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17 Dec 2002 : Column 230WH—continued

Post Office

1.30 pm

Mr. David Rendel (Newbury): I am delighted to have the opportunity to debate the Post Office universal service obligation, not least because it is of particular importance to rural areas and areas in which residents have set up small businesses in their own homes.

My constituency is one of the most rural in southern England, and employment is concentrated in the new high-tech industries. There are many self-employed computer specialists, and such people depend on the postal service being prompt, reliable and universal.

It is remarkable that, in the 21st century, the postal service is struggling to meet the standards that it met in the 19th century. Nevertheless, we are to see not only a switch to a single daily delivery in the UK—the scheme has been piloted recently in my constituency, which is part of my motivation for this debate—but less efficiency, a more impersonal service and the decimation of a rural and urban post office network. Above all, we are witnessing a significant threat to the principle of the universal postal system—one that provides daily collections and deliveries throughout the country at a uniform price.

The universal service obligation was written into law by the Postal Services Act 2000. That states:

except under exceptional geographical or other circumstances,

and with uniform postal costs throughout the UK. I shall return to the point that the Act stipulates not a second delivery but at least one delivery every working day. It is important to appreciate the wider picture.

It is widely accepted that the Royal Mail will face much more intense competition in coming years. That prospect has the potential for improving postal services in some respects, but there are also clear dangers. As the Public Accounts Committee concluded earlier this year, more competition could mean reductions in low profit services and an erosion of the principle of a universal service at a uniform tariff. As elsewhere in our public services, the mantra of competition and efficiency can translate into the removal of basic service provision.

In response to my questions at the Public Accounts Committee hearing on 25 March, the chief executive of Consignia—as it then was—admitted that the uniform tariff, under which the cost of postage is the same wherever one lives in the UK, could be scrapped as more competition is introduced. He accepted that that could damage rural communities in particular. Yet the Government have led us to believe that liberalisation is secondary to the statutory requirement, under the 2000 Act, for a universal service, with attention to the needs of pensioners, those on low incomes and those living in rural areas. To quote the Secretary of State:

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I hope that the Minister will take the opportunity today to assure my constituents that that remains the Government's commitment, and that the growing concerns in west Berkshire about a decline in service will be addressed. Many of the problems faced by Royal Mail, in terms of failing to meet targets and declining profits, are the product of inefficiency only in the sense that inefficiency stems from inadequate investment.

At the same hearing of the Public Accounts Committee, it emerged—again in response to my questions—that the Post Office's losses are in large part due to its profits being eaten up by the Treasury over many years rather than being reinvested in new technology and services. The subsequent Public Accounts Committee report found:

Those Members who, like me, have made a pre-Christmas visit to a local sorting office will be aware that most are woefully out of date, badly maintained and dilapidated.

Postcomm's proposals envisage a faster timetable for liberalisation than that envisaged by the European Commission. Postcomm envisages full market opening by 2007, while the Commission is talking about 2009, subject to an impact study. That raises the prospect of European postal companies having greater access to the UK's domestic postal market than the Royal Mail does to theirs.

As I have already noted, the 2000 Act does not stipulate a second delivery. It stipulates only

There is nothing wrong with that statement in itself, but there must also be regard to ensuring equity—fair and equal treatment for households and businesses across the UK—and reliability of delivery. Sadly, neither of those conditions is presently being met.

Newbury was one of the pilot areas for the single daily delivery, which started in July. Interestingly, three of the pilot areas were so horrified by the way in which the scheme worked that they refused to continue it after just two weeks. The basic components of the scheme were outlined in a press statement on 10 July. "Customers" receiving 20 or more letters a day on a regular basis were to get a delivery before 9 am. Most other customers were to receive their mail between around 9 am and "lunchtime". Customers could choose to pay for a delivery before 9 am, at a cost of £62.50 a month, or they could opt to collect their own mail free of charge.

Businesses could pay £184 a month for deliveries from 6 am if they were within 10 miles of the delivery office. In terms of outcomes, the magic word was "efficiency", which was defined in two senses. First, Royal Mail told us that there would be a "saving", as distinct from a cut, of around £350 million a year. Secondly, more letters would be delivered "on time", which means the next working day after posting.

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There are some basic absurdities about the scheme. The cut-off point of 20 or more letters a day seems completely arbitrary. In fact, rather than paying £62.50 a month, it was cheaper for some of my constituents who were just under the limit to mail themselves empty envelopes, to bring themselves over the threshold. I am told that only one man in the country—not a constituent of mine—opted to pay the £14 per week charge.

More fundamental issues are also at stake. For those of us who are interested in maintaining a public service ethos in postal services, the language used in press statements of that sort rings immediate warning bells. People are no longer local residents; they are now called "customers". Cuts are cloaked in the language of "efficiency" and "savings". One journalist pointed out that in reality, it is not the second delivery that is being removed, but the first.

Last month, Newbury residents were told that the pilot scheme had been a great success. In a letter, which infuriated many of my constituents, addressed to "customers", Royal Mail informed residents that

Postwatch took a more critical view. From the outset, the public watchdog insisted that

It also stated:

Postwatch also noted that

The fact that the Post Office thinks that the trial was such a triumph is contrary to the remarks about it that I hear from my constituents.

What lessons can we learn from the pilot scheme in Newbury? As for equity, small businesses in west Berkshire were put at a disadvantage when the Royal Mail singled out particular areas for the pilot. Later delivery times disadvantaged small businesses more generally, particularly in areas such as west Berkshire where many people work from home. The £184 per month for earlier delivery may be small change to larger companies, but not for small businesses or the self-employed.

Anne Karpf, writing in The Guardian, pointed out the fundamental point—that

Royal Mail

As she pointed out, public service is not supposed to discriminate. Why—in social terms, as distinct from considerations of profit—is the so-called granny post deemed less important than express parcel deliveries for those able to pay? A cross-subsidy is not, or should not be, a term of disrepute, because it lies at the heart of the public service ideal.

What about reliability, a concept that is quite distinct from the narrow market conception of efficiency? Certainly the experience of my constituents—or should

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I say "customers"?—does not support the conclusions reached by Royal Mail. In a letter, one of my constituents stated:

Is that the "consistent service" that "customers" were promised in the letter that they received from the Royal Mail in November? The shift from the individual local postman who knew the area and the houses to which he delivered the mail to "teams" has resulted in less reliability, not greater efficiency. For businesses, reliability is more important than the number of deliveries in a single day, but the switch to a single daily delivery has not secured greater reliability.

There is a strong impression that the Royal Mail reached its conclusion before the pilot began. That is suggested by the fact that its press announcement in July stated:

That was the stated intention before the pilot scheme had even started. Local experience of the changes and the views of people in Newbury and elsewhere have simply been ignored, because they had been discounted from the start.

In the past, the Government have said that the universal service guarantee comes before any commitment to liberalisation, but that guarantee is now under attack. A scheme that has failed to deliver a better service to my constituents—it has worsened it—has been given a nationwide stamp of approval. Is that the price that we are being asked to pay for the Government's failure to unlock the resources needed for investment in and modernisation of the postal service?

A report published this week by the New Economics Foundation warns that community life in Britain's small towns and villages is declining, with the closure of one fifth of our corner shops, grocers, high street banks, post offices and pubs in less than a decade. The report raises the prospect of a "ghost-town Britain", with town centres in terminal decline and many of our communities isolated and excluded. Post offices are part of that equation. More than 4,000 post offices have closed since 1981. In 1997, 20 per cent. of rural post offices were the last shop in the village.

The post office is more than just another business; it is a vital social service that helps to sustain community life. The mail is an instrument of social inclusion, affordable for even our most deprived citizens and available to even our most isolated. If that is to remain the case, the Government and Royal Mail must rethink their priorities.

1.44 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson) : I congratulate the hon. Member for Newbury (Mr. Rendel) on securing

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this debate on the Post Office universal postal service obligation. I have listened to his concerns and welcome the opportunity to respond to them. I speak as the granddaughter of a former postmistress in Bucklebury, Berkshire, not very far from the hon. Gentleman's constituency.

Mr. Rendel : It is in my constituency.

Miss Johnson : Indeed.

A key feature of the structures that were established in 2000 was regulatory reform to promote and protect the consumer interest. The Postal Services Act 2000 established not only an independent regulator, Postcomm, to ensure the provision of the universal postal service and to oversee the regulated postal market but a consumer council, Postwatch, which is specifically charged with responsibility for addressing the needs of consumers. The establishment of an independent regulator was widely sought, particularly by Post Office management and the trade unions, to enable the company to have commercial freedom, at arm's length from government, to operate in an increasingly competitive and dynamic market in which consumers increasingly have a choice of communication means and supplier.

The hon. Gentleman made some slightly disparaging remarks about the role of competition, but I am sure that he recognises, as we do, that it is a good feature of a market when it works well and that it provides choice and cost opportunities for consumers.

The consumer interest was and remains a main feature of the Government's reform of the postal services; therefore, maintenance of a universal service is the highest priority. Our commitment is well demonstrated by the 2000 Act, which enshrined the universal service obligation in UK primary legislation. It was a significant step forward for consumers and the UK postal service. Daily postal delivery service to every address in the UK at a uniform rate remains at the very centre of our approach to postal services, and the legal obligation to maintain universal service is the regulator's primary duty.

Let me turn to the questions that the hon. Gentleman raised about postal liberalisation in Europe. Concerns have been expressed that the UK is moving faster than Europe, but what is happening in the UK is consistent with European trends systematically to open the letter post market to competition. Some member states have already opened their markets in whole or in part, and the European Union has adopted a framework that provides for others to do the same.

Within the parameters set by the European directive, the UK and other member states determine the most appropriate course of action for their own markets. In the UK, Postcomm has a duty to ensure that the market is opened to competition in a way that meets the needs of consumers and is consistent with its primary duty to ensure provision of a universal service.

The hon. Gentleman commented on the single delivery. He does not need my advice about talking to the local management about some of the particular problems that his constituents have experienced; I am sure that he does that on a regular basis, as we all do when such issues arise on our own patches.

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Royal Mail is a business and is run on a commercial basis. Delivery processes are a commercial matter for the company. It cannot continue to lose more than £1 million every working day; it must get a grip on its costs in order to be in a position in which it can provide the quality of postal services that we require in the future.The second delivery had become an anachronism. It was delivering just 4 per cent. of the UK's mail while accounting for 20 per cent. of Royal Mail's delivery costs; obviously there was a huge discrepancy. Reducing that disproportionate cost will make a positive contribution to retuning the company to profitability. Royal Mail wants to save £350 million gross a year by reorganising deliveries.

The new services have been tested as part of pilots during the summer. Contrary to the hon. Gentleman's uncharitable suggestion, the experience of that will be properly reviewed by Royal Mail. That is not to say that Royal Mail does not intend to roll out the new delivery specification during 2003, but it does mean that we can assess the impact of delivery changes on small businesses—something that was specifically assessed during the pilots.

I am grateful for the hon. Gentleman's remarks on his constituents' experience of delivery during the pilot arrangements that were tested this summer, and these will be studied by Royal Mail. The whole point of a pilot is that it is a dry run that tests whether things work as well as they should and works out how to respond if they do not. I am sure that Royal Mail has learned from the experience.

On rural and urban services, the performance and innovation unit recommended options—Postcomm advised us of them last year—for supporting the rural network of post offices from 2003. On 2 December we announced the details of a £450 million funding scheme to assist the rural network during the next three years, subject to European state aid clearance. That funding is part of an overall financing package for the Royal Mail group in line with the Secretary of State's announcement in June.

On the rural network, the Government have made a firm commitment to prevent avoidable rural closures before 2006; we have made available a £2 million fund to support community post office initiatives. We will make available £450 million—£150 million a year from 2003 for three years—to help continue to provide access in rural areas where it could not otherwise be sustained on a purely commercial basis. Much is being done to support the rural network.

On the urban network, the Government have earmarked £210 million for the reinvention programme, obtained the necessary green light from the European Commission for the arrangements and, on 15 October, received Parliament's approval for the expenditure.

Details of a £15 million scheme to support post offices that are invaluable to the communities in deprived urban areas throughout England will be published shortly. An equivalent programme was launched in Wales on 15 November, and the devolved Administrations in Scotland and Northern Ireland are developing or considering similar schemes. Those actions are supported by substantial funding, making it clear that the Government have lived up to their commitment to implement the PIU report. The Government maintain that commitment.

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I shall turn to the operation of Royal Mail as a universal service provider, and to our measures to put it on a stronger footing. The Postal Services Act 2000, together with the arm's-length relationship that the Government have given the company, provides the commercial freedom that is necessary to enable Royal Mail to respond to competition and meet consumer demand successfully. The Government's 2001 manifesto commitment to

meant that restructuring the company was a key priority. To put Royal Mail on a stronger footing, we have taken action to help the company face the future. We have already spoken about the package of reforms, and this year we have further strengthened management by appointing a new group chairman, Allan Leighton, and securing a new chief executive—to be announced—for the post office network. A new human resources director will also take up post early in the new year and the non-executive team has been further enhanced with four additional directors. The appointment of a new chief executive for the mail business and a new chairman of Post Office Ltd. is under way.

Royal Mail Group is already implementing a radical restructuring programme and over the next three years, under the renewal plans announced by Allan Leighton, the losses will be eliminated and the company returned to profit.

I was interested to hear the hon. Gentleman's comments about visits to post offices and the information that Royal Mail Group sent to us. We were all encouraged to do something and, in my constituency a week or two ago, I took up the offer and visited the Hatfield regional distribution centre of Royal Mail Group. It was very interesting to see how it has changed much of what it was doing over the past six months or a year to provide a more efficient and effective operation. That has resulted in a real turnaround in the performance of that distribution centre, and it is the sort of action we are expecting to see. It shows that real improvements can be brought about in the way in which things are done, and in efficiency and outcomes for customers, whether that involves businesses, individuals or business-to-business transactions.

That all came on the back of Lord Sawyer's examination of the deep-rooted industrial relations problems in Royal Mail Group. I congratulate all concerned on the resulting reduction in the level of strikes. We believe firmly that greater commercial freedom in the public sector is the right policy. The company's renewal plan is to address the problems of the past and restore profitability.

The package of measures introduced from June onwards has enabled the company to utilise the reserves of £1.8 billion on its balance sheet, which represents accumulated past dividends and cash generated by the business—that picks up a point that the hon. Gentleman made about the history. It enables the company to fund the necessary investment in Royal Mail Group's business to implement the renewal plan and to provide support for the nationwide network of post offices—subject, when necessary, to the relevant state aid

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clearances. We remain committed to ensuring that continuation of the universal service is secured efficiently and effectively.

Mr. Rendel : As the Minister seems to be coming to a conclusion and we have a minute or two remaining, can I take her back to the question that she attempted to answer on the timing of the introduction of competition? She said that the introduction of competition in this country two years before Europe comes within the European directive. Does she agree that, nevertheless, the fact that Postcomm decided to introduce competition in that way seems to mean that Royal Mail Group will not be allowed to try to run postal services in Europe until two years after the equivalent European services have been allowed to try to run services in this country?

Miss Johnson : That issue needs to be considered carefully, but there has already been an opening up of

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markets in parts of Europe. It is appropriate that, within the parameters set by the European directive, the United Kingdom and other member states can determine the most appropriate course of action for their own markets. Obviously, we believe that, in the UK, we are moving at the right pace for our own market and its opportunities. A competitive business in the shape of Royal Mail Group represents a great competitive opportunity for the company and I am sure that the group actively recognises that.

We are looking to the continuation of a universal service to secure a viable and successful network of post offices to complement the improvements that we hope Royal Mail Group will achieve and to see an effective and efficient delivery service secured throughout the UK.

Question put and agreed to.

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