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Delegated Legislation Committee Debates

Draft Postal Services Act 2000 (Determination of Turnover for Penalties)(Amendment) Order 2001

Second Standing Committee on Delegated Legislation

Tuesday 22 January 2002

[Miss Ann Widdecombe in the Chair]

Draft Postal Services Act 2000 (Determination of Turnover for Penalties) (Amendment) Order 2001

The Chairman: Before we start, I remind the Committee that mobiles and pagers should be functioning silently or not at all.

10.30 am

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): I beg to move,

    That the Committee has considered the draft Postal Services Act 2000 (Determination of Turnover for Penalties) (Amendment) Order 2001.

The Chairman: With this it will be convenient to take the draft Postal Services Act 2000 (Modification of Section 7) Order 2002.

Miss Johnson: We have before us today two small measures that make minor modifications to the regulatory regime for the postal services market. The Determination of Turnover for Penalties (Amendment) Order 2001 is a small technical measure, which amends the principal order to correct a defect that was spotted when that order was debated last March. Two days after the debate, when the order was debated in the other place, my noble Friend Lord Sainsbury acknowledged the defect and promised that we would introduce a suitable amendment. On 27 March my hon. Friend the Minister for Employment and the Regions wrote to all Committee members, making the same point.

It will be recalled that the principal order set the way to determine turnover for the purposes of calculating the maximum penalty that the regulator, the Postal Services Commission, often known as PostComm, can impose should a licensee breach his licence conditions. The general principles of setting a limit on the maximum penalty were widely accepted during the passage of what is now the Postal Services Act 2000. The provisions were introduced following representations made during debates on that Bill.

The principal order provided that the turnover by reference to which the maximum penalty is calculated be generally based on a licensee's annual turnover in the licensed area. However, for breaches lasting for more than 12 months but for less than two years, we provided for the turnover in question to be based on twice the annual turnover; where a breach continues for longer than two years, we provided for the turnover in question to be based on three times that annual turnover.

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We realised after the intervention of the hon. Member for Somerton and Frome (Mr. Heath) in the original debate on the principal order, on 19 March, that there was a small glitch. We had made no special provision for a breach of exactly two years, so in that event the maximum penalty would be based simply on the annual turnover.

We readily acknowledge that that was not our intention. This amendment order removes the anomaly by including cases in which breaches last exactly two years, as well as those in which the breach is for a period of more than one and less than two years, in the circumstances in which the turnover in question is based on twice the annual turnover. That will provide a steady escalation of the maximum penalty, and I trust that right hon. and hon. Members will consider it to be perfectly fair.

Mr. Nigel Waterson (Eastbourne): I am grateful to the Minister for dispelling a total mystery about the order, which was that someone seemed, in effect, simply to be dropping the ball. Can she confirm whether the timing of the order is partly related to the prospect of penalties being applied to Consignia for failure to meet its obligations and/or the introduction of substantial competition with new licensees entering the postal world on a much bigger scale?

Miss Johnson: It is intended simply to put in place the right series of penalties, and to ensure that the missing penalty for breaches of two years is in place. I should point out that two years from the start of the new arrangements is March 2003, so the problem of not having a penalty for a period of exactly two years cannot yet have arisen.

Mr. Waterson: I appreciate that point, but I should like to be clear about whether the penalties can apply to Consignia or to any new entrants to the postal delivery market.

Miss Johnson: My understanding is that they can apply to anyone covered by the 2000 Act.

I commend the order to the Committee.

I turn now to the order modifying section 7 of the Postal Services Act 2000. Hon. Members will be aware that the Postal Services Act 2000, which came into force in March 2001, introduced a new regulatory framework for the postal market. It created a new postal regulator, the Postal Services Commission, with the primary duty to ensure the provision of the universal postal service in the United Kingdom.

Section 6 of the Act prevents any person from conveying a letter from one place to another unless that person holds a licence authorising that conveyance. Such licences are granted by PostComm. Section 7 of the Act sets out the exceptions to that and section 8 gives the Secretary of State the power to modify section 7, but only where PostComm has recommended that that should happen.

Section 7(2)(d) of the Act provides that a licence is not required for the conveyance of an overseas letter out of the United Kingdom, but section 7 does not allow a person to make a collection of letters for that purpose. PostComm has recommended that this

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restriction should be removed. The Act requires the commission, before making such a recommendation, to consult the Consumer Council for Postal Services, licence holders and such other persons as it considers appropriate. The commission undertook its consultation as part of the consultation process in relation to PostComm's published proposal to grant a licence under the Act to G3 Worldwide Mail (UK) Limited.

The consultation found that there was a unanimous view in the postal services industry that this sector of the market should be deregulated. It revealed clear support for the commission's proposal to modify the legislation so that a licence will not be required for the collection of such letters. The commission says that introducing the modification would be deregulatory and would have no cost to postal operators.

The modification to the legislation contained in this order achieves the desired effect by amending section 7(2) and (3) of the Act. A licence will no longer be required for the collection of letters for their conveyance out of the United Kingdom.

I commend the order to the Committee, together with the order on the determination of turnover for penalties.

10.37 am

Mr. Waterson: It is a pleasure to debate these measures under your chairmanship, Miss Widdecombe. I am grateful to the Minister for her concise and clear explanation of what is behind them.

We meet against a deteriorating background in the postal services: on this very day negotiations are taking place to try to avert a national postal strike, and only yesterday there was some controversy about the one-day-a-week appointment of an interim chairman to run Consignia.

Although the measures are minor in themselves, they touch on major factors that are already at work in the postal service and, if the Government continue on their present path, are likely to have a dramatic effect on the delivery of postal services in this country. Let me put the Whip's mind at rest straight away: we support the measures, which are sensible. They are minor but of practical use, and we do not intend to divide the Committee.

I accept what the Minister said about penalties. It seems bizarre that an escalating set of penalties should be marred by the fact that a different regime applies for breaches of exactly two years. The Minister has kindly explained that it was simply a slip at the time when the matter was being debated. Opposition Members accept that. The hon. Member for Somerton and Frome has earned his place in the history books by being the one to spot it—good for him!

However, it is difficult to avoid the conclusion that, important though it is to tidy the regulation up, it has come at an opportune time, in the sense that the regulator is beginning to have to contemplate the possibility of such penalties being applied to Consignia itself, because of its dismal and continuing failure to meet its modest delivery targets, especially for first-class mail. Can the Minister confirm that this is part of

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ensuring that the universal service obligation is met by any licensee? At the moment we are talking overwhelmingly about Consignia, but that might change.

Services are deteriorating. Although there was a minor improvement in the last quarter for which figures are available, any day now we will have the outcome figures for the Christmas period. If Consignia requires one to send one's myriad House of Commons Christmas cards by a certain date to guarantee delivery, it is important to ensure that that promise is kept.

The penalty regime has to be tidied up at this juncture, because the regulator cannot wait much longer before considering imposing penalties on Consignia. Having said that, imposing large monetary fines on an already struggling organisation is always doomed to make a bad situation worse, rather like the penalties that the European Union can theoretically impose on countries that do not meet its economic criteria. The handful of new licensees that are coming into the postal delivery business, and the others that are on the way, will be subject to the same penalties as Consignia. The regime must therefore be transparent, fair and logical—hence the order.

Another aspect of the situation is the dismal state of Consignia: its losses, its failure to meet its delivery targets, its appalling industrial relations—it is responsible for about half of all days lost through industrial action in any given year—its continuing closure of sub-post offices and, although it does not seem to affect the mail that I receive from my constituents, its loss of an average of 1 million pieces of mail every week.

I read in the press about a strategic plan, prepared partly by UBS Warburg and submitted to Ministers, which

    ''recommended the immediate closure of 1,000 post offices with a further 7,000 phased over the next five years.''

Can the Minister comment on that? I have already tabled a question asking for a copy to be placed in the Library.

The second order is equally unobjectionable. It is an anomaly that a licence is not required for the conveyance of letters overseas yet section 11 bars a person from making a collection of letters for that purpose. That is odd and unnecessary. We therefore support this deregulatory measure.

The timing of the order is important. We are on the brink of a large part of the postal delivery market being opened up to new licensees in the fairly near future. The other day, Christine Buckley wrote in The Times:

    ''The Post Office stands to lose up to one third of its total market in a radical shake-up of competition''.

That prediction is based mainly on comments made by analysts at ABN Amro, one of whom, David Ireland, said:

    ''We expect radicalism from Postcomm, albeit tempered by its gradualist tendencies. We thus expect the regulator to open up about 30 per cent. of the UK market, at a faster rate than in the wider European Union, but in stages.''

I shall be interested to hear the Minister's comments on the likely knock-on effects that that will have on the parlous state of Consignia. I mentioned its losses and

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its industrial relations. Apart from a potential strike over pay rates, there is the avowed intention of management to save some £1.2 billion in costs, with the prospect of 30,000 redundancies. How does the Minister envisage Consignia's future once 30 per cent. of its market has been handed over to the private sector? Those are all relevant factors that flow from the second order.

The timing of the orders must be related in part to the way in which the tectonic plates are shifting under the Post Office as we have known it, or Consignia as we must come to know it. Despite the apparent fact that these are minor tidying-up orders, which we welcome, they are part of a bigger picture. However, we shall not oppose them; indeed, we support them.

10.45 am


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Prepared 22 January 2002