opened to sell it to the Dutch post office, TPG, and that that would have happened had negotiations not broken down. Are any negotiations currently under way and are the Government still willing for the Post Office to be sold to a foreign operator such as Deutsche Post? What do the Government intend to do to maintain and sustain the post office network, particularly in rural areas? The Secretary of State barely mentioned that in her statement, yet it is now just nine months until payment of benefits across post office counters ceases, which will deprive sub-post offices of up to 40 per cent. of their revenue. Even now, the Department for Work and Pensions is preparing letters to benefit recipients informing them that in future they should get their benefits via bank accounts.

The recommendations of the performance and innovation unit report have not been implemented. The "Your Guide" project was successfully trialled in Leicestershire, but has now disappeared completely. The Postcomm report on supporting the rural network has been sitting on Ministers' desks since December, yet nothing has been done. The Government must make clear what they intend to do to maintain the rural network and prevent the closure of thousands of sub-post offices that are under threat.

Finally, I welcome the one piece of good news that has been announced today—the decision to drop the name Consignia and revert to Royal Mail. Will the Secretary of State admit that the decision to drop a name trusted and respected across the country and replace it with an utterly meaningless name that has become the object of mockery and derision was one of crass stupidity? Is it not typical of the Government that, rather than tackle the underlying

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problems, they preferred to waste money on a re-branding that has cost millions and persuaded no one? Is it not the case that when the history of the Government is written, the name Consignia will always be remembered, along with the Jo Moore e-mail, Tony's cronies and the millennium dome, as a symbol of all that is rotten about them?

Ms Hewitt: Until that last comment, I felt that the hon. Gentleman was treating this matter with exactly the seriousness that it requires.

The hon. Gentleman asked about the £1.8 billion of gilts. As I have said, we made it clear to the company that we had pledged that money to back the investment in Royal Mail's business to turn it round and to support the nationwide network of post offices. I can add that we have said that we will work with the company to help it to ensure that its borrowing requirements for working capital will be met from the national loans fund on appropriate commercial terms.

The point about the gilts is that, particularly under Conservative Governments, the company was forced to exchange the dividends—at a rate of 90 per cent. of the profits—for gilts. That reserve was never available to the company so that it could invest in the modernisation that was required. We are now making it available, to support the necessary investment and restructuring.

Royal Mail is discussing the application that it intends to make for a 1p rise in the prices of first-class and second-class stamps with both the regulator and Postwatch, the consumer body. It hopes to make the application before the end of the month.

It would have been quite wrong to agree price rises in the past simply to mask and compensate for the company's inefficiency. Some years ago, Lord Heseltine, the former President of the Board of Trade, confessed to the Select Committee on Trade and Industry that in the case of a publicly owned monopoly there was always the temptation—indeed, it was a reality—to go on raising prices rather than dealing with underlying losses and inefficiencies. I hope that, now that the company has grasped the seriousness of the problem and established the necessary restructuring, the regulator will look favourably on this modest application.

The hon. Gentleman raised important questions about the need to ensure that small businesses and people working from home, who do not necessarily qualify for the 20 items per day, will nevertheless have their requirements met by the tailored delivery service. That is exactly the kind of issue that the company will bear in mind when the pilot schemes start next month.

The hon. Gentleman raised a number of serious points about market opening and the role of regulator. As we made clear in the Postal Services Act 2000, we believe that the regulator's first duty must be to preserve the universal service obligation. Subject to that, however, both Royal Mail and customers can gain real benefits from market opening and the competition, innovation and greater choice that will result from it.

In Germany, where the bulk mail sector has been open to competition for some time, there has been a substantial increase in the amount of bulk mail. That has benefited Germany's former monopoly company, not only because it is securing its own share of that growing market but because it can sell network access to its competitors.

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That is precisely what will happen in Britain as the bulk mail sector is opened up. The company must of course negotiate fair and non-discriminatory pricing for network access with new entrants to the market. I believe that it will do so, but if it does not, Postcomm will be able to adjudicate.

The hon. Gentleman clearly forgot that his question about VAT was dealt with in the sixth VAT directive, which I am sure he knows well. It requires VAT not to be levied on public postal services.

The hon. Gentleman asked about long-term intentions. As the then Minister for E-Commerce and Competitiveness, my hon. Friend the Member for Paisley, South (Mr. Alexander), made clear to the Select Committee some weeks ago, the company was reviewing all its strategic options last year, including partnerships with other companies. As part of that, it entered into discussions with the Dutch mail, TPG, about the possibility of a merger. It was not possible to reach an agreement or common ground and no decision was made by Ministers because no proposal for a merger was put to us. The vision and the intention is simple: we want a successful, publicly owned postal service.

I stress that imposing on the company a duty not to close rural post offices, except when unavoidable because no one can be found to do the job, has slowed down—indeed halved—the rate of sub-post office closures in rural areas. Contrary to what the hon. Gentleman said, we are implementing the important recommendations of the performance and innovation unit report. The universal banking service is on track for next year. It is important to remember that when people cash their benefits at the sub-post office, whether through the new post office card account, a basic bank account or an ordinary bank account using one of the automatic teller machines, the sub-postmaster or mistress will receive a transaction fee and benefit from the fact that customers are coming to the post office.

As the hon. Gentleman said, there was a useful pilot of "Your Guide" in Leicestershire and Rutland. It is currently being evaluated, and I expect to receive the report in a few weeks. We shall shortly announce our decisions on payment, which cannot be met commercially, for the social services that rural sub-post offices provide.

The hon. Gentleman acknowledged that we are considering major decisions by a company that is determined to turn itself around. I hope that he will recognise that the source of the problems that have caused today's great losses goes back a long way. It is important not to indulge in finger-pointing, name-calling or trying to allocate blame but to support the company in its difficult decisions, and support the management and, above all, the work force in taking the company forward. The Government and Labour Members are doing that; I hope that the hon. Gentleman and Conservative Members will give the company the support that it deserves.

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