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Westminster Hall

Wednesday 13 June 2007

[Mr. Martin Caton in the Chair]

Universal Service Obligation

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Watts.]

9.30 am

Mr. Alistair Carmichael (Orkney and Shetland) (LD): I am pleased to have the opportunity of serving under your chairmanship, Mr. Caton, and to have secured this debate on an important issue for many of my constituents and people throughout the United Kingdom.

It might assist the Chamber if I first explain why I have chosen this topic. The universal service obligation has been an ongoing concern of mine for the past six years while I have been a Member of Parliament, but it has particular relevance and resonance at the moment following the recent application by the Royal Mail for zonal pricing for bulk mail, on which consultation with Postcomm has just concluded. That has particular relevance to this debate and I shall discuss it in greater depth later in my speech.

This debate must be put into its proper context of recent political history, particularly the way in which the Government opened up the letter post market to full competition. They did so at the prompting of many in Postcomm and, I regret to say, Postwatch with unnecessary and unseemly haste in what history will record as an act of commercial, economic and social vandalism. The full implications of that act, the way in which it was done, and the way in which it was driven by officials at Postcomm in particular, will ultimately show it to have been highly damaging to the basic market structure of postal services in this country, and especially to our most remote and peripheral communities. Too many people in the Department of Trade and Industry and in Postcomm feel qualified to speak on matters of competition without ever having run a proper business. If there is to be a new phase of Government, I hope that some economic realism will be injected into bodies such as Postcomm and—I say this with considerable regret, because it is supposed to protect consumers’ interests—Postwatch.

My concern is that if Royal Mail’s application for zonal charging for bulk mail is approved, bulk mail will be removed from the universal service and what is left will hardly be worth the name. It will hardly be universal and it will barely be a service.

According to Postcomm,

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The USO covers letters and packets weighing up to 2 kg, the non-priority service and parcels weighing up to 20 kg, the registered and insured service, and a range of support services to ensure security and integrity of the mail—for example, the Royal Mail's re-direction service, international outbound services, Mailsort 1400 and the Cleanmail bulk mail services.

It would be remiss of me if I did not remind the House that the writ of the USO does not run in some parts of the country, where the availability of transport and the sparsity of population make it difficult to provide a daily service. Many of those places are in my constituency, but I shall strike an uncharacteristically positive note and say that since the creation of Postcomm and Postwatch, we have seen significant improvement in the service in those hard-to-deliver-to areas.

Communities in Orkney and Shetland depend on Royal Mail's universal service. Local businesses face many challenges—we have additional travel costs and exceptionally high fuel prices as a result of our geographical location. However, mail prices have remained largely uniform throughout the country and companies in the northern isles have been able to send mail at the same price as firms in other parts of the country. Some of the most innovative and exciting uses anywhere of the mail order business are to be found in the northern isles—indeed, I am told that no less a person than the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) orders high-quality products by mail from businesses in Orkney.

Andrew George (St. Ives) (LD): My hon. Friend is making an excellent point. The same applies to the Isles of Scilly in my constituency. Because of their geographical remoteness from centres of population, the universal service obligation is vital because a decent postal service provides a good basis on which remote businesses can survive. The postal service is a vital economic link.

Mr. Carmichael: My hon. Friend makes an excellent point. It is often said that we need a solution that will suit both the Shetland Islands in my constituency and the Scilly Isles in his. In fact, I have often thought that that is the easy part; it is fitting in the bits in between that is more challenging. I thought for a moment that my hon. Friend was going to challenge me about competition for the business of the hon. Member for Crewe and Nantwich, and I am pleased that we do not differ on that.

Other parts of the Department of Trade and Industry, and the Scottish Executive beaver away to persuade more people to work in areas such as those that I and many of my hon. Friends represent. Maximum use is made of modem technology, which is tremendous and which I wholeheartedly support because it is crucial to the future of remote and peripheral communities if we are to maintain a balance and mix of population, but modem technology alone will never be enough. We must keep traditional communications in place as well. A business may have the most creative website in the world and supply the best quality produce in the world, but that is not worth much if it cannot get its goods to the customer.

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According to a report produced by Postwatch Scotland in April 2003 on parcel and other postal services in the highlands and islands, 12.5 per cent. of companies have experienced difficulties with businesses refusing to send them goods, and I suspect that the figure for businesses in island communities is higher than for those in the mainland highlands. The report also revealed that 17 per cent. of highland and island firms were being charged higher delivery charges than businesses elsewhere in the UK. I have had many cases in my constituency of a 900 per cent. levy on parcel post to the isles compared with that to the British mainland. I realise that parcel post is not part of the USO, but I offer it to the Minister as an example of bad market liberalisation. No proper, meaningful protection was put in place for the universal service, with the result that areas such as mine have been left without a universal service.

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): My hon. Friend is making an important point about the disgraceful practice of imposing substantial surcharges on many parcel deliveries to the highlands and islands. Parcelforce Worldwide, the commercial arm of Royal Mail, charges a 100 per cent. surcharge to deliver in some parts of the highlands in my constituency. Does he share my concern that Royal Mail’s proposals for zonal pricing of business mail suggests that rather than rejecting that model, it is one to which it aspires?

Mr. Carmichael: That is, in essence, my concern, and I share my hon. Friend’s concern about Parcelforce, which draws an invisible line in Scotland, and once that line is crossed charges increase. Parcels sent from elsewhere in the UK to the north of Scotland still have a surcharge added and parcel recipients in my constituency must pay a surcharge wherever that parcel comes from. Allowing, in effect, a free-for-all in the parcel post market has given people living in Scottish highland communities a bad deal. I had hoped that Ministers had seen what we experienced with parcel mail, and learned some lessons.

At the heart of the debate is the challenge of reconciling liberalisation of the mail market with protection of the universal service. A truly free market would not produce or sustain a universal service. The Government have not thought through how to reconcile those differences and resolve the tensions. In truth, there is a tension between the two objectives, but the Government seem happy to continue to open up the mail market without truly considering the practical impact on the universal service.

Some Departments—particularly the Department for Work and Pensions at the beginning of the year—appear to think that there is no contradiction whatever between saying that they support the universal service and taking their own bulk mail contracts away from Royal Mail and giving them to its competitors. The hon. Member for Morecambe and Lunesdale (Geraldine Smith) highlights that point in her early-day motion 587, which criticises the DWP’s decision to award contracts to the Royal Mail’s
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competitors. I should point out to the Minister that the early-day motion has the support of no fewer than 67 of his Labour colleagues.

The universal service obligation has positive and negative aspects from Royal Mail’s point of view. Although there are costs involved, its universal coverage should provide it with a significant competitive advantage. I hope that Royal Mail can maintain the universal service obligation without a subsidy or a levy from other mail companies. However, the Liberal Democrats recognise that if that is not possible, a levy might be imposed on other mail delivery companies to help to finance the universal service obligation. Such a levy is specifically envisaged and permitted by the European postal services directive, which gave rise to liberalisation of the mail market in the first place. I hope that when the Minister replies he will tell us the Government’s thinking on the use of such a levy. Even if he were to place on record a willingness to consider it, he would send to operators in the postal service market an important and powerful message that the Government are prepared to act if necessary to ensure that constituencies such as mine and many other less peripheral areas in the United Kingdom will be protected from the worst excesses of a liberalised market.

My very real concern is that the Government, and Postcomm, are pressing ahead with the opening up of the mail market without first ensuring that there are adequate safeguards in place to protect the universal service. That point was demonstrated by recent proposals for zonal pricing of business mail. As the Minister knows, Postcomm’s second consultation on zonal pricing for some business mail products closed at the start of this month. When Postcomm last consulted on zonal pricing, the idea was not supported by large bulk mailers, who are key customers for Royal Mail, or by Royal Mail’s customers. Royal Mail applied to Postcomm in April 2006 for zonal pricing of business mail. The decision will be made no later than 2 January 2008; if the application is approved, Royal Mail will start zonal pricing in April 2008. As the Minister knows, Royal Mail wants to divide the country into five price zones, allowing it to charge its business customers different amounts.

I have real concerns about heading down that road. However, even if we support the principle of cost-reflective pricing, which I do not in this instance, Royal Mail’s proposals do not make any sense, and they are certainly not the best way to bring about that situation. The proposal is for a surcharge of 4.8 per cent. for delivery to rural areas. Royal Mail has also made it clear that that will be just an initial extra charge. Over time, it intends to increase the differential, which appears to be an open-ended commitment. Royal Mail estimates that, to be cost-reflective, the surcharge should be 11 per cent. Clearly, if the concept is introduced, there will be pressure for the surcharge to increase over time, which will result in uncertainty for local businesses when planning just how much bulk mail to produce.

Mark Williams (Ceredigion) (LD): My hon. Friend makes a strong case on the injustice, as many rural businesses see it. Does he agree with Postwatch that one implication of zonal pricing could be the reduction
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of volume in rural areas, which would reinforce many people’s case for diminishing the current delivery system and the number of deliveries in rural areas?

Mr. Carmichael: Yes, indeed. My hon. Friend returns to the point that I made at the beginning of my remarks. If we remove that business from the universal service, we will be left with a service that struggles to be universal—indeed, it will hardly be a service as we understand it.

The cost to businesses sending bulk mail will depend entirely on the destination of the mail. So, if a business based in Orkney wants to send out a mailing to customers who live in Orkney, it will pay the same as a business based in Cornwall which wants to send a mailing to customers living in Orkney. What on earth is cost-reflective about that? Answers on a postcard, please—a stamped postcard, if the aim is to get it to Orkney and Shetland post-2008. Royal Mail’s real ambition, as far as I can tell, is to cut back on business mail in rural areas, and to increase business mail in urban areas.

Danny Alexander: Does not my hon. Friend accept that the position is even worse than he describes? A business in Aviemore that wants to deliver to customers in Carrbridge will pay more than a business in Aberdeen that wants to deliver to customers in Exeter, because customers in Exeter do not fit the rural definition.

Mr. Carmichael: Yes, that is exactly the position. I hope that I was not understating it, because it was certainly never my intention to understate the difficulties that will result from the proposal. My hon. Friend outlines another Royal Mail ambition, which is to reach the low-hanging fruit. The real opportunities for profit are in the big urban areas that are easy to deliver to, and the rest of us can go whistle, as far as I can tell. Given the support that many in the House have given to Royal Mail, that is an act of betrayal. It is a betrayal of the areas that have given the best support to Royal Mail and that rely on it most for their communities’ viability.

If Royal Mail’s application to apply zonal pricing is successful, pressure will build to increase prices in rural areas still further and to cut them again in most urban areas. There will be a vicious cycle of higher prices in rural areas, which will produce less business mail, and therefore even higher prices. If zonal pricing is introduced, over time the differential between the cost of delivering business mail in rural and in urban areas will only increase.

There is also the danger that businesses will pass on the increase in costs to the consumer. Consumers will be discriminated against simply because of where they live. If electricity, gas and telecoms companies that send out bulk mail know that they will have to pay more to Royal Mail to send a bill to a customer in a rural area, they will pass on the cost to the customer and the people in rural areas will receive larger bills. Such a situation would hit Royal Mail’s most vulnerable customers hardest, and for some, Royal Mail’s services would no longer be cost-effective. The move towards electronic mail would become more compelling, and utility companies would have to go
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through the inconvenience of adapting their computer systems to take account of the differing costs of delivering their products. All of that would cost businesses time and money. The system would benefit and convenience Royal Mail, not the customers whom it seeks to serve.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): My hon. Friend makes a powerful point about the effect on mail recipients. Sometimes, the regulators’ market view can be too narrow. They regard the Royal Mail’s customer as the person posting the letter, and in the sense of who passes on the cash that is the immediate customer. However, from our constituents’ point of view, the recipient is very much the beneficiary of the Royal Mail. Therefore, the universal service should protect the recipient as well as the poster.

Mr. Carmichael: My hon. Friend makes a very good point. He strikes at the heart of the lack of understanding, particularly in Postcomm and Postwatch, of the market and what competition within that market involves. For that very reason, I have used the term “consumer” rather than “customer”. We should consider the market as an unusual one in which “consumer” includes recipients as well as senders. To use the term “customer” is slightly misleading.

Providing equal access to our postal system, regardless of location, is an essential part of that system, and any attempt to erode that should be challenged. Postcomm’s statutory duties include taking into account the interests of customers in rural areas. Indeed, Postcomm has an obligation to ensure that, when promoting effective competition, it has regard to the interests of residents of rural areas. It must ensure that no section of the population is discriminated against. I cannot see how it would be possible for the regulator to claim that it was acting in the best interests of rural communities while allowing the introduction of zonal charging as proposed by Royal Mail.

Postcomm recently held a forum discussion on zonal pricing. Postwatch pointed out that the initiative had received “no customer support whatsoever” and that

At the same meeting, Nick Wells, TNT Post’s chief executive, said:

I could not have put it better myself.

I hope that Postcomm will reject the Royal Mail application. If it does not, I promise the Minister this: we shall be back here again and again until the Government provide meaningful protection for the interests, needs and wishes of my constituents. I warn the Minister that next time, I might bring the hon. Member for Crewe and Nantwich. He has been warned.

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Several hon. Members rose

Mr. Martin Caton (in the Chair): Order. I should like the wind-up speeches to start at 10.30. Several Members are indicating that they would like to contribute. I ask them to show a little self-discipline so that everybody gets in.

9.52 am

Mr. John Grogan (Selby) (Lab): I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on his choice of debate and the thorough way in which he made his case. I cannot promise to have the same style as my hon. Friend the Member for Crewe and Nantwich (Mrs. Dunwoody), but I shall do my best to make a small contribution to the debate.

Last night, my bedtime reading was the Labour party manifesto. The hon. Member for Orkney and Shetland briefly referred to one of the promises that we made in it, which I shall read out for the record:

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