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Mr. Alan Reid (Argyll and Bute) (LD): I congratulate my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael) on securing this debate and on presenting his case very well. As he said, this problem affects our constituencies, as well as two or three others in the country. In the couple of minutes for which I shall speak, I shall concentrate on Parcelforce, which is a state-owned company.

Parcelforce takes a day longer to deliver parcels to Scottish islands than is the case with other parts of Britain. My constituents fully understand why that is, and accept it. However, the company charges double for that poorer service, and that is not acceptable. The double charge applies to parcels sent from England, Wales and lowland Scotland.

As my hon. Friend the Member for Orkney and Shetland noted, Parcelforce has made a concession: from early next year, parcels sent from lowland Scotland to the highlands will not be subject to the double charge. However, the concession does not extend to the islands.

Mail order is probably far more important to islanders than it is to people who live in other parts of the country, yet Parcelforce—as I said, a state-owned company—charges islanders double for the privilege of using it. I simply do not see the justification for that. What is it based on? It cannot be based on the cost of delivery. A parcel sent from, say, Largs to Cumbrae—a 10-minute ferry journey—still attracts the double rate charge. In contrast, it must cost much more to send a parcel from Cornwall to Aberdeenshire, yet that attracts only the ordinary rate. The price charged is therefore not based on distance or cost, nor on the fact that a parcel is going to an island. For example, there is no surcharge on parcels sent to the Isle of Wight. The surcharge applies only to the Scottish islands and to the Isles of Scilly.

A very small part of the country is therefore being charged double by a state-owned company. If living on islands is to be economically sustainable, islanders must be able to access public services such as Parcelforce at the same rate as the rest of the country.

My suggestion to the Minister is that the Royal Mail's universal service obligation should be extended to Parcelforce. That would entail only a slight extra cost, in the context of Parcelforce's overall budget, but it would be of tremendous benefit to the economies of the islands.

7.43 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe): I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on securing this debate. As he said, this is an important issue for island communities, wherever they may be. I am aware that in March last year he met my predecessor as Minister with responsibility for postal services, who is now the Financial Secretary to the Treasury, to discuss parcel services. I know, too, that the hon. Gentleman raised his concerns with my right hon. Friend the Secretary of State for Trade and Industry during parliamentary questions on
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16 September this year, and that he has also met with representatives from Parcelforce to discuss these concerns.

The House will be interested to know that, since I took over responsibility for the Royal Mail and postal services, I have met many of the stakeholders involved. I shall meet Parcelforce representatives in the near future and I shall take that opportunity to raise these concerns with them again.

This debate gives me an opportunity to set out the background to the restructuring of Royal Mail. My right hon. Friend the Secretary of State for Trade and Industry made two statements in the House, in March and June 2002, following the announcements by Allan Leighton, the chairman of Royal Mail—which was then known as Consignia—about the company's three-year plan to restructure its postal services.

The need for that restructuring was clear. The company showed a pre-tax loss of £1.2 billion in 2001–02. Even allowing for exceptional costs from restructuring, there was still an underlying loss of £318 million on day-to-day operations—about £1.2 million for every single working day. The aim of the company's renewal plan was to reduce costs by £1.4 billion a year, wipe out the losses, and return the business to profit by April 2005. I am pleased to say that Royal Mail has returned to profitability and the management has gripped costs and reduced overheads. While that is a real achievement, there is still a huge task ahead to turn the company around to long-term sustainable profitability.

The first phase of Royal Mail's plans, announced in March 2002, included the restructuring of Parcelforce, as the hon. Gentleman said. Again, it was not difficult to see why a radical overhaul of the business was necessary. Parcelforce had been loss making since its conception back at the end of the 1980s: from 1992 to 2002, its losses totalled £508 million. Despite initiatives to stem those losses, including investments in Parcelforce of about £200 million in recent years, the business has continued to lose money. Several business models have been tried, but in 2002 it was losing £15 million a month as the company failed to reduce its costs fast enough as the business declined. It was clear that the business model had failed, and the board decided to restructure Parcelforce in order to try to return the company to profitability.

Parcelforce has been restructured into an express parcels carrier and now provides customers with a range of highly reliable time-certain and day-certain delivery services. Parcelforce is, therefore, operating in a fully competitive market. The universal service for parcels —the standard three to five day delivery service—was transferred to Royal Mail and provides for delivery of parcels weighing up to 20 kg at a uniform price anywhere in the United Kingdom.

After two years of the renewal plan, there has been an improvement in Parcelforce's performance, but it still lost more than £100 million in 2003–04. More change is being implemented during the current financial year, with the aim of Parcelforce's operations breaking even by the end of the year. That is by no means certain, so the management need to keep control of costs. Otherwise, the target will not be achieved and the cycle of losses will continue.
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The hon. Gentleman raised the issue of mail order companies refusing to send goods to the islands. There is no reason why any mail order company cannot use Royal Mail's standard parcels service, which, as I have said, delivers parcels weighing up to 20 kg at a uniform price anywhere in the United Kingdom. For example, a parcel weighing up to 1 kg and delivered within three to five working days after posting costs £3.46.

Mr. Alan Reid: With Royal Mail's standard parcel service, the customer does not sign for a parcel. For mail order companies, having parcels signed for is an important part of the process. That is the problem with the standard service.

Mr. Sutcliffe: When I speak to Parcelforce, I will raise that issue. I shall do that as the Minister with responsibility for postal services, but also as the Minister with responsibility for consumer affairs. Consumers in the islands are not getting a reasonable deal, and we need to address that.

Mr. Carmichael: Does the Minister share my concern that it seems to be up to Members such as myself to go to mail order companies and tell them that they can use the Royal Mail's standard parcel service? It does not seem to be properly marketed. That is also an issue for Royal Mail generally. I met representatives of Royal Mail recently about the newspaper registration service. It turned out that Royal Mail had services that would better serve the users of the newspaper registration service, but nobody had ever thought to market those services to those users. Does not that cause the Minister some concern?

Mr. Sutcliffe: It does, but I hope that the hon. Gentleman will forgive me if I do not get into a detailed discussion of Royal Mail and the issues he raises. I have been responsible for the matter for only a few weeks and at some time in the very near future I will have a view about progress for the Royal Mail and post office services. The hon. Gentleman makes a fair point and the work that he and other hon. Members on both sides of the House are doing is raising the profile of the services with the mail order companies. He will know that mail order companies have issues about delivery in terms of the development of their businesses, and I will look at the issues that he has raised.

I recognise concerns that Royal Mail's standard parcels service does not meet some mail order companies' requirements for a signature as proof of receipt. Although Royal Mail can offer a range of product services for contract customers, it is true that contract standard parcel services are not included within the universal service obligation, which applies only to non-account services paid for through stamps or meter frank impression.

If the standard product does not meet the needs of individuals or contract customers, including mail order companies, they can take advantage of a range of alternative services offered by Royal Mail, although I acknowledge that there is an issue about the marketing of those services. They include Packetpost for business
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customers who send more than 5,000 parcels in a year and Packetpost Returns for businesses whose customers return 2,000 or more parcels annually. In addition, the second-class Packetpost service was extended to a maximum weight of 2 kg, providing customers with an option for relatively small and lightweight packages, including mail-order goods.

I appreciate concerns that Parcelforce charges higher prices for delivering to some parts of the country, including the highlands and islands of Scotland, the Scilly Isles and the Western Isles. However, the pricing structure for Parcelforce's new express services is a matter for the company, which is operating in a commercial and highly competitive environment—there are about 4,000 other carriers in the UK. Zonal pricing is nothing new. Parcelforce's zonal tariff structure for Scotland, for example, has been in place for 15 years, and such structures are also employed by Parcelforce's competitors. It would not be right to oblige Parcelforce to provide uneconomic services while other companies are free to pick and choose.

Parcelforce "has listened"—it says in my notes—to the concerns that have been raised. It will listen to them. As the hon. Gentleman said, the company introduced a new pricing structure for Scottish customers in January 2004, following its review of services in Scotland. That review, which began in February 2003, was carried out in response to the demands of customers and focused specifically on the Scottish network, looking both at the services the company provided to customers and at pricing.

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