Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 20-39)


22 OCTOBER 2007

  Q20  Mr Binley: With a big company, yes.

  Mr Hutton: Well not of a £9 billion—

  Q21  Mr Binley: Courage I was involved in.

  Mr Hutton: Well, fine, good for you. We were trying to get this dispute over as quickly as possible in a responsible fashion and I think that is what we have done.

  Q22  Mr Binley: During the first six weeks of the postal dispute Royal Mail refused to negotiate with the CWU and that resulted in four bouts of industrial action. Why were you not at that time urging Royal Mail to get involved as responsible management should do?

  Mr Hutton: I did get involved very early on when I took on my responsibilities as Secretary of State. There was a background to this dispute that preceded my appointment as the Secretary of State, as I am sure you will be aware, but I did make it my business to meet the unions early on. I think I met the union in July a couple of weeks into my tenure as Secretary of State, which I think was the reasonable thing to do. I met management, I think, slightly earlier than that because I wanted to understand from their point of view what the dispute was about and how important the issues were for them. I have tried to keep involved, and my junior Minister, Pat McFadden, has as well, with the conduct of these negotiations, so I reject absolutely your allegation that ministers were not involved or interested in this dispute. We were very interested in it. I just repeat what I said earlier, and I think this is very important. I do not believe it is the role of the principal shareholder to conduct the negotiations between the two sides. ACAS tried to resolve those disputes. That is an entirely appropriate and decent and honourable thing for them to do. They failed, and when they failed the TUC stepped in and Brendan Barber did a very good job in trying to bring the parties together. Over the summer there was a period of several weeks when industrial action was called off. I welcomed that; I am sure you did, and the parties tried to get the dispute resolved during that time as well but they failed. I think when it was clear that industrial action was starting again we made the comments that have been referred to in the House, and I made comments as well making quite clear what our position was. I genuinely believe that the interventions that ministers have made have been correct. I believe they are consistent with our role and the new relationship between the Royal Mail and ministers which is enshrined in the legislation, and the dispute now, I hope, has come to an end.

  Q23  Mr Binley: Are you then saying to me that the management did not listen to the concerns expressed by the shareholder?

  Mr Hutton: Yes, they certainly did.

  Q24  Mr Binley: They did not or they did?

  Mr Hutton: Of course they did, yes.

  Chairman: Did? There is a double negative there.

  Q25  Mr Binley: Yes, there is a double negative.

  Mr Hutton: Of course they listened to the points I made. My job was, as I said, to make sure that the deal that was on offer was affordable, was right for the business going forward, given the scale of change affecting the Royal Mail.

  Q26  Mr Bone: It seems to me, Secretary of State, that the Government was very involved with the negotiations, with the private meetings, the fact that the management consulted you on what would be acceptable and what would not be. I do not think a criticism of Government could be that it was not involved, it clearly was involved, but its statement that it was not taking sides and leaving it to the management and the union are just not believable.

  Mr Hutton: No, I do not think that is fair and proper either. You cannot have it both ways. On the one hand we were accused of being the invisible party, and now you have just accused me of being hands-on and forcing the terms of the negotiations and taking the side of the management. I do not think you can have it both ways. We were trying to facilitate the earliest possible end to the industrial dispute and I think that was a proper role for us to try and play, but fundamentally our role as a responsible shareholder was trying to make sure that the value of the business was preserved and protected. Ministers have acted very clearly on the advice of officials and the advice we received from the shareholder executive throughout this, and I think we have acted properly in relation to our role as the shareholder here.

  Q27  Mr Bone: I do not think I was ever suggesting that you were not involved. I think it is clear from all the things you have said that you were involved, and quite properly involved. The fact that it might have been done behind the scenes and people were not aware of it is fair comment as well, but clearly you cannot then stand up in public and say, "We are hands-off. We are leaving it totally to the management and the union to sort out". You, Secretary of State, cannot have it both ways.

  Mr Hutton: We were not trying to pretend that we did not have meetings with the union and the managers. Why on earth would we want to do that? We were not, and if we were asked by—

  Q28  Mr Bone: My question was, why did you pretend that you were not involved when you clearly were?

  Mr Hutton: We did not pretend that we were not meeting both sides. That is quite ludicrous. I would like you to point out any point where ministers said they were not meeting the union or management.

  Q29  Mr Bone: Is it not true, Secretary of State, that you were absolutely behind the management and you wanted the management's position to succeed, and you were in effect against the union and for political reasons you could not say it?

  Mr Hutton: We wanted a fair and affordable outcome to these negotiations and we were clear about what was a fair and affordable outcome and we made that position very clear, but we wanted these negotiations to be concluded as negotiations. It is in no-one's interest for there to be imposition. I think there are two fundamental conditions that are essential for the Royal Mail going forward. One is that the investment goes in and the business changes, and the second is that both management and the workforce share a common understanding about the challenge the business faces and are committed to trying to address it. It took much longer than I would have liked, than anyone would have liked, but what has come out of this negotiation I think is an agreement between management and the union about the need for change in the Royal Mail and that I believe is very important for the long term viability of the Royal Mail.

  Q30  Mr Bone: Just picking up on those comments, if this had been a totally private company and there had been no government involvement, would you not say the management, who are pretty well-paid management, have failed pretty dismally when you get to a series of national strikes? If I am on a board and we get to a state where my workers think that they have to go on strike because there is no other avenue left open to them, in all cases is that not a failure of the management, to get to that stage in the first place?

  Mr Hutton: I think it is fairly dangerous to generalise and say that in all circumstances in all situations it is going to be the failure of management when there is industrial action. I think that is probably stretching the point too far.

  Q31  Mr Bone: Let us be specific then. With some highly skilled, and you said, I think, excellent management, in response to Mr Weir you said you fully supported them. Have they not failed, because how can it be under your watch that this management has landed you with such a painful series of strikes, hurting so many people across the country? It must be a failure to get to that stage and I just do not believe that this is the sole responsibility of the union. It seems to me the average postman or postwoman is an extremely decent person whom the country has a high regard for. They are not the sort of people that go on strike willy-nilly. Do you not just accept that one point, that it must have been a failure to get to that stage?

  Mr Hutton: No, I am not going to accept that. If it would be helpful for the Committee, Chairman, I will write and set out to the Committee the full chronology of events from the early part of March when these negotiations started. It would not be a terribly constructive thing to do for me to point the finger of blame. There have been failures in the system, of course. This industrial action I believe, as I said earlier, should never have started, but I think it is not fair to say that the sole responsibility for that is with the management of the Royal Mail. I think there are always, to quote a very familiar phrase we will all be aware of, two sides to every argument.

  Q32  Mr Bone: But you would also accept from that then that there was failure by the management?

  Mr Hutton: Your question to me was that they were solely responsible for what happened.

  Q33  Mr Bone: And I think you said they were partially responsible, or you implied in your response.

  Mr Hutton: No. I think with hindsight we can all say what was this dispute about, why was it necessary, but hindsight, sadly, is one of those things that is rarely available when you need it, and it serves precious little point, I would respectfully suggest, to try it now, hopefully, now that the dispute is beginning to end, and to accuse management of being entirely responsible or the union for being entirely responsible, and I am not going to do that.

  Q34  Mr Bone: So in fact they were both to blame?

  Mr Hutton: As I said, this industrial action should never have started.

  Q35  Roger Berry: However, Secretary of State, constituents of mine who work for the Royal Mail have identified criticisms of management with which you will be very familiar. For example, in relation to the conditions of employment and so forth, Mr Leighton, in a letter in 2003, in a style that perhaps only Mr Leighton is skilled at, addressing the demands from the workforce, for example, made it perfectly clear that the practice of delivery workers leaving their shifts early if the work was completed, the so-called "job and finish" procedure, was entirely acceptable to him, it was a good thing and he was very happy about it. Therefore, did you appreciate that a few short years later, when management seeks to change working practices, from the union's point of view arbitrarily, they were saying, "Hang on. He is moving the goalposts". Does that resonate at all? Is that a reasonable observation for Royal Mail workers to make?

  Mr Hutton: It is an observation, for sure, for them to make and it was put to me by my own constituents who work for the Royal Mail too. I will just say two things about that. First, remember, negotiations (and there were negotiations) and proposals started in March, and I think the Royal Mail management were keen to get an agreement on changes to flexible working practices. I do not think it was ever their intention that they would simply sort of descend from on high and impose changes. They were trying to negotiate the changes that were necessary. Secondly, I am aware of the correspondence that you refer to, but the only thing I would say about that is this, and it partly comes back to what I said in relation to Lindsay's questions. The sector is changing very quickly indeed and the Royal Mail, if it wants to be competitive, provide a good service and retain as much market share as possible, is going to have to change, and that means the working conditions. It also means the way and the speed at which it gets in the new technology and the new machinery that will help it to compete with the best providers out there, and they are more efficient and more competitive than the Royal Mail, so I do not think you can ever fairly say that one thing is going to be set in stone for ever irrespective of the business circumstances in which you are trading. I am afraid the simple economic reality is that things are changing very quickly indeed and the Royal Mail will have to respond to that, including looking again at working practices, if it is going to succeed.

  Q36  Roger Berry: I absolutely understand, Secretary of State, but some things did change pretty quickly. Not least was Allan Leighton's attitude towards pensions. It was not just in his letter of 2003 where he was proclaiming that he had been asked to secure pensions, which he had, and he wrote, "We will secure everyone's pension by putting £100 million into the fund each year until the current pension gap is filled"; no suggestion of reviewing the pension arrangements. Indeed, in March of this year, literally just before the beginning of the dispute, the Royal Mail Pension Plan people write out to their members saying, "No changes are being made to members' benefits or the rate of members' contributions as a result of these funding arrangements". Then, just before the proposals came forward, they effectively started talking about shifting the basis of the pension scheme when assurances had been given to workers that there were going to be no changes to the pension scheme consistent with the assurances given a few years earlier by Mr Leighton. Do you not accept, Secretary of State, that Royal Mail employees might find opening the debate on pension entitlement literally within days of receiving a letter saying that was not going to happen might just have created concern, alarm, disquiet, anger at management?

  Mr Hutton: Of course I am sure it created all of those things.

  Q37  Roger Berry: And was that not unreasonable?

  Mr Hutton: It is just as important to remind ourselves that the pension Trustee will be involved in necessary scheme changes and regulations, and there is a proper 60-day consultation period that has to be pursued now in relation to these scheme changes, but, again, I think you will find that the Royal Mail is in the same position as virtually all of Britain's leading companies at the moment in having to look again at aspects of their pension offer. There is a significant deficit in the Royal Mail pension scheme, several billions of pounds, I think probably the largest of all of Britain's biggest companies, and it has to be addressed in a sensible way. I do not dispute that it is very difficult when workers are given these sorts of options and choices. None of them is palatable. Of course it will create the sort of emotion and reaction that you have described, but that does not mean that therefore the only response for management is not to engage in making those kinds of changes.

  Q38  Roger Berry: No, but, Secretary of State, Mr Leighton has years of experience. If he was saying four years ago that there was no problem in relation to pensions then either he had done his homework and there was no problem in relation to pensions or he clearly had not done his homework and he was misleading people. The fact is that you and I know perfectly well that a large number of Royal Mail employees believe they were deliberately misled, and when a letter goes out in March assuring people that there are no proposals to change pension arrangements to then open negotiations in relation to this matter within a few days creates a groundswell of anger. As Members of Parliament we have just received our pension statements. Can you imagine how we would respond if in the next 24 hours somebody were to say to us, "Oh, by the way, forget that letter you have just had through the post with the assurances from top management. We are going to start negotiating on pension plans"? We would regard that as unreasonable.

  Mr Hutton: I do not dispute for a second that having to engage with these issues about making the pension scheme affordable and sustainable in the long term going forward does involve some very difficult choices for pension scheme members. I accept that and I am quite sure from my own experience of how we would all feel ourselves that dealing with these changes is always going to be very difficult; it is difficult. Of course, I am not going to dispute either that this might well have cast some shadow or cloud over the negotiations as well. I am obviously prepared to accept that; that is a simple statement of the obvious, but I will just come back to one other point that I am trying to make, obviously not very well, that despite all of those difficulties this has to be done; this has to be addressed. I am not going to argue with you about the timing and the sequencing and everything else, you might be perfectly right about that, but I think there is no hiding from the fact that these issues will have to be addressed going forward. There is a consultation period. I think the union still has one or two issues in relation to the scheme changes that are being proposed and that discussion should continue, and obviously this is an issue that has to be resolved, again in that context, but I just think it is again a statement of the obvious—I have made one; I will make another—that these changes have to be engaged with and there is no place you can go where you can somehow brush this away.

  Roger Berry: I think perhaps we are talking past each other. I entirely agree that one always has to look at flexibility in working practices continuously; no question about that, and if Mr Leighton did not know this four years ago everybody else did. Pension funds are facing difficulties and these issues have to be addressed. I am not arguing for maintaining the status quo in any respect. My point is not that. My point is, is it not understandable that Royal Mail employees felt an enormous lack of confidence in management that was telling them one thing one day and then coming along with a package of changes the next day that were going to fundamentally—

  Chairman: Almost literally the next day.

  Q39  Roger Berry:— almost literally the next day that were going to fundamentally affect their working practices, their pension rights and so forth? My issue is not that we should not all have to address greater flexibility in our work. My issue is not that there are not issues about pensions that need to be negotiated properly. My issue is, is it not entirely understandable that a lot of Royal Mail workers found it beyond belief that the management of Royal Mail kept shifting its position? One minute it was, "I'm the nice guy. I write really chatty letters. We have listened to your views about pensions. It is sorted. We agree with going home when you have finished the job. We agree with all that. Trust me: it's fine", and then turning round and changing it. That is my point, that management, it seems to me and certainly to my constituents with whom I have discussed this and, as you say, Secretary of State, you have discussed it with yours as well, it is this issue about, "Can we trust them? They are trying to pull a fast one again". That to me has been a major cause of the concern and in my view that seems legitimate. You are, if I might say, in a slightly difficult position perhaps in this as the sole shareholder, but you do confirm you understand why there has been real anger on the part of many people who work for Royal Mail because of management shifting their ground?

  Mr Hutton: I do accept there is a lot of anger in the organisation and it is aimed, yes, at management, some of it is aimed at the union, and some of it is aimed at me. That is obviously so. There is a lot of anger in the room. I hope you feel a bit better now. Let me make two points about what you have just said. I need to reflect a little bit more carefully and maybe come back to the Committee, Chairman, about the chronology that you are describing here because I am not sure it is absolutely 100% accurate. My understanding is that on 8 February the Royal Mail made it clear that they were looking at pension reform and would be taking forward proposals shortly. I would like to come back to the Committee about this particular point.

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