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David Taylor (North-West Leicestershire) (Lab/Co-op):
I am not sure whether my right hon. Friend was at the Labour party conference 20 weeks ago. It passed a policy supporting a wholly publicly owned Royal Mail, and that was strongly endorsed by my right hon. Friend
the Member for Barrow and Furness (Mr. Hutton), who is not known for an aversion to dallying with the private sector. Does the Minister not accept that if a wholly publicly owned Royal Mail was a partly privatised organisation, that would be not only oxymoronic but like being a little bit pregnant?
Mr. McFadden: I shall come back to the analogy of being a little bit pregnant. That policy said that we had set out a vision of a wholly publicly owned Royal Mail; we have for years. If my hon. Friend reads on, he will see that it also said we had commissioned the Hooper report to look to the future. Hooper has now reported and made his recommendations.
Simon Hughes (North Southwark and Bermondsey) (LD): Will the Minister give way?
Mr. McFadden: No, I must make some progress. Royal Mail has made some progress in recent years. Its performance in delivering first-class post by the following day has improved and some investment in new machinery has been made. However, it is still less automated than many comparable services. There is still a great deal to do, to secure not only automation but the delivery of new products. One example used in the Hooper report is walk sequencing—the last stage of post sorting before the delivery round. That is done by hand in the UK, while some competitors do 85 per cent. of that work by machine.
Much has been made in recent weeks of the finance needed to make progress on the issue. I want to make two points about that. First, the £1.2 billion that the Government gave Royal Mail two years ago is a commercial loan, which must be repaid to the Government. Secondly, that form of finance is neither fast nor flexible. Even after lengthy negotiations between the company and the Government, two years on the European Commission is still deliberating about whether the financing is allowable under state aid provision. Royal Mail must not only complete, install and use the new machinery that it needs, but develop new products. The idea that the company’s problems will be over if we lift the pensions deficit is wrong. The company needs ongoing capital and expertise to combine the use of mail with other technologies. We have seen too little of that in the UK. Partnership offers the opportunity not only to inject new capital into the business but to bring in expertise and the confidence to make the changes that the company has so far not made far enough or fast enough.
Bob Spink (Castle Point) (Ind): I congratulate the Minister on finally getting away from the dogma and getting down pragmatically to how we can help Royal Mail and the Post Office. In fact, the Prime Minister’s amendment says that the Labour Government want to help and support Royal Mail and the Post Office. Will he take that away for future consideration and try to find a way to enable the banks to make their current accounts available in post offices, which would be very supportive?
Mr. McFadden: I think the hon. Gentleman will find that millions of bank accounts are available to post offices. Perhaps people do not know enough about that. Many day-to-day banking services are available through post offices.
Peter Luff (Mid-Worcestershire) (Con) rose—
Mr. McFadden: I give way to the Chair of the Select Committee.
Peter Luff: Can the Minister confirm that of the £1.2 billion of investment that he mentioned, some £600 million remains unspent? I understand that that is not particularly surprising, because it was always intended to last longer than just one or two years, and some of it will be paid out only when the machinery is delivered. His hon. Friends have criticised the failure of management to spend that £600 million, but am I correct in believing that it is perfectly reasonable that it remains unspent?
Mr. McFadden: The critical point about the £1.2 billion that has been missed in recent weeks is that this is a commercial loan that has to be repaid, not a grant that is simply given by the Government to the company.
Let me say a bit more about the issue of partnership. Hooper recommends a partnership with another postal or network company that has carried out the kind of change with which Royal Mail needs to go further and faster. The nub of this debate is what this means and why it is necessary. It does not mean privatisation of Royal Mail. A company is either publicly owned or not, and with this Government Royal Mail will remain publicly owned. Let me make it clear that that will be specified in the legislation to implement the Government’s proposals. The Government will own the majority of the company and appoint the majority of the board, and it will still count as a publicly owned company. Royal Mail will not be privatised, and the partnership that we propose is not the first step towards privatisation. That is one reason why we will not be voting for the Opposition’s motion.
Mr. David Hamilton (Midlothian) (Lab): I am rather puzzled by my right hon. Friend saying that Royal Mail will be a publicly owned company; it will be a majority stakeholder company. If the democratic decisions have to be taken in the way that he says, what is in it for the private company coming in? It will not come here to be outvoted every single time it wants to make a change.
Mr. McFadden: I am making it clear that because the Government will still own the majority of the company, it will be a publicly owned company and will count as such. Privatisation is not our intention, but partnership on a minority basis can be of real benefit to the publicly owned Royal Mail by giving it access not only to capital but to the experience and commercial confidence needed to drive through change.
There is another important point about this. A partnership can also help to make Royal Mail a bigger player at a time when European postal markets are liberalising and consolidating.
Mr. McFadden: I want to make some progress.
By the end of next year, there will be liberalised postal markets in most of the 15 European Union member states, and two years later throughout the whole EU. Royal Mail already has a presence in Europe through its purchase several years ago of the GLS
parcels business. In future, there is likely to be further consolidation in the European postal market. Earlier this month, the Swedish and Danish authorities announced that they had signed the final shareholders’ agreement to merge their national postal companies. A joint venture can make Royal Mail a bigger player in Europe and able to play a leading role as the market develops. We should not turn our back on those opportunities because ideology stops us from considering a partnership even on a minority basis.
Mr. John Gummer (Suffolk, Coastal) (Con): If a private company owns part of Royal Mail, is it not the case that Royal Mail becomes a partly owned national company? It cannot be a wholly owned national company if somebody else owns part of it.
Mr. McFadden: And the Conservative party prides itself on knowing business. The difference between a majority and a minority shareholding is fundamental in business, and my point is that Royal Mail will remain a publicly owned company.
If the work force fear the consequences of a partnership, I say this: industrial relations in Royal Mail, as Hooper pointed out, are in urgent need of a fresh start. Change has been hampered by a lack of trust between management and work force. In 2007, as the right hon. and learned Member for Rushcliffe said, 627,000 employee days were lost as a result of industrial action, accounting for 60 per cent. of the total days lost to strikes throughout the whole UK economy in that year. It is not just a question of that major strike, but the threat of other strikes, too. Disputes are frequently threatened, such as those threatened on pension changes or mail centre changes, which we saw in recent months, and they are hurting the company. They slow the pace of necessary change, and they hurt the customer and the mail market, as people are tempted to switch to other digital communications to meet their needs. For everyone to agree that they are up for change in general, but to oppose it in the particular is no way forward.
Mr. McFadden: I will give way in a moment.
We need a longer-term plan, with a proper buy-in from the work force, and an acceptance right through the company of what needs to happen. A reformed board, with influence at every level of the company and with the experience of going through such change, can offer the fresh start in industrial relations that the company sorely needs.
Michael Jabez Foster (Hastings and Rye) (Lab): My right hon. Friend is absolutely right to say that buy-in from the work force is key to the future of the Post Office and Royal Mail. On what he said about who controls Royal Mail, will any Bill that he introduces make it clear that the public and the Government—the state—will continue to have a controlling interest in the shareholdings, and that it will not be possible at any time for the minority interest to become a majority one?
Mr. McFadden: I said that we will make it clear that the company will continue to be a publicly owned company.
Mr. David Anderson (Blaydon) (Lab): Is the Minister seriously suggesting to us that industrial relations will improve if we have a deal with a private partner with a track record of being a strike-breaker and a scab?
Mr. McFadden: If my hon. Friend is referring to the company that I think he is, he will find that it recognises trade unions and operates with them on a day-to-day basis. This is an important point. The idea that the industrial relations of the company are better as they are than they would be under a different arrangement does not bear comparison with the urgent need to improve industrial relations in this company.
Mr. McFadden: I have given way a couple of times and I would like to turn to the question of regulation.
Regulation, and how competition functions, is a crucial part of the picture and again one that the Opposition motion is silent on. The argument has been made that competition from other postal companies is at the root of the Royal Mail’s problems. It is true that that has meant a loss of revenue, but as Hooper reports, that loss is more down to competition from new technologies than from other mail companies. Let me make the Government’s position on this issue clear. Competition from other mail companies will not go away but, as we make the other changes, it is right that we look at the terms of that competition and its impact on the universal service obligation.
Regulation will continue to be important in ensuring that the postal service maintains the USO in the wider communications market. As I said, Royal Mail as a company is in a unique position to deliver to 28 million business and residential addresses. The postal market needs a regulator that understands the wider communications market and the part that the post plays in that market. We believe that Ofcom will be able to fulfil that role and its primary purpose in regulating the postal market will be to maintain the USO.
Ms Patricia Hewitt (Leicester, West) (Lab): Will my right hon. Friend confirm that Royal Mail has lost approximately five times more revenue as a result of the transformation to e-commerce, e-mail and so on than as a result of the competition that has been introduced to the UK market?
Mr. McFadden: My right hon. Friend, who has long experience of these matters, is absolutely right. Competition with other mail companies does matter to Royal Mail, but competition with other technologies has lost it far more revenue. The figure that she gives is correctly quoted from the Hooper report.
Mr. Geoffrey Clifton-Brown (Cotswold) (Con): Will the Minister accept that as Royal Mail is currently wholly publicly owned, if it is going to make important changes involving the loss of jobs, it should consult the public properly? It proposes to close a sorting office at Wotton-under-Edge, a small market town in my constituency in which the sorting office is a major employer. Royal Mail has refused to attend any public meetings or give a business case. Does the Minister not believe that it has an obligation to explain to my constituents why it is making such a change?
Mr. McFadden: The Hooper report states that Royal Mail needs to make changes to sorting and delivery offices and, given the automation that is occurring, that need is recognised throughout the company.
Mr. Philip Dunne (Ludlow) (Con): Will the Minister clarify once and for all whether the entities with which he is prepared to have discussions on competition will be precluded from being existing competitors of Royal Mail? Will he rule in or out private equity investing directly alongside the Government?
Mr. McFadden: Hooper is quite clear that he believes that a valuable partnership will be with a postal or network company that has carried out changes such as Royal Mail needs. I cannot comment on every discussion that the Department has, but that is the recommendation in the report and the outcome that we seek.
I wish to say a word about post offices. I know that the debate is about Royal Mail, but right hon. and hon. Members care a great deal about post offices. The closures of the past year were difficult for local communities, but now that they are drawing to a close, the network is in a more stable position. The Government made clear the future of the Post Office card account shortly before Christmas, and we are now working with the Select Committee on Business and Enterprise and Post Office Ltd to identify future new areas of business. The Post Office is partly a social and community service, and the network of about 11,500 branches depends on Government subsidy to survive. We will keep that network in 100 per cent. public ownership, although of course most post office services are delivered by sub-postmasters, who are private business people and often have their own businesses attached.
Like many Members, I want the Post Office’s banking and financial services offering to be expanded. It is a trusted brand and has more branches than all the banks put together, so it has real potential in that area. However, with post offices accounting for a little more than one tenth of Royal Mail Group’s overall turnover and even that proportion depending on subsidy from the Government, we should not pretend that such an expansion can solve its problems.
Mr. Alan Reid (Argyll and Bute) (LD): The Minister is right to say that we have to expand financial services at post offices, but I draw his attention to the recent announcement by National Savings & Investments that holders of individual cash savings accounts will no longer be able to make cash deposits over the counter at post offices. Surely that is a retrograde step, taking yet more business away from the Post Office. Will the Minister contact NS&I and reverse that decision?
Mr. McFadden: The Post Office has welcomed that, because it has its own product.
I shall draw my arguments to a close. It has been put to us that there are challenges, but that with a slight increase in profits recently, Royal Mail is doing okay and there is no need for change. However, it is important to make it clear that the profits are tiny compared with the challenges that the company faces.
Rob Marris: Will my right hon. Friend give way?
Mr. McFadden: I am afraid that I must keep going.
Much of the profit last year came from the European parcels business, and indeed the Post Office’s share of the profit came from the Government’s subsidy. The letters business is making a very small profit, against a turnover of some £7 billion, and when the chief executive of Royal Mail Group announced those results recently, he said:
“We must step up the pace at which we are transforming Royal Mail otherwise, as the recent Hooper report made clear, we face decline”.
Hooper suggested that there would be a small profit this year, but that the company would have a significant negative cash flow every year for the next four years. Royal Mail has told the Government that volumes are continuing to fall—even faster than in the past two years—and that that will have an adverse impact on future revenues and profits. Without further action, the position will be compounded by any steps that the trustees might need to take to tackle the pension deficit, which could double when it is revalued.
Rob Marris: I am grateful to my right hon. Friend and neighbour for giving way. I urge him not to accept the Conservative motion, which suggests that the Government press ahead “rapidly”. The issues are delicate and difficult, and I urge my right hon. Friend and the Government to proceed slowly, not rapidly.
Mr. McFadden: I certainly assure my hon. Friend that we will not accept the Conservative motion, though my invitation to the right hon. and learned Member for Rushcliffe stands.
Joan Walley (Stoke-on-Trent, North) (Lab): Will my right hon. Friend give way?
Mr. McFadden: I am sorry, but I must end my remarks shortly.
Let me tackle stamp prices. It has been suggested that another solution to the company’s problems could be to increase stamp prices sharply. The price of a stamp will go up by 3p in April, and it increased by 2p last year. We must remember that customers have a choice nowadays, and steep price increases are likely to accelerate the decline in the volume of mail. Such steep increases do not, therefore, offer an easy answer to the challenges that Royal Mail faces.
Royal Mail must take modernisation further and faster than it has done. It must diversify its operations against a background of volumes of mail falling between 5 and 8 per cent. each year. To achieve that, it will need investment over and above what it has been allocated.
The debate rightly concentrates on the merit of Hooper’s proposals, but let me make one thing clear: if we do not act, the pension trustees, in the face of the new valuation, could ask for changes such as vastly increased company contributions to recover the deficit, thus placing further strain on Royal Mail, or vastly increased amounts of money from the Government for the escrow account, which acts as insurance and security for the pension fund. The Government cannot simply sign such a cheque without knowing that Royal Mail is on a more sustainable track for the future.
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