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13 Jun 2007 : Column 275WH—continued

Whereas I would be perfectly happy to accept an exclusion on health and safety grounds, I find it impossible to accept Postcomm’s decision. It has allowed Royal Mail to exclude a group of houses, even if it is safe to deliver to them, simply because it would take more than 15 minutes to carry out the delivery. That is simply a cost-cutting exercise and has nothing to do with health and safety. It chips away at the principle of the USO. The highlands and islands are
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full of badly maintained tracks, so the exclusion will deprive many of my constituents of their daily deliveries.

All is not doom and gloom, however. There is at least one piece of good news. At Postcomm’s insistence, Royal Mail agreed to review its recent decision to bring forward collection times in rural areas. When Royal Mail introduced earlier collection times, the only collection of mail in some rural areas was as early as 9 am, which is ridiculously early. That means, for example, that the mail in many rural areas is collected before that day’s mail is delivered, thus depriving people of the ability to reply to mail the same day that they receive it.

However, rather than reliance on Royal Mail’s review, there should be safeguards in the USO. As well as specifying at least one collection and one delivery each day, it should specify the time of the last, or only, collection and the latest time for the daily delivery.

Nearly every hon. Member who has spoken this morning has said that, as it is seven years since the passing of the Postal Services Act 2000, it is time that the Government reviewed its operation. I certainly endorse that view. It is obvious that if we do nothing, Royal Mail will gradually lose more and more of the profitable business to private operators, leaving it largely responsible for delivering mail to remote communities. Obviously, that is the more expensive part of the business.

A review is needed to create a more level playing field for Royal Mail and the private operators, otherwise the USO will be chipped away by Postcomm decisions and the gradually increasing cost of a stamp. I echo the suggestion that has been made by other hon. Members that a levy should be placed on major bulk carriers that do not fulfil the terms of the USO, and that the proceeds from it should be used to pay Royal Mail for the extra cost that it incurs in fulfilling the USO. That is the only way to create a level playing field. Clearly, a situation in which we simply allow the private sector to cherry-pick the lucrative parts of the market and leave Royal Mail with the USO would be unsustainable. A levy would create a level playing field.

We will be heading for a serious situation if steps are not taken now, so I hope that, in his winding-up speech, the Minister will respond favourably to the calls for a review and for imposing a levy on large-scale private operators.

10.22 am

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): It is a pleasure to serve under your chairmanship, Mr. Caton, for this important debate secured by my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael). He chose a topical and timely subject, and reminded us again of the importance of the service that Royal Mail provides to all our constituents, and of ensuring that the best of that service is preserved, protected and enhanced, not chipped away at and reduced.

My hon. Friend highlighted the heart of the debate and the heart of what the Minister must address: the apparent conflict between the universal service obligation and the impact of market liberalisation. It is interesting to think back to when the market was being liberalised. Postcomm argued that the USO was an
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asset for Royal Mail, not a burden, yet, as it manages the liberalisation process, it seems to be entertaining reductions in the quality of what it called an asset. Clearly, Postcomm must consider carefully how it is managing liberalisation, and ensure that it is not damaging what was an asset or undermining what it said would be enhanced by competition.

My hon. Friend made it clear that the present situation has come about because of the opening up of the letter market, which was the result of European Union regulations and the decision to open up the whole of the European market—albeit not at the pace that it is happening in the UK. The UK has gone much faster and much more fully into competition. We now hear that the rest of Europe wants to back-pedal, to slow down—other countries do not want to keep up with the UK, so again we have a differential market.

I think of what happened in the energy market. Okay, there were upsides to the UK in getting competition in and in improving efficiencies, but there were also downsides to linking two markets—a free market and a rigged one. The linkage impacted on our high-energy consumers.

We now must consider the pressures on Royal Mail. The competition in the rest of Europe is not subject to the same challenges. Those companies are allowed to come here to do what they like, yet Royal Mail is not allowed to take reciprocal action in the rest of Europe and manage its business in that way. The regulator must consider carefully how the UK market is regulated, and it must protect what is valued by UK customers, rather than simply view the situation as the introduction of competition. The playing field across the whole of Europe is not at all level.

My hon. Friend highlighted the long-held grievance about what happened when parcel services were completely opened to competition and the reality of how consumers in rural and difficult-to-serve areas are affected when competition strikes. In many areas, there was a drop-off in service as the many rival delivery companies could not work out where people in rural areas lived. The quality of delivery became much worse. Often, Royal Mail staff—still public servants at heart—provided directions to the rival companies when delivery staff got lost on the rural roads while trying to find properties without names or addresses. Royal Mail knew that a parcel should be left in the shed around the back and exactly how to deliver parcels if there was no letter box and no one at home.

Not only has there been a loss of service across rural areas, but the pricing issue, which used to affect only the highlands and islands, has spread far wider. The north-east of Scotland, which was protected by being near the big city of Aberdeen, is now also affected by differential prices set by the delivery companies. As I emphasised in my intervention, ultimately it is the consumer who suffers, because the company that sends out the product puts a surcharge on it to cover the extra delivery costs. We have a very real challenge. What happened with zonal pricing in the parcel market is a warning sign that the regulator needs to take fully on board.

My hon. Friend made a point about cost-reflective pricing. The fact that what is proposed will just be a
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starting point and that Royal Mail will want to increase the differential brings uncertainty to the market, to people using the market and to business planning. Bulk mailers do not want such pricing. Postcomm will have to be extremely vigilant during the consultation to ensure that it protects the universal service and does not allow Royal Mail to go down that road.

The hon. Member for Selby (Mr. Grogan) said that the Labour manifesto promised a review of the impact of the Postal Services Act 2000. Royal Mail’s application for zonal pricing is a timely warning that we must review the Act to avoid irreversible damage. I hope to hear from the Minister how the review is to be implemented to produce a timely response. Royal Mail has responded dramatically to the challenges of competition, and it has done much to improve its services and operations. It must be allowed to bed in those improvements and to adapt to the pressures of competition in a way that does not destroy its operation.

When introducing competition, regulators try to get it absolutely right, but there is a risk that they will get it wrong by not introducing competition efficiently enough and therefore not getting the full benefit of it, or by introducing it too dramatically and thereby destroy what they are seeking to improve. The risks are not even. The risk of going too slow is that the full benefits of competition are not realised as quickly as they might be, but the risk of going too quickly is that the operation that was to be improved is destroyed, and it becomes impossible to rebuild it or recover.

This country has a great asset in the universal service currently provided by Royal Mail. The regulator must err on the side of not destroying it, even if that means that we do not get the full benefits of competition opening up the market as quickly as might otherwise be the case. A request for a review of how the regulators are interpreting their role of protecting the USO would be an extremely important message from the Government. It would highlight how important the universal service is to this country and this House, and how it supports our constituents.

My hon. Friend the Member for North Cornwall (Mr. Rogerson) made an important point that should not be lost on Members who represent London constituencies. It is not only in rural areas that Royal Mail wants to set higher prices; it wants to load on higher prices for deliveries in London as well. The breaking up of the universal service obligation is a UK-wide issue that will have a UK-wide impact, so Members from across the country need to take an interest in what is happening.

The hon. Member for Stroud (Mr. Drew), who served on the Committee on the Postal Services Bill and therefore remembers the promises made at the time, reinforced the need for a review. He also highlighted sub-post office closures and the way in which that process is being handled, and raised concerns about a cloak-and-dagger consultation process whereby a fait accompli is announced and there is not time to respond. He also mentioned the review of the USO. We must not allow it to be chipped away until only a basic service is provided. As I have said, we have a great asset that must be preserved.

The hon. Member for Argyll and Bute (Mr. Reid) also talked about the delivery service. If health and
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safety is not at risk and communities that are located at the end of a track have been delivered to until now, it seems odd that suddenly they can no longer be delivered to. When we met with Postcomm in the early days of opening up the market, it kept emphasising that the USO is an asset to Royal Mail. If that is so, why is it contemplating changes, such as those relating to delivery, that undermine the USO? Clearly, Postcomm is starting to think that the USO is a cost. If that is the case, it will need to look at how it has set access pricing in the market, as that is one means in its immediate control through which it can establish how that cost is borne.

It is perhaps time to explore how, under EU regulations, a levy would work in this country in fundamentally underpinning the USO. The Government rejected putting on the statute book the right under EU law to have a levy, but it might be sensible to at least have the power to impose a levy so that the regulator has full freedom to consider how to preserve the USO. Without the ability to respond quickly when things start to go wrong, it will be difficult to rescue the operation.

I would welcome the Minister explaining his view of the right under the EU directive to use a levy to preserve the system, whereby mail providers that are not interested in providing a universal service contribute some of the cost of ensuring that all consumers get the same access to Royal Mail services.

Mr. Carmichael: I ask this in the spirit of genuine inquiry and in the hope that if it is put on the record now, the Minister might be able to find the answer by the time he replies. Is it not the case that, by virtue of the nature of the postal services directive and the direct applicability of EU legislation, it is possible to introduce a levy without primary legislation?

Sir Robert Smith: I would welcome that information from the Minister, because when we were debating the 2000 Act, there was concern that it had not been put on the statute book. Will the Minister say whether Postcomm has the power to go down the levy route without legislation? That would provide a chance to put a safety net in place. Will he also update us on his view of EU competition and what rival providers in the rest of the EU are doing to implement competition in the market to which Royal Mail should be allowed access? Will he inform us when the review of the Postal Services Act 2000 will take place, as mentioned in the manifesto? Finally, the changes are taking place when Postwatch is going through a major upheaval under the Consumers, Estate Agents and Redress Bill. Will the Minister say how scrutiny will be maintained in the consumer interest during the transition?

I repeat: the regulator said that the USO is an asset. If it is an asset, we should not allow it to be chipped away, but should consider how it can be maintained and conserved. The Government must ensure that Royal Mail serves all consumers across the UK; not just the easy consumers. The Government will not be forgiven if they allow such a valuable asset to be lost.

10.34 am

Charles Hendry (Wealden) (Con): I join other hon. Members in saying what a pleasure it is to serve under your chairmanship, Mr. Caton. I also congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on securing the debate and on the way in which he
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introduced it. This is an extremely good example of how a Westminster Hall debate should work. It is a relevant and topical issue that affects the most rural parts of this country. There are certainly genuine grounds for concern about the future of the universal service obligation and the debate has raised a significant number of questions for the Minister to answer. I welcome the contributions of all hon. Members and the points that they have made.

If might be helpful to consider what Royal Mail achieves at the moment. There have been concerns about whether it is still operating a first-class service—no pun was intended as it obviously also offers a second-class service—but Royal Mail collects every day from 115,000 pillar boxes, 14,000 post offices, and 90,000 businesses. It delivers some 82 million items of post a day to 27 million addresses, six days a week. It is a formidable operation and for the overwhelming majority of the time it works well.

It is interesting to consider international comparisons. The cost of a British stamp is 34p, which is by far the lowest cost in the whole of the European Union. Let us consider some other countries. In Spain the price of the average stamp is 56p; in Sweden, where there is open competition, it is 75p; in France, 91p; in Germany, 103p; and in Italy, 109p—three times the price of ours. Even at that price, Italy manages to deliver only 88 per cent. of mail the next day, compared with 94 per cent. in the UK. We have by far the lowest cost mail service and one of the best delivery achievement rates. The hon. Member for North Cornwall (Mr. Rogerson) said that we used to have service that was the envy of the world; I think that we probably still do.

Let us be clear that we are absolutely committed to maintaining a universal service obligation. As the hon. Member for Argyll and Bute (Mr. Reid) said, that means one delivery and one collection of relevant postal packages every working day at a flat rate. He talked about the danger of that being chipped away, but when we look at that definition, it is hard to see how it could be chipped away. Anything less than one daily collection or delivery would be in breach of that obligation and anything that was not charged at a flat rate would also clearly be in breach. It is encouraging to see the extent to which Royal Mail shares that view of how important the universal service obligation is. In a briefing sent in advance of today’s debate it said:

Today, we are considering issues that go beyond the universal service obligation. The ability to fulfil the universal service obligation has traditionally been a result of cross-subsidy whereby the service in urban areas subsidises the service in the rural areas, and the business service is used to subsidise the social service. The ability of Royal Mail to cross-subsidise has been eroded by the nature of the competition that it faces, which has taken on the most lucrative parts of the market. The other companies involved have not been placed under a universal service obligation. That means that Royal Mail is being undercut by its competitors, which highlights a real failure of the European single market, as the hon. Member for West Aberdeenshire
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and Kincardine (Sir Robert Smith) has said. Ministers need to do more to resolve that. We are in an unacceptable situation; our market has been opened up to full competition yet Royal Mail is not in position to compete elsewhere.

We should pay tribute to Royal Mail management for what they have achieved. They are having to fight with one arm tied behind their back. They do not question the universal service obligation, but they are unable to break into other European markets and they face increasing competition in some of the most lucrative parts of the domestic market, as well as strict price controls. Yet, against that background, they have managed to move back into profit. We should pay tribute to Adam Crozier and his team and all those who work at all levels within the Royal Mail for their contribution to that achievement.

The situation is complicated further by the fact in many circumstances the competitors still use Royal Mail to cover the last mile of the mail’s journey, which means that they carry out the central part of the distribution before putting the mail in the Royal Mail’s system for the final delivery. The prices for that are set by Royal Mail as a mixture of wholesale prices which are agreed by Postcomm. That is done already on a zonal-pricing basis. Royal Mail has lost the most lucrative part of its business, but has to carry out the most expensive part itself.

Royal Mail emphasises that the changes it suggests are nothing to do with the universal service obligation. It has asked for the ability to use zonal pricing for business customers so that it can charge more according to how much it costs to make the delivery, as is the case already with parcel deliveries. The hon. Member for Orkney and Shetland described that as the Royal Mail going for the low-hanging fruit, but the reality is that if the company does not reduce its charges in the areas in which it faces the most competition and in the most important parts of the market, it will lose out to competitors, which means that it will be unable to cross-subsidise other parts of the network. He quoted concerns expressed by the head of TNT, but it is precisely the competition from TNT and others that is causing Royal Mail to make changes, so it is not at all surprising that the head of TNT does not like them.

Mr. Carmichael: Will the hon. Gentleman be quite clear about this? Is he saying that his party favours the Royal Mail’s approach? I have to say that that view would be ill-received in our communities.

Charles Hendry: We are absolutely committed to maintaining the universal service obligation, but recognise that in a highly competitive world, Royal Mail has to look at alternatives if it is to run its business profitably and effectively, although certainly its proposals contain significant flaws, which I shall come on to. At this stage, however, I am trying to set out some of the background to why the company is looking to go down this route. I hope that the hon. Gentleman will not seek to represent my comments in his local media as, “Tories say, ‘Get rid of local services to Orkney and Shetland’”. We understand why Royal
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Mail is looking in this direction, but we recognise the flaws as well, which I shall come on to in a moment.

Mr. Carmichael: Why is the hon. Gentleman so determined to define the universal service so restrictively, as the Royal Mail seeks to do, as applying to stamped mail only and not to bulk mail?

Charles Hendry: Because that is the definition given by Postcomm. We are using the legal definition that currently applies and we say that there should be no change to that.

As the hon. Gentleman just mentioned, the changes affect bulk mail only, not stamped or franked business mail. He expressed concerns earlier on behalf of the hon. Member for Crewe and Nantwich (Mrs. Dunwoody) about internet orders placed in his constituency posted as stamped or franked mail, but such mail will be exempt from the changes. The hon. Member for St. Ives (Andrew George) should not be concerned about internet orders placed in the Scilly Isles either, because they, being dealt with as stamped mail, will not be affected. We must be very clear about that. I understand why the hon. Member for Orkney and Shetland might wish to blur those aspects of the debate. However, we must be very clear about what is included.

Sir Robert Smith: The important thing is that customers buy certain products only because they have been contacted and given information about them, and that information goes out as bulk mail, which means that those businesses still have to send bulk mail. Again, we must come back to the point that the consumer is the end recipient. If there is differential charging, there will be differential costs to consumers.

Charles Hendry: I share the hon. Gentleman’s concerns, and I shall discuss them, albeit briefly, because the Minister will need plenty of time to respond. There are certainly fringe areas, but we must be very clear about what is being included. The proposed changes are not an assault on the universal service obligation. Royal Mail has said that that is sacrosanct, and we agree that it should remain so.

The European Union directive states that member states must ensure that universal service tariffs apply with certain principles—affordability, geared to costs, transparency and non-discrimination. Postcomm proposes that those principles be applied when considering the application for zonal tariffs. It would be interesting to hear whether the Minister believes that consumers receiving such post would be discriminated against as a result of the changes.

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