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I believe that the time has come for a genuine consensus about action. Does the Government amendment mean that, after two months of failing to produce any detail, they are now buckling at the knee and deciding to leave the matter for a bit? If they are going back to the 12 years of pretty useless inactivity that has been their policy so far, the message of the Hooper report is that the Royal Mail may not survive, as it says that the universal service obligation depends on the changes that it recommends.
I hope that the Minister will correct my misunderstanding and that he will make it clear that partial privatisation—not even full privatisation—is an option. That is quite a concession from someone who was in the Thatcher Government, but the Opposition are not pressing for anything other than a minority partner to enter into a mixed public-private sector partnership. I hope that the Minister will confirm that that is the Government’s policy, and that progress is being made with it.
I leave the Minister to make the case for private capital. Where else is the capital going to come from, given the state of the public finances, the needs of the Post Office and the circumstances of the next few years? Does anyone really believe that the Post Office will be able to compete successfully with health, education and defence for the capital that it requires? As Hooper argues compellingly, private sector competitors that are prepared to come in as partners in Royal Mail will be able to bring with them the experience of change and of management that will help the transition to go smoothly. They will be able to deal with the understandable fears of staff and stakeholders, and the understandable need to win back confidence in the business.
Mr. John Heppell (Nottingham, East) (Lab): Will the right hon. and learned Gentleman give way?
Mr. Clarke: I will not, as many hon. Members want to speak in the debate, and Back Benchers are under a time limit.
The regulatory proposals make sense. It plainly makes sense to transfer the regulatory responsibilities for Royal Mail from Postcomm to Ofcom. The change goes with other things, as Hooper says, but it makes sense in any event, as the relationship between Postcomm and Royal Mail has been fairly unsatisfactory. In addition, it no longer makes sense to deal with Royal Mail apart from the other responsibilities that Ofcom has.
The pension question is, as the right hon. Member for Neath (Mr. Hain) says, very important. The Government have allowed the pension deficit to become extremely severe by the standards of any commercial organisation in the country. The report does not clearly recommend anything; it leaves options. However, it does say that the Government should address the growing pensions deficit.
Mr. Heppell: Will the right hon. and learned Gentleman give way on that point?
Mr. Clarke: No, I am afraid that I do not have time to give way any more.
The report says that the Government should address the pensions deficit—and so they should. We are talking about £22 billion of assets and £29 billion of liabilities.
The company as a company, and the business as a business, is balance-sheet insolvent, as Hooper rightly says. It will probably be quite impossible to get a private sector partner to take an equity stake, when the company has that around its neck. There are options, and the Minister for Employment Relations and Postal Affairs should by now be able to tell us what options will be pursued to deal with the problem.
The real fear, which my hon. Friend the Member for Rutland and Melton (Alan Duncan) has previously expressed, is that the Treasury—or perhaps the Cabinet as a whole, having been induced to agree to the remarkable new policy—has taken the view that the simple solution is to have a look at the £22 billion of assets. It is very useful to have £22 billion of assets, which the Government can take care of by taking them into their coffers. The £29 billion of liabilities will therefore be added to that great stock of unfunded public sector pension liabilities that the future taxpayer already faces. Who knows what will be done to those liabilities? That option would be irresponsible and very short term.
Alternatives are difficult. We faced those difficulties in the past with British Telecom and others. Given what is happening at the moment, more public money being spent in vast sums is unlikely, but there may be statutory guarantees in case the new entity goes bankrupt; British Telecom was placed on that footing when it was privatised. That idea is canvassed in the report, and it could be considered carefully by the Government. We need, and have today provided the opportunity for, the Government to address the pensions problem, now that two months have passed. We need them to tell us how they will face that problem, which, so long as it lasts, puts job security and service improvements in Royal Mail in tremendous doubt. It is a tremendous threat to today’s taxpayers, future taxpayers or both. How do the Government propose to address what Royal Mail has piled up on its desk?
I conclude by going back to the main question, although I did not think that it would be the main question. Of course, I dwelt on this point when I started my remarks, but there is a most remarkable outcome of the amendment that appeared on the Order Paper this morning. Instead of having a comparatively low-key debate, as I thought we would, in which we would ask questions and Ministers would give details and some indication of when the legislation would come forward and what form it would take, we find that we are trying to ask what on earth the policy is at all. [Interruption.] Well, a note of indignation comes into my voice.
The Government are merely proposing that the House vote for the suggestion that the Government should address the pensions problem. Of course the Government should address the pensions problem; we have been saying that for two months. Exactly how do they propose to address it? The Government amendment
“notes that modernisation in the Royal Mail is essential and that investment must be found for it”.
That does not sound as clear as Lord Mandelson was two months ago. I have never seen a more ridiculous statement of the obvious put on the Order Paper, but if the Government are inviting us to agree with the suggestion that investment must be found for the modernisation of Royal Mail, I suggest that they tell us what their proposals
are for finding it, if they are abandoning the proposals that they had two months ago, when they had a private sector partner.
The motion dregs everything up, including an attempt to compare the Government’s investment record with the investment record of the Conservative Government some time ago; it is all our fault, apparently. That was more than 12 years ago. The motion is obviously written by a committee. It is obviously written with parliamentary process in mind. Indeed, the amendment winds up with the ringing reassurance that
“legislation on these issues will be subject to normal parliamentary procedures.”
I do not know which Labour rebel needed to be reassured that the Government would at least allow Parliament a debate—a short, cursory one, no doubt—touching on the subject, or why a motion had to be passed to indicate that normal parliamentary procedures would be used to scrutinise the measures.
I can only say that this is an important debate, Royal Mail is an important service, the service is in crisis, and the Government have produced a report that says that the universal service obligation may well not survive unless they address it now. It is a serious motion. The Government had a clear policy that we would support if they went back to it. I hope the Minister will say that he will cling to it. I hope he does not obscure all questions, going through an elaborately orchestrated regime where he tries to reassure rebels on the Labour Benches that the Government are not going to do anything at all. That would not be in the national interest. In the light of the Government amendment, the future of Royal Mail is a more urgent and worrying question than it was even yesterday when we tabled the motion.
Madam Deputy Speaker: Order. I apologise to the House that I omitted to inform it that Mr. Speaker has selected the amendment in the name of the Prime Minister. I was clearly distracted by the difficult point of order that I had to deal with.
4.46 pm
The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“notes the threats to the future of the Royal Mail and welcomes the conclusion of the Hooper Report that, as part of a plan to place the Royal Mail on a sustainable path for the future, the current six days a week universal service obligation (USO) must be protected, that the primary duty of a new regulator should be to maintain the USO, and that the Government should address the growing pensions deficit; notes that modernisation in the Royal Mail is essential and that investment must be found for it; endorses the call for a new relationship between management and postal unions; urges engagement with relevant stakeholders to secure the Government’s commitment to a thriving and prosperous Royal Mail, secure in public ownership, that is able to compete and lead internationally and that preserves the universal postal service; further notes the Conservatives’ failure to invest in Royal Mail when they were in power in contrast with Labour’s support for both Royal Mail and the Post Office; and notes that legislation on these issues will be subject to normal parliamentary procedures.”
We welcome the opportunity to debate the future of Royal Mail. I thank the right hon. and learned Member for Rushcliffe (Mr. Clarke) for his introduction to the debate. I confess that my research on his past career
must have been less than complete. I had not realised that he had held the post of Minister with responsibility for postal affairs some years ago, so let me begin my thanking him warmly for the legacy that he bequeathed to us. His experience will have given him a familiarity with the issues. The difference between the time when he had responsibility for these matters and now is the technological revolution, which lies at the heart of many of the difficulties that the company faces.
The right hon. and learned Gentleman is an experienced and very canny politician, but I do not think the motion tabled by his party is the most canny thing that he has done. If he is serious when he says that there is nothing in the Government amendment that he or his colleagues could disagree with, I warmly welcome him to join us in the Lobby tonight to vote for the Government amendment.
For its 300-year history, Royal Mail has been able to rely with a considerable degree of certainty on mail volumes rising and falling in line with the country’s gross domestic product. That was the case for many years, but in recent years that pattern has been overtaken by the technological revolution and the choices that citizens make every day about how they communicate with one another and how they do business: an e-mail sent is a letter not sent; a bill paid by direct debit is a letter not sent; family pictures posted on a photo-sharing website such as Flickr are pictures not sent through the post. All this has become clear and all of it has become worldwide.
Albert Owen (Ynys Môn) (Lab): I am grateful to my right hon. Friend for giving way on that important point about new technology. Is he a little surprised, as I am, that the shadow Business Secretary seems not to have been to a sorting office since he was in charge? When I go, I see an increased volume of parcels. It is new technology such as eBay that is allowing that extra business. The Post Office, when given the opportunity, can deliver a good service.
Mr. McFadden: My hon. Friend is correct to say that there has been an increase in the volume of packets posted, but I have to tell him that the volume of mail sent overall has declined not just in this country but in many others. In just three years, the volume of mail posted in the UK has fallen by 5 million items per day. There has been an increase in the number of packets posted as a result of internet shopping and so on, but that increase is included in an overall drop of 5 million items a day. This effect is evident not only in the UK but in France, Germany, the Netherlands, Italy and many other countries.
Mr. Robert Goodwill (Scarborough and Whitby) (Con): Does the Minister not agree that the downgrade in some of the service has contributed to the problem? Businesses in Scarborough that start work at 9 o’clock in the morning and used to find the mail on the doormat waiting to be processed now sometimes have to wait until 2 o’clock in the afternoon before the mail arrives.
Mr. McFadden: What I will say is that the maintenance of the universal service obligation—the six-day-a-week, one-price-goes-anywhere delivery—is extremely important. It is at the heart of the Hooper report and we are determined to preserve it.
The US postal service has a monopoly on letters, and we have been urged by some critics of our proposals to examine it as an example of why the Government’s proposals are not needed. It was recently reported to be heading for a loss of $6 billion after a fall in mail volumes last year of 4.5 per cent. That has led the company to ask Congress for permission to drop the Saturday delivery. Mr. John Potter, the US Postmaster General, said:
“it is clear that the problems we are facing are intensifying...No one knows at what point mail volume will bottom out.”
Unlike in the United States, dropping the Saturday service is not a route that we want to go down. For the first time, our USO is loss-making, but we believe it is valuable to the public and to the small businesses mentioned by the hon. Gentleman. We want to maintain it and to make the changes necessary to do so, rather than consigning our postal service to decline.
Mr. Jim Cunningham (Coventry, South) (Lab): Later in his speech, will my right hon. Friend clear up the press reports regarding redundancies—I think 16,000 was the figure mentioned? Alternatively, perhaps he can write to me when he has thought about that question.
Mr. McFadden: I believe that the company said that it had no such plans. Hooper considered the background of change that I have set out and made three interlinked recommendations. The first was that the Government should address the historic pension deficit in Royal Mail. The second was that there should be a strategic partnership between Royal Mail and another postal or network company. The third was that the regulatory system should be changed.
Mr. Mike Weir (Angus) (SNP): I understand what the Minister is saying about the USO, and I agree with him, but the problem is that even the management of Royal Mail have made noises to the effect that they would like to change the USO. Indeed, they have tried to do so through zonal pricing, which was, thankfully, rejected. What guarantees do we have that, if Royal Mail is part privatised, the private company will not seek changes to the USO?
Mr. McFadden: We have enshrined the USO in primary legislation and we will continue to do so in the future.
The falling volume of mail is not the only challenge facing the company. The pension deficit is another huge challenge. Three years ago, it was valued at £3.4 billion. The most recent estimate, in March 2008, was £5.9 billon. The next valuation is likely to be even worse.
Mr. John Grogan (Selby) (Lab): My right hon. Friend mentions the strategic partnership. Does he find it as intriguing as I do that there is no mention of that strategic partnership in the Government amendment? Does that reflect the growing concern of Cabinet Members and in the Whips Office and No. 10 that the proposal should not be proceeded with, not least because it could raise the price of stamps and cut the level of service?
Without change, postal workers who serve us through thick and thin—
Mr. Kenneth Clarke: Let me pick up on that last point. Is the Minister confirming that my alarm was unfounded and that the idea of getting a strategic partner who will buy a stake in the company remains firmly the Government’s policy, even though he is not prepared to agree to our motion, which expresses support for it?
Mr. McFadden: I just said that Hooper gave three interlinked recommendations, one of which was a strategic partnership between Royal Mail and another postal or network company.
Geraldine Smith (Morecambe and Lunesdale) (Lab): If a strategic partner partly owns Royal Mail, is that not part-privatisation? Am I missing something?
Mr. McFadden: Royal Mail will remain a publicly owned company. We have made that clear and that is why we do not believe that the process can be characterised in the way set out by my hon. Friend.
Let me continue talking about the pension fund. Let us not underestimate the problems that it creates for Royal Mail. It is one of the largest pension schemes in the country and the liabilities represent more than 75 times the company’s profits, whereas the FTSE 100 average is two and a half times. Even other schemes with big deficits are dwarfed in comparison with Royal Mail’s; the liabilities of the next largest schemes range in size from nine to 13 times profits. In cash terms, the company’s total pension costs in the year to March 2008 were more than £800 million, of which £280 million was allocated for pension deficit recovery. That is before the next valuation process, which is due to begin next month. We want to face up to the problem, on which the Opposition motion is completely silent. That is another reason not to support it.
Mr. Graham Stuart (Beverley and Holderness) (Con): I congratulate the Minister on having the courage of his convictions in looking at the facts and seeing the need for change. However, will he share with the House what progress he is making with what some might call the dinosaur elements on his own Back Benches? We have heard today from various Labour Members, most of whom are members of the Communication Workers Union, and some of whom habitually fail to mention that when they stand up to speak.
Mr. McFadden: We all have an interest in this issue, and all right hon. and hon. Members’ views on it are valid.
Addressing the pension deficit is not an easy decision. If we do that for Royal Mail, taxpayers are entitled to ask what change they will get in return. How will taxpayers have confidence that Royal Mail can make the changes it needs to make to cope with falling mail volumes and new technology? That issue is critical. As the Hooper report rightly says, only one company can deliver the USO; only one company can send a postman or woman up every garden path in the country six days a week. The health of Royal Mail matters, and we have to take the decisions necessary to secure its future.
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