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The hon. Gentleman mentioned state aid. Of course we are aware that other companies in Europe have undergone similar transformations. We are certainly aware of the critical importance to post office branches of Royal Mail’s business. Having made the announcement on the Post Office card account just a month ago, we are looking forward to a more secure and sustainable
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future for those branches. There is nothing in the statement that I have announced today that will pose a threat to that.

Mr. Dennis Skinner (Bolsover) (Lab): Is the Minister aware that, in the real world, over the past nine months, the idea of privatisation and the halcyon days of 10 to 15 years ago have now disappeared? This Government have had to take steps to bail out some of the privatised companies so that they can carry on. The energy companies that were privatised are now ripping off the consumer, and the banking fraternity has had to be bailed out by the Government. Is it not strange to be talking about privatisation these days, when it has patently failed in so many areas? May I suggest that my right hon. Friend has a word with the Secretary of State and with this Mr. Hooper, whoever he is, and points out to them that things have changed in the past nine months? We are on a different set of rails now, and the sooner Mr. Hooper is told that—and that we should not invite in people like the Dutch TNT—the better this Labour Government will be.

Mr. McFadden: I have the greatest respect for my hon. Friend, and I can assure him that this company will remain publicly owned in line with the manifesto on which we fought and won the last general election. Bringing in a partner on a minority basis will give three advantages. It will give the advantage of the experience of having gone through change in a major postal company, which Royal Mail has not yet gone through; it will bring the confidence to carry through the decisions necessary for such change; and it will bring access to the capital needed to fund the modernisation. That is why it is an important part of the package that we have proposed today.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): I thank the Minister for giving me an advance copy of the statement and notice of the salient points. It is clear from a rapid reading of Mr. Hooper’s report that it is a serious body of work that sets out in clear terms the challenges facing Royal Mail, and that it offers significant and major proposals. Mr. Hooper and his team should be congratulated on their work; in broad terms, the report deserves a cautious welcome.

For our constituents who value their postal service and their postmen and women, the key issue was always the maintenance of the universal service obligation, involving collection and delivery six days a week. I welcome the fact that it was clearly stated in the report and in the Minister’s statement that the universal service obligation is to be maintained. However, as the statement makes clear, that objective requires a profitable Royal Mail, and that poses formidable challenges. I should like to ask the Minister some questions on these points.

Dealing with the pension deficit will clearly be critical. That burden must be dealt with and, unlike the Conservative spokesman, I believe that that proposal should, in broad terms, be welcomed. However, it raises two clear questions. First, will the Minister tell us which of the assets are to be transferred? Will it be all of them, or will some be left with the Post Office? Secondly, can he confirm that Royal Mail will continue to operate a pension scheme in the way that it has in the past, and that it will continue to be funded out of profits, as it has been in the past?

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The report proposes a partnership, but leaves the detail to the Government. The statement, however, said that a private company would take a minority stake in the postal business. The former does not necessarily mean privatisation because it could be a joint venture into which both companies enter with no transfer of assets; the latter, however, requires a stake to be sold, which is part-privatisation, and requires a valuation. How will the Minister set about valuing that stake if that route is indeed chosen?

There is much in the statement that will need very careful scrutiny—for example, the regulatory changes look sensible broadly, but the manner in which they are conducted will have considerable impact on the future of the Royal Mail. Another example is the arrangements for the Post Office—arrangements that closely mirror the policies set out by the Liberal Democrats three years ago when we began to look at this problem. On the arrangements for postal competitors, it seems to me—I hope the Minister will accept this—that there is a requirement for a level playing field, and that we should look again into how to achieve that and into whether competitors should be required to pay in any way.

Those are details that must be gone into. The report is serious and needs to be taken seriously. As the Minister said and as the report makes clear, however, the status quo is no longer an option, as we recognised in our paper on the subject of three years ago. The devil will almost certainly be in the detail, as it is always so I end by asking the Minister for a clear commitment to a full debate on this subject at an early opportunity.

Mr. McFadden: I thank the hon. Gentleman for his broad welcome of our proposed changes. He mentioned the maintenance of the universal service obligation and it remains at the heart of the statement I made today and at the heart of our policy intention. We legislated to enshrine the USO in law and we are pleased to see that Hooper rejected the downgrading of the USO as an answer to the company’s problems.

I also welcome the hon. Gentleman’s broad support for our pension changes. He is right, of course, that there is more detail to be worked through and more to be announced on this matter, but the principle is clear—that, as part of a wider package involving partnership and a change in regulation, we seek to lift the enormous burden that funding the current pension deficit poses to the company.

On the issue of the partner, I say to the hon. Gentleman the same as I said to my hon. Friend the Member for Bolsover (Mr. Skinner)—that the company will remain publicly owned in line with our manifesto commitments. Our objective will be to get the best deal for the company and for the public in respect of those three key factors that a partner can bring: experience, confidence and capital.

On the issue of competitors, Hooper considered and rejected the idea of a levy on them in order to fund the USO. He was also clear—this is important—that of the challenges facing the company, the shift from mail to other forms of technology is much more significant than other challenges and will have a much greater impact than in respect of other postal companies operating in the market.

Mr. Peter Hain (Neath) (Lab): Will my right hon. Friend confirm that legislation is needed to allow a private competitor to come in and take a stake? Does
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that not open the door to full-scale privatisation, which is against the wishes of our party and our Government? Will he also confirm that taking the pension fund on to the Government’s balance sheet effectively lifts a burden of perhaps £700 million off the Royal Mail’s balance sheet, so it either fattens the calf for a future privatisation or leaves the Royal Mail without that liability in a much more effective position to compete as a fully owned public sector organisation? Is not the real villain of the piece, notwithstanding the threat of electronic communication, the problem of unfair competition rigged against the Royal Mail in favour of private competitors, which undermines the universal service obligation and the ability of the Royal Mail to deliver it? Is not that the real problem that needs to be reformed?

Mr. McFadden: My right hon. Friend is correct to say that legislation would be needed to take these changes forward, but he is not correct to say that that opens the door to privatisation of the company, because as I have said our manifesto commitment is clear and the company will remain publicly owned under the proposals I have outlined today.

My right hon. Friend talks of pension changes. Hooper is quite clear that those could be justified only in the context of wider reform of the company and wider change in it. That is why this should be viewed as a coherent package, not as a menu of items to be picked one by one.

I am afraid that I have to disagree with my right hon. Friend when he says that the main issue is other postal companies, not technology. Hooper concludes precisely the opposite and quantifies the effect of those two things on the company’s balance sheet. He concludes that the impact of technological change is five times greater than that of any competition with other postal companies. I am afraid that the main challenge is not other postal companies; it is the change in lifestyle that the technological revolution has brought about.

Peter Luff (Mid-Worcestershire) (Con): I am not sure how much I will help the Minister when I say that I think that the review team has done an excellent job and that the Government’s indication that they intend to accept the broad thrust of the recommendations is a sensible decision indeed. Post Office Ltd and Royal Mail Group both face huge challenges and the report recognises the scale of those challenges, but huge numbers of questions on the details remain to be answered. For example, what will be the relationship between Post Office Ltd and Royal Mail Group in this new world, with a part-owned subsidiary run by a current competitor of Royal Mail Group? The regulatory changes needed to bring Postcomm into Ofcom are clearly important as far as Richard Hooper is concerned, but again legislation will be required. Over what time scale can we expect that legislation?

Mr. McFadden: The hon. Gentleman asks two questions. The first relates to Post Office Ltd. As I said, we are acutely aware of the importance of the relationship between Post Office Ltd and Royal Mail, and acutely aware that those arrangements enable the delivery of the universal service. It is our priority to keep the universal service, not to downgrade it. Therefore, we will be mindful of the importance of that to Post Office Ltd going forward.

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On regulation and other details, as I said, we will make a fuller statement in the new year, but Hooper’s essential recommendation on this is clear: it is time for a change from the regulatory regime governed by Postcomm to a wider regulatory framework placing the Post Office in the context of the wider communications market and also ensuring that Ofcom’s primary responsibility in this field will be the maintenance of the universal service.

Geraldine Smith (Morecambe and Lunesdale) (Lab): Does the Minister not recognise that most of the current financial difficulties facing Royal Mail stem from the postal regulator exposing it to unfair competition, allowing the vultures to pick clean the most profitable parts of the business? Does he not accept that the many years of contributions holidays taken by Royal Mail have played a major part in the build up of the pensions deficit that it now faces?

Mr. McFadden: I know that my hon. Friend is a passionate campaigner for post offices and Royal Mail, but I have to point her to Hooper’s conclusion on the very point that she raises, which is that the principal challenge facing the company is not that from other postal companies, but the far greater challenge and the far greater impact on the company’s balance sheet caused by the shift from mail to other forms of technology. Making the other postal companies go away is not an answer to the challenges facing Royal Mail.

On the pension fund, regardless of what has happened in the past, we recognise that that is a major problem for the company. Therefore, as part of a package of wider changes, we are prepared to address the pension fund deficit.

Malcolm Bruce (Gordon) (LD): While I welcome the Minister’s assurance on the universal service, will he give a further assurance that it will mean what it says and will not lead to variations in charges on a regional basis or in delivery times? Many people living in rural parts of the country do not have access to competitors and depend on Royal Mail. They are already finding a diminution of service. Does a universal service mean what it says?

Mr. McFadden: Universal service means a one-price-goes-everywhere delivery, six days a week. That is enshrined in law, we are committed to it and it is at the heart of the reforms we have proposed today.

Michael Connarty (Linlithgow and East Falkirk) (Lab): I look forward to reading the Hooper report, which should have come out last week, just before I visited my local delivery offices where people wanted to know about their future. This is a massive industry in which 30,000 to 40,000 people have already lost their jobs. I have some questions. What does it mean to say that the pension fund would be reduced substantially? If a burden is left that chokes up the new arrangement, the problem will not be solved. From my information as secretary of the Communication Workers Union in this House, I understand that TNT runs on a part-time basis. It brought in technology and paid off all its full-time workers, so that people get 22-hour contracts. Is that the future for post office workers?

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The Minister says that it is a package. It is a curate’s egg, and the question is whether people will swallow it—

Mr. Speaker: Order. I understand the hon. Gentleman’s deep concern, but Members have one supplementary question in these sessions because other hon. Members want to get in.

Mr. McFadden: As I have said to other right hon. and hon. Members in response to questions on the pension fund, our concern is to reduce the liability posed for the company, but only in the context of the wider change that Hooper set out in his report. The company that my hon. Friend mentions has made an approach to the Government. There may be other approaches in the coming weeks and months, but our intention will be to find a partner who can provide the three key qualities that Hooper mentioned in his report: the experience of having gone through major change in a postal network, the confidence to carry through such change and access to the capital necessary to finance it.

Ann Winterton (Congleton) (Con): When exactly do the Government expect to introduce legislation on their proposals, and will it be within a Bill additional to the Bills recently announced in the Queen’s Speech?

Mr. McFadden: Legislation to carry these proposals forward would be in an additional Bill. I cannot say exactly when it would be introduced, but we will be working out detailed proposals on these matters in the weeks and months ahead.

Mr. Don Touhig (Islwyn) (Lab/Co-op): I welcome the debate that will now ensue after my right hon. Friend’s statement, and I say to him that without radical reform and a substantial change to senior management, Royal Mail does not have a future at all. Can he tell the House whether the Government will engage directly with those who work for the Royal Mail? I have no confidence whatsoever that the present management will discuss the matter with them.

Mr. McFadden: I am grateful to my right hon. Friend for acknowledging the urgency of change. He asks whether we will speak to the work force about the changes. Of course we will speak to them. As I said in my statement, it is time for a fresh start in industrial relations in the Royal Mail, and that fresh start is essential in the carrying forward of proper reform.

Lorely Burt (Solihull) (LD): May I ask the Minister about access headroom? Many in the Royal Mail feel that that issue has constrained its competitiveness for a long time. Now that it is to be part-privatised, will the Government still be able to dictate matters such as access headroom to the Royal Mail?

Mr. McFadden: I repeat that the company will remain publicly owned in line with the Government’s manifesto. The hon. Lady is right to say that access headroom has been controversial, and that people have raised a number of issues about it. It is a matter for the regulator, and in the context of the regulation change proposed by Hooper,
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it would be a matter for Ofcom in the future. It is important to remind the House that Hooper concludes firmly that the key challenge facing the company is not from other postal companies, but from other technologies. That is what lies behind a drop in the volume of mail of some 5 million items a day, and that drop is not just taking place in the UK, but in many other countries for precisely the same reason.

Mr. Lindsay Hoyle (Chorley) (Lab): I recognise that my right hon. Friend has made this statement, but I am not convinced by Hooper’s recommendations. New technologies may have reduced letters by 5 million over two years, but the number of packages and parcels have substantially increased. Therefore, we ought to be getting into that business. Let me explain where we are really missing the point, however. It is not about selling off the silverware and looking for partners. We must charge private companies sufficiently high sums to ensure that Royal Mail makes a profit and is not subsidised by the taxpayer, because bulk mail is having a free ride at the expense of taxpayers. If we put that right, Royal Mail will begin to make a profit. Let us do it that way, not the privatisation way.

Mr. McFadden: My hon. Friend is correct to point to a growth in packet volumes as a result of people ordering over the internet, but that is not enough to counteract the falling volumes of mail. Overall, mail has fallen by 5 million items a day. My hon. Friend takes us back to the issue that the hon. Member for Solihull (Lorely Burt) and other Members raised by contending that the principal problem facing the company is competition from other postal companies and the terms by which that competition is conducted. Hooper concludes that that is not the case, and that the impact of that is just one fifth of the impact of the shift from mail to other technologies. Therefore, changing the regime for upstream access or headroom pricing will not deal with the Royal Mail’s problems. That demands wider change and wider reform.

Mr. David Curry (Skipton and Ripon) (Con): I bet the Minister is looking forward to taking this through the House!

On what date was the pension fund last valued, by how much has the stock exchange declined since, and will the Minister have another shot at defining “substantial”, as used in the statement he has just given?

Mr. McFadden: The valuation takes place every three years. I think I am right in saying that the last valuation was in 2006, so we expect the next triennial valuation to take place early next year. We expect it to have grown substantially from the valuation in 2006 of a £3.4 billion deficit. That starkly shows the size of the burden imposed on the company, which is why, in the context of a package of wider reform, it makes absolute sense to relieve the company of that burden, so it can concentrate on the investment that is required to finance the transformation that the Royal Mail sorely needs.

Kate Hoey (Vauxhall) (Lab): How will the Minister—and, indeed, his Secretary of State—convince the public and many Members on the Labour Benches, and perhaps in all parts of the House, that this is not just the slippery slope to privatisation? We have seen this happen in the
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past: is it going to happen in the future? Will the Minister also tell us why on earth the Government feel they have to invite a foreign country’s private postal operator to come in, when they could in fact fully support this highly valued public service?

Mr. McFadden: My hon. Friend asks how we can convince the public. The public want a strong USO, secure for the future. We do not have that at present, because the challenges I have outlined today—the transfer to different technologies, the pension deficit, the lack of efficiency in changing the company—mean the USO is now loss-making. We want to address that, put the company on a stronger footing, and make sure the USO is secure for the future.

On the slippery slope issue, I again remind my hon. Friend of our manifesto commitment for a publicly owned Royal Mail. We will have a publicly owned Royal Mail, and any partnership would be only on a minority basis.

Mr. Mike Weir (Angus) (SNP): The devil may very well be in the detail, but we are being offered very little detail today to find out where that devil lurks. The Hooper report states:

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